FOREX-Dollar rallies broadly, euro down as inflation weighs

* Euro hits 3-week lows vs dollar, sterling

* Dollar hits 1-month high vs yen

* Euro zone inflation softer in December (Recasts, changes byline, dateline; previous LONDON, adds comment, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 6 (Reuters) - The U.S. dollar rallied for a third straight session on Tuesday, boosted by more signs of economic weakness in the euro zone that could prompt its central bank to slash interest rates further.

The dollar also continued to benefit from a planned U.S. stimulus package, with investors betting that this would help the world's largest economy emerge from its recession more quickly than most countries.

The euro fell broadly, hitting a three-week low versus the greenback after a fall in euro zone inflation added fuel to expectations the European Central Bank will continue cutting rates. See [ID:nL6532861]. That should diminish the allure of the single euro zone currency against the dollar.

"It's more of a euro sell-off than a dollar rally and has something to do with the fact that markets do not believe the ECB can maintain interest rates above 2 percent for much longer," said Boris Schlossberg, director of currency research at GFT Forex in New York.

"On the other hand, the Obama stimulus package has also helped the dollar. The hope is that the stimulus plan would enable a quick U.S. economic rebound."

Losses in the euro prompted broad dollar gains, with the U.S. currency climbing above 94 yen against the Japanese unit, its highest in more than a month, while the dollar index hit its highest in three weeks.

In early New York trading, the euro was down 1.5 percent at $1.3397, having fallen as low as $1.3311, its weakest level since Dec. 12, according to Reuters data.

Against sterling, the single currency fell to 91.00 pence EURGBP, its lowest since Dec. 17. The pair has tumbled dramatically after hitting a record high of 98.05 pence last week. It last traded at 91.91 pence, down 0.8 percent on the day.

WEAK YEN OUTLOOK

The dollar climbed as high as 94.42 yen , its highest since Dec. 1. It was last at 94.27 yen, up 1 percent.

Analysts cited speculation that Japanese investors are renewing their foreign investments this year, which should hurt the yen.

The ICE Futures' dollar index, a gauge of the greenback's value against a basket of currencies .DXY, rose as high as 84.023, its strongest in more than three weeks. The index last traded at 83.633, up 1.3 percent.

Analysts, however, said given the dollar's sharp gains over the last few days, the currency may be due for a short-term pullback.

"Short-term momentum studies are over-extended, suggesting operators may find it difficult to substantially extend the dollar's gains scored in Asia and Europe," said Brown Brothers Harriman in a research note. But the bank expected dollar buying to resume once the currency gets back to lower levels.

In the euro zone, inflation fell to a 26-month low of 1.6 percent year-on-year from 2.1 percent in November.

The ECB targets inflation at just under 2 percent, and many in the market think a fall below that level keeps the door open to more aggressive rate cuts from the current 2.5 percent to deal with a deteriorating economy.

"(The data) will further free the ECB to cut interest rates at next week's meeting," said Adam Cole, global head of currency strategy at RBC in London.

"The balance of news from Europe is so poor that the market is perceiving that the ECB is behind the curve (on rates)," which was driving recent weakness in the euro, he said.

The ECB is expected to cut its key lending rate by 50 basis points or more at its policy meeting next week. In the run-up to the gathering, ECB officials have been suggested that rates could come down more in the future. (Additional reporting by Naomi Tajitsu in London; Editing by Chizu Nomiyama)

Forex Scalping - Day Trading Your Way to Huge Profits

There is a huge industry in forex scalping systems and vendors promote them heavily on the net with track records that are quite simply mind boggling. The problem however is - they don't work and you will lose.

These guys are NOT traders in most instances, their simply marketing organisations.


As a trader for 25 years I simply laugh when I see headlines such as "make 700 pips a week" etc but many naive and greedy traders get taken in by forex scalping marketing copy and its no laughing matter when they lose their money!

So why doesn't forex scalping or day trading work?

Well if you think about it it's obvious:

You have millions of traders, trading trillions of dollars and to say that you can predict what this huge mass of people will do in just a few hours - is quite frankly ridiculous.

