EUR/USD Forecast January 20-24

EUR/USD was on the back foot, as the euro gave a fight but eventually surrendered to the dollar. The ZEW Economic Sentiment, Flash Manufacturing and Services PMIs and the Spanish unemployment are the highlights of this week. Here is an outlook on the major events and an updated technical analysis for EUR/USD.

Eurozone CPI was confirmed at low levels, raising the pressure on the ECB. The central bank aims to keep inflation below but close to 2% is not concerned about deflation, but is talking about it more than ever. In the US, inflation seems somewhat more solid, and with the help of OK retail sales as well as a strong Empire State Manufacturing Index, the dollar rode higher across the board, and the euro was no exception.

Updates:

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

1. German PPI : Monday, 7:00. German producer prices declined 0.1% in November following a 0.2% drop in the previous month, while analysts expected no change. PPI fell in nine of the last ten months. November’s release was 0.8 % lower on the year after a 0.7 % annual decline in October. Declines were broad-based, despite a slight acceleration in factory production yet to be seen. A rise of 0.2% is forecasted.
2. German Buba Monthly Report: Monday, 11:00. In the last Deutsche Bundesbank  report the bank projected that German economy will grow in coming months due to a boost in industrial activity and in residential construction. The fourth quarter GDP is expected to expand considerably. The central bank also increased its predictions to a 1.7% growth rate in 2014 from a 1.5%rise in its earlier estimate in June. The bank also addressed the proposed financial transaction tax in parts of the European Union, saying it will harm the repo market.
3. German ZEW Economic Sentiment: Tuesday, 10:00.  German investors mood improved sharply in December, rising by 7.4 points to 62, the highest level since April 2006. The reading beat markets expectations of a 55.3 release. Investors were optimistic regarding financial activity in 2014 both in Germany and in the Eurozone. Current economic conditions improved by 3.7 points to 32.4 reflecting an upbeat picture. Another rise to 63.4 is projected.
4. ZEW Economic Sentiment: Tuesday, 10:00. Economic expectations for the Euro zone edged up 8.1 points in December, reaching 68.3.  The results were fairly higher than analysts’ estimates of a 60.9 reading. This release was preceded by a 60.2 reading in November. Despite the low leveled inflation, economists are quite optimistic expecting the economic development in Germany and the Eurozone to improve further in 2014. A further increase to 70.2 is expected this time.
5. Flash Manufacturing and services PMIs: Thursday. The euro zone’s manufacturing sector surged to a 31-month high in December, reaching 52.7, beating forecasts of a 51.9 reading. However, activity in the services sector declined mildly to 51 from 51.2 in November. Nevertheless, the improvement in the manufacturing sector puts recovery back on the table despite the slow expansion rate. German Manufacturing sector continued to advance in December, rising to 54.2 from 52.7 in November, higher than the 53.1 forecasted by analysts, but the service sector declined to 54 from 55.7 in the previous month, lower than the 55.2 predicted. French Manufacturing and services sectors continued to disappoint, with the manufacturing PMI falling to 47.1 from 48.4 in November, and the Services PMI down to 47.4 from 48 in the previous month, staying below the 50-mark for the 22nd consecutive month. French Manufacturing is expected to rise to 47.6, while services to 48.2; German Manufacturing is anticipated to increase to 54.7 and services to 54.1; Euro-area Manufacturing is expected to rise to 53.2 while services are expected to reach 51.5.
6. Spanish Unemployment Rate: Thursday, 8:00. Spain’s unemployment rate fell for a second straight quarter reaching 26% following 26.3% in the second quarter, indicating Spain is slowly emerging from its long recession. Spain’s economy expanded for the first time in two years in the third quarter. However the International Monetary Fund projects Spain will suffer from an unemployment rate of more than 25% until 2018. No change is expected now.
7. Current Account: Thursday, 9:00. The euro zone’s current-account surplus widened unexpectedly in October, to a surplus of 21.8 billion euros after narrowing in September to an upwardly revised EUR14.9 billion. The increase suggests the Euro-area is exporting more and that the manufacturing sector is constantly improving. A smaller surplus of 19.2 billion euros is forecasted now.
8. Belgian NBB Business Climate: Friday, 14:00. Belgian business confidence edged down unexpectedly in December to -6.4 from -4.3 in November, as executives became more pessimistic about the economic outlook in the manufacturing and construction sectors. Low demand was the key reason behind this sharp fall. An improvement to -4.4 is forecasted.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar began the week in a move towards the 1.3710 line (mentioned last week), but was unable to break higher. Its fate then turned around, and it eventually closed below the 1.3550 line that kept it afloat earlier in the year.

Technical lines from top to bottom:

1.3940 was a peak in September 2011, over two years ago, and is just before the round number of 1.40. 1.3832 was the 2013 peak (excluding the post-Christmas break). The failure of the pair to get close to this line for a second time might make it a top for a long time, despite the false break.

