> Commodity Currencies Turn Around but Euro Slide Continues

Fundamental Headlines
- Biggest U.S. Banks Curb Loans as Regional Firms Fill Gap – Bloomberg
- Moody’s Downgrades 28 Spanish Banks on Sovereign Risk – Bloomberg
- Euro-zone Big Four Confer After Fifth State Seeks Aid – Reuters
- Italy Approves Monte di Paschi Aid – WSJ
- Report Suggests ECB Bank Supervision – WSJ
Asian/European Session Summary
Data was sparse in the overnight (as it is for the most of the week), giving way to some consolidation if not some slight upside in Asian and European equity markets. Similarly, and as expected, high beta currencies and risk-correlated assets rebounded as well following yesterday’s decline, led by the commodity currency bloc. Amidst the rally by the Australian, Canadian, and New Zealand Dollars has been some notable strength by the Japanese Yen, which has continued its rebound after the USDJPY was rejected at 80.60 on Friday.
Helping push the Yen higher has been an under the radar flight to safety in Asia, with recent data by the Bank of Japan confirming this. The BoJ’s balance of reserves held by banks and financial institutions at the BoJ rose to a record ¥43.49 trillion; and the massive current account surplus at the BoJ suggests that investors are preparing for the worst. For historical reference, the previous record for reserves held at the BoJ was set last year, when reserves totaled ¥42.57 trillion in the wake of the Japanese earthquake and ensuing nuclear disaster.
Adding to the underlying risk-off momentum – one that hasn’t really materialized today, but as noted, I believe that bonds tend to lead all – has been disappointing credit market developments out of Italy and Spain. Out of Spain, short-term borrowing costs nearly tripled at an auction this morning, with the yield paid on 3-month bill shooting up to 2.362% from 0.846% just a month ago. On 6-month bills, the yield paid rose to 3.237% from 1.737% in May.
Meanwhile, in Italy, both data and this morning’s credit auction have further added to the Euro’s woes. Italian Retail Sales in April contracted by 6.8 percent on a yearly-basis, a clear sign that consumers have been paring back their consumption habits in expectation of crushing austerity measures coming down the pipe in the coming months. At the auction this morning, Italian 2-year notes’ yield paid rose to 4.712% from 4.04% in May, the highest such level since December 2011.
If anything, one thing is blatantly obvious: Italy and Spain are quickly headed towards bailouts.
Taking a look at credit, both Italian and Spanish 10-year bonds’ yields have moved over the 6% threshold, trading at 6.068% and 6.683%, respectively. On the shorter-end of the curve similar price action has been observed, with the Italian and Spanish 2-year note yields rising to 4.471% and 4.832%, respectively.
EURJPY 5-min Chart: June 26, 2012
Charts Created using Marketscope – Prepared by Christopher Vecchio
The New Zealand has been the top performer on the day, with the NZDUSD rallying for 0.36 percent in thus far on Tuesday. The Euro has been the worst performer, shedding 0.16 percent against the US Dollar. The Japanese Yen is stronger as well, gaining 0.28 percent against the US Dollar. The other commodity currencies, the Australian and Canadian Dollars, are firmer as well, up 0.24 percent and 0.16 percent.
24-Hour Price Action
Key Levels: 14:20 GMT


Thus far, on Tuesday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading slightly lower, at 10161.08 at the time this report was written, after opening at 10163.83. The index has traded mostly lower, with the high at 10166.87 and the low at 10132.56.

