Thursday, August 16, 2012

EUR/USD Intraday Technical Analysis (August 16, 2012)

The spot rate tested this week the upper limit of its medium term bearish channel at 1.2390 and declined. It is testing now the intermediate support of this one at 1.2260 and seems to initiate a rebound. However, a break of these levels would release a significant potential and enable the lower limit of its channel at 1.2210.

Technical indicators do not provide clear signal but until the support is not broken, the assumption of a rebound is most likely. Bollinger bands have greatly tightened in recent days showing a decline in volatility and the imminence of a violent movement. Moreover, the inferior band strengthens the intermediate support of its channel suggesting a more violent movement in case of break.
The spot rate tests its support that is why we recommend 2 scenarios: the first one is the hypothesis of a rebound. In this case we recommend a buy on the level of 1.2260 with the 1st objective at 1.2320 and then at 1.2340. A break through 1.2240 will invalidate this scenario. The second scenario is the hypothesis of a break of its support, here we recommend a “sell stop”. We suggest to sell the spot rate as soon as it is broken through its support of 1.2260 with the 1st objective at 1.2200 and then at 1.2180. A breakthrough 1.2280 will invalidate this scenario.

German economic strength: The secrets of success

German school children The German education system is much more geared to vocational training than many of its economic competitors

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Imagine a country whose inhabitants work fewer hours than almost any others, whose workforce is not particularly productive and whose children spend less time at school than most of its neighbours.

Hardly a recipe for economic success, you might think.

But the country described above is none other than Germany, Europe's industrial powerhouse and the world's second largest exporter; a country whose economy has single-handedly stopped the eurozone falling back into recession and the only nation rich enough to save the euro.

When you consider that only the Dutch work fewer hours among the 34 members of the OECD, that German children spend 25% less time in the classroom than their Italian counterparts, and that there are six more productive economies in Europe alone, these facts appear all the more remarkable.

data on hours worked by country

So why is the German economy so powerful, and what lessons can the rest of us learn from it?

Euro bliss

There is no doubt that Germany has benefited greatly from the euro.

By getting into bed with more sluggish economies in southern Europe, Germany adopted a much weaker currency than would otherwise have been the case - as one of the very few countries in the world running a balance of payments surplus, the deutschmark would have been a great deal stronger than the euro.

This has provided a terrific boost to German exports, which are cheaper to overseas consumers as a result.
But this goes only some way to explaining Germany's current economic might.

Just as important are the relatively low levels of private debt. While the rest of Europe gorged on cheap credit throughout the 1990s and 2000s, German companies and individuals refused to spend beyond their means.

One reason for this, says David Kohl, deputy chief economist at Frankfurt-based Julius Baer bank, is that real interest rates in Germany remained stable, unlike those in other European economies.

"In the UK, Italy, Spain and Portugal, for example, higher inflation meant real rates moved down, so there was a huge incentive to borrow money," he says.

But cultural differences are just as significant - quite simply, Germans are uncomfortable with the concept of borrowing money and prefer to live within their own means.

"In German, borrowing is 'schulden', [the same word for] guilt. There is an attitude that if you have to 
borrow, there is something wrong with you," says Mr Kohl.

This has been particularly beneficial to the Germany in recent years - unlike its European counterparts, consumers and businesses did not need to slash spending to cut their debt levels when banks stopped lending during the recession.

Labour reforms

But there are other, deep-rooted reasons behind Germany's current economic pre-eminence in Europe, not least in fact the relatively low number of hours spent at work and in the classroom.

Most productive economies in OECD

Country GDP/hr worked

Source: OECD. Figures in $.

Norway 81.5
Luxembourg 78.9
Irish Republic 66.4
US 60.3
Netherlands 59.8
Belgium 59.2
France 57.7
Germany 55.3
Denmark 53.2
Switzerland 51.7
Germany embarked upon a programme of fundamental labour market reform in 2003, sparked by the excesses of post-unification wage increases.

Strong employment protection legislation and a degree of trust on behalf of the workforce in well-capitalised companies that had not over-borrowed, meant the Social Democratic government was able to use its close ties with labour unions to push for moderation in wage inflation.

The reforms laid the foundation for a stable and flexible labour market - while unemployment across Europe and the US soared during the global downturn, remarkably the jobless number in Germany barely flickered.
German workers were simply willing to work fewer hours knowing that they would keep their jobs because of it.

They were all the more willing to do so due to the stronger bond that exists between workers and employers compared with many other countries.

"There is a culture of business owners acknowledging and rewarding the efforts of the workforce," says Andreas Woergoetter, head of country studies at the OECD's economics department.

No wonder, then, that Germans work fewer hours than most.
Job skills

Hours spent at school per year

Country Hours

Source: OECD. Selection of countries.

Italy 8316
Australia 7806
Netherlands 7700
France 7432
Spain 7364
England 7258
Germany 6362
Japan 6344
Greece 6340
Poland 4715
OECD average 6732
More important still to Germany's industrial strength is the country's education system.

School finishes at lunchtime across much of Germany due to what Mr Woergoetter calls a "societal preference", designed to allow children to spend more time with their families.

But it's in the later years of schooling that the German model really stands apart.

"Half of all youngsters in upper secondary school are in vocational training, and half of these are in apprenticeships," says Mr Woergoetter.

Apprentices aged 15 to 16 spend more time in the workplace receiving on-the-job training than they do in school, and after three to four years are almost guaranteed a full-time job.

And in Germany, there is less stigma attached to vocational training and technical colleges than in many countries.

"They are not considered a dead end," says Mr Woergoetter. "In some countries, company management come from those who attended business school, but in Germany, if you're ambitious and talented, you can make it to the top of even the very biggest companies."

The German education system, therefore, provides a conveyor belt of highly skilled workers to meet the specific needs of the country's long-established and powerful manufacturing base, which is rooted in the stable, small-scale family businesses that have long provided the backbone of the economy.

Lessons learned

There is clearly much to learn from the German model, but blind replication may not be the answer.

