Press review - page 17

Sergey Golubev
Moderator
113474
Sergey Golubev  

2013-07-19 12:30 GMT (or 14:30 MQ MT5 time) | [CAD - Consumer Price Index (CPI)]

  • past data is 0.7% according to the last pree release
  • forecast data is 1.2%
  • actual data will be at 12:30 GMT (or 14:30 MQ MT5 time)

If actual > forecast = good for currency (for USD in our case)

=========

USD/CAD - Trading the Canada Consumer Price Report :

What’s Expected:

Time of release: 07/19/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: USDCAD

Expected: 1.2%

Previous: 0.7%

DailyFX Forecast: 1.0% to 1.2%

Why Is This Event Important:

The headline reading for Canadian inflation is expected to increase an annualized 1.2% in May, and the pickup in price growth may heighten the appeal of the loonie should the data renew bets for higher borrowing costs. Although we’re seeing the Bank of Canada (BoC) retain a cautious outlook for the region, a faster rate of inflation may encourage Governor Stephen Poloz to adopt a more hawkish tone over the coming months, and the central bank may normalize policy further over the medium-term as the economy.

..........

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Firms in Canada may look to raise consumer prices amid the underlying strength in job growth along with the expansion in private sector credit, and a positive development may heighten the appeal of the Canadian dollar should the data spark bets for a rate hike. However, the slowdown in private sector consumption paired with easing input costs may drag on price growth, and a weak inflation print may keep the BoC on the sidelines for an extended period of time as the central bank aims to encourage a stronger recovery.

Potential Price Targets For The Release



As the USDCAD breaks out of the consolidation phase dating back to 2011, we should see the upward trending channel continue to take shape over the near to medium-term, but we may see a move back towards trendline support should Canada’s CPI report renew bets for a BoC rate hike. However, we will look to buy dips in the USDCAD as the bullish trend takes shape, and we may see another run at the 1.0600 handle amid the deviation in the policy outlook.

How To Trade This Event Risk

Forecasts for a faster rate of inflation highlights a bullish outlook for the loonie, and the market reaction may set the stage for a long Canadian dollar trade as it fuels bets for a rate hike. Therefore, if consumer prices increase 1.2% or greater in June, we will need a red, five-minute candle following the release to establish a sell entry on two-lots of USDCAD. Once these conditions are fulfilled, we will place the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to lock-in our profits.

However, the slowing recovery may continue to drag on price growth, and a dismal print may prompt a bearish reaction in the Canadian dollar as market participants scale back bets for higher borrowing costs. As a result, if the CPI disappoints, we will implement the same setup for a long dollar-loonie trade as the short position mentioned above, just in reverse.


Consumer prices in Canada increased an annualized 0.7% during the month of May after expanding 0.4% the month prior, while the core rate of inflation held steady an 1.1% amid forecasts for a 1.2% print. Indeed, the weaker-than-expected release dragged on the Canadian dollar, with the USDCAD climbing above the 1.0475 region, but we saw the loonie consolidate during the North American trade as the pair ended the day at 1.0455.

Sergey Golubev
Moderator
113474
Sergey Golubev  
2013-07-19 12:30 GMT (or 14:30 MQ MT5 time) | [CAD - Consumer Price Index (CPI)]

If actual > forecast = good for currency (for CAD in our case)

============

Canada June Consumer Price Index Report :

The following is the text of Canada’s consumer price index report for June released by Statistics Canada.

The Consumer Price Index (CPI) rose 1.2% in the 12 months to June, following a 0.7% increase in May. This 0.5 percentage point gain in the CPI was led by transportation prices, which rose 2.0% on a year-over-year basis in June after falling 0.5% in May.

The acceleration in the transportation index was mostly attributable to prices for gasoline and for the purchase of passenger vehicles, both of which rose in the 12 months to June after declining in May.

Compared with June last year, gasoline prices were up 4.6%. This followed a 1.5% decrease in May. Gasoline prices increased in the 12 months to June in all provinces, with Manitoba and Alberta posting the largest gains.

Prices for the purchase of passenger vehicles rose 2.0% in the 12 months to June, after declining 0.5% in May. The year-over-year increase in June was mainly attributable to smaller monthly price declines in June 2013 compared with the same month last year.

12-month change in the major components

Consumer prices rose in six of the eight major components in the 12 months to June. The exceptions were health and personal care as well as recreation, education and reading. In addition to transportation, the shelter and food components led the increase in the CPI in June.

Shelter costs rose 1.2% in the 12 months to June, after increasing 1.3% in May. Natural gas prices and rent increased on a year-over-year basis in June, while mortgage interest cost decreased 3.8%.

Food prices increased 1.2% year over year in June, following a 1.3% rise in May. Compared with June 2012, consumers paid 1.3% more for food purchased from stores, as prices rose for fresh vegetables (+5.1%) and meat (+2.2%). In contrast, prices for sugar and confectionery declined 4.3%.

Consumers also paid 1.1% more for food purchased from restaurants.

12-month change in the provinces

Consumer prices rose in nine provinces in the 12 months to June, with the largest increase occurring in Manitoba. The exception was British Columbia, where prices declined on a year-over-year basis.

