AudJpy 79% Chance of a wave 3

 Daily Audjpy
This Pattern is a complex corrective Pattern in which wave A and B are corrective and wave c is a tredn pattern. IN addition Wave b approaches the origin of wave A. It is common corrective pattern which takes the form of a sidewaves correction Wave B is almost never a flat itself

Never the less The Minimum proportion requirement for the wave count has been meet with a 79% chance of succeeding its targets. of 1st Target 83.67 and the Target ii will be 85.63.

ON the 4hr hours Price has broken its wave 1,2 dwn teasing biders to intaite a wave 3 bullish trend to alrest 84.31

Olympic Village Gbpusd abc decline?

gbpusd

Position: - Short at 1.5750
Target:  - 1.5630
Stop:- 1.5785

The pound took advantage of some weak data out of the US, including Pending Home Sales and GDP figures. As well, speculation that the Fed may step in to help the US economy led to some weakness in the US dollar.

lthough the British pound has risen again and broke above previous resistance at 1.5738, loss of near term upward momentum should prevent sharp move beyond 1.5768-70 and price should falter below indicated upper range at 1.5778, risk from there is seen for a retreat later. Below intra-day support at 1.5666 would suggest intra-day top is formed, bring weakness to 1.5645-50, then 1.5620

1.5586-89) would limit downside, bring another rise later.

In view of this,  Only above resistance at 1.5778 would abort and signal an upside break of indicated range of 1.5393-1.5778 has occurred, then outlook would turn bullish for further headway to 1.5820-25, then 1.5850.

Net Lending to Individuals: Monday, 4:30. The indicator has been very steady in recent months, with a previous reading of 1.3 billion pounds. However, the markets are forecasting a sharp drop for this reading, down to 0.8B.
CBI Realized Sales: Monday, 6:00. The indicator sparkled in June, with a reading of 42 points. The market estimate for July is a still-respectable 18 points..
GfK Consumer Confidence: Monday, 19:01.   Consumer confidence has been very weak, with a reading of -29 points in June. Little change is expected in the July reading.
BRC Shop Price Index: Tuesday, 19:01. This consumer index posted a 1.1% gain in June, and the markets will be hoping for a similar increase in July.
Nationwide HPI: Wednesday, 2:00. This housing index was a major disappointment in June, declining by 0.6%. The market forecast calls for another decline, this time of 0.1%.
Halifax HPI: 1st-8th. This index was well above the market forecast in July, and another strong release would be bullish for the pound.

Manufacturing PMI: Wednesday, 4:30. This PMI came in slightly below the 50 point line in the previous reading, and the markets are  expecting a similar reading this time around.
Construction PMI:

Thursday, 4:30. Construction PMI disappointed the markets, as the previous reading falling below the 50 point line for the first time since January 2010. The market estimate for the July readings stands at 48.3 points.
Asset Purchase Facility: Thursday, 7:00. The BOE raised QE last time around to 375 billion. No change is expected this month.
Official Bank Rate:

Thursday, 7:00. Markets are expecting the key interest rate to be held at 0.50% this month.
Services PMI:

Friday, 4:30. This PMI has stayed above the 50 point level for a extended period, indicating ongoing expansion in the services sector. No significant change is expected in the July reading.
*

I am bearish on GBP/USD.

Since June, GBP/USD has had difficulty holding onto any gains for an extended period. The British economy is sputtering, and investors may seek the safe haven of the US dollar if the turmoil in the Euro-zone continues.


Update 31/07/2012

Also a head and shoulders will it break?

Usdchf (The Chief)

USD/CHF has been choppy throughout most of July, and the rally by the Swiss franc may just be a blip. Given the troubles in Europe and the global slowdown, many investors will be drawn to the safety of the US dollar. However, if the US economy continues to produce weak data, the Fed may have to step in, and this could hurt the dollar.

in view of this, would not chase this decline here and would be prudent to sell dollar on recovery.


4hrs

UBS Consumption Indicator: Tuesday, 2:00. This important conusmer index dropped to 1.05 points last month, a three-month low.
Retail  Sales: Thursday, 3:15. This key indicator sparkled in June, jumping 6.2%. The market estimate for July stands at a still-respectable 3.6% gain.
SVME PMI: Thursday, 3:30. This PMI has been below the 50 point level since April, indicating continuing weakness in the Swiss  economy. The market forecast calls for the index to decline further this month, to 47.2 points.

Usdjpy Redcliff Attack & Bearish Gartley

According to new data, Japan is back in deflation. This might encourage the BOJ to act. Last week the governor of the Bank of Japan, Masaaki Shirakaw was more optimistic concerning futures trades benefits in a speech he gave in Tokyo. He noted that futures trades can enhance public welfare and advance futures markets but emphasized the need for a centralized clearing of trades.

Daily Chart


Prelim Industrial Production: Sunday, 23:50. Japanese industrial production dropped a revised 3.4% in May from the previous month, worse than the preliminary reading of a 3.1% decline. Weakness in European demand lowered automobile output, and the slowdown in China weighed down on Japan’s economic growth. Japanese Government spent over 20 trillion yen on rebuilding damaged areas after the disaster in March 2011 supporting growth in three consecutive quarters but current global uncertainty poses a risk on Japan’s exports and growth prospects. An increase of 1.6% is predicted now.

4hr Chart

Manufacturing PMI: Monday, 23:15. Japanese manufacturing activity contracted in June for the first time in seven months indicating the economic boost from the reconstruction activity is starting to ware off. The reading fell to a seasonally adjusted49.9 in June from50.7 in May going below the 50 point line indicating contraction.
Household Spending;

Monday, 23:30.Japan’s average household spending continued to increase in April rising 4.0% from 2.6% in the previous month, well above expectations.  The rise was triggered by government subsidies for buying low-emission vehicles. Another increase of 3.1% is expected this time.
Average Cash Earnings:

Technical Bearish Gartley 4hrs

Tuesday, 1:30. The average cash earning of employees in Japan dropped 0.8% in June from a year earlier. This figure was revised down to a 1.1% decline. Workers in gas, heat supply, water as well as Finance and insurance workers earned less in June compared to a year ago. A small rise of 0.1%  is forecasted.