Mercedes sign 

Germany is home to some of the world's best-known manufacturers

Many economies jealously covet Germany's manufacturing prowess, particularly while demand for its industrial products in emerging markets such as China continues to boom.

And yet, not so long ago, the roles were reversed.

"Ten years ago, we in Germany were looking at the much higher value-added potential of the UK service sector," says Mr Kohl.

"There are limits to adding value in manufacturing. If you want to be rich and move up the value chain, you need to be in services."

As unlikely as it seems, perhaps one day Germany will once again look to others for inspiration.

Greece Before the Abyss Only Bankruptcy Can Help Now

Greece has disappointed its creditors yet again. Now its government plans to ask for more time -- and needs billions more in aid. But Greece's euro-zone partners are unwilling to provide any more help, meaning that the only hope now is to admit defeat and let the country make a fresh start.

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Officially, at least, everything is going according to plan. In September, officials with the troika -- made up of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) -- are planning to travel to Athens to check on the progress that Greece has made with its cost-cutting program. Then, according to the plan, they could disburse billions more in aid out of the second bailout package for Greece, which the euro-zone countries and the IMF agreed on in February.

But, in reality, it is rather unlikely that all of the €130 billion ($160 billion) in the bailout package will ever be paid out. And what is even more unlikely is that the money would keep Greece from going bankrupt.

The assumptions on which the current program was based in February are no longer valid. At that time, it was thought that the Greek economy would only contract by 4.5 percent this year, but now it appears that this figure will be closer to 7 percent. This would mean even fewer tax receipts and even more social expenditures. What's more, given these circumstances, it's almost irrelevant that the Greek government is expected to ask for a two-year extension, to 2016, of the agreed austerity plan.

One thing is clear: In addition to more time, Greece also needs more money. And those who have been financing it thus far -- primarily the major euro-zone countries and the IMF -- are either unwilling or unable to give the country any more. In political terms, that is completely understandable: One can only imagine the earful that German Chancellor Angela Merkel would get if she were to present a third aid package for Greece before the Bundestag, Germany's parliament. In fact, the members of her own conservative coalition would probably chase her out of the building.

Truth be told, Merkel only has herself to blame for the fact that she is stuck in this pickle. She dug in her heels too much in insisting that the problems of Southern European countries could only be solved by drastic belt-tightening, and that what the Greeks were really lacking was the will to do what was necessary. Now she can hardly abandon this way of interpreting the crisis.

Delaying the Inevitable and Necessary

If it was ever the goal of Merkel and her allies to rescue Greece from bankruptcy, then they have failed. The only thing the drastic austerity measures have done is to exacerbate the economic crisis and push Greece's debts even higher. Nevertheless, the creditors have insisted on moving forward with their plan -- even though it already became clear long ago where it was heading.

The end of this approach now appears to have been reached. Neither euro-zone countries nor the IMF can provide Greece with more aid without sacrificing their own credibility. Given these circumstances, there is only one option left: Greece must go broke.

European politicians have balked from taking this step -- probably also because the new permanent bailout fund, the European Stability Mechanism (ESM), which is supposed to cushion the economic impacts of a Greek bankruptcy, has yet to enter into force.

Instead, they have tried to buy time with the help of a dangerous interim arrangement: The Greek government is supposed to borrow the money it needs from the ailing Greek banks. In return, the banks receive sovereign bonds that they can, in turn, provide as securities for new loans from Greece's central bank. In this way, Greece's central bank is financing the Greek state in what is really just a kind of shell game that gets riskier the longer it is played. In any case, all euro-zone countries will in the end be jointly on the hook for these liabilities.

A Greek bankruptcy would already be costly enough at the moment. Estimates say that it would cost Germany alone some €80 billion. Lest this figure climb any higher, the right thing to do would be to finally make that one fateful step.

No matter how unpredictable the consequences of a Greek bankruptcy might be, it appears to offer the only chance to resolve the messy situation. In this way, Greece would be free of its debts and would have a chance to make a fresh start -- either as part of the euro zone or not. And the creditors in Berlin and Brussels could finally free themselves from the spiral of threats and rescue actions that they have gotten themselves into.

Global gold demand falls 7% in Q2 to 990T - Lowest In More Than 2 Years

Indian demand tumbles 38% in Q2 to 181.3 T; Chinese demand drops 7% Gold investment demand falls 23% in Q2 to 302.0 T Indian gold demand seen falling to 650-750 T in 2012; China to take over as NO1 consumer with 850 T of demand Central bank gold purchases more than double to 157.5 T in Q2; record buying expected in 2012 Reuters reporting. 

Asian Currencies Rally After Wen’s China Monetary-Easing Comment

Asian currencies rallied after Chinese Premier Wen Jiabao said there’s room to adjust monetary policy in the world’s second-largest economy, improving the region’s export outlook.

The Bloomberg-JPMorgan Asia Dollar Index snapped a four-day loss after state radio quoted Wen as saying yesterday that slowing inflation creates more room to adjust policies. China is the biggest export market for Thailand, Taiwan and South Korea and the second-largest for Malaysia. The Korean jobless rate fell to 3.1 percent in July, the lowest level this year, official data showed today, while Malaysia reported yesterday that growth unexpectedly accelerated in the second quarter.

“Monetary easing in China to spur growth is positive for Asia as it improves the export environment,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo.

Taiwan’s dollar strengthened 0.1 percent to $NT29.974 as of 10:34 a.m. in Taipei, according to data compiled by Bloomberg. Malaysia’s ringgit gained 0.1 percent to 3.1318 and the Philippine peso rose 0.1 percent to 42.25. The Asia Dollar Index, which tracks the region’s 10 most active currencies excluding the yen, advanced 0.04 percent after losing 0.4 percent in the previous four days.

Malaysia, Thailand GDP

The ringgit rebounded from its lowest level in more than a week after central bank data yesterday showed gross domestic product increased 5.4 percent in the three months through June from a year earlier, beating all 23 estimates in a Bloomberg survey of economists. The median forecast was for growth to slow to 4.6 percent from 4.9 percent in the first quarter.

