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Eurozone Finance Ministers Resume Greece Bailout Talks as EU Deadline Approaches

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The financial markets were on edge on Tuesday, as the pressure mounted on Eurozone finance ministers to reach an agreement over Greece’s loan program.

Greek and Eurozone finance ministers resumed talks in Brussels on Tuesday, where a war of words between Greece and Germany escalated, stoking concerns both sides were still far apart on a settlement. The European Union has given Greece until the end of the week to extend its current bailout program or risk losing financial aid. Athens has vowed not to extend the current bailout program and is seeking a six-month bridging loan to finance essential government activities. Greece’s €240 billion bailout program is due to expire on February 28.
Greece’s newly elected Prime Minister Alexis Tsipras said on Tuesday his government would give in to “blackmail” and would instead begin to enact new laws to reverse the bailout conditions. Tsipras told his Syriza party that the government would not compromise with Greece’s troika of lenders.

“We are not in a hurry and we will not compromise,” Tsipras told his far-left party’s lawmakers.

He added, “We are working hard for an honest and mutually beneficial deal, a deal without austerity, without the bailout which has destroyed Greece in recent years, a deal without the toxic presence of the troika.”

German finance minister Wolfgang Schaeuble reiterated his take-it-or-leave-it message, putting the pressure squarely on Athens to extend the troika’s loan program.

“The question still remains if Greece wants a program at all or not,” Schaeuble told reporters in Brussels after a second day of meetings.

Dutch finance minister and Eurogroup president Joroen Dijsselbloem echoed Shaeuble’s words and insisted that Athens seek an extension.

“It’s really up to the Greeks. We cannot make them or ask them,” he stated.

While the prospects of an agreement remain dim, the European Central Bank is not expected to cut off funding to cash-strapped Greek banks this week, according to sources. The ECB insists that Greece will remain part of the euro.

The euro rebounded on Tuesday, as investors disregarded the latest collapse in Greece bailout talks after German investor sentiment reached a 12-month high in February. ZEW’s economic sentiment index climbed 4.6 points to 53.0, as the current situation sub-index more than doubled to 45.5.

The EUR/USD climbed to an intraday high of 1.1445 on Tuesday. It would subsequently consolidate at 1.1394, advancing 0.45 percent.

The euro also rebounded against the British pound, as the EUR/GBP rose 0.54 percent to 0.7426.

GBP/USD Edges Lower amid Plunging UK Inflation

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Market Place
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Cross Rates, currencies and Exchange

The British pound edged lower against the US dollar on Tuesday, as UK inflation fell to its lowest level since 1989, although core inflation reassured investors Britain was not facing any systemic price collapse.

The GBP/USD tumbled 0.25 percent to 1.5321. The pair is testing initial support at 1.5320. A break below this level exposes 1.5277, followed by 1.5216. On the upside, initial resistance is likely found at 1.5424, followed by 1.5485 and 1.5528.

In economic data, UK consumer prices declined more than forecast in January, stemming from cheaper energy and food costs. Monthly CPI plunged 0.9 percent, the Office for National Statistics said on Tuesday. In annual terms, UK inflation was 0.3 percent in January, the lowest level since record keeping began in 1989.

Core inflation, which strips away volatile goods such as food and energy, advanced at an annual rate of 1.4 percent, the highest level in three months and reassuring investors Britain was not succumbing to Japan-style deflation. The steady rise in core inflation also removed doubts the Bank of England would delay raising interest rates this year. The latest fall in consumer prices is in line with the BOE’s forecast. According to central bank Governor Mark Carney, consumer prices will probably fall below zero before making their long climb back to target levels in the next two years.

In US data, homebuilder confidence weakened unexpectedly in February, as heavy snowfall throughout much of the United States weighed on home sales and buyer traffic. The National Association of Home Builders’ housing market index declined two points to 55 in February, compared with forecasts calling for a one point increase. A reading above 50 means home builders are generally optimistic about housing market conditions.

Despite the downtick, housing market conditions are likely to improve in the coming months, as more plentiful jobs and declining mortgage rates boost home sales. The US economy added 257,000 nonfarm payrolls in January, marking the 12th consecutive month employers added more than 200,000 jobs.

“For the past eight months, confidence levels have held in the mid- to upper 50s range, which is consistent with a modest, ongoing recovery,” said NAHB chief economist David Crowe. “Solid job growth, affordable home prices and historically low mortgage rates should help unleash growing pent-up demand and keep the housing market moving forward in the year ahead.”

The Department of Commerce will report on US housing starts and building permits on Wednesday.

EUR/USD Loses 1.14 Handle as Eurogroup Talks Yield No Results

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The euro declined against its US counterpart Monday after Greek and Eurozone finance ministers were unable to reach an agreement about Greece’s bailout program, fuelling concerns the Hellenic republic was edging closer to exiting the currency zone.

The EUR/USD tumbled nearly 80 pips to an intraday low of 1.1319. It would subsequently consolidate at 1.1342, declining 0.45 percent. The pair is testing the initial support at 1.1344. A break below that level would send the pair below the 1.13 mark. On the upside, initial resistance is likely found at 1.1435.

European finance ministers met in Brussels on Monday to negotiate Greece’s debt obligations. Negotiations fell through last week after both sides failed to reach common ground. Under the authority of newly elected Prime Minister Alexis Tsipras, Athens is seeking to restructure its massive €240 billion bailout package, which includes a bridging loan to fund the cash-strapped government over the next six months. Greek finance minister Yanis Varoufakis has stated that, unlike the existing bailout program, Greece would not accept demands for economic reforms attached to any bridging loan, and would only negotiate these terms after Greece’s public finances got some relief.

Monday’s meetings were unsuccessful, according to a Greek government official. Athens reportedly has only three weeks of cash left, placing added pressure on the country’s cash-strapped banks. Additionally, the European Central Bank will continue to offer emergency assistance only if it is tied to the existing bailout deal, which expires at the end of the month.

Varoufakis has remained defiant throughout the negotiations, having recently published a scathing op-ed in The New York Times titled “No Time for Games in Europe.”

