Kathy Lien (gftforex.com)

With US equity and bond markets closed for Presidents Day, trading was relatively quiet for currencies. The G7 meeting did not lead to any fireworks but the dollar did gap higher against all of the major currencies except for the Japanese Yen at the Asian open on Sunday. Despite the Congressional approval of the $787 billion stimulus package, the US dollar and Japanese Yen have strengthened across the board which indicates that risk aversion dominates. So far, the prospect of the bill being signed by President Obama has not helped the market. The official G7 statement singled out the Chinese Yuan but not the Japanese Yen. The tone towards China was rather conciliatory with the Group of Seven welcoming China’s fiscal stimulus measures and their steps towards a more flexible exchange rate. These comments and lack thereof suggests that the US is trying to play nice after Geithner suggested that China may be branded a currency manipulator. As for Japan, the lack of comments suggest that no is interested in intervening to stop the Yen from rising anything soon. There was no US economic data released this morning, but a number of reports are due for release over the next 24 hours. This includes the Empire State Manufacturing survey, the Treasury International Capital flow report and the NAHB housing market index. All of these are Tier 2 economic data which means that they should not have much of an impact on the US dollar. Instead, all eyes will be on how the market reacts to the official announcement of the Economic Stimulus Bill.

EUR/USD: NEARING 1 MONTH LOWS

Once again, the Euro is attempting to test its 1 month lows against the US dollar. Since there was no Eurozone economic data released this morning and all of the major currency pairs are lower, the weakness of the single currency is purely a reflection of the market’s risk appetite. In contrast to the aggressive monetary policies that we expect from other central banks around the world, European Central Bank member Stark warned against aggressive actions. He said that gradualism is needed in combating the global economic crisis and that aggressive action can lead to more economic uncertainty. He did indicate that interest rates will continue to fall, but his comments suggest that the next rate cut will be no more than 50bp. Compared to the BoE, RBA and RBNZ who cut interest rates by 100 to 150bp clips, the ECB has been very conservative. Only time will tell if their stubbornness will hurt or help them. If inflation skyrockets everywhere except for the Eurozone, the ECB will be vindicated but if their recession lasts much longer than everyone else then Trichet’s credibility will be severely tarnished. The German ZEW survey of analyst sentiment and the Eurozone trade balance are due for release tomorrow. We expect the numbers to be Euro bearish.

Trades for the Day

2009-02-12T23:09:00.003+08:00

Trade for the Day

2009-02-10T18:30:00.002+08:00

US DOLLAR: BIG ANNOUNCEMENTS FROM WASHINGTON

2009-02-09T13:23:00.004+08:00

Kathy Lien (http://www.gftforex.com/)
This morning, the Bureau of Labor Statistics reported that January was another month of massive job losses. For the third time in a row, more than 500k Americans lost their jobs. The market was looking for payrolls to drop by 540k, but instead they fell by a whopping 598k ( Instant Insight on January Non-Farm Payrolls ). Yet, currencies and equities traded like non-farm payrolls increased rather than decreased but this baffling response to a very negative number can be easily explained by the prospect of help from Washington.

Politics Overshadowing Economics

Politics will come head to head with economics next week and if today’s price action is any guide, then politics could overshadow economics. The Obama Administration is expected to make a big announce at noon (Eastern Time) on Monday. Treasury Secretary Timothy Geithner will be unveiling a much awaited bank rescue plan that will “be critical in supporting an effective and lasting economic recovery,” according to Treasury department. Geithner will talk about how the Obama Administration plans on getting credit flowing again to family and businesses while imposing new measures and conditions to strengthen the accountability, oversight and transparency in how taxpayer dollars are spent.” The focus will be on how banks will be able to offload toxic debt from their balance sheets. The Treasury could announce a bad bank to absorb the assets or provide a guarantee against losses on the illiquid assets or both. They are also expected to announce some direct support for mortgage foreclosures. If investors are satisfied with Obama’s financial rescue program, the optimism may last. We have long said that fiscal stimulus is one of the few things that can trigger a meaningful recovery in risk appetite. In addition to Geithner’s speech, Fed Chairman Ben Bernanke will be testifying on Tuesday while the market still awaits the Senate to vote on the economic stimulus package, which could happen next week.

EUR/USD: WILL DEEPENING RECESSION FORCE ECB’S HAND?

The improvement in risk appetite helped to drive the EUR/USD within a whisker of the 1.30 price level. Economic data was mixed with the French trade deficit narrowing but German industrial production plummeting. Even though Germany is the world’s third largest economy and France is the world’s sixth, the Germany economy is only 20 percent larger than France, making them both major contributors to the Eurozone. For the time being France is faring much better than German economically. This upcoming week, we will learn how the region as a whole is doing through their fourth quarter GDP report. The recession is expected to deepen significantly which may renew speculation that the ECB could take interest rates towards 1 percent. A 50bp rate cut is widely expected and to some degree validated by Trichet’s comments earlier this week, but weaker growth could force a heavier hand from the central bank. Meanwhile, the Swiss franc sold off against the Euro following comments from Swiss National Bank member Jordan who warned that the central bank is watching the exchange rate closely. The SNB has been very unhappy with the appreciation of the low yielding Swiss Franc but based upon their contradicting comments with the Swiss government, we believe that more verbal intervention is more likely than physical intervention.

EUR/USD: Currency in Play for Next 24 Hours

The currency in play for Monday of the upcoming week will be EUR/USD based on German Current Account and Trade Balance being released at 7:00GMT or 2:00AM EST. After a massive downtrend which has been in place since late last year, the pair seems oversold and entering the Range Trading Zone which we determine using Bollinger Bands. Since the beginning of the year, the pair formulated a downward slopping triangle, which proved to be effective numerous amount of times. The pair is on the verge of breaking the triangle upon moving past its first resistance which is at a psychological level of 1.3000. If the resistance of the upper line of the triangle is negated the next level of resistance will be 1.3180, which is a 78.6% retracement of December high and this year’s low. Nevertheless, the pair may establish another leg of downtrend if support is broken at 1.2705 which is a 2009 low for the pair.

