Forex Market Updates & Commentary

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• Dallas Fed Manufacturing Index Slides Down to a Very Weak -3.0 vs 4.5 Survey.
• Better Consumer Confidence data to end the year. GBPUSD trying to hold key support.
• US Consumer Confidence Data Moves to the Upside 65.5 vs Survey of 58.6 and Prior of 56.0, Revision a Touch Worse
• EURUSD near unchanged on the day as stocks get ready to open
• S&P Data All Moves to The Downside
• S&P CaseShiller Data Due at 9AM
• The NY Morning Review and Preview for December 27th 2011
• European equities open higher
• Moody’s says weak Japan growth outlook boosts policy challenged.
• Swiss UBS consumption indicator 0.81 vs. 0.90 prior.
• Japanese housing starts -0.3%; better than expected.
• 12-27
• usd/hkd in a downward channel.
• usd/cnh continue to stay under 6.3487 for another day.
• China’s Industrial Production Profits

Dallas Fed Manufacturing Index Slides Down to a Very Weak -3.0 vs 4.5 Survey. Posted: 27 Dec 2011 07:30 AM PST

Better Consumer Confidence data to end the year. GBPUSD trying to hold key support. Posted: 27 Dec 2011 07:12 AM PST The Consumer Confidence number from the Conference Board came out better than expected at 64. 5 vs 58.9 expectations. The number was the highest reading since Aprils 66.00. February had the highest reading at 72 for the year. The EURUSD is just above the 100 hour MA at the 1.3062 level and holding steady. The GBPUSD is also above the 100 hour MA at 1.5657 level. The level also corresponds with the 38.2% of the move down from the December 20th high (last weeks high).  Stay above this important intraday level and the 1.5679 high for the day/week should be tested.

US Consumer Confidence Data Moves to the Upside 65.5 vs Survey of 58.6 and Prior of 56.0, Revision a Touch Worse Posted: 27 Dec 2011 07:00 AM PST Richmond fed manufacturing index shoots lower to 3 vs survey of 5 and prior of 0.

EURUSD near unchanged on the day as stocks get ready to open Posted: 27 Dec 2011 06:27 AM PST The EURUSD is in a narrow 43 pips range today as the stock get ready to open. level. The Case Schiller data was weaker than expected which may lead to a weaker stock opening.  The price is at the 100 hour MA which is currently at the 1.3062 level.  The close from yesterday came in at the 1.3057. There is a topside trendline on the hourly chart at the 1.3081 level.  If the price can remain above the 100 hour MA, this is where the price should move toward. The high for the day has come in at 1.3082. This is the same high as yesterday. ON the downside, the 200 hour MA and trendline support come in at the 1.3047-49 level.  A break below this level is needed to push the price further. The low for the day at the 1.3040. The low from Friday at 1.3025 will be another downside target. I am expecting a little more activity today versus yesterday, with an extension of the narrow trading range at some point. Stocks are open today. There is chatter in the market about Italian bond auctions later this week.  This should lead to some jockeying by traders.

S&P Data All Moves to The Downside Posted: 27 Dec 2011 06:01 AM PST S&P/CS 20 City (MoM%) SA:  Survey: -0.34%     Actual:  -0.62%     Prior: -0.57%     Revised:  -0.66% S&P/CS Composite-20 (YOY):   Survey: -3.22%     Actual: -3.40%     Prior: -3.59%    Revised: -3.54% S&P/CaseShiller Home Price Index:    Actual: 140.30   Prior: 141.97    Revised: 142.04

S&P CaseShiller Data Due at 9AM Posted: 27 Dec 2011 05:20 AM PST

The NY Morning Review and Preview for December 27th 2011 Posted: 27 Dec 2011 04:36 AM PST Major Currency Movers (Daily % Change) Stocks and Commodities   Key Events and Releases Overnight Key NY Scheduled Events and Releases

European equities open higher Posted: 27 Dec 2011 01:10 AM PST FTSE +55.73 DAX + 25.75 CAC + 15.60

Moody’s says weak Japan growth outlook boosts policy challenged. Posted: 27 Dec 2011 01:09 AM PST

Swiss UBS consumption indicator 0.81 vs. 0.90 prior. Posted: 26 Dec 2011 11:07 PM PST

Japanese housing starts -0.3%; better than expected. Posted: 26 Dec 2011 09:56 PM PST

12-27 Posted: 26 Dec 2011 09:10 PM PST

usd/hkd in a downward channel. Posted: 26 Dec 2011 08:01 PM PST usd/hkd in a downward channel in this daily chart.

usd/cnh continue to stay under 6.3487 for another day. Posted: 26 Dec 2011 07:58 PM PST usd/cnh continue to stay under 6.3487 for another day.

