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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • PRIOR WEEK & LESSONS: CAN BULLISH DATA, HOPE, CONTINUE OVERRIDING EU ANXIETY? 0 comments
    Feb 4, 2012 7:01 PM | about stocks: SPY, DIA, UUP, UDN, FXE, ERO, URR, ULE, EUO, DRR, FXA, FXB, FXC, FXD, FXF, FXEN, FXY, JYF, CYB, GLD, CNY, USO, DUG, USL, NBO, DBV, ICI, CEW, PHYS

    However Strong Long Term Resistance Levels Loom Near

    Part 1 of Weekly Review/Preview: Prior Week Market Movers & Their Lessons For the Coming Week

    The following is a weekly summary and strategy guide for traders and investors, covering prior week's market movers and their lessons for the coming week for traders of all major asset classes via both traditional instruments and binary options.

    Improving Data Overcomes Greek Worries

    The past week began with markets pressured by concerns about an impending Greek default, rising risk of a second Portugal bailout, and weak US GDP figures .However they turned higher Wednesday on the strength of solid manufacturing data from the US, Europe, UK and China. They advanced modestly Thursday on mixed data and hopes that another ECB LOTR liquidity program would continue to defer the next bout of EU panic.

    However risk asset markets ended the week on a decisively bullish note after the monthly US jobs reports smashed expectations. The US added 243k jobs vs. 150k forecasted, the official unemployment rate fell to 8.3% vs. 8.5% expected, and even better, November and December figures were revised higher, suggesting that the January figures are indeed part of a trend and not a one off phenomena.

    The US jobs report and prior months' upward revisions together provided the single most decisively bullish signal in recent memory, and is a valid sign that the US recovery is improving, though we caution that January employment numbers are especially volatile due to seasonal factors, and subject to major revision. The falling unemployment rate is also suspect due to the inclusion of new population data from the 2010 census. Still, even a conservative interpretation, that the decline in the unemployment rate was really as of December, the result is upbeat and provided genuine justification to extend the risk rally towards highs not seen since the spring of 2010.

    QE Concerns In Forex, Precious Metals Markets

    One of the prime ramifications of the US jobs reports was that it deferred expectations for any new US stimulus. Thus despite the very bullish news on Friday, risk asset gains were perhaps somewhat more subdued than they might otherwise have been, as was the USD's modest overall decline. QE is considered good for risk assets (at least in the short term) because the added liquidity tends to boost risk asset prices. QE is considered bad for the USD because it potentially debases the USD.

    QE-related considerations were also evident in forex and gold markets.

    Forex

    Currency markets continue to distinguish between those currencies faced with debasement risk from possible future QE programs and those that aren't. We saw this phenomenon two weeks ago following the Fed's pledge to keep rates low until 2014 and Bernanke's mentioning that QE3 remains an option. That news sent the greenback lower across the board. After Friday's jobs report, which we believe at minimum defers a potential QE 3; the USD rebounded against EUR and GBP, but lost ground to other major currencies like AUD, CAD, and NZD. The reason for the different behavior appears to be that the ECB and BoE are also expected to continue asset purchases and balance sheet expansion. Note that the EUR and GBP also fell vs. the AUD, CAD and NZD, whose central banks are not expected to start any new QE.

    Gold

    Gold plunged on Friday, reminding us of its strong relationship with prospects of a Fed QE3, which is viewed as potentially debasing (and thus bearish) for the USD.

    We expect this dynamic to continue to influence near-term trading conditions and incoming data will remain an important driver. Next week doesn't see too much in the way of top-tier data for the majors, but what does come out could have a larger impact than normal (e.g. Australian retail sales, German factory orders/industrial production, Canadian Ivey PMI, and UK industrial production).

    Greece, Portugal Restrain Risk Appetite

    Once again a week passes with no final deal in place to secure Greece's next round of bailout funds, as Greece and its creditors play the brinksmanship game for the benefit of their respective constituencies.

    EU officials' comments continue to suggest that a deal is close, with the final sticking point being how large a loss national governments and the ECB will accept. Markets continue to assume a deal will be struck because of the dire consequences of not doing so - a Greek default that leads to other sovereign and bank insolvencies that quickly becomes the mother of all Lehman-type market meltdowns.

    However even if we get a Greek debt swap deal that avoids triggering CDS payments, we suspect any subsequent risk rally might well be short lived as the EU runs out of good news regarding the debt crisis, because once again, nothing has fundamentally improved, we've just bought some time. Consider:

    • Greek debt levels remain unsustainable in the long-run.
    • Despite better than expected January EZ PMI's, further weakness in Euro-zone growth is expected in the months ahead as the effects of austerity programs become more fully felt. Even without any further nasty surprises on GIIPS debt situation (unlikely), slowing growth alone could undermine confidence in European debt markets yet again.
    • It remains unclear whether the recent improvement in Italian, Spanish and Portuguese bond yields was genuine or just the product of ECB purchases. If it proves the latter, then that could undermine the tentative improvements in GIIPS bond yields. The ECB will announce its total bond purchases last week on Monday, 09:30 EST, 14:30 GMT. Portugal's yields recently hit record highs before retreating, suggesting that even if the latest Greek drama ends happily, Portugal's may only be beginning.
    • The EUR/USD appears to be holding above the key 1.3000 level, and we remain doubtful about whether it can sustain a move beyond the 1.3300 area. In sum, we appear to have more room for tradable short term moves higher, but hesitate to believe in more than that.

    On the positive side, we have the coming second LOTR to potentially support GIIPS bonds, but is this already priced in?

    Ramification: So What Do You Do?

    Our favorite risk barometer, the S&P 500, is now nearing multi-year highs, and is not far from the 1400 area that many of the more optimistic 2012 forecasts set as the likely target.

    Stock, Indices & General Risk Asset Outlook

    Short Term: That leaves enough room for short term traders to play to the upside. On its weekly ...

    TO VIEW THE REST OF THIS ARTICLE PLEASE VISIThttp://globalmarkets.anyoption.com AND FIND ARTICLE BY SAME NAME UNDER THE WEEKLY TAB.

    Our apologies for the inconvenience. My partners want these posts to introduce visitors to our website. Your visit helps keeps these posts coming to you free of charge. Thanks in advance for your help.

    If you want to know more about how to protect yourself against risk of crashing markets and currencies, stay tuned for details about my coming book, THE SENSIBLE GUIDE TO FOREX, SAFER, SMARTER WAYS to SURVIVE and PROSPER from the Start. It's the first book to show how prudent, traders and long term investors with limited time and risk tolerance can tap forex markets to hedge currency risk and improve returns.

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER. IF WE REALLY KNEW WHAT WOULD HAPPEN, WE WOULDN'T BE TELLING YOU FOR FREE, NOW WOULD WE?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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