Euro is at historical midpoint needs collapse in risk appetite to proceed

Euro at historical midpoint needs collapse in risk appetite to proceed 

14 July 2012 03: 00 GMT  fundamental Outlook for the euro: neutral

There is no shortage of basic justification for the euro to expand its painful collapse, but history has taught us that the market will decide, it is important and what is not. Last week, EURUSD fell to its lowest level in two years - a region that is intended for historical area (about 1.2135) especially in the middle between the two. Purely fundamental point of view, we could show the failed promises of the EU Summit and erosion of confidence in the ability to stabilize its financial sector as the source for this plight. But the headlines were not line, until the news crossing the wires more sparsely (compared to the lead up to the Summit two weeks ago) and price action. By the last week of the EURUSD daily far the S & P 500 futures than one organized event drivers.

In the past the correlation between the became world's most liquid currency pair (EURUSD) and my preferred measure of risk appetite (the course long biased and stimulus-based S & P 500) quite heavily. This should in no small part the greenback as the ultimate liquidity provider and the euro position as Center of the world's largest financial threat. However the balance of emotions leads around moving forward rather the health of the European financial system, rather than the other way. This means that the round of open and detail-deficient buy vows of the EU Summit as an another successful bid will be on time - rather than to solve the underlying problem.

In General, can risk trends, we measure the market tolerance for the inclusion of otherwise dubious European assets. EURUSD position just above its historical center and the ground of a long-term technical congestion pattern specified, it makes sense that a strong fundamental impetus is necessary if we are to finally move below 1.2000. Looking for heavy hitting catalysts ahead, there mangelnder are big-ticket items such as a provisional GDP reading to global growth expectations or a critical policy collection, which could on the initiative hopes to lead. The market remains open to distract his own way without distractions or catalysts to it to find. We have a barrel on Monday to IMF sees growth. There is some ongoing hope that Bernanke the topic QE3 Tuesday and Wednesday - another source of disappointment can to respond to testimony his Congressional, if it does not occur to one. Perhaps one of the most influential (but derogatory vague) developments is the construction of the 2Q U.S. corporate earnings season. To impress that collective expectations for returns have been set too high chance of the market is an open invitation to the relax.

Although the general condition of the atmosphere on global markets should not more influence over the euro next week can have health, we optimize the fundamental event risk of the euro process list. Given the dubious, long-term health of the eurozone itself; Undermine developments that gain the offer of stability shifts in the global currents can expose further troubling the region. Perhaps the most compelling event risk is EU Finance Ministers meeting on Friday. This is supposedly a follow up of the July 9 meeting the implementation of direct rescue of the ruler of the ESM, to discuss terms Spain rescue and again Greece. After two details to work out failed in the Tower, yet expectations probably low. On Wednesday, the EU will release a report on the public finances of the euro zone. This can provide either a rude awakening or (more likely) it an optimistic turn on bad numbers - leading sets in the market write. Also worth mentioning is a round of bond auctions. Greece, Portugal (his second since code format order the market since his rescue), Spain and Italy to sell all debt. Even though they have no serious market events be on the move, they have constantly pursued, deteriorated confidence.

As we weigh the fundamental reality to the capricious appetite of speculators, it is considering alternative complications in capital flows. A theory for the euro, which has gained considerable traction recently is that a deterioration leads the regional financial conditions and decrease of your risk tolerance, capital of foreign investors to repatriate European banks. A Bank of America research report illustrates a more foreign euro banks as a 40 percent decline in stocks since 2008. This could prove that a permanent buffer with the sale of pressure thought, completely probably would compensate for it not. Now I'm a basic bear with technical and speculative reservations for follow through. -JK

