December, 2009

2010 U.S. will lose their triple-A status

Posted by Mulder Venture at 10:57 am

The Big Trend

Excessive government spending causes foreigners and even our own citizens to continue to shun the dollar, which will continue to decline through 2010. China will begin to let the yuan appreciate, probably with an informal peg to a basket of competitive exporters. The yuan’s appreciation will export inflation to the U.S., not only in the obvious end-products, but also in the form of parts that are manufactured in China and used in assembled products here in the U.S.

Most economists expect inflation to remain flat due to high unemployment. Unemployment will likely remain around 10%, but it is normally around 5%. The dollar’s further devaluation (which by definition, is inflation) coupled with China’s appreciating yuan, will cause inflation here at home, long before most believe.

The Misplaced Assumption

The general assumption for interest rates is that they will remain low throughout 2010, with the Fed raising around mid-year. I expect the Fed to keep the funds rate near 0% through the end of the year and will likely use every arrow in his quiver to keep long-term rates low, at least until the end of April when the current “first-time” home buyer tax credit expires. Upon exhausting what can be done by the Fed, I expect the yield curve to steepen, with the 10- & 30-year Treasury yields rising sharply. Expect the 30-year yield to close above 6.5%.

The Watch List

Watch gold to rise above $1,500 during 2010. Miners, food and clean-water companies will have a good year. Especially companies selling products to the Chinese government or to the growing Chinese middle-class, regardless of the company’s domicile. People who stand to have a good year will likely consist mostly of conservative candidates come next November.

The Bold Prediction

Great Britain’s government debt, followed by U.S. Treasuries, will lose their triple-A status. Heavy deficit spending by Washington will continue to drive the dollar down as more countries and investors become concerned that the U.S. will not be able to pay debts through taxation or budget surpluses. As Treasury rates begin to rise, so will the deficit, both through the government’s overspending and due to the increased interest rate expense on current debt. The expectation, first with investors and then with rating agencies, will become one where the U.S. turns on the printing press. Expect AA+ by end of year.

GBP/USD small range

Posted by Byung Koo at 1:44 am

Trade Idea, SELL at 1,6010 with stoploss at 1,6040 or BUY 1,5930 with stoploss at 1,5900. In this short week no expectations of a big movement in this currency pair. So trade with more lot size and earn money!

USD/JPY trading range 90-92,50

Posted by Byung Koo at 1:24 am

The Japanese yen weakened for the sixth-day, with the USD/JPY rising to a two-month high of 91.88, and the pair looks poised to test the October high at 92.34 as investors look to unwind their dollar-backed trades going into the following year. The dollar-yen remains higher on the day after moving approximately 50% of its average true range however, the intraday rally looks to be overdone as the 30-minute RSI falls back from a high of 72. As a result, we may see the USD/JPY trend lower going into the Asian trade and cover the gap from the 100-SMA at 90.86, but the broadly based strength in the U.S. dollar is likely to keep the pair above the 100-Day SMA at 90.99. As the reserve currency begins to lose its strong correlation with risk, we may see pair continue to retrace the decline from earlier this year, which could push the exchange rate towards 92,50, the 50% Fib retracement of the yearly high to the yearly low.

Strategy: flat

My prediction is a narrow trading range for USD/JPY the next month. Resistance level of 92,50 and support ‘key’ level of 90. End of January we probably see an outbreak up of down, depends on the current economic situation and the predictions about the possibilities of interest hikes of several Central Banks.

GBP/USD near critical levels, what to do?

Posted by Byung Koo at 11:23 pm

The British Pound fell considerably for the second consecutive day of trade, closing below important support at its 200-day moving average and leaving overall momentum firmly to the downside. A disappointing revision to Q3 Gross Domestic Product growth did the bulk of the damage, while a later US Dollar rally only exacerbated the GBP/USD decline. The UK Office of National Statistics reported that the economy shrank a more modest 0.2 percent through the period—better than the initially-reported -0.3 percent change but worse than the consensus -0.1 percent move. Given that the UK is one of the few major world economies that failed to recover through the third quarter, the GDP disappointment only served to worsen investor outlook on the British economy and currency. Traders should subsequently be on the lookout for today’s key Bank of England Minutes release. The last several BoE Minutes have shown substantial currency volatility given surprise votes on key measures, and today may be no exception.

The potential for the economy to emerge from its recession in the final quarter of 2009 has raised expectations that the BoE will bring an end to their asset purchase program and look toward tightening. The shortening time frame for a rate hike has increased U.K. interest rate expectations in determining GBP/USD price direction, which is currently explaining 32% of volatility compared with 19% a week ago. However, risk appetite has also seen a rise in its influence from 28% to 43% in the past month, but that relationship has shown signs of warning over the past few days which increases the importance of today’s BoE minutes release.