In Manitoba, consumer prices increased 2.7% year over year in June, following a 1.8% gain in May. Gasoline prices rose 10.7% in the 12 months to June, after advancing 0.9% in May. Among the provinces, Manitoba posted the largest year-over-year price increase for cigarettes and for passenger vehicle registration fees.

Alberta’s CPI rose 2.3% on a year-over-year basis in June, matching the increase in May. Gasoline prices advanced at a faster rate in the 12 months to June (+9.2%) compared with May (+1.6%). Conversely, smaller year-over-year price increases were observed for natural gas in June relative to May.

Prices in British Columbia fell 0.5% in the 12 months to June, after declining 0.6% in May. The province posted year-over-year price decreases for food purchased from restaurants and homeowners’ replacement cost, while at the national level these indexes increased. Additionally, gasoline prices rose 3.2% year over year in June, after increasing 1.4% in May, a smaller acceleration than at the national level.

Seasonally adjusted monthly Consumer Price Index increases

On a seasonally adjusted (http://www23.statcan.gc.ca:81/imdb/p2SV_e.pl?Function=getSurvey &SDDS=2301&lang=en&db=imdb&adm=8&dis=2#b10) monthly basis, the CPI increased 0.3% in June, after rising 0.2% in May.

The seasonally adjusted indexes for six of the eight major components increased in June. The two exceptions were alcoholic beverages and tobacco products, which declined 0.1%, and clothing and footwear, which posted no change. The transportation index rose 1.6% in June, following a 0.2% increase in May.

Bank of Canada’s core index

The Bank of Canada’s core index (http://www.statcan.gc.ca/pub/62-001-x/2013006/technote-notetech2-eng.htm) rose 1.3% in the 12 months to June, following a 1.1% increase in May.

On a monthly basis, the seasonally adjusted core index increased 0.2% in June, after posting no change in May.

Note to readers

A seasonally adjusted series is one from which seasonal movements have been eliminated. Users employing CPI data for indexation purposes are advised to use the unadjusted indexes. For more information on seasonal adjustment, see Seasonal adjustment and identifying economic trends (http://www5.statcan.gc.ca/bsolc/olc-cel/colc-cel?catno=11-010-X201000311141&lang=eng) .

The Bank of Canada’s core index excludes eight of the CPI’s most volatile components (fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; fuel oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers’ supplies) as well as the effects of changes in indirect taxes on the remaining components
Sergey Golubev
Moderator
113474
Sergey Golubev  

China Removes Floor on Lending Rates as Economy Cools :

China will remove the floor on lending rates offered by the nation’s financial institutions as economic growth slows and authorities push forward steps to give banks more freedom to set borrowing costs.

The People’s Bank of China will also remove the cap on lending rates offered by rural cooperatives, the central bank said in a statement on its website today. The actions are effective tomorrow.

While the move temporarily jolted world stocks higher, the PBOC itself acknowledged that it was a limited step, and that the liberalization of deposit rates would be more important. The shift came just as central bankers and finance ministers from Group of 20 nations gather for meetings in Moscow.

“Most observers would be disappointed to find out that it was only the removal of the lending rate floor,” said Ken Peng, senior economist at BNP Paribas SA in Beijing.

Raising the deposit-rate ceiling would improve household incomes and reduce the attractiveness of non-traditional wealth management products while threatening banks’ profit margins, Peng said. “This decision shows that some reform is being done, but may actually reduce the chances for deposit-rate liberalization in the near term,” he said.

China Removes Floor on Lending Rates as Economy Slows
China Removes Floor on Lending Rates as Economy Slows
  • 2013.07.20
  • By Bloomberg News
  • www.bloomberg.com
China eliminated the lower limit on lending rates offered by the nation’s financial institutions as growth slows and authorities expand the role of markets in the world’s second-biggest economy. The change, effective today, removes a floor set at 30 percent below the current 6 percent benchmark, according to a People’s Bank of China statement...
Sergey Golubev
Moderator
113474
Sergey Golubev  
Detroit In Bankruptcy: What It Means For The Muni Bond Market



Detroit’s bankruptcy filing came as little surprise to many who had been watching the sad deterioration of the city’s finances over the years, and several say that Thursday’s move is just the beginning of a long path of shared pain for the broke municipalities creditors.

The filing came after emergency manager Kevyn Orr was unable to cut a deal with bondholders, labor, retirees and other creditors under a framework he proposed in mid-June, but it has been brewing for much longer.

Orr and Michigan Governor Rick Snyder described bankruptcy as a tool for reworking the city’s battered balance sheet Friday, and several observers noted that the issues that caused the filing have been mounting for years as the populations shrunk. The 2008 financial crisis and resulting recession hammered the auto industry, pushing General Motors GM -0.62% and Chrysler into bankruptcy, a fate Ford Motor F -1% avoided thanks to some fortuitous financing in the preceding years.

“This didn’t happen overnight, it was decades in the making,” says Warren Pierson, a portfolio manager of the $1.1 Baird Intermediate Municipal Bond Fund. For investors in municipal bonds outside Detroit, the city’s trials and tribulations should come as a wake-up call.

While Pierson is quick to make clear that he does not expect a wave of municipal bankruptcies, and that Detroit is a unique case, he does warn investors to be mindful that their municipal-bond portfolios may not be as bulletproof as believed.

