Tuesday, 31 January 2012

Are You Struggling With The Technicals.? The Moving Averages?

The Moving Average... It is a tool that is talked about in almost every trading book that has ever been written. Every day on TV, CNBC, Bloomberg, and others are telling us where the S&P and other key markets are in relation to the 200 day moving average, for example. Every charting package on the planet comes with every possible configuration of a moving average for you to use. Because of all this, moving averages must be one of the most important tools for traders and investors, right? You start to think that it must be impossible to make money in the markets without using moving averages. When we take a deeper look into the purpose and result of using moving averages, you start to see that not only do you not need to use them, but more importantly, they can actually hurt you if you don't understand the risk that comes from using them as a primary buy and sell decision-making tool and that is the focus of this piece.
Instead of going through many charts to find the perfect picture to use as an example to illustrate my logic, I like to use real trading examples from our live trading rooms in the Extended Learning Track (XLT) program. In our live Futures trading XLT, January 13th, we identified a demand level for our students during our pre-market analysis. This was a demand level in the S&P Futures of 1271.50 - 1274.50 (red box). Once price declined in the S&P to our demand level, the plan was to buy it when it reached our demand level with a protective sell stop just below the level to manage the risk and have our profit targets above the level.

Figure 1
Shortly after the stock market opened, price declined to our demand level where our students were instructed to buy. Price moved higher and the trade worked out very well for our students; they executed our rule-based market timing strategy. Now, let's go over the same trading opportunity, but instead of applying our strategy, let's use a moving average which again, is a tool talked about in almost every trading book ever written. Most people are taught to buy when the moving average turns higher. As you can see here, by the time the moving average turns higher, price has rallied quite a bit already which means high risk and lower reward if you use your moving average as a buy signal. Furthermore, notice that the moving average was sloping down when our rules gave the buy signal. Have you ever read a trading book that said buy when the moving average is sloping down? Also, notice that the short-term trend of price was down when our strategy gave us the low risk buy signal. Again, have you ever read a trading book that said to buy in a downtrend? Of course not, yet this is the action you take when you properly buy and sell anything in life, don't you? This is exactly how you make money trading as well, but the trading books almost teach you to do the opposite which is very flawed. Many of the traders following indicators such as moving averages are really smart people who have the best of intentions, they've just been taught wrong. It's not rocket science; traditional technical analysis can be overly complex, often inaccurate and may cause "paralysis by analysis." This is why we focus on teaching students our simple rule-based strategy using the principals of supply and demand aimed to help them find "real" low risk, high reward, and high probability trades. Waiting for the moving average to turn higher, you certainly get confirmation, but at the cost of extremely high risk and lower reward. Furthermore, that confirmation is an illusion because you still don't know exactly what price will do next; this is all about probability and entering a position when the odds are stacked in your favor.

Figure 2
Again, there are so many books on trading and most people start the learning process by reading the trading books, yet the vast majority of traders and investors fail when it comes to achieving their financial goals. For the most part, the books say the same thing and teach the same conventional concepts. Specifically, most of what those books teach is conventional technical analysis including indicators and oscillators such as Stochastics, Mac-D, moving averages and so on. Here is the problem... Conventional technical analysis is a lagging school of thought that leads to high risk, low reward, and low probability trading and investing. All indicators are simply a derivative of price meaning they lag price. By the time they tell you to buy or sell, the low risk, high reward opportunity has passed. They have you buying after a rally in price and sell after price has already declined. At Online Trading Academy, we don't use conventional indicators, oscillators, or chart patterns that you read about in the trading books as primary decision-making tools because adding any decision making tool to our analysis process that lags price only increases risk and decreases reward. Why would we ever want to do that? I know the information in trading books has been around for many decades, but that doesn't mean it works or helps people. Like learning anything else in life, there is the book version way of learning it and the real world learning. At Online Trading Academy, we focus on how proper trading and investing works in the real world which is what our core strategy is made of. Again, if you think about it, most people read trading books and most people lose money; maybe they should stop and consider how flawed the logic is in that conventional thought and action. My goal in this piece is not to beat up books and theories, it is simply to open your mind to a lower risk, higher reward way of trading and investing.
Hope this was helpful, have a great day.