“The lines that we have presented as red will not be crossed. Otherwise, they would not be truly red, but merely a bluff,” Varoufakis wrote in an op-ed that was published on February 16.

He added, “No more loans – not until we have a credible plan for growing the economy in order to repay those loans, help the middle class get back on its feet and address the hideous humanitarian crisis.”

Greece’s GDP has declined 25 percent since the Great Recession. The economy contracted in the fourth quarter of last year after posting three consecutive quarters of growth. The unemployment rate remained at 25.8 percent in November, Elstat reported last week. That’s a slight improvement over November 2013 levels, when unemployment was 27.7 percent.

Housing Data, FOMC Minutes to Drive US Dollar This Week

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Dollar, USD and American Market

The US dollar was little changed against a basket of currencies on Monday, as American traders paused to observe President’s Day. The greenback could face significant action this week, led by a slew of housing data and the minutes of the January 27-8 FOMC policy meetings.

The US dollar index, a weighted average of the greenback against a basket of six currencies, dipped 0.07 percent to 94.14. The dollar index tumbled sharply last Thursday following disappointing US retail sales.

On the economic calendar, housing data take centre stage this week. On Tuesday the National Association of Home Builders will release the monthly housing market index, a gauge of homebuilder confidence. The housing market index is expected to rise one point to 58 in February, nearing September’s nine-year high of 59. A reading above 50 is a general sign of optimism about housing market conditions, whereas a reading below that level denotes pessimism.

On Wednesday the Department of Commerce will report on housing starts and building permits, key indicators of overall housing activity. Housing starts are forecast to decline 1.7 percent to a seasonally adjusted annual rate of 1.07 million in January. Housing starts had rebounded sharply in December, rounding out the strongest year since 2007. Building permits are forecast to rise 2.7 percent in February, according to a median estimate of economists.

In addition to housing figures, the US government will release industrial production and producer inflation data on Wednesday.

Industrial production is forecast to rebound 0.3 percent in January after slipping 0.1 percent in December. The capacity utilization rate is forecast to rise to 79.9 percent from 79.7 percent.

The producer price index, which gauges inflation in primary markets, is forecast to fall 0.4 percent in January following a 0.3 percent drop the previous month. Excluding food and energy, the PPI is forecast to rise 0.1 percent.

The Federal Reserve on Wednesday will also release the minutes of its January Federal Open Market Committee policy meetings. The Federal Reserve announced last month it would be patient in starting to raise interest rates, a sign policymakers would keep monetary policy highly accommodative for longer than initially expected.

“Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy,” read the central bank’s January 28 statement.

The Fed added, “When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”

Greece, Troika Resume Talks Following Eurogroup Breakdown

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Financila Market, Frankfurt

Greece and its Troika of international lenders resumed talks on Friday after the Hellenic Republic failed to reach an agreement with its European partners at Wednesday’s ministerial meetings.

Talks between Greece and Eurozone finance ministers broke down on Wednesday after both sides failed to reach a political agreement on how to keep Greece financed past February. According to Eurogroup President Jeroen Dijsselbloem, no “common ground” was reached that would allow both sides to move forward.

“We need a political decision before the financial institutions can get to work. We might make the final progress we need at next Monday’s Eurogroup meeting,” Dijsselbloem said after Wednesday’s Eurogroup meetings.

The newly appointed Greek government headed by Alexis Tsipras has vowed to renegotiate his country’s €240 billion bailout plan and put an end to “cruel” austerity. His far-left Syriza party successfully campaigned on the platform of “anti-austerity,” promising its voters to raise the minimum and cut taxes. Syriza secured 149 of 300 seats in the Hellenic Parliament in January’s snap elections.

Monday’s ministerial meetings could be the last moment for the newly elected Greek government to ask for an extension of the current bailout program, which expires February 28. Mr. Tsipras said on Monday his country would not seek an extension of the current bailout, but would instead focus on finding a new agreement. Given the breakdown in talks on Wednesday, the Greek government may seek a “technical” extension to shore up support for broader reforms in the future. Sources close to the talks suggest Greece could ask for a longer bridge loan through August to cover the government’s immediate funding needs.

Despite suffering an immense economic collapse during the Great Recession, Greece is still part of the Eurozone’s long term plan, a sign European lawmakers are willing to consider relaxing some of the bailout terms. Greece’s exit from the Eurozone, it is feared, could trigger a mass exodus from the fledgling currency union.

In economic data, Greece’s economy shrank once again in the fourth quarter, official data revealed today. Greece’s gross domestic product declined 0.2 percent quarter-on-quarter, following an increase of 0.7 percent in the July to September period.

Meanwhile, the Eurozone economy expanded 0.3 percent in the fourth quarter, following a 0.2 percent increase in the second quarter. A median estimate of economists called for an increase of 0.2 percent. In annualized terms, Eurozone GDP expanded 0.9 percent, official data showed.

EUR/USD Edges Higher Amid Greek Bailout Talks, Disappointing US Data

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Dollar , USD

The EUR/USD advanced for a second consecutive day on Friday as Greece resumed talks with its Troika of creditors, while the US dollar continued to retreat following disappointing retail sales data.

The EUR/USD climbed 0.12 percent to 1.1413, easing off an earlier high of 1.1445. The pair is pacing toward a weekly gain of 0.75 percent. Near-term support is likely found at 1.1325. On the upside, initial resistance is likely found at 1.1461. A break above this level would expose 1.15.

Talks between Greece and its international creditors resumed on Friday in an effort to keep the country financed after February 28, the deadline for the current bailout program. Eurozone finance ministers will hold a second round of talks on Monday. Negotiations broke down earlier this week after Greece and its Eurozone counterparts failed to establish common ground on a new agreement.

Meanwhile, a fresh wave of violence broke out in eastern Ukraine after European leaders agreed to a peace deal in Minsk earlier this week, as rebel forces and Ukrainian troops fought for control over the strategic town of Debaltseve.

Growing instability in Ukraine could dampen near-term support for the euro and other “riskier” assets, as investors opt for the security of safe-haven assets like gold and the Japanese yen.

