Market Commentary by FXCC - Hedge Funds Are Surviving On A Low Calorie Diet By Taking A Bite Of Apple

“A hedge fund is an investment fund that can undertake a wider range of investment and trading activities than other funds, but which is only open for investment from particular types of investors specified by regulators. These investors are typically institutions, such as pension funds, university endowments and foundations, or high net worth individuals. As a class, hedge funds invest in a diverse range of assets, but they most commonly trade liquid securities on public markets. They also employ a wide variety of investment strategies, and make use of techniques such as short selling and leverage…”

Hedge funds are for clever people right? They must employ the best Harvard, MIT or Cambridge educated maths genius quants. These guys must be the sharpest tools in the box, constantly tethered to their lab coding up algos in ‘hydron collider style’ bunkers buried deep in the side of mountains. Whilst their boss strokes his white cat laughing at us mere mortal retail traders who dream of riches as we put our “expert advisors” on the back end of our meta trader platform..

Or they could just be buying Apple shares from their iPhone..

Imagine that, the best and the brightest, the elite, the masters of the known financial universe just buy Apple stock and ride it. Nearly 30% of hedge funds owned Apple stock in the last quarter of 2011. Now you may be thinking what I’m thinking; that it’s a plot, a clever plan. One day, in unison and perfect fusion, they’re going to dump the stock at some time in 2012. It crashes back down to $200, retail investors panic, the funds buy it up and make a few billion as it rides back up to $500+..We’re obviously guilty of watching ‘Billy Ray Valentine’ in Trading Places too many times. Nope, there’s no sophist trickery at play here, hedge funds have been buying Apple ” ‘cos it always goes up, innit..”

A record 216 hedge funds were holding Apple stock at the end of 2011. At the end of Q3 209 hedge funds owned Apple, at the end of Q2 it was 181, at the end of Q1 it was 173..the pattern is clear. What is also clear is that as Apple goes, so does the entire hedge fund space…

Goldman Sachs notes:

30% of fundamentally-driven hedge funds hold at least one share of AAPL. One out of five hedge funds has AAPL among its ten largest long positions. When among the top ten holdings, AAPL represents an average of 8% of total single-stock long equity exposure. In aggregate, hedge funds own only 4% of AAPL market cap with 1.6% average position across all funds.

According to SEC regulations, all hedge funds must report what domestic stocks they own on a quarterly basis. The SEC gives funds 45 days from the end of the period to file the documents with the SEC. The fourth quarter ends Dec. 31, and hedge funds prefer to reveal information ‘at the death’ so they wait until the last day. Therefore, many funds reported their holdings earlier this week. What was really shocking is the number of funds which own Apple stock. Apple was the most widely held stock among hedge funds, according to research by HSBC. After the recent data was release, Apple is an even more “crowded trade.”

Beware The ‘Value Trap’
Jim Chanos is a legendary short seller, he first called Enron a fraud and called the Chinese bubble, once gave a presentation about value traps. These are stocks which seem to be cheap but in reality are losing bets. Chanos mentioned that many people will buy into a stock because they see other investors did, however, almost every stock has a great investor with significant money invested in the company. Chanos cited this example as a “value trap”.

Some fund managers have billions of dollars to allocate and are very limited in what they can buy. Apple being the largest stock in the world is therefore incredibly liquid and allows for a large investment and equally easy exit..

Perhaps the most crucial detail retail investors ignore is price. Apple now trades at a price earnings ratio of 14, even less minus its massive cash hoard, the stock is trading at around $516 today, it’s been as low as €315 last June. In 13-F fillings, money managers don’t have to reveal what date or price they bought at.

*The author of this article has no position in Apple, other than being a zombie for the iPad, the iMac and will soon be getting out of his HTC by being upgraded via T-Mobile with a new iPhone 4S..

Daily Market Round-Up by FXCC - February 24 am 2012

U.S. Jobs Going Postal

There’s a sad irony that on the day when the USA BLS (bureau of labour statistics) publishes their latest unemployment figures the U.S. postal service announces that the closure of nearly half of its mailing plants will take place over the next twelve months. The claim from the BLS is that only 5.4% of the workforce will be lost, roughly 36,000 jobs. However, most analysts will find that figure for lay-offs incredulous given the level of plant closures.

The number of Americans filing new claims for jobless benefits last week held at the lowest level since the early days of the 2007-2009 recession. Workers filed 351,000 initial claims for unemployment benefits, the same as the prior week, the Labor Department said on Thursday.

The data suggests that the cycle of layoffs may have run it course. But considerable issues still remain in the jobs market; 23.8 million Americans are either out of work or underemployed with no jobs for nearly three out of every four unemployed. A total of 7.50 million people were claiming unemployment benefits during the week ended February 4 under all programs, down 178,619 from the prior week.

U.S. Postal Service
The U.S. Postal Service, which predicts an annual loss of $18.2 billion by 2015, plans to eliminate 5.4 percent of its workforce by closing almost half its mail-processing facilities to decrease costs.

The service plans to shut 223 of its 461 mail-processing plants by February 2013, Postmaster General Patrick Donahoe said in a telephone interview today. The closings will cut about 35,000 jobs, said David Partenheimer, a spokesman.

