Posted: 01 Jun 2010 02:15 AM PDT

EUR/USD began a fresh downfall, losing the previous support line and heading down. The market begins digesting the meaning of the austerity programs that flood the continent – a good chance of double dip recession brings the currency down – the high unemployment rate increases the chances of this. Update on the next milestones.

The debt issues have a price – money doesn’t grow on trees. No country is immune to the contagious debt diseases. Spain didn’t exit the recession anyway. Last week, the Spanish parliament hardly passed a harsh austerity program. This was a victory for the government and a relief for investors – the government is in control and the deficit is taken care of. Well, not exactly:

But this has a price – with less government spending, the chances of Spain returning to sustainable growth are slim. Spain is the fourth largest economy in the Euro zone.

Also Greece and Portugal suffer from heavy debt issues. You may say that these are isolated cases and that the stronger countries will grow and pull the zone out of its troubles.

Well, also the strong countries, Germany and France, which are the locomotives of the Euro-zone and also the Euro, are dealing with severe budget cuts. If Germany and France don’t grow – nobody grows. Europe already suffers from a very minimal rate of growth. A return to economic contraction will probably be seen in Q2 of 2010 and further on – a double dip recession.

Germany is currently strong, with another drop in the number of unemployed people – 45,000, much more than the early expectations of 18,000. This follows a surprise last month (67,000). But as aforementioned, Germany cannot carry the Euro-zone all by itself.

The all-European unemployment rate edged up to 10.1%. While this was expected by economists, the high rate is big burden on the Euro as well. Despite economic growth, the unemployment rate continues to be high. With another recession – it can climb even higher.

The Euro pays the price

Euro/Dollar broke below 1.2142 and already reached 1.2120. The move continues. The next barrier for the pair is the round number of 1.20. This wasn’t a technical line of support or resistance in the past – only a psychological number that was quoted lots of times in the news. There’s more room to drop:

The next line of support is already a stronger one – 1.1820 – this was a strong line of support about 4 years ago. The ultimate line of support is at 1.1630 – the lowest level for the common currency since 2003. The Euro will probably stall before breaking down below this line.

If the pair recovers, the next levels of resistance are 1.2331, the “Lehman levels” (2008 lows) and then 1.2460 – which was a technical barrier last week.

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Forex Daily Outlook – June 1 2010

Posted: 31 May 2010 02:00 PM PDT

Important events are with us today; US national ISM Manufacturing PMI and Canada’s BOC Rate Statement and Overnight Rate reports are issued. This events stand out I today’s news.

In the US, ISM Manufacturing PMI is expected to drop to 59.6 from 60.4 in May. This drop comes after nine consecutive months of expansion but still reflects a relative growth in the US market.

In Canada, BOC Rate Statement is released revealing bank rate decisions and providing insight on future monetary policy.

More in Canada, Overnight Rate is foreseen to rise from 0.25% to 0.50% for the first time since April 2009, in light of the recent improvements in the Canada’s economic outlook expecting to give a positive drive to the economy.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, Deutsche Bundesbank President Axel Weber is intending to peak at the General Shareholder’s Meeting, in Frankfurt.

Also in Europe, German Unemployment Change is expected to continue its drop by 17000 after a decline of 68,000 in April and, 42,000 in March continuing the growth trend in Germany while in Europe, Unemployment Rate is expected to rise by 0.1% compared to 10.0% in April.

Later in Europe, German Retail Sales are expected to increase by 0.7% after a drop of 1.6% in April.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Great Britain, Halifax House Price Index is expected to rise by 0.3% compared to a drop of -0.1% in May giving a boost to the housing industry.

More in Great Britain, Manufacturing PMI is headed for a slight decrease of 0.2 points from 58.0 in May.

Read more about the Pound in the GBP/USD forecast.

In Switzerland, SVME PMI is expected to reduce by 1.5 points compared to May’s 65.9 points and the GDP is expected to remain 0.7% as in the previous quarter.

In Australia, After the RBA Board decided to raise the cash rate by 25 basis points to 4.25 in April, the new RBA Rate Statement will reveal whether a further increase is in order.

More in Australia, Building Approvals is foreseen a drop by -4.9% compared to the sharp rise of 15.3% in May.

Later in Australia, Retail Sales are expected to remain 0.3% as in May and Cash rate is 4.50% is unlikely to change this month.

Finally in Australia, Commodity Prices are expected to increase again following the sharp rise of 29.4% in May.

For more on the Aussie, read the AUD/USD forecast.

That’s it for today. Happy forex trading!

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5 Reasons to Invest in the Israeli Shekel

Posted: 31 May 2010 07:00 AM PDT

Guest post by Melissa Tamura

Nowadays, many investors have become wary of the dollar, with all of the money printing that has gone on stateside in the last two years. The money supply was grown at a rate of 300%, and this assuredly spells inflation disaster and currency devaluation troubles in the near to medium term for America. Other investors who used to trumpet the arrival and rise of the Euro as the answer to the increasing dollar dilemma have become disenchanted as they watched Greece burn down and then the infectious contagion spread first to Ireland, Portugal, and now even Spain and possibly Italy. Where is an investor looking for a secure currency in which to store his or her wealth to turn today? One place for investors who are looking for a strong alternative foreign currency to keep their money safe in is Israel and the Israeli Shekel. This article discussed five reasons why the person of means ought to sink a portion of his or her investment dollars or Euros into Israeli Shekels.