Expansion for the full year may be at the upper end of the projected 4 percent-to-5 percent range even as risks from Europe and the U.S. remain, Bank Negara Malaysia said.

“Demand for the ringgit is on the uptake because of the strong second-quarter GDP,” said Yeo Chin Tiong, head of financial markets at Alliance Bank Bhd. in Kuala Lumpur. “In the near term, the Malaysian currency should trade in a tight range in the absence of positive news.”

Thailand’s baht was little changed, after sliding the most in four weeks yesterday, ahead of data that is forecast to show a pickup in growth. The economy expanded 3 percent in the second quarter, compared with a 0.3 percent gain in the previous three months, according to the median estimate in a Bloomberg survey before an official report due Aug. 20. The currency traded at 31.54 per dollar.

“Solid economic data should help attract some fund inflows, especially as risk sentiment has been improving globally,” Daiwa Securities’ Kameoka said.

Weaker Yuan Fixing

China’s yuan dropped the most in almost two weeks as the central bank weakened the daily fixing to the lowest level since November. the exchange rate. The currency dropped 0.07 percent to 6.3669 per dollar in Shanghai. Premier Wen said there’s “growing room for monetary-policy operations,” during a two- day visit to the eastern province of Zhejiang.

“China will keep the yuan weaker to alleviate pressure on exporters,” said Daniel Chan, executive vice president at Glory Sky Global Markets Ltd. in Hong Kong. “There’s no surprise in what Wen said. More aggressive easing is just a matter of timing and investors are waiting for genuine actions.”

Elsewhere, Indonesia’s rupiah were little changed at 9,511 per dollar. South Korea’s won weakened 0.3 percent to 1,132.65 from Aug. 14. Korean financial markets were closed yesterday for a holiday. Vietnam’s dong strengthened 0.1 percent to 20,850.

Canada Dollar Rises to Strongest in 3 Months on Growth Prospects

Canada’s dollar climbed to the highest level since May versus its U.S. counterpart, trading stronger than parity for a ninth day, amid speculation North American economic growth will sustain the nation’s exports.
The currency has gained versus the majority of its 16 most- traded peers this month after jobs and retail sales in the U.S., Canada’s biggest trade partner, rose more than forecast in July. The euro has slid, reaching a record low today against Canada’s dollar, amid concern European leaders are struggling to resolve their debt crisis. American industrial production exceeded estimates last month, data showed today.

“Canada is still seen as a safe place to park money on a relative basis,” Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets unit in Toronto, said in a telephone interview. “The U.S. industrial production number came in slightly better than expected; that was a little bit Canada-supportive.”

The Canadian currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, appreciated 0.3 percent to 98.94 cents per U.S. dollar at 5 p.m. in Toronto. It touched 98.87 cents, the strongest since May 4. One Canadian dollar buys $1.0107. The two currencies reached a one-for-one basis on Aug. 3 for the first time since May.

The loonie advanced as much as 0.7 percent against the euro to C$1.2145, the strongest since the 17-nation currency began trading in 1999.

Canada’s dollar has gained 3.5 percent this year against nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted indexes. It was the best performance after the New Zealand dollar’s 4.2 percent advance. The U.S. dollar was little changed.

Low Volatility

Implied volatility for one-month options on the U.S. dollar versus the Canadian currency was at almost the lowest in more than five years. It fell for a second day, reaching 6.240 and approaching the 6.2225 percent it reached on July 20, the lowest on an intraday basis since May 2007. The five-year average is 12 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

Government bonds dropped for a third day, pushing yields on the 10-year benchmark security up 10 basis points, or 0.1 percentage point, to 1.95 percent, the highest level since May 16. The price of the 2.75 percent notes maturing in June 2022 slid 90 cents to C$107.08.

Debt Auction

Canada auctioned C$3.4 billion ($3.44 billion) of five-year debt today, drawing an average yield of 1.538 percent. The securities carry a 1.5 percent coupon and mature in September 2017. The sale attracted C$8.8 billion in bids, for a bid-to- cover ratio of 2.60. The last five-year security sale, an offering of the same amount of bonds, drew an average yield of 1.244 percent and had a bid-to-cover ratio of 2.65.

The loonie gained versus most major currencies as Standard & Poor’s GSCI index of raw materials climbed 1 percent, and crude oil for September delivery rose to as high as $94.90 a barrel in New York, the most since May 15. Raw materials including oil account for about half of Canada’s export revenue, and crude is the nation’s biggest export.

The loonie extended its advance after Federal Reserve data showed U.S. industrial production increased 0.6 percent in July, after a revised 0.1 percent gain in June that was smaller than previously reported. Economists in a Bloomberg News survey forecast a 0.5 percent rise. Manufacturing, which makes up about 75 percent of total production, advanced 0.5 percent for a second month.

Canada ships about three quarters of its exports to the U.S.

Canadian Manufacturing

Canadian factory sales rose in June for the first time in three months, economists in a Bloomberg News survey forecast before Statistics Canada reports the data tomorrow. Manufacturing sales increased 0.3 percent, after a 0.4 percent drop in May, they projected.

The loonie has traded at stronger levels than its 50-, 100- and 200-day moving averages since July 26 as it gained beyond parity with its U.S. counterpart. The Canadian dollar has been as strong this year as 98 cents to the greenback on April 27 and as weak as C$1.0447 on June 4.

The U.S. currency gained earlier versus most major peers after Goldman Sachs Group Inc. said in a report yesterday the Fed will delay a third round of bond-buying, known as quantitative easing.

Retail Sales

U.S. retail sales advanced 0.8 percent in July, data showed yesterday, the biggest jump since February and first gain in four months, the Commerce Department said yesterday. American employers added 163,000 jobs last month, the government said Aug. 3, compared to a 64,000 increase in June.

The loonie remained higher today even after a report showed the cost of living in the U.S. remained little changed in July and a factory gauge of the New York region unexpectedly fell.