Europe’s ‘Double-Dip’ Recession Is Now Inevitable
The euro zone economy is heading full steam ahead for its second recession inside three years and the wider European Union will stagnate, the EU’s executive said on Thursday, warning that the currency area has yet to break its vicious cycle of debt. The European Commission is forecasting that economic output in the 17 nations sharing the euro will contract by at least 0.3 percent this year, reversing the earlier optimistic forecast of 0.5 percent growth in 2012.

The growth forecast for the euro zone is more optimistic than the International Monetary Fund’s view that output in the area will dip 0.5 percent this year. The forecasts could worsen as they rely on the belief that EU leaders will resolve the sovereign debt crisis now in its third year which shattered investor confidence in a region regarded as one of the world’s safest havens.

European Banks Shattered By Greek Crisis
Credit Agricole reported a record quarterly net loss of 3.07 billion euros on Thursday performing worse than expected after a 220 million euro charge on its Greek debt. For 2011 as a whole, the bank took a hit of 1.3 billion euros on its Greek debt.

Credit Agricole chief executive Jean-Paul Chifflet;

We are in the worst economic crisis since 1929. We think 2012 is going to still be a tense period. We’re hoping that our results will be largely better than in 2011.

Europe’s banks have written down billions of euros from losses on Greek government bonds and loans, the deal agreed this week with its creditors will inflict losses of 74 percent on bondholders. Despite the bond swap deal, bondholders could suffer further hits if Greece’s economy fails to recover.

Market Overview
U.S. equities gained as reports on American jobs and housing beat projections, Treasuries erased losses after an auction of seven-year notes. Oil rallied for a sixth day, and copper declined.

The Standard & Poor’s 500 Index rose 0.4 percent to 1,363.46 at 4 p.m. New York time. The Dow Jones Industrial Average rallied 0.4 percent to 12,984.69, the highest level since May 2008. This extend the S&P 500’s rally in February to 3.9 percent. The index was poised for a third straight month of gains, the longest streak in a year, on higher-than-estimated economic data. Yields on 10-year U.S. Treasuries dropped one basis point to 2 percent. Crude added 1.5 percent, copper fell 0.7 percent and gold rallied 0.8 percent.

The euro advanced to the strongest level in more than 10 weeks versus the dollar as a report showed German business confidence rose to the highest level in seven months amid progress taming the region’s debt crisis.

The yen rose versus the dollar after the sale of seven year Treasury notes. Higher-yielding currencies appreciated as a measure of volatility among Group of Seven currencies dropped to the lowest in more than three years.

Commodity Basics
Oil rose a seventh day, the longest winning streak since January 2010, investors bet that fuel demand may climb after U.S. jobless claims held at a four-year low, German business confidence surpassed forecasts and USA/Israeli ‘sabre rattling’ continued. Oil also rose amid concern sanctions against Iran over the nation’s nuclear programme will disrupt supplies from OPEC’s second-biggest crude producer.

Oil for April delivery rose by 0.8 percent to $108.69 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.61 at 10:45 a.m. Sydney time. The contract on Wednesday gained 1.5 percent to $107.83, the highest close since May 4. Prices are 5.2 percent higher this week and up 12 percent the past year.

Brent oil for April settlement advanced 72 cents, or 0.6 percent, to $123.62 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract’s premium to New York-traded WTI closed at $15.79. It reached a record of $27.88 on Oct. 14.

Forex Spot-Lite
The euro reached the highest level in more than 10 weeks versus the dollar before a German report forecast to show Europe’s largest economy expanded for an eighth quarter.

The 17-nation euro held gains versus most of its major peers before Group of 20 finance ministers meet in Mexico City this weekend where they may discuss committing additional resources to resolve Europe’s debt crisis. The greenback fell versus higher-yielding currencies including the Australian dollar before U.S. data that economists expect will show growth in new homes sales. Demand for the yen was limited on prospects Asian stocks will extend a global rally in equities.

The euro was unchanged at $1.3373 as of 8:36 a.m. in Tokyo from yesterday, and earlier touched $1.3379, matching the highest since Dec. 12. The shared currency was at 106.90 yen from 106.98 yesterday, when it rose 0.6 percent. The yen was at 79.94 per dollar from 80 yesterday. The Australian dollar rose 0.1 percent to $1.0730.

Market Commentary by FXCC - The UK Is Flirting With A Double Dip Recession

Official figures have confirmed that the UK economy slipped by 0.2% for the fourth quarter of 2011. Household spending was up 0.5% quarter on quarter, the highest since the second quarter of 2010. Government spending, meanwhile, was ahead by 1% over the previous three months. Benefiting from a weaker pound exports were up by 2.3%.

The economy has recovered barely a half of the 7 percent of output lost during the 2008-2009 recession, only Japan and Italy are further behind among Group of Seven nations and unemployment is at a 16-year high of 8.4 percent and rising..