1.38 is a round number and also worked as a temporary cap during that period of time and also in October 2013. 1.3710 was the previous 2013 peak, and served as a clear separator. The pair needed a big trigger to break above this line, and when it lost it again, the fall was painful.

1.3675 capped the pair in December and also provided some support back in October. It also stalled a recovery in January 2014 and is a key line right now. 1.3615 worked as resistance in December, as an upper bound for the range. The line is becoming weaker now.

Below, 1.3550 worked as support as January 2014 and also beforehand. It is a key line to the downside. The January 2014 low of 1.3515 provides minor support on the way down. 1.3450 worked as resistance in August 2013 and as support in September and October.

The round number of 1.34 worked as resistance several times in 2013, and is strengthening now. 1.3320 worked as a double top in early September and it was crossed only with a Sunday gap. It remains a clear separator of ranges.

It is followed by 1.3240, which capped the pair in April and also had a role in August. It worked as support in September. 1.3175 capped the pair during July 2013.

1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July and providing support in September.

Uptrend support convincingly broken

From early November, the pair trended higher, riding above an uptrend support line. As mentioned last week, it was hard for the pair to hold onto the line for too long. The break below was certainly painful.

I am bearish on EUR/USD

Even though Germany is showing some strength, the rest of the continent is still struggling. More importantly, the specter of deflation is becoming stronger, despite all the denials. While still not priced into the price of the euro, there is a good chance that the ECB will set a negative deposit rate as early as March.

In the US, the bad news from the NFP was completely forgotten as fresh positive numbers left the notion that the FOMC is going to taper once again at the end of the month.

Source : forexcrunch.com

U.N. Says Lag in Confronting Climate Woes Will Be Costly

Nations have so dragged their feet in battling climate change that the situation has grown critical and the risk of severe economic disruption is rising, according to a draft United Nations report. Another 15 years of failure to limit carbon emissions could make the problem virtually impossible to solve with current technologies, the experts found.

Delay would likely force future generations to develop the capability to suck greenhouse gases out of the atmosphere and store them underground to preserve the livability of the planet, the report found. But it is not clear whether such technologies will ever exist at the necessary scale, and even if they do, the approach would likely be wildly expensive compared with taking steps now to slow emissions.

The report said that governments of the world were still spending far more money to subsidize fossil fuels than to accelerate the shift to cleaner energy, thus encouraging continued investment in projects like coal-burning power plants that posed a long-term climate risk.

While the spread of technologies like solar power and wind farms might give the impression of progress, the report said, such developments are being overtaken by rising emissions from fossil fuels over the past decade, especially in fast-growing countries like China. And one of the most important sources of low-carbon energy, nuclear power, is actually declining over time as a percentage of the global energy mix, the report said.

Unless far greater efforts are made to reduce emissions, “the fundamental drivers of emissions growth are expected to persist despite major improvements in energy supply” and in the efficiency with which energy is used, the report declared.

The new warnings come in a draft report from the Intergovernmental Panel on Climate Change, a United Nations panel of climate experts that won the Nobel Peace Prize in 2007 for its efforts to analyze and communicate the risks of climate change. The report is not final, but a draft dated Dec. 17 leaked this week and was first reported by Reuters. The New York Times obtained a copy independently.

In the dry language of a technical committee, the draft outlines an increasingly dire situation.

Even as the early effects of climate change are starting to be felt around the world, the panel concluded that efforts are lagging not only in reducing emissions, but in adapting to the climatic changes that have become inevitable.

It is true, the report found, that the political willingness to tackle climate change is growing in many countries and new policies are spreading, but the report said these were essentially being outrun by the rapid growth of fossil fuels.

While emissions appear to have fallen in recent years in some of the wealthiest countries, that is somewhat of an illusion, the report found. The growth of international trade means many of the goods consumed in wealthy countries are now made abroad — so that those countries have, in effect, outsourced their greenhouse gas emissions to countries like China. (Emissions in the United States rose slightly in 2013, but are still about 10 percent below their 2005 levels, largely because of the country’s newfound abundance of natural gas, which produces less greenhouse gases than burning coal.)

The Kyoto Protocol, an international treaty meant to limit emissions, has “not been as successful as intended,” the report found. That is partly because some important countries like the United States refused to ratify it or later withdrew, but also because of flaws within the treaty itself, the report found. The treaty exempted developing countries from taking strong action, for instance, a decision that many experts have said was a mistake in retrospect.

Efforts are underway to negotiate a new international treaty to replace the Kyoto Protocol, but it is not even supposed to take effect until 2020, and it is unclear whether countries will agree on ambitious goals to limit emissions. It is equally unclear how much political support a new treaty will gain in China and the United States, the world’s largest emitters.

