Yen to Climb as Japan May Seek Stronger Currency, UBS Predicts

By Stanley White Jan. 17 (Bloomberg)

Japan's government may call for the yen to gain or even buy its own currency to avoid criticism from its trading partners, said Mansoor Mohi-Uddin, global head of foreign exchange strategy at UBS AG.

The yen has fallen to a record low versus the euro and a 13-month low against the dollar this year, adding to pressure on Japan to stem losses before a meeting of the Group of Seven finance ministers and central bankers in February. At a September summit in Singapore, officials said they had an “understanding” the yen would reflect Japan's economic recovery.

“Japanese officials have warned that the yen shouldn't weaken further,” London-based Mohi-Uddin wrote in a Jan. 15 research note. “This seems motivated by concerns that a weak yen will reignite protectionist concerns in the U.S. and Europe.”

The yen traded at 120.57 per dollar at 11:35 a.m. in New York yesterday, and touched 120.77 yen, the weakest since 121.06 yen on Dec. 12, 2005. It was at 155.94 yen per euro, and set a record-low of 158.06 on Jan. 3. Japan's currency may strengthen to 95 per dollar and 128 per euro a year from now, according to UBS, the world's second-largest currency trader.

French Finance Minister Thierry Breton last month said the euro's “rapid” rise against the yen is bad for the economy. German Chancellor Angela Merkel, who holds the G-7 presidency this year, in December said the group will discuss foreign exchange at the Feb. 9-10 meeting. Japan bought its own currency in 1997 after G-7 countries, which also include Canada, Italy, the U.K. and the U.S., agreed to stabilize exchange rates.

Strong Yen Policy: President George W. Bush's administration may face calls from the Democratic Party, which won control of both houses of the U.S. Congress in November, to stem the yen's decline to protect jobs. General Motors Corp. Chief Executive Officer Rick Wagoner said a "systematically undervalued'' yen helps Japan's trade surplus by making its products cheaper overseas.

“We have a new Congress full of Democrats that like protectionism,” said Toru Umemoto, chief currency analyst at Barclays Capital Inc. in Tokyo. “The G-7 hasn't been conducting a directional foreign exchange policy. In an extreme case the G- 7 could adopt a strong yen policy. The yen may rise to 110 per dollar at year-end”, he said.

Carry Trades: Japanese policy makers may also seek a stronger yen to discourage investors from borrowing the currency to buy higher- yielding assets, known as carry trades, Mohi-Uddin wrote.

The Bank of Japan will raise its benchmark interest rate to 0.5 percent when it concludes a two-day policy meeting tomorrow, according to 35 of 52 economists in a Bloomberg News survey. That would still be the lowest in the industrialized world.

The Federal Reserve's benchmark is 5.25 percent and the European Central Bank's rate is 3.50 percent. Interest rates are at 6.25 percent in Australia and 7.25 percent in New Zealand.

Japan bought its own currency in December 1997 and from April to June 1998 to curb carry trades, Mohi-Uddin wrote. The yen is weaker now than it was when Japan last bought, according to its value versus its trading partners after adjusting for inflation, Mohi-Uddin wrote. “The Ministry of Finance should intervene in dollar/yen and euro/yen,” Stephen Jen, global head of currency research at Morgan Stanley in London, wrote in a research note. The weakening yen “attracts unwanted political attention from the U.S. and Euro-land and risks abruptly reversing later this year” to 108 per dollar and 134 against the euro.

What separates winners from losers?

The content of this newsletter is for general information and educational purposes only.

Trading is a mind game. Training a trader’s mind is the first step for any successful trader, but almost all new traders neglect this part and that explains why more than 90% of traders fail in the long run. It is a proven fact that the difference that makes the difference is the mindset of the winning trader, good judgment and quick reaction to the information received. Most traders today are linked to the same information sources; it is how they respond to this information that separates winners from losers.

Instead of thinking like any other normal person, you need to start thinking like a speculator. Winners are probability thinkers. They understand that trading is all about thinking in probabilities NOT certainties. They consider the probabilities, evaluate them, and go for them when they are in their favor.

The decision making process may be long and there might be some planning behind it, but sometimes traders seem to take too long to take a decision and often that ends up being a wrong decision. This is one of the most important things behind success or failure. Some traders make quick decisions, but are not able to follow them, and as a result they end up being on the losing side. Other traders can’t make up their minds, because they really don’t know what they are doing. They don’t have a plan, or rules to guide them and therefore are uncertain of what they should be doing.

The reason why people avoid making a decision is because it’s painful and traders often have a ready assumption that their decision might not be the right one. The Forex market is playing with their mind, but they are not able to understand that. If they can have confidence in what they are doing, they will be able to support the pressure.

At the end of the day, everything depends on the trader’s ability to take a decision in spite of knowing that there is no guarantee to the Forex movement and taking a right decision. The Forex market and its ups and downs are always going to be there. The Forex trader has to keep cool and be disciplined. It is like mentally preparing yourself in advance for what lays ahead, so that you will not be caught off guard.