The U.S. consumer price index reading capped a 1.4 percent gain over the past 12 months, the smallest year-to-year increase since November 2010, the Labor Department reported today in Washington. The Fed Bank of New York’s general economic index dropped to minus 5.9 this month. A Bloomberg survey projected 7.0. Negative readings signal contraction.

“As long as CPI is fairly soft, as long as the data does not continue to surprise on the upside as it has, then it leaves the door open to the potential for QE3,” Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotiabank unit in Toronto, said in a phone interview.

The U.S. central bank bought $2.3 trillion of assets in two rounds of quantitative easing between December 2008 and June 2011 to spur the economy.

FOREX-Dollar hits 1-month high vs yen, lifted by rising yields FOREX-Dollar hits 1-month high vs yen, lifted by rising yields

* Dollar extends gains vs yen as US yields rise
* Stop-loss buying lifts dollar to 1-mth high vs yen
* More U.S. data coming later on Thursday
By Masayuki Kitano

SINGAPORE, Aug 16 (Reuters) - The dollar surged to a one-month high against the yen on Thursday, extending gains after this week's upbeat U.S. data gave a boost to Treasury yields and cooled expectations of monetary easing by the Federal Reserve.

The dollar climbed on stop-loss buying, adding to a rally that began earlier in the week after strong retail sales data bolstered the view that a recent slowdown in U.S. growth will prove temporary.

The greenback touched a high of 79.35 yen on trading platform EBS, its highest level since mid-July. The dollar last changed hands at 79.34 yen, up 0.5 percent from late U.S. trade on Wednesday.

"We are seeing increasing signs of stabilisation in the U.S.," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.

"The U.S. improvement is in contrast to the persistent weakness elsewhere. So that's dollar positive because (interest) rate spreads move in favour of the dollar," he said, adding that the dollar may rise towards 80 yen in the short term.

Data on Wednesday showed that U.S. industrial output rose in July, while home-builder sentiment in August hit its highest level in more than five years.

Such data came in the wake of a surprisingly strong reading on U.S. retail sales that dampened expectations the Fed will launch another round of bond-buying, or quantitative easing, as early as September.

Analysts warned, however, that the dollar's rise versus the yen could lose steam if coming U.S. indicators disappoint, and a U.S.-based currency trader said it was hard to tell whether the dollar's rise marked the start of a medium-term trend or a "big head fake", especially since the rally has taken place in thin, summertime market conditions.


Not all of the data released on Wednesday was rosy, with a gauge of manufacturing in New York state showing a contraction in August for the first time since October 2011.

"It's too early to celebrate with both hands in the air," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.

The weak reading on manufacturing in New York state came ahead of the Philadelphia Fed's gauge of factory activity in the mid-Atlantic region, due later on Thursday.

"I think corporate sentiment provides the best gauge of current conditions... You have to think about what might happen if the Philly Fed index turns out to be weak. That could change the trend again," Karakama said.

In any event, the dollar will find it tough to break above the 79.50 yen to 80.00 yen region unless there is another strong catalyst, given the potential for dollar-selling by Japanese exporters at such levels, Karakama added.

The euro eased 0.1 percent to $1.2282, with moves subdued as investors await details on a new European Central Bank programme to help reduce the borrowing costs of Spain and Italy that the central bank is now considering.

"Euro/dollar is in a range for now but we still expect it to move lower in September on the prospect of more headlines out of Europe, a lot of event risk in September, and rate cuts as well," said Henderson at Standard Chartered.

"Our forecast for euro/dollar is $1.18 by the end of the quarter," he added.

A Reuters poll in early August showed that the ECB is seen likely to begin purchasing Italian and Spanish bonds in September, and to also cut its main refinancing rate to a record low of half a percent at that time.

Forex: USD/JPY triggers stops at 79.20; major bottom found?

USD/JPY continues its ascend in the Asian session, accelerating gains after a major breakout of 79.20 resistance, which seems to have take out quite a few stops. Currently the pair trades at 79.30, highest since July 13. 

With US treasury yields rising on fading hopes of immediate easing action by the Fed, leveraged players are being squeezed out of long positions in the Yen. Technical view appears supportive of the notion to buy pullback ahead of 78.75 support, with some credible signs that the pair may have put a major low recently. 

The Nikkei Stock Average rose over 1.6%, as the weakening yen encouraged investors to buy exporters. "The current dollar/yen level is a big support for local shares, since large manufacturers forecast the dollar to average Y78.95 this fiscal year," said Masayuki Doshida, Rakuten Securities senior market analyst in Japan, quoted by Dow Jones.

FOREX-U.S. dlr underpinned by yields; euro under pressure

* Dollar extends gains vs yen as UST yields rise
* U.S. industrial production data upbeat, inflation still tame
* Euro under renewed selling pressure
By Ian Chua
SYDNEY, Aug 16 (Reuters) - The dollar held near a fresh one-month high against the yen in early Asian trade on Thursday, while the euro nursed modest losses having succumbed to a bit of selling pressure overnight in thin market conditions.
Traders said selling in euro crosses was a major driver in an otherwise non-eventful session. The euro plumbed a two-week low on sterling, reaching 78.21 pence, and dipped to $1.2264 on the greenback, pulling further away from Tuesday's high of $1.2386.
Sebastien Galy, strategist at Societe Generale said rumours of SNB activity had helped to reinforce the downward pressure on the euro.
The Swiss National Bank has been buying a lot of euros in order to keep the 1.20 francs per euro floor intact and traders said it wouldn't surprise them if the SNB has been diversifying those euro holdings into other currencies.
That helped the dollar index pop back up to 82.706 from a low of 82.196 set on Tuesday. Against the yen, the dollar continued to gain ground thanks to a further rise in U.S. Treasury (UST) yields. The greenback peaked at 79.06 and was last at 79.03.
"We will eventually move back lower as we continue a fairly tight range in UST. The US maybe growing and the global economy stabilizing, but it is still a very slow growth path," Galy added.
Data on Wednesday showed U.S. industrial output expanded last month at the fastest pace since April and manufacturing notched another solid advance, yet inflation remained tame. Traders said the lack of price pressure should give the Federal Reserve room to ease policy further if needed.
Commodity currencies had a better night as well after being hit by disappointing Chinese data last week and a string of downbeat media reports about the health of the world's second biggest economy.
The Australian dollar edged up to $1.0499 after finding support at a two-week trough around $1.0456. Its New Zealand counterpart climbed to $0.8072 from a three-week low around $0.8038.
Immediate resistance for the Aussie is seen around $1.0517, the 38.2 percent retracement of its Aug 9-15 fall. For the kiwi, the first barrier is seen near $0.8110, the 38.2 percent retracement of its Aug 6-15 decline.
Asia faces another near data-free session on Thursday, while Europe has UK retail sales and euro zone inflation reports. In the United States, factory activity in the mid-Atlantic region, housing starts, building permits and weekly jobless benefits claims take centre stage.

