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.

Koop Mandooks and the Oil saga

Yesterday, the US House of Representatives approved a bill aimed at curbing “excessive energy-market speculation”. The bill, which passed 402-19, would require the Commodity Futures Trading Commission to consider using position limits, or constraints on the size of the stake each speculative investor can own, and raising margin requirements, the money required to trade (Our Finmin has scored a point here. For more on that read my post on http://themarketstoday.blogspot.com/2008/06/happy-beariness-where-is-bottom.html). The vote came after the record market rate of 140.39 to a barrel was set.

While it helped in easing the steam off oil by around a dollar, that it will not rise again and rise up to 150-170 as the OPEC President said, is a scenario only with the “Koop Mandooks ” or the frogs in the well as we say. The demand for oil has been on a rise ever since man can remember. That the speed of price hike may slow down by a mere 10% or odds is a given. But the impact this oil business is having on the world economy is devastating especially when it comes on the back of a back breaking Sub Prime crisis. While we were all watching the markets world over stabilizing post the Sub Prime crisis, the oil bomb hit us all hard and now it seems has taken over the stage from the Sub Prime in eating all the economic growth the world over.

The Dow yesterday fell a whopping 358.41 points, indicating that it is poised to remain sub 12,000 unless and until a wholesome recovery occurs in the economy (p.s. rephrase and read it as oil too). The S&P 500 fell by 2.93% (a higher than DOW fall in a long long while) while the NASDAQ fell by 3.33%.

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. But wait……..If the whole world is in turmoil, how is the greenback suffering the most?? More on that later.

The near future

The markets went in a tizzy in the last couple of months. The Euro was so near( breaching 1.60) and so far. Ossicilations were the rule for stated period. The US lawmakers and the market stats did all they could to make situations normal. Euro broke the 1.55 convincingly for a brief period but retraced back on the back of some bad cues from the US. Expect the currency to rule in the 1.5450 to 1.5700 range with a bias on 1.57. The expanding oil output and the receeding demand should hold it in the range for a while. Though what intrigues me is .....if oil is christinised petro dollar and if its demand increases, then correspondingly, the demand for USD should also increase. Then why should the greenback weaken in such a scenario. I still dont have an answer. Will search for one.

As for the Yen, after a lot of sress test at 105, it has now gone in the region of 107-108 which I had long ago said is a comfortable range (105-108) for Japan. Expect it to test the 105 again before settling in the near 105 area in the next couple of months.

Till my next .......