Looking for directions

A week of optimism and good news. Things looked alright. USD also played to the gallaries, strengthening against most currencies. Look at the flip side and you find that there is a spate of not so encouraging signals from economies elsewhere. UK housing stats ate disappointing, the German consumer confidence is low. ANZ reports not so encouraging results and forecast, Inflation is sky high in Japan, South East Asia, and climbing still all over. So, if the US is not coming out with comparative disappointing numbers, is it all OK? Maybe for the dollar. It has strengthened to the 1.57 mark against the Euro and has infact gone below briefly last week, probably triggering some of the stop losses. Against the Yen too, it has toyed with the 108 mark before settling in the vicinity.

My outlook for the two.....should stick to their resistances .....1.57 and 108 respectively while testing them time and again as I believe the worst is not yet over and for the fact that the implications of the sub prime will take some time to be erased globally.

Optimism rising

The positive vibes have started coming now. Oil has consolidated itself in the 128 area (Though one bad news and you can still see a 135 or odds). Financials are hoping now of scraping through with the small injuries of the past year. And as I had last stated, the chances of a Fed rate hike have really improved.

To quote one news article "Philadelphia Federal Reserve president Charles Plosser warned in a speech that a hike in US interest rates was unavoidable in the short-term in the face of inflation pressures. While Plosser is seen as one of the most hawkish members of the Fed's rate-setting committee, his remarks rekindled speculation about possible US rate hikes that could boost the dollar. The dollar also found support from US Treasury Secretary Henry Paulson, who reiterated Washington's preference for a strong currency and renewed his backing for troubled US mortgage finance giants Fannie Mae and Freddie Mac." Unquote.

That both the Yen and the Euro are still stuck in the ranges I mentioned yesterday, is to do with the fact that though the things have improved, market is still not overtly sure as to how long it will last. Remind yourself of the negative sentiments in the markets in the past one year, and you know why. Thus, expectations on the Yen doing a 108 plus seem bleak in the short run (by weekend) , though remaining weak near the 107 mark against the dollar seems a given. A similar story for the Euro, where chances of a rate hike in the near future are markedely lower than in the US. Expect the Euro to range in the 1.57 to 1.59 with a weak outlook against the greenback.

Looking Ahead

The Yen and the Euro marched yesterday towards my projections ( the Yen seems poised to test the 107 level again. A 105.50 to 107.50 range is in again with a bias on 107 plus later today. The Euro should try weakening to 1.5825 or so by the same time before losing some of its steam).

That the greenback lost the momentum is a story we have been seeing very often now. With not much development expected today, the forex market may also tend to be in a flux, oscillating in a narrow range. Fresh news from the US may be a precursor to a new trend, but I do not expect the Yen to do a 108 plus in the leftover portion of the week (and dare I say "month"). It may however range in a 104.5-107.5 with a bias towards strengthening to its comfort zone of 104-106 against the greenback. The euro should similarily keep to the 1.5750-1.5900 for most parts with a bias on 1.60 on occassions. The only blot in this picture may be talks of a rate hike in the US, which, with the current market sentiments, looks more real now.

The forex markets over the past six months that I have been noticing, are taking a cue mostly from the stock markets for their movements. Though there can be another school of thought that may say that forex is an offshoot of trade and as such, should be necessarily be taking cues from the stock markets, I would prefer more views on the same before further comments.

As of now, my view, forex is following the stock markets (more precisely, the US). And that is where I flunked on the Yen, cause if the US is on an upswing, the Yen should weaken. But then, so should the Euro. And herein comes my theory that the currency movements do not necessarily follow ONLY the stock market. There are other factors such as the interest rate, political, economic, BoP and such issues not only of the home country of the currency in question but also with respect to the trade with the base currency country.

Any ways, what is the past is the past. Looking ahead, the Yen seems poised to test the 107 level again. A 105.50 to 107.50 range is in again with a bias on 107 plus later today. The Euro should try weakening to 1.5825 or so by the same time before losing some of its steam.

Eyes on the Citi

Seems finally the good and the bad news are evening out. So for each bad news, you have a corresponding good one squaring it. Oil is below the psychological 130. JP Morgan has beat forecasts. Google on the other hand didnt have a good show. Merrill Lynch has reported a $9.7 billion of writedowns (including $3.5 billion in CDOs) for the quarter and a net loss of $4.65 billion. This on the back of news of Goldman Sachs, the biggest U.S. securities firm, reporting earnings of almost $2.1 billion for the three months ended May 30. Morgan Stanley, the industry's second-largest company, posting $1 billion of net income for the same period.

And now the whole world awaits the results of Citi. That any bad showing by Citi will not have much of an impact on the markets as it is already assumed so, any positives out of Citi's results will definately help the markets resurrect. Citigroup reports its quarterly results today.