$$Commodity may fall as we spark risk aversion retail sales

June 13, 2012 09: 00 GMT Talking Points
Copper at risk as US retail sales data threatens to sink a sense of gold and silver can fall US Dollar is renewed support Haven flows of crude oil prices, are walk water in European trade, as markets digest the recent volatility, but the possibility of return risk aversion appears more and more likely. Traders are likely to turn defensive as the instability of the eurozone jitters return before Greek elections at the end of week, where membership in the block of the currency of the country appears to hang in the balance.
Retail sales report we today may serve as a trigger. Expectationscall decrease of 0.2 per cent of the forums, marking the first contraction in a year. Unknown criticism in the prospects of economic growth world is the degree to which a recovery in North America still troubled may offset the winds of weakness in Europe and Asia. Taken on a background of fading there Paris after stimulation disappointed of the week last Ben Bernanke testimony hope, this means that a fresh impression rises to feelings.
Future of S & P 500 stock index are sinking deeper into negative territory before the Wall Street opening bell, strengthens the case for a risk-free session. This situation send the crude oil and copper lower of the following while the gold and silver come under pressure in the middle of recovering demand for shelter for the US Dollar.
WTI crude oil (near NY): $83.32(1) / / + 0.62 / / + 0.75%
Price builds 83.30 expansion of 14.6% of Fibonacci, challenge the barrier of 23.6% to 81.07. A break below this limit is 80.00 figure and 38.2% Fib to 77.33. 14.6% Expansion has been redesigned as a resistance in the short term, with a rear thrust above which targets June 7 in figure 87.00.

Daily chart - created with FXCM Marketscope 2.0
Spot Gold (near NY): $1609.80 / / + 13.03 / / + 0.82%
Bat prices back above the figure of 1600/oz to challenge resistance to the 1616.23 at the intersection of the tracing of 61.8% Fibonacci and a trend line drops from early March. A break above this limit exposes the 76.4% Fib to 1637.35. The level of 1600 has been redesigned as a support in the short term, with additional strengthening from with the permission of the tracing of 50% to 1599.17.

t at 1599.17.

Daily chart - created with FXCM Marketscope 2.0
Cash (near NY): $28.97 / / + 0.41 / / + 1.42%
Price breaks above the resistance of 28.70, exhibitor 29.71 as the next to the barrier. In this spirit, the general structure appears to be showing a graphic training of flag, an downward continuation. Confirmation is required on a daily close below the model - now in 62.54 - which would expose 27,06 as the next objective of disadvantage.

ective.

Daily chart - created with FXCM Marketscope 2.0
COMEX E-Mini Copper (near NY): $3.336 / /-0.008 / /-0.24%
Prices appear to be due to resistance to the top of a channel which falls on 1 may, high, exhibitor 3.384 23.6% Fibonacci allows the swing. A break above this limit is the 38.2% Fib 3.474. The top of the channel, now at 3.319, was reworked as a short-term support.

as near-term support.