China’s Industrial Production Profits Posted: 26 Dec 2011 06:05 PM PST China’s Industrial Production Profits YTD in November on a year over year basis fell to 24.4% from the prior reading of 25.3%.

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Forex Market Updates & Commentary

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• It is the day after Christmas, and not a creature is stirring
• The NY Review and Preview for December 26th 2011
• GBPUSD
• USDCHF Holding Steep Trendline
• usd/cnh slow market due to the holidays.
• USDSGD Continues to Hold 61.8%
• China Sets Yuan Reference Rate @ 6.3167

It is the day after Christmas, and not a creature is stirring Posted: 26 Dec 2011 06:20 AM PST The US dollar is down on the day against all the major currencies except the NZD which suffered continued earthquake tremors over the weekend (the above chart shows the dollars change agains the major currencies). The China/Japan pact over the weekend got the dollar off on the wrong foot and that has continued through the quiet holiday trading in Europe and the US.  The pair is doing the worst against the Yen. Against the Euro the dollar has lost 0.12%. Versus the EURUSD, the 100 hour MA and trendline off the most recent highs on the hourly chart come in at the 1.3067 level. A move below the level, could solicit more intraday selling in the pair in the quiet trading conditions. The GBPUSD has had more of a volatile up and down trading day.  The GBPUSD has developed a ceiling against the 38.2% of the move up from the December 14th low to the December 20th high at the 1.5832 level.  A move above the level opens the way for a test of the 100 hour MA  (blue line in the chart below) and downward sloping trendline  at the 1.5666 level currently). Additional resistance comes in today at the 1.5647 level.  On the downside, the pair has support at the 1.5589 area. The USDCHF is down on the day, but has found support against the 100 hour MA (blue line in the chart below) at the 0.9340 level.  The 0.93578  retracement is the next target with better resistance against the 200 hour MA currently at the  0.9379 level (green line in the chart below). The dollar has faired the worst against the USDJPY today on the back of the China/Japan pact announced over the weekend. The USDJPY has moved below its 100 and 200 hour MAs. The price moved below the 61.8% of the move up from the December 21st low at the 77.885 level, but is back above that level.  The 200 hour MA, at the 77.96 level currently, is upside target with additional resistance at the 78.00 level. Of course, with Europe and the US basking in the day after Christmas holiday, I do not expect much. Nevertheless, liquidity is at low levels, so adjust trading to reflect the risk.

The NY Review and Preview for December 26th 2011 Posted: 26 Dec 2011 04:53 AM PST Stocks and Commodities Nikkei Composite: +84.18 or 1% Shanghai Composite: -14.67 or -0.67% US, Canada and European stock markets are closed today Key events and releases Pre NY China and Japan announced pact to promote the use of the Yuan in trade and investment rather than converting their respective currencies to USD first.  They also announced Japan could hold yuan in its foreigh exchange reserves.  Tokyo says they will purchase  up to 10 billion of Chinese debt for its reserves.  The action was interpreted as a diversification move away from the US dollar.  However, the action can also be an opening of the market for yuan which should raise the value over time and lead to a more market driven currency rather than a manipulated currency.  The transition of the currency will take time.  As a result, the effects are likely more superficial rather than one that has a major impact. UK Hometrack Housing Survey: -0.2% vs -0.2% last. YoY -2.1% vs -2.3% last.   Key Events and Releases in NY Session No economic releases or events scheduled for today. FXDD Scheduled Webinar’s for today  No Scheduled Webinars this week. Shawn, Jason, James and Greg wish you all a Happy, Healthy and Peaceful Holiday Season

GBPUSD Posted: 25 Dec 2011 08:26 PM PST The Cable chart below shows the break out of the triangle had led to a ~2 big figure rally, but a break back below trendline support could put Sterling under some pressure. The trendline 21hr is breaking below the 100hr from a short-term perspective as the pair sits right above the 50% retracement of the December move.

USDCHF Holding Steep Trendline Posted: 25 Dec 2011 07:28 PM PST The USDCHF pairs appreciation from the end of the 3rd quarter through the 4th quarter of 2011 has been supported by the trendline support below. The moving averages have also turned positive with the 100 day breaking above the 200 day and the pair above the 92.50 area where there has been resistance from last March are all bullish signals.

usd/cnh slow market due to the holidays. Posted: 25 Dec 2011 07:20 PM PST usd/cnh not doing too much on today on Christmas day but still under that support line and continue to be in this downward wedge.