Stats Snapshot

UK gross domestic product (GDP) in volume terms decreased by 0.2 per cent in the fourth quarter of 2011
Output of the production industries fell by 1.4 per cent, within which manufacturing fell by 0.8 per cent
Output of the service industries was unchanged, while output of the construction industry fell by 0.5 per cent
Household final consumption expenditure increased by 0.5 per cent in volume terms in the latest quarter
In current price terms, compensation of employees fell by 0.3 per cent in the fourth quarter of 2011

Could the German GDP figures differ from that previously announced in mid February?

The gross domestic product (GDP) of Germany fell by 0.2% in the fourth quarter, after increasing 0.6% between July and September, according to the Federal Statistical Office. German growth rate slowed to 1.5% in the fourth quarter after 2.6% last quarter, hampered by a slowdown in foreign trade and consumption. Exports fell 0.8% in the quarter, after growing 2.6% last quarter. Net trade has shaved 0.3 percentage points in the fourth quarter. The German budget deficit fell to 1.0% of GDP in 2011 against 4.3% in 2010.

Market Overview
Global stocks advanced for a second day, oil gained and the yen weakened versus all its major peers. The MSCI All-Country World Index rose 0.3 percent as of 8:00 a.m. in London while the Stoxx Europe 600 Index added 0.4 percent. Standard & Poor’s 500 Index futures climbed 0.3 percent. The yen fell 0.7 percent against the euro, reaching the weakest level since November. Oil increased 0.6 percent to $108.45 a barrel and copper declined for a third day. The cost of insuring against default on European corporate debt fell.

The yen reached 107.86 per euro, the weakest since Nov. 7. The currency was poised for a weekly drop against its 16 major peers after swings in currencies from Group of Seven nations fell to the least since 2008, spurring demand for higher yields.

FX Volatility
If forex traders have noticed that the market appears to be slow moving over the past week or so then there’s a reason, the implied volatility of three-month options on G-7 currencies as tracked by the JPMorgan G7 Volatility Index fell as low as 9.76 percent yesterday, the least since Aug. 8, 2008, as option traders scaled back risks of large exchange-rate moves.

Lloyds Losses
Lloyds Banking Group Plc has reported that its full-year net loss grew on a weakening U.K. economy, missing analysts’ estimates, and said income will drop this year. The net loss was 2.8 billion pounds compared with a loss of 320 million pounds for 2010, the London-based lender said in a statement today missing the 2.41 billion pound estimate of 14 analysts surveyed by Bloomberg.

Market snapshot at 10:15 am GMT (UK time)

The main indices of the Asia Pacific markets closed in positive territory. The Nikkei closed up 0.54%, the Hang Seng closed up 0.12% and the CSI closed up 1.60%. the ASX 200 closed up 0.48%. European bourse indices are in positive territory in the morning session. The STOXX 50 is up 0.88%, the FTSE is up 0.14%, the CAC is up 0.61 and the DAX is up 1.01%. The Athens exchange, the ASE, leads the board this morning up by 1.14%. Brent crude is flat at $123.60 per barrel whilst WTI is up to $108.29. Comex gold is down $4.2 an ounce. The SPX equity index future is up 0.29%.

Commodity Basics
Iran, the second-biggest member in the Organization of Petroleum Exporting Countries, produced about 3.5 million barrels of oil a day last month, according to analysts’ estimates compiled by Bloomberg. Saudi Arabia had output of 9.7 million barrels a day and Iraq had 2.8 million.

Oil advanced a seventh day, the longest winning streak since January 2010, on signs of economic recovery from the U.S. to Germany and concern escalating tension with Iran threatens crude supplies. Futures climbed from the highest close in more than nine months and headed for a third weekly gain.

Oil for April delivery increased as much as 0.8 percent to $108.70 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.33 at 8:46 a.m. London time. The contract yesterday gained 1.5 percent to $107.83, the highest close since May 4. Prices are 4.9 percent higher this week and up 11 percent the past year.

Brent oil for April settlement advanced 7 cents to $123.69 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded WTI was at $15.36, compared with $15.79 yesterday. It reached a record of $27.88 on Oct. 14.

Forex Spot-Lite
The yen slid versus all its major peers as foreign-exchange volatility at its lowest in more than three years prompted buying of higher-yielding currencies.

The euro reached its strongest level in more than 10 weeks against the dollar before a German report forecast to confirm resilience in Europe’s largest economy. The greenback slid against New Zealand’s dollar before U.S. data predicted to show new homes sales increased. The won rose after a report showed South Korean consumer confidence climbed to a three-month high.

The yen fell 0.6 percent to 107.61 per euro as of 7:01 a.m. in London, poised for a 2.9 percent drop since Feb. 17, the third-straight weekly decline. It touched 107.70 per euro, the lowest since Nov. 7. Japan’s currency slid 0.6 percent to 80.51 per dollar, and reached 80.54, the weakest since July 11. The euro was at $1.3369 from $1.3373 yesterday after earlier touching $1.3380, its highest level since Dec. 12.

Market Commentary by FXCC - Will It Be Open Season On The Banks As Reporting Season Starts?

