Newsletter October 13th
Colt FX newsletter Monday October 13th 2008
In this week’s issue:
Forex Review, October 6th to 10th
Calendar and Outlook, October 13th to 17th
Monday 13th Update
Live trading session: Wednesday 15th October
Sammy’s calls: Week 2 round up; week 3 calls
Forex Club Platinum Package
Forex Review October 6th to 10th
Is that light at the end of the tunnel?
As the global financial system careered to the brink of a melt-down, the greenback saw its second successive weekly gain against the euro, hammered sterling down some 650 pips, but fell the most against the yen since 1998. However central banks, national governments, the G7 and the IMF toiled through the weekend to provide some glimmer of hope for the stricken markets.
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Chart 1 EUR (hourly)
The euro opened the week against the dollar on the back foot. The previous Friday had seen George Bush sign the bail-out package and during the weekend the big guns of the European economies had failed to come up with a plan of coordinated action in their crisis summit. The euro kicked off by gapping down some 100 pips against the dollar and notice how the upper level of this gap provided resistance later in the week. As Monday progressed the euro fell to test 1.3450 and only started to rise after Fed rate setter, Richard Fisher said he was now more concerned about liquidity in the markets than inflation.
Tuesday saw the release of the first of the week’s better than expected numbers out of Germany with factory orders rising for the first time in eight months. Tuesday also saw the Fed announce plans to buy unsecured and asset-backed commercial paper directly from eligible issuers in yet another bid to improve liquidity. This announcement was followed a couple of hours later, with both Ben Bernanke and the FOMC minutes fuelling speculation that a Fed rate cut was imminent. All this brought further downside pressure on the greenback and saw the euro test 1.37.
Wednesday saw the biggest rise in 15 years for German Industrial Production. However, the German economic ministry warned that the general trend remained on the weak side. The big event of the day was the coordinated rate cut which saw central banks around the world cut rates by up to 50 bps. The euro went on to rise to test 1.3750 before falling back to 1.36.
Thursday saw the euro on the rise once more as it pushed to highs above 3750. However, it fell back once again, unable to sustain the gain in US trading.
Friday saw the euro collapse to its lowest level in more than a year. Some of this dollar support came from falling oil prices. Crude prices fell below $80 a barrel this week to their lowest levels in 20 months – another sign of the looming global recession. The financial crisis itself is also giving the greenback support. Risk aversion is sending the yen crosses plunging with this selling pressure weighing on dollar pairs like EUR/USD, GBP/USD and AUD/USD. The crisis is also driving investors to pull out of stocks, commodities etc and put their money into the safest of investments, US Treasury securities, and you can only buy these with the greenback. The euro tested 1.33 before closing the week at 1.3410.
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Chart 2: GBP (hourly)
The week saw sterling trading within 1.7650- 1.73 before the flight to safety on Thursday and Friday saw the pair plummet to 5-year lows. Disappointing numbers out of the UK failed to convince that a weaker pound was helping the British economy with manufacturing and industrial numbers and the trade balance all weaker than expected. July’s trade balance deficit was revised up to show the biggest monthly goods gap since records began in 1697.
Wednesday was a big day for the UK economy, with the Bank of England cutting 50 bps in the coordinated cut and the British government announcing its own bail out package, which also weighs in at around $700B and is now being held up as a model for the euro-zone.
Outlook and Calendar October 13th to 17th
Here are the highlights of this week’s economic calendar. For an extensive list of the week’s economic releases and events see our economic calendar.
Friday saw the G7 meet in Washington to discuss the current crisis. Reports from the meeting were strong on readiness to act but short on details.
Today, Sunday, the focus has shifted to Paris where the European leaders are meeting to agree on a plan to prevent market panic and to stave off what the IMF warned could be a global economic melt-down. French President Nicolas Sarkozy will meet British Prime Minister Gordon Brown -- whose country is not in the euro zone and European Central Bank President Jean-Claude Trichet before moving on to a summit of euro zone leaders. French finance minister Christine Lagarde told the press that they would not be disappointed by the outcome of the meeting and promised that the plan would be detailed.
While waiting to see how government and central bank measures to stabilize the financial markets play out this week, an eye should be kept out for signs that the credit market is thawing. These signs include a fall in the price of gold and a reduction in the LIBOR rate and the TED spreads. If markets do stabilize, I would look for rising yen crosses and a lower US dollar.
This week’s economic calendar is chock-full of top-tier US data. The US industrial base comes under scrutiny on Wednesday with Empire State Manufacturing; on Thursday with Industrial Production and Philly Fed Manufacturing and there’s housing stats on Friday. We’ve heard a lot about the US Main Street recently and we can check its pulse on Wednesday with retail Sales and on Friday with the University of Michigan’s Consumer Sentiment. On Thursday, CPI will give us an insight into US inflationary pressures.
Over in Europe, after catching the outcome of this weekend’s crisis summit, we’ve got the ZEW numbers and Industrial Production on Tuesday and the euro-zone’s CPI inflation data on Wednesday. The UK releases include housing market data on Monday; inflation numbers on Monday and Tuesday and jobs stats on Wednesday. Full details of the central bank speaking agenda are on our economic calendar.