In economic data, Eurozone GDP rose faster than forecast in the fourth quarter, generating cautious optimism about the region’s nascent recovery. Eurozone GDP rose 0.3 percent quarter-on-quarter and 0.9 percent annually, official data showed. The gains were spearheaded by Germany, which rebounded sharply in the fourth quarter, growing at an annual rate of 1.6 percent.

The struggling Greek economy contracted in the fourth quarter, declining 0.2 percent.

Meanwhile, US data continued to disappoint on Friday, as consumer confidence tumbled from January’s 11-year high. The Thomson Reuters/University of Michigan consumer sentiment index dipped to 93.6 in February from 98.1 in January. A median estimate of economists called for no change.

American consumers are concerned about rising oil prices and were generally less upbeat about the labour market after hearing about layoffs in the oil and gas sector. Consumers’ appraisal of the current situation declined to 103.1 from 109.3, while the barometer of future expectations decreased to 87.5 from 91.

The greenback was generally weaker across the board on Friday. The US dollar index declined further to 94.04, falling 0.05 percent. The index is down 1 point from Wednesday’s high of 95.09.

A Trader’s Guide to Futures Part 1

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Forex Traders Chart

A future is a derivative contract in which two parties agree to make a specified transaction at a particular date in the future. Buying a futures contract forms an agreement under which the investor agree to buy the underlying asset at a future date. Selling a future means taking the opposite side of that trade.
This guide is written as a general overview of the world of futures for those interested in exploring the market. Likely the most important piece of the derivatives market, the futures market offers a low cost way to bet on price changes, to hedge against those changes and to access asset markets without geographic or chronological limit.

Because of the intense multiplicity of futures contracts, it will be impossible to study any of them in any detail in this guide. Instead, reading on will offer you a broad glimpse of what futures are exactly, how they affect the market and under what circumstances they can be useful, or profitable, for investors.

The first part of the guide will concentrate on what futures are exactly, and why they differ from the more talked about financial instruments.

What are Futures?
Futures are, at their most simple, contracts selling goods that have not yet been produced. A farmer may decide to sell his entire crop production before realizing it, in order to get cash up front. In order to do this, it will have to be sold at a lower value than the expected yield. If a contract is struck, cash changes hands on Day 1, while crops don’t change hands until the agreed delivery date. The buyer of the contract takes on all of the risk of the transaction.

This is, in fact, the exact situation under which the futures contracts of today evolved. A farmer’s cash supply is extremely limited throughout the year, and futures allowed financial planning based on an agreed price for crops, and a way to ensure cash-flow if major expenses should come up.

Grain is still heavily traded through futures contracts, and farmers still face the exact same problems they did a century ago. Many other assets have been added to the market, however, from the obvious commodities, like fruit, vegetables, beef and oil, to the more abstract, like bonds, company stock and other derivatives.

A future is a type of derivative, meaning that it is a contract that refers to an actual asset. Its price moves with the underlying asset, in this case grain, but the actual asset isn’t traded or directly connected to the contract. There is no specific ton of corn that must be delivered on the expiry date.

The important difference between the grain contract struck by the farmer and today’s futures is that today’s instruments can be traded openly. The futures market is very liquid in most cases, allowing you to buy and sell contracts without having to worry about storing a ton of grain.

Leverage and futures
Leverage means debt, and one of the most powerful features of futures contracts is the ability to pay for them in part, leaving the balance of payment outstanding until some future date, often the same as the expiration of the contract. A short example will illuminate the power of leverage while giving an insight into the workings of a futures contract.

Day One: a contract is struck putting the price of a ton of grain at $100. The Buyer, or Investor, agrees to pay the Seller, or Farmer, $10 upfront and the remainder on the Expiry Date, or harvest.

If the weather is worse than expected and the price of grain jumps to $110 per ton a few weeks later, the buyer will be able to sell the contract for that amount, less the $90 outstanding, and make a $10 profit. With the contract sold, he has no more obligation to the farmer so the total investment was $10.

Leverage allowed the investor to make a 100% return. The margin on this investment was 10% allowing a multiple of 10 on all returns. If the margin was 5% it would have allowed a multiple of 20, but both buyer and seller would have to agree to the margin. In practice, margins on futures are decided on by the brokerages that sell them for the most part.

Astute observers will have noticed that if the price of grain fell, let’s say to $90, on the above contract, the Investor would have lost his entire investment. If it had fallen even lower, the Investor would have been forced to pay out more than he invested in the first place. This is called a margin call, and it is what makes leverage such a powerful and risky tool for investors.

Futures summary
-A future is a contract whereby the seller agrees to sell some asset to the buyer at a specified date.

-Futures can be traded openly at any time up to the expiration date, at which the difference must be settled.

-Futures can be leveraged, or bought on credit, meaning returns can be magnified and investors can lose more than they initially invested.

 

Related article:

A Trader’s Guide to Futures: Part 2

Australian Dollar Loses Traction Ahead of Employment Figures

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What Makes an Elite Trader

The Australian dollar declined against its US counterpart Wednesday despite stronger than forecast consumer confidence and home loans figures, as the markets shifted their attention to Thursday’s employment report.

The Aussie fell back toward 77 cents US on Wednesday after attempting a re-test of the 78-cent level in the overnight session. The AUD/USD consolidated at 0.7705, declining 0.86 percent. The pair faces initial support at 0.7690 and resistance at 0.7826.

In economic data, Australia home loans rose faster than forecast in December, raising concern the country’s housing market was overheating. Home loans increased 2.7 percent in December, following a 0.4 percent drop the previous month, the Australian Bureau of Statistics reported Wednesday.

The value of investor loans rose 6 percent to a record AUD $12.56 billion, well above the average monthly increase of 2.6 percent over the last six months.

On Tuesday Westpac said Australian consumer confidence rose briskly in February, as falling energy prices lifted optimism about family finances and the overall economy. The consumer confidence index rose 8 percent to 100.7, a 13-month high.

