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Good Afternoon Readers!
Stocks plummeted in early trading this morning as news of increased oil prices hit the eyes, ears and PCs of some already apprehensive investors. Crude oil rose to over $90 a barrel over night, leading investors to believe that rising energy costs will have a negative impact on business and consumers alike. Part of oil's price accrual this week is owed to the persistent fears over tensions between Turkey and Kurdish insurgents in northern Iraq. Investors are concerned a clash could interrupt supplies through Turkey, a significant oil center. On the opposite end of the investment spectrum, there are investors that have a more positive outlook and feel oil plays a less essential role in contemporary economies than it used to. That being said, these investors are looking for new diversified arenas for their investments, such as energy stocks. However, with these facts as a backdrop and the world’s financial press continuing to tout Energy and Oil as the standard bearers of today’s market climate, Traders are wise to gauge these key indicators while they prepare for another interesting week.
Featured below is this week’s newsletter. Have a nice weekend.
Warm Regards,
Lane Mendelsohn
Website Publisher
In
This Issue...
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Self-Sabotage Revealed
by
Van K. Tharp, Ph.D. |
2 |
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"Triple Moving Averages" Explained
by
Jim Wyckoff |
3 |
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Currency/Commodity Markets
by
Kevin Klombies |
4 |
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U.S.
Stock Market Update
by
Robert W. Colby |
5 |
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Weekly Currency Wrap-up
by
Darrell Jobman |
6 |
Trading Psychology
Self-Sabotage Revealed
by Van K.Tharp
In my peak performance training with traders, I give a strong psychological slant to the concept of self-sabotage. Self-sabotage typically occurs when one lacks the discipline to act in one’s own best interest. For example, when you have dessert, knowing it’s taboo because you are trying get healthy, you might call that self-sabotage. Or perhaps you know you need to exercise and you really feel good when you do so, but somehow you just feel lazy and want to skip the exercise period. Self-sabotage occurs in trading in many instances:
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When you know you should follow the ten tasks of trading, but you don’t.
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When you know you need to determine if your system will really work, but you just trade it anyway.
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When you know you should develop a business plan for your trading, but somehow that just seems like too much work.
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When you know you need to put a stop loss order in on a trade, but you don’t.
These and numerous other examples characterize self-sabotage. And these examples of self-sabotage typically occur when you have internal conflict between various parts of yourself and when emotions pop up that result in behavior that is not in your best interest and when you just avoid doing what’s important for success.
Many traders, however, avoid thinking about self-sabotage in this manner because they don’t like to go inside of themselves to see what is going on. They prefer to think technically about systems rather than notice what their beliefs are and whether or not they are useful. As a result of this tendency, I’ve developed another definition of self-sabotage that everyone can relate to: repeating the same mistake multiple times.
My definition of a mistake is when you don’t follow your rules. And if you don’t have rules, then everything you do is a mistake. And self-sabotage occurs when you keep repeating the same mistakes over and over and over again.
For example, you don’t raise your stop when the market makes a new high. When you skip it once, and your rules say you must do it, then it’s a mistake. When you do it three times in the same week, then it is self-sabotage. When you develop this attitude, can start keeping track of your mistakes and see how much they cost you.
For example, suppose you are about to be stopped out for a 1R loss. (The definition of a 1R loss and R-multiples in general is explained in my book Trade Your Way to Financial Freedom and there is a brief description in my Tharp Concepts section of the website.) You don’t want to be stopped out, however, so you cancel the stop – which is your mistake. The position keeps going down and eventually you get out with a 3R loss. That mistake cost you 2R (i.e., instead of a 1R loss you got a 3R loss).
Now suppose you have a system that makes you 100% per year. However, you make a 2R mistake each week. At the end of the year, instead of being up 100%, you have lost money just because of your mistakes. Now can you begin to understand how trading reflects your behavior and that one of the critical things that you must do as a trader is to eliminate mistakes.
Next week we’ll take a look at some of the common mistakes that most traders make repeatedly.
Until next week, this is Van Tharp.