Housing Starts: Tuesday, 5:00. Housing starts in Japan climbed 9.3% on a yearly base to 69,638 units in May from 10.3% rise in the previous month. This was the fourth straight rise. Government reward points was the main cause for the rising trend in housing starts although lingering effects from the reconstruction works in the earthquake-hit northeastern region also contributed to this upward trend. A further climb of 9.5% is anticipated.

Monetary Base: Wednesday, 23:50.Japan’s monetary base continued to expand in June jumping 5.95 from 2.4% gain in the previous month. The rise was well above predictions. BOJ Governor Masaaki Shirakawa supports the expansion inJapan’s monetary base claiming it stimulates Japan’s economic growth. The monetary stimulus is expected to help fight deflation and reach the 1% inflation target set by the BOJ. Another improvement  with a 6.2% climb is expected now.
USD

Audusd Bulls take a bow

The aussie took full advantage of some weak US numbers, including housing data and lower GDP to make gains against the US dollar. As well, there is talk of the Federal Reserve taking monetary action to help the US economy, which would hurt the US dollar.

HIA New Home Sales: Sunday, Tentative. This housing indicator is quite volatile, with the result that market estimates often miss the mark. The indicator rose just 0.7% last month, and the markets will be hoping for an improvement in the July reading.


Building Approvals: Monday, 21:30. Building Approvals also tends to show a lot of volatility. The indicator sparkled in June, jumping 27.3%. However, the markets are predicting a sharp slump this month, with an estimate of -15%.

Private Sector Credit: Monday, 21:30. This indicator has been very steady in recent months, with a 0.5% gain in July. Little change is expected in the July reading.
AIG Manufacturing Index: Tuesday, 19:30. The index has been below the 50 point line since February, indicating sustained contraction in the manufacturing sector. Will the index show some improvement this month?


Chinese Manufacturing PMI: Tuesday, 21:00. Traders should pay attention to this PMI, as China is Australia’s number one trading partner. The index has been above the 50 point level throughout 2012, and the markets will be hoping for continued expansion in the Chinese manufacturing sector.
HPI: Tuesday, 21:30. This quarterly  housing inflation index has been contracting since Q3 of 2010, indicating sustained weakness in the housing sector. Will the index reverse the trend and move into positive territory?
Commodity Prices:

Wednesday, 2:30. Commodity Prices have  been falling for an extended period, indicating weak global demand for Australian exports. Will the August reading reverse the negative trend?
Retail Sales:

Wednesday, 21:30. This key indicator rose a modest 0.5% in the previous reading. The markets are expecting little change in the August reading.
Trade Balance: Wednesday, 21:30. Australia has been recording monthly trade deficits since February. The markets are predicting a wider trade deficit in August.
AIG Services Index: Thursday, 19:30. This index has been improving in recent months, although it is still below the 50 line, indicating continuing contraction in the services sector. Will the index push across the 50 line this month?

Eurusd takes A Kitkat

Wkly 3rd wave down has been forth coming since march the 1st and within
the decline we can count 5 waves leading into the the end of the 3rd

ending @ 1.2046. the rally on friday is presenting a rise into a 4th wave

which can rise all the way up to te 1.2610 , 1.2745 zone
We have a wkly shift so we could have a 5 wave push up in to the 4th wave

zone setting us up for a 5th wave decline.

The £ Bounce beutifull of the declining Poseidon medium line center with a bullish engulfing and searchs for the impossible reaction and the upper wall.

I've drawn a channel path way up for guidance a break of the trend line

will signal a breakdown in price. look for upthrust or rising prices with

no volume.

Now we must be aware that if there is a lack momentum to carry prices to

the extreams of the wave 4 zone our 5wave count could end  may reach 1st

the 1.230 61.8 and then the 1.25480 1oo% Expansion.

with a tokyo shifht in the wkly we may see the extream. of the 161.8 @

1.2696

in the news it will probably be dollar stregth or weakness that will

decide.

In the 4hr time frame we have a intrday count of 5 wave with the 5th ending at the daily 100% exoansion @ 1.2506