The ABS will release January employment data on Thursday. The Australian economy added 37,400 total jobs in December, following a gain of 45,000 in November, rounding out the strongest two-month period of job creation in eight years. Full-time employment soared by 41,600 in December, while the unemployment rate dropped to 6.1 percent from 6.2 percent.

Despite a more robust job market, the Reserve Bank of Australia last week cut interest rates for the first time in 18 months, setting the stage for another rate cut in the next several months. The central bank also lowered its 2015 growth and inflation forecasts and said unemployment will rise, underscoring the need for more accommodative monetary policy.

According to the revised forecast, the Australian economy will expand between 1.75 percent and 2.75 percent this year, down from the previous estimate of between 2 percent and 3 percent. Consumer inflation is forecast to slow to 1.25 percent in the year through June.

The RBA has long held that the Australian dollar is overvalued, giving policymakers plenty of scope to drive down interest rates. The AUD/USD has declined nearly 6 percent since the start of the year and is expected to fall below 75 cents in the short-term. According to BlackRock, the world’s largest asset manager, the Aussie will bottom out below 70 cents US in the first half of 2015.

USD/CAD Loses NFP-Inspired Rally amid Higher Energy Prices

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Dollar, USD and American Market

The North American currency pair back was on its heels Monday, as rebounding energy prices and better than expected Canadian housing starts supported the Canadian dollar.

The USD/CAD declined more than half a percent to 1.2454. Initial support is likely found at 1.2417 and resistance at 1.2589.

The pair rebounded on Friday after the United States Department of Labor said nonfarm payrolls rose by 257,000 in January, following upwardly revised gains of 429,000 and 329,000 in November and December, respectively. The unemployment rate edged up slightly to 5.7 percent from 5.6 percent as more people entered the workforce, while average earnings rose at the fastest rate in six years.

The stronger than forecast report sent the US dollar surging and supported expectations the Federal Reserve could signal for higher interest rates by midyear. Speculation about a midyear rate hike had cooled in recent months amid sluggish domestic growth and global volatility.

The loonie received a boost on Monday after the Canadian Mortgage and Housing Corporation reported stronger than forecast housing starts in January. Canadian housing starts rose to a seasonally adjusted annual rate of 187,300 in January, up from 177,600 in December and compared with expectations for 177,500.

Rebounding energy prices also helped shore up the Canadian dollar. Crude prices advanced for a third day, as West Texas Intermediate for March delivery rose $1.46 to $53.15 a barrel. Global benchmark Brent crude jumped 43 cents to $58.23 a barrel.

The USD/CAD faces further upside in the short- and medium-terms, as the market continue to price in a much lower Canadian dollar. The loonie’s prospects have been shattered over the last seven months, in part by declining commodity prices but also because of a weaker domestic economy. Canada’s gross domestic product is expected to increase just 1.5 percent in the year through June, according to the Bank of Canada’s said last month. That’s nearly 1 full percentage point below the Bank’s previous forecast.

The BOC joined a growing list of central banks to cut interest rates in January. The Bank reduced its target for the overnight rate by 25 basis points to 0.75 percent. That was the first rate adjustment since September 2010. According to analysts, the BOC could slash interest rates by another 25 basis points by midyear to cope with weak energy prices and deflationary pressures.

Canadian consumer prices declined 0.7 percent in January, as annual inflation slowed to 1.5 percent from 2 percent.

The Wonderful World of Spread Betting

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Market Place
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Financial Analytics

Do you have a feel for the stock market but no wish to deal with brokers, tax calculations and other complexities? Spread betting might be for you, but you should read a little about it first. The risky practice involves getting exposure to price action without putting money down, a dream for many quick and casual traders.

Spread betting has been a big hit in recent years despite its illegality inside the United States. A financial spread bet is, at its core, a mix between betting on a horse and investing in a stock. You make a direct closed gamble on stock prices without actually ever buying a share on the market. This is usually called a derivative, and big banks use what are essentially the same mechanisms to bet on everything from the housing market to the price of cobalt.

How does spread betting work?
You make an agreement to bet on a security, lets say oil,  at a sum, let’s say $1000, and decide what each point change is worth, let’s say $1. You’ll also need to pick an expiry date as these contracts don’t run indefinitely. A point is an arbitrary value that can change based on the security traded. For this case let’s assume that one point is a one cent increase in the price of oil. That means you can earn $100 if the price increases by $1.

A spread-betting broker offers you a buy/sell price on the deal, the same way a stock broker would, and you invest your $1000.

In a winning case the price of oil increases by $10 and you double your money: ($10*100 points per dollar=$1000). In order to make $1000 on a $10 increase in a barrel of oil through traditional means you would have to have invested $10,000 to start with, and that’s not taking into account the taxes, commissions and charges that you’ll encounter.

If the price of oil drops by $10 you lose all of your money, however, and if the price drops $50 you lose more than you invested to begin with.

The buy price will be a little higher than the market average and the sell price a little lower, allowing the spread bettor to earn its revenue from those margins. That means that if the market price on a Brent contract is $50, the spread bettor might offer you it at $51.

Spread bets are generally much cheaper than investing on the stock market and they carry a much higher reward for successful participants. They also incur no taxes on their winnings if they’re in the UK, augmenting the gains relative to an investment in the stock market.

Through spread betting you’ll be able to invest in markets that are otherwise prohibitive in terms of cost, or nigh-impossible to get involved in with the amount of money you’re working with.

Why would anybody buy stocks again?
With the advent of spread betting and its lower-cost model, it may be difficult to see why anybody would ever buy stocks. The simple answer concerns risk tolerance. A smart investor knows they’re going to be wrong at some point, if not regularly, and balances their risk profile to suit. That means they’re unlikely to lose everything in a single day, and they can’t ever lose more than they have invested.

Risks in spread betting are also increased by exposure to the spread betting company. Some have been around a long time and are relatively trustworthy, but others are relatively new. A spread-betting company could go bust at any time and take your money with it.

Last but not least, not everybody buys stocks to make capital gains. Some traders prefer to play a slower game by collecting dividends and watching their holding slowly appreciate. Actually owning a share also gives you a say in the running of the company, and a vote at the company meeting.