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14 July 2012 03: 00 GMT

{ Eurozone Needs Healthy "Proponomics" Application to Survive Crisis}

06 June 2012 06:02 GMT Markets finding some bids following excessive risk liquidation Aussie growth data come in much better than expected We introduce “Proponomics” - the economics of artificially propping economies Eurozone must apply this strategy to prevent further collapse ECB policy decision due later today; no rate change expected It’s excellent to be back on the desk after some time off to enjoy my new baby boy.
Meanwhile, markets have settled following a wave of volatility resulting in broad based strength in the safe haven US Dollar and Yen. While there is still no clear resolution in place to deal with the Eurozone crisis, a simple need for some form of a technical bounce after some extreme moves is finally being recognized. At the same time, there are also some positives to talk about on the fundamental front, with the most recent much better than expected Aussie growth data perhaps helping to infuse a sense of confidence into the market place.
Broadly speaking, we contend that risk correlated assets could indeed find more demand over the coming weeks, even in the face of threats in the Eurozone and fear of contagion. Since the onset of the global crisis in 2008, there has been one constant that continues to support the markets at every step of misfortune, and that is the commitment by central banks and governments to step in and do whatever is necessary to prop the local economy. This approach of doing “whatever it takes” to prevent collapse and prop up struggling economies is a new form of economics that seems to be proving effective as evidenced by the ability for the US economy to slowly emerge from recession.
What better name for this form of economics then “proponomics,” the economics of pumping liquidity into the system to prevent collapse at all costs. The strategy doesn’t concern itself with longer-term threats to the local and global economy and instead focuses firmly on fixing the short-term problem. While it is clear that the risks to the longer-term economy are potentially exacerbated through the implementation of an artificial support to the economy, it is also true that inability to step in and deal with the short-term problem would be even worse than pumping the local economy with liquidity and keeping monetary policy ultra accommodative.
Right now, the short-term threat to the Eurozone economy is more significant than the longer-term one and proponomics seems to be the most effective strategy. It now looks as though Europe will need to step up on this front and overinflate its way through the turmoil in order to prevent what could be a very serious disaster. Therefore, if Eurozone officials can step up and offer some form of reassurance that they will do whatever necessary to keep the Eurozone intact, we feel the outlook will be brighter despite the many obstacles that will still need to be overcome. The European Central Bank is scheduled to meet later today and while no change is expected on rates, we view this as a formidable opportunity for Mr. Draghi to step up and provide the necessary reassurances to both the Eurozone and global economies.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK

EUR/USD:The market is in the process of correcting from some violently oversold levels after breaking to yearly lows just under 1.2300. While our overall outlook remains grossly bearish, from here, we still see room for short-term upside before a fresh lower top is sought out. Look for a close back above 1.2545 to open the door for acceleration into the 1.2800-1.3000 area, where fresh offers are likely to re-emerge.

USD/JPY:The latest setbacks have been rather intense, with the market collapsing through the 200-Day SMA before finally finding support by 77.65. We have since seen attempts at recovery and we contend that the market should continue to break higher, with sights ultimately set on a retest and break of the 2012 highs by 84.20 further up. However, at this point, we will need to see a break and close back above 80.00 to officially alleviate downside pressures and reaffirm bullish outlook.

GBP/USD: Daily studies are now well oversold and from here risks seem tilted to the upside to allow for a necessary short-term corrective bounce after setbacks stalled just shy of the 2012 lows from January. Look for a break and close back above 1.5440 to strengthen short-term bullish outlook, with acceleration then projected into the 1.5600-1.5800 area where a fresh lower top will be sought out in favor of underlying bear trend resumption.


USD/CHF: While we retain a broader bullish outlook for this pair, with the market seen establishing back above parity over the coming weeks, shorter-term risks are for more of a corrective pullback to allow for the market to establish a fresh higher low. As such, we see risks for weakness over the coming sessions towards the 0.9300-0.9500 area before the market looks to reassert its bullish momentum and broader uptrend.

