US & Canada Archives - Page 156 of 176

December 15, 2011

Forex update: Euro breaks support

The euro broke through primary support at $1.32, warning of another primary decline with a target of $1.22*. Declining 63-day Twiggs Momentum indicates a strong primary down-trend.
Euro

* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22

Pound Sterling is testing primary support at $1.54, while 63-day Twiggs Momentum is below zero. Failure of support would signal a primary decline to $1.46.

Pound Sterling

* Target calculation: 1.54 – ( 1.62 – 1.54 ) = 1.46

The Aussie Dollar retreated below parity, indicating another test of medium term support at $0.97. Failure would test primary support at $0.94/$0.95. Respect of the zero line by 63-day Twiggs Momentum indicates a continuing primary down-trend. Weakening commodity prices, especially coal and iron ore, should strengthen the down-trend.

Australian Dollar

* Target calculation: 0.97 – ( 1.03 – 0.97 ) = 0.91

The Canadian Loonie is headed for a test of primary support at $0.94/$0.95. 63-Day Twiggs Momentum holding below zero suggests a continuing primary down-trend.

Canadian Dollar

* Target calculation: 0.95 – ( 1.00 – 0.95 ) = 0.90

A monthly chart of the Greenback against the Yen shows strong bullish divergence on 63-day Twiggs Momentum, suggesting reversal of the primary down-trend. Breakout above ¥80 and the descending trendline would confirm the signal.

Japanese Yen

The US Dollar continues in a strong up-trend against both the South African Rand and Brazilian Real, helped by falling commodity prices. Breakout above R8.60 would signal a further advance to R9.20.

South African Rand and Brazilian Real

* Target calculation: 8.60 + ( 8.60 – 8.00 ) = 9.20

December 14, 2011

Private sector debt growth warns of anemic recovery

The cause of current anemic GDP growth is evident from the recently-released Z1 Flow of Funds report. GDP recovery from 2008/2009 is accompanied by only a modest rise in Domestic (Non-Financial) Debt — which is now constraining further growth.

Domestic (Non-Financial) Debt Growth Compared To GDP

Domestic (Non-Financial) Debt is made up of Government Debt and Private (Non-Financial) Debt — which can be further broken down into Household and Corporate debt. The Financial sector is excluded as it mainly acts as a conduit, channeling debt to other sectors of the economy. We can see below that Private (Non-Financial) Debt contraction was far greater than overall Domestic (Non-Financial) Debt. What saved the economy was a sharp spike in Government Debt in 2009, offsetting the fall. The massive fiscal deficit may have left a public debt hangover, but failure to offset the contraction in private borrowing would have had more serious consequences: a GDP collapse similar to the 1930s.

Index

Resumption of corporate borrowing has dragged Private (Non-Financial) Debt growth into positive territory but growth remains anemic and households continue to de-leverage. Cessation of government borrowing would cause a fall in overall Domestic (Non-Financial) Debt growth to near zero and a sharp fall in GDP. The economy needs to be gradually weaned off stimulus spending in order to minimize disruption to growth. And not before Private sector borrowing recovers. We need a clear deficit-reduction plan, over 5 to 10 years, in order to restore corporate sector confidence and encourage new capital investment.

The only alternative is further quantitative easing (QE3), where continuous deficits are funded by borrowing from the Fed. But that poses a whole new set of problems — and could lead us back to square #1.

December 13, 2011

Dow warns of correction

Dow Jones Industrial Average reversed below short-term support at 12000. Bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure — and a correction to test primary support at 10600. Reversal (of TMF) below zero and follow-through (of DJIA) below 11900 would strengthen the signal.

Dow Jones Industrial Average

December 11, 2011

Canada TSX 60

Respect of the descending trendline on Canada’s TSX 60 weekly chart indicates another test of primary support at 645. Failure would signal a primary decline to 575*. Breach of the zero line by 63-day Twiggs Money Flow would warn of rising selling pressure. Breakout above resistance at 715 is unlikely but would flag that the primary down-trend has ended.

TSX 60 Index

* Target calculation: 645 – ( 715 – 645 ) = 575

December 11, 2011

Dow, Nasdaq diverge

Dow Jones Industrial Average is testing resistance at 12300. Breakout would signal a primary advance to 13400 and an end to the bear market. Rising 63-day Twiggs Momentum is encouraging but will only be significant if retracement respects the zero line.

Dow Jones Industrial Average

* Target calculation: 12300 + ( 12300 – 11200 ) = 13400

The Nasdaq 100, however, displays a large bearish divergence on 13-week Twiggs Money Flow, warning of selling pressure. Reversal below 2040 would confirm a primary down-trend. Breakout above 2400 is less likely, but would suggest an advance to 2800*.