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Weekly Futures Market Commentary
"Triple Moving Averages" Explained
by Jim
Wyckoff,
Senior Editor
Those who have followed my work for some time know that I take a “toolbox” approach to analyzing and trading markets. The more technical and analytical tools I have in my trading toolbox at my disposal, the better my chances for success in trading. One of my favorite "secondary" trading tools is moving averages.
In a past educational feature, I explained how I use my two favorite moving averages: the 9- and 18-period moving averages. In this feature, I will discuss using three moving averages in analyzing and trading a market. It's called the "triple-moving average" method.
The moving average is one of the most commonly used technical tools. In a simple moving average, the mathematical median of the underlying price is calculated over an observation period. Prices (usually closing prices) over this period are added and then divided by the total number of time periods. Every day of the observation period is given the same weighting in simple moving averages. Some moving averages give greater weight to more recent prices in the observation period. These are called exponential or weighted moving averages.
The length of time (the number of bars) calculated in a moving average is very important. Moving averages with shorter time periods normally fluctuate and are likely to give more trading signals. Slower moving averages use longer time periods and display a smoother moving average. The slower averages, however, may be too slow to enable you to establish a long or short position effectively. Moving averages follow the trend while smoothing the price movement. The simple moving average is most commonly combined with other simple moving averages to indicate buy and sell signals.
In the triple-moving-average method, "period" lengths typically consist of short, intermediate, and long-term moving averages. A commonly used system in futures trading is 4-, 9-, and 18period moving averages. Keep in mind a time "period" may be minutes, days, weeks, or even months. Typically, moving averages are used in the shorter time periods, and not on the longer-term weekly and monthly bar charts.
The trading signals generated by a triple moving average may be interpreted as follows: The shorter-term moving average above the longer-term average indicates a bullish market. When the shorter-term moving average crosses below the longer-term moving average, the market is viewed as bearish and a sell signal is generated. If the shorter-term moving average remains below the longer-term moving average, the market is still considered bearish. When the shorter-term average crosses above the longer-term average, a possible reversal to a bearish market is signaled.
The relation of the three moving averages can help to better and more quickly define the strength of the trend and provide shorter-term trading clues. For example, if the 4-period moving average crosses above the 9-period average, but the 9-period is still below the 18-period, that signals a trend change may be on the horizon, but it's best to wait for the 9-period to cross above the 18period for a better reading of the trend change.
The trader who uses shorter timeframes to trade markets is better suited to using the triple-moving-average method--because trading signals are given faster. But keep in mind the shorter the moving average, the greater the potential for false signals.
Here is an important caveat about using moving averages when trading futures markets: They do not work well in choppy or non-trending markets. One can develop a severe case of whiplash using moving averages in choppy, sideways markets. Conversely, in trending markets, moving averages can work very well.
When looking at a daily bar chart, one can plot different moving averages (provided you have the proper charting software) and immediately see if they have worked well at providing buy and sell signals during the past few months of price history on the chart.
As an aside, veteran ag market watchers say the "commodity funds" (the big trading funds that many times seem to dominate futures market trading) follow the 40-day moving average very closely when they trade the grains. Thus, if you see a grain market that is getting ready to cross above or below the 40-day moving average, it just may be that the funds could become more active.
That is it for this week. You can also visit my daily blog at www.traderblogs.com.
Have a great weekend!
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Commodity Markets Review
by Kevin Klombies
Currency/Commodity Markets
The chart which immediately follows compares crude oil futures with the cross rate between the Japanese yen and the Australian dollar (JPY/AUD).
The yen has reached a major bottom relative to the AUD on two occasions in the past two decades- 1990 and 1997. Both instances marked the highs for crude oil prices. Our point, however, is that yen strength in a strong commodity/crude oil trend is a negative because it reflects the sort of counter-trend shift in capital that goes with fear and price corrections. Yen strength in a weak commodity trend, on the other hand, is not a negative because it reflects money flowing in the appropriate direction.
We argued yesterday that for years and years the ratio between the price of crude oil and gasoline futures peaked out around .41. Since the switch to the RBOB gasoline futures contract the ratio has peaked out at almost exactly .41.
In trading yesterday crude oil prices were stronger than gasoline so that the ratio closed at the upper extreme. Unless crude oil can carry gasoline prices higher this does serve to limit the upside potential.