Spanish GDP: Monday, 7:00. Spain is still the epicenter of the debt crisis, so every figure matters. And this is an important one. Spain is already in recession, having contracted for two quarters in a row, each time by 0.3%. Another quarter of negative growth is expected in Q2, this time with a drop of 0.4% in output. Tourism could have helped the country, that is otherwise at deep freeze.
Retail PMI: Monday, 8:00. This measure of consumer activity through purchase managers has been in contraction zone for 8 month. The recent score of 48.3 was better than the previous two months, but a rise above 50 points, back to growth, isn’t expected for the month of July. A lower figure is more likely.
Italian bond auction:  Monday morning. 10 year bonds are the common benchmark for the ttrust a country has. Italy actually saw lower yields in the last auction, after crossing the 6% line twice beforehand. Given the hope in the markets, another result of bond yields under 6% is expected now. If the yield rises above 6%, it will be a worrying sign that Draghi’s words are not trusted.
German Retail Sales: Tuesday, 6:00. Europe’s locomotive saw a slightly disappointing drop in the volume of sales last month: 0.3%. A rise of 0.6% is expected now. Some figures point to contagion also to Germany, but the situation there remains positive for now.
French Consumer Spending: Tuesday, 6:45. The euro-zone’s second largest economy saw two consecutive months of rises in consumer spending, and it also enjoying relative stability in its bond yields. Another small rise of 0.2% is expected now.
German Unemployment Change: Tuesday, 7:55. Germany disappointed with three consecutive rises in the number of unemployed people, standing out after a long period of seeing unemployment drop. A fourth rise is expected, this time of 8K.
Italian unemployment rate: Tuesday, 8:00. Italy is not far behind Spain in the debt crisis, and its economy is contracting too fast. The unemployment rate is expected to remain above 10% for a third month in a row, edging up from 10.1% to 10.2%.
CPI Flash Estimate: Tuesday, 9:00. The first release of CPI for the month of July is expected to remain at the same annual level of 2.4%, above the ECB’s 2% target. Given all the economic negativity, a drop in the rate cannot be ruled out. This can help the ECB take bigger steps.
Unemployment Rate: Tuesday, 9:00. After standing at around 10% for nearly two years, recent months saw a rise in the euro-zone unemployment rate, that reached 11.1%. Yet another rise is expected now. There is a big divergence between the different euro-zone countries, with Spain and Greece having very high rate of over 20%, while Germany and some other countries are enjoying low unemployment rates.
Spanish Manufacturing PMI: Wednesday, 7:15. This forward looking indicator of the manufacturing  sector reflects the Spanish deterioration strongly: the figure stands at 41.1 points, reflecting rapid contraction, the worst since the summer of 2009. Another slide is expected.
Italian Manufacturing PMI: Wednesday, 7:45. Also in the euro-zone’s fourth largest economy, manufacturing is squeezing, according to the PMI, but at least it is off the bottom. A drop from 44.6 to 44.3 is predicted now.
Final Manufacturing PMI: Wednesday, 8:00. The initial release of this indicator showed a drop from 45.1 to 44.1 points. The final figure takes the Spain and Italian numbers into account, and updates for other countries. No change is expected.
Spanish Unemployment Change: Thursday, 7:00. Thanks to tourism, Spain actually saw a drop in in the number of unemployed people during June, by 98.9K – a third drop in row. Tourism could have resulted in another drop in July. So is the situation improving? Probably not – this phenomenon is clearly seasonal and was seen in previous years.
PPI: Thursday, 9:00. Producer prices are expected to fall for a second month, and drop by 0.3% after a slide of 0.5% beforehand. This is released just before the rate decision.
Rate decision:  Thursday, 11:45, press conference at 12:30. This is one of the most important decisions in a long time, and holds very high expectations after Draghi promised to do everything and said “believe me, it will matter”. The benchmark interest rate will likely remain unchanged at 0.75% after last month’s cut, but another cut is certainly on the cards. Also a shift of the deposit rate from 0% to a negative value is possible, as well as another LTRO. The ECB could also take a loss on its holdings of Greek debt. The really big thing the ECB can do is resume the SMP program: buying Spain and Italian bonds to lower their yields, enable them to fund themselves in the markets and encourage others to join in. Such a move will have a decisive impact if it is done in a large scale, and if it is done without sterilizing the buys: a full QE program. Will Draghi make this bold step? See more details for this critical event in the ECB Preview.
Final Services PMI: Friday, 8:00. Note that as with the manufacturing PMI, Spain will release its number at 7:15 and Italy at 7:45, but they are of lower importance, especially after the manufacturing numbers and the rate decision. The initial figure of 47.6 points will likely be confirmed now.
Retail Sales: Friday, 9:00. The volume of sales has been like a see-saw, moving from drops to rises. After a rise of 0.6% last month, a smaller rise of 0.1% is expected for the month of June. A small drop will not be a big surprise.
* All times are GMT

EUR/USD Technical Analysis

€/$ began the week with a gap lower, falling over the 1.2150 cliff (discussed last week) It fell as low as 1.2043, before staging an impressive recovery thanks to Draghi. The close under the 1.2330 line shows that the markets are cautious.

Technical lines from top to bottom:

The very round 1.30 line is a very important line in case of huge rally. In addition to being a round number, it also served as strong support. 1.29 is also notable on the upside, followed by 1.2814.

1.2750 capped the pair after the Greek elections and also had a similar role in the past. It is now of higher importance. 1.2670 was a double bottom during January and was the high line of the recovery before the Greek elections in June. It also capped the pair at the beginning of July 2012.

1.2623 is the previous 2012 low and remains important despite recent battles over this line. Below, 1.2587 is a clear bottom on the weekly charts but is only a minor line now.

1.2520 had an important role in holding the pair during June, in more than one case, but it’s much weaker now. 1.2440 provided support for the pair at the same time. and worked as double bottom.

It is closely followed by 1.24 that provided some resistance in June 2010 and switched to resistance in July.  It is now of higher importance after capping a recovery attempt at the end of July. 1.2360 was temporary support in July 2012 but quickly switched to resistance.

Further below, 1.2330 is another historical line after being the trough following the global financial meltdown in 2008. It’s stronger after working as strong support. It should be closely watched. The now previous 2012 low of 1.2288 is of higher importance now after being reached twice.

1.22 is now minor resistance, after serving as such in June 2010. 1.2144 is already a very strong line on the downside: it was a clear separator two years ago, when Greece received its first bailout. Also in July 2012, it worked as a separator.

The new 2012 low of 1.2043 is the next line, although it may prove to be weak on a downfall. Next we have the 1.20 line, which is a round psychological figure.

The post crisis low of 1.1876 is the final frontier before lines last seen in the good years. The launch price of 1.17 is the next line.

Small downtrend Channel Broken

As the chart shows, the pair made a breakout of out of the short term downtrend channel, breaking above downtrend resistance.

I am neutral untill the 4th wave up planning to sell into the 5th


Draghi created huge expectations with his strong words. He has the power to deliver and turn a corner in the crisis, sending the euro far higher. However, high expectations can result in big disappointments and a total plunge. Against the tools that Draghi has, there are also many obstacles, coming from German politicians and the German Bundebank. Currently, it’s hard to tell how this will end. Hopefully we will see some solutions, but recent history points to the other direction.