Spread Bettors
Most of the market for spread betting is in the UK, though some of it takes place internationally through international brokers. Here we list some of the bigger spread betting companies out there. Find one that’s right for you, but be aware of the risks involved in this type of trading.

IG: The inventor of the market, it has 41% of the UK spread-betting market. IG along with the others on this list are regulated by the Financial Conduct Authority.

DF Markets offers spreads starting at just 0.6 points and lets you bet on market indices around the world as well as commodities and currencies.

Spread Co is unique in offering a dedicated relationship manager to each of its clients, and allows newbies to try their luck with a minimum deposit of just £25 and trading at just £1 per point.

Capital Spreads offers an incredible array of resources and tools to improve the trading experience, and hopefully the results. The company allows newbies to come in at a low initial deposit to get a feel for the market and some of the tools on offer.

Finspreads basically invented the browser best spread-betting paradigm and the company still offers one of the best packages around. The company has a large number of resources, and offers tight spreads on a range of securities.

EUR/USD Holds Ground as Political Tensions Escalate

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Market Place
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Dollar , USD

The euro was little changed against the US dollar on Monday, trading above 1.13 cents US ahead of the European Union meetings in Brussels. The meetings, which will be held on Wednesday, will be attended by newly appointed Greek Prime Minister Alexis Tspiras and German Chancellor Angela Merkel.

The EUR/USD climbed 0.06 percent to 1.1326. The pair is likely supported at 1.1259. Resistance is ascending from 1.1435.

Risk-off trading was the norm on Monday, as investors digested latest comments from the newly appointment Greek Prime Minister, who on Sunday outlined plans to dismantle the Troika’s “cruel” austerity plan. Tspiras said he would not extend Greece’s €240 billion bailout plan set to expire at the end of the month, setting the stage for a political standoff with the country’s European lenders.

European Commission President Jean-Claude Juncker fired back on Monday, telling Greece the supranational institution would not bow to its demands.

“Greece should not assume that the overall mood has so changed that the Eurozone will adopt Tspiras’ government program unconditionally,” Juncker said in Germany on Monday.

Tspiras’ far-left coalition swept to power last month on a platform of “anti-austerity,” promising voters to raise the minimum wage, cut taxes and negotiate a new bailout agreement with international creditors. The Syriza party secured 36 percent of the vote and 149 of 300 parliament seats.

Meanwhile, escalating violence in Ukraine continued to weigh on market sentiment, driving investors to safe haven assets like the Japanese yen and gold. At least 45 Ukrainian soldiers and 11 pro-Russia fighters have been killed in renewed violence in the eastern part of the country, prompting the EU to postpone Russia sanctions ahead of the Minsk summit. German Chancellor Angela Merkel arrived at the White House on Monday to meet with US President Barrack Obama around the issue of whether to arm the Ukrainian government against Russian separatists.

In economic data, Germany’s trade surplus widened more than forecast in December, capping off a record year for international trade and signaling that Europe’s largest economy was improving. Germany’s trade surplus reached €217 billion in 2014, shattering the previous record of €195.3 billion. The country posted a surplus of €21.8 billion in December, up from €18.3 billion in November and compared with the consensus forecast of €17.9 billion. Exports rose 3.4 percent, while imports declined 0.8 percent from November, official data showed. Economists forecast exports to rise only 1 percent in December.

How Do Central Banks Affect Exchange Rates

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Market Place
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Trading and exchange analysis

We all know that central bank decisions are some of the most influential occurrences on the forex markets, but how do the actual mechanics work? When the Bank of Japan lowers interest rates, the SNB stops buying Euros, or the ECB starts buying bonds, what’s going on?
Here we’re going to have a look at the basic mechanics that cause central bank decisions to hit the forex markets. The important thing to remember is that old solid Supply and Demand. Currencies trade based on this in the same way as any other commodity. Central Banks have to affect on, the other or both in order to change exchange rates.

Interest rate changes
Back before 2008 central bank’s simply wouldn’t attempt to intervene overbearingly in markets and interest rate changes were the only likely outcome of a meeting of the Federal Reserve. When the Federal Reserve changes its interest rate, it changes the relative benefit of keeping money in one currency instead of another.

If the central bank increases the interest rate, bank rates and bond rates in the United States tend to go up. If everything else remains equal the US dollar is more attractive to hold that the euro or yen and money begins to flow into the country’s investments.

Basically the price of the currencies with higher interest rates will go up until no more money can be made through simple transfers. On the financial markets, as you can see after major interest rate decisions are made, this happens almost instantly.

Direct market intervention
This is the actual buying and selling of currencies by central banks designed to influence exchange rates. At its simplest level it involves affecting the demand for one currency in another by central bank intervention. It can take several different forms in specific cases, however.

The best example in recent years has been the intervention of the Swiss National Bank which set the maximum exchange rate at 1.2 Franc to the Euro in 2011. The central bank kept its currency low against the euro by printing francs and using them to buy euros, meaning there would always be infinite supply of Francs at that level and none above it. Nobody is going to sell 1.3 francs for a euro when the central bank is selling them at 1.2.

This, of course, was risky for the Swiss National Bank and was a last gasp policy designed to reduce the impact of serious deflation brought on by a flight to safety during the financial crisis.

The other, more common side of direct intervention is propping up a currency: a practice Russia attempted sporadically through 2014. This involves buying your own currency with the central bank’s foreign currency reserves. This is an unstable practice that can result in the bank running out of reserves, and the weakening of the currency accelerating as a result.

Quantitative easing and other innovations
Less understood than direct intervention because of its novelty, QE involves printing currency in order to buy securities, i.e. bonds and equities. The US began doing this several years ago and was followed by the ECB, the BoE and the BoJ. The way it affects currencies is still debatable, but the central theory references two factors: increase in currency supply and lower interest rates.

Buying US treasuries at such a level means that yields fall substantially, lowering demand for the dollar to buy them in and having a knock-on effect on interest rates across the economy, and having the same effect, at one level, as a change in interest rates.