Daily chart - created with FXCM Marketscope 2.0

##Commodity Currencies Lead as Euro Lags amid Rising Spanish Yields

Key Levels: 14:05 GMT
12 June 2012 14:12 GMT Fundamental Headlines
- Fed Says US Wealth Fell 38.8% in 2007-2010 on Housing – Bloomberg
- Prices of US Goods Imports Decrease by Most in Two Years – Bloomberg
- Rebels try to Evacuate Residents of Syria’s Haffeh – Reuters
- Spain Banks Face Europe’s Scrutiny – WSJ
- Spanish, Italian Yields Leap Higher – WSJ
Asian/European Session Summary
Yesterday’s price action was very technical: high beta and risk-correlated assets hit overbought short-term levels at the open in Asia and finished the day at their daily lows by the end of the US session. The intraday swing was indeed enormous, with the S&P 500 falling approximately 2.40 percent from its overnight high in the futures market, marking the single largest one day swing by the benchmark index in 2012 thus far.
However, at the start of Asian trading some hopeful comments by various global policymakers or at least financial industry officials buoyed risk-appetite enough to catapult higher yielding currencies and risk-correlated assets throughout the overnight sessions. Federal Reserve pema-dove Charles Evans quipped (unabashedly) that he is in favor of “any accommodative policy,” and that extending Operation Twist and expanding asset purchases would be “useful” for the US economy. With market participants desperate for whatever easing they can get, such blind devotion to a looser monetary policy has spurred risk-appetite.
Also boosting risk-appetite were comments by the International Swaps and Derivatives Association (finance industry official, essentially), saying that not only would the Spanish bailout not trigger subordination, but it would not trigger the sovereign credit default swaps (CDS) either – no CDS trigger means that there won’t be a liquidity drawdown in the near-future, which spurred investors to shed their lower yielding currencies such as the Japanese Yen and the US Dollar.
With the Euro-zone crisis on fire and the Chinese growth picture seemingly more stable after this weekend’s data – mainly on a much stronger than expected Trade Balance figure (which doesn’t seem to fit in with trade data from China’s largest trading partners, but markets are generally ignoring this point so it’s neither here nor there) – the commodity currencies have the impetus to continue their recovery after a brutal May. Accordingly, the Australian, Canadian, and New Zealand Dollars have been the top performing currencies thus far on Tuesday.
Taking a look at credit, pressure is on across the Euro-zone, not just in the periphery anymore. Italian and Spanish bonds are showing the most distress (save Greece), with their respective 10-year note yields climbing to 6.210 percent and 6.707 percent. In fact, the Spanish 10-year note yield hit its highest level since November 28 – a clear indication that the bailout has failed. Broadly speaking, the 7 percent yield on the 10-year note appears to be the threshold for a bailout from the European Troika, as it was at that level Greece, Ireland, and Portugal started exploring options for international help.
EURUSD 5-min Chart: June 12, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio
The New Zealand Dollar has been the top performing currency today, gaining 0.77 percent against the Euro and the US Dollar. The Australian and Canadian Dollars are also up against the Euro and the US Dollar, appreciating by 0.58 percent and 0.37 percent, respectively, against each. Accordingly, the EURUSD is unchanged on the day, but only after trading in a 0.64 percent range from its daily low to high.
24-Hour Price Action

Key Levels: 14:05 GMT


Thus far, on Tuesday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading lower, at 10197.62 at the time this report was written, after opening at 10214.83. The index has traded mostly lower, with the high at 10220.10 and the low at 10182.60.

Commodity Prices Have Scope to Rise into the End of Trading Week

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By Ilya Spivak, Currency Strategist 18 May 2012 08: 56 GMT Talking Points

Crude Oil, Copper May Rise Amid Profit-Taking on Risk Aversion Bets Gold and Silver Well-Supported on QE3 Hopes, Eurozone Instability Commodity prices are showing diverging performance in early European trade. Growth-sensitive crude oil prices are following shares lower goal likewise sense-linked copper is essentially flat. Meanwhile, gold and silver are on the upswing, following up on a jump higher in late Wall Street trade after a disappointing set of US economic data seemed to stoke Fed QE3 bets and drive demand for precious metals as an alternative store of value while boosting Treasuries and weighing on the US Dollar.

Looking ahead, a difficult environment presents itself. Risk appetite is under pressure as the aforementioned US data set teeth hopes that an accelerating US recovery will help offset slowing performance in Europe and Asia. Mounting Eurozone crisis woes are compounding the dour mood after Moody's downgrade 16 Spanish banks overnight, stoking fears that lenders in the currency bloc's fourth-largest economy (and possibly elsewhere) may buckle as Greek-born jitters metastasize region-wide.

However, three consecutive weeks of aggressive selling across the spectrum of risky assets may force a period of profit-taking, with traders unlikely to be willing to carry significant directional exposure into the weekend given the degree of uncertainty surrounding the satiation unprecedented in the Eurozone. & S P 500 stock index future have erased overnight losses and now point higher, hinting that correction may be brewing that pulls crude oil and copper higher along with equity prices.