“Investors have viewed munis as a close corollary to Treasury securities,” he says. “I think the market has been lulled into lending money to credits that are not as good as they appear.”

“I’m not saying investors should flee the muni market, but I hope Detroit raises the sensitivity to risk” in a space most investors look to for wealth preservation and income.

“You will see people lose money on general obligation bonds in Detroit,” says Pierson of the class of municipal bond typically viewed as the most secure, so investors need to make sure they are getting adequately compensated for the risks they take.

The advice from Pierson and other money managers who deal with municipal bonds is nothing new, but it does get added resonance after a bankruptcy like that of Detroit or the 2011 filing by Jefferson County, Alabama.

USAA’s John Bonnell believes credit quality remains generally strong in the municipal space, but stressed that intense credit research is essential to determine which credits are the best.

Both he and Pierson warn that other municipalities on the brink could look at Detroit as an example of a city that drew a line in the sand rather than meeting its obligations, ostensibly for the good of their citizens.

When “willingness to pay,” and not just capacity to pay, comes into the equation bondholders can bear the brunt, they say.

There could also be opportunities. Bonnell and Pierson each told Forbes that events like Detroit’s bankruptcy can spark tremors in the market and lead some assets to be mispriced. The key, the money managers say, is knowing which bonds are falling for a specific reason and which are just falling in sympathy with an unrelated event in the same asset class.

Capital Economics’ Paul Dales does not expect much of a shakeup in the municipal bond space though, writing that most cities “are now on firmer economic footing” by way of rising tax receipts in an economic recovery. The recent backup in municipal bond yields was driven more by talk of Federal Reserve tapering and fund flows than fears that a string of bankruptcies is in the offing.

Plus, Dales notes, less than half of Detroit’s $18 billion in total debt is made up of municipal bonds, the bulk of which, about $6 billion, have  a good recovery track record in previous municipal bankruptcies. Even if the entirety of the debt was in muni bonds, $18 billion is barely a ripple in a market with $2.9 trillion in bonds outstanding, Dales writes.

The next phase of the bankruptcy process bears watching as a yet-to-be-appointed judge decides just who has legitimate claims to Detroit’s assets and how much they will receive.

Hedge fund manager David Tawil of Maglan Capital makes his living investing in distressed situations across asset classes and is familiar with Detroit’s failings dating back to his days at University of Michigan Law School in the 1990s.

While many distress specialists are likely poring over Detroit for potential opportunities, he isn’t touching any of the city’s debt.

“No way,” he says, likening the situation to GM’s bankruptcy filing in 2009 when the government, as he puts it, “ran roughshod over bondholders for the sake of pensions,” while arguing the situation was a “one-off” that wouldn’t be repreated.

“I think decision makers will let policy trump law because this is a unique situation,” he says, “that’s scary to me.”

As for any other hedge fund managers who own the bonds, Tawil doesn’t expect them to be in a rush to come forward and state their case. “Then it becomes Wall Street vs. Main Street,” he says, which is a different argument than saying mom and pop put their faith in the government through what they thought were tax-efficient, guaranteed securities.
Detroit In Bankruptcy: What It Means For The Muni Bond Market
Detroit In Bankruptcy: What It Means For The Muni Bond Market
  • Steve Schaefer
  • www.forbes.com
Don't expect major fallout, but muni fund managers say investors should review their holdings for hidden risks.
Sergey Golubev
Moderator
113474
Sergey Golubev  

Don’t Fight the Fed - Bernanke’s Words Will Drive US Dollar Lower :




Fundamental Forecast for US Dollar: Bearish

  • US Dollar has held on, but next Dollar move likely lower
  • Prepared statements by Fed Chairman Bernanke sink the USD
  • Technical forecasts suggest USDOLLAR could fall further

The US Dollar fell against major currencies except the Japanese Yen as the S&P 500 surged to fresh record-highs, and dovish commentary from Fed Chairman Ben Bernanke suggests the Dow Jones FXCM Dollar Index (ticker: USDOLLAR) could fall to fresh lows.

Bernanke put a significant damper on expectations that the Federal Open Market Committee (FOMC) would “taper” its Quantitative Easing measures through its upcoming meetings, and the result was enough to force the Dollar lower across the board. Stock markets likewise breathed a sigh of relief and traders were happy to send the S&P 500 to fresh record peaks. A broader lull in volatility suggests we could see further Dollar weakness and S&P gains through the weeks ahead.

Why might volatility remain low and—just as importantly—what could disturb the market lull?

It all starts and ends with the US Federal Reserve. Bernanke’s infamous “taper” bombshell sparked a financial market panic and sent the Dow Jones FXCM Dollar Index to its highest levels in three years. It seems fitting to note that the dovish shift in Fed commentary has caused similar market ease, and the USDOLLAR fell sharply when Bernanke backtracked on the taper talk. Put simply, the Dollar’s next moves will almost certainly depend on similar shifts from the Fed. As things stand, the Greenback could fall further off of recent peaks.

The coming week’s calendar won’t provide much in the way of potentially market-moving event risk, and indeed that supports the case for low volatility and USD weakness. Possible exceptions include the weekend’s Japanese upper house elections and a late-week US Durable Goods Orders report.

