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Alaa Halawi
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Alaa is a buy-side financial / investment analyst at Morood Invest. LLC. He is also a CFA level 3 candidate and I hold a bachelor degree with 1st class honors in Business with Economics.
  • EUR-USD Technical Analysis

    By: Alaa Halawi
    Tuesday, September 27, 2011

    The euro dollar pair has been trading in clear cycles since the 2008 crisis. In this article I would like to give my insight on where the pair will be heading. My view depends solely on technical analysis and I am going to show 3 different charts to support my view. Also I think that in these times technical analysis will most likely work, and price movements in the last 3 years will most likely repeat itself. This is because both the US and the EU are repeating their monetary policies over and over again which has lead us to a stagnant economic situation for the past 3 years.

     

    Chart.1 is a daily chart for the EUR-USD pair. I am using the 55-day Linear Weighted Moving Average (LWMA) with the 100-day Triangular Moving Average (TMA). It is clear that the last 2 times the 55-day LWMA crossed the TMA we saw a huge down swing in the pair; the first cross lead to an approximately 3500 pips drop and the second cross resulted in an approximately 3200 pips drop. We can see that recently the LWMA have crossed the TMA and just a couple of weeks ago it started to move away from it, which could give us a clear selling opportunity. If we follow that previous price actions will lead to approximately the same results, then the pair would drop below 1.20. On Chart.1 we can also see that the pair has dropped nearly 100% below the support line, and this supports the down trend.

     

    Chart.2 is also a daily chart of the EUR-USD. In this chart I used simple moving averages which might be more widely used by technical analysts than LWMA or TMA. I have used a mixture of the 55, 100, & 200 SMA. This chart shows how the pair dropped rapidly after the moving averages formed a dead cross. As we can see recently we had a dead cross for the third time during the last 3 years and we can clearly see the path of the trend after the dead cross. Also this chart shows us an important fact; every time the price crossed more than 200 pips below the 200 SMA, it has been an indication of a change of trend. Chart.2 also shows us a clear lower highs and a previous lower low, which supports a downside trend and lead us to conclude that the pair will at least drop to its previous low which is just under 1.20.

     

    Chart.3 is a weekly chart for the EUR-USD pair. In this chart I have used the RSI indicator, because I believe that in such cyclical trends the weekly RSI works great for the pair and show clear overbought and oversold levels. The red support lines I have drawn on the RSI chart are there to assist in the market timing to enter the downside trend. We can also see that the RSI has not reached its oversold levels which clearly state that the pair will face more downside risk.

    In conclusion,the pair will face a good support at the 1.25 level and a much stronger support just below the 1.2 level. I am looking for the pair to at least reach a level between 1.2 and 1.25.

     

     

     















    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Sep 26 2:46 PM | Link | Comment!
  • QE3 Dilemma

    By: Alaa Halawi
    Monday, December 6, 2010

    When the Fed has announced its QE1 program on the 25th of Nov 2008, unemployment rate was 6.9%. This rate kept increasing until it peaked at 10.1% on Oct 2009. The QE1 program was completed at the end of the first quarter of 2010, and the unemployment rate on April 2010 was 9.9%. As you can see the Fed QE1 outstanding idea has greatly succeeded! Of course, succeeded in deteriorating the economy.

    Surprisingly, on Friday, the 3rd of Dec 2010, US. Non-Farm Payrolls came at 39K in Nov, missing expectation of 150K and declining by 133K from previous month. Also, unemployment rate rose from 9.6% to 9.8% marking the second highest level for this year, just 1% lower than the levels of April 2010.

    The numbers where unexpected due to the fact that on the 3rd of Nov, which was only 30 days before, the Fed has announced its QE2 program. Also, the funny part is that the main goal of QE2 was to decrease unemployment by increasing inflation, which Ben Bernanke describes it as: “running somewhat below 2%, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run”.

    As we saw what QE1 did to the unemployment rate, why would QE2 be any different? It wont. But, we should admit that QE1 has succeeded in increasing inflation, and we can be sure that QE2 will also succeed by doing so. The problem here is that Ben Bernanke actually believes that inflation is low; he is even saying that inflation is low enough that it can lead to deflation! In the mean time I don't want to argue about whether deflation is good or bad for the current economic situation, but I would like to ask the chairman of the Federal Reserve if he has ever looked at the CRB index before? The CRB spot index is up 19% (YoY). If we even go deeper we can see that Metals have gone up by 26% (YoY), Textiles up by 15% (YoY), Raw Industrials up by 18 % (YoY), Foodstuff up by 20% (YoY), Fats & Oil up by 21% (YoY), Livestock up by 21% (YoY). I mean if the prices of all the stuff that a household would consume and the costs of raw materials that factories would need in its manufacturing processes are up, isn't that enough proof that currently inflation is high enough? Apparently, it is not for the Fed.

    What the Fed and the US government don't understand is that inflation will not create real economic growth nor will it create jobs. What inflation will do is increase nominal growth, and devalue the US dollar by decreasing its purchasing power. Students of economics 101 know by heart that economic growth is a sustained expansion of production possibilities measured as the increase in real GDP over a given period. The importance of real growth is that it contributes to improve the standard of living of a given society. But, this will only happen if we produce more and service more per unit of labor. Still, this will not be enough with the current low interest rate monetary policy that the Fed is engaged in. This is because low interest rates do not increase savings, which finances investment, and brings capital accumulation. This process of savings, investments, and capital accumulation will lead to real economic growth. It is good to note that East Asian economies have the highest growth rates and the highest saving rates. I am not asking for very high interest rates, but what I am trying to say is that the current saving rates are very low even lower than inflation rates, and they must be let free to reflect real market rates in order for the economy to start growing and thus for the unemployment rate to decrease.

    What will the Fed and its chairman do when a year from now the unemployment rates stay the same or goes up even higher along side with the increasing levels of inflation? Will the Fed come back with QE3? If it does, how will it hide the real reasons behind its quantitative easing plan? At that time the Fed will be facing a dilemma that is even more difficult to figure out its solution than the Philips Curve dilemma that the Fed is currently facing.

     



    Disclosure: No positions

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 04 9:26 PM | Link | 2 Comments
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  • The Euro is down around 100 pips vs the Buck early this week. The Buck seems to be gaining vs all major currencies.
    Dec 6, 2010
  • Check out my new article under the title of "QE3 Dilemma", and share your comments. http://bit.ly/hnRpUd
    Dec 5, 2010
  • Check out my new article on Seeking Alpha under the title of "QE3 Dilemma", and share your comments. http://bit.ly/heNflB
    Dec 5, 2010
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