Volatility can and does take prices anywhere in a day and support and resistance levels are meaningless - so you cant get the odds on your side and you cant win.

Anyone who thinks they can win has not tried forex scalping!

So you can't win longer term?

No you can't -

Many vendors claim that you can predict with scientific accuracy what will happen in forex -Really?

If they could, they wouldn't be selling forex scalping systems - they would be to busy making money.

Another point of course is if you could predict what markets do in advance then there would be no market as we would all know the answer in advance, markets move on uncertainty and opinions and thats an investment fact.

The vendors however do produce track records but their meaningless and not worth the paper their written on.

Why?

Check the disclaimer and you will see the words "simulated" and in "hindsight" - so there done KNOWING the closing prices - how hard is that?

You, me or anyone else could do that. There is a problem though!

In the real world, you have to trade without knowing the closing prices and that makes things a little bit harder.

The rewards of forex trading are huge and its not easy to make money - but if you try a methodology based upon forex scalping, you are simply going to get a lesson in how hard it is.

THE GOOD NEWS!

Of course, with the rewards on offer you wouldn't expect it to be easy either and that really is good news.

Leave the forex scalping systems to the dreamers and lazy traders and do your homework and get the right forex education and that means trading longer term and getting the odds on your side.

You can trend follow longer term or do short term swing trading and both can make you money you just need to get a simple system to trade the odds and in these time frames you can get the odds on your side.

Forex trading can give you gains that can be life changing and everything about forex trading can be learned by anyone, with the desire to succeed and the right education.

‘Spice development can raise Nigeria’s forex earnings’

Hopes of higher foreign exchange earnings from horticulture and spice production have been raised, with plans by experts to increase yields and brighten foreign market opportunities.
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Our Correspondent

Forex trading

The Executive Director of the National Institute of Horticultural Research, Dr. Ademola Idowu, who gave the hint in Ibadan on Wednesday, said Nigeria would earn good foreign exchange when the pact between the research institute and the Bells University of Technology, Ota, on spice research and development begins to yield results.

Idowu, who stated this in an interview with our correspondent, said NIHORT signed a Memorandum of Understanding with Bellstech in November 2008 to collaborate on research findings.

He said NIHORT had earlier invited an expert in horticulture from the University of Agricultural Science in Bangalore, India, Prof. Mariappa Vasundhara, for a lecture, where it was revealed that Nigeria could make fortunes from spice development.

Idowu said that findings by a group of researchers from the institute, which was also confirmed by Vasundhara, showed that Nigeria was blessed with more fertile land than India, earns foreign exchange estimated at $2.5bn annually from spice export to over 150 countries.

He added that India was currently growing and processing about 50 different varieties of spices both for domestic consumption and export. He noted that Nigeria could surpass the record.

Idowu said research findings by experts in Nigeria had also established the fact that the country has enough fertile land that could accommodate more than 50 species of the spices.

He said his agency and Bellstech have enough human resources and facilities at their disposal to carry out scientific findings that would lead to commercial production, processing and utilisation of spices in the country.

Idowu described spices as an important group of agricultural commodities which, since antiquity, have been considered indispensable in the culinary arts for flavouring foods.

He said, ”Some are used in the pharmaceuticals, perfumery, cosmetics as colourant, preservatives, antioxidant, antiseptic and antibiotics. They play a significant role in the national economy of countries like India, Indonesia, Germany and Netherlands”

He lamented that despite the importance of spices and their potentials in the development of the nation‘s economy, the crops have remained untapped in Nigeria.

He said, ”Different agro-ecological zones in the country are rich repositories of different species of spice plants.”

He said the two institutions had pledged to work together as a team and devise a strategy that would make the research findings open to investors.

He also said they had promised to assemble a team, apart from the researchers, that will discuss with the industrialists.

He said that the college of biological sciences, chemical sciences, biotechnology and food technology, will serve as platform for the linkage.