Gold and silver appear likely to remain well-supported however. The current environment plays to the metals' appeal both as inflation hedges (given QE3 speculation) and as assets that don't necessarily rely on financial markets to derived their value, a major advantage at a time when another 2008-style rout is appearing increasingly plausible. In the absence of US economic data, the high - profile Facebook IPO may also prove to be a catalyst to consider.

WTI Crude Oil (NY Close): $92.56 / /-0.25 / /-0.27%

Prices put in back-to-back Spinning Top candlesticks above support at 92.51, the December 16 low, pointing to indecision and hinting a bounce may materialize. Initial resistance lines up at 95.41, the February 2 session low. Alternatively, renewed selling through media statements 90.49.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1574.27 / / + 71.48 / / + 2.25%

As we suspected yesterday, prices recovered after putting in a Spinning Top candlestick above support in the 1532 45 - 1522 50 area, marked by the September 26 and December 29 spike lows. Buyers cleared the 23.6% Fibonacci tracing at 1560.98 to challenge the 38.2% level at 1582.10, with a break above that exposing the 1600/oz figure and 1616.23. The 1560.98 has been recast as near-term support.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (closed NY): $28.04 / / + 0.82 / / + 3.01%

Prices are recovering from support at 27.06 to challenge resistance in the 28 43-70 area marked by a form level support and the underside of a previously broken falling channel set from early March. A break above this barrier statements 29.71. Alternatively, a push through media statements the 26 05-15 region marked by the September 26 and December 29 spike lows.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (Close NY): $3.480 / / + 0.002 / / + 0.06%

Prices are mounting a shallow recovery after putting in an Inverted Hammer candlestick above support at 3.459, the 50% Fibonacci tracing. Buyers see initial resistance at 3.584, marked by the 38.2% Fib level. Alternatively, a reversal through media statements the 61.8% tracing at 3.334.

Daily Chart - Created Using FXCM Marketscope 2.0

-Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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18 May 2012 08: 56 GMT May, 17 08: 46 GMT Crude Oil, Gold May Recover as Greece Eurozone Exit Fears DigestMay, 16 11: 08 GMT Commodities Sold on Greece Woes May Extend Losses on Fed MinutesMay, 15 10: 40 GMT Gold, Silver Rise as US Dollar Pulls Back After Eurozone GDP DataMay, 14 09: 00 GMT Crude Oil, Gold Sink as Euro Crisis Fears Grip Financial MarketsMay11 08: 58 GMT Commodities Sold as Risk Appetite Unravels, US Data May Cap Losses

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++ Commodity Currencies, US Dollar Tumble on Weak Jobs Report

Fundamental Headlines
- Employers in U.S. Added Fewer Jobs than Forecast in April – Bloomberg
- European Manufacturing, Services Output Shrank Last Month – Bloomberg
- U.S. April Hiring Slows, Jobless Rate Falls to 8.1 Percent – Reuters
- Europe’s Bank Stands Pat – WSJ
- Nasdaq to Launch New Stock-Options Trading Venue – WSJ
European Session Summary
Market conditions were relatively quiet ahead of the hallowed nonfarm payrolls report, the United States’ reading of the labor market. Nevertheless, higher yielding and risk-correlated assets generally traded lower in the overnight sessions, with the US Dollar among the top performers midway through the European session.
However, the nonfarm payrolls report threw another wrench in the US Dollar’s rally. The 115K print versus the 160K forecast brings about the second consecutive month of disappointment, setting up the Japanese Yen for another push higher. The April reading was relatively less disappointing, showing jobs growth slowed by 4.2 percent from March to April; the March reading showed that jobs growth slowed by 53.7 percent from February to March. Generally speaking, it’s of my belief that this is the continued kickback from the unseasonably warm winter experienced across much of the United States this year, and that jobs growth should return to the 160K to 200K range the next few months ahead of the November elections.
In what has been little discussed in the wake of the report has been the dip in the unemployment rate, which fell to 8.1 percent in April from 8.2 percent in March. Clearly, this has nothing to do with the NFP print, but rather, the dip in the participation rate. The United States’ labor force participation rate fell to its lowest level since 1981 at 64.3 percent. This is starting to pose an enormous structural problem for the country that’s supposed to be the global growth engine. If more Americans are out of the work force, aggregate disposable income in the economy will be lower; considering consumption accounts for approximately 70 percent of the headline GDP figure, and a drop in disposable income will hurt growth. Put another way: if this trend continues, the Federal Reserve will have all the evidence they need for another round of quantitative easing.
Taking a look at credit, it’s clear that the poor labor market reading has stoked a major shift to safety, especially in the form of German Bunds and US Treasuries. The German 10-year Bund yield dropped to 1.584 percent today, while the US 10-year Treasury Note yield fell to 1.886 percent. On the shorter-end in Europe, there’s been an improvement in the Italy, French and Portuguese 2-year notes, while the Irish and Spanish 2-year notes saw their yields climb, with the former’s hitting a fresh three-month high (in terms of yield, three-month low in terms of price.
USDJPY 5-min Chart: May 4, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio
The Japanese Yen has been the top performer thus far on Friday, with the USDJPY depreciating by 0.40 percent. The commodity currencies have been weaker overall as well, with the Australian, Canadian, and New Zealand Dollars shedding 0.70 percent, 0.45 percent, and 0.61 percent, respectively, against the US Dollar. The EURUSD was little changed on the day, up 0.04 percent after NFPs.
24-Hour Price Action