Japan’s elections are likely to cement Prime Minister Abe’s hold of power and reaffirm commitment to so-called “Abenomics”—extremely loose monetary policy and expansionary fiscal policy that has sunk the Japanese Yen. Though unlikely, any surprises could force a substantial Japanese Yen bounce (USDJPY weakness), but financial market volatility could mean Dollar strength elsewhere.

Traders otherwise look to the week’s US Durable Goods orders report to gauge the health of domestic investment activity and future economic growth. We wouldn’t normally watch for big moves on surprises, but the market has become so data-dependent that any particularly big misses could force sharp Dollar moves. Consensus forecasts call for a respectable gain in both the headline figure and the less volatile “Ex-Transportation” result. If we see a sharply better-than-expected gain, the Greenback would likely rally.

There’s a popular saying among traders that seems to hold true in current conditions: “Don’t fight the Fed.” Initially it seemed as though the Fed was likely to begin withdrawing Quantitative Easing measures almost immediately, and all QE-linked trades pulled back sharply. Since then, however, Bernanke and co. have made clear that the next move will have to come on strong economic data.

Don’t Fight the Fed - Bernanke’s Words Will Drive US Dollar Lower
Don’t Fight the Fed - Bernanke’s Words Will Drive US Dollar Lower
  • David Rodriguez
  • www.dailyfx.com
and the result was enough to force the Dollar lower across the board. Stock markets likewise breathed a sigh of relief and traders were happy to send the S&P 500 to fresh record peaks. A broader sparked a financial market panic and sent the Dow Jones FXCM Dollar Index to its highest levels in three years. It seems fitting to note that the...
Sergey Golubev
Moderator
113474
Sergey Golubev  
The Markets’ Worst Kept Secret

  • Lashing central bankers
  • The math of debt
  • Dreaded reform
  • Risk of another debt bust?

===============

Here’s what your stockbroker and the media aren’t telling you: the world is more indebted now than it was at the height of the financial bubble in 2007. That’s right. Despite the extraordinary government intervention of the past six years. Despite continuing optimism of a recovery. Despite the reassuring words of central bankers. We’re worse off in debt terms.

From this, there are several inevitable conclusions that will be discussed in depth in this piece:

  1. The policies pursued since the financial crisis haven’t worked. Otherwise, debt to GDP ratios would be decreasing, not increasing.
  2. Interest rates can’t rise above GDP rates, otherwise debt to GDP ratios will climb further. If they do, you can expect more money printing, budget cuts and tax rises.
  3. That means low interest rates are likely to stay for many, many years. It’s the only way to bring the debt down to more sustainable levels.
  4. The startling thing about the past six years is the almost total lack of reform to fix the problems which led to the 2008 debt bust. It’s ironic that a paragon of communism, China, may well be the one to soon lead the way on substantive capitalist reforms.
  5. Emerging markets, including my neighbourhood of Asia, may be better off than the developed world when it comes to debt, but rising asset and commodity prices have papered over several problems. And these problems are now coming to light.
  6. Debt crises happen because incomes can’t support the servicing of the debt any longer. If there is any drop-off in economic growth, a 2008 re-run could well be around the corner. That’s not trying to be dramatic; it’s just the way the math pans out.

Lashing central bankers

It’s been surreal to watch news of Detroit’s bankruptcy this week. Once the bastion of a thriving American automobile industry, the city is now on its knees. Meanwhile, U.S. stock market indices are hitting all-time highs. Compare and contrast…

But it’s also been fascinating to see the commentary around the bankruptcy. Much of this commentary blamed a sharply declining population for the crisis and a host of other reasons. Less mentioned though was the real reason for the bankruptcy: Detroit simply spent far more than earned. And it went deeper into debt to finance the spending, until it could no more.

It’s not entirely surprising that this has been largely overlooked and that Detroit is being treated as an isolated case. That’s what politicians in the U.S. and across the developed world want you to believe. That debt isn’t a big deal and that they can help their cities and countries grow their way out of indebtedness, but they just need a bit more time to achieve this

However, a recent report by the Bank Of International Settlements (BIS) – often referred to as the central banks’ bank – shows how difficult this task will be. The BIS annual report outlines, in a clear and often confronting way, the realities of the world’s indebtedness and how current money printing and low interest policies won’t fix the problems emanating from 2008. The BIS has credibility as it was one of the very few institutions to warn of excesses in the lead up to the financial crisis. I can’t recommend the report highly enough.

Let’s have a look at some of the report’s key passages. First, the BIS details the extent of the world’s debt problem. It says total debt in large developed market and emerging market countries is now 20% higher as a percentage of GDP than in 2007. In total, the debt in these countries is US$33 trillion higher than back then. Almost none of the countries that it monitors are better off than 2007 in debt to GDP terms.


The BIS describes the level of debt as clearly unsustainable. The primary reason is that studies have repeatedly shown that once debt to GDP rises above 80%, it retards economic growth. Obviously, if money is being spent on servicing debt, then there’s less to spend on investment etc. Most developed market economies now have debt to GDP levels exceeding 100%.