Until Wednesday, the optimism should keep the euro well supported. Another non-QE3 decision in the US could slightly weaken the pair on Wednesday, and then it all depends on Draghi.

usdjpy 5-3-5

AUDUSD Volume Notes

Volume notes Take heed

AUD USD Update 5th wave Push

Hey folks i hope you liked  the AUD/USD, I did say that i might even be drawn into believeing that it might not work , well  it did but I got in to early. I made a silly mistake and would just like to say i'm sorry it won't happen again.

I wanted to find out why i was to early what went wrong in my perception of the market  and why was i not able to catch the reversal.

I checked my blog for the 20th/7/2012 which i use for my notes and learning  and on the daily chart  i had marked the 4th wave  decline @ 1.02233... but on the 4hr chart I had marked it to high at 1.0299 ... to early . I had put the 4th wave in the wrong place ( it was at the 55DMA when it should have been lower at the 200 DBBands... so silly .. : i can  now See that in a 4th wave decline expect the minor count in an ABC fashion  minor 5th wave down is a corrective ABC dwn.. which is what occured on the 4hr time frame.. getting ready for the daily move of a higher degree.

Daily Correctly Marked

4hrs i marked in correctly resulting in an early entry.. Wrong

Below is what developed Daily pull back

4hrs develops into a 5th wav minor  abc decline into the  4th  of a higher degree.

Then Bing Go

Now although i missed this move because of my timing i stll sold the USDCAD :-) hehe

Neal Commentary@FX360.com

Despite the relative lack of major economic news this morning in North America, markets are not lacking in their voracity at the start of the week. Markets have been selling off due to uncertainty about what will come next followed by a slight rally heading in to lunch. Much of the early price action can be attributed to The European Three Ring Circus which has come to town, and investors the world over are trying to pay attention to multiple factors all at the same time. So ladies and gentleman, step right up, and witness the never ending crisis displayed to you in simultaneous fashion.
Taking center stage, we have bond yields of Spain and Italy. Often times viewed as a “fear indicator” for holding euros, 10-Year bond yields across Europe are edging ever higher, but Spain and Italy are of particular interest.  When yields grow higher than 7% for countries of their size, it is viewed as being unsustainable as they would have to collect more taxes to pay off debt. Being that European citizens are already taxed in the 40%-50% range, there isn’t a lot of room for them to be taxed more without risking the government being overthrown. Unfortunately, if investors are demanding more interest to be paid in order to loan to these countries, there are few options of recourse. With interest rates in Spain currently at around 7.5%, and Italy at around 6.3%, the situation is coming to a head rather quickly, and it may trigger a reaction from the European Central Bank. In the past, the ECB has stepped in and issued Long Term Refinancing Operations on two separate occasions to effectively loan money to European banks at low rates in the hopes that those banks would in turn loan money to their struggling nations; thereby earning more interest than what they borrowed it at to start. And in the past, it worked; banks had liquidity, interest rates fell, and everyone was happy, at least temporarily. Therefore, it is logical to assume the ECB may step in again to offer a third round of LTRO to calm the markets in the hopes that this time may be different, and Europe can start to get their house in order.
In one of the other rings of the European Three Ring Circus you can find the constant chatter about a country leaving the Eurozone. The most popular candidate for expulsion from the monetary union has been Greece, but kicking a country out of the EZ would be a very long and drawn out legal matter, so it wouldn’t appease the masses quickly enough. Therefore, this is unlikely to happen unless Greece left voluntarily. Considering that a pro-euro government was recently elected in Greece, the likelihood of that scenario playing out is slim as well. So if not Greece than who would leave the struggling union? The newest candidate to take the lead in this race is Finland.
Being a “Triple A” rated country who is fiscally responsible in the EZ at the moment puts you in elite company. However, that distinction also puts Finland in a precarious position of having to provide funding to countries that were not so fiscally responsible. Earlier this month, the Finnish Parliament tried to block the plan to use ESM funds to buy bonds on the secondary market, but under current law they are too small to block it on their own. The simple fact that the EZ may be using the AAA rating of Finland as a tool to borrow money more cheaply, but not giving Finland the ability to veto its usage may be too much for Finland to accept. Even the Finnish public is beginning to sour on their current situation. According to a recent opinion poll, 54 percent of Finns think that their country is too lenient toward more troubled European countries while only 9 percent think they are too harsh. Considering the ruling government is a loose coalition of six parties, it could break easily and lead to new elections that may sway toward the anti-European True Finns party.
In the third ring is the value of the EUR/USD. Currently hovering around 1.21, the currency pair has been touching 2-year lows for about the past month. Many factors are weighing on the currency including the ECB cutting interest rates, the issues of the other two rings of the circus, Ben Bernanke being wishy-washy about easing from the Fed, and even Germany’s Angela Merkel talking out of both sides of her mouth. Pundits the world over are bearish on the euro and are calling for a fall to the 1.18 figure at least as European politics continue to drag along slowly. Interestingly enough, a low euro may be just what the doctor ordered. A low currency value is good for exporters, tourists, as well as those who are holding debt. Therefore, a decreased value of the euro could increase exports in countries like Germany, help revive the economies of popular tourist destinations like Greece and Italy, and make debts easier to pay off in countries like Spain, Portugal, and Ireland. A lower euro seems to fix many of the ills the EZ is suffering. The trick may be in how to devalue the euro without destroying the economy, a problem that European leaders will have to figure out over the next few months.
The rest of the North American trading session will likely give rise to risk assets. The day started with a selloff, but risk has been gaining traction heading in to lunch as Dow, Oil, EUR, GBP, AUD, NZD, and CAD are all off their lows and climbing.

Bond Yields ReCap Notes

Note: Mortgages are generally packaged and sold as bonds, called mortgage backed securities.  So watching bond yields gives a good indication of the direction of mortgage rates.

ALL RIGHT, we might as well dive right into the yield and price mess. Since the first bond hit Wall Street, it's the thing that has most confused beginning investors. You've probably heard the mantra at least once before: When yield goes up, price goes down, and vice versa. But if you're like most people, you haven't the faintest clue why.