On page 2 we argued that the sum of copper and crude oil had returned to last year’s highs as the dollar and the TBonds had moved back to the lows. Oil price strength is now leading to weakness in copper prices. This has an interesting impact on the Asian theme as we show below right using the spread between copper and crude oil prices and the Shanghai SE Composite Index.
The idea is that stronger copper than oil has reflected a positive trend for the Chinese equity market while stronger crude oil has been a negative. If the spread continues to work back towards ‘0’ through higher oil prices are lower copper prices we would expect lower share prices in China.
Short-Term Views
Below we show the SPX from 1987 and the Shanghai Comp. from 2007. The chart have been set up to make the argument that the same amount of time has elapsed since the last correction in Chinese share that passed by between the spring correction in the S&P 500 Index in 1987 and the ultimate top in August.
Often a market will make similar looking corrections through a cycle (we will show this some time next week) so if this is the appropriate time for something negative to occur we would expect to see the Shanghai Comp. move back to the 50-day e.m.a. line once or twice. Typically a significant decline tends to follow the completion of a ‘top’ and that usually takes six or seven weeks so we have plenty of time to watch this develop before getting overly excited.
Quickly... the chart at bottom shows the Japanese yen futures. In terms of the dollar the yen is well off the lows, above the 200-day e.m.a. line, and in danger of actually moving into an uptrend. From our point of view the yen would have to resolve up through the August highs to really mark this as ‘done’.
All week we have been hammering at the idea that ‘time-wise’ we can make a fairly good case for a commodity markets peak around the end of this week (give or take a day or three of course). Since commodity prices, the commodity currencies, and the Asian equity markets are all part of the same trend and with the G7 meeting on the go perhaps this actually might end up making sense.
The chart below show copper producer First Quantum (FM on Toronto), the Aussie dollar (AUD), and Chinese internet search company Baidu (BIDU). In 2006 the commodity markets made two tops three months apart. If this repeats this year then the markets are well on the way to completing the second top.
Best
Wishes,
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U.S.
Stock Market Update
by Robert W. Colby
Existing Trends Continue
(just like they are supposed to)
Energy and Technology Relative Strength rose to new highs.
Financial Relative Strength fell to a new low.
NASDAQ Composite index’s Relative Strength made another new 17-month high.
Growth stocks’ Relative Strength made a new 20-month high relative to Value stocks.
Foreign stock indices’ Relative Strength rose to a new high. My Top 10 ETF Relative Strength Ranks are all Foreign.
U.S. Treasury Bond prices rose again after breaking above a 5-week downtrend line.
November Crude Oil Futures rose to another new all-time high at $90.02 a barrel and closed strong.
Gold rose a new 28-year high.
U.S. dollar broke down below recent lows.
On Thursday, major stock price indices gaped down on the open on more news of weak earnings in the financial sector and rising oil costs. Stock prices held above Wednesday’s lows, bottomed at 10:05 a.m., stabilized, then recovered much of the early loss in the afternoon.
Once again, the two weakest sectors, financial and consumer discretionary, were the main drags on the market. Also, November Crude Oil Futures prices hit another new record high at $90.02 a barrel and closed strong, and that raises costs for consumers and hurts many companies, such as Airlines, which were among the biggest losers of the day.
Once again, the stock market Bulls were relieved to see the market demonstrate its good old ability to bounce back from sinking spells. The market’s persistent tendency toward Bullish resilience indicates that the underlying demand for stocks has not evaporated.
Breadth ended 2% net Bearish, with relatively few more Declining stocks than Advancing stocks on the NYSE. The Cumulative Daily Advance-Decline line for the NYSE is far from its July high, lagging the price indices. The A-D Line lag is much more pronounced (I could say “dramatic”) for the NASDAQ.
Up Volume finished the day 5% net Bearish, with more Down Volume than Up Volume on the NYSE.
Total volume eased on both the NYSE and the NASDAQ, indicating a calmer emotional trading climate.
New Highs-New Lows ratios ended with less than 5% net Bearish.
Very short-term indicators show that Bearish momentum has dissipated and Bearish momentum divergences have been canceled.
