Temporary Market Rally's a Chance to Go Short (by Mario Singh, May 22nd 2012)

Fears of a “Grexit” roiled the markets last week.

EUR/USD fell over 200 pips last week as news broke about Greece’s failure to form a ruling coalition on 15th May. The news shocker also sent Spain’s 10-year bond yield to a five-month high of 6.5% and Italy’s 10-year bond yield to 6%, the highest since 30th January 2012.

This week, a quick check on the bond market reveals that the four countries in the “danger zone” – Greece, Portugal, Spain and Italy – display a widening yield spread versus the German 10-year bonds.

These figures stand at 27.6%, 10.87%, 4.88% and 4.52% respectively.

In the Credit Default Swap (CDS) market, iTraxx Europe index recorded a figure of 181.84 yesterday, surging 15% on a weekly basis and 25.44% on a monthly basis. This tells us that more and more traders are betting on an impending Greece default.


This week, European leaders will meet at an informal EU Summit to discuss crisis-fighting proposals for the Eurozone. The proposals include empowering the Eurozone’s €500 billion rescue fund to directly recapitalise faltering European banks and commonly backed Eurozone bonds.

A big topic that will draw blood from all leaders is still the debate on “Growth” vs “Austerity.” USA
President Obama and newly-elected French President Francois Hollande are vouching for more stimulus and asset purchases. This puts them in the “Growth” camp.

German Chancellor Angela Merkel on the other hand, is holding firm to her view on fiscal measures and prudent management. This puts her in the “Austerity” camp.

Amidst the gloomy backdrop, China provided some cause for cheer. Over the weekend, Chinese Premier Wen Jiabao pledged to focus more on bolstering growth in the world’s second-largest economy. This caused Asian stocks to rally on Monday, rising from a five-month low.

The news also added 0.2% to the MSCI Asia Pacific Index, and 0.6% to the S&P GSCI Index of 24 commodities.

Just over a week ago on 12th May, the Chinese government cut banks’ required reserves for the third time in six months following data that showed trade, industrial production and lending were below forecasts in April.

Although China’s pledge to boost growth is taken as a bullish sign by the markets, it is prudent for traders to keep their eye on the big picture.

That picture is primarily centred on the Eurozone. Hence, any temporary rally in the markets is in fact an opportunity for us to go short, rather than long.

Top News This Week

UK: Revised GDP q/q. Thursday, 24th May, 4.30pm. I expect figures to come in at -0.3% (previous figure was -0.2%).

Trade Call

Short EUR/USD at 1.2745
The massive downtrend on the EUR/USD from 1st May to 18th May saw the EUR/USD plunge over 600 pips, from a high of 1.3283 to a low of 1.2642.

The retracement at the start of this week is caused by two things: traders taking profit and the positive sentiment surrounding the upcoming EU Summit.

On the hourly chart, EUR/USD is currently trading in a range, with Resistance located at 1.2811 and Support located at 1.2642. Our bias is for to go short.

An entry is taken at 1.2745 with a stop loss of 75 pips, located a few pips above the level of Resistance. We will have two targets on this trade, exiting the first position at 1.2670 and the final position at 1.2595.

Entry Price = 1.2745
Stop Loss = 1.2820
1st Profit = 1.2670
2nd Profit = 1.2595

(Source: MarioSingh.com)

VXSpotlight: Greece Likely to Exit Euro This Year, FX Concept (Bloomberg.com)

Hey everyone,
Hope you are all having a great week.


Today on the Velomaxx Spotlight (VXS), we would like to highlight a article stating the possibility of Greece to leave the Euro sometime this year, even as early as next month! According to John Taylor of hedge fund FX Concepts LLC., the reason for this possible exiting is the Greek government running out of cash and other European institutions failing to support it (2012).


He even states in an interview on Bloomberg Television's "Inside Track" that the exiting could occur this summer (June - August). “The Europeans aren’t going to give them the money, the International Monetary Fund’s not going to give them an OK. They will be out of money in June,” he says (2012). 

Source: Boston.com/LOUISA GOULIAMAKI/AFP

According to the article by Detrixhe & Schatzker, the nation's political leaders are meeting again for a second day to form a government, sprouting speculations that ANOTHER election may occur in mid-June if a governing coalition is not properly formed and organized (2012).


