Ava FX Analysts Department

Cable closed higher on Friday as it consolidates some of this week's decline. The high range close could set the stage for a steady to higher opening on Monday. Stochastics and the RSI remain bearish hinting that sideways to lower prices are possible near term. If it extends the decline off the late-May high, May's low crossing at 1.6046 is the next downside level. A close above the 20 day moving average crossing at 1.6294 might confirm that a short term low mave have posted. USDCHF closed lower on Friday as it consolidates some of the rally off last week's low. The high range close could set the stage for a steady to higher opening on Monday. Stochastics and the RSI remain bearish signaling that sideways to higher prices are possible near term. A close above the 20 day moving average crossing could confirm that a possible short term low has posted.

Why are Americans not being told the truth about the economy? It would appear that we are heading in the direction of a double dip. However, you would never know this by all the positive and upbeat messages coming out of Wall Street and Washington. FACT: Consumers are 70% of the US economy. Currently, consumer confidence is plummeting; consumer confidence weaker today, on average, than at the low point of the Great Recession. The Reuters/University of Michigan survey showed a 10 point decline in March. This was the tenth largest drop on record. Part of that drop can be attributed to rising fuel and food prices. In another gauge, the Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low. This is due, in large part, to expectations of fewer jobs and lower wages in the months ahead. FACT: Worried and pessimistic consumers do not spend and further, do not buy as much. That means fewer sales. That means big economic...

Overview: With a dormant economic calendar, snowstorms throughout much of Europe and the US, and a many traders away on a holiday shortened week, trade remains mostly quiet, and range-bound with 2 glaring exceptions: Asian stocks still reeling from the bearish implications of the Saturday China rate hike, which portends more Chinese tightening until inflation and growth cool. China had avoided rate hikes but this latest one appears to telegraph that harder monetary tightening and slower growth will be needed to prevent inflation. Cotton also continues to plunge. STOCKS: US: Mixed/Flat - Major US indices close just above or below their starting point on very low volume as snow and holidays kept traders away. Considering that Shanghai fell 1.9% and the major European indices had lost over 1% in reaction to the Saturday China rate hike, the US indices showed resilience. The increase was seen as both a negative for growth and sign that there are more tightening measures to come as...

Prior Week Low Liquidity, Year End Fund Buying Stifles News, Keeps Markets Quietly Ascending The overall tone of news was definitely negative. Dour news included: Top Analyst Meredith Whitney Predicts A Wave of US Municipal Bond Defaults In Mid 2011: Why then? Because US bailout money for states is due to run out then. This was arguably the most talked about and debated news item of the week. The news was not new but the media seemed to latch onto this story despite the ominous nature of the below items. Warnings of credit downgrades to Portugal (Moody’s), Greece (Fitch). Rumors of credit downgrade warnings to France (ultimately unfounded as S&P maintains the AAA rating) A Spanish bond auction with decent demand (but how much from ECB?) but once again higher rates A surprise increase in UK government spending despite ongoing austerity moves Fitch downgrades Hungary’s credit to BBB-, the lowest investment grade rating, and cut Portugal’s to A+, bringing Fitch in line with Moody’s but still 2 notches...

EU Uncertainty And Bond Selloff Continue to Weigh On Markets, Stocks and Commodities Diverging From Bonds, Forex Markets Pretty interesting: stocks commodities holding near 6+ month highs,  bonds FALLING. These suggest risk appetite. Yet  forexmarkets are showing clear risk aversion. Somebody is wrong. FYI Big bond, FX traders tend to be more prescient in the short term. Longer term most economists polled by Bloomberg see risk assets higher in 2011. Of course most said the sub prime crisis was no massive threat, too. Overview: Asian and European stocks lower on a string of bad EU debt crisis news including: Moody’s warning of a possible coming Spain credit downgrade after its tepid bond auction Portugal’s 3 month bond auction was also weaker than expected These come after a similar warning to Belgium from S&P and a downgrade to Hungary last week   The news on Spain and Belgium is significant. Spain’s debt load is considered too big bail out, and Belgium is considered a core economy and a downgrade would...