The market does not move in a straight line, and temporary minor sinking spells are to be expected in any uptrend. The stock market has absorbed 1- to 4-day bouts of normal profit taking with minimal damage and with resilience since the low on 8/16/07. That indicates underlying demand and a Bullish intermediate-term trend for stocks. Finally, the long-term Primary Tide Trend remains Bullish, according to the Dow Theory.
Seasonal tendencies are clearly a concern to many traders. October has been a losing month on average, based on 101 years of month-end closing prices for the Dow-Jones Industrial Average, from 1900 through 2000. (See my book, pages 403-410.) October has seen some very notable downside shakeouts in the past. The media is all over this story, however, so a cautious exploration of the Art of Contrary Thinking could prove to be a good idea.
The market is a trick or treat monster, perhaps more so than usual at this time. Therefore, I am considering any and all opinions lightly, taking them with a few grains of salt, while staying alert, flexible, and ready to change quickly as “the tape” dictates.
Spotlight on event stocks: Here is a stock screen I designed to pick out potential “event” stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.
Bullish Stocks: Rising Price and Rising Volume
% Price Change, Symbol, Name
14.49% , CECO , CAREER EDUCATION CORP
7.74% , BAX , BAXTER INTL
5.73% , SSCC , Smurfit-Stone Container Corporation
4.24% , TXT , TEXTRON
0.26% , PWB , Lg Cap Growth PSD, PWB
1.47% , VFC , VF
6.21% , AMCC , APPLD MICRO CIRC
3.69% , TIF , TIFFANY
5.48% , NE , NOBLE
0.59% , ITF , Japan LargeCap Blend TOPIX 150, ITF
3.12% , AMD , ADV MICRO DEV
5.39% , NUE , NUCOR
2.64% , MRO , MARATHON OIL
4.23% , BK , BANK OF NEW YORK
5.84% , UNP , UNION PACIFIC
1.85% , GILD , Gilead Sciences Inc
1.52% , ACS , AFFILIATED COMPUTER
0.25% , PKB , Building & Construction, PKB
2.34% , STI , SUNTRUST BANKS
0.32% , ASD , AMER STANDARD
3.19% , HUM , HUMANA
1.17% , LPX , LOUISIANA PAC
3.04% , WYE , WYETH
0.70% , PWJ , Growth Mid Cap Dynamic PS, PWJ
2.82% , RIG , TRANSOCEAN
4.07% , PNC , PNC FINL SVC
3.20% , SYK , STRYKER
0.97% , GOOG , Google
2.14% , SGP , SCHERING PLOUGH
2.53% , SNDK , SanDisk Corporation
1.23% , PMCS , PMC SIERRA
0.37% , IGN , Networking, IGN
1.95% , BNI , BURLINGTON NORTH
1.03% , RAI , RJR TOBACCO HLDS
0.32% , PPH , Pharmaceutical H, PPH
1.79% , DBC , Commodity Tracking, DBC
0.69% , VC , VISTEON
1.12% , PIV , Value Line Timeliness MidCap Gr, PIV
1.12% , HBAN , HUNTINGTON
2.70% , WWY , WM WRIGLEY JR
2.05% , BDX , BECTON DICKINSON
0.48% , FDV , Value 40 Large Low P/E FT DB, FDV
1.39% , NSC , NORFOLK SOUTHERN
1.21% , EWT , Taiwan Index, EWT
2.48% , ADBE , ADOBE SYS
0.32% , LEG , LEGGETT & PLATT
3.13% , GM , GENERAL MOTORS
0.66% , PHM , PULTE HOMES
1.21% , TBH , Telebras H, TBH
0.76% , ATVI , Activision Inc.