Trading Pure Trend Using Bolinger Band

2009-02-08T19:10:00.012+08:00

Indicators come and go but for its sheer simplicity and reliability, the Bolinger band has stood the test of time. Ooopps, reliability? Well, there's no such thing like accuracy in forex. Then we have to go to the next best thing. Bolinger is so simple that many of us take it for granted. Bolinger band which is affectionately called "the BB" allows short-oriented traders and long-oriented traders alike to exploit the interplay between the lower and upper bands. This technique is actually originated from a book written by a well-known trader. Here is how the trade sets up with a long position example. (Reversed for the short side). It works wonderfully on larger timeframes.

1. Price enters the buy channel and closed strongly (not just pierce) above the 20 SMA.

2. Buy at 10 or 20 pips lower from the open price of the next opening candle.

3. Stop loss should be decided according to your own discretion.

4. TP depends on your risk appetite.
Good luck!! Any questions should be forwarded to annenaim81.

5 Quick Forex Facts

2009-02-07T23:43:00.003+08:00

1. London is the heart of the forex market with more than 300 major dealing houses and 35% percent of average daily volume.

2. Almost everybody who has traded forex has faced an MC at least one.

3. Most traders feel dejected by a series of losing trades become stubborn and try to fight the market, often placing no stops or removing the ones already in place.

4. While pound is the "streakiest" currency out there, the euro is the steadiest.

5. The Fib ratios represent about two-thirds of the total value of the move.

Trades of the Day

2009-02-07T00:20:00.000+08:00

US Dollar:Geithner vs. Payrolls

2009-02-06T12:12:00.004+08:00

On Friday, the Bureau of Labor Statistics is expected to tell us that US employers fired another 500k people in the month of January. Surprisingly enough currencies and equities are trading higher ahead of the non-farm payrolls report which suggests that traders are not afraid of a bad number. Everyone knows that the US economy is very weak and major job losses will continue. Since traders are becoming immune to bad data, it may take job losses in the area of 600k to spook them (January Non-Farm Payrolls Preview) . Instead, traders are looking beyond Friday’s non-farm payrolls report to the Monday, February 9th speech by US Treasury Secretary Timothy Geithner. According to a Treasury official, Geithner is expected to unveil a bank rescue plan next week . This is one of the few things that could strike a meaningful recovery in the currency and equity markets. If traders deem Geithner’s plan as satisfactory, we could see a further recovery in the financial markets despite the fact that the US economy will get worse before it gets better.

Jobless Claims, Factory Orders and Chain Store Sales

This morning’s economic data was mixed with jobless claims skyrocketing but the losses in factory orders and chain store sales moderating. The number of people claiming unemployment benefits for the very first time broke the psychologically hobbling 626k mark, which is consistent with a very weak labor market. It should just a matter of time before the total number of people collecting benefits (continuing claims) hits 5 million, up from its current level of 4.788 million. Non-farm productivity increased while unit labor costs declined. This suggests that the people who still have jobs are working harder for less pay. Chain store sales fell less than expected, but the improvement was due primary to sales at discounters like WalMart. As for factory orders the rebound is off of record lows. Don’t expect any good news from US economic data, the best that we will get are less negative reports.

How to Trade Non-Farm Payrolls

In this current market environment, a weak non-farm payrolls report may not be entirely dollar negative. The currency market’s reaction to the labor market number should primarily revolve around risk appetite. A truly negative number could trigger another fit of panic, sending investors into the safety of US dollars and out of any currency that does not hold ranks as a safe haven. On the heels of a weak number, the only currency that the dollar could lose value against is the Japanese Yen. If payrolls fall by 524k (the number of jobs lost in the month of December) or less, we may see renewed risk appetite that could benefit the Euro, Yen, Australian, Canadian, and New Zealand Dollars. Non-farm payrolls is the most market moving number for the greenback which can make trading NFPs very risky. This is particularly true since revisions can easily exacerbate or offset the headline release. Usually it is best to stand aside, but if you insist on trading the event risk, USD/JPY may have the cleanest reaction to the economic data.

EUR/USD: ECB STILL STUCK IN THEIR OLD WAYS

The Euro was one of the few currencies to lose value against the US dollar today. Following ECB President Trichet’s post monetary policy meeting press conference, the EUR/USD actually traded above 1.2880 before reversing all of its gains to end the day lower. Initially, the EUR/USD rallied because Trichet was reluctant to turn extremely dovish but the currency pair quickly lost ground as Euro traders realize that the central bank is stuck in their old ways which could mean the destruction of the Eurozone. The ECB is in their own world and no one can quite understand why Trichet refuses to give up on his obsession with inflation and finally deliver the monetary stimulus that the Eurozone needs. Thankfully, Trichet did not hide the fact that 2 percent will not be bottom for Eurozone rates . More rate cuts will be delivered and the 50bp easing that the market is looking for is probably the right bet according to Trichet. With that in mind however, Trichet also said that the ECB does not pre-commit or exclude anything. We believe that interest rates could fall as low as 1 percent, because another half point cut is not enough ( Trichet’s Folly ). The economy remains very weak as illustrated by this morning’s German factory orders report. The orders dropped 6.9 percent, which is 150 percent more than the market’s forecast. Ratings agency Moody’s also cut the bank debt guarantee for the Irish government to negative. Ireland is expected to be one of the next countries to face a credit downgrade by rating agencies.