Today in A Short Recap with Me and Ze Capital Management

Chancellor Merkel indicated yesterday that there may be a delay in finalisation of a debt deal for Greece by saying "we won't have a thorough discussion of Greece because the troika is in Greece and we don't have a result of the talks with the banks." Fundamental cracks are appearing between Greece, where opposition is growing to German led calls for increased oversight and veto powers for Greek budget decisions, and other European leaders. European leaders want to be able to enforce budget decisions on the Greeks while the nation see such moves as an attack on their sovereignty.

President Nicolas Sarkozy of France said yesterday that "Europe is no longer at the edge of the cliff." The question has to be 'what has changed since Europe was at the edge of the cliff?" We fear not much. Certainly markets have been less volatile in response to news developments in the new year. However, even as European leaders work towards rules that are designed to bring about greater fiscal union and budgetary control, member states such as Greece want to play by their own rules. The talk is becoming increasingly tough with the the economic spokesman for Merkel's Christian Democratic Union saying, "The free lunch is over: no external controls, no money." European history shows that the continent is least united when nations try to exert their influence on each other. Attempts to "unify" the continent have always led to conflagration.

Yet markets have been once again been gripped by europhoria surrounding EU summits and more announcements surrounding plans to save Europe. European Union leaders meeting in Brussels have agreed on a fiscal treaty that will allow for action against high deficit states and calls for members to introduce legislation to limit budget deficits. Markets have rallied on the news even though these reforms actually do nothing to resolve the current debt crisis. Britain and the Czech Republic have declined to sign the pact. The EUR has rallied above 1.3200 after having traded closer to 1.3100 in early Asian trade.

Equity markets have recovered from a soft start to the week with Asian shares rising on optimism surrounding the latest EU summit. After falling yesterday over Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair, European bourses are now higher by 1% mid session today. After losing ground yesterday for the third day as European leaders lectured to Greece over the nation's second rescue package, S&P 500 futures are signalling a rise in trade today.

Commodities News
Commodity prices moved lower yesterday with the CRB index losing more than 1% to 313.91. Today, there has been a broad recovery. WTI Crude oil has gained 1% to trade at $99.85 as tensions in Iran once again dominate trader's mentality. Precious metals have recovered from yesterday's falls with gold rising 0.4% to $1,742 while silver has gained 0.7% to $33.75.  Soft commodities are broadly stronger while copper is higher by 0.8%.
GOLD continues to consolidate after last weeks boost by the Fed Reserve which now sees gold firmly in the $1,700 territory. The range last night was $1,716 to $1,733. Gold opens the morning just below $1,730. As we had suspected gold held up much better than other commodities overnight as markets jitters surrounding Europe resurfaced. We took up our own advice to buy the metal on the dip to $1,720 overnight. This position now has a stop loss at entry and we will seek to trail this stop higher as the market continues take gold higher. We maintain our bullish bias in the short term and medium term for gold although we are currently reviewing our view on commodities in general. An escalation of the European debt crisis is increasingly likely and this will have a negative impact on commodities in general. However, even last year we saw both the USD and Gold manage to gain and expect that this trend will continue especially in the event of a meltdown in Europe. 
FX News

The Brussels Summit ended yesterday with no favourable resolution for the Greek saga leaving the market showing its frustration on the EUR/USD driving it down to 1.3075.  Apparently German Chancellor Angela Merkel shared the same frustration with the Greek government's failure to carry out its economic reform.  Euro found its base at 1.3135 during early Asian session and the theme today for Asia was sell dollar.  However moving towards the London session we may see EUR/USD take on a different theme in the form of volatility.  With a whole battery of macro data expected today from the Euro zone, it may be touch and go.  We have German retail sales (MoM); French Consumer Spending (MoM); German Unemployment Change; Italian Unemployment Rate; Eurozone Unemployment Rate.  In New York expect Chicago PMI and more importantly US Conference Board Consumer Confidence.  Euro support is seen at 1.3120 but the psychological level of 1.3000 is possible if all the 'bad' stars align.  Top side try for 1.3230.
USD/JPY tested 'BOJ waters' as we predicted yesterday when it broke the76.55 base today reaching as low as 76.16.  At the time of writing USD/JPY is trading at 76.20.  We are once again approaching the  post war low of 75.35 prompting Finance Minister Azumi to say "we are ready to act decisively against excessive and speculative currency moves if needed".  Factors which sent the yen on a three-day rally include industrial production rising more than forecast in December and unresolved Greek debt restructuring which triggered yen buying as a safe haven. In other news the nation's jobless rate rose to 4.6% in December from 4.5% the previous month.  For Tuesday, we are cautiously bearish on the USD/JPY with top side limited to 77.01 without BOJ intervention or 'rumoured' intervention.  Downside 75.76 may be first support level.  Then it will be exciting to see if we will test the post war low.

