Scenario on Euro

Many Gurus from CNBC again predict that Euro will collapse very soon. Some guru even predicts Euro to 1.2. [what an Idiot?] In fact they all short on Euro. They mentioned that will be happened definitely because the fundamental analysis is very sound these days. I would agree with them based on their fundamental analysis. However their fundamental analysis is really flawed.

http://www.presseurop.eu/en/content/press-review/944461-worst-case-scenario-euro-approaches

Forex trading is not one way trading. If someone say fundamental analysis, I hope that he should include all the related parameter in the fundamental analysis. European debt crises do not started yesterday and it will not end tomorrow. So does US debt crisis. That’s what many people forgot about it. Democrat and President Obama are still spending and deficit piling likes a Mt. Everest.

What if Euro collapse tomorrow, Euro will get stronger against all currencies. Then Europe export will be in jeopardy. Moreover, all Euro Equity will be down to drain. Of course, Gurus discount on ECB action. Recently, ECB Interested rate is 1.25% compared to Federal Reserve Interested rate which is 0.25%. In fact ECB Interested rate is 5 time or 500% higher than Federal reserve Interested rate so that ECB have a lot of ammunition compare to the Federal reserve which has almost empty hand now except QE3.

As a matter of fact ECB can still lower their interested rate so many time from now on. That will prevent Euro from collapsing. Federal Reserve has already done QE2 or printing billion and billion of dollar. Why not ECB printing Euro billion and billion as Federal Reserve did. ECB might need to print a lot because of bailout across Europe. That is another hidden ammunition for Euro. Add all the parameter to fundamental analysis, there is no way Euro will collapse soon unless Jean-Claude Trichet does paralyze.

Today Dow Jone down about 180+ as well as all world equity down relatively. In the mean time, EUR/USD pair and GBP/USD are not going down relatively. Why? Oversold. Really! Why isn’t Gurus fundamental play here?

Don’t miss all the related parameter in the Fundamental Analysis!

Extreme Volatility in Forex

Volatility indicators measure the intensity of price fluctuations, providing an insight into the market activity level.

Financial term Volatility is the same as statistical term Standard deviation. Standard deviation is a statistical term that measures the amount of variability or dispersion around an average. It shows how much variation or “dispersion” there is from the average (mean, or expected value). A low standard deviation indicates that the data points tend to be very close to the mean, whereas high standard deviation indicates that the data points are spread out over a large range of values.

http://www.socialresearchmethods.net/kb/statdesc.php

An increase in market volatility often leads traders to find a lot more trading opportunities. The huge market usually swings lots of potential for gain, but also for loss, especially if traders do not take the necessary precautions. Volatility measures the overall price fluctuations over a certain time and this information can be used to detect potential breakouts.

Higher Standard Deviation means high Volatility in Forex and lower means low Volatility. Recently EUR/CHF pair has very high Volatility due to frequent swiss currency intervention.

Forex Storm Watch, used with permission of OANDA

Nowadays, many businesses choose Swiss Franc likes Gold as the safe haven because of the strong Swiss economy. In fact, Swiss Franc is getting stronger every day. As a result, strong currency hurts the Swiss economy. That is why we can see the frequent Swiss Intervention on Swiss Franc this year. That is the reason Swiss currency is extreme volatility in forex markets this year.

http://www.forexpros.com/

In fact, if you are in the wrong trend in forex, you may loss excessively due to high leverage alternatively if you are in the right trend, you will gain huge profit. The low volatility currency pair will be a safe choice for hedging purpose for the particular businesses. For the normal long time forex trading, appropriate volatility may be a good choice. However, extreme volatility pair will be the best choice for the professional forex trader.

For more information about Volatility in Forex,

One can find out the current Forex Volatility at Forex Volatility Calculator or Forex volatility

Reasons: Why the Gold Bubble will not burst?

Reasons: Why the Gold Bubble will not burst?

1. More Gold Long Positions Open as on Nov 11, 2011.

There are more Gold long positions open than short according to the Oanda.

http://fxtrade.oanda.com/analysis/open-position-ratios

2. Uptrend on Dec 2011 Gold Delivery

Gold for Dec delivery, the most actively traded contract, settled +39.90, or 2.2%, at 1,857.50 oz on the Comex division of the New York Merc Thursday. The Chicago Board Options Exchange Gold Volatility Index (GVZ) hit a high of 32.93 Thursday Nov 10, 2011.

3. Current Europe debt crisis

Current Europe debt crisis such as Italy and Greek Debt are still uncertain. Europe debt crisis support above reason 2. Uptrend on Dec 2011 Gold Delivery. One of the reason is that Italy Govt Bonds 10 Year Gross Yield surge according to the Bloomberg.

http://www.bloomberg.com/apps/quote?ticker=GBTPGR10:IND

4. Uncertainty still high in US

Uncertainty still high and lack of consumer confident in US despite Dow high on Friday Nov 11, 2011. The Joint Select Committee on Deficit Reduction or the Supercommittee goes nowhere. There is no result from the supercommittee even if the dead line approaches Nov 23, 2011.

http://iowntheworld.com/blog/?attachment_id=89677

In fact, the Gold Bubble will not burst until Christmas 2011 for sure.

