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USDJPY Slides in APAC Trade

But the dollar — which soared in November and December on expectation his big-spending, tax-cutting, deregulation plans would fan inflation — continued to struggle in January. In early trade Monday it bought 113.60 yen, well down from 114.60 yen Friday and more than four percent down from the highs touched late in December. It was also well down against the euro and pound despite ongoing concerns about Britain’s exit from the European Union. “I suspect we’re entering extremely volatile times for the dollar,” Stephen Innes, senior trader at OANDA, said in a note. “There remains a high level of uncertainty about the new administration’s dollar policies, especially following President Trump’s recent remarks on the strong dollar directed at China.” Trump last week said the greenback was too strong against China’s yuan, which he claimed was “killing” the US economy. The stronger yen dragged exporters on Tokyo’s Nikkei, which ended the morning 1.1 percent lower. AFP

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Riding the Trump Train

Riding the Trump Train I suspect we’re entering extremely volatile times for the USD. While the reflationary aspect of US fiscal spends in itself is a compelling argument for a stronger dollar, when combined with Corporate and Border Tax reform it should be a no-brainer. But there remains a high level of uncertainty about the new administration’s dollar policies especially following President Trump’s recent remarks on the strong dollar directed at China. If you think about it, the strong USD runs counter-intuitive to President Trump’s trade policy; adding another level of uncertainty. So, instead of investors piling back into the dollar, the market is more likely to pile into the volatility trade, given the muddled economic and political landscape. While the reflationary trade makes for a credible, strong dollar storyline, I suggest bracing for an extended period of dollar volatility to the extent that we have not experienced in years. The markets have priced in huge expectations, so Trump’s fiscal policy will remain in the limelight. However, there could be more disappointment for dollar bulls this week, especially from those who were banking on the president charging out for the gates on Fiscal and Tax Reform. Indeed, there is growing discomfort from Investors who continue to seek confirmation to buttress their long USD and higher global rates bias. Currency markets opened tentatively today, but dealers are finding few compelling reasons to re-engage dollar longs as the path of least resistance appears lower for the Greenback. Mind you, there is not a great argument to suggest the USD is overvalued either, but with traders in sell mode, after the inauguration falls out, I suspect the US dollar will feel the dealer’s near-term angst. On the trade front, there were no surprises that the new US administration strategy to protect American jobs would start with withdrawal from the 12-nation Trans-Pacific Partnership (TPP) trade pact. Australian Dollar The AUD is holding up remarkably well and has benefited greatly from the unwind of the Trump trade and hot commodity markets. So much so that the currency is being affectionately labelled on ‘the street’ as the ‘EURUSD’ of the South Pacific, in comparative reference to the Euro’s longstanding resilience. While I expect the AUD to hold short-term, the top side may be limited in the face of a possible increase in risk aversion. US trade policy appears to be at the head of the queue for the incoming administration. If you needed any confirmation of this fact, the Trump mantra that came across loud and definite at the inauguration, was “BUY AMERICAN & HIRE AMERICAN”. The AUD is opening unchanged from Friday’s NY close. And while there is growing pressure from the possibility of a resurgent USD, the near-term outlook for the AUD should remain on stable footing, benefiting from Friday’s China GDP growth, which remained strong and will provide support the Aussie’s current ‘run in the sun’. Traders will turn to this week’s national CPI, which should also limit downside, as the market is expecting a rise to .5 % from .3 % on the surge in food prices. Japanese Yen USDJPY is still the favoured trade to express dollar bias. In the lead-up, USDJPY tested the 115.40-50 zone before Trump took the stage and proceeded to slide to 114.20, as traders quickly turned to 2017’s preferred strategy of selling the inauguration risk. Core positions remain much lighter than in early 2017, and with little expectation for an event-driven risk, fast money traders were quick to cover their shorts at the intraday technical edges, happy to take few risks into the weekend. The focus will now turn to just how the new administration will deliver Fiscal and Tax policies, which is at the core of Trumpenomics. Policies the markets applauded favourably for post-election. Most likely, the early trade will be to sell the USDJPY, given the absence of clarity on Trumpenomics and risk aversion is liable to re-emerge.  . Chinese Yuan The Yuan continues to trade without direction stuck  in the quagmire of US policy uncertainty  But with funding cost normalising  we should at least  see a convergence of USDCNH and USDCNY rates The Pboc is singing a happy song now that their iron-fisted policies in both currency markets and capital controls have reduced capital outflows to a dribble. Look for the CNH to trade in line with broader USD sentiment Fielding lots of questions about China’s temporary  RRR cut for the big five banks and last week large open market operations last week.The key is that is little more than a cash management injection to prevent any cash squeeze before Lunar New Year . The Euro Despite  Draghi sounding less hawkish than what he might have been the  EUR continues to remain supported due to US economic and political uncertainty.Friday’s break of 1.07 could be an ominous sign that a further squeeze on EURUSD shorts is in the cards.   The 1.0720 pivot was taken out early but follow through was limited to 1.0750 so far  as EUR cross-selling pressure ramains in tact. The Pound It was a very hectic week for the pound, and we now find ourselves back to square one for the month virtually stuck in no man’s land.And while I expect some interplay off the broader USD momentum, I think Cable is a play in its right. With the latest best case Brexit scenarios fully price, despite glimmers of hope for the pound at weeks end, I expect “sell the GBP rally” to return in vogue as the messy Brexit affair unfolds.  Essential for Sterling watchers will be the Supreme Court gives its ruling in Brexit on January 24th. UK PM Theresa May and US President Donald Trump will meet on Friday, January 27 in Washington. High on the agenda will be US-UK trade relations as PM May begins her road show aimed at instilling investor confidence by increasing trade ties between both countries while working towards a new “ passporting “ deal between American and British Banks. WTI A meeting of the OPEC Ministerial Monitoring Committee went well as by all indications the production cuts have been deeper and faster than expected. As media reports that the cartel’s output cuts are ahead of schedule. Fairly muted market reaction to the weekend news . EM ASIA Markets remain very whippy which has been characterised by extreme moves, but I continue to view the Local EM FX more exposed to and less insulated from US policy and the market’s sensitivity to US policy will continue to reflect in near-term underperformance. However there are still pockets of appetite to sell USD extremes along the forward curve in local currencies like  IDR and KRW, but I suspect this is more in line with the  Bond and Equities Market valuation play as opposed to outright currency speculation, but overall inflow remains tepid across the region. Korea Bond market remains supported despite the sell-off and UST on Friday which should lend near-term support to the Won However, given the mounting political and economic uncertainties, there remains little urgency for investors increase any directional bias. So outside of short term trading extreme USD moves, I do not anticipate a significant directional move until US policy clarity if forthcoming.   Indian Rupee Outlook for INR continues to deteriorate in line with most EM markets in the face of outflows from both bond and equity markets Traders have been primarily focusing on US President-elect Donald Trump’s plans for fiscal stimulus and Trade, and less focused on domestic affairs. Certainly, India’s technology and outsourcing space will feel the wrath of Trump’s trade kerbs. Malaysian Ringgit Ringgit continues to trade with a negative bias, while BNM  held overnight policy rate at 3.00 per cent the market continues to believe they will cut rates later in the year when hopefully there is less focus on the currency. Offshore Traders continue to shy away from the MYR due to liquidity constraints and prefer to express their regional bias through other ASEAN currencies.