Overview: Risk assets higher on Good US data and hopes that today’s ECB press conference and Spain bond sale will calm markets about PIIGS bonds, stabilize or lower their rates, and thus further boost risk appetite. STOCKS: US Up: US stocks opened higher following up on gains in Asia and Europe after better than expected Chinese, UK Manufacturing PMIs and German retail data, closed around 2% higher for their best day since early September, when stocks began their pre QE 2 rally. US Bonds: Up-  On Tuesday the benchmark 10 year note was up as stocks fell, yield up 2.7970% to 2.9640% as risk assets had been badly oversold in recent days and were due for a bounce on any good news. Asia Stock Outlook: Up – Virtually all indices close higher Thursday as better than expected US jobs and manufacturing PMIs, as well as high hopes for calming words, if not actions, from the ECB press conference later today European Stock Outlook: Up...

Today could be the day that stabilizes the EU crisis, or greatly exacerbates it. The EU is on the brink once again. Wednesday it was reported here that Citibank Chief Economist Willem Buiter, Greece, Ireland, and Portugal are beyond the point of recovery, and Spain is nearing that point. Spain, however, is considered too big for current EU/IMF funds to rescue. Italian and Belgian bond rates are also soaring. The Two Decisive Events ECB Press Conference This is potentially the biggest event this week. Markets are hoping for a major announcement of a plan to restore confidence and lower yields on PIIGS bonds, which would effectively halt ongoing contagion fears that Portugal and possibly Spain will soon need EU aid, and thus the current latest chapter in the EU sovereign debt/banking crisis. Investors are hoping for an expanded bond buying program to scare of speculative attacks on PIIGS bonds that threaten to cut off Portugal and Spain from credit markets and force them...

Overview: As was the case yesterday, stocks, commodities, risk forex all retreating thus far today and generally down since Friday on a combination of serious bearish fundamentals that include: uncertainty about the coming Ireland bailout, soaring Portuguese and Spanish bond yields that threaten to force these nations to seek EU/IMF funds, which are insufficient to aid Spain. This rather obvious point had lead many EU officials to favor an expanded aid fund to cover Spain, calm markets, and stop a potential crisis before it really gets going and becomes even more expensive to fix. German officials, however, prefer to play politics while Europe burns, and reject the idea. After a coalition breakdown in Hamburg this past weekend, Germany faces at least 7 state elections in early 2011, making German leaders especially sensitive to their voters’ frustration at being billed for further aid to their neighbors. Still, they are unlikely to have a choice in the end and thus the German refusal to...

U.S Markets Stocks edged down in a low-volume session on Monday on worries Europe's credit crisis will spread despite a weekend agreement to bail out Ireland. But stocks finished well off their lows of the day as the dollar retraced some of its earlier gains and energy and financial stocks rallied late in the session. While stocks tracked movements in the euro on Monday, a strong U.S. jobs report on Friday could bring the focus back to the economy and break the strong tie between U.S. equities and the euro. The correlation between the euro and stocks has become more pronounced in recent weeks as the euro zone's debt problems resurfaced, with traders selling the euro and stocks together. Banks and energy stocks outperformed the wider market as crude oil futures rose 2.3 percent and banks recovered some of their recent losses. The KBW bank index rose 1 percent, helped by Bank of America, which climbed 1.5 percent to $11.31, while Exxon Mobil...

Likely Market Movers To Watch This Week   Speculation About A Bigger Bailout Fund To Cover Spain: Many EU officials want it in order to kill off speculative attack on to-big-to-bail Spain, but Germany is thus far resisting the idea and thus helping keep anxiety high about spreading contagion to Portugal and Spain. One Or More Wildcards EU sovereign debt/banking crisis: In addition to possible settling of an Ireland bailout deal and expanded bailout fund, watch for: Portuguese and Spanish bond auctions ECB press conference expected to announce a continuation of asset purchases, tossing aside any remaining hope EUR bulls had for an exit US banking/housing crisis: Housing data is expected to be poor, new revelations on the insider trading probe? News on ‘Black Friday’ US and EU retail spending as an initial gauge of the critical US holiday consumer spending season – a make or break season for US retailers, in which many generate 25%-50% of annual sales. Expectations are modest for the US, glowing for Germany....