Reason #1 – Respected Analyst Recommendations

Less than a year ago, Barclays Capital forecast a rapid conclusion to the relatively shallow recession in Israel, along with a fast track back to reasonably good growth of 2.9 percent in 2010. Remember that the Israeli economy came to the recession party late in the game and appeared to be leaving it early. This has now come to pass, as Israel recently announced better than expected growth of her her higher technology exports, as well as her overall economy.

Reason #2 – The Alternative Energy Play Angle

Whether you personally agree with him or not, President Obama’s drive for sources of alternative energy is an enormous boon for Israel. Israel remains among the biggest worldwide participants of water and cleantech technologies. As the global recovery continues and picks up steam, the Israeli high tech sector, whether small or mid size companies, should have a very strong 2010 year.

Reason # 3 – Rapidly Growing Israeli Economy and Dropping Unemployment

May 30th saw the nearly year long high of the Israeli Shekel against the dollar. This followed an announcement that the Israeli whole economy grew at a quicker pace than economists had predicted, along with word that her unemployment rate decreased to an eleven year low (contrast that with America’s near double digit rate). Israel’s real economy grew at an annualized rate of 5.4 percent for the first quarter, against the Bloomberg economist survey which called for 4.2%. Unemployment in fact decreased to 6.3%, down from 6.7% in the final quarter of 2007 and from 7.8% in the same quarter of last year.

Reason # 4 – Bank of Israel Rate Raising Game

May saw the Bank of Israel raise her principal interest rates by a quarter percentage point up to 3.5%, in order to fight inflation. Higher interest rates are nearly always a sign that a currency will rise in the near future, as investors scramble to purchase more bonds from countries paying more attractive interest rates. Currently the rate now stands at 4%. Contrast that to a practically zero percent interest rate in the U.S., and a less than one percent rate in the Eurozone. All else being equal, whose bonds would you prefer to buy in these scenarios? Naturally, the much higher yielding ones.

Reason # 5 – Diminishing Israeli Money Supply

Unlike practically every other modern and industrialized country since the financial crisis erupted in 2008, Israel has not run to town on a wild and gleeful money printing spree, like the U.S., Great Britain, and now even the European Central Bank have done. The Israeli Central Bank recently claimed that Israel’s M1 money supply, comprising corporate and consumer checking accounts and cash, dropped 1.1% Remember that this number compares to a money supply increase in dollars of more than 300% over the last two plus years. Investors’ money is usually more secure in a currency which is not simply inflating its way to infinity, as are the U.S. and Great Britain, to name a few errant nations.

When she’s not watching the Forex Markets, Melissa Tamura writes about higher education and distance learning for the Zen College Life online degree directory. She most recently wrote about the best online colleges.

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Canadian dollar Rises on Great GDP

Posted: 31 May 2010 05:49 AM PDT

The Canadian economy grew by 0.6% in March, slightly better than expected. USD/CAD reacted with a drop, and is now approaching an important support line. Update on this strong currency.

Canada’s GDP for the month of March grew by 0.6%. This exceeded expectations for a growth rate of 0.5%. It’s important to note that this growth comes on top of weak growth in February – the figure for the previous month was revised to the downside – only 0.2%, worse than 0.3% that was reported beforehand. All in all, traders focused on the recent, better figure. This release concludes the data for the first quarter, and the overall picture is excellent – an annual growth rate of 6.1%, double the growth rate in the US at the same period.

This wasn’t the only piece of good news from Canada:

Also the Raw Materials Price Index (RMPI) exceeded expectations and rose by 1.7%, stronger than 1.3% that was predicted. This is the figure for April, just before the recent turmoil in the markets, so next month will probably be weaker, but this doesn’t matter for now.

USD/CAD Drops

USD/CAD dropped from 1.0470 before the release to 1.0430, and the move continues. It’s now at the lowest level in two weeks and targeting the important support line of 1.04. This line worked as a support and resistance line during the past year. A drop under 1.04 will open the road to 1.02, which was the 2009 low and then a resistance line after the pair hit parity.

But this move comes on a day of light trading – British and American traders are on holiday, so there’s isn’t enough money to drive the pair lower. A bounce back up will find resistance at 1.0550, which proved to be a pivotal line last week.

The Bank of Canada meets tomorrow to decide on a new interest rate. These positive figures today raise the chance of a rate hike now. While Mark Carney made it clear that a rate hike was coming, there was no certainty that about the timing – this meeting, or the next one on July 20th.

If they do move on the rates, USD/CAD will already find enough volume to send it lower, below 1.04. Another month of unchanged rates will probably send it back up.

More American and Canadian events are due throughout the week. The climax is on Friday, when Canadian employment figures are due at 11:00 GMT, and 90 minutes later, at 12:30 GMT, the almighty American Non-Farm Payrolls are due. This will be very exciting for USD/CAD traders.

Further reading: Non-Farm Payrolls Preview.

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