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No Major Change

Trump's inauguration looks to have kept traders distracted as markets experienced a relatively quiet Friday, despite some higher volume trading.The S&P experienced higher volume accumulation but was unable to get past 2,275. Monday is another day, but keep an eye on the MACD; a gain with a new 'buy' trigger well above the bullish zero line will attract technical traders on the long side. This in turn will encourage short covering.The Nasdaq turned a MACD trigger 'sell', but given its relative position well above the bullish zero line it would count as a weak 'sell' trigger. Other Technicals remain firmly positive, and the relative performance of the index against the S&P suggests it's well positioned to go higher.Meanwhile, the Russell 2000 is still struggling. It did make up some lost ground, but not enough to recover lost support and not enough to reverse technical weakness. Shorts will again be looking to attack unless there is a push above 1,376.Longer term charts had moved back in favour of bulls (in what was a slow-mo reversal). It would take a few months of consistent downside to return this to a bearish stance; in light of this, look for a move to broadening wedge resistance - i.e. further bullish action.Dow Theorists can continue to take comfort in the relative relationship between Transports and Dow Jones as the breakout from the two-and-a-half year decline resumes its upward advance (Transports leading).For tomorrow, watch for a breakout in the S&P and a continuation (with new highs) of a breakout in the Nasdaq. A weak start could see an acceleration down in the Russell 2000.You've now read my opinion, next read Douglas' blog. I trade a small account on eToro, and invest using Ameritrade. If you would like to join me on eToro, register through the banner link and search for "fallond". If you are new to spread betting, here is a guide on position size based on eToro's system. (function(document,script,id){var js,r=document.getElementsByTagName(script)[0],protocol=/^http:/.test(document.location)?'http':'https';if(!document.getElementById(id)){js=document.createElement(script);js.id=id;js.src=protocol+'://widgets.changetip.com/public/js/widgets.js';r.parentNode.insertBefore(js,r)}}(document,'script','changetip_w_0'));--- Accepting KIVA gift certificates to help support the work on this blog. All certificates gifted are converted into loans for those who need the help more. Follow Me on Twitter Dr. Declan Fallon is the Senior Market Technician for ChartDNA.com, and Product Development Manager for FirstDerivatives.com. I also trade on eToro and can be copied for free. Fallond Stock Picks