Well, here goes...

So far, we've discussed bonds as if investors always buy and hold them until they mature. A lot of people do just that, but many others -- including the pros -- buy and sell them on the open market before they reach maturity. Consequently, the price of a given bond can fluctuate -- sometimes wildly. That means it's unlikely you'll ever be able to sell a bond for "par," or 100% of its face value.

We'll explore what drives price changes in the next section, but for now, consider what happens when the price goes up or down. As you already know, a bond's periodic coupon and its ultimate payout never change once the bond is issued. Consider a 30-year bond with a face value of $1,000 and a 6% ($60) coupon. If the price falls to $800, you'll still get $60 each year in interest and $1,000 when the bond matures. The same holds true if the bond's market price jumps to $1,200. Obviously, then, the $800 bond is a much better deal -- you're getting the same payout for $400 less.

OK, So What Does 'Yield' Mean?

Yield -- a bond-speak standard -- is a figure that captures this change in value. It's the percentage return your bond investment promises at any given price.

In its most simple incarnation -- known as "current yield" -- it can be expressed with this formula: Yield = Coupon/Price. When you buy a bond for face value, the yield is simply the coupon, or interest rate. But when the price fluctuates, the yield grows or shrinks to compensate in either direction.

Let's look at that 6% bond again. If you were to buy it for $1,000, the current yield would simply be 6% ($60/$1,000). But if the price drops to $800, the yield rises to 7.5%. Why? Because the guaranteed coupon -- $60 -- is now 7.5% of the $800 you paid for the bond ($60/$800). If the price rises to $1,200, the percentage shifts down to 5%.

Yield to Maturity

Unfortunately, it gets even more complicated. In the real world, when people talk about yield, they're really talking about another figure, called "yield to maturity." This represents the total return you can expect if you buy a bond at a given price and hold it until it matures.

Yield to maturity includes the fact that the bond you bought for $800 will pay you $1,000 when it's due. It also assumes you reinvest the coupons at the same rate and figures in the compounding effect. If, in the above example, you add that $200 difference and the effects of reinvested coupons, the yield to maturity calculates out to 7.73% -- a significantly better deal than the original coupon of 6%.

Once you've grasped the inverse relationship between price and yield, you're ready to take on the bond market's next puzzler: If yields and prices move in opposite directions, how come both high yields and high prices are considered good things?

The answer depends on your perspective. If you're a bond buyer, high yields are what you're after, because you want to pay $800 for that $1,000 bond. Once you own the bond, however, you're rooting for price. You've already locked in your yield, and if the price rises, it can only be a good thing -- especially if you need cash someday and want to sell the bond to get at it.

Risk vs Reward - what changes the price?

JUST BECAUSE BONDS have a reputation as conservative investments doesn't mean they're always safe. Any time you lend money, after all, you run the risk it won't be paid back. Companies, cities and counties occasionally do go bankrupt or default on their debts for extended periods. U.S. Treasury bonds alone are considered rock-solid. In fact, economists label the yield of the shortest-term U.S. bonds "the risk-free rate of return."

Paradoxically, another source of risk for certain bonds is that your loan may be paid back early, or "called." This is known as prepayment risk. While it's certainly better than not being paid back at all, it forces you to find another, possibly less lucrative, place to put your money. When you buy a bond, the prospectus will indicate whether a bond is callable and give you a "yield-to-call" figure. If you have a choice, buy a bond without the call option.

All bonds are sold at a discount. When, for example,  the Federal National Mortgage Association (FNMA) issues a $100,000 bond, they sell the bond for a discount, say $97,000. In 30 years, when the purchaser presents this bond for payment, FNMA gives the purchaser $100,000, and the purchaser has earned $3,000 in interest over a thirty-year period.

So a bond investor’s worst nightmare is inflation. When inflation begins, the price of bonds move down, causing a higher interest rate. Why? Because a bond investor is investing today’s dollars for a pay out thirty years in the future. In an inflationary period, these investors would only be willing to pay, say $94,000 for that $100,000 bond, since the money will be worth less in thirty years.

Inflation
By far, the greatest danger for a buy-and-hold bond investor is a rising inflation rate. Nothing spooks bond traders more than cheerful headlines about full employment or strong economic growth. When the economic news is good, the bond markets often take it as a bad sign -- a harbinger of an impending period of slowly rising consumer prices. The hotter the economy, the worse the threat. And the more downward pressure on bond prices.

Why is inflation such a problem for bondholders? Think about it this way: Rising prices make today's dollars worth less in the future than they're worth today. Since a bond can lock up your money for as long as 30 years, a rising rate of inflation can have a particularly corrosive effect.

All this explains why bond traders live in a hall of mirrors. What you or I might consider good news, they often consider bad. The bond market itself is a minute-by-minute referendum on the threat of inflation. If the threat is high, prices fall and yields -- or interest rates -- rise. This is often an excellent time to buy bonds. But if you own them already, you're stuck.

Yield vs. Risk
Inflation risk, credit risk and prepayment risk are all figured into the pricing of bonds. The more risk, the higher the yield. It's also true that investors demand higher yields for longer maturities. The reason for that is obvious -- given enough time, a once-healthy corporation can go bankrupt and suddenly lose the ability to pay its obligations. Inflation could run rampant, seriously eroding the purchasing power of that $1,000 you're supposed to get back in 30 years. These things are unlikely or you'd never invest in the first place. But the longer you tie your money up in a bond, the more at-risk it is statistically.

The credit quality of companies and governments is closely monitored by the two major debt-rating agencies; Standard & Poor's and Moody's. They assign credit ratings based on the entity's perceived ability to pay its debts over time. Those ratings -- expressed as letters (Aaa, Aa, A, etc.) -- help determine the interest rate that a company or government has to pay when it issues bonds. The market determines the price -- and thus the yield -- after that

Expecting the EURUSD to Carving out some sort of a bottom now

Expecting the EURUSD to Carving out some sort of a bottom now..