The BIS says governments need to quickly get their balance sheets in order and does some math to prove why. It says current long-term bond yields for major advanced economies are around 2%, well below the average of the two decades leading up to the crisis of 6%.

If yields were to rise just 300 basis points across the maturity spectrum (and still be below average), the losses would be enormous. Under this scenario, holders of U.S. Treasury securities would lose more than US$1 trillion dollars, or almost 8% of U.S. GDP. The losses for holders of debt in France, Italy, Japan and the U.K. would range from 15% to 35% of GDP.


Being the primary holders of this debt, banks would be the biggest losers and ultimately such losses would pose risks for the entire financial system.

The BIS doesn’t let emerging countries off the hook either. It suggests that while debt may be lower in these countries, they’ve benefited from rising asset and commodity prices, which are unlikely to be sustainable. And therefore caution is warranted here too.

But now we get to the juicy bit where the BIS calls the extraordinary policies of developed market central banks into question. For a conservative institution such as the BIS, the language is nothing short of scathing:

“What central bank accommodation has done during the recovery is to borrow time – time for balance sheet repair, time for fiscal consolidation, and time for reforms to restore productivity growth. But the time has not been well used, as continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system. After all, cheap money makes it easier to borrow than to save, easier to spend than to tax, easier to remain the same than to change.”

And then this:

“Governments hope that if they wait, the economy will grow, driving down the ratio of debt to GDP. And politicians hope that if they wait, incomes and profits will start to grow again, making the reform of labour and product markets less urgent. But waiting will not make things any easier, particularly as public support and patience erode.”

The BIS recommends urgent, broad-based reforms which principally involve cutting back on regulation to allow high-productivity sectors to flourish and for growth to return. It also says households need to makes further cuts to their debts while governments also need to get their balance sheets in order. And regulators need to make sure banks have the capital to absorb any risk of potential losses of the type mentioned above.

The math of debt

It’s worth elaborating on why the current path appears unsustainable, as the BIS alludes too. Put simply, debt is a promise to deliver money. If debt rises faster than money and income, it can do this for a while but there comes a cut-off point when you can’t service the debt. When that happens, you have to cut back on the debt, or deleverage in economic parlance.

There are four ways to deleverage:

  1. You can transfer money (Germany transfers money to Cyprus)
  2. You can write down the debt. Note though, that one country’s debt is another’s asset.
  3. You can cut back on the debt. These days, that’s looked down upon and consequently called austerity.
  4. You can print money to cover the debt.


Since 2008, we have seen countries employ all four of these methods.

But the real key is to make sure that interest rates remain below GDP rates. If that happens, debt to GDP levels will gradually fall. If not, they’ll inevitably rise. So say bond yields rise to the post war average of 6% in the U.S., and interest rates increase to comparative levels, nominal GDP would have to be above 6% for debt to GDP levels to decline.

If you understand this, then you’ll realise that talk of “tapering” in the U.S. is likely a load of baloney. Real U.S. GDP growth is expected to be close to 1% in the second quarter, with inflation at around 1.1%, resulting in nominal GDP growth of 2.1%. Many expect this nominal GDP to rise to +3% over the next 12 months. But even at those levels, bond yields can’t be allowed to rise much further (with 10-year yields at close to 2.5%). Otherwise, debt to GDP ratios will rise, impeding future growth and making budget cuts, tax rises and more money printing inevitable.

If the U.S. does taper and bond yields there rise, this would put upward pressure on bond yields in Europe. With GDP growth near zero and still exorbitant debt levels, higher bond yields would quickly crush the Eurozone.

This is why central banks can’t allow higher bond yields and interest rates. Of course, central banks don’t control long-term bond yields; markets do. If central banks want low bond yields, markets will comply until they don’t. That is until they don’t trust that the current strategies of central banks are working. Given that investors are still enamoured with the every word and hint of Ben Bernanke and his ilk, it would seem that the time when bond markets do turn ugly is still a way off.

Dreaded reform

As the BIS points out though, reform is also critical to better economic growth for the developed world and lower debt burdens. On this front, it’s amazing how little restructuring has actually occurred in the U.S. and Europe.

In the U.S. for instance, can you name one piece of significant reform which has reduced regulation and led to growth in new prospective sectors? I can’t, but maybe I’ve missed something.

The trend of the U.S. results season seems to bear this out. U.S. banks have killed it, while many other sectors such as tech haven’t. It’s hardly surprising that current policies are benefiting banks at the expense of the real economy. After all, not only did banks get massive bailouts in 2008 but they’ve been given almost free money from the Federal Reserve via QE ever since. The banking sector is not back to 2007 levels but it’s gradually getting there. Who would have thought this would happen just six years after the biggest debt bust in more than 70 years?

It’s somewhat ironic that instead of the U.S. or Europe, it’s Asia which may be about to lead the way on the reform front. Late on Friday, China announced that it would scrap controls on lending rates and let banks price their loans by themselves. This means cash-strapped companies may have access to cheaper loans. This cheaper credit could further spur the current debt bubble. But the move is likely to have an adverse impact on the profitability of the state-owned banks, thereby making them more reluctant to lend.

It’s expected that the move will foreshadow a later, more important policy to remove controls on deposit rates. Higher deposit rates would increase household income and go some way towards the government’s goal to increase consumption and re-balance the economy.