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Recent GLB $IRBT resuming up-trend; $ANET GLB fails; Access my TC2000 scans–newly described in my blog’s glossary

I spent some time this weekend entering descriptive information about my WatchLists and scans in the glossary from this blog. Those of you who have TC2000 can join my Club and access several WatchLists and EasyScans that I have published (access my club in your library tab). For example, I have a WatchList called Alltimehighs. You can now access this WatchList to monitor or run some of the scans I have developed that search this list for promising stocks. My Darvas scan, described in the glossary , identified 53 stocks this weekend. One of these, IRBT looks interesting to me. It had a GLB to an all time high in late October, then rose to around $60. It then entered a 5 week consolidation. IRBT showed signs of renewed strength last week. IRBT reports earnings on 2/8. I have a small position. IRBT has a maximum RWBCount of 12 (of 12). All of the weekly moving averages line up properly. In early January, I tweeted intraday that a recent GLB stock, ANET, looked like it was moving up on above average volume.  Seven days afterwards ANET gapped down on huge volume on some bad legal news. I saw no technical indicator that warned me in advance about this significant decline except for the fact that the stock traded back below its 30 day average (red line) a few days later, but it bounced. Also, the fact that the rise I wrote about only lasted for another day and the Bollinger Band expansion failed to continue were other signs of possible weakness. Technical signals can give me an edge, but they are not perfect. That is why I take small initial positions and only add to them if they prove themselves. If I owned ANET I would not sell now unless it fails to hold the recent support it had below its lower Bollinger Band, around  87.50. The GMI remains at 5 (of 6) and on a Green signal. The QQQ short term up-trend has now lasted 29 days (U-29). gmi: 5 gmi-2: 7 t2108: 59 Tags: Darvas, GMI

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Call Me When You Have A Real Insurance Company!

Photo Credit: eflon || The title of the article comes from a comment Greenberg supposedly made to Buffett when AIG was much bigger than Berkshire Hathaway — times change…============================The title of the article comes from a comment Greenberg supposedly made to Buffett when AIG was much bigger than Berkshire Hathaway [BRK] — times change…It’s come to this: AIG has sought out reinsurance from BRK to cap the amount of losses they will pay for prior business written.  It’s quite a statement when you are willing to pay $10 billion in order to have BRK pay 80% of claims over $25 billion, up to $20 billion in total.  At $50 Billion in claims AIG is on its own again.So what business was covered?  A lot.  This is the one of the biggest deals of its type, ever:The agreement covers 80% of substantially all of AIG’s U.S. Commercial long-tail exposures for accident years 2015 and prior, which includes the largest part of AIG’s U.S. casualty exposures during that period. AIG will retain sole authority to handle and resolve claims, and NICO has various access, association and consultation rights.Or as was said in the Wall Street Journal article:The pact covers such product lines as workers’ compensation, directors’ and officers’ liability, professional indemnity, medical malpractice, commercial automobile and some other liability policies.Now, AIG is not among the better P&C insurance companies for reserving out there.  2.5 years ago, they made the Aleph Blog Hall of Shame for P&C reserving.  Now if you would have looked on the last 10-K on page 296 for item 8, note 12, you would note that AIG’s reserving remained weak for 2014 and 2015 as losses and loss adjustment expenses incurred for the business of prior years continued positive.For AIG, this puts a lot of its troubles behind it, after the upcoming writeoff (from the WSJ article):AIG, one of the biggest sellers of insurance by volume to businesses around the globe, also said it expects a material fourth-quarter charge to boost its claims reserves. AIG declined to comment on the possible size. Its fourth-quarter earnings will be released next month.For BRK, this is an opportunity to make money investing the $10 billion as claims on the long-tail business get paid out slowly.  It’s called float, which isn’t magic, but Buffett has done better than most at investing the float, and choosing insurance business to write and reinsure that doesn’t result in large losses for BRK.I expect BRK to make an underwriting profit on this, but let’s assume the worst, that BRK pays out the full $20 billion.  Say the claims come at a rate of $5 billion/year.  The average payout period would be 7.5 years, and BRK would have to earn 9.2% on the float to break even.  At $3.75B/yr, the figures would be 10 years and 6.9%.  At $2.5B/yr, 15 years and 4.6%.This doesn’t seem so bad to me — now I don’t know how bad reserve development will be for AIG, but BRK is usually pretty careful about underwriting this sort of thing. That said BRK has a lot of excess cash sitting around already, and desirable targets for large investments are few.  This had better make an underwriting profit, or a small loss, or maybe Buffett is ready for the market to fall apart, and thus the rate he can earn goes up.All that said, it is an interesting chapter in the relationship between the two companies.  If BRK wasn’t the dominant insurance company of the US after the 2008 financial crisis, it definitely is now.Full disclosure: long BRK/B for myself and clients