USDSGD Continues to Hold 61.8% Posted: 25 Dec 2011 06:50 PM PST

China Sets Yuan Reference Rate @ 6.3167 Posted: 25 Dec 2011 05:25 PM PST

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Forex Market Updates & Commentary

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The GBPUSD falls below 100 hour MA Posted: 23 Dec 2011 08:09 AM PST The GBPUSD has fallen below the 100 hour MA this morning and that has led to some selling pressure in the pair. The next target comes in a tthe 1.5618 level which is the 50% of the move up from the December 16th low. Below that level, the 1.5572 to 1.5581 area is the next stop. In the UK today, they reported sluggish data.  Home loans for home purchases was weaker than expected  and the Index of Services fell by more than expected with a -0.7% decline vs a -0.1% expectations. On a relative basis today, traders who purchased one standard lot of GBPUSD would not have faired well today versus the other major currency pairs. Only the GBPJPY has fared worse (see chart below). Short on the otherhand, did nicely.

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Forex Market Updates & Commentary

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• USDCHF is testing the 200 hour MA at the 0.9383 level
• US Congress Passes Two-Month Payroll Tax Cut Extension
• The EURUSD is below the 200 hour MA and trendline
• Home sales as expected. 7 month high. Months supply of homes falls
• US New Home Sales Data Stays According to Forecast of 315, Revision Higher
• Moody’s expects Italy GDP 0.2% in 2012
• ECB 3 year loans will NOT end the threat of downgrades for banks:S&P Executive
• The dollar is down in early NY trading.
• US Durable Goods Orders Much Higher, Income and Spending Take a Hit
• CANADA GDP LOWER 0.0% vs 0.1%
• The NY Morning Review and Preview for December 23rd
• British Bankers Assoc. mortgage approvals slightly weaker than expected
• 12-23 Economic Calendar
• usd/sgd staying range bound in this wedge.
• usd/cnh broke through support level.

USDCHF is testing the 200 hour MA at the 0.9383 level Posted: 23 Dec 2011 07:12 AM PST The USDCHF is testing the 200 hour MA at the 0.9383 level (green line in the chart above).  The next target on a break of this key level would look toward the high for yesterday at the 0.9395 level. Above that and the 0.94297 which is the 61.8% of the move down from the December 14th high.

US Congress Passes Two-Month Payroll Tax Cut Extension Posted: 23 Dec 2011 07:06 AM PST

The EURUSD is below the 200 hour MA and trendline Posted: 23 Dec 2011 07:04 AM PST The price of the EURUSD has moved below the 200 hour MA and channel trendline support at the 1.3045 area.  The next target is the low from yesterday at 1.3016. A move above the 1.3045 level should solicit buying as intraday scalpers play the technical levels.

Home sales as expected. 7 month high. Months supply of homes falls Posted: 23 Dec 2011 07:01 AM PST The Month Supply of homes comes in at 6 months, down from 6.2 months last month and 6.8 months in July

US New Home Sales Data Stays According to Forecast of 315, Revision Higher Posted: 23 Dec 2011 07:01 AM PST

Moody’s expects Italy GDP 0.2% in 2012 Posted: 23 Dec 2011 06:12 AM PST …and 0.8% in 2011.

ECB 3 year loans will NOT end the threat of downgrades for banks:S&P Executive Posted: 23 Dec 2011 05:58 AM PST The ECB money will be taken into accont in analysis when they resolve creditwatchness

The dollar is down in early NY trading. Posted: 23 Dec 2011 05:36 AM PST

US Durable Goods Orders Much Higher, Income and Spending Take a Hit Posted: 23 Dec 2011 05:32 AM PST Durable Goods Orders:   Survey:  2.2%    Actual: 3.8%    Prior: -0.7%   Durables Ex Transportation:   Survey: 0.4%   Actual:  0.3%   Prior:  0.7%   Revised:  1.5% Personal Income:   Survey: 0.2%     Actual:  0.1%    Prior:  0.4%    Personal Spending:   Survey: 0.3%    Actual: 0.1%  Prior: 0.1%