Will HAVE TO TRACK FROM HERE.
C LAST WEEKS BLOG POST TO SEE WHAT HAPPENED!!!

GBPUSD & the 2012 Olympic games

With the predicted bearish Butterfly we highlighted on Thursday/ Friday we have concluded that at the moment the GBPUSD is still in a short term corrective phase ready for next week’s Push in a larger wave 3. I guess it will kind of make sense there will be a lot of foreign currency exchanged into pounds from visitors from all over the world.as the 2012 Olympic games approaches next week. Simple but logical observation regarding the ebb and flow of money, So let’s see if my Elliott wave count syncs in with current events.

 With an ending a-b-c in 2 and a micro5th wave advance during the beginning of July leaving us presently in a fourth wave pull back ready to move on ahead. Stochastic Daily and trend is still very bullish with the 4hr Anchor pulling back in my opinion the pull back will need to hold 1.5560/ 1.55213 which is also a 50% stochastic yellow line daily will have to stay bullish . Mr Price should not by any circumstances go beyond 1.5483 this is my final exit on this count. Stay tunes and let the games soon begin. 

4hr Anchor

Audusd Topping out look 4 a pull back

Audusd should pull back into a forth wave then countinue its trend into its 5th wave with a target @ 1.0812 or the long term posideon Line purple.. i'll try and update to see how it develops

p.s only a close below wkly RR @ 1.03823 will confirm the pull back outlook and then rise in 5
but if u wanna be risky like me you can sell the pull back.

Trying to fine to tune and get in tune with future events  and positioning my self for what the market tells me.

Daily above

4hrs Below

Expecting a 3 wave decline in a 4th wave ABC structure  then a a possible 3-5-3 formation while 

the pair gathers momentum to push into its finial wave. wave 4s a know to be choppy 

so i am expecting a lot of whip sawing around. However with the Elwave guide lines wave 4 should not exceed past wave 1 which comes in @ 1.02775 which is also the July 11th 2012  high  resistance break out turn support 

Hrly below

on the hrly time frame  we are correcting as you can see with low Hrly and 4hr stochastic, while the daily stays bullish. May I add  the 1hr time frame stochastic is know to fail and hover in-between 30 and 20 line. So we have to watch price action to see  if we hit the 1.618 /2.00 bottom and turn higher next week.

However a break above 1.0396 which is also the 1.618 break out should confirm the forward projection.. i i I will be watching volume to see how interested the big players are in advancing to

1 Target: 1.0699 and further.

Inter market relationships 

What I am expecting to see in the coming week is bullish dollar to start the week. which should pull every 1 in. Giving the signals for a risk off environment, it will be so convincing that I might even be pulled in. 

Still I have to be strong and let Price dictate and let risk management rule. 

Therefore 

I'm  looking at equities to fall initially as fear grips the masses.

Yields should fall initially while bond prices raise in fear short term. 

long term investors should then begin to offer a better ROC and pull bond prices back down this should then turn fear in to anticipation of further gains in equities. inviting a risk on scenario. for what may be a final leg up not sure yet. will be watching the dollar index all the way. to confirm.

finally Looking for Gold to rise to support the Aussies

Oil to rise which should also put pressure on the USD

Copper to turn back up signifying world growth

Not to mention with this weeks not so strong data coming out from the US the knock on effect could take place next week as investor turn over the bad numbers and any further bad news might be the straw that snaps the caramels back. 

Along with the carrot and the donkey being any talk of QE but in another way????what!!!(*&%$£^""!!!!

This should give investors more confidence and weigh on the dollar

No real news untill the 24 july 2012

please see economic calendar above 

So key areas to watch 4 is a break out at 1.0405

or a break down below 1.0273/1.02957 which is the 4hr 55DMA

Below here Aussies is back in trouble for further  declines.

        BIG Up ur Chest!!!

House Rejoiced - Kasim & Grace

House Rejoiced - Kasim & Grace

Eurusd Elwave Count

Hi every one .. with the current situation with the eurusd we have a 4hr high stochastics and a possiable minor 5th wave decline as the upward thrust was declined. this will be a short move with prices bouncing around a bit T1 1.2158 then back up to 1.2256 the down again finally to 1.2105 look for low volume on the up move to sell..

ALTERNATIVELY WE HAVE AN ASENDING TRANGLE BOTTOM RISING

Good Luck

Audusd minor 5th wave on its way

Bond Spreads: A Leading Indicator For Forex

The global markets are really just one big interconnected web. We frequently see the prices of commodities and futures impact the movements of currencies, and vice versa. The same is true with the relationship between currencies and bond spread (the difference between countries' interest rates): the price of currencies can impact the monetary policy decisions of central banks around the world, but monetary policy decisions and interest rates can also dictate the price action of currencies. For instance, a stronger currency helps to hold down inflation, while a weaker currency will boost inflation. Central banks take advantage of this relationship as an indirect means to effectively manage their respective countries' monetary policies.

By understanding and observing these relationships and their patterns, investors have a window into the currency market, and thereby a means to predict and capitalize on the movements of currencies.

What Does Interest Have to Do With Currencies?To see how interest rates have played a role in dictating currency, we can look to the recent past. After the burst of the tech bubble in 2000, traders went from seeking the highest possible returns to focusing on capital preservation. But since the U.S. was offering interest rates below 2% (and going even lower), many hedge funds and those who had access to the international markets went abroad in search of higher yields. Australia, with the same risk factor as the U.S., offered interest rates in excess of 5%. As such, it attracted large streams of investment money into the country and, in turn, assets denominated in the Australian dollar.