The Obama administration is pushing for a deal, but any treaty would have to be ratified by the Senate; many Republicans and some coal-state Democrats are wary, fearing economic damage to the country.

The new report suggests, however, that the real question is whether to take some economic pain now, or more later.

Nations have agreed to try to limit the warming of the planet to 3.6 degrees Fahrenheit above preindustrial levels. Even though it will be exceedingly difficult to meet, this target would still mean vast ecological and economic damage, experts have found. But the hope is that these would come on slowly enough to be somewhat manageable; having no target would be to risk catastrophic disruption, the thinking goes.

As scientists can best figure, the target requires that atmospheric concentrations of carbon dioxide, the main greenhouse gas, stay below 500 parts per million. The level recently surpassed 400, and at present growth rates will surpass 500 within a few decades.

If countries permit continued high emissions growth until 2030, the draft report found, the target will likely be impossible to meet, at least without a hugely expensive crash program to rebuild the energy system, and even that might not work.

If emissions do overshoot the target, the report found, future generations would likely have to develop ways to pull greenhouse gases out of the air. It is fairly clear this will be technically possible. It could be achieved, for instance, by growing bioenergy crops that take up carbon dioxide, burning the resulting fuel, and then injecting the emissions into underground formations. But the large-scale use of land to grow energy crops would compete with food production, already under strain as a consequence of the planetary warming.

Machinery might be developed that could directly extract greenhouse gases from the air; in fact, early work on such systems has begun. But experts have said the costs, safety and practicality of such techniques cannot be foreseen today. They believe it would be much cheaper to find ways to avoid putting the gases into the air in the first place.

The leaked draft is the third and final segment of a major report that the climate change panel is completing in stages in 2013 and 2014. The first segment, published in Stockholm in September, reviewed the fundamental physical science of climate change, finding a 95 percent or greater likelihood that human activity is the main cause of the ongoing planetary warming.

The second segment, focusing on the probable impacts of climate change, leaked in October and is due for publication in Yokohama, Japan, in March; a major finding is expected to be that the food supply is at serious risk as warming continues.

The third segment, prepared by a committee made up largely of economists and policy analysts, many of them with some scientific training, focuses on policies that could limit the overall damages from climate change, and is to be published after an editing session in Berlin in April.

Want Better Hedge Fund Returns? Try One Led by a Woman

In the world of hedge funds, a relative few have a woman at the helm. And yet, these funds may be the standouts from the bunch, a new report argues.

In the years since the financial crisis, hedge funds managed by women performed better than a broader index that reflects the performance of the industry, according to a report released on Wednesday by the professional services firm Rothstein Kass. The report seeks to show that this “alpha” – superior returns, in Wall Street speak – is no mere fluke.

“There is meaningful alpha to be gained from investing in women-owned and -managed funds,” Meredith Jones, a director at Rothstein Kass who wrote the report, said in an interview. “There appear to be both behavioral and biological factors that impact women’s ability to manage money and make them consistent.”

From the beginning of 2007 through June 2013 – a period that includes the dark days of the crisis – a Rothstein Kass index of women-run hedge funds returned 6 percent, the report says. By comparison, the HFRX Global Hedge Fund Index, released by Hedge Fund Research, fell 1.1 percent during that time, according to the report.

Last year through November, the index of women-run funds had a 9.8 percent return, compared with a 6.13 percent rise in the broader index, the research showed. (Still, both indexes fell short of the Standard & Poor’s 500-stock index, which rose about 27 percent during that time.)

The report, titled “Women in Alternative Investments: A Marathon, Not a Sprint,” used a group of 82 hedge funds managed or owned by women. Last year, the firm said that female hedge fund managers produced a return of 8.95 percent through the third quarter of 2012, compared with a 2.69 percent net return for the broader index.

While highlighting the accomplishments of women in hedge funds, private equity and venture capital, this year’s report also draws attention to persistent gender disparities on Wall Street.

The research, based on a survey in September and October of 440 senior women in the alternative investments business, suggests that the vast majority of the top jobs are held by men. Of the women surveyed, only 15.5 percent said their firm was owned or managed by a woman. Among hedge funds in particular, 21.4 percent were owned or managed by women.

About 42 percent of the respondents said their firm had no general partners who were women. And nearly 40 percent of the firms included in the survey had no women on their investment committees.

In that context, hedge funds run by women remain something of a niche. Some institutional investors, like public pension funds, have a specific mandate to invest a portion of their money in funds run by women or minorities.

Though these mandates can be motivated by political factors, Rothstein Kass is seeking to show that investing with women managers can be a wise choice for purely financial reasons. A handful of studies have suggested that women traders behave differently than their male counterparts, acting less impulsively.