CANADA GDP LOWER 0.0% vs 0.1% Posted: 23 Dec 2011 05:30 AM PST

The NY Morning Review and Preview for December 23rd Posted: 23 Dec 2011 04:37 AM PST Stocks and Commodities Key events and releases Pre NY US Stock markets are up in premarket trading. The overseas markets are also higher.  Oil is up slightly while Gold is down in early NY trade. UK BBA Loans for House Purchases for November 34738 vs 35400 expectations.  Last month the purchases were revised lower to 35196 vs 35295 originally reported Index of Services MoM came in lower than expectations with a declineo of -0.7% vs-0.1% expected. The prior month was revised lower to 0.0% from +0.1%. The SNB said they are ready to reinforce the Franc ceiling with determination at the 1.2000 level versus the EURO.   In addition, the central bank said they there is no risk of inflation now and that they are ready to take further measures at any time if the economic outlook and risk of deflation so requires.  In November the Swiss CPI fell by -0.2% vs expectations of a 0.1% gain. The YoY fell to -0.5% versus -0.1% the prior month. Moody’s keeps US rating at Aaa with the outlook negative on Federal Government debt ratio and potential for interest cost to increase. The rating agency kept Canada sovereign rating at Aaa with the outlook stable. US Lawmakers reached on deal on the Tax Break. House Speaker Boehner succumbed to pressure to extend the payroll tax break for another 2 months. The US dollar is down slightly against most major currencies in quiet trading versus the 5 PM close yesterday.  The dollar is weakest against the AUD (decline of 0.28%) and strongest against the GBP (Unchanged currently). Key Events and Releases in NY Session 8:30 AM ET, US Durable Goods Orders for November, +2.2% vs -0.5% last month.  Ex Transportation Est +0.4% vs +1.1% last month 8:30 AM ET, US Personal Incom for November, Est +0.2% vs +0.4% last month, Personal Spending +0.3% vs +0.1% last month 8:30 AM ET, US PCE Deflator for November, YoY 2.7% vs 2.7% last month, MoM 0.1% vs +0.1% last month 8:30 AM ET, Canada GDP for October +0.1% vs +0.2% last month, YoY 2.7% vs 3% 10:00 AM ET, New Home Sales for November, +315k vs +307K last month, MoM 2.6% vs 1.3% last month.  The months supply came in at 6.3 months last month. FXDD Scheduled Webinar’s for today  No Scheduled Webinars today. Shawn, Jason, James and Greg wish you all a Happy, Healthy and Peaceful Holiday

British Bankers Assoc. mortgage approvals slightly weaker than expected Posted: 23 Dec 2011 01:37 AM PST BBA  mortgage approvals came in at 34,700, weaker than the 36,300 expected. Gbp/Usd off slightly, trading at 1.5675.

12-23 Economic Calendar Posted: 22 Dec 2011 09:56 PM PST

usd/sgd staying range bound in this wedge. Posted: 22 Dec 2011 05:13 PM PST usd/sgd staying range bound in this wedge, while we are in the holiday season.

usd/cnh broke through support level. Posted: 22 Dec 2011 05:10 PM PST usd/cnh broke through this support level at 6.3487.

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Forex Market Updates & Commentary

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• Michigan Confidence Improves to 69.9% from 68.0% Survey, Leading Indicators Also Improve
• GDP weaker for 3Q, Intial Claims still improving. Chicago Fed worse
• Jobless Claims Drop Under Prior of 366, GDP Falls
• The FXDD NY Review and Preview
• US GDP, Jobless Claims, Chicago Fed Due at 8:30AM
• Euro back where we started….
• UK Q3 GDP rises 0.6%, more than previously estimated.
• Merkel advisor says the furture of the EUR will be decided in the next 6 months, the joint currency has no future unless Germany changes its stand.
• Italian retail sales (Oct) 0.1% vs. -0.2% expected (-0.3% prior).
• GBP/USD testing resistance @ 1.57246.
• European equities open higher, risk-on.
• Japan to earmark 1 trillion JPY to boost growth in industries.
• Japanese Eco Minister Azumi on the wires….
• German fin. minister says upbeat consumers to provide basis for economic growth.
• Japan sees real GDP +2.2% in 2012-2013.

Michigan Confidence Improves to 69.9% from 68.0% Survey, Leading Indicators Also Improve Posted: 22 Dec 2011 07:01 AM PST Leading Indicators:  Survey:  0.3%   Actual: 0.5%   Prior: 0.9%   House Price Index(MoM):  Survey:  0.2%   Actual: -0.2%   Prior:  0.9%   Revised: 0.4%

GDP weaker for 3Q, Intial Claims still improving. Chicago Fed worse Posted: 22 Dec 2011 05:33 AM PST The GDP is old news. If anything it will make 4Q better.Consumption came in at 1.7% vs 2.3% expectations.  Investment was better at 1.3 vs -0.9% in the prior release, Government was unchanges at -0.1%, while Exports rose by 4.7% vs 4.3% and Imports also increased from the prior reading rising to 1.2% from 0.5% Initial Claims lowest since April 19th 2008. This is becoming a trend with the last three weeks at 385K, 368K and 364K.  It is the holiday season and activity is better in the stores. This may be keeping the demand for workers at a higher level. The question will be if the momentum continues into 2012 The Chicago National Activity Index was at the lowest level since August 2011.  A reading below 0 implies below trend growth in the national economy. The dollar has moved higher off the news on the first reaction.