Friday, 27 January 2012

Too many young people rarely, or never, invest for their retirement years. Some distant date, 40 or so years in the future, is hard to imagine. However, without investments to supplement retirement income, if any, retirees will have a difficult time paying for life's necessities.
TUTORIAL: Stocks Basics 
Smart, disciplined, regular investment in a portfolio of diverse holdings, can yield good long-term returns for retirement and provide additional income throughout an investor's working life.
An often stated reason for not investing is a lack of knowledge and understanding of the stock market. This objection can be overcome through self-education and step-by-step through the years, as an investor learns by investing. Classes in investing are also offered by a variety of sources, including city and state colleges, civic and not-for-profit organizations, and there are numerous books targeted to the beginning investor.
However, you've got to start investing now; the earlier you begin, the more time your investments will have to grow in value. Here's a good way to start building a portfolio, and how to manage it for the best results. (For related reading, see Top 5 Books For Young Investors.) 
Start EarlyStart saving as soon as you go to work by participating in a 401(k) retirement plan, if it's offered by your employer. If a 401(k) plan is not available, establish an Individual Retirement Account (IRA) and earmark a percentage of your compensation for a monthly contribution to the account. An easy, convenient way to save in an IRA or 401(k) is to create an automatic monthly cash contribution. Keep in mind, the savings accumulate and the interest compounds without taxes, as long as the money is not withdrawn, so it's wise to establish one of these retirement investment vehicles early in your working life.
Another reason to start saving early is that usually the younger you are, the less likely you are to have burdensome financial obligations: a spouse, children and mortgage, for example. That means you can allocate a small portion of your investment portfolio to higher risk investments, which may return higher yields.  
When you start investing while young, before your financial commitments start piling up, you'll probably also have more cash available for investing and a longer time horizon before retirement. With more money to invest for many years to come, you'll have a bigger retirement nest egg. 
To illustrate the advantage of value investing as soon as possible, assume you invest $200 every month starting at age 25. If you earn a 7% annual return on that money, when you're 65 your retirement nest egg will be approximately $525,000. However, if you start saving that $200 monthly at age 35 and get the same 7% return, you'll only have about $244,000 at age 65. (For additional reading, see Accelerating Returns With Continuous Compounding.) 
Diversify Select stocks across a broad spectrum of market categories. This is best achieved in an index fund. Invest in conservative stocks with regular dividends, stocks with long-term growth potential, and a small percentage of stocks with better returns, along with higher risk potential. If you're investing in individual stocks, don't put more than 4% of your total portfolio into one stock. That way, if a stock or two suffers a downturn, your portfolio won't be too adversely effected. Certain AAA rated bonds are also good investments for the long term, either corporate or government. Long-term U.S. Treasury bonds, for example, are safe and pay a higher rate of return than short- and mid-term bonds. (To learn more on investing in bonds, read Bond Basics: Different Types Of Bonds.) 
Keep Costs to a Minimum  
Invest with a discount brokerage firm. Another reason to consider index funds when beginning to invest is that they have low fees. Because you'll be investing for the long-term, don’t buy and sell regularly in response to market ups and downs. This saves you commission expenses and management fees, and may prevent cash losses when the price of your stock declines. 
Discipline and Regular InvestingMake sure that you put money into your investments on a regular, disciplined basis. This may not be possible if you lose your job, but once you find new employment, continue to put money into your portfolio.
Asset Allocation and Re-Balance Assign a certain percentage of your portfolio to growth stocks, dividend paying stocks, index funds and stocks with a higher risk, but better returns.
When your asset allocation changes (i.e., market fluctuations change the percentage of your portfolio allocated to each category), re-balance your portfolio by adjusting your monetary stake in each category to reflect your original percentage. (For more information, read Five Things To Know About Asset Allocation.), 
Tax ConsiderationsA portfolio of holdings in a tax-deferred account, a 401(k), for example, builds wealth faster than a portfolio with tax liability. You pay taxes on the amount of money withdrawn from a tax deferred retirement account. A Roth IRA also accumulates tax free savings, but the account owner doesn't have to pay taxes on the amount withdrawn. To qualify for a Roth IRA, your modified adjusted gross income must meet IRS limits and other regulations. Earnings are federally tax free if you've owned your Roth IRA for at least five years and you're older than 59.5, or if you're younger than 59.5, have owned your Roth IRA for at least five years and the withdrawal is due to your death or disability, or for a first time home purchase.
The Bottom LineDisciplined, regular, diversified investment in a tax deferred 401(k), IRA or a potentially tax-free Roth IRA, and smart portfolio management can build a significant nest egg for retirement. A portfolio with tax liability, dividends and the sale of profitable stock can provide cash to supplement employment or business income. Managing your assets by re-allocation and keeping costs, such as commissions and management fees, low, can produce maximum returns. If you start investing as early as possible, your stocks will have more time to build value. Finally, keep learning about investments throughout your life, both before and after retirement. The more you know, the more your potential portfolio return, with proper management, of course. 