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-21.79% , RX , IMS HEALTH
-7.71% , WM , WASHINGTON MUT
-8.02% , ETFC.O , E*TRADE FINANCIAL
-7.70% , SOV , SOVEREIGN BANC
-5.86% , TER , TERADYNE
-3.53% , ALL , ALLSTATE
-5.33% , STJ , ST JUDE MEDICAL
-3.29% , PWER , POWER ONE
-2.47% , SAF , SAFECO
-3.00% , PPG , PPG INDUSTRIES
-2.92% , CTXS , CITRIX SYSTEMS
-3.66% , BBT , BB&T
-0.29% , JKI , Value MidCap iS M, JKI
-3.23% , LIZ , LIZ CLAIRBORNE
-0.65% , SDY , Dividend SPDR, SDY
-3.88% , JCP , JC PENNEY
-2.80% , HSY , HERSHEY FOODS
-2.36% , BAC , BANK OF AMERICA
-1.03% , UNH , UNITEDHEALTH GRP
-0.76% , XBI , Biotech SPDR, XBI
-2.83% , KSS , KOHLS
-1.58% , LUV , SOUTHWEST AIRLS
-6.16% , EBAY , EBAY
-0.68% , DVY , Dividend DJ Select, DVY
-5.39% , FHN , FIRST TENNESSEE
-1.35% , COF , CAPITAL ONE FNCL
-0.27% , PEJ , Leisure & Entertainment, PEJ
-1.45% , ROK , ROCKWELL AUTOMAT
-0.99% , VFH , Financials VIPERs, VFH
-0.46% , LAMR , Lamar Advertising Company
-3.25% , DHI , D.R. HORTON, DHI
-2.17% , GWW , WW GRAINGER
-1.49% , CB , CHUBB
-2.06% , ODP , OFFICE DEPOT
-1.08% , IACI , IAC/INTERACTIVCORP
-0.31% , GPC , GENUINE PARTS
-0.79% , FDL , Dividend Leaders, FDL
-3.99% , RF , REGIONS FINAN
-2.13% , MMC , MARSH & MCLENNAN
-0.62% , PFM , Dividend Achievers PS, PFM
-1.21% , NWS.A , NEWS CORP STK A
-1.99% , JWN , NORDSTROM
-0.69% , IYC , Consumer Cyclical DJ, IYC
-3.26% , ISIL , INTERSIL CORP
-0.71% , GPS , GAP
-1.80% , TXN , TEXAS INSTRUMENT
-0.24% , TMW , Wilshire 5000 ST TM, TMW
-0.08% , DSG , Growth Small Cap DJ, DSG
-1.13% , DISCA , Discovery Holding Co.
-0.53% , LLY , ELI LILLY
Sectors: among the 9 major U.S. sectors, 5 rose and 3 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
0.78% Materials
0.77% Energy
0.27% Industrial
0.25% Technology
0.03% Health Care
-0.36% Consumer Staples
-0.88% Utilities
-0.92% Consumer Discretionary
-1.64% Financial
Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):
Energy (XLE) Bullish, Overweight. XLE made an all-time closing price high on 10/16/07, and XLE made an all-time high in relative strength 10/18/07. XLE has been strong compared to the S&P since 3/12/03.
Technology (XLK) Bullish, Overweight. XLK made a new 6-year price high on 10/11/07, and relative strength made a new 2-year high on 10/18/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.
Materials (XLB) Bullish, Overweight. Price made a new high on 10/11/07. Relative strength made a new 10-week high on 10/1/07. The relative strength trend strongly outperformed since the price shakeout low on 8/16/07, and its long term trend has been Bullish since 9/27/2000.
Industrial (XLI) Bullish, Overweight. Industrial stock sector price made an all-time price high on 10/10/07. Longer term, XLI has been relatively strong compared to the S&P since 8/9/06.
Utilities (XLU) Neutral, Market Weight. This defensive sector’s relative strength made a new 8-week low on 9/28/07.
Consumer Staples (XLP) Bearish, Underweight. This defensive sector’s relative strength broke down to a new 11-week low on 10/9/07 and has been underperforming for 5 years, since 10/9/02.
Health Care (XLV) Bearish, Underweight. Relative strength has been trending down since 10/9/02, and it made a new 5-year low on 7/19/07, thereby confirming a major downtrend.
Consumer Discretionary (XLY) Bearish, Underweight. Price hit a new 10-month low on 8/16/07. Relative strength made another new 6-year low on 9/27/07 and is back down to that low now.