Today’s release of the MPC minutes from their last rate decision will give insight into the timeframe for the beginning of tightening. The central bank didn’t add to their asset purchase program in December and following the month’s prior split vote on additional measures, it will be interesting to see where the votes fell this time around. If members are still calling for more quantitative easing then the outlook for interest rates could sink and drag the pound lower. A unanimous vote and optimistic rhetoric from policy makers should raise the potential for future rate hikes and provide sterling support. Service sector and housing data will also be released and could influence sentiment.

Key support level is 1.5800-1,5850 but will be hold or break? Will be hold, GBP/USD still in range 1,5800-1,5850 and 1,6756(first blue line). I don’t want to talk about will it break 1,58 than GBP/USD could drop very fast to next support level 1,5160(orange line)!

Mulder Currency Fund have no open positions right now in GBP/USD but one small order to buy GBP/USD on 1,5825 with stoploss order on 1,5750. In a thin market like this week, we could see big movement after BoE minutes today. If the order will be filled, target short term(1-2 weeks) is 1,62 to take profit. So we could lose around 600 euro’s or win more than 2000 euro’s. Order is lot size 100.000 USD and with a leverage of 100. A small order Mulder Currency Fund have an amazing half year behind, with a performance of more than 300% within 6 months so these days you don’t trade big. Next year a lot of opportunities and we expect high volatility in currency pairs.

USD/CHF still in uptrend

Posted by Byung Koo at 10:15 pm

USDCHF broke its 3 week uptrend line on Friday with the collapse of EURCHF, however I still can’t confirm a reversal in trend. This week USD still gains against CHF and first target is 1,0624(first blue line). This could be reach in very short term(1-2 weeks). Very important is in this case USD/CHF will not break 1,04 again, break the trend, otherwise we see 1,0154 like in begin December. This scenario is unlikely, first my prediction USD, the currency will rally more in first months against major currencies in 2010 and also SNB will not stands aside and let the local currency appreciate against the Euro above 1,50 and this could lead to broader CHF weakness.

The State Secretariat for Economic Affairs (SECO) raised its growth outlook or the economy(CHF) in 2010 from 0.4% to 0.7% as household spending and construction activity is expected to be stronger than previous estimates. The demand for exports was also upgraded with improvement forecasted to continue into 2011. Indeed, 3Q industrial production rose 3.4% matching the improvement from the prior period. The notable difference was the improvement in orders on hand and sales which are signs of continued growth. Meanwhile, the KoF Economic Institute projected growth of 0.6% in 2010 with similar improvements in consumption and exports.

The second blue line 1,0850 is my main target for the short term(1 month). The open positions in USD/CHF in Mulder Currency Fund will be closed at this point.

Long term resistance 1,1658

Long term support 0,9966

Forex – EURUSD Breaks Lower, Eyes 1.4200 Levels

Posted by Mulder Venture at 12:40 am

EURUSD has now fallen over 4.5% in the 2 weeks since the surprise non-farm payrolls, and the exit of USD short positions in the market now looks less like a temporary correction and more like a trend reversal with every passing day.

Despite still being in the sweet spot of low US rates against a backdrop of improving global data, the truth is that US data has just been a little bit too good lately. Fed policy makers remain understandably cautious about the outlook for 2010, which is why even subtle alterations to the wording of their statement have significant impacts on market psychology. The acknowledgement yesterday that the decline in the labour market is “abating”, gives markets the first hints that the US is getting back on track sooner than anticipated, and the USD will not settle for its role as carry trade funding currency for long.

EURUSD’s collapse through 1.4480 support overnight leaves very little technical support expected until 1.4180 levels, and given the ongoing negative news about Greece’s credit rating and the fragile state of Austria banking system, the fundamental outlook offers little consolation for EURUSD bulls.

Another currency suffering today is GBP, after this morning’s reading of UK Retail Sales was starkly lower than consensus forecasts, printing -0.3% MoM, 3.1% YoY (expected: 0.5% MoM, 3.7% YoY). GBPUSD had been trading around 1.6230 levels ahead of the release, but 1.6200 support rapidly gave way to a slump down to 1.6111 lows, and a close below 1.6150 leaves us open now to a revisit of 1.6000.

The US economic releases this afternoon are by no means first tier data, with only Leading Indicators and Philadelphia Fed expected; however given the pervading mood of the market to unwind USD shorts, we would expect upside surprises to have a disproportionately large effect on USD pairs.