Jobless Claims Drop Under Prior of 366, GDP Falls Posted: 22 Dec 2011 05:32 AM PST Chicago Fed Natl Activity:  Survey: -0.17   Actual: -0.37  Prior: -0.13  Revised: -0.11 (Annualized):   Survey: 2.0%   Actual: 1.8%   Prior: 2.0%   Personal Consumption:   Survey: 2.3%   Actual: 1.7%   Prior: 2.3%   GDP Price Index:   Survey: 2.5%   Actual: 2.6%   Prior: 2.5%   Core PCE QoQ:   Survey: 2.0%   Actual: 2.1%   Prior: 2.0% Jobless Claims:  Survey:  380K    Actual: 364K   Prior: 366K    Revised:  368K    Continuing Claims:  Survey: 3600K    Actual:  3546K    Prior: 3603K  Revised: 3625K

The FXDD NY Review and Preview Posted: 22 Dec 2011 05:09 AM PST Stocks and Commodities Key events and releases pre NY New Zealand GDP rose by a greater than expected 0.8% vs 0.6% expectations UK GDP QoQ rose by 0.6% vs 0.5% expectations, YoY came in as expected at 0.5% Key Events and Releases in NY Session 8:30 AM ET, Chicago Fed National Activity Index is expected to fall by -0.17% vs -0.13% last 8:30 AM ET, GDP QoQ (Annualized) 2.0% vs 2.0% last, Personal Consumption+2.3% vs 2.3% last, Core PCE QoQ 2% vs 2.0% last Month 8:30 AM ET, Initial Claims 380k vs 366K last, Continuing Claims 3600K vs 3603K last month 10 AM ET, Univ of Michigan Confidence, Estimate 68.0 vs 67.7 last Month 10 AM ET, Leading Indicators, +0.3% vs +0.9% last month 11:00 AM ET,ECB Draghi speaks FXDD Scheduled Webinar’s for today  9:30 AM ET, Charting the Majors with James Chen TO REGISTER: https://www1.gotomeeting.com/register/390398624 4 PM ET: The Traders Course with Shawn Powell TO REGISTER: https://www1.gotomeeting.com/register/892502329

US GDP, Jobless Claims, Chicago Fed Due at 8:30AM Posted: 22 Dec 2011 04:14 AM PST

Euro back where we started…. Posted: 22 Dec 2011 03:19 AM PST Since the last post the pair found resistance at 1.31161 and is back trading around 1.3050. We’ve seen heavy selling in the last hour, USD gaining strength, with the low being 1.3033; support is been shown at this level recently.

UK Q3 GDP rises 0.6%, more than previously estimated. Posted: 22 Dec 2011 01:30 AM PST Current account was -15.2B vs. -6.1B expected, and total business investment was 0.3%; better than expected.

Merkel advisor says the furture of the EUR will be decided in the next 6 months, the joint currency has no future unless Germany changes its stand. Posted: 22 Dec 2011 01:12 AM PST

Italian retail sales (Oct) 0.1% vs. -0.2% expected (-0.3% prior). Posted: 22 Dec 2011 01:02 AM PST

GBP/USD testing resistance @ 1.57246. Posted: 22 Dec 2011 12:41 AM PST With the taste of risk in the market in recent trading the GBP/USD is testing resistance at 1.57246; a support level from earlier in the month. If momentum continues we should see trading towards 1.57722.

European equities open higher, risk-on. Posted: 22 Dec 2011 12:26 AM PST The USD is at session lows against all of the majors after European equities opened firmer: Euro stoxx +1.20%, FTSE + .60%, CAC +1.23%, DAX +1.21%. The EUR/USD made a move higher following the open of these markets with the high testing the 38.2% fibo line on the move from December 19th lows to yesterday’s high. The next bullish target is the 0.0% line; 1.30919 if resistance is found here. Also note that our upward trend line, which began on December 14th, is still showing the pair support.