Happy Halloween with Yen Intervention on Oct 31, 2011

Japanese starts the day of Halloween on Monday, October 31, 2011 with the Yen Intervention that we’d expected for a long time. This is a long over due task for Yen since Yen is extremeeeeeeely strong against USD that really hard to Japanese exporters. The last Yen intervention was on August 4th, 2011.

Someone will get trick and others will get treat. Whooping 350+ pips movement in the short instance.

As a results, EUR and GBP wiped out the last Friday gain against USD.

Gold Bubble also burst a bit for today against USD.

Effect of Gold price on USDJPY

The safe play for Yen intervention is the EUR/GBP pair. That is also true for frequent Swiss Franc intervention.

Since the global equity and financial market are still unsustainable, we expect USD/JPY will still downside (getting strong) within a few days again.

“Expert” advices may be fatal in today trading market!

Forex market is, in general, unpredictable. Otherwise, most of the traders could have been extremely wealthy already. However, many “experts” pretend the market as a predictable elements.

On 21 of October, all of the so called “experts” from CNBC mentioned that they just short EUR/USD pair because technical and fundamental supports to sell the pair in that instance. They said technical level hits the resistance(R5) and the fundamental supports to short the pair due to unsolvable Greek debt crisis. One guru also mentioned that there will be no cheque included in the green or the red envelopes that will be delivered in next week.

Since then, EUR/USD pair goes up about 500 pips. Of course all the short bet will be lose really hard on “expert” advice. Most of the “experts” echo each other and we are forced to listen how they trade smartly.

Forex is not a one way street. In these days, speculation drives the market more predominantly than the fundamental and the technical analysis. Of course, the fundamental and the technical analyses are necessary for learning tools but not sufficient for day to day trading. “Expert” advices may be fatal in today trading market! If you lose you capital, you will never be come back to the market.

Use your trading experience wisely and stick with it. Beware of “experts”. Have a profitable day!

Review on USD/JPY

USD/JPY pair has been moving neither upside nor downside for 5 weeks already since the latest failed currency intervention on August 4th. The resistance holds about 77.1 and support holds about 76.4. The average USD/JPY pair is hovering around 76.7. In the mean time, many currency pairs are bouncing like a ping pong ball in that period.

Since the failed currency intervention on August 4th, the pair doesn’t allow to goes down beyond 76.5. It can be considered as slight currency intervention. In the mean time, the global currency market is also resisting around 77.1 and never let it goes thru beyond.

In fact, currency speculators on both sides are not able to make either profit or lost yet. Water is standstill and waiting for the new Forex Tsunami. The only problem is the time and direction.

Weak vs Strong Currency

Currency is about the relative weakness or strength when compared to others at any given moment. It’s not an absolute value. In reality neither weakness nor strength is better or worse. Strong Currency is usually from a highly industrialized country however it is not very true is case of Burma/Myanmar currency Kyat.

Weak Currency [currently weak US$ compared to strong Japanese Yen as of August 2011]

1. Good for nations which have a larger share of export than imports making up their GDP. Their exports become more competitive but at the same time their imports become more expensive.
2. Having a weaker relative currency encourages more nations to buy their goods more affordable to overseas purchasers.
3. Weaken their purchasing power drops.
4. A weak currency is bad if you are planning to travel to areas with a strong currency or purchase items made in an area with a strong currency
5. A weak currency will however stimulate manufacturing and export to areas with stronger currency

Actually, the factors influencing on the currency is very complex because of so many factors involved.

Factors Contributing to a Weak Currency

1. Lower interest rates in home country than abroad.
2. Higher rates of inflation (inflation rate of US 4% vs. Japan 1.8%).
3. A domestic trade deficit relative to other countries (too high deficit likes US).
4. A consistent government surplus.
5. Political or economic uncertainty within the country with the Weak currency.
6. A collapsing domestic financial market (likes US and European).
7. Weak domestic economy/stronger foreign economies (corporate and industry moving outside US).
8. Frequent or recent default on government debt (near default and credit downgrade likes US).
9. Monetary policy that frequently changes objectives.
10. Able to growth in Equity market such as Dow.
11. Real Estate Industry may be probably doomed or boomed by Foreign Investors such as in Florida.

Strong Currency [currently strong Japanese Yen compared to weak US$ as of August 2011]

1. Good for nations which rely more heavily on imports than exports. Their exports become less competitive so they export less. This could result in a decline in the balance of payments and a weakening of the currency.
2. It hurts domestic manufacturing both intended for the domestic market and for export.
3. A strong currency has a higher purchasing power in the international market than a weaker currency.

Factors Contributing to a Strong Currency

1. Higher interest rates in home country than aboard. (Not true for Japan however 12% to 17% in Burma/Myanmar)
2. Lower rates of inflation. (inflation rate of Japan 1.8% vs. US 4% ).
3. A domestic trade surplus relative to other countries.
4. A large, consistent government deficit crowding out domestic borrowing.
5. Political or economic certainty within the country with the Strong currency.
6. A strong domestic financial market.
7. Strong domestic economy/weaker foreign economies.
8. No record of default on government debt.
9. Sound monetary policy aimed at price stability.
10. Unable to growth in Equity market such as Nikkei.
12. Real Estate Industry can be depressed or burst.