Wednesday, 25 January 2012

Recap of the Latest Global News and Today's F.O.M.C

Investor optimism was dented yesterday after European finance ministers failed to agree on the Greek debt swap deal and called for a greater contribution from debt holders. Finance ministers are pushing bondholders for greater debt relief by asking them to accept lower interest returns in the proposed debt swap deal. The stalling of negotiations has fuelled concerns that Greece will fail to make a bond payment due in late March. The EUR fell from a high of 1.3065 during the Asian session yesterday to as low as 1.2948 in early European trade today.

In more sobering news, the IMF has cut global growth forecasts and warned that the "epicentre of the danger is Europe but the rest of the word is increasingly affected." It cut global growth for 2012 from a September forecast of 4 percent to 3.3 percent and predicted a recession in Europe. The IMF called for an increase in the eurozone's rescue fund and a more active role from the ECB to address the crisis. In a dire warning, the IMF warned of a 1930's style worldwide depression unless more countries play their part and identified a possible global financing need of over $1 trillion in the next few years. Inflation in the UK for December fell to its lowest level in 6 months at an annual rate of 4.2% and the economy contracted in the fourth quarter which saw the GBP fall to as low as 1.5528.

Yesterday, US equities fell after advancing for five consecutive sessions as negotiations stalled in the proposed Greek debt swap deal. Furthermore, the IMF warned that there was potential for "political paralysis" in the United States that could lead to an unwinding of stimulus spending. Asian markets there were opened today closed higher while European shares are down about 1% mid session, falling for the second day, as Ericsson and Novartis missed earnings estimates.

FX News
EUR/USD traded within a narrow range during Asian session (1.3014 - 1.3041) today perhaps due to the Lunar Year celebration.  The same could be expected for the rest of the week for Asia if no surprises hit the market.  At the time of writing, euro spiked up to 1.5050 as German IFO was released. Market was expecting 107.6 but actual came out as 108.3 (last 107.3).  But the spike was very short-lived as it pulled back to the comfortable 1.3020 - 1.3040 zone awaiting for the US FOMC rate decision.  Economists expect no change from 0.25% but the risk may be that if the Fed is more dovish than what the market thinks, then you may see dollar selling in the pipeline.  For the rest of London and New York session, we are still waiting for 1.3145 and support at 1.2983.

USD/JPY reached the highest level since Dec 28 at the time of writing to 78.10 in London time.  The headline news was that Japan reported its first annual trade deficit in 30 years raising concerns about its fiscal health.  The data also showed Japan's exports declined for the third consecutive month - dropped 8% in Dec from a year earlier. JPY traders no doubt will now monitor if the deficit will continue to rise or if Japan's sovereign rating is in question.  Any hint of that should result in shorting the JPY.  For the rest of the day and subject to FOMC release expect 77.60 (61.8% fib) to 78.25 trading range.

