GAFNN.com Blog

EUR USD pair rallied to the upside on Friday settling near the EMA50, which remains acting as a solid resistance level against the intraday positive attempts, while we need to witness clear breach of it –currently at 1.2425-.

Overview and Observation;

The statement by the head of the European Central Bank Mario Draghi speaking at an investor conference in London said that he was prepared to do "whatever it takes to preserve the Euro". I believe that statement represents an "exercise in futility. The markets however, took this "to the bank" and rallied on Thursday and Friday. The euphoria wont last, in my opinion, as the reality that the European debt crisis is far from over and the decline in Euro economies as well as that of the U.S. remains recessionary. The U.S. Gross Domestic Product, the value of all goods and services produced in the U.S. rose at only 1.5%, with most sectors lower in the second quarter of 2012. In the first quarter of the year the GDP was 2.0% after 4.1% in the last quarter of 2011. Expectation that the U.S. Federal Reserve would necessarily consider a third "stimulus" to reverse the downtrend also prompted the "investor euphoria". We remain skeptical of any resolution of the European debt crisis since we cannot be made to "drink the kool-aid" offered by Mario Draghi and Germany's Merkel that there is enough money to resolve the problems of imminent, in our opinion, default by some of the Euro member countries. Now for some actual information..............

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Overview and Observation;

Friday the 13th came and went and unlike previous "Friday the 13ths" provided a respite for investors buffeted by previous market sessions and economic reports. Our skepticism at the U.S. Administrations claims of an economic recovery continues to be supported by the less than enthusiastic response to government data especially that associated with the labor situation. We continue to question how a weekly first time unemployment number exceeding 350,000 can be ignored in favor of the monthly number of around 80,000 jobs "created". The unemployment rate of 8.2% is not a true reflection of the labor situation since the "underemployed" people who accepted jobs well below their recent salaries just to put "food on the table" are not being considered as an integral part in the calculation. It also fails to include those that left the workforce entirely and those that retired prematurely. That more realistic figure, in our opinion, would be closer to 19%. The unfortunate revelation of yet another brokerage firm caught up in fraud and mishandling of client funds reflects the inability of the regulatory factions to properly control these firms and their activities. The call for "more regulations" makes no sense to me. The enforcement of existing regulations should be the order of the day. Now for some actual information that hopefully will enable our clients and subscribers to trade successfully......

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Market Commentary Week ending July 6, 2012

Overview and Observation;

Once again I am at a loss to understand why the Friday jobs data of 80,000 jobs "created" did not coincide with Thursdays first time unemployment figure of 374,000 jobs lost. The Thursday figure surely must imply that those applying for unemployment benefits must have lost a job but the media again failed to associate one with the other. Either way the jobs data reveals an ongoing severe labor problem and can only result in a continued recessionary trend. As we have stated in numerous prior commentaries, "an unemployed consumer does not consume and the producers of those "unconsumed" products will be next to lay off workers". The only possible explanation for an eventual lower first time unemployment number will be that there are fewer workers available for companies to lay off without "shutting their doors" so we would not get too excited when the number comes down on some Thursday in the future. The Institute for Supply Management reported the manufacturing sector contracted in June for the first time since July of 2009. Consumer confidence has been declining with household spending falling slightly in May, the first drop in almost a year. Meanwhile the impact of the European debt crisis continues to be felt even as the Euro zone members are coordinating their efforts to support Spain, Italy, Greece and others in order to solidify the Euro. We continue to doubt any additional financial assistance will keep one or more Euro zone members from defaulting and possibly leaving the Euro. The members recognize that any "departure" of one or more members could bring the entire "house of cards" crumbling down. We see no "cure" for the debt "disease" and Great Britain, not a Euro member, has already slipped into recession with we are sure, others to follow including the U.S. Now for some actual information......

Overview and Observation;