The Vice chancellor of Bellstech, Prof. Isaac Adeyemi, had, while signing the MOU, noted that the team in his university‘s College of Food Sciences had both academic background and industrial experience to handle processing and utilization of spices together with seasoned researchers at NIHORT.

”It is my belief that jointly we can blaze the trail in this unexplored area with full economic potentials not only for individuals but also for the nation,” he stated.

Vasundhara had in her paper, stated that despite the limited land space in India for the cultivation of spice crops, the country is still supplying over 70 percent of the global demand annually to Europe, America, Asian and many African Countries.

She said the world was currently looking forward to Nigeria to take its lead from leading producers of the product because the global market for the organic food hit about $31bn in 2005.

She urged the nation‘s leadership to encourage researchers at NIHORT to adopt best practices that would make massive production of various species of spices possible in the country.

Forex Charts – 6 Common Mistakes That Cause Equity Wipe Out

If you don’t want to join them, avoid these common forex chart mistakes!

1. Using Useless Indicators

These are indicators based upon flawed logic and are mostly loved by the far out investment community and in the hall of fame we are going to place:

Fibonacci numbers, Elliot wave theory and cycles.

They all come from the markets move to scientific theory brigade.

Really?

Well if markets were scientific there would be no market as we would all know the price in advance. Of course uncertainty is what causes prices to move.

Ignore the above Fibonacci numbers were devised to solve a problem to do with the copulation of rabbits and are nothing to do with forex.

Elliot never made any money trading (despite what his fans say) and cycles well – look at a chart and see if you can spot repetitive ones I cant

2. Using Indicators with NO valid data

Day trading! If you want to use forex charts to make money you need reliable data and in a day or a few hours it’s not – volatility can and does take prices anywhere, so its impossible to win no matter how good your indicators are.

3. Using lagging indictors to lead

Main error here is buying dips to moving averages. Lesson never use a lagging indicator to enter trades you are relying on hope you need to use momentum indicators!

4. Not Using Momentum Indicators

If you don’t know what a momentum indicator is you will never enter with the odds on your side.

If you are using forex charts you need to enter with price momentum on your side and this is why they’re so important.

Two great ones for timing entry on your forex charts are stocastics and Relative strength index – learn about them and use them.

5. Using Too Many Indicators or Rules

In forex trading this causes disaster for any forex trading system.

Less is more when trading, as your forex system will be more robust in the face of brutal market conditions.

Use too many indicators and there are to many elements to break and believe me they will – simple systems work best and always have.

6. The Dangers Of Curve Fitting

Why is it so many back tested systems fail in real time currency trading?
The answer is curve fitting - where the system is bent to fit the data.

One trader I know likened this to shooting at a barn door and then drawing a bulls-eye around everyone one AFTERWARDS!

Many traders cannot get their currency trading system to work so bend the rules a bit to make it- this is curve fitting and its more common than many people think.

Of course no two periods of trading history are exactly the same and that’s why the system fails in real time going forward.

Forex hedging rewards banks

They report profits from the segment for past two quarters

MALAYSIAN banks dealing in hedging instruments, particularly that involving foreign exchange (forex), are reporting profits in this area over the past two quarters.

Analysts agree that the business has been growing steadily since early 2007.

While quarterly results do not break down specific earnings from any particular product, the gains in fee income and forex holdings imply that this is the trend going on in most banks, said an analyst.

CIMB Group head of group treasury Lee Kok Kwan told StarBiz: “CIMB has taken the opportunity to accelerate the increase in its forex market share in the current environment and has certainly benefited.”

As to how much the business has grown, he said CIMB’s increase in income from this business was in line with its growth in sales volume and market share.

“However, we would not be in a position to benefit if we had not, since 2005, poured resources and effort into the forex business. Among others, it enabled us to provide a much expanded range of products to better suit the risk management requirements of our customers,” he said.

However, not all major banks are seeing higher fee income from forex hedging services.

A spokesman for RHB Capital Bhd said: “We do not agree with the analysts’ observation. Our forex income is mainly from the traditional forex spot and forward hedging. There was no significant increase in the forex fee income in the last two (reported) quarters compared to the previous year.”