U.S. Dollar on Top Ahead of Critical FOMC Meeting

Fundamental Headlines
• Economy in U.S. Preferred by Investors – Bloomberg
• Obama Calls for Higher Taxes on Wealthy – Bloomberg
 Fed Set to Push Back Timing of Eventual Rate Hike – Reuters
• German Bunds Draw Strong Demand – WSJ
• Obama Makes Populist Pitch – WSJ
European Session Summary
Price action was very choppy in the overnight, though, for the first time in what has seemed like weeks, the Asia sell-off / Europe rally trend was broken. Following Australian inflation data last night, market participants bid higher yielding currencies and risk-correlated assets higher, though the rally stagnated by the European session open. The sell-off in the first part of European trading is rooted in two causes: poor British growth figures; and a further breakdown in the Greek bondholder negotiations.
Not much needs to be said about the poor British gross domestic product reading for the fourth quarter; I have long stated that the British economy is stagflating. While inflation has eased in recent months, it remains above the two percent threshold set by the Bank of England; the labor market continues to weaken; and now growth has turned negative.
In terms of the Greek bondholder swap negotiations, it appears that both the Institution for International Finance (IIF) and Greek officials have walked away from the table. The major sticking issue appears to be whether or not the European Central Bank will participate in the haircuts being levied on private sector bondholders. It’s been established that no such event will take place. This, being the main sticking point, is creating more than a stir; the International Monetary Fund (IMF) today suggested that the ECB agrees to the haircut so that the issue is finally resolved.
Taking a look at credit markets, risk-appetite appears to have been stemmed across Europe, with German bunds approaching all-time record low yields (higher prices) while French and Italian 10-year bonds widened against their German counterpart. The Portuguese 10-year bond is under substantial pressure, with the yield moving up to 13.492 percent, as the country mulls options, including requesting another bailout, to help the economy turn around. This situation will only get worse without further intervention; and I would argue that Portugal is close to becoming the next major issue in Europe, ahead of Italy and Spain.
NZD/USD 5-min Chart: January 24 to January 25, 2012
U.S._Dollar_on_Top_Ahead_of_Critical_FOMC_Meeting_body_Picture_10.png, U.S. Dollar on Top Ahead of Critical FOMC Meeting

Overall, it appears that some of the typical correlations have broken free, with the commodity currencies and European currencies mixed across the board. While the New Zealand Dollar was the worst performing major against the U.S. Dollar, down 0.75 percent at the time this report was written, the Australian Dollar was down a mere 0.22 percent. Similarly, the Euro underperformed the Greenback by 0.50 percent, while the British Pound was off a slight 0.20 percent despite the country’s dismal growth reading released earlier today.
24-Hour Price Action
U.S._Dollar_on_Top_Ahead_of_Critical_FOMC_Meeting_body_Picture_1.png, U.S. Dollar on Top Ahead of Critical FOMC MeetingU.S._Dollar_on_Top_Ahead_of_Critical_FOMC_Meeting_body_Picture_7.png, U.S. Dollar on Top Ahead of Critical FOMC Meeting
Key Levels: 14:05 GMT
U.S._Dollar_on_Top_Ahead_of_Critical_FOMC_Meeting_body_Picture_4.png, U.S. Dollar on Top Ahead of Critical FOMC Meeting
Thus far, on Wednesday, the Dow Jones FXCM Dollar Index is higher, trading at 9915.71, at the time this report was written, after opening at 9884.24. The index has traded mostly higher, with the high at 9931.27 and the low at 9872.68.