EUR/USD pressing the downside sub-1.23 following bad Chinese data

EUR/USD is currently at 1.2281, barely below Asia-Pacific open price, retracing from session highs at 1.2306, amid a USD across the board move up, included against Yen, helped by rising US bond yields, with 10y back around the 1.8% after 4 months. Local share markets are in the green overall, with Nikkei above the 9000 points rising some +1.61%, following US equity markets with SP500 above the 1400, and less than 20 points below 2012 highs, with record year low volumes, and VIX at a 5 year low. EUR/USD is now about flat for the week. 

London session ahead will be another one again with almost no EUR macro data related to be released, but EU CPI figures at 09:00 GMT as most critical, while in the EZ sovereign debt auctions front there was a Spanish one that has been canceled. Risk premium between Germany and Spain fell yesterday to a several days low around the 500bps, with German yields rising as risk sentiment is improving, and Spanish 10y yields remaining range-bound below the key 7%. Much worse FDI figures today coming from China showing a decrease in -8.7% in Foreign Direct Investment (YoY) (Jul) have been helping the recent rise in USD. 

Immediate support for EUR/USD to the downside comes at current weekly lows 1.2260/4, followed by July 27/Aug 10 lows at 1.2240, and July 13 lows at 1.2162. For the upside, nearest term resistance shows at recent session highs 1.2306, followed by Tuesday's lows at 1.2316, and yesterday's highs at 1.2344.

Wednesday, August 15, 2012

Dollar up versus yen, analysts see scope for more gains

* U.S. retail sales surprise on upside, U.S. yields jump
* Euro edges up but stays within recent ranges
* U.S. industrial output, CPI due later in the day
By Jessica Mortimer
LONDON, Aug 15 (Reuters) - The dollar rose to a one-month high against the yen on Wednesday after upbeat U.S. retail sales data the previous day dampened talk of monetary stimulus from the Federal Reserve.
A broad-based rise in retail sales led some analysts to the view that the slowdown in U.S. economic growth during the second quarter will prove temporary, prompting a jump in U.S. Treasury yields.
The dollar rose 0.3 percent to 78.999 yen, its strongest since mid-July. Traders said it could extend its gains if it rises beyond reported stop-loss buy orders at 79.05 yen.
Later in the day, the market will get the latest reading on U.S. consumer inflation and industrial output. Price pressure is expected to remain benign, while industrial production is forecast to accelerate a touch from the previous month.
The forecast-beating U.S. data eased worries about the global economic outlook, helping the euro edge higher against the safe-haven yen and keeping it steady against the dollar.
But the euro stayed stuck within its recent ranges, with investors wary of selling it aggressively due to the prospect of European Central Bank restarting a bond-buying programme to curb high Spanish and Italian borrowing costs.
On the other hand, worries about a weak euro zone economy and the bloc's debt crisis made market participants reluctant to buy the euro except when cutting back on bets on it falling.
"People are finding it hard to get inspired by the newsflow. Knowing that the euro zone debt situation is not OK makes them wary of buying the euro," said Niels Christensen, currency strategist at Nordea.
The euro was flat at $1.2322, holding well above a two-year low of $1.2042 hit in late July but staying below last week's one-month high of $1.2444.
It was up 0.2 percent at 97.22 yen.
Analysts said the dollar could eke out more gains in the near term, supported by waning expectations the Fed would launch another round of bond-buying, or quantitative easing, as early as September.
"It wouldn't be a surprise to see the dollar rise to 80 yen by the end of the month," said Masafumi Yamamoto, chief FX strategist Japan for Barclays Capital in Tokyo.
The improved U.S. data also contrasted with figures last week showing Japan's economy expanded by just 0.3 percent between April and June, half the pace expected.
"It's a double effect for the yen, with poor Japanese GDP numbers and good numbers from the U.S., but it's not a massive move. We are getting used to having dollar/yen move in tiny ranges," said Nordea's Christensen.
Dollar gains may be stemmed by the potential for fund repatriation by Japanese institutional investors over the course of August, analysts and traders said.
August typically sees a large number of bond redemptions in U.S. Treasuries as well as coupon payments, and Japanese investors holding Treasuries might sell the dollar against the yen to bring home some of the proceeds.
The dollar index edged up 0.1 percent to 82.548, pulling away from a low of 82.041 reached early last week.
The higher-yielding Australian dollar fell, trading down 0.4 percent at $1.0463, hurt after Moody's ratings agency said it might eventually downgrade the credit ratings of some Australian states.