Increasing the money supply by such a margin, 60 billion euro in the case of the ECB program, every month creates a downward pressure on the price of the currency compared to others.

This has been the basic effect of easing programs in the US, Japan and the UK, but the ultimate result of the European program remains to be seen. Further study as central bank innovations keep popping up will result in greater understanding of these mechanics.

Predicting movement

The above gives an outline of the mechanics that central bank decisions drive on the market, but there’s so many factors affecting the supply and demand for currencies that none is a guaranteed bet. Take any currency chart and look at it through the last seven or eight years to get an idea of the unpredictable volatility that drives forex at certain points in time.

Knowing is half the battle, however, so getting used to the way that central bank decisions are made, and learning about these mechanics and the decision making apparatuses behind them will put you ahead of the average market participant and give you insight into the more complicated derivative results of central bank intervention.

A Trader’s Guide to The IMF

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The International Monetary Fund is one of the most important market movers out there. Its actions have caused turmoil on the markets in recent years, and since its inception. Few traders understand the importance of the institution, however, and fewer still are able to predict its effects on the world markets.
This guide takes a look at the IMF from the basics of what it is and how it works to more complicated descriptions of how it pushes world markets and why traders should be keeping an eye on it.

What is the IMF?
The IMF was set up by the Bretton Woods agreement as part of the system of weights and governance that kept semi-fixed exchange rates in place across the world. It’s goal was then, and is still, international monetary cooperation.

The institution has several principles that are pillars in its vision of a globalized free trade system. It wants to minimize trade imbalances and create currencies that float freely with maximum stability, an approach designed to maximize trade between all countries. It is one of the three most important multinational economic institutions, alongside the World Bank and the World Trade Organization.

How does it work?
The IMF is an organization of 188 countries, each giving its share of funds to the organization. Operating like a company, the funds also determine the amount of votes each country has. That means that the United States, which has the most votes, has close to three times the voting power of the second biggest contributor Japan.

Policy is decided by the Board of Governors, a body made up of two representatives from each country, a governor and an alternate. These are usually the highest profile financial controllers from the respective countries. For example, the United Kingdom’s representative is the Chancellor George Osborne. His alternate is the Governor of the Bank of England Mark Carney.

The Board of Governors delegates day to day operations to the Executive Board of 24 members. 8 of these members: the USA, Japan, Germany, France, the UK, China, Russia and Saudi Arabia get their own representative. The other 16 spots represent constituencies of between 4 and 22 countries each.

The IMF board elects a Managing director, currently Christine Lagarde.

Why does it affect my investment?
There’s three basic ways that the IMF works on the financial markets, the first is through information and analysis releases, the second through its existence as a lender of last resort, and the third in its actual dealings with countries. We’ll deal with each of these issues separately here, though they’re often intertwined.

Information and analysis

The International Monetary Fund is constantly releasing information about the basic state of the world economy, from simple data collection to forward looking analyses of global and regional trends. This is some of the most highly regarded economic data and analysis on the planet, and it has been known to move markets.

Example of important, market-moving reports include the organization’s World Economic Outlook, anything it releases on a country in an IMF program, and its case studies on economic performance and reforms.

Lender of last resort

The IMF acts as a lender of last resort for the lenders of last resort. This is a passive effect of the organization. Its impact is priced into the market, and it’s generally clear that countries have options other than outright default when they run into financial trouble.

This may not effect the market directly, but it has a logically compressing impact on bond yields around the world. Recent action in Europe has strengthened this part of the IMF’s reputation. This effect is implicit, meaning it will only move markets if it is questioned, or confidence in its ability to achieve this end falls.

IMF loans

When a country hits rock bottom and it can no longer afford the interest rates the markets levy, it heads to the IMF for a dig-out. Conditions are usually attached to these loans, and are sometimes controversial. As can be seen from several events in recent years, markets stand up and react when the IMF steps in.

This has been most apparent in Europe in recent years. IMF intervention in countries like Greece and Ireland forced changes in government policy, and completely revolutionized the way European bonds were treated by the world market.

This is the most dramatic way in which the IMF has an effect on markets, but it is not as uncommon as might be believed. Loans from the IMF have increased in recent decades, and dozens of countries are currently in some kind of IMF program.

Canadian dollar rebounds sharply as oil prices rise

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The Canadian dollar advanced on Monday as oil prices continued to rally, while US consumer spending declined at the sharpest rate since 2009 and manufacturing activity softened.

The loonie, as the Canadian dollar is known, rose 0.8 percent to 0.7941 US, erasing Friday’s losses. The USD/CAD exchange rate tumbled more than 100 pips to 1.2590. The pair faces initial support at 1.2510 and resistance at 1.2805.

Canada’s currency has declined for ten consecutive weeks against the US dollar, as plunging oil prices and weak fundamentals have weighed on the commodity-sensitive currency. The loonie faced renewed selling pressure two weeks ago when the Bank of Canada unexpectedly reduced its trend-setting interest rate to 0.75 percent and downgraded its economic outlook.

Rising oil prices helped lift the Canadian dollar on Monday. West Texas Intermediate for March delivery rose 1.6 percent to $49.01 a barrel. Global benchmark Brent crude rose more than 2.3 percent to $54.23 a barrel.

In economic data, Canadian manufacturing softened in January, the Royal Bank of Canada reported today. The RBC manufacturing PMI declined from 54.9 percent to 51 percent in January, as overall business conditions improved at the weakest rate since April 2013.

US manufacturing activity cooled again in January, as new orders continued to moderate, the Institute for Supply Management reported today. ISM’s monthly gauge of US manufacturing declined from 55.5 to 53.5. New export orders declined for the first time in 26 months, as only five manufacturing sub-sectors reported growth.

In a separate report the Department of Commerce said household spending declined at the sharpest rate since September 2009, a sign consumers were pinching their pennies toward the end of the holiday season. US personal spending declined 0.3 percent in December following a 0.5 percent advance the month before. However, personal incomes increased 0.3 percent. Combined with cheaper gas prices, higher incomes translated into a 4.9 percent increase in the saving rate.

