Your forexlive.com ENewsletter

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• Bank of Japan head Kuroda speaks on Sunday in Tokyo
• More weekend video: Hilsenrath explains ‘tapering’
• Weekend video! Federal reserve’s Bullard on ‘tapering’
• Another falling Australian dollar article
• Article: “Hedge funds bet on Aussie dollar slide”
• The trouble with the Durable Goods Report
• Want a weekend read? Forget Amazon … there is a bookshop inside the Bank of Japan
• And, the award for “Most unsurprising fact of the day” goes to: FX volumes surged on busy day :-)
• Japanese PM Abe may be afraid of ghosts. Seriously.
• There’s something fishy about this leading indicator, but then again, maybe its the catch of the day
• IMF discusses making creditor bail-in a condition for lending to troubled countries
• Louise Cooper: Don’t stay with the herd, stray from the herd
• It’s that time of the day again…
• ForexLive US wrap 24 May: Stocks hold up well despite Japanese uncertainty
• Some college graduation cartoons to amuse us as the long weekend draws nearer
• WTI crude to end the week down over 2%
• S&P500 can’t quite make it back into positive territory
• EUR/JPY holding above 130.00 for now
• US equity indices drifing higher in quiet afternoon trading
• AUD/USD looking a little heavy

Bank of Japan head Kuroda speaks on Sunday in Tokyo Posted: 24 May 2013 08:33 PM PDT Monday is a market holiday in the UK and the USA, but Asia is open as normal. And we can expect that the week may start off with a bang after Bank of Japan head Kuroda speaks on Sunday in Tokyo. He is speaking at the 'Japan Society of Monetary Economics Spring Annual Meeting'. Which sounds like an absolute hoot – party time! The speech is scheduled for 0450GMT Sunday. I won’t be there, but will have the reports after they come in, in time for kick-off on Monday morning.

More weekend video: Hilsenrath explains ‘tapering’ Posted: 24 May 2013 08:32 PM PDT Another video, this time from 'Fed mouthpiece' Jon Hilsenrath, from Thursday, to explain what it is the Fed is trying to do with 'tapering'. Stocks in the U.S. shook off a steep global selloff that began on comments from Fed Chairman Bernanke and minutes from the Fed’s suggesting it may pull back on bond buys this year. Jon Hilsenrath discusses the Fed’s communication problem on the News Hub

Weekend video! Federal reserve’s Bullard on ‘tapering’ Posted: 24 May 2013 08:30 PM PDT There must have been a billion words spoken about 'tapering' since Wednesday, but here in this video from Thursday, in a minute and half, Bullard explains it. Perhaps now everyone can chill out a little:-) James Bullard, president and CEO of St. Louis Federal Reserve Bank, explains that the scale of the Fed’s tapering, when it comes, will depend on data and might start very slowly to allow for a possible “reverse”.

Another falling Australian dollar article Posted: 24 May 2013 07:19 PM PDT This time from Bloomberg (here's my other post about the article in Reuters where hedge funds are calling for the aussie to slide): The Australian dollar may fall to its lowest level in more than 19 months if it continues a weakening trend and breaches a key support level, according to Credit Suisse AG, citing technical indicators. looking for 0.9388 if it falls below 0.9575 and then 0.9488 Says an upward correction first would cap at 0.9990

Article: “Hedge funds bet on Aussie dollar slide” Posted: 24 May 2013 07:18 PM PDT Reuters article on Friday talking about hedge funds calling for more weakness in the Aussie. Quotes hedge fund legend Stanley Druckenmiller: "We think the Australian dollar will come down and come down hard" The quote is from over two weeks ago, though: Hedge fund legend Druckenmiller says short the Australian Dollar Why is the trade getting increased publicity now? Weird. My inner conspiracy theorists is obviously wondering if now is the AUD buy-back time for hedge funds?

The trouble with the Durable Goods Report Posted: 24 May 2013 07:14 PM PDT Peter D'Antonio, economist at Citigroup says there's a few problems reading too much into durable goods reports: Durable goods, especially aircraft, carry large sticker prices, so the dollar value of new orders are quite volatile The volatility is vexing Its better, then, to examine the details in the report, rather than the headline D'Antonio says the details this time show a weaker report than the headline would suggest: Most important is the trend in business investment on equipment. This sector was weak in the first quarter, and economists expect a pick-up this quarter to lift overall gross domestic product growth. The latest news, however, was mixed. New orders for nondefense capital goods excluding aircraft increased 1.2% in April, but shipments fell 1.5%. The report caused economists at Goldman Sachs to trim their second-quarter GDP expectations to 2.0% from 2.1%. Article is in the Wall Street Journal and does not appear to be gated: Hard to See Pattern in Durables Goods Report (But if you're unable to access the article try a search of Google news using the headline)

Want a weekend read? Forget Amazon … there is a bookshop inside the Bank of Japan Posted: 24 May 2013 07:12 PM PDT Here's something … there's a bookshop on the top floor of the BOJ, next to the cafeteria. the floor display is now full of books authored by Mr. Kuroda, as well as his new deputy governor, the economist Kikuo Iwata, and Koichi Hamada, a Yale University professor and adviser to Prime Minister Shinzo Abe. Obviously a top tourist attraction in Tokyo 'Regime Change' at the BOJ…Book Shop

And, the award for “Most unsurprising fact of the day” goes to: FX volumes surged on busy day :-) Posted: 24 May 2013 07:10 PM PDT The big volatility on Thursday made for a high volume day on Thursday: Citigroup said they handled a record number of trades (but wouldn't divulge the number, the spoilsports) Barclays said it was the busiest day for dollar/yen since 2008 Currency Swings Fuel Blowout Volumes