FOREX-Euro trims gains after data shows euro zone contracts

* Better-than-expected German, French data boosts euro
* But it trims gains on euro zone GDP data, poor German ZEW
* U.S. retail sales, consumer price data awaited
By Jessica Mortimer
LONDON, Aug 14 (Reuters) - The euro rose for a second successive day on Tuesday, helped by better-than-expected German and French economic output data, though gains were tempered by concerns about a slowdown in the broader euro zone region.
Data showed the euro zone as a whole contracted by 0.2 percent in the second quarter, suggesting peripheral countries are faring worse than their stronger core counterparts. German analyst and investor sentiment also dropped more than forecast in August.
This caused the euro to pull away from the day's highs. However, it continued to be propped up by expectations the European Central Bank will step in next month to lower Spain and Italy's high borrowing costs after president Mario Draghi's recent pledge to do all it takes to preserve the currency.
The euro was up 0.15 percent at $1.2350, pulling away from Monday's low around $1.2262 towards though it was off an earlier high of $1.2386.
"German numbers were a tenth better than expected and French numbers were a tenth better than expected but we know third quarter numbers are going to be worse," said Gavin Friend, currency strategist at National Australia Bank.
However, he said investors remained "quite optimistic about the Draghi plan, that it can put a cap on (peripheral bond) yields", adding that the euro could edge up to $1.2400 or $1.2450.
German gross domestic product grew 0.3 percent in the second quarter, slightly better than expectations for 0.2 percent growth, while France narrowly avoided contracting.
More gains could see the euro target chart resistance at $1.2398, the 55-day moving average, and last week's high of $1.2444.
"These were modestly better than expected numbers out of France and Germany and these days any number that does not disappoint tends to give the euro support," said Daragh Maher, strategist, at HSBC.
The euro also edged higher after a spokeswoman for Germany's constitutional court said no delay was anticipated to an expected verdict on Sept. 12 on the euro zone's rescue funds and the EU's fiscal pact. The verdict is likely to clear some of the uncertainty hanging over the euro.
U.S. data will take centre stage later in the session. Retail sales figures for July will offer an important update on how consumer demand fared at the start of the third quarter. The U.S. will also release consumer price data..
Worse-than-expected figures would add to expectations the Federal Reserve will act to stimulate the economy, perhaps with another round of quantitative easing through bond purchases, or QE3. But some strategists caution that investors should also brace for a positive surprise.
The euro's bounce saw the dollar index dip to 82.351, retreating from a one-week high of 82.870 set on Friday.
The dollar rose against the safe-haven yen, however, and was up 0.3 percent at 78.52 yen though staying in the 78.00-78.80 range that has held since late July.
The euro rose 0.5 percent to 97.20 yen.
The euro's latest gains were particularly apparent against growth-related currencies like the Australian and New Zealand dollars. It was up 0.1 percent at A$1.1731, having gained nearly 0.9 percent on Monday, pulling away from recent record lows below A$1.16.

AUD/USD Analysis August, 15 2012

AUD/USD 4H Chart 8/14/2012 8:40PM EDT
AUD/USD 8/14/2012 4H chart
The previous assessment of AUD/USD that suggested a flat correction was wrong. Instead of continuation the bullish phase, the AUD/USD is rounding a top. The break below 1.0495 near-term support opens up the next key pivot at 1.0440. The RSI fell below 40, suggesting a loss of the momentum seen in the latest bull run from July 25 to August 9. Expect at least some brief support at 1.0440 as the market will be testing a key pivot and the RSI in the 4H chart will probably be at or below 30, reflecting a near-term oversold condition.
The market is bearish remains bearish if it can break below 1.0440, but only in the very short-term. A break below the channel support seen in the daily chart is probably needed to convince the market of that the bull run since the end of May is broken.

AUD/USD Daily Chart 8/14/2012 8:45PM EDT
AUD/USD 8/14/2012 Daily Chart
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for Stock Exchanges – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Gran Colombia Gold Announces Second Quarter 2012 Results with Production of 25,607 Ounces of Gold

TORONTO, Aug. 14, 2012 /PRNewswire/ - Gran Colombia Gold Corp. (TSX: GCM) announced today the release of its unaudited interim condensed consolidated financial statements for the second quarter ended June 30, 2012 and accompanying management's discussion and analysis. All financial figures contained herein are expressed in U.S. dollars unless otherwise noted.
Second Quarter 2012 Highlights
  • Gold production of 25,607 ounces in the second quarter of 2012 represented a 15 percent improvement over the same quarter last year bringing total gold production for the first half of 2012 to 51,867 ounces, up 21 percent over the first half of last year. After experiencing some delays in the second quarter, the new ball mill at Maria Dama came on-line in mid-May. Mill throughput subsequently increased, reaching an average of 737 tpd in the month of June, a 45 percent increase compared with the first quarter of 2012. Testing of the new ball mill has proved that it can handle loads of 1,000 tonnes of ore per day ("tpd"). New flotation cells being installed in the third quarter as part of the plant upgrade will address the issues that impacted mill recovery rates in the second quarter, enabling the plant to handle the increased volumes combined with the much higher grade ore delivered by the artisanal miners.
  • Revenues of $40.7 million, 47 percent higher than the second quarter of 2011, brought total revenues for the first half of 2012 to $83.4 million. In the first half of 2012, the Company sold 49,232 ounces of gold at an average realized price of $1,650 per ounce.
  • Consolidated cash cost of $1,313 per ounce of gold sold increased 10 percent from the first quarter of 2012, primarily due to a 10 percent decrease in the mill recovery rate at Maria Dama at Segovia.  Actions are being taken by management to improve operations at Maria Dama in the third quarter and to increase production in the second half of the year at Segovia, which are expected to reduce consolidated cash costs below $1,100 per ounce by the end of 2012.
  • General and administrative ("G&A") expenses, which include $0.3 million of one-time advisory fees that helped the Company to begin recovering overdue VAT claims in Colombia, amounted to $4.2 million and $7.8 million, for the second quarter and first half of 2012, respectively. G&A expenses in the first half of 2012 represent a 25 percent reduction compared with the post-merger G&A expenses in the second half of 2011 (G&A in the second quarter and first half of 2011 is not comparable to the current year as it did not include G&A from Medoro Resources (Yukon) Inc. ("Medoro") prior to the June 10, 2011 merger).
  • Net loss attributable to shareholders of $13.7 million, or $0.04 per share, in the second quarter of 2012, includes an impairment charge of $3.4 million related to the carrying value of its Mazamorras exploration property after entering into an agreement to sell the property for total consideration of $5.5 million, $2.9 million of mark-to-market losses on financial instruments and a $3.3 million foreign exchange loss.
  • Cash balance at June 30, 2012 was $4.1 million.  During the second quarter of 2012, the Company used $1.0 million of its cash on hand, together with $3.7 million generated from operating activities and $0.9 million of net proceeds from additional Colombian bank debt facilities to fund $5.7 million of investing activities during the quarter.
  • Exploration activities in the second quarter included the completion of a 12,000 metres drilling program at the El Zancudo Project that had commenced in April 2011.  Gran Colombia announced its exploration and in-fill drilling program had returned high grade gold and silver mineralization over a strike length of some 450 metres and dip length of 170 metres on the newly discovered Santa Catalina vein, which is open in all directions. An updated technical report is expected to be completed by the end of 2012.
  • A Mineral Resource Estimate announced on June 21, 2012, highlighted an 18 percent increase to 11.8 million ounces of gold and a 26 percent increase to 80.3 million ounces of silver in the Measured and Indicated categories at the Company's Marmato Project.
  • Financing: Gran Colombia made further progress in the second quarter related to a proposed $100 million debt facility to fund the planned expansion of the Segovia Operations. In addition to supporting the ongoing due diligence activities of Standard Bank Plc, the Company has commenced a parallel process to explore competitive proposals from several other financial institutions.
  • Corporate: During the second quarter of 2012, the Company made several announcements related to common share purchases made by its Executive Co-Chairmen, Serafino Iacono and Miguel de la Campa, who increased their shareholdings to 3.3 percent and 0.9 percent, respectively, in the issued and outstanding common shares of the Company.
Commenting on the Company's progress in the second quarter of 2012, Maria Consuelo Araujo, Chief Executive Officer of the Company, said "We continue to focus on achieving our long-term target of developing our Segovia Operations to achieve a 200,000 ounce per year level.  Due to process issues at our Maria Dama plant, we have accelerated our planned upgrades to the plant infrastructure and now expect to achieve a run rate production of 1,000 tonnes per day in the fourth quarter, with the completion of the work to achieve a maximum capacity of 1,500 tonnes per day in early 2013.  Upon completion of a proposed $100 million project financing facility, we will move quickly to commence development of the mine and construction of the new mill at Segovia.  At Marmato, while the Company continues to explore the impact of deep zone mineralization on the options for the project, we continue working closely with the community and other key stakeholders to build a strong foundation for our development of the project."