The Greece debacle has (temporarily) been quietly shifted from the front page of both financial and popular news, it’s now left to the Greeks to cope with the impossible, inter-generational, insoluble financial burden their unelected technocrats have agreed to on their behalf. The indirect bank and bondholder bailout, that’s been agreed in order that Greece can pay the bondholders and banks back, has come into effect. Attention may now switch to other more ‘crunching’ issues as bank season reporting, (particularly focused on Europe), gets into full swing.

Whilst the mainstream media may amplify the bonuses issue there is an altogether much darker issue at play for European banks – profitability, and two banks who’ve reported results overnight and this morning have published disastrous figures.

Royal Bank of Scotland has announced that losses have widened to £2bn in 2011, whilst confirming it paid out £390m in bonuses to investment bankers. The UK taxpayer is currently sitting on £20bn of losses on its 82% stake, despite the 2% rise in the shares to 28p by 8.30am GMT.

France’s third largest bank, Credit Agricole, has revealed figures significantly worse than analyst expectations; it reported a greater than estimated loss in the fourth quarter after setting aside money at its Greek consumer banking network and writing down investments. The shares dropped after the net loss widened to 3.07 billion euros from a deficit of 328 million euros a year earlier. That missed analysts’ estimates for a 2.7 billion-euro loss.

Credit Agricole fell 4.2 percent, to 4.80 euros and was at 4.88 euros at 9:02 a.m. in Paris trading reducing the gain this year to 12 percent. BNP Paribas, France’s biggest bank, has risen 18 percent this year, Societe Generale, the second largest bank lender, has advanced 32 percent.

With the ECB considering the date at which it’ll unleash it’s next LTRO, (long term refinancing operation) it can’t come soon for some banks, particularly France’s three biggest who had (still have) massive exposure to the Greek situation. But they’re not alone in needing to repair their tattered balance sheets, the insatiable thirst Italian banks displayed for liquidity, in the first round LTRO, is likely to be repeated.

German Business Confidence Is Rising
The Munich-based Ifo institute has reported this morning that its business climate index, based on a survey of 7,000 executives, climbed to 109.6 from 108.3 in January. That’s the fourth straight gain and the highest reading since July. Economists predicted an increase to 108.8.

Germany’s Bundesbank said on Feb. 20 that the outlook for the economy has “improved perceptibly,” even though “risks relating to the sovereign-debt crisis remain.” The Bundesbank in December forecast growth will slow to 0.6 percent this year from 3 percent in 2011 before accelerating to 1.8 percent in 2013. Germany’s benchmark DAX share index has gained 16 percent this year, outperforming all its major European peers.

Market Overview
European equities have risen for the first time in three days whilst the euro strengthened after German business confidence climbed more than forecast. U.S. equity index futures and commodities gained.

The Stoxx Europe 600 Index climbed 0.3 percent at 9:10 a.m. in London. Standard & Poor’s 500 Index futures added 0.4 percent. Italian 10-year bond yields rose six basis points to 5.57 percent. The euro appreciated 0.5 percent to $1.3319. The Dollar Index, which tracks the U.S. currency against those of six trading partners, dropped 0.3 percent.

Market snapshot as of 10:20 am GMT (UK time)

Asia-Pacific markets experienced mixed results in the overnight early morning session, the Nikkei closed up 0.44%, the Hang Seng closed down 0.78% and the CSI closed up 0.34%. The ASX 200 closed down 0.16%. European bourse indices have enjoyed modest gains in the European session, the STOXX 50 is up 0.01%, the FTSE is up 0.34%, the CAC is up 0.14% and the DAX up 0.31%. The MIB is down 0.67% whilst the Athens exchange, the ASE is the leading rise amongst the European indices currently up 0.96%. ICE Brent crude is up $1.07 a barrel at $123.97, Comex gold is up $9.50 an ounce. The SPX equity index future is currently up 0.27%.

Commodity Basics
Iran produced 3.5 million barrels of oil a day in January, according to analysts’ estimates compiled by Bloomberg. Saudi Arabia, the biggest member in OPEC (the Organisation of Petroleum Exporting Countries), had output of 9.7 million barrels a day.

Brent crude rose to its highest level in nine months after German business confidence surpassed forecasts, increasing optimism that steps to resolve Europe’s debt crisis will be successful. Brent oil for April settlement was up 89 cents at $123.79 a barrel on the ICE Futures Europe exchange in London at 9:40 a.m. GMT. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $17.26. It reached a record of $27.88 on Oct. 14.

On the New York Mercantile Exchange, crude for April delivery was at $106.53, up 25 cents. The contract rose yesterday to $106.28, the highest close since May 4. New York futures have risen 3.2 percent this week on speculation that tensions with Iran over its nuclear program will threaten supplies. Prices have gained 8.6 percent in the past year.

Gold for immediate delivery gained 0.2 percent to $1,780.07 an ounce by 9:40 a.m. in London. It’s up 14 percent this year and reached a record $1,921.15 on Sept. 6.

Forex Spot-Lite
The euro strengthened versus the dollar and the yen after a German report showed business confidence rose more than economists forecast. The dollar dropped versus 13 of its 16 major counterparts. The 17-nation currency strengthened 0.5 percent to $1.3315 at 9:11 a.m. London time and climbed 0.3 percent to 106.74 yen.