: Eurozone Needs "Proponomics" Injection to Help Restore Confidence

Markets finding some bids following excessive risk liquidation Aussie growth data come in much better than expected We introduce “Proponomics” - the economics of artificially propping economies Eurozone must apply this strategy to prevent further collapse ECB policy decision due later today; no rate change expected UK construction PMI, Eurozone GDP marginally weaker than expected German industrial production fall sharply It’s excellent to be back on the desk after some time off to enjoy my new baby boy.
Meanwhile, markets have settled following a wave of volatility resulting in broad based strength in the safe haven US Dollar and Yen. While there is still no clear resolution in place to deal with the Eurozone crisis, a simple need for some form of a technical bounce after some extreme moves is finally being recognized. At the same time, there are also some positives to talk about on the fundamental front, with the most recent much better than expected Aussie growth data perhaps helping to infuse a sense of confidence into the market place.
Broadly speaking, we contend that risk correlated assets could indeed find more demand over the coming weeks, even in the face of threats in the Eurozone and fear of contagion. Since the onset of the global crisis in 2008, there has been one constant that continues to support the markets at every step of misfortune, and that is the commitment by central banks and governments to step in and do whatever is necessary to prop the local economy. This approach of doing “whatever it takes” to prevent collapse and prop up struggling economies is a new form of economics that seems to be proving effective as evidenced by the ability for the US economy to slowly emerge from recession.
Relative performance versus the USD Wednesday (as of 10:05GMT)
AUD +1.13%
NZD +0.89%
GBP +0.53%
CAD +0.47%
EUR +0.34%
CHF +0.32%
JPY -0.43%
What better name for this form of economics then “proponomics,” the economics of pumping liquidity into the system to prevent collapse at all costs. The strategy doesn’t concern itself with longer-term threats to the local and global economy and instead focuses firmly on fixing the short-term problem. While it is clear that the risks to the longer-term economy are potentially exacerbated through the implementation of an artificial support to the economy, it is also true that inability to step in and deal with the short-term problem would be even worse than pumping the local economy with liquidity and keeping monetary policy ultra accommodative.
Right now, the short-term threat to the Eurozone economy is more significant than the longer-term one and proponomics seems to be the most effective strategy. It now looks as though Europe will need to step up on this front and overinflate its way through the turmoil in order to prevent what could be a very serious disaster. Therefore, if Eurozone officials can step up and offer some form of reassurance that they will do whatever necessary to keep the Eurozone intact, we feel the outlook will be brighter despite the many obstacles that will still need to be overcome. The European Central Bank is scheduled to meet later today and while no change is expected on rates, we view this as a formidable opportunity for Mr. Draghi to step up and provide the necessary reassurances to both the Eurozone and global economies.
ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD:The market is in the process of correcting from some violently oversold levels after breaking to yearly lows just under 1.2300. While our overall outlook remains grossly bearish, from here, we still see room for short-term upside before a fresh lower top is sought out. Look for a close back above 1.2545 to open the door for acceleration into the 1.2800-1.3000 area, where fresh offers are likely to re-emerge.

USD/JPY:The latest setbacks have been rather intense, with the market collapsing through the 200-Day SMA before finally finding support by 77.65. We have since seen attempts at recovery and we contend that the market should continue to break higher, with sights ultimately set on a retest and break of the 2012 highs by 84.20 further up. However, at this point, we will need to see a break and close back above 80.00 to officially alleviate downside pressures and reaffirm bullish outlook.

GBP/USD: Daily studies are now well oversold and from here risks seem tilted to the upside to allow for a necessary short-term corrective bounce after setbacks stalled just shy of the 2012 lows from January. Look for a break and close back above 1.5440 to strengthen short-term bullish outlook, with acceleration then projected into the 1.5600-1.5800 area where a fresh lower top will be sought out in favor of underlying bear trend resumption.

USD/CHF: While we retain a broader bullish outlook for this pair, with the market seen establishing back above parity over the coming weeks, shorter-term risks are for more of a corrective pullback to allow for the market to establish a fresh higher low. As such, we see risks for weakness over the coming sessions towards the 0.9300-0.9500 area before the market looks to reassert its bullish momentum and broader uptrend.