Financial and Operating Summary

A summary of the financial and operating results for the second quarter of 2012 is as follows:

  Q2 2012 Q1 2012 Q2 2011(2)
Operating Data      
Gold produced (ounces) 25,607 26,260 17,827
Gold sold (ounces) 24,418 24,814 17,533
Average realized gold price ($/oz sold) $ 1,623 $ 1,676 $ 1,529
Total cash costs ($/oz sold) (1) $ 1,313 $ 1,199 $ 1,409
Financial Data (x1,000 except per share amounts)      
Total revenues $ 40,737 $ 42,678 $ 27,725
Gross margin $ 3,707 $ 7,921 ($ 2,246)
Net income (loss) attributable to shareholders ($13,724) ($ 1,128) ($12,620)
Basic and diluted income (loss) per share ($ 0.04) ($ 0.00) ($ 0.04)
Cash and cash equivalents $4,076 $ 5,113 $5,892
Total debt, including current portion $85,554 $ 83,168 $7,180

(1)   "Total cash costs" are presented on a per ounce sold basis and represent consolidated averages for the Company from both the Segovia Operations and existing Marmato Underground mine. See "Additional Financial Measures" in the MD&A.
(2)   Represents 4,378 ounces of gold ounces produced at the Marmato Underground mine in the second quarter of 2011, prior to the merger with Medoro on June 10, 2011.

Segovia Operations Update

In the second quarter of 2012 production at the Segovia Operations totalled 20,610 ounces of gold with an average daily processing rate of 591 tonnes of ore per day ("tpd"), compared to 20,637 ounces of gold with an average daily processing rate of 509 tpd in the first quarter of 2012.

The Company is in the process of upgrading the Maria Dama plant to achieve a maximum capacity of 1,500 tpd.  The first phase of the expansion plan was expected to enable the Company to ramp production up to 1,000 tpd early in the second quarter of 2012, double the historical processing rate at Maria Dama. The new ball mill came on-line in mid-May and was tested over the weeks to follow under increasing loads. After experiencing some delays related to power supply interruptions due to problems at EPM's La Cruzada substation, together with the mill's motor bearings overheating due to misalignment problems, and subsequent delays due to temporary problems with the original crusher, the mill proved to be able to handle loads of 1,000 tpd. For the month of June 2012, the processing rate at Maria Dama reached an average of 737 tpd, however, as mill throughput increased in May and June, mill recovery rates decreased below historical levels, averaging only 86 percent for the second quarter of 2012 or about 10 percent lower than the first quarter of 2012. Despite earlier metallurgical consulting opinions that the flotation cells could handle the initial ramp up to 1,000 tpd, subsequent analysis showed that the capacity of the existing flotation cells was insufficient to handle the increased volumes combined with the exceptionally higher grade ore delivered by the artisanal miners during the latter half of the second quarter.

The Company has accelerated plans to implement the second phase of the Maria Dama expansion which includes the installation of six additional flotation cells, the first two of which should be in operation in early September and the other four during October. While these new flotation cells are being installed, the Company is limiting mill throughput to approximately 800 to 900 tpd to maintain mill recovery rates between 80 percent and 85 percent, and starting in October, to ramp up mill throughput to 1,000 tpd with mill recovery rates expected to improve to 90 percent.

The completion of the Maria Dama expansion activities in 2012 to deliver a maximum capacity of 1,500 tpd will enable the Company to increase Segovia's production in 2013 to between 120,000 and 140,000 ounces of gold. Since the existing Maria Dama mill expansion is fully funded from existing cash balances, operating cash flow and local Colombian bank debt, any delay in closing the proposed $100 million debt financing will not have an impact on the Company's ability to increase its gold production at the Segovia Operations in 2012 and 2013 as planned.