Monday’s data deluge wrapped up with construction spending, a key indicator of US housing activity. Construction spending rose 0.4 percent in December, well below estimates calling for 0.7 percent. The November rate was revised up to reflect a 0.2 percent drop instead of the 0.3 percent decline reported last month.

The US government will report on factory orders on Tuesday, followed by services PMI and employment data on Wednesday. The United States and Canada will each report on international trade on Thursday.

Betting on The Black Swan: Getting Rich The Impossible Way

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Financial Think and Analysis

Nassim Nicholas Taleb is a trader and a philosopher. His books about the way people think about probability have been obscenely influential, and trading strategies based off of his ideas are becoming an indelible part of the market.

His strategies center around the idea of the “black swan,” an event that’s incredibly unlikely to happen according to the models but has significant power on the market when it does. He made a great deal of money from betting on these events over the last few decades, leveraging what he saw as the mis-pricing of options in order to generate massive returns.

Finding a Black Swan
Taleb defines a black swan event with three attributes: (1) It’s wholly unpredictable given current models, (2) its effect is powerful, and (3) it is incorporated into models after it happens. You can have a better chance of calculating the likelihood of these events than other traders, but Taleb is emphatic on one point, you cannot predict the black swan and you shouldn’t be trying to.

Betting on a black swan isn’t about trying to predict what’s going to happen next year, it’s about finding bets that are mis-priced because nobody has calculated the odds of them properly. Taleb made his money on options that covered all sorts of low probability thresholds that were eventually crossed, most notably during the 1987 stock market crash.

These events may only happen on average once every hundred years, but if you have a hundred of them, you start to average one a year. The payoff is, at the same time, incredibly high because of the extremely low probability. Balancing a portfolio around this idea can be incredibly lucrative, but it’s not for the lighthearted.

You need a strong background in valuing options in order to make this strategy work but, most importantly, you need to know how to build a portfolio. If you’re investing your own money on long term chances, you may run out of cash before anything has a chance of paying off.

Building a black swan portfolio
There’s no case in which an investor should rely entirely on long-odds high-payoff investments to make his money for him, especially when the odds are so long that they’re impossible to calculate. You need to build a portfolio that can offer a steadier stream of income while you wait for the big bets to pay off, assuming they will, or at least one that ensures you don’t lose all your money.

In order to accomplish this, Taleb advises a portfolio in which 80-90% of the money is put in something extremely safe, with Treasuries being the generic instrument, while the rest of the money is invested in out-of-the-money options that carry ridiculous levels of risk.

This portfolio, which he titled the barbell, means that there is a guaranteed floor. You can’t lose your safe money. At the same time there’s huge upside from that once-in-a-hundred year event. If you aren’t familiar with options, however, or you’re not disciplined in your creation of a portfolio, trying to follow this strategy may be enough to wipe you out completely.

Don’t rely on the black swan
It’s been close to thirty years since Taleb discovered the power of so called out-of-the-money options, and many traders have invested in strategies that mirror his in the intervening years. That has risen the price of options covering the kinds of trades he made his name off of.

He was gifted with the 1987 stock market crash as a demonstration of the power of this idea, but he does not believe that strategy would automatically an ordinary investor, simply because there isn’t enough information to price the risks, and therefore, the mean time to happen, properly.

The bottom line is that this strategy takes a lot of work and involves a lot of risk if mismanaged. The original idea was to hold a tiny portion of your money in options for the long term while keeping the rest in something with a lot of safety.

Many investors go for broke investing in what they believe is a Taleb inspired portfolio, forgetting that he was working for an investment bank, and playing with their money, when he invented the strategy.

There’s still money to be made in this area, and there’s still plenty of mispricing of options going on every single day. You have to know when to buy them, however, how to price them, and know how to build a portfolio around them. If not, your returns are going to look downright bad, and you may spend forever waiting for the black swan.

6 Central Banks That Rule Forex

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The role of central banks in deciding exchange rate levels cannot be overestimated. If you want to trade currencies you need to understand what a central bank is, and how it controls exchange rates.

The actions of these institutions drives the day to-day fluctuations in the forex markets, but who are they, and how do they work? Here’s  a look at the 6 most important central banks in the world, and the way they make their decisions.

1. The Federal Reserve
This is the big one. The Federal Reserve is the most talked about, and by far the most important, central bank on the planet. The Dollar is the currency of world trade.

How does it work? The seven governors, appointed by the president and confirmed by the senate, serve 14-year terms. The meet once every six weeks with 5 of the 12 presidents of the district reserve banks to form the Federal Open Market Committee. This committee decides interest rates, and more dramatic actions by the central bank.

What does it want? The Federal Reserve’s dual mandate is full employment and stable prices, meaning it wants to keep both inflation and unemployment low. This goal, which is wider than that of many other central banks, is what allowed actions like quantitative easing to take place based on unemployment figures rather than inflation numbers.

2. The European Central Bank
The guardian of the European common currency, the ECB was set up by a treaty between the member states of the Eurozone, which now number 19.

How does it work?  The decision making body of the bank is made up of the 19 heads of regional central banks and six executive board members nominated by the governments of the bloc in concord with each other. The bank’s governing council meets twice per month in Frankfurt, and announces its monetary policy decisions at the first of these.

What does it want? Enshrined in treaty, the objective of the ECB is clear: maintain price stability in the Eurozone. This is the reason that the ECB was not able to introduce QE-style program to allay the effects of unemployment. The bank was only allowed to interfere on the grounds of dangerous deflation.

3. The Bank of Japan
The keeper of the Yen since the nineteenth century Meiji Restoration, the BoJ is the monetary policy decision maker of Japan.

How does it work? The committee of the bank of Japan is made up of nine members, including a governor and two deputy governors. The committee meets once or twice per month in order to decide the country’s monetary policy.

What does it want? The bank of Japan doesn’t have the kind of clearly defined goals that the Fed or ECB have, making it a little less predictable. It’s mandate gives it reign to implement monetary policy and ensure the soundness of the financial system while maintaining price stability, though it doesn’t put any of these goals on a pedestal above the others.