Trades of the Day

2009-02-05T23:47:00.000+08:00

Trichet Says ECB May Cut Rate by Half Point to 1.5% Next Month

2009-02-05T23:29:00.003+08:00

European Central Bank President Jean- Claude Trichet said policy makers may cut their benchmark interest rate by a half percentage point to a record low of 1.5 percent next month as a recession in the euro region deepens.

“I don’t exclude that we could reduce interest rates at our next decision,” Trichet said at a press conference in Frankfurt after leaving its key rate at 2 percent today. When asked whether the ECB will cut by a half or a quarter point, Trichet said: “It would probably more be the first figure.”

The ECB has so far been reluctant to adopt the more aggressive path of other central banks from Washington to London and Trichet said today he wants to avoid cutting rates to zero. The Bank of England lowered its benchmark to 1 percent today, the lowest since it was founded in 1694, and the Federal Reserve has reduced its benchmark almost as far as it can.

“Zero rate doesn’t seem to us appropriate at this stage,” Trichet said. He also said price pressures are waning and uncertainty across the economy “remains exceptionally high.”

“Looking ahead, lower commodity prices confirm our assessment that inflationary pressures in the euro area are diminishing,” Trichet said.

Europe is sliding into its worst recession since World War II. Spain’s industrial production plunged by a record 19.6 percent in December, a report showed today. In Germany, Europe’s largest economy, factory orders extended their worst slump on record.

Europe’s service and manufacturing industries contracted for an eighth month in January and confidence in the economic outlook fell to a record low. The International Monetary Fund predicts the euro region’s economy will contract 2 percent this year.

Euro Falls Against Dollar as Trichet Indicates No Cut to Zero

2009-02-05T23:24:00.000+08:00

Feb. 5 (Bloomberg) -- The euro fell to near a two-month low against the dollar after European Central Bank President Jean- Claude Trichet indicated policy makers may not lower interest rates as much as some traders expect to revive the economy.

The ECB kept the main refinancing rate at 2 percent today, according to a statement from Frankfurt. Cutting the rate to zero isn’t “appropriate at this stage,” Trichet told reporters following the decision. The pound rose on speculation the Bank of England will pause in cutting borrowing costs after it reduced its benchmark rate to a record low of 1 percent today.

“Trichet continues to sound cautious and it’s not what the market wants to hear,” said Adam Cole, head of global currency strategy at RBC Capital Markets in London. “If the ECB maintains the cautious tone the euro will remain sold. His insistence on not going to zero rates or using quantitative easing is a negative for the currency in this environment.”

The euro dropped to $1.2800 as of 2:37 p.m. in London, from $1.2849 in New York yesterday. It reached $1.2706 on Feb. 2, the lowest level since Dec. 5. The common currency was at 115.01 yen, from 114.90. The dollar was at 89.86 yen, from 89.43.

The last time the ECB left its benchmark rate unchanged, on Oct. 2, the euro fell 1.3 percent against the dollar. Today’s decision was in line with the median of 53 economists’ forecasts in a Bloomberg survey. The market may be “right” to be on a 50 basis-point cut in March, Trichet said today.

Trades of the Day

2009-02-04T18:26:00.001+08:00

US DOLLAR: COULD POLITICS DERAIL THE GREENBACK?

2009-02-04T18:23:00.001+08:00

By Kathy Lien (www.gftforex.com)

The Good News – Pending Home Sales, Daschle Withdrawal, Fed Announcement

For the first time since September, the number of contracts for purchasing new homes has increased. Although the data can be fairly volatile, the rebound suggests that we could see a similar rise in existing home sales. The US housing market has experienced a serious beating and any improvements are certainly a welcome development. However, given the state of the US economy and the recent layoff announcements, it would be unrealistic to believe that we have seen a bottom in the US housing market. Health care stocks led the S&P500 higher following news that Senator Tom Daschle has withdrawn his nomination to be secretary of health and human services. The reforms that he had proposed would have hurt the profitability of health care companies and the rally in stocks drove the EUR/USD and GBP/USD higher. The Federal Reserve also extended their liquidity facilities and swap lines from April 30 to October 30th. These facilities make up the alphabet soup of initiatives announced by the Federal Reserve over the past few months including the Commercial Paper Funding Facility (CPFF) and the Term Securities Lending Facility (TSLF).

Shifting to Non-Farm Payrolls

The currency market’s focus should begin shift to Friday’s non-farm payrolls report as the leading indicators for NFPs start to come in. On Wednesday, payroll provider ADP will be reporting private sector employment change, Challenger will be reporting the amount of layoffs while the Institute of Supply Management (ISM) will be releasing their report on service sector activity. If all 3 numbers point to a weaker non-farm payrolls report, there is a decent chance that more than 550k Americans may have lost their jobs in the month of January. Since ADP has its flaws, we will be keeping our eye on the employment component of service sector ISM which has a very strong correlation with non-farm payrolls.

EUR/USD: ABOVE 1.30 BUT FOR HOW LONG?

An improvement in risk appetite and the expectation that the European Central Bank will leave interest rates unchanged on Thursday has driven the EUR/USD above 1.30. ECB President Trichet has been very vocal about his plans to delay the next interest rate cut to March and as a central banker who likes to prepare the markets for any imminent decisions, his warning should be heeded. However inflationary pressures continue to fall and that will push the ECB to bring interest rates down to 1 percent. Producer prices for the Eurozone fell 1.3 percent on a month to month basis, driving the annualized pace of PPI growth to 1.8 percent. Rising unemployment is also pushing consumer demand lower and softer demand should translate into even lower prices. Trichet’s comments on inflation or deflation on Thursday will provide some clues on how much further the central bank plans on lowering interest rates. German retail sales fell 0.2 percent in the month of December. The market had actually been looking for a rise, but consumer spending has taken a bit hit from the deterioration in the labor market. Tomorrow’s Eurozone retail sales report is expected to follow German retail sales lower. The Euro has recovered nicely after hitting a low of 1.27 yesterday, but the gains could be fleeting if Trichet makes some overly dovish comments or if developments in the US cause a turn in risk appetite.