Japan to earmark 1 trillion JPY to boost growth in industries. Posted: 22 Dec 2011 12:07 AM PST

Japanese Eco Minister Azumi on the wires…. Posted: 22 Dec 2011 12:02 AM PST Government will make utmost effort with BOJ to get the economy out of deflation. If unexpected events occur, government will take flexible stance on policy. Cabinet plans to approve next year’s budget on December 24.

German fin. minister says upbeat consumers to provide basis for economic growth. Posted: 21 Dec 2011 11:03 PM PST November tax revenue rises 7.6%. Slower growth to be temporary.

Japan sees real GDP +2.2% in 2012-2013. Posted: 21 Dec 2011 10:39 PM PST

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Forex Market Updates & Commentary

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• Effects of ECB Loan Program. Why it is a good thing.
• US Existing Home Sales MoM Data Proves Positive
• Moody’s maintains Australia’s AAA Rating. Outlook stable.
• EURUSD at support area (1.3017-1.3040)
• Canada Retail Sales Data Moves to 1.0% vs Survey of 0.5% and Prior of 1.0%
• Volatile/Illiquid markets dominate as ECB extends loans to member banks
• Canada Retail Sales Data Due at 8:30AM
• The NY Forex Review and Preview
• OECD says the UK experienced the largest rise in labour costs- caused higher inflation.
• French gov’t says they “have no information” of a possible rating downgrade.
• Greek credit growth (Oct) -1.2% vs. -0.9% prior reading.
• ECB awards 489 bln EUR in 3 year financing loans vs. 293 bln expected.
• AUD/USD testing 100 day moving average
• BOE MPC voted unanimously to keep rates/bond purchases unchanged in December.
• Italian prelim GDP (q/q) -0.2% vs. 0.0% forecast and 0.3% prior reading.

Effects of ECB Loan Program. Why it is a good thing. Posted: 21 Dec 2011 07:26 AM PST The ECB loan program whereby they will extend credit out to 3 years at the average of the ECB’s benchmark rate (currently at 1%) was subscribed to the tune of $645 billion today.  This was much larger than expected but I am not surprised.  With the ECB likely to keep rates low for an “extended period of time” (the Feds chosen words, not the ECB’s at least publically) now, the money represents virtually fixed liquidity at a low 1% yield or less if the ECB cuts more.  Banks decided to take the money and run.  So where can they run to?  That depends on who you are and how you are preceived by your fellow banks. If you are considered at risk, taking the money solves a liquidity problem. If you are not considered a risk, the money helps recapitalize your bank. There are other benefits to the “at risk” economies like Spain and Italy, if the cards play out properly. Below are how I see each shaping up. Banks with Liquidity Concerns: Banks who have liquidity issues will be able to use the funds and not have to worry about securing funds in the interbank market. This will prevent a run on the bank should there be a worry about funding by depositors. It also takes them away from the capital markets where they would likely have to pay a higher rate than 1% for 3 years.  It buys these banks time to get their house back in order.  Moreover, counterparties who are reluctant to lend now to the troubled institutions- even on a shorter term basis – might be inclined to open up some lending lines to them. This is good and a sigh of relief for those institutions. Banks without Liquidity Concerns: Banks who do not have liquidity issues can take the cheap funds and apply it in the market.  For example, they could venture in shorter term debt market of Spanish and Italian notes – say 2 years.   Italy has a Long Term credit rating of A2 from Moody’s and Spain has a rating of A1.  It is not AAA but it still is acceptable. The 2 year yield on Italian bonds are at 5.223% while the 2 year yield on Spanish bonds are at 3.62% (see chart below).   An average of the two countries comes to 4.4215%.  Banks could purchase these notes with the 1% funds and earn carry profits of 342 basis points.  Not a bad return. Is this not similar to what the US banks did when the Fed embarked on their QE program (by the way QE2 was for $600 billion – very similar to the 645 billion today)? You bet. When the Fed’s QE program was enacted, banks got the wink from the Fed that rates were to stay low for an extended time period, took the free  money, invested in Treasuries, forced the yields down, earned risk free carry profits which boosted capital.  They paid off their loans from the Fed and are now in a better financial situation because of it.  They could do this because the economy was deleveraging with little risk of inflation sticking.  This is what the ECB may be looking to replicate as they force austerity measures (deleveraging) which will slow growth in 2012. The difference is the ECB can not embark on QE. They are looking instead for the banks to do the QE for them by giving them money, a wink that rates will remain low (and may even decline further) and in effect giving them the AOK to buy Spain and Italy debt.  Greece is a separate case but manageble.  Is that play risk free? No. MF Global found that out the hard way with their bet on Italian bonds.  However, the story has changed since that time of their demise, with the support from the ECB, the lowering of rates and the likely scenario that rates will stay low for an extended period of time.  It is too early to tell, but MF Global may have been a month away from hitting a home run on their risky bond position.  The fact is, however, they were overextended at the wrong time, did not understand or define their risk and when the run was on, they compounded their problems.  They also were the loan wolf on their bet. Others were concerned about the risk and getting rid of risky assets whether right or wrong.  They went at it alone.  It is never good to tell “the market” what to do. The market may not agree with your assessment.  It is always better to follow “the market”.  If the banks take the money and continue to invest in debt of the likes of Italy and Spain, it should turn the tide and take out even more of the risk premium.  Sentiment moves the market, and the sentiment may be changing. So what are the financial gains? The down and dirty of taking $645 and earning a carry spread of 342 basis points in a relatively risk free 2 year debt,  yields a return of $22 billion for year one, 44 billion for two years and 66 bilion for three years.  It also should lower the cost of borrowing for the likes of Spain and Italy which will allow them to rollover massive amounts of debt in 2012. Looking at the chart below, the borrowing cost in the 2 year sector is already down over 200 basis points. PHEW!!!! Banks are better off today.  The likes of Spain and Italy (which are the main worries in the market) are better off today.  Moreover, if they need to do more down the road, the ECB can simply do another tranche.  The risk is the liquidity will re-ignite growth and with it inflation.  This is not likely with the pressure put on austerity and the deleveraging that will likely continue to take place.  If the economies do not deleverage, that will be a problem, but most think the opposite will occur.  This is a good thing and likely the only thing that could have been done.  The firepower has been enacted and the process is started.