Key Levels: 13:30 GMT

~~$ Dollar rises against commodity currencies as March Factory Orders fall

02 May 2012 14: 29 GMT  THE TAKEAWAY: [U.S. factory orders fall in March] > [Despite cooling in factory orders, stronger April ISM manufacturing figure indicates slump may be short-lived] > [USD gains vs.] [AUD]Orders to U.S. factories fell in March for the second month in the last three, due largely to a pullback in demand for aircraft. Bookings declined by 1.5 percent in March, while February's figure was revised downwards to a 1.1 percent rise from its initial reading of 1.3 percent. The median forecast of 61 economists polled in a Bloomberg News survey had called for a 1.6 percent decline.
According to a report released by the U.S. Department of Commerce today, orders for capital goods excluding aircraft and military equipment, a measure of future business investment, fell by 9.9 percent after rising 1.8 percent the previous month. Shipments of capital goods, which are used in calculating gross domestic product (GDP), climbed by 2.6 percent after rising by 1.5 percent in February. Meanwhile, demand for down goods, including petroleum, rose by 0.5 percent for a second month, while a 0.4 percent increase in unfilled orders signaled a pickup in production.
The factory orders report follows yesterday's release of the ISM Manufacturing Index for April, which showed that manufacturing in the U.S. probably expanded at the fastest pace in almost a year. Despite last month's drop in factory orders, the ISM figure indicates that the slump may be short-lived.
AUDUSD 1-minute Chart: May 2, 2012

Chart created using Strategy Trader - Prepared by Tzu - Wen Chen
Following the data release, the greenback strengthened against the higher-yielding currencies such as the Australian, Canadian and New Zealand dollars. The US dollar advanced as much as 16 pips against the Aussie in the first few minutes as the slump in factory orders pared risk appetite and sent investors back towards the safe haven currency. At the time of this report, the greenback was trading at $1.0289 against the Aussie.

>> Commodity Bloc to Underperform While Major Currencies Consolidate

-Euro still locked in choppy consolidation

-G-20, IMF and World Bank meetings kick off

-Looking for underperformance in commodity and EM FX

-German IFO and UK retail sales come in above consensus

-Taking a closer look at risk management and effective trading technique

We have reached the final session for the week and after all is said and done, there have really been no significant price action developments in the major currencies. The Euro remains locked in a tight consolidation and will still need to break and close back above 1.3215 or below 1.2995 for clearer directional bias. Thursday’s successful Spanish bond auction has managed to prop the single currency for the time being, but any upside has been capped to this point.