 The Euro extended its longest run of declines against the Dollar since September 2008 as German Chancellor Angela Merkel rejected government stimulus as the way to spur economic growth, setting up a clash with French president-elect Francois Hollande (Detrixhe & Schatzker, 2012).

The euro declined 0.4% to $1.30 at 9:01 a.m. in New York after sliding to $1.2955 yesterday, the weakest level since Jan. 25 (Detrixhe & Schatzker, 2012).

So what do you think of this move? Will that benefit everyone else if Greece pulls out of the Euro? More importantly, how will that affect the people of Greece? 

Have a great day everybody! 

Go here to view the interview & the article: Detrixhe, J & Schatzker, E 2012, Bloomberg.com
Image Source: Articles, Boston.com March 07 2012

Aussie Dollar Falls (Bloomberg.com, May 9th 2012)

May 9th 2012, Kristine Aquino, Catarina Saraiva, Keith Jenkins, Bloomberg.com

The Australian dollar fell to its weakest this year today and bond yields dropped as concern stirred when Greek leaders will be unable to form a coalition government, reducing the appetite for riskier assets (Aquino & Saraiva, 2012).

“Risk is going to be on the back foot while the Greek squabbles continue,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia. (CBA) “I don’t have a lot of optimism that these things will be resolved quickly. It’s pulling down many currencies like the Aussie, the kiwi and the Canadian dollar, which are more linked to global growth” (Aquino & Saraiva, 2012)

The Australian dollar fell to $1.0066, its lowest level since Dec. 29, before trading at $1.0077 at 11:42 a.m. in Sydney, 0.4% below yesterday’s close. Against the Yen, it lost 0.4& to 80.50 yen (Aquino & Saraiva, 2012).

Also the Pound dropped 0.3% to $1.6135 after rising to $1.6302 on April 30, the highest level since Aug. 31. Sterling appreciated 0.2% to 80.47 pence per euro. It climbed to 80.36 pence yesterday, the strongest since November 2008 (Jenkins, 2012).

To read the full articles, go here:

Aquino, K & Saraiva, C 2012, Bloomberg.com

Jenkins, K 2012, Bloomberg.com

"Sell in May & Go Away" Holding Sway (Mario Singh, May 8th 2012)

The proverbial sentence “Sell in May and Go Away” seems to be sweeping the currency market – at least for this week.

In the space of three days, two events have dominated the headlines for traders:

1) USA Jobs Report

On Friday, the US Labour of Statistics revealed that only 115K jobs were created in the month of April. This was much lower than the forecasted figure of 160K. The unemployment rate dropped from 8.2% to 8.1%, its lowest level since January 2009.

At first glance, this seems to suggest that job growth had indeed accelerated. However, the drop in the jobless rate was in fact due to the contraction in the labour market. This simply means that more and more Americans are falling out of the job search altogether.

A confirmation of this fact is seen on the website of the Bureau of Economic Analysis, which says “within current transfer receipts, government social benefits to persons for social security increased $6.8 billion, compared with an increase of $2.6 billion.”

After the Non-Farm Payrolls (NFP) report was released, the US dollar immediately weakened, but then reversed course and strengthened as a wave of risk aversion hit the markets. This caused the EUR/USD to drop close to 100 pips in just three hours.

As traders would expect, the low NFP number puts QE3 front and centre again, although job creation has to remain in the low 100K+ for the Federal Reserve to finally pull the trigger and inject more liquidity.

2) New President for France

Earlier yesterday morning, France ushered in its first Socialist President in 17 years, Francois Hollande. The EUR/USD immediately reacted, opening sharply lower with a gap of 52 pips.

This was a knee-jerk reaction from traders because of the uncertainties surrounding Hollande’s policies, although it was indeed his anti-austerity rhetoric which got him elected.

In his campaign, Hollande stated his intention to resist austerity championed by German Chancellor Angela Merkel and European Central Bank (ECB) President, Mario Draghi.