US Existing Home Sales MoM Data Proves Positive Posted: 21 Dec 2011 07:00 AM PST Existing Home Sales: Survey: 5.05M    Actual: 4.42M  Prior: 4.97M   Existing Home Sales (MoM):  Survey:  2.2%   Actual:  4.0%   Prior:  1.4%

Moody’s maintains Australia’s AAA Rating. Outlook stable. Posted: 21 Dec 2011 06:27 AM PST Outlook is stable Sees debt levels being maintained.  The AUDUSD has not reacted to the news. The pair remains up on the day (close at 1.0078) but well below the high for the day at 1.02167.  A move below the close for the day at the 1.0078 will not be welcomed.  ON the topside a move above the 1.0125 (38.2% of the move down from the high today) and the 200 bar MA on the 5 minute chart below at the 1.0129 level is needed to push the pair higher.

EURUSD at support area (1.3017-1.3040) Posted: 21 Dec 2011 05:35 AM PST The EURUSD has continued the move lower in early NY trading and has moved below the 100 hour MA at the 1.3040 level. The next key target comes against the trendline off the hourly chart above at the 1.3017 level.  I would expect profit taking buyers in this area as the holiday up and down action continues.    A move below the trendline is needed to turn the tide the other way. A move above the 1.3040 level will look toward the 1.3060 as the first upside target. The low from the opening came in at hte 1.3073 and the close from yesterday was at 1.3081. This should provide pause for cause on the topside on the first look today. The massive ECB loan to banks ($645 billion) is a good thing. It will allow the banks to venture in to instruments like Spanish/Italy shorter term debt and earn carry profits that will replenish capital much the same way the Fed recapitalized the US banks by keeping rates low and basically saying “buy debt. Rates willl stay low for an extended period”.  I would think that the ECB will also now keep rates low for an extended period of time and will use the fire power from programs like this to counteract the issues from austerity measures.

Canada Retail Sales Data Moves to 1.0% vs Survey of 0.5% and Prior of 1.0% Posted: 21 Dec 2011 05:30 AM PST

Volatile/Illiquid markets dominate as ECB extends loans to member banks Posted: 21 Dec 2011 05:21 AM PST The NY Morning Techncial Commentary for Dec 21st 2011