The impact on the forex markets have been swift. Dollar suddenly seems to have come alive. But not for the long haul. Expect it to just readjust a little. Play between 1.57 to 1.59 with a bias on 1.59 for the Euro. W.r.t. Yen, It may move a little into the 105 to 107 range, with a bias on 105.50. The good news on Citi might give better clues to the market and the forex side too. Till then. Bye.

Correction? Resurrection? or Just another Day?

Before I start today, I must confess I went overboard with my expected lows on the Dow. In the hindsight, I believe it should have been 10,500 instead of 11,000. And I base myself on my other assumption on the Indian stock market where I believe the lows maybe around 11,600 (with a remote possibility of 10,500). Considering that in the recent past, our markets have shown a penchent to scale up or retreat at approximately twice the rate of the Dow, a figure of 10,500 (with a remote possibility of 10,000) is perhaps more appropriate. Though as I have said for the BSE, and so also for the Dow I would say, my personal belief at this point is that it may be difficult breaking 10,500 if at all.

So now, Oil is down (10% in four days - is it a correction as they say?), Intel has scored a comfortable home run and Wells Fargo, one of the most troubled financial of the mortgage road shows of the past year has done well. Bodes well for the markets on the whole. The Dow was up 276 points. But is it sustainable?

Just yesterday, news was in that the greenback was on the decline on the back of speculation of a little more fallout of the sub prime saga. There has been no denial of that speculation so far. And there is no denial that inflation is denting pockets everywhere. Also, I hear today that the U.S. `Misery Index' (created by one gentleman named Arthur Okun) has Climbed to a 15-Year High. There is no certainity that Oil will not jump back (and I harbour the same view) though one of those macromenspeakmore comment from a very influential investor (Mr. Soros, was it you?) was that it may stabilise near 120 by early next year. 120?? Ummmmm, I disagree Sir. Firstly, demand for oil is always uphill (never mind the temporary slump in demand currently, we all wish to use more and more -don't we?), the supplies are limited (with a spike up every now and then - thanks OPEC, but still Mother Nature can't prepare even a percentage more in the time we would have depleted it by 90 percent), and early next year would be the peak of winter in most of the oil guzzling world. A mini peak time for oil demand as well (not as much as the summers though, I agree).

Doesn't bode too well for the US I would say. My outlook on the EUR and the Yen......remains more or less same as yesterday. Eur 1.57 to 1.59 with a bias on 1.59 and JPY levels upping to the 105 mark with a range of 104 to 106 .

Weaker Still......and going down further

People following my blogs may remember one of my blogs in January ( http://forexpredictionstoday.blogspot.com/2008/03/quite-in-line-with-what-was-being-said.html%20) )where I had placed my suspicions on the state of affairs in the US.
I quote " I have reasons to believe so..... Remember Mr Bernanke saying something on some Banks failing......Watch out for that. I believe he was not saying out of turn. Also watch out for the 12,000 mark on the Dow. If it slips, and slips convincingly even for a week, then new market realignments may take place not only on the forex side, but also in other markets worldwide." Unquote.

Cut back to the present. The Dow has made a convincing retreat in the sub 12,000. Freddie and Fannie are near collapse. And to add salt to wound, there comes the news of a dollar beating in the light of speculation of further loss reporting by several US banks. The Bernanke statement the other day also indicated that things may not even out so soon and may take a year or two to resurrect.

Oil though seems on a rollor coaster….from 132 to 140, then back to 133, move ahead to 142 onwards to 146 and now 138. Phew! What a ride. But wait! Its still not over. And I am not eating my words too (remember my last blog?). Wait for a scaling up in the 145-150 region in the coming weeks. And a further leveling at 150-158 in the next few months.

So, where does it all lead us at?? Economic powerhouse in tatters, weakened world markets, and no good news. Expect the Dow to keep testing 11,000 every now and then from the top and below it, while managing to slide down towards 10,000 ( the possibilities have arisen, and if it happens, please brace yourselves for a volatile future ahead). The Forex markets, as I had opined in my last blog (“Expect the greenback to weaken against both the Euro and the Yen. Though the Yen remains range bound in 105-108, I would bet on the strengthening of the yen to the narrower 105-106.50 range. The Euro as I have been saying, is difficult to beat below 1.55. The trends now indicate a reigniting of the 1.59 and 1.60 resistance levels.”) remained true to me (current markets – 1.5904 for the Euro and 104.62 for the Yen). I would slightly alter my near future perception on these two currencies. The Euro should now find a cushion within the 1.57 to 1.59 range in the short run with a bias towards 1.59 and beyond. This essentially means that it will in all likelihood march towards the 1.60 mark, but breaking it convincingly to me seems a distant possibility now. The Yen on the other hand is comfortable in the 105 region and should do a 103.5 to 106 in the coming week, with the possibility to stay near the 105 mark mostly.