[Ref: http://www.cbsnews.com/2316-100_162-4038125-6.html ]

Why market mass selloff?

In general, market always goes up because people are working hard and business and industry support a lot of innovations to compete each others locally or globally. Nobody wants market to go down that is why our world is developing so much compared to the last century.

However, market frequently goes down due to

1. Mismanagement in politics.

2. Mismanagement in financial institution including banks, federal reserve, and credit rating agencies.

3. Mismanagement in business likes Lehman brothers.

4. Fraud in business likes Bear stearns.

5. Systematic manipulation by the greedy company such as greedy hedge fund.

6. Lack of required regulations.

7. Excessive regulations.
Dodd–Frank Wall Street Reform and Consumer Protection Act stabilizes the market initially. However, business can’t growth in America because of that law. In fact business have to move elsewhere that generate more unemployment. For example, Apple have many great innovation recently however they manufacture the innovative  product in Japan, the Philippines and China. Excessive regulations has made it too expensive to manufacture anything domestically.

8. More liberal agencies on excessive spending.

9. Unnecessary war like Libya.
Cost of Libya Intervention $600 Million for First Week, Pentagon Says

10. Excessive spending for majority of people to get votes

In fact, the combination of trigger needs to have sell off.

1. Combination of negative news such as Europe credit problems, US debt problems, S&P credit downgrade news.
Coming up: more bad news on Student loan debt grows, Consumer Credit Card Debt grows and so on.

2. Most of the TV station needs high rating in order to survive in the market. In fact, they like more bad news because bad news get more attention for viewers. That is also true for periodicals and comedians. In fact, they try to fire more bad news and bad news comment as well as bad speculations. Actually, they are no more than greedy businesses.

In this August selloff, US Public Pension Funds Lose Billions. According to the Huffingtonpost

• California’s main public-employee pension fund, the nation’s largest, has lost at least $18 billion off

• Florida’s pension fund has lost about $9 billion since June 30

• Kentucky, which has more than $20 billion in unfunded pension liabilities

Actually, those losses are penny compared to the Rich lost.

That is known as FEAR not normal market correction however this processes will be happened again and again. Selloff is de-risking from the market due to uncertainty. However, after Selloff, investors face another risk called currency risk because US dollar is fallen apart. In fact, most of the assets transform to Gold and US treasury which was just downgraded to AA+.

Recession or the Great Correction

Due to the uncertainty in US, Global Investors panic in market and fear of recession. China Shanghai Composite is already corrected 20% as of August 08, 2011. China and Japan already lost approximately 10 billion US$ each in treasury in one day. In the mean time, Economists keep saying “Don’t Panic and Keep on Fundamental”.

China-Shanghai-Composite-August-08-2011

Dow is already corrected 12.5% and there is also more room to correct up to 20%. We hope not.

Dow-August-08-2011

This could be the great correction and opportunity to enter the market based on your controlled risk. When to enter the market is based on your own judgment! It should be noted that wealth can only be created at the market downtime. Opportunity is now knocking. According to the graphs below, US is nowhere near recession.

Treasury Spread: 10 yr bond rate-3 month bill rate

[http://www.newyorkfed.org/research/capital_markets/Prob_Rec.pdf]

Estimated Recession Probabilities for Probit Model

[Ref: http://www.ny.frb.org/research/current_issues/ci2-7.pdf]

Gold as a global reserve currency!

China calls for a new global reserve currency. Xinhua wrote “stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” recently. Actually, China is just playing politics as usual. Their goal is to knock down America as the superpower status.

Anyway… somebody forget something here that Gold has been acting as a global reserve currency for many years whether you’d agree or not. Gold is not only commodity but also new global reserve currency unofficially. This is a reason, many Governments buy gold regularly. If not, why do they want to keep it in the Vault.

“

The-Bank-of-England-Gold-Vault http://www.puregold24k.com/blog/?p=4

	Gold (tonnes)
European Union	10,792.6
United States	8,133.5
Germany	3,401.0
IMF	2,846.7
Italy	2,451.8
France	3,401.0
China	2,435.4
Switzerland	1,040.1
Russia	775.2
Japan	765.2

[Ref: http://en.wikipedia.org/wiki/Gold_reserve]

If the leverage is not allowed in trading, Gold is very solid. Gold can’t be printed or duplicated it as much as Government wants. That’s why Politicians really hate Gold as global reserve currency.

Gold Price after S&P downgrades US credit rating to AA+ (August 8, 2011)

If Dodd-Frank Act doesn’t prohibits Gold and Silver FX Trading, the Gold price could have been reached 2,000+ US$ by now.

It’s simple that just defined the entire price in term of Gold such as Oil price in term of Gold in how many ounces. In fact, most of the product prices in term of Gold price will be extremely stable forever. Then you have to convert Gold price with your local currency. The good thing is that the price only depends on your responsibility.

Now, the status is Dollar Will lose as a global reserve currency anytime soon.