John Coates, a former trader who is now a research fellow in neuroscience at the University of Cambridge, argued in a 2012 book, “The Hour Between Dog and Wolf,” that testosterone contributed to market swings. Hiring more women on trading floors, he wrote, might have a stabilizing effect.

But these ideas are far from mainstream, and the industry has been slow to change. A fourth of investors surveyed by Rothstein Kass said they expected their allocations to women-run funds to increase “somewhat” in 2014, while 2 percent expected to allocate “significantly” more money.

Though the study expected more women to start their own funds in the coming years, the scarcity of such funds is itself an obstacle, a “chicken or the egg” problem, said Kelly Easterling, an audit principal at Rothstein Kass who contributed to the report.

“Without a large supply of funds, it’s difficult to achieve appropriate portfolio diversification or, for that matter, put enough money to work to move the performance dial,” she said in a statement quoted in the report. “On the other hand, until there is more money flowing to women-owned and -managed funds, it’s unlikely that there will be a stampede of new fund launches.”

( Source : nytimes.com)

For only $3 trillion, you can have a policy that’s “at least somewhat effective”

Bernanke says that studies show QE is at least somewhat effective. He also implicitly acknowledged that some members of the FOMC don’t feel QE is effective when he said that a he doesn’t feel that a ‘large amount’ of people on the FOMC feel QE is not effective.

( Source : www.forexlive.com )

The Fed has no idea what’s happening with inflation

Fed officials didn’t forecast low inflation and when Chicago Fed President Charles Evans said disinflation has been “puzzling” he wasn’t alone.

In October, CPI fell to just +1.0% y/y, the lowest since 2009. It ticked up to 1.2% the following month and is expected at 1.5% for the December data at the bottom of the hour. If anything can completely derail Fed expectations in 2014, it’s falling prices.

( Source : www.forexlive.com )

Credit Suisse says the BOJ will have to ease further to keep upward momentum on CPI

• CS say in a recent report there is a strong correlation between rising import prices – the driver of CPI gains – and the weakening yen.
• They allude to the fact that if the yen weakening stalls, so will the gain in the CPI.
• Say unless there is a major upshift in wages or the unit labor cost, headline CPI inflation is likely to start dropping  by the middle of 2014
• Says the BOJ will not wit until there is a drop in demand to ease further
• Says further easing could come as early as the February 17-18 or March 10-11 meetings

( Source : www.forexlive.com )

Homebuilders Remained Confident in January on Rising U.S. Sales

Confidence among U.S. homebuilders held in January near its highest level in eight years, indicating the residential real-estate market will continue to contribute to economic growth in 2014.

While the National Association of Home Builders/Wells Fargo builder sentiment gauge fell to 56 from 57 in December, readings greater than 50 mean more respondents report good market conditions, figures from the Washington-based group showed today. The median forecast in a Bloomberg survey called for 58.

Home construction has been a source of strength for the economic expansion, propelled by job gains and rising property values. The market has weathered an increase in interest rates and prices are forecast to continue rising this year.

(Source : www.bloomberg.com )

U.S. Said to Expand Limits on Racial Profiling in Probes

Justice Department will soon extend its ban on the use of racial profiling during federal investigations, according to a law enforcement official briefed on the matter.

The Justice Department under Attorney General Eric Holder has been reviewing the guidelines for federal investigations for several years, according to the official, and is planning to expand the definition to prohibit profiling based on religion, national origin, sexual orientation and gender.

Holder, who during his tenure has spoken against racial profiling, has been under pressure from civil rights and civil liberties groups, including the American Civil Liberties Union, to expand a ban put in place by President George W. Bush in 2003.

“Every year, thousands of people are stopped while driving, flying, or even walking simply because of their actual or perceived race, ethnicity, national origin, immigration or citizenship status, or religion,” Anthony Romero, the executive director of the ACLU, said in testimony for a 2012 Senate hearing on racial profiling.

The Bush administration issued guidelines barring federal agents from using race or ethnicity in their investigations across federal law enforcement agencies. Those guidelines provided leeway to agents involved in national security operations, allowing them to use the race or ethnicity in investigations designed to identify potential terrorist threats.

Profiling Permitted

Illinois Senator Richard Durbin, the chamber’s second-ranked Democrat, held a hearing on the issue in 2012 and has pressed Holder to expand the ban on profiling. While he called the Bush administration guidelines an “important step forward,” he said the ban “does not apply to profiling based on religion and national origin.”

“In essence, these exceptions are a license to profile American Muslims and Hispanic Americans,” Durbin said at the hearing.

While the scope of the changes that will be proposed by Holder wasn’t immediately available and the timing of any announcement unclear, the possible changes were discussed in a meeting yesterday between Holder and New York City Mayor Bill De Blasio at City Hall, the official said.

The New York Times first reported the planned changes to ban.

 (Source : www.bloomberg.com )