Nasdaq 100 Index

* Target calculation: 2400 + ( 2400 – 2000 ) = 2800

December 10, 2011

S&P 500 hovers near tipping point

The S&P 500 index recovered above medium-term support at 1220/1250, with a short surge in buying pressure, but the situation remains precarious. Breakout above 1300 would indicate that the threat of another bear market has passed, but reversal below 1160 remains as likely — and would warn of another test of primary support at 1100/1080.

S&P 500 Index

The situation is similar to the attempted recovery above 1400 [now here] in 2008. Reversal below medium-term support [1400] in that case tipped us into a bear market.

S&P 500 Index

December 8, 2011

Pullout from U.S. Stock Funds Crosses $130B

Investors have now pulled more than $130 billion out of mutual funds that invest long term in United States stocks, since May 1.

…..In the six months ending October 31, $114.8 billion already had been pulled out of U.S. stock funds. The peak was in August, when Standard & Poor’s downgraded the rating of U.S. government debt. That month $26.3 billion was pulled out. But the pullout has stayed above $14 billion every month since.

via Pullout from U.S. Stock Funds Crosses $130B.

December 8, 2011

Forex update

The euro is likely to re-test primary support at $1.32 against the greenback. Declining 63-day Twiggs Momentum, below zero, warns of continuation of the primary down-trend. Breach of support would indicate a primary decline to $1.22*.

EURUSD

* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22

Sterling rallied off primary support at $1.53/$1.54 against the greenback but 63-day Twiggs Momentum again warns of a primary down-trend. Failure of support would offer a target of $1.46*.

GBPUSD

* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46

Canada’s Loonie is headed for another test of resistance at $1.01 against the greenback. Declining 63-day Twiggs Momentum, however, continues to warn of a primary down-trend. Respect of resistance is likely, and would signal another test of primary support at $0.95. Declining commodity prices also favor a down-trend.

CADUSD

* Target calculation: 0.95 – ( 1.01 – 0.95 ) = 0.89

The Aussie Dollar appears stronger than the Loonie, which is unusual. Both are affected by commodity prices, but the Aussie tends to be more volatile than its Canadian counterpart. Obviously, higher interest rates in the Southern hemisphere are an attraction. Again, 63-day Twiggs Momentum warns of a primary down-trend. And reversal below parity would warn of another test of primary support at $0.95.

AUDUSD

* Target calculation: 0.95 – ( 1.07 – 0.95 ) = 0.83

The greenback has strengthened sharply against the South African Rand and Brazilian Real. Both volatile, resource-rich currencies are likely to re-test their recent highs: the rand at R8.50 and the real at 1.90 against the dollar.

USDZAR

The greenback shows strong bullish divergence against Japan’s yen on 63-day Twiggs Momentum, warning of a reversal. Breach of the long-term descending trendline would strengthen the signal. Breakout above ¥80 would confirm.

USDJPY

December 6, 2011

Buiter: no politically feasible route to sustained growth for many years to come | Credit Writedowns

Citigroup chief economist Willem Buiter:

There really is no politically feasible route back to sustained economic growth through monetary and/or demand stimulating policies for the EA, the UK, the US and Japan, for many years to come. As regards demand stimulus, expansionary fiscal policy will not be punished by the markets to the point of being self-defeating for all EA member states except for Germany (which will not do it on any significant scale for domestic political reasons). The US also may be technically able to use fiscal expansion to stimulate demand, but even if markets continue to be tolerant, political gridlock makes it impossible. Expansionary monetary policy is at the end of its rope in the US and Japan. The UK could cut the official policy rate by 50 bps and the ECB by 125 bps, and then they too are restricted to quantitative easing (QE), which I consider to be ineffective.

via Buiter: no politically feasible route to sustained growth for many years to come | Credit Writedowns.

December 6, 2011

FRBSF Economic Letter: Asset Price Booms and Current Account Deficits

Just as the United States was not the only country posting a large current account deficit, so too it was not the only country that experienced asset price booms. Figure 2 shows that countries with large current account deficits in 2006 also tended to have larger house price increases. Of course, there are exceptions. For example, China has experienced rapid house price appreciation despite its enormous current account surplus. But, in general, house price appreciation and current account deficits appear to have been positively associated across many countries.

via FRBSF Economic Letter: Asset Price Booms and Current Account Deficits (2011-37, 12/5/2011).

Colin Twiggs: ~ There appears to be a general rule that large current account deficits lead to asset price booms. But to prove the rule researchers need to address why Japan experienced a massive asset price boom in the 1980s, and why China experienced a similar boom over the last decade, when both were running current account surpluses.