Financial (XLF) Bearish, Underweight. The XLF/SPY relative strength ratio fell to its lowest level in more than 6 years. The long-term trend of relative strength has been trending down since 2/20/07.
Foreign stock indices’ Relative Strength rose to a new high. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) made new price and relative strength highs on 10/11/07. EFA has substantially outperformed long term, since the Bull market started in 2002, and the secular trend is still Bullish. My Top 10 ETF Relative Strength Ranks are all Foreign.
NASDAQ Composite index is performing well, relative to most other indices. Price made a new 6-year high on 10/11/07. Relative strength made a new 17-month high on 10/18/07. Longer term, NASDAQ has outperformed for more than a year, since 8/8/06.
Growth stocks’ relative strength made another new 20-month high relative to Value stocks. Growth price made a new 6-year high on 10/11/07 and outperformed Value stocks since 8/8/06. The main trend is confirmed Bullish.
Small Caps substantially underperformed Large Caps since 4/19/06, and the main long-term trend is Bearish for Small Caps.
November Crude Oil Futures prices hit another new record high at $90.02 a barrel and closed strong. Support appears at previous resistance at 84.10 and at previous minor lows in the 78.25-78.35 zone. Note that the U.S. OIL FUND ETF (AMEX: USO) is not a pure play on Crude Oil. The longer-term trends for both remain Bullish.
The Energy stock sector underperformed the USO but outperformed the SPY. Longer term, since 3/12/03, the stocks in the Energy Select Sector SPDR ETF (XLE) have significantly outperformed crude oil as a commodity, as well as the S&P 500. So, the Relative Strength major trend is Bullish for the energy stocks.
Gold rose a new 28-year high. The Gold Trust ETF (NYSE: GLD) confirmed. Some profit taking seems due, but these major trends remain Bullish.
Silver’s main trend is relatively Bearish. Compared to Gold, the iShares Silver Trust (AMEX: SLV) has been relatively weak since 12/7/06.
The Gold Miners ETF (GDX) has underperformed the metal since 10/12/07. Profit taking seems normal after the previous price run-up.
Inflation expectations appear choppy and uncertain, especially since 6/22/07. This is based on the behavior of the ratio of two ETFs, TIP/IEF.
U.S. Treasury Bond prices rose again after breaking a 5-week downtrend line on 10/17/07.The short-term trend still appears Bullish. Long-term, it seems possible that the iShares Lehman20+ Year U.S. Treasury Bond ETF (AMEX: TLT) ended a normal oversold bounce in a Bearish trendon 9/10/07. Bonds remain reactive to news about the credit crisis: the worse the credit crisis, thehigher the Bond prices; the better the credit crisis, the lower the Bond prices.
U.S. dollar broke down below recent lows. The main trend is confirmed Bearish. Longer term, the dollar fell 16% over the past 23 months, and the main tidal force remains very Bearish.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
2.67% Gold Mining
2.10% Australia
1.98% Canada
1.91% Paper
1.37% Brazil
1.30% Commodity Related
1.30% Spain
1.22% Switzerland
1.21% Taiwan
1.21% Australian Dollar
1.14% Natural Gas
1.10% Hardware
1.06% Malaysia
0.98% Swiss Franc
0.96% Oil Services
0.87% AMEX Composite
0.79% South Korea
0.78% Materials
0.77% Energy
0.77% Euro Index
0.73% Chemicals
0.64% Japanese Yen
0.59% Dow Transports
0.58% Oil
0.56% British Pound
0.48% 30Y T-Bond
0.44% Hospitals
0.43% Japan
0.38% Nasdaq 100
0.38% Disk Drives
0.35% Computer Tech
0.32% Singapore
0.31% REITs
0.31% Germany
0.30% United Kingdom
0.28% Health Care
0.28% Austria
0.27% Industrial
0.25% Technology
0.25% Internet
0.24% Nasdaq Composite
0.23% S&P Mid Caps
0.22% France
0.20% Drugs
0.15% Canadian Dollar
0.13% Health Care Products
0.11% Belgium
0.10% Dow Composite
0.09% NYSE Composite
0.09% Semiconductors
0.06% Network
0.06% Netherlands
0.03% Value Line
0.03% Health Care
0.02% Russell 2000
-0.03% Dow Industrial
-0.03% DOT
-0.03% Italy
-0.05% Russell 1000
-0.05% Russell 3000
-0.07% Wilshire 5000
-0.08% S&P 500
-0.14% S&P Small Caps
-0.14% Mexico
-0.19% S&P 100
-0.30% Dow Utilities
-0.36% Consumer Staples
-0.65% US Dollar Index
-0.68% Insurance
-0.80% Sweden
-0.88% Utilities
-0.92% Consumer Discretionary
-0.95% Broker Dealers
-0.96% Banks
-0.99% Hong Kong
-1.05% Retailers
-1.64% Financial
-1.68% Biotechs
-1.80% Airlines
Best
Wishes,
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Weekly Currency News Trading
Weekly Currency Wrap-up
by Darrell Jobman, Editor-in-Chief
The past week has been marked by a renewed increase in concerns over the US economy and by greater caution over global credit conditions with some reassessment of recent optimism that the worst of the difficulties had passed.