Daily Market Round-Up by FXCC - February 23 am 2012

Is The Dow Jones Industrial Average And The SPX Overbought?

So the Dow Jones reached 13,000 on Tuesday and then reverted to the obvious underpinning mean average (moving average). No surprise there, the 13,000 must have been market stop hunting paradise for market makers given it was such an obvious target. If I traded indices (perish the thought) a sell order looking for 20-30 pips at 13,000 would have been the obvious trade..

But given the raft of positive news that’ll come our way from the U.S. of A between now and the USA election in November we can be fairly sure that 13,000 will be tested and breached, (perhaps several times) in the run up..right? After all the main index never falls in the run up to the election, does it?

Actually reports show that the U.S. main index performance during a presidential election year doesn’t historically look much different than any other year. Over the past 29 presidential election years, since The Dow Jones index was first published in 1896, the index has delivered an average return of 7.18%. That’s only slightly below the average of 7.35% seen in a non-election year.

However, elections definitely have huge market consequences. When a new (non-incumbent) president takes office, the average return for the calendar year has been 7.48%; whereas the return has been a meagre 1.13% in years when an incumbent president starts a new term. Now Barack Obama inherited a maelstrom of financial problems in 2008, but in 2009 the market recovered and despite several major sell offs during his term the DJIA and the S&P recently reached pre 2008 crash highs. But could 2013 prove to be the real test, could even a 1.13% return be optimistic?

As to which party the market smiles upon more when its president takes the seat in the Oval office will take many by surprise. The average DJIA return when a Democrat was president has been 8.78% a year versus 6.30% annually when a Republican lived in the White House.

The BGOV Barometer shows that, over the five decades since John F. Kennedy was inaugurated, $1,000 invested in a hypothetical fund that tracks the Standard & Poor’s 500 Index only when Democrats are in the White House would have been worth $10,920 at the close of trading Tuesday.

That’s over nine times the dollar return an investor would have enjoyed from following a similar strategy during Republican administrations. A $1,000 stake invested in a fund that followed the S&P 500 under Republican presidents, starting with Richard Nixon, would have grown to $2,087 on the day George W. Bush left office.

Market Overview
U.S. equities fell a day after the Standard & Poor’s 500 Index failed to hold at an almost four year high, as sales of previously owned houses missed estimates and data from Europe and China heightened economic concern. The S&P 500 retreated 0.3 percent to 1,357.66 at 4 p.m. New York time. The Dow Jones Industrial Average lost 27.02 points, or 0.2 percent, to 12,938.67 after the 30-stock gauge rose above 13,000 yesterday for the first time since 2008.

Futures traders are pricing in the biggest increase in U.S. equity hedging costs since 2010 after the S&P 500 rose within 2 points of erasing last year’s slump. April futures on the Chicago Board Options Exchange Volatility Index closed at 25.15 yesterday, or 6.96 points higher than the level of the gauge, according to data compiled by Bloomberg. The gap widened to 7.02 points on Feb. 17. The last time two-month futures were that high in relation to the index known as the VIX was July 2010.

The S&P 500 has surged 24 percent since Oct. 3 due to domestic confidence and optimism Europe will resolve the debt crisis. Now, traders are increasing hedges to protect against losses.

Commodity Basics
Oil reached a nine-month high yesterday as International Atomic Energy Agency officials were denied access to an Iranian military base and said negotiations over the country’s nuclear program “couldn’t finalise a way forward.”

Oil for April delivery fell as much as 39 cents to $105.89 a barrel in electronic trading on the New York Mercantile Exchange and was at $105.93 at 10:50 a.m. Sydney time. The contract yesterday gained 3 cents to $106.28, the highest close since May 4. Prices are 8 percent higher in the past year.

Brent oil for April settlement advanced $1.24, or 1 percent, to $122.90 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract’s premium to New York-traded West Texas Intermediate closed at $16.62. It reached a record of $27.88 on Oct. 14.

Forex Spot-Lite
The dollar maintained gains from yesterday versus the majority of its most-traded counterparts on concern oil prices at a nine-month high will restrain global growth, increasing demand for haven assets.

The U.S. currency yesterday climbed versus 10 of its 16 major peers as a report showed European services and manufacturing output shrank in February. The Ifo institute will today release its business climate index for Germany, Europe’s largest economy. The greenback halted a five-day gain versus the yen before a U.S. report forecast to show initial claims for jobless benefits rose from a four-year low.

The greenback traded at $1.3248 per euro as of 8:32 a.m. from $1.3249 in New York yesterday. It was at $1.0620 versus Australia’s dollar from $1.0638 yesterday, when it rose 0.2 percent. Against New Zealand’s currency, it traded at 82.83 U.S. cents after yesterday gaining 0.6 percent to 82.93. Japan’s currency was little changed at 80.34 yen per dollar after falling yesterday to 80.40, the weakest level since July 11. It fetched 106.43 per euro from 106.38 yen.