Winning traders are disciplined.
Winning traders discipline themselves to do what needs to be done. They know their rules and they follow their rules. Winning traders have a plan and they work the plan. Winning traders are patient.

Winning traders are conflict free.
The people who succeed at trading, the people who succeed consistently at any endeavor, are people who are conflict free about their endeavor. They are clear about their goal of becoming a consistently profitable trader, and all parts of their beings are in alignment with their goal.
They are comfortable with taking a calculated risk and waiting to see what happens. They are comfortable within the process of both winning and losing. Both are expected and accepted. Winning traders are comfortable in the market. The market is where they want to be and trading is what they love to do.

Winning traders expect to win.
They associate trading with pleasure. The pain is only temporary on the way to greater pleasure. They set their intention. They intend to make money and to follow their winning methods as well as to constantly improve. Improving and making money is total pleasure. The rest is secondary.

Winning traders do their homework.
They research their methods. They verify their methods and they stay up-to-date with current markets. They practice mental rehearsal. They keep themselves mentally and physically fit.

Winning traders are confident.
Their confidence is not dependent upon the results of a trade. They know that whatever happens, they can make the money back.

Winning traders understand that trading is a game of probabilities.
Winning traders are probability thinkers. They understand that trading is a game of probabilities, and unlike some losing traders, they never expect to have an absolutely certain outcome. They realize each trade is only a probability and they always control the risk.

“No profession requires more hard work, intelligence, patience, and mental discipline than successful speculation.” -- Robert Rhea

Greenback tipped to rise as US economy slows

Courtesy of Alex (our valued member)

Interesting currency story from Reuters “Greenback tipped to rise as US economy slows” available at this link: http://www.nzherald.co.nz/topic/story.cfm?c_id=167&objectid=10414720

Alex
New Zealand

NEW YORK - The greenback will rise in 2007, even as the United States economy slows sharply, as Asian central banks continue buying the American currency to keep their own currencies down and their exports competitive, says a British research firm. London-based Lombard Street says a housing slump in the US will finally cause Americans to cut back on spending, while rising labour costs will prevent the Federal Reserve from cutting interest rates until the second half of the year. But director Diana Choyleva says Asian states with large surpluses and export-driven economies will still need to recycle savings into US assets and keep their currencies from rising too rapidly against the greenback. And with Americans saving more, "the supply of dollars will shrink at a time when demand for the dollar will be going up" and that will put upward pressure on it. The outlook runs counter to a widespread FX market view the US dollar will weaken in 2007 amid slower growth and an expected decline in interest rates.

Choyleva said markets are pricing in a rate cut too soon. "There's a big chance growth will be high enough in the near term to exacerbate the inflation outlook than low enough to help with inflation," she said. "The Fed will need to engineer a hard landing to get inflation back on target." US consumer spending will fall, though, as home prices continue to slide. The National Association of Realtors reports existing home prices fell 3.5 per cent in October for the third straight month. Rapid gains in home prices had been the main driver in recent years of US consumption, which comprises some two-thirds of gross domestic product. Choyleva says the result over the next 12 months to 24 months will be a gradual unravelling of global financial imbalances caused by excessive American spending and excessive saving in Asia. Even if the US spending spree ends, Asian states have assets to spare.

Breaking News: China To Dump One TRILLION In US. Reserves!

Courtesy of Harry (our valued member)

Check out this interesting news regarding China dumping one trillion in U.S. reserves. You can read the whole article at this link (excerpt included below):
http://www.halturnershow.com/ChinaToDumpUSDollars.html

Keep your seat belt fastened.

Regards,

Harry

BEIJING, CHINA - Sources with a U.S. Delegation in Beijing have told The Hal Turner Show that the Chinese government has informed visiting Bush Administration officials they intend to dump one TRILLION U.S. Dollars from China's Currency Reserves and convert those funds into Euros, gold and silver!

China was allegedly asked to withhold the announcement until Bullion Markets closed for the weekend to prevent an instant spike in gold and silver prices. This delay will give the world the weekend to consider appropriate actions rather than have a knee-jerk reaction, which could see the U.S. Dollar totally collapse in value Monday.

According to this Senior source, China told the U.S. delegation they no longer have faith in U.S. Currency for several reasons:

1) The Federal Reserve Bank ceased publishing "M3" data in March, making it nearly impossible for anyone to know how much cash is being printed. China said this act made it impossible to tell how much a Dollar is worth.

2) The U.S. Dollar has lost upwards of thirty percent (30%) of its value against other foreign currencies in the recent past, meaning China has lost almost $300 Billion simply by holding U.S. Dollars in its reserves.

3) The U.S. has no plans whatsoever to reduce deficit spending or ability pay down any of its existing debt without printing money to pay it off.

For these reasons China has decided to implement an aggressive sell-off of U.S. Dollars before the rest of the world does so. China reportedly told the US delegation; "we are the largest holder of U.S. Currency and if the rest of the world unloads theirs before we unload ours, we will lose our shirts."

Early this week, in an unusual move, the Bush administration sent virtually the entire economic "A-team" to visit China for a "strategic economic dialogue" in Beijing Dec. 14 and 15.