Canada Retail Sales Data Due at 8:30AM Posted: 21 Dec 2011 04:55 AM PST

The NY Forex Review and Preview Posted: 21 Dec 2011 04:54 AM PST Stocks and Commodities DJI -3 S&P -2.6 Nasdaq -1.5 German Dax +0.11% France CAC +0.06% UK FTSE -0.01% China Shanghai Index -1.12% Nikkei Index +1.48% Gold, -$0.05 Oil, +-$0.08 Key events and releases pre NY ECB extends loans totaling 489B Euros ($645 billion) of 3 year loans to member banks at the average of it’s benchmark rate (currently at 1%).  A total of 523 banks participated.  This solves liquidity issues for banks and should also ease pressure on debt markets of troubled nations. Banks with excess funding can do what banks did in the US – buy bonds out the yield curve, fund with 1% funds and earn the interest rate carry profits and use the carry profits to recapitalize their balance sheets.  It also alleviates some banks needs to rollover debt. Like in the US, I would not expect the excess reserves to go flowing into the economy.  It is the central banks way to heal bank balance sheets in a time when risks of the assets are weakening.  German Import prices rose by 0.4% MoM vs -0.3% last month. YoY they rose by 6% vs estimate of 5.3%.  The ECB is not as concerned about inflation pressures at the moment, having eased by 50 BP over the span of the last two meetings. The declines of course, helped lower the interest rate charged on the 3 year loans today to 1%. BOE unanimous vote at the last MPC meeting the minutes show.  They cited the pace of bond buying is close to the market’s capacity.  Some thought more would be needed next year to weather the Euro storm.  The target for bond purchases stayed at 275 billion pounds. The interest rate remained at 0.5%- a record low level.   The purchases will be completed in January.  UK Public Sector borrowing comes in at 15.2 b vs 16.6 expectations. US Mortgage Applications fell by -2.6% snapping a 2 week increase which saw mortgage applications rise by 12.8% and 4.1%. The Purchase index fell by -4.9% while the Refinancing index fell by -1.6%. The 30 year rate fell to 4.08 from 4.12% last week while the 15 year mortgage rate also declined to 3.39% from 3.44%.  With the Fed overnight rate at 0.25% there is still plenty of carry profits for banks – as long as the Fed remains on hold.  Key Events and Releases in NY Session 8:30 AM ET, Canada Retail Sales  MoM, Expectation 0.5% vs 1% last month. Ex Autos +0.2% vws +0.5% last month 10 AM ET, US Existing Home Sales is expected to rise to 5.05 M from 4.97 M last month. This is a 2.2% increase. The supply of home on the market came in at 8 months in October. This will also be eyed to see if supply is being sapped up at the lower mortgage rates 9:00 AM ET, Belgium NBB Business Climate.  The estimate is for a decline to -11.8 from -12.2 last month. 6:45 PM ET, NZ GDP Q/Q. The estimate is for the 3Q to show a 0.6% gain vs 0.1% last quarter.  11:30 PM ET, Japans Shirakawa is scheduled to speak FXDD Scheduled Webinar’s for today  10 AM ET, Ask the Chartist with James Chen TO REGISTER: https://www1.gotomeeting.com/register/797393129 4 PM ET: The Platform of the Week with Shawn Powell TO REGISTER: https://www1.gotomeeting.com/register/856715465

OECD says the UK experienced the largest rise in labour costs- caused higher inflation. Posted: 21 Dec 2011 03:09 AM PST Unit labour costs in developed economies fell 0.3% in Q3. Rise in productivity outstripped rise in pay during Q3. Waged rose more rapidly in the Eurozone than in the US.

French gov’t says they “have no information” of a possible rating downgrade. Posted: 21 Dec 2011 03:00 AM PST

Greek credit growth (Oct) -1.2% vs. -0.9% prior reading. Posted: 21 Dec 2011 03:00 AM PST

ECB awards 489 bln EUR in 3 year financing loans vs. 293 bln expected. Posted: 21 Dec 2011 02:25 AM PST EUR/USD makes a new high of 1.3193 following the release.

AUD/USD testing 100 day moving average Posted: 21 Dec 2011 01:52 AM PST With the high of 1.0210, the pair tested resistance at the 100 day moving average. While on the way to testing this level, we also came close to completing a full hourly retracement of the move from the high on December 9th to the low on the 15th. Currently all risk currencies are losing their bullish momentum; European equities have also come off a bit.

BOE MPC voted unanimously to keep rates/bond purchases unchanged in December. Posted: 21 Dec 2011 01:39 AM PST December debt rises to record 62.8% of GDP vs 57.5% a year ago. Some members said QE expansion may be needed in due course. Central view is for some recovery in late 2012. Unanimous there’s limited merit in changing APF now. Some members said economic outlook deteriorated in December. Business surveys signal broadly flat output in forth quarter. Market capacity makes it hard to buy bonds faster. Bank strains reflect risk of worst risks crystallizing. Sees CPI falling in first half of 2012, greater uncertainty after. Euro area contraction is likely under way. Main CPI upside risk is persistence above 2%.

Italian prelim GDP (q/q) -0.2% vs. 0.0% forecast and 0.3% prior reading. Posted: 21 Dec 2011 01:09 AM PST

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