Forex Trading Article by FXCC - Forex Fundamentals, A Quick Reference Sheet

Trading in the foreign-exchange market (forex) relies on the same two basic forms of analysis that are used in the stock market, fundamental analysis and technical analysis. The use of technical analysis in forex reflects much the same as fundamental analysis; price reflects all news and the charts are the objects of analysis. Unlike companies countries have no balance sheets or profit and loss, many analysts question if fundamental analysis, in it’s original form, can be conducted on a currency.

Fundamental analysis looks to establish the intrinsic value of an investment, applying this methodology in forex trading requires observing the economic conditions that affect the valuation of a nation’s currency. Here are some of the major fundamental factors that affect the movement of a currency.

Economic Indicators
Economic indicators are reports released by the government or a private organisation that detail a country’s economic performance. Economic reports are the means by which a country’s economic health is directly measured, many factors and policies will affect a nation’s economic performance.

Reports are released at scheduled times, providing indicators of whether a nation’s economy has improved or declined. In forex, as in the stock market, any deviation from the norm can cause large price and volume movements.

Some of these economic reports, such as the unemployment numbers, are well publicised. Others, like housing stats, receive little coverage. Each indicator serves a particular purpose. Here are four major reports, some of which are comparable to particular fundamental indicators used by equity investors:

The Gross Domestic Product (GDP)
The GDP is considered the broadest and arguably best measure of a country’s economy, as it represents the total market value of all goods and services produced in a country during a given year. GDP is considered a lagging indicator, traders focus on the two reports that are issued in the months before the final GDP figures; advance and preliminary reports. Significant revisions between these reports causes volatility.

Retail Sales
Retail-sales reports measures total receipts of retail stores in any given country. The measurement is derived from a diverse sample of retail stores in a nation. The report is useful as it’s a timely indicator of consumer spending, adjusted for seasonal variables. It’s used to predict the performance of other important lagging indicators, and to assess the immediate direction of an economy. Revisions to advanced reports of retail sales causes significant volatility. The retail sales report can be compared to the sales activity of a publicly traded company.

Industrial Production
This report illustrates the change in the production of factories, mines and utilities within a nation. It reports ‘capacity utilisations’, the degree in which the capacity of each of these factories is being used. Ideally a nation should see an increase of production whilst being at its maximum (or near maximum) capacity utilisation.

Traders using this indicator are concerned with utility production, which can be volatile since the utilities industry, and the trading of and demand for energy, is heavily affected by changes in weather. Significant revisions between reports can be caused by weather changes, which causes volatility in the nation’s currency.

Consumer Price Index (CPI)
The CPI is a measure of the change in the prices of consumer goods across over 200 different categories. This report, when compared to a nation’s exports, can be used to monitor if a country is making or losing money on its products and services. To monitor the exports can be tricky as the prices of exports often change relative to a currency’s strength or weakness.

Some other major indicators include:

The purchasing managers index (PMI)
Producer price index (PPI)
Durable goods report
Employment cost index (ECI)
Housing starts
Michigan Consumer Confidence Survey

How Do Forex Traders Put These Reports To Work?
Economic indicators establish a country’s economic state, changes in the conditions reported will directly affect the price and volume of a country’s currency, however, the indicators listed above are not the only factors that affect currency price. There are third-party reports, technical factors, and many other issues that can drastically affect a currency’s valuation.

A Few Tips For Conducting Fundamental Analysis In The Forex Market

Keep an economic calendar ready that lists the economic indicators release date whilst being aware of the future as markets can move in anticipation of a certain indicator or report due to be released at a later time.
Be aware of the economic indicators that are being discussed most in the financial media at any given time. Such indicators are often catalysts for large price and volume movements, when the U.S. dollar is weak, inflation is often one of the most watched indicators.
Bloomberg produce expectations based on questionnaires sent to leading economists in any given specialised field. Be aware of these market expectations for the data and pay attention as to whether expectations are met. It’s often more important than the data itself. Occasionally, there’s a drastic difference between the expectations and actual results, if there is be aware of the possible justifications for this difference.
Never react too quickly to the news, numbers are released and then revised. Paying attention to these revisions may be a useful tool for seeing the trends and reacting more accurately to future reports. The adage is; “don’t trade the news, trade the reaction to the news.”

Summary
There are many economic releases and there are more private reports that can be used to evaluate the fundamentals of forex. It’s important to take time to look at the numbers and to understand what’s being translated and how these reports affect a nation’s economy. When properly used these reports and indicators of a country’s or state’s performance are a priceless resource for currency traders.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/forex-fundamentals-a-quick-reference-sheet/

Forex Article - Are Forex Traders Born And Not Made?

Are Forex Traders Born And Not Made, Or Do We Need To Get The Chemistry Right?

There was a fascinating article published by Reuters and others yesterday concerning gambling addiction. Whilst musing over the results the synergy between gambling and trading becomes obvious. The question that many of us have asked; “am I cut out for this?” may have more in common with your brain chemistry than you’ve previously given credit. The scientific report suggests that there is a chemical in an area of the brain, norepinephrine, which if evident in larger quantities makes people less risk averse and as a consequence they feel less emotional pain when taking a loss.