As it is, unemployment is at a 10-year high of 10% and the national debt has ballooned to 86% GDP, higher than Germany’s estimated figure of 78%. Under outgoing President Nicolas Sarkozy, France’s budget deficit has risen to 4.6% of GDP, one of the largest in the Euro area.

One of the biggest challenges he faces now is to build a solid relationship with Angela Merkel, who openly endorsed outgoing President Nicolas Sarkozy prior to the elections.

Top News This Week

Australia: Employment Change, Thursday, 10th May, 9.30am. I expect figures to come in at -4K (previous figure was +44K).
China: CPI y/y. Friday, 11th May, 9.30am. I expect figures to come in at 3.5% (previous figure was 3.6%).

Trade Call

Short AUD/USD at 1.0195

AUD/USD has been moving in a nice downtrend, clearing over 350 pips in one week. With bad employment data expected out of Australia and lower CPI data coming out of China, the bias is for us to go short.

On the Hourly chart, a Fibonacci Retracement is drawn on the swing high of 1.0473 and the swing low of 1.0110. The 23.6% retracement is identified at 1.0195. This is the level we will enter for a short.

A stop loss of 40 pips is located above the entry price and we will have two targets on this trade, exiting the final position at 1.0115.

Entry Price = 1.0195
Stop Loss = 1.0235
1st Profit = 1.0155
2nd Profit = 1.0115

(Source: MarioSingh.com)

GBP Rises Amidst Major Peers (Bloomberg.com, May 7th 2012)

May 7th 2012, Keith Jenkins, Kristine Aquino, Ceclie Gutscher, Masaki Kondo & Emma Charlton, Bloomberg.com


Hi everyone,
Hope you all had a great week. 


The GBP rose for a third week against the Euro as the Bank of England pauses its "assets-purchase program", making the UK a haven for investment amidst the Euro crisis (Jenkins, 2012).

 UK Pound Symbol Photos.  

The pound appreciated 0.5 percent this week to 81.10 pence per euro at 4:24 p.m. London time yesterday after reaching 81.03 pence May 3, the strongest since June 2010. Sterling fell 0.7 percent this week to $1.6151 after rising to $1.6302 on April 30, the highest level since Aug. 31 (Jenkins, 2012).

According to Ian Stannard, head of European currency strategy at Morgan Stanley, London, he says that the pound may advance to 78 pence versus the euro by year- end (Jenkins, 2012).

The Euro declined to $1.2955, the weakest since Jan. 25, before trading at $1.2980 as of 10:21 a.m. in Tokyo, 0.8 percent below last week’s close in New York. It dropped 0.9 percent to 103.60 yen. The dollar was little changed at 79.81 yen (Aquino, 2012).

All this was was happened after Socialist Francois Hollande was elected president of France and as Greek voters flocked to anti-bailout parties, stoking concern austerity efforts in Europe may be derailed (Kondo & Charlton, 2012). This same action saw the Aussie and Kiwi declined 0.6% to $1.0121 as of 10:20 a.m. in Sydney, and touched $1.0110, the lowest since Dec. 29, and the Kiwi at 79.10 U.S. cents, the least since Jan. 13, before trading at 79.23 cents, 0.4 percent lower than the close on May 4 (Aquino, 2012). 

Canada’s currency weakened 1.6% this week to 99.61 cents per USD, the biggest drop since Dec. 16. It touched 98 cents on April 27, the strongest since September. One Canadian dollar buys $1.0039 (Gutscher, 2012). All this happened after the US economy trailed forecasts despite a speech by the Bank of Canada Governor's speech to increase interest rates to contain inflation and an increase in unemployment (Gutscher, 2012). 

To read the full articles go here:

Jenkins, M 2012, Bloomberg.com

Kondo, M & Charlton, E 2012, Bloomberg.com

Aquino, K 2012, Bloomberg.com

Gutscher, C 2012, Bloomberg.com

Spain Downgraded by Mario Singh

I am writing this article in the beautiful city of Zhengzhou in China, but the irony is that the focus this week is squarely on the shoulders of USA and Europe.

Late last week, Spain became the next victim to fall under the ratings knife again.

Ratings agency Standard & Poor’s lowered Spain’s long-term sovereign credit rating from ‘A’ to ‘BBB+’.