Upon closing of a proposed $100 million debt financing, the Company will commence with development of the new mechanized mine and construction of the new 2,500 tpd mill at its Segovia Operations.  The capital cost of the mill and mining equipment to be acquired for this expansion project is currently estimated to cost approximately $100 million and it is expected the capital costs will be spent over an approximately 18-month period following closing of the financing. Gold production will commence within 12 months of commencing the project and the new 2,500 mill will be commissioned for operation toward the end of the 18-month period. At that time, the Company expects that the Maria Dama mill may then be dedicated toward the processing of the higher grade ore from the artisanal miners at Segovia.

Marmato Project Update

At the Marmato Underground Operations, an average of 740 tpd was milled, producing 4,997 ounces of gold during the second quarter of 2012. Mining operations encountered some lower grade ore zones that resulted in a decrease in average head grades to 2.66 g/t in the second quarter of 2012 and contributing to the 11 percent decrease in the second quarter's gold production compared with the first quarter of 2012. Head grades for the second half of this year are expected to be approximately 2.9 g/t while throughput will be increased to an average of 750 tpd.

Gran Colombia commenced work on a prefeasibility study of the Marmato Project in 2011 to examine a number of feasible development options for mining, processing and mine waste management to provide the foundation for decision making for the optimum development of the project. The options include stand-alone open pit mining, modern underground mining and a phased combination of both open pit and underground mining. As a result of the newly discovered deep zone mineralization that is open at depth with increasing grades, the Company decided to delay completion of the prefeasibility study while its explores the significance of this high grade deep zone mineralization and its impact on the Company's options for the development of the Marmato Project.


The Company now expects 2012 gold production is expected to be between 113,000 and 123,000 ounces, including production at its Segovia between 90,000 and 100,000 ounces and approximately 23,000 ounces from its Marmato Underground Operations.
The Company's longer term plan remains on track to reach a production rate of 200,000 ounces of gold annually at its Segovia Operations by 2014.


As a reminder, the Company will host a conference call and webcast on Wednesday, August 15, 2012 at 9:00 a.m. Eastern Time (8:00 a.m. Bogota time) to discuss the results and provide an operational update.

AUD/USD Technical Outlook (August 15, 2012)

AUDUSD: Last week I wrote “the pair’s exhaustion above 1.0600 (failure to see a daily close above said level) has stoked a pullback, and with a fundamental catalyst (Chinese worries), near-term price action is biased lower.” Prices continue to consolidate, and it very much appears that a Top is being formed on the 4-hour charts. Near-term resistance comes in at 1.0535/45 (former swing highs), 1.0580, 1.0600/15 and 1.0630. Daily support comes in at 1.0480/1.0500 (last week’s low), 1.0435/45, and 1.0380/85.

GBP/USD Technical Outlook (August 15, 2012)

GBPUSD: Last week I wrote “the muddle sideways continues, leaving little changed of our outlook for the GBPUSD. Overall, our outlook unchanged from Monday [August 6]. With the ascending trendline off of the July 12 and July 25 lows holding, our bias is neutral. A daily close below 1.5580/85 (50-DMA) would be bearish, whereas a close below 1.5490/1.5520 would be very bearish (as it would represent a break of the channel as well as last week’s lows).” Our view remains. Near-term resistance is 1.5700/05 (August high), 1.5720 (200-DMA), and 1.5755/70 (July high, 100-DMA). Daily support is 1.5620/25 (10-DMA, 20-DMA) 1.5575/80, 1.5490/1.5520, then 1.5450/60 (July 25 low).


USDJPY: A pattern long in the making, the USDJPY Inverse Head & Shoulder formation that has been in wait-and-see mode remains valid so long as the Head at 77.60/70 holds. Indeed, it has, and after the Fed meeting and the July Nonfarm Payrolls two-weeks ago and the disappointing second quarter Japanese GDP this week, the USDJPY is constructive in the neat-term, fundamentally. Accordingly, with the Head at 77.60/70, this suggests a measured move towards 83.60/70 once initiated. Near-term resistance comes in at 79.15/20 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70. On the hourly charts, it appears a Rounded Bottom is forming (yesterday was the highest exchange rate since July 20), and we are thus biased higher for now.


EURUSD: Yesterday I wrote “more sideways price action in the EURUSD as the 20-DMA provided support today; though the rally off of the July 24 low appears to be corrective in nature, with three waves evident from the bottom (A-B-C correction). This suggests that further downside is likely; in our opinion, this translates to one more new low near the 2010 low of 1.1875 before the start of the next major bull leg. A drop towards 1.1695-1.1875 remains likely by mid-September. Near-term resistance comes in at 1.2310/30, 1.2400/05, and 1.2440/45. Daily support comes in at 1.2200/20 and 1.2155/70. The Inverse Head & Shoulders (Head at 1.2040/45, Neckline at 1.2400/05, Measured Move 1.2750/60) remains a potential outcome.”

Majors Muddle Sideways Against US Dollar Volumes

Trading was light in the overnight as volumes declined across Europe, suggesting that many market participants remain on the sidelines during the summer doldrums. Indeed, such soft trading conditions have led to volatility dropping to historic lows, which although has typically meant a relief in financial stresses on the horizon and thus a risk-friendly environment, little upside progress has been made by risk-sensitive currencies such as the Australian and New Zealand Dollars or by the Euro over the past several days.
As noted yesterday, “in part, the Euro’s advance today has been aided by modest improvements in peripheral European sovereign debt yields; each day that bond yields don’t spike higher should be considered bullish for the Euro, even if yields move sideways,” and the same holds true today. The Italian 2-year note yield has dipped to 3.384% (3.5-bps) while the Spanish 2-year note yield has inched higher to 4.108% (+3.9-bps). Similarly, the Italian 10-year note yield has fallen to 5.843% (-3.2-bps) while the Spanish 10-year note yield has fallen to 6.744% (-3.9-bps); lower yields imply higher prices.


EUR: +0.23%
JPY: -0.28%