This experiment and study throws up many questions in relation to our trading world. For example, could traders take a drug, similar to beta blockers, in order to inhibit certain behaviour which could be harming their trading? Or should nature simply take it’s course? Are we either equipped for the industry and profession or not and would tinkering around the edges dramatically alter the right state of mind necessary? And for those amongst us who believe we have the balance right, would we want to actually make the ‘pain’ of a loss lessen, or could that blurring of pain actually reduce our edge?

Pain Is Essential To Trading
I’d suggest that the pain of losses is essential. Whilst that pain lessens over time (due to familiarity and experience) to become the slight numbing many of us are familiar with, none of us could testy to ‘enjoying’ taking a loss. Yes there’s the Mark Douglas type attitude we could all key into; “that loss means the next winner is just around the corner” but the reality is that we all hate losing, if we didn’t you’d begin to question whether were made of the right stuff to trade.

Rationalising losses, by ensuring the money management section of your trading plan is never breached, eventually becomes second nature. But in markets such as we’ve experienced over the past 48 hours, whilst the Greek issue has been high on the agenda, your losses may be slightly higher particularly if you’re an intra day trader. Would you want a chemical that soothes these losses or you want to be fully awake, cognisant and aware of what’s happening in the market place in order that you can be ready to act? I’ll take reality any day..

The Experiment
A neurotransmitter, or chemical messenger, called norepinephrine, or noradrenaline, is central to the response to losing money. Those with low levels of norepinephrine transporters had higher levels of the chemical in a crucial part of their brain, leading them to be less aroused by and less sensitive to the pain of losing money, the researchers found. People with higher levels of transporters and therefore lower levels of norepinephrine or noradrenaline have what is known as “loss aversion,” where they have a more pronounced emotional response to losses compared to gains.

For the study, a team of researchers at the Kyoto University graduate school of medicine in Japan, scanned the brains of 19 healthy men with positron emission tomography (PET) scans after they had completed a gambling task.

Loss aversion can vary widely between people, the researchers explained. While most people would only enter a two outcome gamble if it were possible to win more than they could lose, people with impaired decision making show reduced sensitivity to financial loss.

Julio Licinio, editor of the Molecular Psychiatry journal which reviewed and published the brain study;

Pathological gambling that happens at regular casinos is bad enough, but I think it’s also happening a lot now at Casino Wall Street and Casino City of London. We like to believe we all have free will and make whatever decisions we want to, but this shows it’s not so easy. Many people are predisposed to make certain kinds of decisions.

Derek Hill, a professor of medical imaging science at University College London was intrigued by the findings;

This research uses sophisticated brain scanning to improve our understanding of the way that our appetite for risk is linked to the way that chemical messengers operate in the brain. It is quite preliminary work, but has many intriguing implications. This sort of imaging could in future be used to help test drugs to treat people who indulge excessively in risky behaviour.

Alexis Bailey, a lecturer in neuropharmacology at Britain’s University of Surrey, said scientists need to analyse pathological gamblers to confirm whether they have higher levels of chemical transporters than non-gamblers.

Also there is a need to investigate if noradrenaline transporters are also increased in brain regions traditionally associated with decision making and emotional aspects of aversion such as the prefrontal cortex and amygdala.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/are-forex-traders-born-and-not-made/

Forex Market Commentary by FXCC - Greeks Refuse To Lie Down And Take The Austerity Medicine

How does that phrase go again; “you can fool some of the people some of the time, not all of the people all of their time”? Ah-ha! Here it is; ” You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.” Apparently it’s attributed to Abraham Lincoln the 16th president of USA (1809 – 1865)..

The day after the ink has dried on the overall troika deal as the Dutch finance minister finally found his swipe card to get into his ensuite room, raid the mini bar and get to the airport, the small matter of the remainder of the inter generational crisis management can now be left to the troika ‘lite’. The body he insisted on being there permanently as part of the overall deal. But the Greek populace, unlike the troika, the IMF and Euro Group, is not waking up from a congratulatory back slapping party, their sobriety has been unbroken throughout this three year ordeal and their day to day reality has been made much harsher by the revised austerity measures recently put in place as part of the overall deal.

Evidence of the unrest is everywhere, the Greeks are not receiving the same sanitised perception managed news reel the rest of Europe, the UK and the USA is being force fed in order to believe that the tortuous financial engineering has provided a solution. There are already stark warning signs for ‘ordinary’ Greeks as to the impact and immediate power of austerity.

According to the statistics bureau ELSTAT, more than three million of Greece’s population of 11 million, or 27.7 percent, were close to poverty or social exclusion in 2010, at the very start of the crisis. Things have become much worse since…

Klimaka, a non-governmental group formed in 2000 and backed financially by the health, foreign affairs and labor ministries, aims to help those who have lost the most. In Athens, the profile of a homeless person has changed with the economic crisis, said Effie Stamatogiannopoulou a professional nurse of Klimaka;

Before, the categories of people on the streets were immigrants, alcoholics and drug addicts. In the past two years however our data show a 25 percent increase of homeless people who have no such problems but are simply unemployed.