Spot and forward contracts are the traditional hedging tools for forex risk. The newer instruments include options contracts, interest rate options and interest rate swaps.
Lee Kok Kwan

“We do not think the income from the hedging instruments is sustainable,” the spokesman added.

Banking analysts, too, are not certain if the growing income stream is sustainable.

One analyst said: “It is a bit difficult to tell if the earnings will be sustainable, but then again, the forex outlook is volatile so hedging could become popular with clients.”

While earnings from this particular segment could go up, the overall fee income is expected to come down this year in line with the weaker capital markets.

Whether or not a bank would see growth in forex hedging would depend on the strategy and outlook of a particular bank’s treasury department, he said.

The RHB Capital spokesperson said: “We think the forex market will continue to be volatile at the moment. The traditional spot and forward hedging is still the best way to mitigate the forex risk.”

CIMB’s Lee said: “The forex revenue stream is relatively stable and depends on volume, market share and level of volatility. It is sustainable because every single export and import transaction has a forex component and Malaysia is the 16th largest trading nation in the world, with the value of its annual exports and imports exceeding its gross domestic product.”

He said CIMB planned to expand its operations in Indonesia and Thailand, taking advantage of economies of scale by leveraging on one set of hedging and market-making capabilities, risk infrastructure and systems.

“As CIMB moves towards becoming a South-East Asian universal bank, its forex operations will expand.”

Citic Pacific shares plunge after forex-hedging loss

Citic shares closed 55% lower at HK$6.52 in Hong Kong Tuesday. The firm, the Hong Kong branch of China's biggest state-owned investment company, said Monday that it faced a loss of HK$14.7 billion ($1.9 billion) after its positions in the foreign exchange market soured. Trading in Citic shares was suspended Monday. 

 

The firm said it had ousted Finance Director Leslie Chang Li Hsien and group Financial Controller Chau Chi Yin. 

 

Citi slashed its price target on Citic to HK$6.66 from HK$28 and recommended investors sell the shares, noting losses could widen to HK$26 billion if the Australian dollar were to fall to 50 U.S. cents. Goldman Sachs cut its recommendation on the share to "sell" from "neutral, lowering its target price to HK$12.50 from HK$31.50 

 

"A cowboy hedging policy see Citic sitting on a unlimited potential losses," wrote Citi analysts headed by Anil Daswani. "We have lost confidence in the group's ability to execute." 

 

Citic estimated at current exchange rates the firm stands to mark a 20% write down on its book value. 

 

Citic's gearing will rise above 100% if it draws upon the $1.5 billion standby loan facility agreed by major shareholder Citic Group, which hold a 29% stake, arranged in the wake of the scandal to help shore up the firm's liquidity. 

 

Citic Pacific Chairman Larry Yung reportedly told a news conference in Hong Kong Monday the firm's financial director failed to obtain approval before entering into some of the positions. 

 

"The contracts were done without proper authorization, not evaluated correctly, nor reported correctly," Daswani said. 

 

The positions were related to the company's currency exposure to an iron ore mining project in Western Australia, for which supplies were obtained using Australian dollars and euros. The positions were taken "with a view to minimizing the currency exposure," the company said. 

 

But the leveraged foreign exchange contracts do not qualify for hedge accounting, the company said, and must be marked to market at the end of each financial period. 

 

According to the leveraged contracts, Citic Pacific is obligated to buy Australian dollars at a weighted average strike price of 87 U.S. cents. Citic Pacific must buy euros at a weighted average strike price of $1.4400. 

 

On Tuesday, the Australian dollar was buying 69.8 U.S. cents, and the euro was buying $1.3330. The euro is down about 7.8% against the dollar this year, while the Australian dollar has fallen about 20%. 

 

The contracts put a ceiling on profits that could be delivered to the group if the dollar were to continue falling. However, the company said the contracts did not include a similar knock-out feature for losses.

Forex Signal

D20P SELL B GBP/USD 1.7143

take profit 1.7123

stoploss 1.7173