Trades of the Day

2009-02-03T20:59:00.001+08:00

3 Central Bank Acts: RBA, BoE, ECB

2009-02-03T14:51:00.003+08:00

By Kathy Lien (www.gftforex.com)

There are 3 interest rate decisions on the calendar this week from Australia, the United Kingdom and the Eurozone. Only 2 out of the 3 countries are expected to cut interest rates but all 3 rate decisions and the corresponding comments from central bank officials should trigger some volatility in the currency market. Although the amount of easing is important, what will receive more attention are the comments on how much further these central banks could cut interest rates. The upcoming rate cut is not expected to be the last for the Reserve Bank of Australia or the Bank of England and the expectation of further rate cuts could prevent a major recovery in the Australian dollar and British pound.

ECB to Keep Rates on Hold

After cutting interest rates by 225bp, the European Central Bank is expected to leave interest rates unchanged at 2 percent on Thursday. The prospect of a monetary meeting that leaves rates alone seems almost abnormal these days. We have gotten so used to these massive all-out efforts to see rates go to zero that the idea of no cut may be psychologically worrisome to some traders. The fact of the matter is Trichet has not been quiet about his preference to keep rates remain steady. The ECB President feels obligated to allow the latest string of action time to work its way through the economy. However, up until now, the concerns over a worsening economic environment has not permitted the ECB head the privilege of time. It is undeniable that economic conditions since the last meeting have not made any discernable efforts at improving. However, there are certain bright spots that may allow Trichet the breathing room to resist further cuts. This month has seen, along with some truly devastating figures, a pickup in German IFO, German ZEW, and the Euro-Zone PMI composite.

After the last monetary policy decision in January, ECB President Trichet signaled to the market that 3 weeks is too short of a time to deliver another rate cut and therefore March will be the next meaningful meeting. Unlike other central banks, the ECB has not been extremely aggressive with easing monetary policy and has instead tried to defer rate cuts as much as possible. Even though interest rates in the Eurozone are already at historically low levels, Trichet is still expected to cut interest rates further. The rate decision itself should be a nonevent which leaves Trichet’s post meeting press conference as the main focus. Traders will be looking for clues on how aggressive the ECB will be in March.

Concerns over economic growth still dominate in individual European countries. Despite the fact that some data surprised to the upside they are only small advances off of multi-year lows. Among the reports that may warrant a bit more concern is the severe shifts in EZ and German Unemployment. Even though Trichet has expressed the notion that the risks of deflation are negligible at this point, the overwhelming decline in CPI proves to be relevant. In addition, there have been the unprecedented measures that resulted in downgrades of some member countries, including Spain, Portugal and Greece. Others were left with warnings that their credit ratings were at risk. The higher costs of borrowing that accompany the rating cuts may provide reason for the ECB to continue cutting interest rates.

Trades of the Day

2009-02-02T23:11:00.000+08:00

UK Manufacturing Improves Barely

2009-02-02T18:34:00.005+08:00

By Boris Schlossberg (www.gftforex.com)

UK Manufacturing PMI improved to 35.8 against 34.9 the month prior but remained essentially moribund as the country’s economy continues to experience the worst contraction in demand in more than fifty years. The lower value of GBPUSD proved to be of little help to the nation’s manufacturers as export demand was muted and the PMI reading remained well below the 50 boom/bust level.

The news suggests that BOE will almost certainly lower rates by another 50bp this week taking the overnight rate to a record low of 1%. Cable continued to slide in post news price action dropping below the 1.4200 level in early London trade.

After a counter trend rally last week sterling appears to have hit key resistance at 1.4500 barrier and given the strong down ward bias in the pair, that level appears to be a cement ceiling for GBP/USD for now, as fundamentals continues to show no rebound in sight.

Trades of the Day

2009-01-30T19:59:00.000+08:00

US DOLLAR: WATCH OUT FOR GDP

2009-01-30T14:57:00.005+08:00

By Kathy Lien (www.gftforex.com)

The US dollar is stronger across the board today as risk aversion returns to the market. Like Florida weather, where it can be hot one day and cold the next but warm most of the time, we can occasionally see an improvement in the market’s risk appetite but the bias is still towards risk aversion. Traders have quickly realized that nothing new came out of the Fed’s monetary policy meeting yesterday and until we have another major announcement from the US government, currencies will be vulnerable to negative US economic data, earnings report and developments abroad.

EUR/USD: TALKING DOWN THE EUR/USD

The EUR/USD was hit by the double blow of weaker economic data and Euro negative comments. Unemployment in Germany skyrocketed as job losses rose 56k, driving the unemployment rate up to 7.8 percent. Despite the improvement in business and consumer confidence, the German economy and the labor market has not been immune to the global slowdown. This should just be the beginning of a broader trend of job losses in the Eurozone. German retail PMI also deteriorated even though PMI for the overall region improved. This was due largely to the resilience of consumers in France, who actually increased their spending in the month of January. Unfortunately France may not be able to carry the Eurozone for long. Meanwhile, the Euro also came under selling pressure after ECB President Trichet said that he would not rule out taking interest rates below zero. Judging from recent comments by Trichet, it is clear that he still plans on cutting interest rates but not in February. The Euro extended its losses after legendary investor George Soros added his two cents. He warned that the Euro may not be able to survive the crisis without a global plan. He is pushing for the European Union to come up with a way to deal with all of the toxic debt sitting on the balance sheets of European banks. Eurozone consumer prices and unemployment rate are due for release tomorrow and given the recent trend of inflation and employment data, they are expected to be Euro bearish.