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Week Ahead Trump Speech Fails to Reignite Dollar Rally

US 45th President is sworn in with markets looking forward to first 100 days The dollar is mixed against majors after the inauguration of President Trump. The markets did not get enough information on Friday to support the dollar as the tangible pro-growth agenda items were missing from the event. Trump’s speech was delivered in his combative style and he made a pledge to put America first. The protectionist message did not resonate with markets as the dollar and stocks fell. Safe haven assets rose with gold above $1,200 as Trump addressed the American people for the first time as their President. The battered Mexican peso got room to breathe and appreciated more than 1.5 percent versus the dollar as NAFTA’s fate continues to be uncertain. The focus on Trump’s policies moves to next week where his executive orders will give insight on how strong his first 100 days will really be like. The week of January 23 to 27 will have little in the way of scheduled economic events with the United Kingdom’s Supreme Court ruling on EU membership on Tuesday, January 24 at 4:30 am and the first estimate of GDP numbers for the United States on Friday, January 27 at 8:30 am the main highlights. The U.S. dollar will continue to lose traction until there is more clarity on how Trump’s policies will make his campaign promises a reality. The EUR/USD gained 0.373 percent in the last five days. The single currency is trading at 1.0672 in a week that featured the European Central Bank (ECB) keeping rates on hold and the inauguration of the U.S. president Donald Trump. His surprise victory as once again pollsters underestimated their own bias started a rally in the markets and the U.S. dollar as his comments on infrastructure spending and fiscal stimulus could deliver the growth he promised during his campaign. The interest rate divergence as the U.S. Federal Reserve is poised to hike 3 or 4 times this year if inflation starts moving near or above the central bank target due to Trump’s action put downward pressure on the EUR. The Euro zone registered positive inflation numbers, but nowhere near what is needed to get the economy of the bloc out of the danger zone. Specially in such a politically charged environment as France, Germany, the Netherlands and probably Italy will host elections in 2017. Gold gained 0.768 percent this week. The XAU/USD is trading at $1,205.40 after Donald Trump took the oath as America’s 45th President. The yellow metal was in demand this week as uncertainty on what the first hours of a Trump presidency could bring. The eventual mixed message delivered on Washington was similar to the press conference earlier in the month which depreciated the dollar versus the safe haven commodity. There was the possibility that between Trump being sworn in and the start of the parade there was room for executive orders to be signed. The emphasis has now shifted for Monday and the rest of the first 100 days of Trump’s presidency. The USD/MXN gained 0.384 on a weekly basis, but the peso was one of the biggest winners in the last 24 hours. The currency pair is trading at 21.62 after starting the period barely under the 22 price level. The lack of clarity from President Trump on how he plans to establish trade deals that benefit only the U.S. reduced the pressure on the Mexican currency. Although there was plenty of tough talk regarding trade both in the speech and in the newly unveiled White House website it is still unclear what type of measures Trump will take, if any, to undo NAFTA. The Mexican central bank Banxico will remain under alert to a sudden loss of value for the peso to try and stem the downward pressure. Market events to watch this week: Tuesday, January 24 4:30am GBP EU Membership Court Ruling 7:30pm AUD CPI q/q Wednesday, January 25 4:00am EUR German Ifo Business Climate 10:30am USD Crude Oil Inventories 4:45pm NZD CPI q/q Thursday, January 26 4:30am GBP Prelim GDP q/q 8:30am USD Unemployment Claims Friday, January 27 8:30am USD Advance GDP q/q 8:30am USD Core Durable Goods Orders m/m *All times EDT For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Canada: Retail trade, November 2016