These large differences in interest rates led to the emergence of the carry trade, an interest rate arbitrage strategy that takes advantage of the interest rate differentials between two major economies, while aiming to benefit from the general direction or trend of the currency pair. This trade involves buying one currency and funding it with another, and the most commonly used currencies to fund carry trades are the Japanese yen and the Swiss franc because of their countries' exceptionally low interest rates. The popularity of the carry trade is one of the main reasons for the strength seen in pairs such as the Australian dollar and the Japanese yen (AUD/JPY), the Australian dollar and the U.S. dollar (AUD/USD), the New Zealand dollar and the U.S. dollar (NZD/USD), and the U.S. dollar and the Canadian dollar (USD/CAD). (Learn more about the carry trade in The Credit Crisis And The Carry Trade and Currency Carry Trades Deliver.)

However, it is difficult for individual investors to send money back and forth between bank accounts around the world. The retail spread on exchange rates can offset any additional yield they are seeking. On the other hand, investment banks, hedge funds, institutional investors and large commodity trading advisors (CTAs) generally have the ability to access these global markets and the clout to command low spreads. As a result, they shift money back and forth in search of the highest yields with the lowest sovereign risk (or risk of default). When it comes to the bottom line, exchange rates move based upon changes in money flows.

The Insight for Investors
Individual investors can take advantage of these shifts in flows by monitoring yield spreads and the expectations for changes in interest rates that may be embedded in those yield spreads. The following chart is just one example of the strong relationship between interest rate differentials and the price of a currency.

Figure 1

Notice how the blips on the charts are near-perfect mirror images. The chart shows us that the five-year yield spread between the Australian dollar and the U.S. dollar (represented by the blue line) was declining between 1989 and 1998. This coincided with a broad sell-off of the Australian dollar against the U.S. dollar.

When the yield spread began to rise once again in the summer of 2000, the Australian dollar responded with a similar rise a few months later. The 2.5% spread advantage of the Australian dollar over the U.S. dollar over the next three years equated to a 37% rise in the AUD/USD. Those traders who managed to get into this trade not only enjoyed the sizable capital appreciation, but also earned the annualized interest rate differential. Therefore, based on the relationship demonstrated above, if the interest rate differential between Australia and the U.S. continued to narrow (as expected) from the last date shown on the chart, the AUD/USD would eventually fall as well. (Learn more in A Forex Trader's View Of The Aussie/Gold Relationship.)

This connection between interest rate differentials and currency rates is not unique to the AUD/USD; the same sort of pattern can be seen in USD/CAD, NZD/USD and the GBP/USD. Take a look at the next example of the interest rate differential of New Zealand and U.S. five-year bonds versus the NZD/USD.

Figure 2

The chart provides an even better example of bond spreads as a leading indicator. The differential bottomed out in the spring of 1999, while the NZD/USD did not bottom out until the fall of 2000. By the same token, the yield spread began to rise in the summer of 2000, but the NZD/USD began rising in the early fall of 2001. The yield spread topping out in the summer of 2002 may be significant into the future beyond the chart. History shows that the movement in interest rate difference between New Zealand and the U.S. is eventually mirrored by the currency pair. If the yield spread between New Zealand and the U.S. continued to fall, then one could expect the NZD/USD to hit its top as well.

Other Factors of AssessmentThe spreads of both the five- and 10-year bond yields can be used to gauge currencies. The genereal rule is that when the yield spread widens in favor of a certain currency, that currency will appreciate against other currencies. But, remember, currency movements are impacted not only by actual interest rate changes but also by the shift in economic assessment or plans by a central bank to raise or lower interest rates. The chart below exemplifies this point.

Figure 3

According to what we can observe in the chart, shifts in the economic assessment of the Federal Reserve tend to lead to sharp movements in the U.S. dollar. The chart indicates that in 1998, when the Fed shifted from an outlook of economic tightening (meaning the Fed intended to raise rates) to a neutral outlook, the dollar fell even before the Fed moved on rates (note on Jul 5, 1998, the blue line plummets before the red one). The same kind of movement of the dollar is seen when the Fed moved from a neutral to a tightening bias in late 1999, and again when it moved to an easier monetary policy in 2001. In fact, once the Fed just began considering lowering rates, the dollar reacted with a sharp sell-off. If this relationship continued to hold into the future, investors might expect a bit more room for the dollar to rally.

When Using Interest Rates to Predict Currencies Will Not WorkDespite the tremendous amount of scenarios in which this strategy for forecasting currency movements does work, it is certainly not the Holy Grail to making money in the currency markets. There are a number of scenarios in which this strategy may fail:

• ImpatienceAs indicated in the examples above, these relationships foster a long-term strategy. The bottoming out of currencies may not occur until a year after interest rate differentials may have bottomed out. If a trader cannot commit to a time horizon of a minimum of six to 12 months, the success of this strategy may decrease significantly. The reason? Currency valuations reflect economic fundamentals over time. There are frequently temporary imbalances between a currency pair that can fog up the true underlying fundamentals between those countries.
  
• Too Much LeverageTraders using too much leverage may also not be suited to the broadness of this strategy. Since interest rate differentials tend to be fairly small, traders accustomed to using leverage may want to use it to increase. For example, if a trader used 10 times leverage on a yield differential of 2%, it would turn 2% into 20%, and many companies offer up to 100 times leverage, tempting traders to take a higher risk and attempt to turn 2% into 200%. However, leverage comes with risk, and the application of too much leverage can prematurely kick an investor out of a long-term trade because he or she will not be able to weather short-term fluctuations in the market.
  
• Equities Become More AttractiveThe key to the success of yield-seeking trades in the years since the tech bubble burst was the lack of attractive equity market returns. There was a period in early 2004 when the Japanese yen was soaring despite a zero-interest policy. The reason was that the equity market was rallying, and the promise of higher returns attracted many underweighted funds. Most large players cut off exposure to Japan over the previous 10 years because the country faced a long period of stagnation and offered zero interest rates. Yet, when the economy showed signs of rebounding and the equity market began to rally once again, money poured back into Japan regardless of the country's continued zero-interest policy. This demonstrates how the role of equities in the capital flow picture could reduce the success of bond yields forecasting currency movements.
  