USD/CAD: Currency in Play for Next 24 Hours

The currency in play for the upcoming 24 hours will be USD/CAD due to the release of GDP from both Canada and U.S. at 13:30GMT or 8:30AM EST. U.S. is also expected to release Personal Consumption figures at 13:30GMT or 8:30AM EST, followed by Preliminary U. of Michigan Confidence at 15:00GMT or 10:00AM EST. Massive trend moves seem to be the thing of the past for the pair, as USD/CAD continues to fluctuate with no clear direction, currently lingering within Range Trading Zone established using Bollinger Bands. Current support has proved to be effective at 1.2027, which is a 78.6% retracement of 2008 high and 2009 low. Resistance on the other hand is placed at the 50-day SMA average which is structured around 1.2310. If GBP/USD breaks 1.2310, we could see a move towards the first standard deviation Bollinger band at 1.25.

Fed to Try Additional Unusual Methods

2009-01-29T12:01:00.004+08:00

The Federal Reserve yesterday indicated that it will pursue further unconventional steps to try to stimulate the economy, as it left the interest rate it controls essentially at zero.

With its main tool for managing the economy spent, the Fed has been finding new ones -- and shows every indication of continuing the practice as it tries to grapple with a rapidly deteriorating economy.

The Federal Open Market Committee said it stands ready to buy up more mortgage-backed securities, could start buying long-term government bonds, and may take further steps to make loans more widely available. Those measures would push down the interest rates on loans that consumers take out to buy homes or cars or that businesses take out to buy new equipment.

"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the committee said in a statement released yesterday afternoon following two days of meetings.

The stock market rose on the day, as investors reacted favorably to the Fed's actions and to reports that the Obama administration could set up a "bad bank" to deal with toxic assets. The Dow Jones industrial average closed up 201 points, or 2.5 percent.

According to their statement, leaders of the central bank concluded in their statement that the economy is worsening sharply. They noted that "industrial production, housing starts, and employment have continued to decline steeply as consumers and businesses have cut back spending," and that the global economy seems to be "slowing significantly."

Indeed, the central bank even seemed to acknowledge that its forecast of a return to economic growth in the second half of 2009 may be too rosy. "The downside risks to that outlook are significant," the statement said.

The committee also showed heightened worry about deflation, or falling prices, saying that it sees a risk that inflation would stay too low for too long. Such concerns also indicate the Fed is inclined toward further aggressive action to pump money into the economy.

The Fed usually tries to combat economic weakness by adjusting the federal funds rate, the interest rate at which banks lend to each other, which then flows to consumers and businesses in the form of lower borrowing costs.

In December, the Fed cut that rate to a range between zero and a quarter of a percent and signaled it is likely to leave the rate there for some time. Thus, the Fed is now looking to adjust other, longer-term interest rates. It is also attempting to restart lending using its own massive balance sheet, an approach that Chairman Ben S. Bernanke has called "credit easing."

In its statement yesterday, the Fed indicated more openness to purchasing long-term government bonds, a step that should indirectly push down interest rates on mortgages and many corporate loans.

The central bank said it is "prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets." That goes further than the Fed did in December, when it said it was "evaluating the potential benefits" of such actions but did not signify that such purchases were imminent.

The Fed also noted that it is launching a special program to support credit card lending and auto loans, student loans and small business loans. It will also consider expanding that program to further improve the availability of credit.

"They're doing a little bit of everything," said Kurt Karl, chief U.S. economist at Swiss Re, the insurance firm. "They seem to be interested in what's the best way to inject more money into the economy."

Trades of the Day

2009-01-28T22:11:00.001+08:00

US DOLLAR: ACTS OF DESPERATION?

2009-01-28T12:15:00.004+08:00

By Kathy Lien (www.gftforex.com)
The Federal Reserve is currently holding a two day monetary policy meeting and it will be interesting to see whether they are desperate enough to introduce radical programs that can incite the enthusiasm of investors. With interest rates virtually at zero, a rate cut is not expected, but the central bank is under pressure to take further action. So far, their effort which includes 500bp of easing has helped to prevent the recession from turning into a depression but it has yet to stabilize the economy. The latest string of economic data indicates that the US economy is still on a downtrend and headed lower. The FOMC rate decision tomorrow could be a nonevent for the US dollar, but if the Federal Reserve is desperate enough, they still have the power to surprise the markets.

FOMC Rate Decision - 2 Analogies

There are two analogies that can help us understand the potential outcome for tomorrow’s rate decision. The Federal Reserve’s current position is similar to their situation in 2003, when interest rates were lower to 1 percent. At that time, rates were not expected to break the 1 percent level and the central bank made it known that their easing cycle had come to an end. From there on forward, until the market started speculating about the possibility of a rate hike, traders started to become indifferent to the Fed’s rate decisions since no changes were expected from the central bank. No changes are expected this time around so there may not be the same type of volatility that we have seen with past rate decisions. The second analogy is the Bank of Japan rate decision which investors hardly bat an eye at. For the FOMC meeting to matter, we will need to see acts of desperation from the Federal Reserve. Read our full FOMC Preview and see charts of previous FOMC price action at FX360.com.