At the same time, it lowered the short-term sovereign credit rating to ‘A-2′ from ‘A-1′. The outlook on the long-term rating was negative.

According to the S&P, the downgrade reflected its view of mounting risks to Spain’s net general government debt as a share of GDP in light of the contracting economy.

The S&P also lowered the forecast for Spain’s GDP, expecting it to contract by 1.5% in 2012 and 0.5% in 2013.

Additionally, it stated that there was increasing likelihood that the government would need to provide further fiscal support to the banking sector. Morgan Stanley itself estimates that the country’s banks need about 50 billion Euros for Spain to push through its budget cuts.

Over the weekend, Spain’s largest unions led marches involving thousands of protesters in 55 cities. Besides the downgrade, the protests came after a worldwide report showed that Spain’s unemployment rate rose to 24.4% in the first quarter, its highest level in 18 years.

Elsewhere in the US, GDP figures were released on Friday.

The 2.2% growth disappointed traders and investors, who expected a reading between 2.5-2.7%. The US dollar dropped against the majors once the news was released.

This came after the “hotly watched” FOMC meeting, where Ben Bernanke hinted of QE3 when he said that the Fed was prepared to do more if the economy weakened.

Top News This Week

1. Australia: Cash Rate. Tuesday, 1st May,12.30pm. I expect the RBA to cut the rate by 25 basis points to 4%.
2. UK: Flash PMI. Tuesday, 1st May, 4.30pm. I expect figures to come in at 51.3 (previous figure was 52.1).
3. USA: Non Farm Payrolls. Friday, 4th May, 8.30pm. I expect figures to come in at 170K (previous figure was 120K).

Trade Call

Short AUD/USD at 1.0412

The AUD/USD has had a nice move upwards last week, rising over 200 pips from 1.0245 to 1.0473.

The big news for the Aussie dollar this week is the impending rate cut by the RBA. I expect a reversal to happen once the RBA cuts rates. The rate cut could be either 25 basis points or 50 basis points.

We will go short once prices fall to 1.0412. A stop loss of 64 pips is placed, which is a few pips above the previous high.

We will have two targets on this trade, exiting the final position at 1.2420.

Entry Price = 1.0412
Stop Loss = 1.0476
1st Profit = 1.0348
2nd Profit = 1.0284

(Source: MarioSingh.com)

Pound Reaches 22-month High vs. Euro (Bloomberg.com May 1st 2012)

May 1st 2012, Keith Jenkins, Kristine Aquino, Monami Yui, Mariko Ishikawa, Bloomberg.com

Today the GBP reaches a 22-month high against the Euro after a report showing a rise in British house prices, causing a new interest in UK assets (Jenkins, 2012).

“The housing data wasn’t too bad,” said Neil Jones, the head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “It doesn’t take a lot of positive data to boost the pound at the moment as there is so much expectation of gloom. Any glimmer of hope can help the currency appreciate” (Jenkins, 2012).

The US Dollar may experince declines against the CAD looking at its trading patterns: Dollar fell below 98.42 Canadian cents, the previous 2012 low reached on March 1, and fell to 98.23 cents on April 25, according to data compiled by Bloomberg. It set a new year- low at 98 cents on April 27, the data show (Aquino, 2012).

The Euro was also within a 0.3% low, the lowest in 2 weeks against the Yen as Spain acted amidst concerns on the Euro debt crisis hurting economic growth (Yui & Aquino, 2012). Also the Aussie fell versus most of its peers as the Reserve Bank sets interest rates at a policy meeting (Yui & Aquino, 2012).

“The Australian dollar is waiting for the RBA decision today,” said Kurt Magnus, executive director of foreign- exchange sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “If the Reserve Bank does cut 50 basis points, that is not factored into the Australian dollar. The Australian dollar will pull back sharply to $1.0330. A small fall in China PMI was within our analyst forecasts” (Ishikawa, 2012).

To read the full articles, go here:
Jenkins, K 2012, Bloomberg.com
Aquino, K 2012, Bloomberg.com
Yui, M & Aquino, K 2012, Bloomberg.com
Ishikawa, M 2012, Bloomberg.com