Monday 13th News round-up
Monday woke to the news that Britain was preparing to pump more than £39B into three of its biggest banks. Germany and France followed through to unveil bank rescue plans worth $1.1 Trillion in total as governments across Europe took drastic steps to stabilize the banking sector. It seems like we are in the throes of a coordinated international rescue strategy and the markets in Asia and Europe responded positively. The ECB, the BoE and the Swiss National Bank also issued promises of unlimited dollar funding to be made available to banks in a coordinated action with the Fed. Banks would “be able to borrow any amount they wish against the appropriate collateral in each jurisdiction” according to a statement from the central banks. The announcement was met with a fall in Libor rates, the lending rate banks charge each other to lend, which have been at historically high levels. The price of gold rose during trading today until falling below Friday’s lows.
The euro gapped up some 150 pips at the beginning of the week’s trading and went on to threaten 1.37. It has fallen back since then however and is currently testing support at 1.35.
GBP/USD established support at 1.70 before moving up to 1.74, which it has since reversed from and is currently testing 1.73. If support holds at 1.7280, we could well see further gains for this pair.
USD/JPY established support at 100 and then strengthened and is currently testing resistance at 101.
Monday has seen a lot more liquidity sloshing round the financial system. Initial signs are positive, however the public holiday in the US means that the markets will be thinner than usual and therefore more volatile and unpredictable. We should have a clearer picture of how things will pan out currency-wise when the US session gets underway on Tuesday.
Forecast October 13th to 17th (updated Monday 13th)
I see EUR/USD ranging within 1.3200 and 1.3600 and will have to break 1.37 before we can hope for any more upside movement.
Sterling should find support at 1.70 with strength over 1.7280 signaling a fresh target at 1.75.
Be careful betting on south-side action on USD/JPY as signs of a credit thaw could trigger a rally. I’m looking at support at 97, with resistance at 102.50
Sammy’s Calls
A bit of a challenge this, a simple idea and hopefully a bit of fun. Four weeks of calls with limit orders. See how I’m doing as the series progresses. If anyone wants to send in their own calls, I’ll include them in this column.
A bit of a challenge this, a simple idea and hopefully a bit of fun. Four weeks of calls with limit orders. See how I’m doing as the series progresses. If anyone wants to send in their own calls, I’ll include them in this column.
Week 3
Last week’s calls: 9.30 GMT, Monday October 6th
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USD/JPY, let’s try jumping the southbound train. I want to sell at 104.60, S/L 105.20 target 102.50 NO TRADE
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GBP/USD, still bearish on cable so this week I’m selling at 1.7820, S/L 1.7950, target 1.7500 NO TRADE
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USD/CHF, trading against the tide a little here but I’m giving myself a fair bit of room. Selling at 1.1320, S/L 1.1420, target 1.1150. WINNER
No go on 1 and 2. The levels were good but I guess I missed that southbound train. 3 gave me a bit of joy, opened on Wednesday morning about 9.15 and after some buffeting on what was a very volatile market, it hit the target 10:45 Friday morning netting about $150 on a mini-lot position.
So at the close of week 2, I’m $188.44 up. I’ll post my calls for this week on this page tomorrow before 20:00 GMT.
Hope that’s OK with you all,
All the best Sammy.
Tuesday update: Sammy has just rung to say that he won't be making any calls this week. However, he plans to continue next week. Sorry for any inconvenience.
All the best Sammy.
Tuesday update: Sammy has just rung to say that he won't be making any calls this week. However, he plans to continue next week. Sorry for any inconvenience.
Live Trading Sessions
The next session will be on October 15th at 14:30 to 16:30 GMT. We will be trading the Colt FX pairs; a Fibonacci set-up on 15-minute charts and running a 5-minute system on the yen crosses. I am also ready to answer your questions on how to get the most out of your Rumus 2, with this week’s presentation being Fibonacci correction levels.
If you’d like to join in, write to me at colt@coltfx.com.
Forex Club’s Platinum Package
Forex Club is offering the Colt FX distance learning course as part of their package of incentives to open a Platinum account. You can learn more about the details of this offer at http://www.fxclub.com/platinum/. You can find out more about Colt FX in our short film What is Colt FX?
Forex Club is offering the Colt FX distance learning course as part of their package of incentives to open a Platinum account. You can learn more about the details of this offer at http://www.fxclub.com/platinum/. You can find out more about Colt FX in our short film What is Colt FX?
Remember that one week’s access to Colt FX Module 1 is available for free at www.coltfx.com to everyone who subscribes to this newsletter.
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Disclaimer
www.coltfx.com, and any of its affiliates, will not be held responsible for the reliability or accuracy of the information available in this newsletter. The content provided is put forward in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Colt FX or its affiliates. The reader agrees not to hold Colt FX or any of its affiliates, liable for decisions that are based on information in this newsletter. We highly recommend that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.
www.coltfx.com, and any of its affiliates, will not be held responsible for the reliability or accuracy of the information available in this newsletter. The content provided is put forward in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Colt FX or its affiliates. The reader agrees not to hold Colt FX or any of its affiliates, liable for decisions that are based on information in this newsletter. We highly recommend that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.
13 October | 
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