AUD/USD: Currency in Play for Next 24 Hours

The currency in play for the upcoming 24 hours will be AUD/USD due to Westpac Leading Index from Australia released today at 23:30GMT or 6:30PM EST, followed by CPI at 00:30GMT or 7:30PM EST. Tomorrow, the Federal Reserve is expected to announce its interest rate decision around 19:15GMT or 2:15PM EST. After exiting the Sell Zone established through the Bollinger bands the day prior, the pair is on the verge of entering it once again, yet it still trades within Range Trading Zone. Current resistance is originating at the high of the day around 0.6720, which coincides with 20-day EMA. While support is placed at 0.6490, which is a 61.8% retracement of the lowest point reached in 2008 and the highest point reached in 2009. The pair might propose a continuation in a downward trend if it enters and closes within the sell zone which is structured below 0.6570. With a key economic release on the agenda for the upcoming 24 hours, it is likely that the pair will test either of the levels.

Live Trading

2009-01-27T20:22:00.003+08:00

1. Sold EUR/USD 1.3198 [Closed +10] Chickened out :)

A GLOBAL RALLY MAY BE SHORT-LIVED

2009-01-27T12:49:00.009+08:00

By Kathy Lien (www.gftforex.com)

A GLOBAL RALLY MAY BE SHORT-LIVED

For the most part, markets today expressed a tone of relief and satisfaction for global economic events. We have seen the classic pattern of dollar and yen weakness across the board that is quite the mainstay in markets that think the worst is over. However, we are cautioning that this brief level of renewed sentiment may be short lived. In the US the euphoria that was left over from European trading seemed to dwindle in the latter part of the trading day. The Dow finished one of its typical whipsawed trading sessions, falling off of highs of more than 100 to dip in to negative territory. The index did finish in positive ground. This level of uncertainty definitely casts some doubt on the continuation of this renewed confidence in the financial markets.

What is the Fed Prepared to Do?

It is never too early to start speculations for potential policy shifts in the upcoming FOMC meeting. Ceremoniously, we will no longer refer to it as an interest rate decision because interest rates will not be changed. However, we are waiting on something more important; a telling factor for continued monetary policy decisions. One possibility is that the Fed announces a target as to the size of its balance sheet. They would therefore be able to present something more concrete to the market as an explanation that they are coming to the rescue. It is very likely that the central bank continues to expand the levels of assets it purchases. Many expect that the Fed will reignite purchases of very long-term treasuries in an effort to push down yields enough to improve long-term borrowing. Regardless of which actions the Fed puts into action, the true face of American monetary policy has changed as a result of the near-zero interest rates.

EUR/USD: Currency in Play for Next 24 Hours

EUR/USD will be our currency pair in play on many important economic releases expected for tomorrow’s trading. The important German IFO, which covers expectations, business climate, and current assessment, is expected at 4:00 am ET or 9:00 GMT. The Euro-zone Current Account will be released at the same time. The US will release Consumer Confidence at 10:00 am ET or 15:00 GMT.

The technicals on EUR/USD price action are very bullish at the moment. Prices finally managed to exit the Bollinger band sell zone, after remaining in our sell zone for eleven trading days. This could provide a foundation for further advances in the pair. Resistance stands in the way of continued rallies at 1.3225 or the 23.6% retracement from mid-December highs to yesterday’s low. The most immediate support is located at yesterday’s low of 1.2765. Of course, if this level should be breached, there is the multi-year low at 1.2228 that should support further declines. However, the break out of the sell zone was very significant and may result in a continuation of today’s rally.

Democrats: Stimulus plan no quick fix for economy

2009-01-27T00:16:00.000+08:00

WASHINGTON – The White House warned Sunday that the country could face a long and painful financial recovery, even with major government intervention to stimulate the economy and save financial institutions.

"We're off and running, but it's going to get worse before it gets better," said Vice President Joe Biden, taking the lead on a theme echoed by other Democratic officials on the Sunday talk shows.

At the end of the Obama administration's first week, the party in power at both ends of Pennsylvania Avenue sought to lower expectations for a quick fix despite legislation expected to pass by next month that would pump billions of dollars into the economy. Democrats also opened the door for even more government aid to struggling banks beyond the $700 billion bailout already in the pipeline.

Congress has given President Barack Obama permission to spend the second $350 billion of a Wall Street bailout package even though lawmakers have criticized the Bush administration for the way it spent the first half. House Speaker Nancy Pelosi, D-Calif., said she is open to additional government rescue money for banks and financial institutions. But she said taxpayers must get an ownership stake in return.

Congress is working on an $825 billion economic recovery package that dedicates about two-thirds to new government spending and the rest to tax cuts. Separate proposals making their way through the House and Senate would combine tax cuts for individuals and businesses, help for cash-strapped state governments, aid for the poor and unemployed, and direct spending by the federal government.

The goal is to infuse money directly into the economy in the hope of bringing the nation out of recession, while creating 3 million to 4 million jobs. It would be largest economic recovery package ever enacted; the White House says the scope rivals the construction of the interstate highway system after World War II.

2009-01-27T00:03:00.000+08:00

Greenspan: This Is The Worst Economy I've Ever Seen

2009-01-26T12:14:00.001+08:00

Former Federal Reserve Chairman Alan Greenspan offered a woeful outlook of America's economic situation on Sunday, saying the crisis with the country's financial institutions was as dire as he had ever seen in his long career, and predicting that one or more of those institutions would likely collapse in the near future.

"Oh, by far," Greenspan said, when asked if the situation was the worst he had seen in his career. "There's no question that this is in the process of outstripping anything I've seen and it still is not resolved and still has a way to go and, indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes. That will induce a series of events around the globe which will stabilize the system."

Appearing on ABC's This Week, Greenspan would not definitively say whether the government should come to the rescue of Lehman Brothers, which has been forced to consider a possible sale after its stock shares plunged drastically this past week. Instead he called the situation surrounding the investment bank -- and the bailout that occurred this past spring of Bear Stearns -- as a "once in a half century, probably once in a century type of event."