USD Index Points To Additional Strength

Daily Change (%)
Daily Range (% of ATR)
DJ-FXCM Dollar Index

USD_Index_Points_To_Additional_Strength_Yen_Poise_To_Weaken_Further_body_ScreenShot040.png, USD Index Points To Additional Strength, Yen Poise To Weaken Further
The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.36 percent higher from the open after moving 91 percent of its average true range, and the bullish divergence in the 30-minute relative strength index instills a bullish outlook for the greenback as it breaks out of the downward trending channel from earlier this month. In turn, the rebound from 9,837 should continue to gather pace, but the reserve currency may face whipsaw-like price action later today as the Federal Open Market Committee interest rate decision takes center stage. Beyond the rate decision, the first batch of interest rate forecast will be closely watched across the financial market, but the Fed’s fundamental assessment of the world’s largest economy may play a greater role in driving price action as investors weigh the prospects for future policy.
USD_Index_Points_To_Additional_Strength_Yen_Poise_To_Weaken_Further_body_ScreenShot041.png, USD Index Points To Additional Strength, Yen Poise To Weaken Further
As we look for a higher high in the USDOLLAR, the FOMC rate decision could pave the way for a major rally in the reserve currency as the more robust recovery dampens the central banks scope to push through another large-scale asset purchase program. As economic activity gradually gathers pace, we anticipate the Fed to strike an improved outlook for the region, and the central bank may continue to soften its dovish tone for monetary policy as the risk of a double-dip recession subside. However, Chairman Ben Bernanke may keep the door open to further expand the balance sheet in light of the ongoing weakness in the housing market, and the USD may come under pressure should the committeefloat the idea of purchasing mortgage-backed securities (MBS) to stimulate home purchases.
USD_Index_Points_To_Additional_Strength_Yen_Poise_To_Weaken_Further_body_ScreenShot042.png, USD Index Points To Additional Strength, Yen Poise To Weaken Further
The greenback rallied against all four components on Wednesday, led by a 0.75 percent decline in the Japanese Yen, and the low-yielding currency may weaken further over the near-term as market participants increase bets for a currency intervention. As the Bank of Japan refrains from taking additional steps to shore up the ailing economy, there’s speculation that the Ministry of Finance will once again step into the FX market to stimulate growth, but Japanese policy makers may put additional pressure on the central bank to further expand its asset purchase program as the fundamental outlook for the region deteriorates. As BoJ Governor Masaaki Shirakawa continues to highlight the threatens of a stronger Yen, speculation for another currency intervention will certainly be a major theme in 2012, and the central bank may have little choice but to expand its balance sheet further as it lowers its growth forecast for the world’s third-largest economy.

Monday, 23 January 2012

S&P 500 Chart Warns of Indecision, Dollar to Challenge Key Support

S&P 500 – Prices put in a Doji candlestick below resistance at the top of a rising channel set from late December, pointing to indecision and hinting and move lower may be ahead after two consecutive days of gains. Initial support lines up at the 1300 figure. Channel resistance is now at 1322.40.
SP_500_Chart_Warns_of_Indecision_Dollar_to_Challenge_Key_Support_body_Picture_5.png, S&P 500 Chart Warns of Indecision, Dollar to Challenge Key Support
CRUDE OIL Prices are once again testing support at 97.70 following a rejection at familiar resistance in the 101.28-103.35 region. The downside is reinforced by resistance-turned-support at the top of a falling channel set from mid-November, now at 96.85. A break below the latter boundary initially exposes 95.78, the November 23 close.
SP_500_Chart_Warns_of_Indecision_Dollar_to_Challenge_Key_Support_body_Picture_6.png, S&P 500 Chart Warns of Indecision, Dollar to Challenge Key Support
GOLD Prices are testing support-turned-resistance in the 1666.37-1677.05 region, with a break higher exposing the 1700/oz figure. Near-term support lines up at 1638.84, with a break below that initially targeting 1615.65.
SP_500_Chart_Warns_of_Indecision_Dollar_to_Challenge_Key_Support_body_Picture_7.png, S&P 500 Chart Warns of Indecision, Dollar to Challenge Key Support
US DOLLAR Prices broke below the midline and top of a falling channel in place since mid-December, exposing a former Head & Shoulders neckline at 9823 as sellers’ next objective. A breach of this level on a daily closing basis would amount to a meaningful bearish change in tone for the greenback. The channel midline, now effectively at the 9900 figure, has been recast as near-term resistance.
SP_500_Chart_Warns_of_Indecision_Dollar_to_Challenge_Key_Support_body_Picture_8.png, S&P 500 Chart Warns of Indecision, Dollar to Challenge Key Support

EUR/USD: Remain Short Through Upswing

I entered short EURUSD at 1.3526 on November 9 expecting the Eurozone debt crisis to continue to spread and moved my stop to 1.3231 after the pair met my secondary objective at 1.2872, aiming for the next target at 1.2586. Prices took out resistance at the top of a falling channel set from early November last week, hinting the correction I was waiting for is gaining momentum. Near-term resistance begins at 1.3144. I will look for the upswing to yield an opportunity to add to the trade, aiming for renewed selling in the weeks ahead.