The implications are enormous: The U.S. Dollar is likely to collapse in value against all other major currencies as early as Monday, December 18. This would cause a worldwide sell-off of dollars, create almost immediate "hyper-inflation" in the US and also impact world markets at a level "worse than the Great Depression of 1929."

Potential large pullback on the GBP/USD pair

Courtesy of our valued member Gary Connell.

Hi Peter.
Hope you are keeping well. It has been a while since I've sent in some work of mine for you to consider, but I still do religiously follow your AM Reviews. I also got hold of a copy of Chris Lori's advanced course work. Boy, I thought I knew how to trade well but, hey, he is one hell of a smart trader. Lots of extra little tips have come my way thanks to him, and it is great that he has allowed us to develop our trading minds in also paying attention to the fundamentals which, when you fully understand them, it sort of just makes that big jigsaw puzzle fit together a little nicer. Give out a big thanks to Chris, as I believe he is a great asset for the Forexmentor team you have there Peter.

Anyway, following on from your recent comments this week about the euro and the pound maybe topping out, or not too far away in any case. I thought I'd show you this long-term weekly chart for the GBP/USD, if you haven't already seen it. It's a simple chart with just price, one trendline and Fibonnacci retracement lines.

First thing - the mother of technicals: long term powerful trendlines - don't buck the trend until it ends! As we all know, currencies trend very very well. There is a trendline in place that goes back all the way to February 2001. Nearly 6 years ago! We can clearly see over the years how price has always been drawn back to this trendline once it goes to the other side. This trendline has acted as either resistance or support 10 times in the last 6 years, and then only last week (Friday) price came down the test this line in around 1,9465 before bouncing off it upwards to the tune of 250 pips.

Now, here is the interesting part, in backing up your view on maybe the pound topping out. Price is currently finding itself in a wedge (previous 1st Dec. 2006 high line and this powerful trendline), a wedge that it will no doubt have to break out at some point in the future. Problem is that, if it breaks out to the top-side of its current 14 year high (1,9848), we will no doubt see a massive move up onto and, maybe, just beyond the very big 2.0000 number, but which would, of course, lead to major profit taking kicking in at this majorpsychological number and, hence, a big pullback.

Or, if the trendline I've drawn is conclusively broken to the downside, then a big drop in price would be on the cards, backing up the current COT data. Each time this line has been broken, either to the upside or to the downside, several hundreds of pips are easily put onto the table.

For those Fibonnaci fans out there as well, price has ALWAYS come back eventually to hit at least the first line at 23,6% since the major Cable low of 1.3689 back in June 2001 on any major run-up. That means that, if price has topped out on this big run-up that started back this time last year, price could be heading for a 1200 pip fall down to around the 1.8400 level, a previous resistance area, turned support, between June and August 2005 (the Big Dog traders remember those levels). One hell of a number to get to I agree, but this amount of pips has already been done by the cable to the upside in just last 2 months. So, why not?!

Food for thought for those position traders out there, and for the newbies, to show how price on the cable seems to always come back to this powerful trendline, no matter how far away price is at present. Hope it proves to be of use.

Have a great weekend.

Gary Connell
France

Fund outflows undermine Canadian dollar

USD/CAD Market Analysis from Investica

The Canadian economic data has suggested a moderation in growth, but with no evidence of a sharp downturn. Retail sales, for example, fell sharply in October, but this primarily reflected the impact of lower gasoline sales and underlying spending was firm. Employment levels have also remained relatively strong over the past few months. Headline inflation remains under control, but the core rate is above the 2.0% target level at 2.3% which will maintain some inflation concerns within the Bank of Canada. The most likely outcome is that interest rates will be left unchanged over the next few months. There will be concerns over the impact of a slowdown in the US economy and there is also the risk that investment funds will be withdrawn from the North American region which would undermine the Canadian currency, especially after recent tax changes. The trade account would be damaged by a sustained drop in commodity prices, but the current account situation will be robust and the fundamentals will still offer support. Overall, the US currency looks to offer little value at current levels even if gains extend to 1.16 in the short term.

Risk factors:
· A renewed tightening from the Bank of Canada would strengthen the Canadian dollar.
· A sustained downturn in US growth would increase concerns over Canadian trends.
· A further sharp retreat in oil prices could weaken the Canadian currency.

USD/CAD Forecasts:
Currency Spot (12-12): 1.1540
1-month forecast: 1.1580
3-month forecast: 1.1450
6-month forecast: 1.1250

Clear and insightful view of the economy

Dear Peter.

Tonight I was listening to an extremely interesting and enlightening video interview with Stephen Roach from Morgan Stanley as he was on a stopover in Sidney/Australia back on his way from China to the US. Please everybody make sure to listen to this report (link provided below). He gives an extremely clear and insightful view of the economy globally and locally.

Here is the link for Bloomberg: http://www.bloomberg.com/news/av/ Look for the report at the left side under “Audio/Video Reports”. This report should be listed there for several days. The tile of the report is: “Stephen Roach Sees U.S., China Driving Global Economic Slowdown”.

Christoph Lahrs