Japanese Yen Set for a Winter Sell?

Lior Alkalay - INO.com Contributor - Forex


The Japanese Yen is finally ready for another bearish wave, the kind that could drive the Dollar-Yen trade to retest the 2015 highs. At least, that is what the USD/JPY technical analysis suggests. According to the MACD Index, the selling momentum has weakened, and the pair is just resting above the 100 pivot, a key pivot for the pair. But the question is, are fundamentals ripe for another Yen selloff and a USD/JPY rally?

Weekly MarketClub Chart of USD/JPY

Yen is a Bond Play

As I often reiterate, the Japanese Yen is essentially a bond play. Over the past decade, Japan has been stuck in a long deflationary cycle of falling prices and less than 1% average growth in five years. Moreover, Japanese consumers, as well as Japanese corporations, have had an overwhelming desire to hoard mountains of cash which only exacerbates the stagnation of the Japanese economy. The combination of constant cash hoarding and deflation has created a very robust market for Japanese Government Bonds. The Japanese government has tried to balance the phenomenon by accumulating a jaw-dropping debt of 229% of GDP or roughly $9.5 Trillion, and by trying to spur growth. Instead of balance, however, it has made the Japanese Government Bond market so overwhelmingly large (compared to other sectors), that it essentially dominates the dynamics of the Yen. When demand for Japanese Government Bond rises so does demand for the Yen, and vice versa. Continue reading "Japanese Yen Set for a Winter Sell?"

Deutsche Bank Woes To Hit Euro

Lior Alkalay - INO.com Contributor - Forex


Peril is on the horizon for the Eurozone and its currency, the Euro. The survival of Deutsche Bank, the largest lender in the Eurozone, is at risk. And even more worryingly, the trouble brewing at the bank is not isolated but is rather part of a wider systemic risk across the Eurozone banking system. As the conundrum unfolds and radiates across the region, the Euro will not be spared.

Eurozone Banks On The Balance

The Deutsche Bank crisis was seemingly ignited in mid-September when the US Department of Justice announced its intention to fine Deutsche Bank $14 billion to settle claims of wrongdoing during the mortgage crisis of 2008. Last week, it was reported that Deutsche Bank was on the verge of reaching a settlement with the Justice Department which would reduce the fine to $5.4 billion. Nevertheless, and regardless of the amount, with Deutsche Bank’s total capitalization at $18 billion, it’s clear the bank does not have sufficient capital to pay such a hefty fine. The fact is that troubles within the Eurozone banks, and specifically in Deutsche Bank, have been brewing for a while. Continue reading "Deutsche Bank Woes To Hit Euro"

Brazilian Real May Face Another Spiral

Lior Alkalay - INO.com Contributor - Forex


A little more than a week ago, Brazil marked a historic milestone in its governance. After a lengthy process, and with a landslide vote, the Brazilian Parliament decided to impeach President Dilma Rousseff amid charges of corruption and breach of trust. For the record, Ms. Rousseff is widely held responsible for Brazil’s worst recession in a hundred years.

During the impeachment proceedings, which lasted some eight months, the Brazilian Vice President, Michel Temer, assumed the helm and took Rousseff’s place. Now, with the proceedings finally concluded, Michel Temer is officially Brazil’s president. Mr. Temer’s pro-business approach had been well rewarded with a period of grace from investors. Under Mr. Temer, the Brazilian Real rallied by 7% against the dollar, bond yields on Brazilian bonds fell and Credit Default Swaps, an important gauge for risk, fell as well. That made it easier for Mr. Temer to navigate and encouraged investors’ hopes for more pro-business reforms. But now, as Mr. Temer has turned from merely the acting president to the incumbent, the political climate is on the verge of change. The “grace period” afforded Mr. Temer during the impeachment proceedings has expired, and with the shift in sentiment the Brazilian economy and, consequently, the Brazilian Real, could fall into a tailspin.

The Brazilian economic crisis has three notable dimensions; a collapse in commodity prices, a weak monetary system, and an ugly fiscal picture. Continue reading "Brazilian Real May Face Another Spiral"

Top Metals Smashed The Euro! Will It Hit Back?

Aibek Burabayev - INO.com Contributor - Metals


I started to cover European gold at the beginning of this year when it was at the 1000 EUR level. In spring I added silver to the pack as it had an interesting setup on the chart. Today I would like to share with you an update of the charts and to show you the outcomes.

Let us start with a single currency chart and see if we can find some clues which could help us with the metal crosses charts.

Chart 1. EURUSD Monthly: RSI Calls For Higher High

EURUSD Monthly
Chart courtesy of tradingview.com

Now, after almost two months, the dust of BREXIT hysteria has settled. The euro has managed not just to survive, but to score more than 2 cents after it touched the $1.09 mark on the referendum selloff in June. Friedrich Nietzsche once said - "That which does not kill us makes us stronger." The light version of the chart above had been shown to you in May.

The euro is still sitting on the very important trendline (dark gray) and the similar price action was earlier when the price approached this trendline. I mean the same combination of lower highs amid higher lows. The RSI has the same divergence as in 2001. This time, we have a flatter downtrend (orange) and the RSI is still below its trendline unlike in the previous case.

There are three triggers which could help the euro to have a big against US dollar once they are broken: Continue reading "Top Metals Smashed The Euro! Will It Hit Back?"

Italy Overtakes Spain As Weakest Link

Lior Alkalay - INO.com Contributor - Forex


Among the big four Eurozone economies, i.e. Germany, France, Spain and Italy, it’s clear which two are the growth drivers. Of the others, that is Spain and Italy; Italy was considered to be the more stable. Spain’s bonds were deemed riskier and its banking sector weaker. But that is a thing of the past. As it stands today, Italy has overtaken Spain to become the weakest link among the Eurozone’s largest economies, with a banking sector desperately in need of a bailout. And if Italy’s banking crisis is a rerun of Spain’s, we can certainly expect some troubles in the Eurozone and, consequently, for the Euro.

Spain vs. Italy in Two Charts

When we compare data on the Italian economy vs. the Spanish economy, we can see an interesting picture emerging. When we examine the trend in bankruptcies filed for both economies, it’s clear that both countries had relatively the same trend in bankruptcies until very recently. Bankruptcies in Italy have started to surge while bankruptcies in Spain have been decreasing.

Spain vs. Italy Bankruptcies
Chart courtesy of Tradingeconomics

In the bond markets of the two countries, a clear divergence is occurring. Credit Default Swaps for Spain and Italy, which had moved in tandem in the past (with higher risk premiums for Spain), started to diverge back in 2014. Credit Default Swaps for Italy are now much higher. Continue reading "Italy Overtakes Spain As Weakest Link"