4. The Bank of England
By far the oldest bank on this list, and the one that the rest have based themselves off of, the Bank of England has been around for more than three hundred years.

How does it work? Tricky because of its reliance on British traditional politics for guidance, the Bank of England’s monetary policy is decided by a committee which is made up of nine members and meets once every month.

What does it want? Price stability is currently the main goal of the BoE, but that can change as it’s the government that chooses the inflation target, and the overall objective can be amended by act of parliament. If the bank misses that target by a wide margin it has to explain its mistakes to the Chancellor of the Exchequer.

5. The Swiss National Bank
Established in 1907, the Swiss National Bank floats 45% of its shares on the stock market, and is the only central bank on this list that actually makes a profit.

How does it work? The SNB is supposed to conduct it monetary policy decisions as if it were an independent central bank. The governing board of the SNB has three members who are responsible for decisions on monetary policy. It decides interest rates quarterly.

What does it want? Price stability, including a definition thereof, is the central goal of the Swiss National Bank, though it has a secondary goal of accounting for economic developments in order to foster an atmosphere that supports economic growth.

6. The People’s Bank of China
Unusually opaque, the People’s Bank of China acts as the central bank for the yuan. It was the only bank in the communist country for decades, but the liberalization of the banking system left the PBC squarely with the duties of a central bank.

How does it work? China’s monetary policy is decided by  a committee which includes the governor and two deputy-governors of the PBC, along with representatives from government, regulators and an academic. The committee meets quarterly.

What does it want? The goals of the monetary policy committee are set to be prescribed by the State Council, meaning they’re unusually amendable.

USD/CAD Weekly Outlook

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The USD/CAD advanced for a tenth consecutive week last week, climbing to a nearly six-year high of 1.2794. The pair gained more than 9.5 percent in January, as the Canadian dollar continued to struggle with plunging oil prices and a shaky domestic recovery.

The USD/CAD was trading at 1.2700 in Monday’s early Asian session, as investors set their sights on a deluge of economic data from both countries. Below is a breakdown of this week’s major market movers.

Monday

On Monday the United States Department of Commerce will report on personal income and outlays for December. A slight increase in personal income is expected, although consumer spending is forecast to drop 0.2 percent in December following gains of 0.6 percent the prior month.

Separately, the Institute for Supply Management will release its monthly manufacturing PMI. US manufacturing activity is forecast to remain steady in January following a protracted slowdown in the second half of the year.

Tuesday

On Tuesday the US government will report on factory orders, which measure demand for durable and non-durable goods. According to forecasts, factory orders were unchanged in December after falling 0.7 percent the previous month.

Wednesday

ISM will release its monthly non-manufacturing PMI on Wednesday, an important gauge of US service activity. US services PMI is forecast to rise 1 percentage point to 57.2 in January.

Separately, the ADP Institute will release an advance estimate of US private sector employment growth. Last month the ADP said US private payrolls rose by 241,000 in December. Economists expect a January tally of 215,000.

Thursday

The United States and Canada will report on international trade in the latter half of the week. The US trade deficit reached an 11-month low of $39 billion in December, as oil imports fell to their lowest level in two decades. Meanwhile, Canada’s trade deficit widened in December, as oil exports fell to their lowest level since January 2012.

Friday

The most anticipated data releases of the week come Friday when both countries report on employment. According to forecasts, the US economy added 230,000 nonfarm payrolls in January after registering the strongest year of job creation since 1999. If forecasts hold, January would mark the 12th consecutive month of above-200,000 job gains.

Canadian employment is forecast to rise 5,100 in January after contracting unexpectedly the month before. Statistics Canada last week lowered the number of jobs gained in 2014 from 185,700 to 121,300. The statistics agency also revised the unemployment rate for December from 6.6 percent to 6.7 percent.

Euro rallies as technical trading outweighs German deflation

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Dollar , USD

The EUR/USD rallied on Thursday, as technical trading sent the pair higher amid mixed economic data from Germany.

The EUR/USD regained 1.13 and climbed to an intraday high of 1.1367. It would later consolidate at 1.1320 in the North American session, advancing 0.4 percent. Initial support is likely found at 1.1253 and resistance at 1.13355. The EUR/USD could sustain a larger rebound above the initial resistance test as the RSI climbs off oversold levels.

Technical trading supported the euro despite plunging German inflation, which highlighted even more so the downside risks facing the Eurozone economy. Germany’s consumer price index of goods and services declined more than forecast in January, plunging 0.3 percent annually.

Germany’s harmonized CPI rate, which calculates inflation using a method consistent throughout the European Union, declined 0.5 percent annually, the biggest drop in more than five years.

The European Central Bank last week joined a growing list of central banks that have eased monetary policy this month to account for deflationary risk. The ECB introduced its long-awaited quantitative easing program last Thursday, announcing it would begin buying government bonds worth €60 billion per month. The QE program, which is expected to last until at least September 2016, could inject up to €1 trillion into the Eurozone economy.

The EUR/USD plummeted to fresh 12-year lows following the news and risks further downside action as the markets brace for weaker inflation figures and diverging central bank policies between the ECB and United States Federal Reserve.

In a separate report today Germany said its unemployment rate fell in January to its lowest level in more than two decades, a sign Europe’s largest economy was gradually improving despite regional imbalances. Germany’s unemployment rate fell to 6.5 percent in January, down from 6.6 percent a month earlier. That was the lowest level since the reunification of East and West Germany in 1990.

An improving labour market and cheaper gas prices are lifting German consumer sentiment, according to GfK. The market research firm’s monthly consumer confidence index reached 9.3 in February, a 13-year high.

“Consumers are expecting the German economy to continue developing positively over the coming months,” GfK reported on Wednesday in a press release.

It added, “Falling energy prices will play a major role in this respect. Low energy prices combined with a considerable depreciation in the euro are acting as an economic stimulus and should boost not only exports, but also companies’ willingness to invest.”

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