Retail sales rose for the fourth consecutive month, edging up 0.2% to $45.2 billion in November. Higher sales at motor vehicle and parts dealers and building material and garden equipment and supplies dealers were the main contributors to the gain. Sales were up in 5 of 11 subsectors, representing 45% of total retail trade. After removing the effects of price changes, retail sales in volume terms increased 0.7%. Higher sales at motor vehicle and parts dealers Sales were up for the third consecutive month at motor vehicle and parts dealers (+0.8%) in November. Higher sales at new car dealers (+1.9%) accounted for most of the gain at the subsector level. Sales at other motor vehicles dealers, which include retailers of recreational vehicles, motorcycles and boats, were up 1.8%. Lower sales were reported at automotive parts, accessories and tire stores (-11.0%) and used car dealers (-3.5%). Store types traditionally associated with housing purchases and home renovation experienced sales growth in November. Sales at building material and garden equipment and supplies dealers (+2.9%) and furniture and home furnishings stores (+2.0%) increased for the third consecutive month. This was the largest gain in the building material and garden equipment and supplies dealers subsector since January 2016. Following a 4.2% increase in October, receipts at gasoline stations were down 1.0% in November, reflecting lower prices at the pump. Sales at food and beverage stores declined 0.5% in November. Lower sales at supermarkets and other grocery stores (-0.9%) more than offset higher sales at beer, wine and liquor stores (+1.4%). Sales up in seven provinces Retail sales were up in seven provinces in November. Ontario (+0.5%) reported the largest increase in dollar terms, as gains were observed in 8 of 11 subsectors. Retail sales rose for the fourth consecutive month in Quebec (+0.3%). November’s gain was mainly attributable to higher sales at building material and garden equipment and supplies dealers and new car dealers. In Saskatchewan (+1.6%), retail sales reached their highest level since June 2016, primarily on the strength of higher sales at new car dealers. In Nova Scotia (+2.0%), retail sales increased for the fifth consecutive month in November. Retail sales were also up in New Brunswick (+0.8%) and Prince Edward Island (+2.1%). Following five consecutive monthly increases, sales in British Columbia fell 0.7% in November. Despite this decline, total retail sales remain above September’s level. Following three consecutive monthly gains, retail sales in Alberta were down 0.5% in November, largely due to lower sales at automotive, parts accessories and tire stores. E-commerce sales by Canadian retailers The figures in this section are based on unadjusted (that is, not seasonally adjusted) estimates. On an unadjusted basis, retail e-commerce sales reached $1.4 billion in November, accounting for 3.0% of total retail sales in Canada, their highest proportion of total retail sales in 2016. This unadjusted movement in Internet-based sales coincided with the timing of promotional events such as Black Friday. Mixed results at stores traditionally associated with Black Friday Store types associated with Black Friday promotions reported mixed results in November, as receipts at electronics and appliance stores were up 1.0%, while sales at sporting goods, hobby, book and music stores were down 0.3%, the first decline in three months. Within the clothing and clothing and accessories stores subsector, gains at clothing stores (+0.1%) and jewellery, luggage and leather goods stores (+0.2%) were more than offset by lower sales at shoe stores (-1.9%). The evolution of retail trade in Canada As 2017 marks the 150th anniversary of Confederation, we take a look at an aspect of the history of retail trade in Canada. Net sales of the retail automotive group amounted to $34.7 million in 1930, representing 6% of total retail trade. In 2015, 85 years later, sales in the equivalent motor vehicle parts dealers subsector totalled $126.4 billion, accounting for 25% of total retail sales. StatsCanada

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Canada: December Inflation Rate Rises to 1.5%

Canada’s annual inflation rate rose less than expected in December as cheaper food costs offset higher gasoline prices, data from Statistics Canada showed on Friday, leaving inflation below the Bank of Canada’s target. The annual inflation rate rose to 1.5 per cent from November’s 1.2 per cent, short of analysts’ forecasts for an increase to 1.7 per cent. Gasoline prices jumped 5.5 per cent compared to the year before. But annual food prices fell for the third month in a row and were down 1.3 per cent in December as Canadians paid less for fresh fruit and vegetables. Two of the three new measures of core inflation the Bank of Canada established late last year showed underlying inflation was closer to the central bank’s 2 per cent target. CPI median, which shows the median inflation rate across CPI components, held at 2.0 per cent after the previous month was revised up, while CPI trim, which excludes upside and downside outliers, was also steady at 1.6 per cent. But CPI common, which the central bank has said has the best correlation to the output gap, was furthest away from target, edging up to 1.4 per cent from 1.3 per cent. Common measures price changes across categories in the CPI basket. The Globe and Mail

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