The relentless "pursuit" of a resolution to the European debt crisis saw the leaders of the euro zone agree to provide up to $164 billion in order to try to improve the waning Spanish economy. Spain decided to move relief funds to its ailing banks in order to avoid the government having to increase its debt load. Economic data in the U.S. continues to be disappointing and any discussion of an "improving economy" appears to be a last ditch effort to quell the talk of recession. The U.S. Federal Reserve open market committee stated it would continue to "maintain a highly accommodative stance for monetary policy" indicating it also sees signs of an ongoing economic weakness. Unemployment claims on Thursday of 387,000, down only 2,000 from the prior week is no indication of "recovery"' in our opinion and we continue to warn the investing public of a "coming" re-emergence of the worst recession since the "great depression" of the 1930s. My analysis is predicated on the ongoing labor situation where the administration 'boasts" of job creation (doubtful quality jobs) of around 100,000 for a month while the jobs lost by virtue of the weekly first time unemployment figures, of over 350,000 jobs lost. As I stated in prior commentaries a weekly job loss of over 370,000 translates mathematically to 1.5 million for the same month the administration is touting 100,000 "created". I also indicated my opinion that there is no such thing as job "creation" without the introduction of a "new industry". "Creation" is a misnomer and should be substituted with "job recovery". Until which time as the U.S. administration is able to "seduce" by virtue of competitive tax treatment, the companies that moved their facilities off shore, there will be no 'job recovery" and the current recessionary trend will continue unimpeded. I once again warn the U.S. public to stop "drinking the Administration Kool-aid" and take a defensive posture as relates to their financial security. The overwhelming burden to homeowners falling behind on their mortgage payments and the lack of attraction to new buyers will continue to confound the housing industry analysts. A home buyer, while understanding that the "shadow inventory" of homes currently in default and soon to be foreclosed on, will necessarily pressure home prices and no reason to buy under those circumstances. The answer, in my opinion, unfortunately, is for the banks to foreclose and flood the market with homes. That will drive prices to the bottom and allow for new buyers to start bidding up prices on the foreclosed homes. While the price base will be lower, it will in fact be a solid base from which to orchestrate a real estate recovery. That would eventually deplete the inventory and prompt the housing and building industry to get back to work and "recover" the industrial manufacturing jobs lost in the recession. Unfortunately in an election year, the prospect of doing the "right thing" is overshadowed by the attempt by politicians to "hang onto their jobs". I expect the recession to gain momentum and without clear and concise "guidance" by government, I see no meaningful correction in the immediate future. The United States as the "consumer" of the world along with China, where economic problems are also in evidence, there can be no economic recovery and I see an ongoing debt crisis in Europe and an economic crisis in the U.S. Once again, I strongly suggest the public "manage their resources" and investments. The two day Federal Reserve meeting ended with an extension of the so called "Twist" operation through year end and expand by $267 billion. The downgrade of the credit ratings of 15 U.S. banks will also be a factor since any bank that had their rating reduced will have to pay higher interest for loans. The G20 meeting in Europe also attempted to "forestall" what I feel is the inevitable default by some countries by providing for a plan to add as much as $163 billion or 130 billion Euros to the "bailout" fund. I view that as adding to the money to be "thrown down a well". Providing additional debt to countries unable to support and service current debt due to the global recession is tantamount to "throwing good money after bad" in my opinion. Now for some actual information......

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Overview and Observation;

This past week saw commodities suffering the longest weekly losing streak in 11 years. Mr. Bernanke's failure to specify options for further easing and the ongoing economic deterioration in the U.S. and China, the Worlds two largest economies, continues to "mystify" the investment public. At a time when investors and traders are seeking direction from the elements of power that could mean the difference between profit and loss, Mr. Bernanke, the Chairman of the Federal Reserve left us without a "clue" in his recent appearance. His ambiguous statements failed to address the specific problems and how the Federal Reserve could or would address them. Mr. Bernanke declined to specify whether further easing was appropriate or how to deal with the impact on the U.S. economy from the ongoing European financial crisis. We believe it is because neither he nor the U.S. administration has any clue as to how to handle either. We would suggest applying a variation of the "Monroe Doctrine" approach to dealing with the situation by concentrating on the U.S. economy and let the Europeans deal with their problems. To suggest that as one of the larger financial backers of the IMF, that the U.S. should consider adding billions to the Fund to help countries that are without the ability to repay existing loans makes no sense to me. The economic viability of Greece or Spain and their GDP situations are such that over 100% of their GDP is owed out. That does not encourage assistance in my opinion. The funding suggested for the U.S. would better be served by helping U.S. homeowners and the unemployed through our own financial crisis. Now for some actual information that may provide some "enlightenment" as to how to position our readers to deal with the ongoing U.S. economic crisis..... .

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Gold price succeeded to breach above the critical resistance level of 1598.00 –neck line of a double bottom pattern- and 1602.00 level –resistance level of the downside channel-, all shown in the image below.

Crude Oil price succeeded to hit the waited target shown clearly in the image below, this level represents the support level of the main upside channel.

Gold price attempted to break the symmetrical triangle's support line as shown in the image below, while trading went back quickly above this level, and this postpones the confirmation of more bearish actions, specially that we witnessed recording three consecutive bottoms near the critical support line at 1522.50

EURUSD pair maintained settling below 1.2600 after attempts to breach it yesterday, thus, I will keep my bearish outlook valid to resume trading within the descending channel shown in the image below.