The circumstances for Lehman may, as Greenspan noted, be different. Bloomberg News reported on Friday: "Rising speculation that Lehman Brothers Holdings Inc. may fail is generating less concern among investors than when Bear Stearns Cos. imploded in March."

Much of the issue, Greenspan added, was the trouble in the housing market, which he predicted would become stabilized by next year. Pressed by host George Stephanopoulos as to whether another major financial institution -- such as the struggling Washington Mutual, American International Group, or Merrill Lynch -- would fail in the interim, the former Fed chair responded in the affirmative.

"I suspect we will [see one fail]," he said, "but in and of itself that does not need to be a problem. It depends on how it's handled and how the liquidations take place. And, indeed, we shouldn't try to protect every single institution. the ordinary cost of financial change has winners and losers."

In light of these dynamics, Greenspan noted that the government was left with tough decisions: which institutions are "so fundamental to the functioning" of society that they demanded a federal safety net? Earlier in the week, the former fed chairman noted that such choses extended to tax policy as well. In an interview with Bloomberg Television, Greenspan argued that the country couldn't afford the tax cuts being proposed by John McCain without an equally massive reduction in spending.

"I'm not in favor of financing tax cuts with borrowed money," he said. "I always have tied tax cuts to spending."

~Sam Stein

The pound not so sterling, Britain grapples with deepening recession

2009-01-24T12:38:00.001+08:00

LONDON — The British economy on Friday was officially declared in recession as a galloping economic crisis has driven down the value of the British pound to a 23-year low and threatened to remake the country's political landscape.

Britain's Office for National Statistics said Friday that the economy contracted by a stunning 1.5 percent in the fourth quarter of 2008. That followed a 0.6 percent contraction in the three months between July and September.

Recessions typically are defined as two consecutive quarters of economic contraction, and the last time Britain found itself in this state was in 1991. Like the United States , Britain is wrestling with a financial crisis that seems only to grow worse.

Evidence of the storm is everywhere. The unemployment rate is now 6.1 percent, up almost a full percent from a year ago, and this week the government of Prime Minister Gordon Brown unveiled a second big package to stimulate lending by banks, including a guarantee plan to protect them against losses on bad assets.

Britain also increased the government's stake in the Royal Bank of Scotland to 70 percent, giving it a controlling interest. As in the United States , British banks have come under fire for failing to increase their lending to consumers and businesses despite receiving a big injection of government capital last October.

The British pound fell 7.3 percent against the dollar this week to close at $1.3673 . During Friday trading, the pound briefly touched $1.3570 , its lowest point against the U.S. dollar since 1985. It fell to record lows this week against the Japanese yen.

Some big-name currency traders have suggested that the pound "is finished," a charge that provoked a strong reaction from Brown on Friday. Brown admitted that "nobody" saw the "possibility of complete market failure," but he said that an American stimulus package due to be completed in the coming weeks "will give Britain and the rest of the world a boost" and that the pound will regain its lost value.

Behravesh and others, however, think that Britain's recession will be even deeper than the one unfolding in the United States , which already is expected to last longer than any other one since the Great Depression. The British economy will contract by 3 percent to 3.5 percent before it starts to recover, he said.

The drop in the pound has hit Britons hard. The country has refused to adopt the euro, the currency used in much of the European Union , and that's left the pound more vulnerable as the economy shrinks and the banking system slides deeper into disarray.

The pound is the world's third most popular reserve currency, behind the dollar and euro, and the fourth most traded currency, after the dollar, the euro and the yen, and its fall has reignited debate over adopting the euro.

Nick Clegg , the leader of the Liberal Democrats, the country's third-largest political party, said Britain had an "extremely dangerous" exposure to global money flows and that switching to a "major reserve currency" would offer stability and protection.

Some financial experts agree.

"Why would you at this point buy sterling assets and add to your risk when the UK economy is disastrous?" asked Paul Goldschmidt , a former director of investment bank Goldman Sachs & Co. , and a former European financial policymaker.

Now an analyst for the Thomas More Institute , a research center in Brussels , Goldschmidt said that a shift to the euro would reduce currency risks for British businesses and give the entire region more muscle globally.

A national poll last month, however, found that more than two-thirds of British citizens prefer to stick with their beleaguered currency.

Live Trading

2009-01-23T17:10:00.001+08:00

1. Sold EUR/USD 1.2846 [Closed +17]

EUR/USD: Currency in Play for Next 24 Hours

2009-01-22T12:12:00.003+08:00

By Kathy Lien (gftforex.com)
EUR/USD will be the currency in play for the next 24 hours. A vast array of European data is expected, which includes French Consumer Spending at 2:45 am ET or 7:45 GMT, the ECB Monthly Report at 4:00 am ET or 9:00 GMT, and EZ Industrial New Orders at 5:00 am ET or 10:00 GMT. Following these European events will be Housing Starts and Building Permits reported by the US at 8:30 am ET or 13:30 GMT.

EUR/USD has managed to stay in the Bollinger band sell zone for an impressive eight days. The sheer strength of the upswing encountered in the month of December has almost been completely countered. The retracement levels drawn from the October 28th lows to the December 18th high does a fairly good job at providing us with the most relevant levels. For support, we have seen prices fail the 78.6% retracement at 1.2839 for the second consecutive day. For resistance, we have the confluence of the 61.8% retracement, one-standard deviation Bollinger band, and the 10-day SMA. Since prices have not been able to break from the sell zone, it is likely that this level will be sufficient in pushing prices downward. A break of the 1.2839 support should see prices extend down to 1.2328, or the October 28th low.