The US housing data remained very weak with starts dropping by a further 10.2% in September to give an annual rate of 1.19mn which was the lowest level for 14 years. Permits also fell further to an annual rate of 1.22mn.
Industrial production rose by a marginal 0.1% for the month while the Philadelphia Fed index dropped to 6.8 from 10.9, although the prices index was strong. Jobless claims rose to 337,000 in the latest week from 309,000.
The Fed’s Beige Book reported that growth decelerated in September and early October with notable weakness in housing, although the labour market was still tight.
Consumer prices rose 0.3% in September due to a rebound in energy prices while there was a 0.2% increase in core prices to give a 2.1% annual increase.
Markets pushed the chances of an October interest rate cut back to well above 50% following the housing data and weak Bank of America results.
There were reported net long-term capital outflows of US$69.3bn for August while there were total net outflows of US$163bn, the weakest figure for close to 10 years. There was also net selling of US Treasuries by Asian central banks.
The dollar has failed to sustain rally attempts and weakened to record lows beyond 1.43 against the Euro. The US currency also fell to new 30-year lows against the trade-weighted index.
The yen moves were correlated strongly with global stock market moves. A downturn in Wall Street and renewed concerns over financial-market conditions boosted the yen as carry trades wee pared back. The yen secured some support from speculation over a Chinese yuan revaluation.
The yen was still contained by evidence of retail selling when the yen gained ground, but there was some evidence of increased institutional yen support.
The yen found support towards 118.0 level against the dollar and strengthened back to 115.0 late in the week. The yen also regained ground against the Euro. The increase in risk aversion also pushed the Australian dollar back from highs above 0.9050 against the US dollar even though there was evidence of solid buying support on dips.
Headline UK consumer inflation was unchanged at 1.8% for September. The core rate fell to 1.5% from 1.8% which was the lowest for 11 months.
Retail sales rose by 0.6% in September after a revised 0.7% increase the previous month to give a 3-year high for annual growth, although the volume gains were again achieved through lower prices.
The labour-market data was firm with a 12,800 drop in unemployment while average earnings growth rose back to 3.7%. Advance third-quarter GDP was reported at 0.8% to give 3.3% annual growth as retail spending held firm.
The Bank of England minutes from October’s MPC meeting recorded a 8-1 vote for unchanged rates with Blanchflower dissenting and calling for an immediate rate cut.
Sterling found support towards 0.70 against the Euro. There was further Euro buying to fund the RBS-led takeover of ABN Amro which capped Sterling gains. The UK currency pushed to highs near 2.05 against the dollar as the US currency stumbled.
National Bank President Roth stated that it was wrong to assume that there won’t be any further interest rate increases. Roth also stated that the bank would remain particularly vigilant over inflation and that franc weakness was not justified
The franc drew some support from renewed losses in global equity markets and a spike in credit-related fears after the poor Bank of America results.
The Swiss franc weakened to record lows around 1.68 against the Euro before recovering significantly over the second half of the week. The dollar was unable to sustain gains above 1.18 against the franc and dipped to 1.1660.
Have a great day and a
wonderful weekend.
Have a great day and a
wonderful weekend.
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