The latest figures confirm this trend: 20 percent of the active population is unemployed and almost half of those, 48 percent, are younger than 25. Klimaka estimates that 20,000 people live in the streets of Athens nowadays. Prior to the crisis homelessness and ‘street living’ was a rarity in Athens.

Today various rallies and protests are taking place in Athens and Thessaloniki.

The two biggest unions in Greece ADEDY and GSEE unions have called a rally set for 16:00 EET (2pm GMT) outside Parliament in Athens.
Insurance Fund employees to rally at 12:00 EET (10am GMT) outside OEK Patission and Solomou in Athens.
PAME Communist workers group will begin a rally at 17:00 EET (3pm GMT), starting from Omonia and converging with union protest outside Parliament in Athens


A second rally is being organised in Thessaloniki begins at 18:30 EET (4.30pm GMT) at the Venizelos statue.

Polish Solidarity
Grzegorz Kolodko, the former deputy prime minister and minister of finance of Poland, has come out firmly against the rescue package. Kolodko teaches at Kozminski University in Warsaw and argues that Greece’s economy cannot possibly return to strong growth in the face the measures that are being applied. Greek Society is being pushed to its limits and Kolodko advocates wiping out 80% of Greece’s external debt, combined with an EU loan at zero interest rate;

“In three years of austerity Greece’s debt has risen from 113 per cent of gross domestic product to 163 per cent. Homelessness has jumped by 25 per cent. Unemployment has risen to 21 per cent, among the highest in the industrialised world, with 48 per cent of young people out of work. It is naïve to think they will watch TV, not demonstrate or fight in the streets. This policy is senseless.

The easiest solution would be for the European Central Bank to buy new issues of Greek government bonds, but its hyper-liberal statutes and German ethos will not allow it to do so. The ECB has off-balance sheet resources of €3.3tn, equivalent to the current value of its seniority. If it is only used properly, the issue of eurozone sovereign debt can be resolved.”

Market Overview
China’s manufacturing could shrink for a fourth month in February, indicating the world’s second biggest economy is vulnerable to a deeper slowdown as Europe’s crisis caps exports and the housing market cools. The preliminary 49.7 reading of an index from HSBC Holdings Plc and Markit Economics published today compares with a final 48.8 in January. A number below 50 points to a contraction..

European stocks fell for a second day and commodities declined after data was published showing that the region’s services and manufacturing output shrank. The Stoxx Europe 600 Index had lost circa 0.6 percent at 9:30 a.m. in London. Futures on the Standard & Poor’s 500 Index slipped 0.1 percent. Copper retreated 0.6 percent. The German 10-year bund yield decreased three basis points to 1.95 percent, snapping a four-day advance. The dollar appreciated as much as 0.7 percent to 80.30 yen.

A gauge of euro-area services and manufacturing output dropped to 49.7, London-based Markit Economics said, below the 50.5 forecast by economists in a Bloomberg survey. The Dollar Index rose 0.2 percent, while the yen weakened versus all 16 most-traded peers monitored by Bloomberg, falling 0.5 percent against the euro. Copper dropped for the first time in three days. Oil in New York declined 0.4 percent to $105.82 a barrel, the first drop in a week.

Market Snapshot
Asia-Pacific markets enjoyed positive returns in the early morning session. The Nikkei closed up 0.96%, the Hang Seng closed up 0.33% and the CSI closed up 1.37%. the ASX 200 closed up 0.04%. European bourse indices have fallen marginally in the early part of the European session. The STOXX 50 is down 0.63%, the FTSE is down 0.27%, the CAC is down 0.35% and the DAX down 0.81%. The Athens exchange the ASE is down 2.81% down circa 51.66% year on year. ICE Brent crude is down 0.41% this morning still at over $121 per barrel. Comex gold is down $3.20 an ounce. The SPX equity Index future is currently down 0.08%.

Commodity Basics
Oil has traded close to its highest level in nine months on speculation that Iran will disrupt supplies, countering concern that global demand will falter. Futures were little changed after sliding as much as 0.5 percent. The International Atomic Energy Agency said talks over Iran’s nuclear program failed, while an Iranian general threatened military action. U.S. oil stockpiles climbed 1.5 million barrels last week, according to a Bloomberg News survey.

Brent oil for April settlement was down 18 cents at $121.48 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $15.09. It reached a record $27.88 on Oct. 14.

Forex Spot-Lite
Futures traders increased wagers that the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed last week. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain (net shorts) was 148,641 on Feb. 14, compared with 140,593 a week earlier.

The dollar rose to a seven-month high of more than 80 yen on speculation signs of growth in the U.S. economy will reduce the case for more so-called quantitative easing by the Federal Reserve. The dollar rose 0.6 percent to 80.24 yen at 9:12 a.m. London time, after trading at 80.30 yen, the strongest level since July 12. The greenback is poised for its longest series of daily advances since April. The euro advanced 0.5 percent to 106.07 yen, after reaching 106.33 yen, the highest since Nov. 14. The 17-nation currency was little changed at $1.3222.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/greeks-refuse-to-lie-down-and-take-the-austerity-medicine/