These financial reforms are likely to be only a small part of a plethora of reforms that China will announce over the next 3 months. As I’ve said previously, I think investors are underestimating the pragmatism of the new leadership and their willingness to take short-term pain to reap later benefits. It won’t be enough to prevent a serious economic downturn but it bodes well for the long-term. The one risk to this scenario is if growth slows enough for unemployment to rise. If that happens, stimulus may again become the got-to tool at the expense of reform. But we’re nowhere near that point yet.

Japan is the other country which may go through with some significant reform. This weekend’s parliamentary elections should solidify Shinzo Abe’s power and give him the platform to pursue more deep-seated reforms. However, the big question remains whether any reform can prevent the country from being overwhelmed by its enormous debt. I’m in the minority suggesting that the debt is simply too large and reform will do little to prevent Japan from going insolvent, if it isn’t already.

Risk of another debt bust?

Which brings me to the key conclusion of this piece. That is, it’s hard to see the U.S, Europe, Japan and other developed world countries implementing reform in time to prevent their debts from rising further and possibly imploding. In other words, many of the fears of the BIS may well come true.

That may sound pessimistic and, to some, melodramatic. But the reality is that little has been done in the past six years to restructure economies and cut debt ie. learning the lessons of 2008. Because we’ve partially recovered from that traumatic period, that’s led to complacency. All the while, the debt that caused the bust in the first place has compounded and threatens to undo the world again.

Let’s hope it doesn’t come to that.
The Markets’ Worst Kept Secret
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Sergey Golubev
Moderator
113474
Sergey Golubev  

Forex - Weekly outlook: July 22 - 26 :

The dollar was higher against the yen on Friday and slipped lower against the euro after comments by Federal Reserve Chairman Ben Bernanke earlier in the week eased concerns over how soon the bank will start tapering its easing program.

USD/JPY hit session highs of 100.87, the highest since July 10, before slipping back to settle at 100.61, 0.18% higher for the day and up 0.66% for the week.

The yen weakened ahead of weekend elections in Japan’s upper house, which were expected to deliver a victory for Prime Minister Shinzo Abe, allowing him to continue to push through a series of economic reforms aimed at spurring growth and fighting deflation.

EUR/USD hit highs of 1.3154 on Friday, before settling at 1.3139, up 0.23% for the day and 0.62% higher for the week.

Demand for the dollar continued to be underpinned after Bernanke indicated Wednesday that the bank still expects to start tapering its asset purchase program by the end of the year.

In the first day of his semi-annual testimony to Congress Bernanke said the central bank could scale back its asset purchases by the end of the year if the economy continues to improve, but added that there was no “preset course.”

Bernanke said the economic recovery was continuing at a moderate pace but reiterated that monetary policy will remain accommodative for the foreseeable future.

The pound rose to two week highs against the dollar on Friday, with GBP/USD climbing 0.29% to settle at 1.5268, extending the week’s gains to 1.15%.

Earlier in the week, the minutes of the Bank of England’s July meeting showed that policymakers voted unanimously to keep the bank’s quantitative easing program unchanged, ahead of a decision next month on whether to provide forward guidance on future interest rates.

Elsewhere, the Canadian dollar edged higher Friday, with USD/CAD slipping 0.11% to settle at 1.0367, shrugging off soft Canadian inflation data for June.

Statistics Canada said consumer price inflation rose 1.2% in June from a year earlier, well below the Bank of Canada’s 2% target, with core inflation rose 1.3% on a year-over-year basis.

Meanwhile, the Australian and New Zealand dollars found support after China’s central bank said it was removing the lower limit on interest rates for banks, to help banks attract more borrowers.

AUD/USD hit session highs of 0.9235, before trimming gains to settle at 0.9180, 0.11% higher for the day and 0.99% higher for the week.

NZD/USD hit highs of 0.7990 early in Friday’s session before slipping back to close at 0.7931, 0.38% higher for the day and up 1.68% for the week.

In the week ahead, the U.S. is to publish data on the housing sector and manufacturing, while an interest rate decision by New Zealand’s central bank will also be in focus. The U.K. is to release what will be closely watched data on second quarter growth and the euro zone is to produce data on manufacturing and service sector activity.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, July 22

The U.S. is to publish private sector data on existing home sales, an important economic indicator.

Tuesday, July 23

The U.K. is to release a report on mortgage approvals, an important indicator of demand in the housing sector.

Canada is to produce official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.

Wednesday, July 24

New Zealand and Japan are to release official data on the trade balance, the difference in value between imports and exports.

Australia is to produce government data on consumer price inflation, which accounts for the majority of overall inflation.

China is to publish the preliminary reading of the HSBC manufacturing index, a leading economic indicator.

The euro zone is to release preliminary data on manufacturing and service sector activity, while Germany and France are also to publish individual reports.

The U.K. is to print private sector data on industrial order expectations, an important economic indicator.

Later Wednesday, the U.S. is to release official data on new home sales, a leading indicator of economic health.

Thursday, July 25

The Reserve Bank of New Zealand is to announce its benchmark interest rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.

In the euro zone, Spain is to release official data on the unemployment rate. The Ifo Institute is to publish its index of German business climate.