• Risk EnvironmentRisk aversion is an important driver of forex markets. Currency trades based on yields tend to be most successful in a risk-seeking environment and least successful in a risk-averse environment. That is, in risk-seeking environments, investors tend to reshuffle their portfolios and sell low-risk/high-value assets and buy higher-risk/low-value assets. Riskier currencies - those with large current account deficits (which you can learn more about here) - are forced to offer a higher interest rate to compensate investors for the risk of a depreciation that is sharper than the one predicted by uncovered interest rate parity. The higher yield is an investor's payment for taking this risk.
  
  However, in times when investors are more risk averse, the riskier currencies - on which carry trades rely for their returns - tend to depreciate. Typically, riskier currencies have current account deficits and, as the appetite for risk wanes, investors retreat to the safety of their home markets, making these deficits harder to fund. It makes sense to unwind carry trades in times of rising risk aversion, since adverse currency moves tend to at least partly offset the interest rate advantage.
  
  Many investment banks have developed measures of early warning signals for rising risk aversion. This includes monitoring emerging-market bond spreads, swap spreads, high-yield spreads, forex volatilities and equity-market volatilities. Tighter bond, swap and high-yield spreads are risk-seeking indicators while lower forex and equity-market volatilities indicate risk aversion.

ConclusionAlthough there may be risks to using bond spreads to forecast currency movements, proper diversification and close attention to the risk environment will improve returns. This strategy has worked for many years and can still work, but determining which currencies are the emerging high-yielders versus which currencies are the emerging low-yielders may shift with time.

Read more: http://www.investopedia.com/articles/forex/05/041305.asp#ixzz20pGIg4Cr

Stocks, commodities find respite in Friday the 13th

Stocks, commodities find respite in Friday the 13th

Bond yields and Fx

Let's look at one scenario: Demand for bonds usually increases when investors are concerned about the safety of their stock investments. This flight to safety drives bond prices higher and, by virtue of their inverse relationship, pushes bond yields down.
As more and more investors move away from stocks and other high-risk investments, increased demand for "less-risky instruments" such as U.S. bonds and the safe-haven U.S. dollar pushes their prices higher.
Another reason to be aware of government bond yields is that they act as indicator of the overall direction of the country's interest rates and expectations.
For example, in the U.S., you would focus on the 10-year Treasury note. A rising yield is dollar bullish. A falling yield is dollar bearish.
It's important to know the underlying dynamic on why a bond's yield is rising or falling. It can be based on interest rate expectations or it can be based on market uncertainty and a "flight to safety" to less-risky bonds.
After understanding how rising bond yields usually cause a nation's currency to appreciate, you're probably itching to find out how this can be applied to forex trading. Patience, young padawan!
Recall that one of our goals in currency trading (aside from catching plenty of pips!), is to pair up a strong currency with a weak one by first comparing their respective economies. How can we use their bond yields to do that?


Read more: http://www.babypips.com/school/the-411-on-bonds.html#ixzz20p9fFnSv

Bond yields Local Currency An economy that offer higher returns on its bonds attract more investments. This makes its local currency more attractive than that of another economy offering lower returns on its bonds. Dow Nikkei The performance of the U.S. economy is closely tied with Japan. Nikkei USD/JPY Investors consider the yen as a safe-haven and tend to seek it during periods of economic distress.

Also
As we said earlier, in order for someone to invest in a particular stock market, one would need the local currency in order to purchase stocks.
You can imagine what the effect of stock markets like the DAX (that's the German stock market), have on currencies.
In theory, whenever the DAX rises, we can probably expect the euro to rise as well, as investors need to get a hand on some euros.
While the correlation is imperfect, statistics show that it still holds pretty accurately.
We here at BabyPips.com did a little research of our own and found out that EUR/JPY seems to be highly correlated with stock markets across the globe. You should know that the yen, along with the U.S. dollar, are considered to be safe havens amongst the major currencies.
Whenever confidence in the global economy is down and traders are fearful, we typically see traders take their money out of the stock markets, which leads to a drop in the values of the DAX and S&P500.
With money flowing out of these markets, we usually see EUR/JPY fall as traders run for cover. On the flip side, when the sun is bright and risk appetite is rampant, investors pour their money into stock markets, which in turns leads to a rise in the EUR/JPY.
Take a look at charts below to see the correlation between the EUR/JPY and the DAX and S&P500.


The correlation seems to have held well this past decade, as EUR/JPY and both indexes rose steadily together, until 2008, when we were hit with the financial crisis. In late 2007, EUR/JPY had hit its peak, and so did the stock indexes.


Read more: http://www.babypips.com/school/eurjpy-your-very-own-barometer_of_risk.html#ixzz20p76srTv

Read more: http://www.babypips.com/school/intermarket-analysis-cheat-sheet.html#ixzz20p65Xnzs

GBPUSD NEEDS TO HOLD 1.5522 FOR A RUN OF THE 50% RETRACEMENT LINE @ 1.56202 THEN AN OVERALL TAGERT COMING AT THE HIGHS AND THE POSEIDON MEDIUM LINE @ 1.5786

19/07/2012:

Hi Guys Hope all is gravy as i love you all like cooked food..
Just like the £/$ which i said on july the 11 that it needed to hold 1.5522 or 1.5544 and we are now @ 1.5702..
Still i must admit it did try to shame shamy me, nut i got a few pips out of it with the Aus/usd c Post.
anyway here are further updates below. 2 views on this pair

 Daily been Bullish ever since it held support

 4hrs confirms

15mins Topping Out!!!

But AHHHA check out the Harmonics as the £ nears weekly Resistance Interesting

1st target has been reached @ 1.731 will it continue its 3rd wave up who know only volume can tell us in the near future
hope this was ok 4 you