Relative performance versus the USD Friday (as of 10:35GMT)

CHF +0.40%

EUR +0.35%

GBP +0.31%

CAD +0.30%

AUD +0.07%

NZD -0.01%

JPY -0.18%

Global equity markets still seem to be overvalued in our opinion and the technical picture warns of a more substantial decline over the near-term. As such, we would expect to see a continued underperformance in risk correlated currencies going forward, and perhaps it is best to be net short a basket of the commodity bloc and emerging market FX against the major currencies.

With this strategy, we would eliminate direct exposure to the US Dollar, whose fate seems to be less certain given the recent consolidation. By extension, we would also be long of some of the other major currencies like the Euro and Pound (against commodity and EM FX), and this seems to be the right trade on Friday, with both the Euro and Pound responding well to the much better than expected economic data in the form of German IFO and UK retail sales.

Looking ahead, markets may remain locked in a holding pattern in light of the G-20, IMF and World Bank meetings which are all underway. However, as per the usual, we do not expect any developments from these meeting to have any major influence on the direction in markets. The underlying market drivers over the coming weeks will continue to be driven off the Eurozone crisis, Fed monetary policy outlook, and Chinese economic performance.

Moving on, the other day I received an email from a client asking for some tips on risk management. The client was distressed with his performance and inability to successfully trade the markets and was looking for some feedback. I put together a response and thought it might be helpful to share my thoughts on the matter. The following is my response:

What you speak of is one of the most challenging things about being a successful trader....it is not easy and comes down to maintaining a very firm discipline.....the best I can explain is that intuitively, a trader will look to be fearful in a winning position and hopeful in a losing position...this is why most unsuccessful traders will get poor results....they are hopeful when they are losing and hold onto the position and yet the second they see any profit they are fearful and quick to take it off....this obviously skews risk/reward and makes for a bad strategy.....a lot of this stems from a lack of confidence....

What you need to do is to flip that around and be fearful in losing positions and hopeful in winning positions...this is really the secret....the best way to do this is to make sure you take only trades you love.....then determine where you would like to see the trade go..and let the trade play out..while also being very firm with your stop-loss...do not take profit ahead of what you decided (provided you still love the trade), and also try and not watch the market every second of the day.....another way to effectively implement this strategy is to make sure that your position size is not too big...one way to do this is to take the "Pillow Test”, a rule I came up with years ago which says that if you can't sleep at night then your position is too big and you won't be able to think clearly.....so reduce the size until you can sleep soundly on your pillow :)...

ECONOMIC CALENDAR

 TECHNICAL OUTLOOK

 EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here we still can not rule out risks for additional consolidation above 1.3000, before considering bearish resumption. Ultimately, any rallies towards 1.3300 should be well capped, while a break and daily close back under 1.3000 would accelerate declines to the early 2012 lows at 1.2660.

 USD/JPY: The latest pullback from the 2012, 84.20 highs was viewed as corrective and it looks as though the market has finally found some solid support ahead of 80.00. The setbacks have stalled by the top of the daily and weekly Ichimoku clouds and we look for the formation of a fresh medium-term higher low somewhere around 80.00 ahead of the next major upside extension back towards and eventually through 84.20. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate.

 GBP/USD: The recent break back above 1.6000 now opens the door for fresh upside towards the October 2011 peak at 1.6150. However, any additional gains beyond 1.6150 should prove hard to come by, and we once again see risks for a bearish reversal in favor of renewed weakness back down towards key support by 1.5800. A break and close below 1.5800 will then accelerate declines. Ultimately, only a weekly close above 1.6150 would negate underlying bearish bias.

 USD/CHF: Our core constructive outlook remains well intact, with the latest setbacks very well supported by psychological barriers at 0.9000. It now seems as though the market could be looking to carve a fresh higher low, and we will be watching for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.