The U.K. is to publish preliminary data on second quarter gross domestic product, the broadest indicator of economic activity and the leading measure of the economy’s health.

The U.S. is to publish government data on durable goods orders, a leading indicator of production, as well as the weekly government report on initial jobless claims.

Friday, July 26

Japan is to release official data on consumer price inflation.

In the euro zone, Germany is to publish official data on retail sales and import prices.

The U.S. is to round up the week with revised data on consumer sentiment from the University of Michigan.

Forex - Weekly outlook: July 22 - 26
Forex - Weekly outlook: July 22 - 26
  • Investing.com
  • www.investing.com
Investing.com - The dollar was higher against the yen on Friday and slipped lower against the euro after comments by Federal Reserve Chairman Ben Bernanke earlier in the week eased concerns over how soon the bank will start tapering its easing program. USD/JPY hit session highs of 100.87, the highest since July 10, before slipping back to...
Sergey Golubev
Moderator
113474
Sergey Golubev  

I made this weekly technical analysis for AUDUSD here and it may be good to compare it with weekly techinical analysis which was made by one of the popular forex portal.

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AUD/USD weekly outlook: July 22 - 26

The Australian dollar ended Friday’s session modestly higher against its U.S. counterpart, after comments by Federal Reserve Chairman Ben Bernanke earlier in the week eased concerns over how soon the bank will start tapering its easing program.

AUD/USD hit 0.9291 on Wednesday, the pair’s highest since July 11; the pair subsequently consolidated at 0.9176 by close of trade on Friday, up 0.11% on the day and 1.37% higher for the week.

The pair is likely to find support at 0.9088, the low from July 16 and resistance at 0.9291, the high from July 17.

In the first day of his semi-annual testimony to Congress Bernanke said the central bank could scale back its asset purchases by the end of the year if the economy continues to improve, but added that there was no “preset course.”

Bernanke said the economic recovery was continuing at a moderate pace but reiterated that monetary policy will remain accommodative for the foreseeable future.

The Aussie was also supported after China’s central bank said on Friday that it was removing the lower limit on interest rates for banks, in an effort to help lenders attract more borrowers and spur economic activity.

China is Australia's biggest export partner.

Meanwhile, in Australia, the minutes of the Reserve Bank of Australia's latest policy meeting released on Wednesday showed that policymakers believe the current stance of the bank's policy to be appropriate.

The RBA also said the inflation outlook was “slightly higher” due to the Aussie’s recent drop.

In the week ahead, the U.S. is to publish data on the housing sector and manufacturing, while China is also scheduled to release data on manufacturing activity.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets. The guide skips Tuesday as there are no relevant events on this day.

Monday, July 22

The U.S. is to publish private sector data on existing home sales, an important economic indicator.

Wednesday, July 24

Australia is to produce government data on consumer price inflation, which accounts for the majority of overall inflation.

China is to publish the preliminary reading of the HSBC manufacturing index, a leading economic indicator.

Later Wednesday, the U.S. is to release official data on new home sales, a leading indicator of economic health.

Thursday, July 25

The U.S. is to publish government data on durable goods orders, a leading indicator of production, as well as the weekly government report on initial jobless claims.

Friday, July 26

The U.S. is to round up the week with revised data on consumer sentiment from the University of Michigan.

Forex - AUD/USD weekly outlook: July 22 - 26
Forex - AUD/USD weekly outlook: July 22 - 26
  • Investing.com
  • www.investing.com
Investing.com - The Australian dollar ended Friday’s session modestly higher against its U.S. counterpart, after comments by Federal Reserve Chairman Ben Bernanke earlier in the week eased concerns over how soon the bank will start tapering its easing program. AUD/USD hit 0.9291 on Wednesday, the pair’s highest since July 11; the pair...
Sergey Golubev
Moderator
113474
Sergey Golubev  

EUR/USD weekly outlook: July 22 - 26 :

The euro pushed higher against the dollar in thin trade on Friday but dollar demand continued to be supported amid expectations that the Federal Reserve will start to scale back its asset purchase program later this year.

EUR/USD hit highs of 1.3154 on Friday, before settling at 1.3139, up 0.23% for the day and 0.62% higher for the week.

The pair is likely to find support at 1.3065, Thursday’s low and resistance at 1.3177, the high of July 17.

Demand for the dollar continued to be underpinned after Fed Chairman Ben Bernanke indicated Wednesday that the bank still expects to start tapering its asset purchase program by the end of the year.

In the first day of his semi-annual testimony to Congress Bernanke said the central bank could scale back its USD85 billion-a-month bond buying program by the end of 2013 if the economy continues to improve, but added that there was no “preset course.”

Bernanke said the economic recovery was continuing at a moderate pace but reiterated that monetary policy will remain accommodative for the foreseeable future.

Elsewhere, the euro was higher against the yen on Friday, with EUR/JPY advancing 0.39% to 132.19 at the close of trade, extending the week’s gains to 1.28%.

The yen was broadly weaker ahead of weekend elections in Japan’s upper house, as opinion polls indicated that Prime Minister Shinzo Abe’s Liberal Democratic Party would claim victory.

A victory would allow Prime Minister Abe to continue to push through a series of structural reforms aimed at spurring economic growth and fighting deflation.

