Forex Spread Bets: Dollar - Yen Market Bounces as Yen Remains Overvalued
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Spread Betting 20 August 2012
It is becoming increasingly difficult to say what state the global economy is in as bad news seems to keep mixing with good.
Some economic indicators are suggesting pockets of brightness, whilst anecdotal evidence can often point in the opposite direction.
On a personal basis, the commuter car parks seem emptier than I can ever remember, with even the ones that are close to the station being only two thirds full.
However, this might be the summer holiday effect coupled with the fact that the last weekend was probably the only bit of summer we are likely to get this year.
Having said that, with V-festival ending, the train did seem to have rather more young ladies than is normally the case.
The papers are full of calls for Gorgeous George to stimulate the economy via a cocktail of tax cuts and big infrastructure projects.
It is difficult to argue against either of these proposals, particularly if you feel that this should be the base camp for any conservative policy, no matter what the economic environment.
For the last twenty five years, whichever party has been in power, the hard decisions have been ducked and put off to some future date.
We all know that new Power Stations, Airports, Railways and Roads will be unpopular with whichever constituencies they are going to be built in.
We also know that a whole new raft of luddites can be guaranteed to leap into action when the issues start being discussed.
However, this is not a good enough reason to fudge one of the main reasons for being in power; managing the future wellbeing of the nation.
At the moment, we have a bunch of politicians whose main remit appears to be ensuring that they get re-elected.
As Boris Johnson has clearly stated, it is time for government to stop 'pussy footing around' and actually make those 'courageous' decisions, just as Yes Minister used to say.
Spread betting indices remain at the top end of their trading ranges, and this seems to have been the case for some time now.
The FTSE is still wedded to the mid-5800's, and the trading range over the last five days has been just 65 points, 5810-5875.
With the index currently at 5847, I won't be putting the house on it doing anything different today.
This morning, there is almost no exciting data for either the bulls or the bears.
That said, the longer we stay at the top of the range with no indication of a pullback, the greater the chance that investors will eventually push us through the resistance and on towards 6000.
Equities will see a slew of corporate announcements across the globe, and so we can expect some sudden rallies and collapses for the share prices of individual companies.
The real problem with this is that, in these days of a total lack of transparency, we have no real idea before the event of which is going to be which.
In days gone by, companies used to 'give a line' to the analysts so that shocks, both good and bad, were less likely.
But with the classic law of 'unintended consequences', the rules over insider information mean that investors must rely on a virtual coin toss if they wish to hold over corporate releases.
Now that summer is drawing to a close, we are starting to get rumblings from Europe again, as Germany endeavours to sound reasonable whilst still talking tough.
A full six months into Greece's austerity program has seen them come back and ask for another 2 years.
And now it appears that it might not be one of the weak countries that first leaves the Eurozone, but instead one of the strong ones that decides that enough is enough.
Finland went through a banking and GDP crisis in the early 1990's that was every bit as bad as the current PIGS problems, and yet they solved it with no help from anyone.
Perhaps understandably, they are balking at having to pay to prop up far bigger countries in the south. We may well see the Finns decide that the whole thing is not worth it.
The Euro - Dollar forex pair is still pegged back by the falling trend line, which has roughly held for the last week. Nevertheless, the total lack of movement is seeing us drift sideways through it.
This is building up another resistance level at the top of the recent trading range, around $1.2375/85.
Support can be seen at $1.2280/85, from a short-term rising trend, and below here at $1.2245/55.
The Dollar - Yen has bounced from the major support at ¥77.75/78.00 and is now back in no man's land at ¥79.55.
There is no doubt that the yen is overvalued, but with the current Japanese deficit levels and the slim trade surplus, there is a natural buy side bias.
The country is finally slipping towards a negative trade position, in no small part because of the closure of their nuclear power stations and future reliance on imported oil and gas.
As a result, those with a very long-term investment horizon might be looking for a long-term decline in the yen.
Although, with a GDP/debt level in excess of 200%, any worries over sovereign ratings could spiral very quickly.
In the commodities markets, gold seems to be quite comfortable at current levels. The $1,625/30 level has proved to be difficult to overcome, but any price below $1,600 runs into solid buying.
At the moment, we are seeing true two-way business in the market, with buyers slightly outweighing the bears, as they have done for years.
With the precious metal still stuck in the ranges of the last six months, it remains a range traders market.
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'Forex Spread Bets: Dollar - Yen Market Bounces as Yen Remains Overvalued' edited by SD, updated 20-Aug-12
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