Currencies Move: AUD

12 months chart: AUD advancing @ 0.69 on USD.

Something To Remember In The New Year

Finding A Friend In The Trend

“The trend is your friend” is an important trading guideline.
In 2008 we witnessed some massive bear trends in the equity and crude oil markets as well as many other freely traded commodities and currencies.

Because trends persist for long periods, a position taken with the trend will more likely be successful than one taken randomly or against the trend. Trading with the trend in a bull market means buying on dips; in a bear market, selling on rallies.

This is a good lesson to remember on why markets trend. Are we expecting some big trends in 2009? You bet we are. Look for big trends in gold, the dollar and crude oil in the new year.
By Adam Hewison
Read more under "Lesson for Professional Trader" on right colum of this blog.

GOLD IN TERMS OF WHAT YOU CAN BURN AND EAT

Most folks believe gold has performed terribly this year. Gold's "underperformance" is unexpected, considering it normally soars when a big pile of you-know-what hits the fan.

Most folks look at gold in terms of U.S. dollars. But that doesn't give you the whole picture. Today, let's look at gold in terms of how much gasoline, cereal, bread, heating oil, hamburger, coffee, and construction materials it will buy you. Let's look at gold versus the "CRB."

The CRB Index is like the "Dow Industrials" of commodity prices. It's the world's most widely followed gauge of raw materials like oil, copper, and corn. As you can see from today's chart, when you look at gold in terms of things you actually eat, burn as fuel, or live in, gold is soaring. We stand by our claim: The bull market in gold is alive and well...! Brian Hunt's market Notes.

GOLD IS SOARING, YOU JUST DON'T REALIZE IT

We're devoting an entire week to showing you some amazing gold charts...

You might have watched gold fall from a high around $1,000 to below $725 and wondered what the heck was going on. Gold is known as a "crisis hedge"... an asset that soars when stocks, bonds, and the economy are performing terribly. The confusing thing is, investors have had a lifetime of crisis thrown their way in 2008, but gold has actually declined in price, right?

Actually, wrong. Yes, gold is down more than $170 an ounce from its summer highs. But that's when you measure it in U.S. dollars. Problem is, many folks around the world measure gold in different terms. Take the 300 million Europeans who use the euro as their currency.

Today's chart is the price of gold measured in euros. As you can see, gold is strong in the eyes of a European. Currencies tend to fall when their home economies weaken... when there aren't enough jobs or when folks get into too much debt. This is what's happening in Europe. The bull market in gold is alive and well... Brian Hunt's Market Notes.

Yen Falls Versus Euro, Dollar on Record Drop in Japan’s Exports

Dec. 22 (Bloomberg) -- The yen weakened against the euro and the dollar as a record plunge in Japanese exports last month signaled the world’s second-largest economy was falling deeper into a recession.

The ruble fell to the lowest level against the dollar in almost three years as Russia devalued the currency and tumbling oil prices this year battered its economy. The dollar weakened against the euro before data this week forecast to show U.S. consumer spending and durable goods orders declined.

“When Japan’s trade performance deteriorates, the yen tends to weaken,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second- largest bank. “Japan’s growth outlook is concerning.”

The yen dropped 1.1 percent to 125.60 per euro at 9:36 a.m. in New York, from 124.22 on Dec. 19, paring its gain this year to 30 percent. The yen depreciated 0.5 percent to 89.74 per dollar from 89.31 and reached 90.23, the weakest level since Dec. 16. The yen may decline to 102 per dollar by the end of 2009, according to Osborne. The dollar weakened 0.6 percent to $1.3994 per euro from $1.3912. It slid to $1.4719 on Dec. 18, the weakest level since Sept. 25.

Bank of Japan Governor Masaaki Shirakawa said today the nation’s exports may decline further because of the yen’s strength this year and the global slowdown. Toyota Motor Corp., the world’s second-largest automaker, said it expects its first operating loss in 71 years because of plunging North American and European car sales and a surging yen.

“ I am surprised the Japanese hasn’t intervened thus far,” said Dennis Gartman, economist and editor of the Gartman Letter in Suffolk, Virginia, in an interview on Bloomberg Radio. “Intervention to weaken your currency can be very effective. There’s a great probability that the yen versus the dollar will trade at 100 to 105 over the course of the next year.”

The most volatile foreign-exchange markets since at least 1992 means currency traders will see the smallest pay cuts as the worst financial crisis since the Great Depression wipes out bonuses on Wall Street.

When To Buy: Part 2

3 months chart Dollar Index DX shows a slight dip to 81 while a 4 days chart shows USD strengthen against JPY at 90. If DX continues to fall but with USD rallying against the JPY, we should see a further rise in gold prices, commodities currencies and equities.
Gold is seen trading between US750 to 850 range in last 4 months.
Here's an article related to Carry Trade.

Yen Falls as Carmaker Loans Revive Confidence in Carry Trades By Ron Harui and Stanley White
Dec. 22 (Bloomberg) -- The yen fell against the euro, extending this month’s decline, as U.S. government aid to General Motors Corp. and Chrysler LLC gave investors confidence to boost holdings of higher-yielding assets funded in Japan.
The Japanese currency also dropped versus the dollar on speculation Bank of Japan Governor Masaaki Shirakawa will express concern over the yen’s gains following a record plunge in exports in November. The dollar weakened against the euro before data this week that may show U.S. consumer spending, home sales and durable goods orders fell.
“GM and Chrysler have won a reprieve for the remainder of this year,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This is pushing the yen a little bit lower.”
The yen dropped 1.3 percent to 125.78 per euro at 1:53 p.m. in Tokyo from 124.22 on Dec. 19, paring its gain this year to 30 percent. The currency declined to 89.99 against the dollar from 89.31 late last week. It reached 90.23, the lowest level since Dec. 16. The dollar weakened to $1.3972 per euro from $1.3912. It slid to an 11-week low of $1.4719 on Dec. 18.