2008-12-01T19:56:00.004+08:00

LONDON (Reuters) – Oil fell more than $2 to below $52 a barrel on Monday after OPEC decided to wait until mid-December to make another cut in output to try to defend sagging prices.

U.S. light crude for January delivery was down $2.53 at $51.90 a barrel by 0937 GMT (4:37 a.m. EST).

Oil had settled at $54.43 on Friday after a shortened post-Thanksgiving holiday session. On November 21, it touched a three and half year low of $48.25.

London Brent crude was $2.62 lower at $50.87 a barrel.

"The markets are discounting OPEC's decision to stand put by selling off," said Edward Meir, analyst at broker MF Global.

"When it comes to calibrating supply and demand to fit the new post-September economic realities, OPEC seems to be in a state of denial," he said in a research note.

Oil is down by almost two-thirds from a peak of more than $147 a barrel in July. Prices fell almost 20 percent in November and 32 percent in October, their biggest monthly fall ever, despite OPEC's around 2 million barrels per day cutbacks.

"FAIR PRICE"

A global economic slowdown that has tipped a growing number of countries into recession has caused sharp falls in demand for oil.

But OPEC's Gulf producers want to see strict compliance with the producer group's existing output curbs of 2 million barrels per day (bpd) before agreeing to any more.

The Organization of the Petroleum Exporting Countries (OPEC) meets next in Algeria on December 17.

Saudi Arabia on Saturday pointed to $75 a barrel as a "fair price" for oil, the first time in years that the world's biggest exporter has identified a target for crude prices.

Saudi Oil Minister Ali al-Naimi in Cairo cited this price as necessary to keep more expensive new projects at the margins of world supply on track.

"I believe $75 is the price for the marginal producer," he told reporters in Cairo.

On Sunday he told the Saudi-owned al-Hayat newspaper the effect of OPEC's existing cuts was still not clear.

In Cairo, OPEC ministers discussed how much more they needed to cut. Most, including Gulf producers led by Saudi Arabia, saw the need to trim another 1 to 1.5 million bpd.

OPEC Secretary General al-Badri told reporters in Tehran on Monday: "It will be a good amount, a good quantity," without naming a specific figure.

Analysts said OPEC's delay could prove costly.

"The longer OPEC waits to cut supplies, the higher stocks rise and the longer we think it'll take for fundamentals to tighten once the tide does turn," Jan Stuart, an economist with UBS in New York, said in a weekly U.S. oil data report.

World markets retreat after last week's rally

2008-12-01T19:47:00.001+08:00

SEOUL, South Korea – Asian and European markets fell Monday as investors paused after last week's rally and digested signs that the U.S. holiday shopping season got off to a modest start over the Thanksgiving weekend.

The declines came despite gains Friday on Wall Street, which notched its first five-day advance since July 2007. Some traders held back ahead of the Institute for Supply Management's November manufacturing survey due later Monday for further clues about the strength of the U.S. economy, a vital export market.

Investors "aren't sure what they're supposed to do at this point," said Tsuyoshi Nomaguchi, a strategist for Daiwa Securities in Tokyo.

In Tokyo, the benchmark Nikkei 225 stock average lost 115.05 points, or 1.4 percent, to close at 8,397.22 after advancing 7.6 percent last week. Investors sold exporters as the yen strengthened, which erodes their overseas earnings.

Markets in South Korea, Australia and Singapore also fell.

As trading opened in Europe, the FTSE 100 index of leading British shares fell 2.2 percent at 4,192.38. Germany's DAX was 3.1 percent lower at 4,522.98 and France's CAC-40 slipped 2.5 percent to 3,179.71.

Bucking the trend were Hong Kong and mainland China, where key indices rose on expectations of further measures by the Chinese government to boost the economy after last month's big interest rate cut and anouncement of a multibillion dollar stimulus package.

Hong Kong's Hang Seng index closed up 220.60 points, or 1.6 percent, to 14,108.84, continuing its rally from last week, when it rose nearly 10 percent. China's Shanghai Composite index gained 1.3 percent to 1,894.61.

The declines came despite Wall Street's gains on Friday, when the Dow Jones industrial average rose 1.2 percent to 8,829.04 for its fifth straight gain. For the week, the Dow climbed 9.7 percent for the week and the broader Standard & Poor's 500 index jumped 12 percent.

U.S. stock futures were down, suggesting Wall Street would open lower Monday. Dow futures were down 159 points, or 1.8 percent, to 8,662, and S&P futures were down 19.7 points, or 2.2 percent, to 875.6.

Oil prices fell to below $52 a barrel after OPEC declined to cut production at an informal meeting in Cairo on Saturday. Light, sweet crude for January delivery was down $2.44 to $51.99 a barrel in electronic trading on the New York Mercantile Exchange.

In currencies, the dollar declined to 93.73 yen from 95.48 in New York late Friday. The euro fell to $1.2651.

EUR/USD intraday: supported by a rising trend line

2008-11-28T11:07:00.004+08:00

Pivot: 1.287
Our preference: Long positions above 1.287 with targets @ 1.2965 & 1.3025 in extension.
Alternative scenario: Below 1.287 look for further downside with 1.2825 & 1.276 as targets.
Comments: The pair is supported by an intraday rising trend line.

USD/JPY intraday: rebound in sight.
Pivot: 95
Our preference: Long positions above 95 with targets @ 95.95 & 96.35 in extension.
Alternative scenario: Below 95 look for further downside with 94.5 & 93.9 as targets.
Comment: the RSI is supported by a rising trend line.

GBP/USD intraday: further advance.
Pivot: 1.54
Our preference: Long positions above 1.54 with targets @ 1.55 & 1.564 in extension.
Alternative scenario: Below 1.54 look for further downside with 1.535 & 1.531 as targets.
Comment: the RSI is well directed.