In the week ahead, the U.S. is to publish data on the housing sector and manufacturing, while euro zone data on manufacturing and service sector activity will also be closely watched.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.The guide skips Tuesday as there are no relevant events on this day.

Monday, July 22

The U.S. is to publish private sector data on existing home sales, an important economic indicator.

Wednesday, July 24

The euro zone is to release preliminary data on manufacturing and service sector activity, while Germany and France are also to publish individual reports.

Later Wednesday, the U.S. is to release official data on new home sales, a leading indicator of economic health.

Thursday, July 25

In the euro zone, Spain is to release official data on the unemployment rate. The Ifo Institute is to publish its index of German business climate.

The U.S. is to publish government data on durable goods orders, a leading indicator of production, as well as the weekly government report on initial jobless claims.

Friday, July 26

In the euro zone, Germany is to publish official data on retail sales and import prices.

The U.S. is to round up the week with revised data on consumer sentiment from the University of Michigan

Forex - EUR/USD weekly outlook: July 22 - 26
Forex - EUR/USD weekly outlook: July 22 - 26
  • Investing.com
  • www.investing.com
Investing.com - The euro pushed higher against the dollar in thin trade on Friday but dollar demand continued to be supported amid expectations that the Federal Reserve will start to scale back its asset purchase program later this year. EUR/USD hit highs of 1.3154 on Friday, before settling at 1.3139, up 0.23% for the day and 0.62% higher for...
Sergey Golubev
Moderator
113474
Sergey Golubev  

As the trading week is just started so this is the other mini-article related to the situation on the market.

===========

USDJPY Eyes Higher High on Policy Outlook- EU Summit on Tap :



Talking Points

  • Japanese Yen: BoJ to Adjust Policy as Need, More Easing Ahead
  • Euro: EU Scales Back on Austerity, EIB to Offer EUR 100B to SMEs
  • British Pound: To Consolidate Further Ahead of Next BoE Meeting

Japanese Yen: BoJ to Adjust Policy as Need, More Easing Ahead

The Japanese Yen weakened further on Friday, with the USDJPY advancing to an overnight high of 98.12, and the low-yielding currency looks poised to give back the rebound carried over from the previous month amid the deviation in the policy outlook.

As the Bank of Japan (BoJ) moves to the sidelines, Governor Haruhiko Kuroda pledged to make policy adjustments as needed, and went onto say that the central bank will continue to pursue its easing cycle in order to achieve the 2% target for inflation.

In turn, the deviation in the policy outlook should prop up the USDJPY over the near to medium-term, and the pair looks poised to make a more meaningful run at the 104.00 handle as it carves out a higher low in June.

Euro: EU Scales Back on Austerity, EIB to Offer EUR 100B to SMEs

Indeed, the finance ministers meeting in Luxembourg failed to prop up the Euro, with the EURUSD slipping to a low of 1.3144, and the single currency may weaken further ahead of the EU Summit on June 27-28 as European policy makers preserve a reactionary approach in addressing the risks surrounding the region.

At the same time, there are reports that the European Investment Bank and the European Commission ‘are also working with the ECB to develop an EU strategy to alleviate the financing constraints for SMEs,’ which would include a EUR 100B lending program for small to medium-sized businesses, and we may see European policy makers continue to draw on external support as they struggle to get their house in order.

As the group of finance ministers scale back their push for austerity, we are likely to see the EU make further attempts to buy more time, and the European Central Bank (ECB) may come under increased pressure to further embark on its easing cycle as the periphery countries become increasingly reliant on monetary support.

As a result, the fundamental developments coming out of the region may continue to dampen the appeal of the single currency, and the pull back from 1.3415 may turn into a larger correction as the relative strength index on the EURUSD falls back from overbought territory. In turn, we should see the EURUSD come up against the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120 to test for interim support, but we may see a move back towards the 23.6% retracement (1.2970) as European policy makers struggle to restore investor confidence.

British Pound: To Consolidate Further Ahead of Next BoE Meeting

The British Pound pared the rebound from earlier this week, with the GBPUSD falling back to 1.5421, and we may see the sterling continue to consolidate ahead of the next Bank of England (BoE) interest rate decision on July 4 as Mark Carney takes the helm at the central bank.

Although there’s bets that Mr. Carney will implement a grow target for the BoE, it seems as though the majority of the Monetary Policy Committee will stick to the inflation-targeting frame work as the region continues to face above-target price growth, and we may see the central bank move further away from its easing cycle in the second-half of the year as it sees a slow but sustainable recovery in the U.K.

In turn, it looks as though the upward trending channel dating back to March will continue to take shape in the second-half of the year, and we may see the sterling outperform against its major counterparts as the BoE keeps its asset-purchase program capped at GBP 375.

USDJPY Eyes Higher High on Policy Outlook- EU Summit on Tap
USDJPY Eyes Higher High on Policy Outlook- EU Summit on Tap
  • David Song
  • www.dailyfx.com
The Japanese Yen weakened further on Friday, with the USDJPY advancing to an overnight high of 98.12, and the low-yielding currency looks poised to give back the rebound carried over from the previous month amid the deviation in the policy outlook. pledged to make policy adjustments as needed, and went onto say that the central bank will...