EUR Bearish Outlook Reinforced By ECB, GBP Still Needs To Test 1.6000

03 May 2012 14:55 GMT  Talking Points Euro: ECB Maintains Balanced Tone, Preserves Easing Cycle British Pound: Correction To Gather Pace, BoE Rate Decision Comes Into Focus U.S. Dollar: Advances Ahead Of NFPs, FOMC To Adopt Hawkish Tone Euro: ECB Maintains Balanced Tone, Preserves Easing Cycle
The Euro bounced back from an overnight low of 1.3096 as the ECB held the benchmark interest rate at 1.00% and talked down speculation for additional monetary support, but it seems as though the Governing Council will carry its easing cycle into the following year as it remains premature for the central bank to embark on an exit strategy. Indeed, ECB President Mario Draghi tried to talk down the risks surrounding the region as the central bank expects to see a gradual recovery across the region, but warned that the fundamental outlook for the region has become increasingly uncertain amid the ongoing turmoil in the financial system.
Based on the recent comments, it seems as though the Governing Council remains open to expand monetary policy further in the second-half of the year, and we should see the central bank take additional steps to shore up the ailing economy as the risk for inflation remains ‘broadly balanced.’ As the region continues to face a risk for a prolonged recession, the slowing recovery could dampen price growth throughout 2012, and the weakening outlook for the region continues to reinforce a bearish outlook for the single currency as European policy makers maintain a reactionary approach in addressing the risks surrounding the region. As the EURUSD continues to approach the apex of the descending triangle, we are still waiting for a break of 1.3000 for a larger move to the downside, and we will look to sell rallies in the euro-dollar as the fundamental outlook for the region turns increasingly bleak.
British Pound: Correction To Gather Pace, BoE Rate Decision Comes Into Focus
The British Pound continued to consolidate on Thursday, with the GBPUSD slipping to an overnight low of 1.6158, and the short-term correction should gather pace in the days ahead as the relative strength index continues to come off of overbought territory. However, as the Bank of England decision on tap for May 10 comes into focus, the fresh batch of comments from the central bank should prop up the sterling, and we may see the GBPUSD fall back towards 1.6000 – former resistance – before it resumes the upward trend from earlier this year. As we see the BoE moving away from its easing cycle, the shift in the policy outlook should prop up the British Pound, and we expect to see fresh yearly highs in the GBPUSD as the Monetary Policy Committee sees an increased risk for inflation.
U.S. Dollar: Advances Ahead Of NFPs, FOMC To Adopt Hawkish Tone
The greenback tracked higher ahead of the highly anticipated Non-Farm Payrolls report, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) rallying to a high of 9,923, and the reserve currency may continue to retrace the decline from the previous month should we see a marked improvement in the labor market. Indeed, the drop in initial and continuing jobless claims certainly bodes well for NFP’s, and a strong print could spark a sharp rally in the greenback as it dampens expectations for another round of quantitative easing. In turn, we should see the FOMC sound more hawkish going into the second-half of the year, and the committee may start to outline a tentative exit strategy as the more robust recovery raises the risk for inflation.
--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong
To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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03 May 2012 14:55 GMT May, 02 13:25 GMT Bearish Euro Formation In Focus, British Pound Searching For SupportMay, 01 13:30 GMT EUR Threatens Bearish Formation On Holiday Trade, GBP Carving TopApr, 30 13:10 GMT Euro Formation Foreshadows Key Break, Sterling Rally To Gather PaceApr, 26 14:05 GMT Euro Struggles Ahead Of Italian Bond Auction, Sterling Eyes 1.6250Apr, 25 13:15 GMT USD To Hold Steady Ahead Of FOMC, Euro Outlook Remains Bearish On ECB

USDJPY Needs Higher Treasury Yields for Gains to ¥85, Eyes on US Fed

Strong correlations between US Treasury Yields and the US Dollar/Japanese Yen pair suggest that US interest rates and Federal Reserve Monetary Policy will decide whether the USDJPY continues its recent gains.
Last month we argued that the US Dollar/Japanese Yen pair had set a long-term bottom on a simultaneous surge in US Treasury Yields. It’s too early to tell whether we were correct in our forecasts, but sharp USDJPY gains suggest fresh lows are unlikely. Yet the US 10-Year Treasury Note yield trades almost squarely at critical support at its 200-day Simple Moving Average.
Whether or not US Treasury Yields rally off of major support may ultimately decide if the USDJPY makes a sustained run towards ¥85.
Forex Correlations Summary
View forex correlations to the SPDR Gold ETF Trust (GLD), United States Oil Fund ETF (USO), SPDR Dow Jones Industrial Average ETF Trust (DIA), UK FTSE 100 Index, and IShares Silver Trust ETF (SLV) prices.
US Dollar/Japanese Yen Exchange Rate (lhs)
US 2-Year Treasury Note Yield (VIX) (rhs)
Correlation between US Dollar/Japanese Yen and US 2-Year Treasury Note Yield
The correlation between the US Dollar/Japanese Yen and US Treasury Yields remains strong, and the noteworthy link suggests that yields will have to rise further for similar USDJPY strength. Several weeks ago we argued that the USDJPY had set a major bottom on a similar floor in US Treasury Yields. And obviously we can’t know for certain that both Treasury yields and the USDJPY have bottomed, but sharp rallies suggest fresh lows are unlikely.
Yet the USDJPY rally has stalled just short of 2011 highs near ¥85, and recent forex futures positioning warns that the pair could correct lower. The ultimate driver of US Dollar moves against the Yen may nonetheless come on Treasury Yields, and indeed this leaves focus on the US Federal Reserve and its next monetary policy moves.
Keep a close eye on Federal Reserve rhetoric and this week’s pivotal US Nonfarm Payrolls report. Given the strongest quarterly performance in the Dow Jones Industrial Average since Q1, 1998, Friday’s NFP data could decide the fate of the US Dollar and other highly-correlated markets.
For the USDJPY? Any sharply worse-than-expected NFP data would likely sink the US Dollar versus the resurgent Yen.