US EQUITIY FUTURES: Slightly bearish
1010 GMT French Presidential election frontrunner Hollande is talking tough on banks, pledging if elected to separate investment activities from other activities as well as ban them from tax havens. He has also proposed a new Franco-German treaty to increase cooperation. Geopolitics has dominated headlines this morning with the German Foreign Minister pledging to increase EU pressure aimed at stopping funding that the EU suspects is being used to develop nukes.
0853 GMT EURUSD has rallied strongly above 1.2900 and is now at 1.2930. Sources are saying Middle Eastern buyers are behind the move. German Foreigm Minister Westerwelle is now speaking in Brussels, says Iran sanctions are aimed at cutting funds for nukes, adding that EU will agree to sanctions. NYMEX is volitile on Iran developments. Bonds are seeing some strength ahead of the EU summit with EMU peripheral 10-years looking better.
0745 GMT Greek PSI update: reports are saying bondholders have made their final and "maximum" debt swap offer to the EU and IMF. Italy's Monti and ECB's Draghi have voiced a desire to see the ESM expanded by 100% to EUR 1tln. SNB quashes EURCHF speculation, saying will defend 1.2000 peg with "utmost determination." French BusCon indicator for January comes in at 91, versus expected 95 and previous 94.
0645 GMT In European trade this morning, commodity currencies continue to be strong. The Asian session saw some comments saying that Italy wants an increased EU bailout fund, as well as a vote by Croatia to join the EU. Keep heads up for German and French auction results later today, as well as the EU FinMin meeting.

FOREX: Euro Debt Crisis in Focus as Finance Ministers Meeting Looms 

The Eurozone debt crisis remains in focus as traders look to a meeting of the currency bloc’s finance ministers today for details of the much-anticipated “fiscal compact” aimed at introducing structural reforms to restore confidence and rein in borrowing costs ahead of a larger EU leaders’ summit next week. Also on the agenda is a final agreement on the degree of private-sector involvement (so-called “PSI”) in the Greek bailout. The agreement on a 50 percent haircut for the country’s creditors hashed out in October now looks like it may unravel.

The newswires point to a loose agreement whereby private creditors would accept losses of as much as 65-70 percent on their holdings of Greek debt but the particulars of a bond swap exchanging outstanding paper for new longer-dated maturities to help the country finance its immediate obligations remain elusive. If the talks fail, Greece may yet face a disorderly default that threatens to throw credit markets at large into turmoil. Indeed, a PSI agreement is vital to releasing a tranche of funding from the second EU/IMF bailout for the beleaguered country needed to cover €14.5 billion in debt maturing in March. The main point of contention is reportedly the coupon rate assigned to the new bonds.
Against this backdrop, France and Germany will tap the markets to sell €7.3 billion and €3 billion in shorter-term debt, respectively. Paris will be selling 91-, 168- and 350-day bills while Berlin will offer 12-month paper. As usual, traders will keep an eye on prevailing yield and bid-to-cover readings following the auctions for a reading on the degree of solvency stress in the markets. On the data front, a quiet European docket is likely to put the spotlight on the Richmond Fed Manufacturing Index reading due out in the US, where forecasts call for the highest print in 8 months.
Asia Session: What Happened
Producer Price Index (QoQ) (4Q)
Producer Price Index (YoY) (4Q)
Supermarket Sales (YoY) (DEC)
Euro Session: What to Expect
French Own-Company Production Outlook (JAN)
French Production Outlook Indicator (JAN)
French Business Confidence Indicator (JAN)
Money Supply M3 (YoY) (DEC)
Real Estate Index Family Homes (4Q)
Germany to Sell €3B in 12mo Bonds
France to Sell €7.3B in 91-350 day Bills
Euro Zone Consumer Confidence (JAN A)
Euro Zone Finance Ministers Meet in Brussels
Critical Levels