Investors added to so-called carry trades, in which they get funds in a country with low borrowing costs and buy assets in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits. Japan’s benchmark interest rate is 0.1 percent, compared with 2.5 percent in the 15-nation euro region, 4.25 percent in Australia and 5 percent in New Zealand.
The yen has appreciated 24 percent against the dollar this year, the most since 1987, as more than $1 trillion of credit- market losses sparked a seizure in money markets and threw the world’s largest economy into a recession.

“The bias is for the dollar to go lower,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “U.S. economic data are likely to confirm just how bad the outlook is.”
The U.S. currency has gained 4.4 percent against the euro this year, 33 percent versus the British pound and 28 percent against the Australian dollar as investors bought the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit.

Currencies Play:AUD & KRW

AUD = 2.46 MYR (11% gain from lowest 2.21 on 21st Nov).
KRW = 2.69 MYR (13% gain from lowest 2.39 on 21st Nov).

USD = 3.46 MYR (5% loss from highest 3.64 on 3rd Dec).

Meaning you would have made a gain/yield of 11% if you had bought KRW and AUD at its recent low.

USD/JPY Slides

Chart 1: US Dollar Index (DX) has rebounded slightly from 77 to 81.

Chart 2: USD/JPY plunges to 89.

CRB Index still hovering around 220. Commodity is inversely correlated to Dollar Index. Let's see how it reacts in the next week...

When is The Right Time To Buy

Blogger Salvatore Dali's posting:
A reflection of risk aversion = cheap valuations of stocks (forced sale/liquidation).
A sure sign of risk aversion = the rush of money to US Treasuries.
A sign of definite risk aversions = the rush of money to USD and JPY.

#1: Markets will only start a genuine recovery when risk aversion subsides
#2: Risk aversion reduction will be immediately reflected in weaker USD and yen.
The fall in USD over the last two days is more due to the zero interest rate regime enacted by Federal Reserve, so that should not be a sign of risk aversion reduction.

The best guide for locating current markets' bottom:
WHEN USD and YEN BOTH STARTS TO FALL IN VALUE in a sustained pattern. It signal a willingness to move exposure into other currencies or assets, be it stock or bonds.
Dali's buying trigger:
Catalyst #1: When yen/usd rate moves back to 94, plonk down 1/3 of your funds
Catalyst #2: When the rate moves to 97, move the second portion
Catalyst #3: When the rate breaks 100, move the rest in

In essence, I think this is what Dali is saying:- both the USD and JPY must weaken (against other related currencies), but JPY must go depreciate more for "carry-trade" to take place.
In other words,
1) money flows out of US market into emerging markets (sell USD to buy emerging markets currencies and assets),
2) JPY to becomes cheap enough for fund-houses to borrow for buying into emerging markets currencies and stocks with better yields).

I have a strong tendency to agree fully with the direction Dali is pointing. I usually observe the Dollar Index but now with the indicated USD/JPY figures offered by Dali, we can now position ourselves better to seize the opportunity.

To all, Merry Christmas...!

Why You Must Immediately Bet on Inflation

Last week, the Fed took its first step in a new, more desperate tactic to fix the financial system...Up until last week, the Fed's operations since the beginning of the credit crunch had not created any new money supply. It had been swapping troubled assets on bank balance sheets for Treasury bonds. It was taking bad loans off banks' books and giving them good loans instead.That improves a bank's balance sheet... and strengthens the system. But it creates no additional credit. It's not inflation.Then, last week, it took a "quantum leap," according to George Goncalves, the chief Treasury and agency strategist at Morgan Stanley.

Instead of swapping assets in the banking system, the Fed started buying them. The Fed bought $5 billion of Freddie Mac, Fannie Mae, and Federal Home Loan Bank corporate debt. The New York Fed's website says the purchases are being "financed through the creation of additional bank reserves." The Fed has finally started to create money out of thin air.In other words, to pay for its purchases, the Fed opened new bank accounts for its commercial bank customers, struck a couple of computer keys, and filled the accounts with money. The Fed hopes the banks lend this money out. If they do, it will add credit to the marketplace... That's inflation.The idea behind this new strategy is to help homeowners refinance their debts at lower interest rates. A purchase of $5 billion is a tiny amount for the Fed, but think of it as a test. The Fed wanted to make sure the market wouldn't flip out over this new ultra-inflationary strategy.The market didn't flip out. And the strategy worked. The average rate on a 30-year fixed-rate mortgage fell from 5.97% to 5.53%... the largest weekly drop in 27 years.Now that the Fed sees how successful this strategy was, we can expect the government to continue with it. This is great news if you own investments that respond well to inflation, like gold, silver, and other commodities. First, the public is 100% sold on the idea of imminent deflation. Commodities and gold are selling at bargain prices. In the markets, it pays to bet on the underdog.

Second, there's no political resistance to inflation. The dollar is in its strongest uptrend this decade, and Treasury rates are at all-time lows. There's no reason for the government not to inflate. There's no economic penalty for running an inflationary policy. Plus, the public is demanding stimulus and bailouts right now. They're giving politicians the green light to create money.Finally, over $8 trillion is sitting on the sidelines in money market accounts and short-term Treasuries. Meanwhile, some unknown trillions have disappeared from the world's supply of assets in the credit crunch. When the supply of money and credit expand in relation to the supply of goods and services, you get inflation.The easiest way to bet on inflation is with an exchange-traded fund like GDX. It's an index of the biggest gold-mining stocks. If the stock market rallies at the same time gold rallies – which should happen when inflation hits – GDX will rise like a rocket.
Good investing- Tom Dyson, contributor to Daily Wealth.