Japanese PM Abe may be afraid of ghosts. Seriously. Posted: 24 May 2013 07:08 PM PDT Its been 5 months since Abe's election and he still hasn't moved into the Prime Minister's Official Residence. Abe still lives in his private home, a 15-minute Lexus ride from the office. The official residence, on the other hand, is next to the office, in the same compound. The Japan Times asks, is it because Abe is scared of the ghosts that are rumoured to haunt the official residence? Ghosts are a big deal in Japan … see video :

There’s something fishy about this leading indicator, but then again, maybe its the catch of the day Posted: 24 May 2013 07:07 PM PDT Mizuho Securities economist Kenta Ishizu, says he has found a leading indicator of Japanese consumer demand that shows an improvement in consumer confidence: "There is a possibility here that consumer psychology is proving more resilient". Ishizu has developed a "Tuna-Mackerel Index", which shows how much the average Japanese family is spending on relatively expensive tuna compared to the much cheaper mackerel. the index appears to have both anticipated the sharp decline in spending that followed the global financial crisis of 2008 and the stock market boom that came in late last year with hopes for Abenomics Ishizu does warn, however, If consumers don't see higher wages and economic recovery that they can feel, there's a real risk that the tuna-mackerel index could come tumbling back down South China Morning Post

IMF discusses making creditor bail-in a condition for lending to troubled countries Posted: 24 May 2013 06:30 PM PDT The IMF is broadly reviewing its policies on sovereign debt restructurings The review is expected to take 12 months IMF wants to be sure that emergency loans are not used to bailout private creditors. More details: Reuters

Louise Cooper: Don’t stay with the herd, stray from the herd Posted: 24 May 2013 05:01 PM PDT The great wildebeest migration through the plains of Africa is one of the natural wonders of the world. More than two million animals join together and flee from the Serengeti to the Maasai Mara Reserve . In nature, there are many examples of herd behaviour: birds flying south for the winter, fish swimming in schools, sheep flocking. Herd behaviour also occurs in humans – riots, crowds at football matches, religious gatherings. This week we saw a perfect example in financial markets. On Thursday, the Nikkei fell 7.3% in one day – the eleventh largest fall in the more than sixty year history. After a massive rally which saw the Nikkei almost double in only six months, many Japanese investors decided to flee all on the same day.  The FTSE100 fell almost 3% and the Dow Jones fell almost 2% from the markets peak on Wednesday to the lows on Thursday. Global markets sold off together. The herd mentality drove equities worldwide lower. Why? Writers of market reports must find reasons to explain why stocks have moved up or down. They blamed this week's fall on the possible end of the Fed's QE generosity, weak data from China and some disappointment in the Bank of Japan’s failure to combat rising bond yields. One of the first rules of statistics is that correlation is not causality.  Just because two things happen together, does not mean that one causes the other.  The bulls ignored many bad data days in the recent rally.  And data from China is always regarded with suspicion anyway.  The Financial Times on Friday summarised it well "Explanations abound but everyone was just waiting for an excuse to sell".  However more interesting to me is why investors behave in this herd fashion, stampeding for the exit together. One of the reasons animals tend to herd is to protect themselves from predators.  The seminal research was in 1970: “Geometry For The Selfish Herd,” by W. D. Hamilton. His theory was that each individual moves into the group to reduce the danger of being preyed upon. This research kickstarted much more on herd behavior and its importance to both individual and group survival. It is no surprise that there is also much academic research into herd behavior in financial markets given how often it seems to occur.  Moreover the predator prey relationship seems a highly appropriate for behavior of financial market participants – one individual's loss is often another's gain.  Hence the expression "I'm eating your lunch." In such a Darwinian Survival of the Fittest environment, it should be no surprise that the majority exhibit herd behavior.  Clearly market participants are not running for their lives although for anyone holding a big losing position it can feel like it. There is no easier place to lose wealth rapidly than in financial markets if you don't know what you are doing, if you're the weak, the "prey".  And of course in any food system, prey outnumber the predators who are always a small minority. There are also good reasons investors and traders herd together and flee for the exit at the same time, like we saw this week. Many fund managers are rewarded according to how well they do relative to a benchmark index. If the index falls significantly and the fund manager doesn't sell, then the fund's relative performance will suffer. And a poorly performing fund of course, affects the fund manager's own compensation and career prospects. It is the same in a rising market, professional fund managers are scared into buying for no other reason than the market is going up.  But this explains how a sell off, for example, gains momentum, but how does it begin? Well this academics have termed an "information cascade".  Some investors decide to sell, and then prices will fall.  The price fall is then the new information that persuades other investors to follow the first group.  The key is that the early minority drives the sell decision of the majority. Hence a "cascade" develops. So there are reasons why humans exhibit herding behaviour.  And yet in the choice between predator and prey, surely it is better to be eating and not the eaten (lunch or any other meal). In financial markets, it is those that are not part of the herd that tend to make money. I am not sure they want to be likened as such, but maybe these are the few predators. I had the luck to cover the legendary Fidelity Fund Manager Anthony Bolton when I was at Goldman Sachs. Over 25 years he delivered a market beating 20% average yearly return from his Special Situations fund. His whole ethos of investing was to ignore the consensus, to step away from the herd.  His book is entitled "Investing against the Tide" and it explains his contrarian approach.  Many of the very few great investors consistently defy consensus.  To quote Peter Lynch "Everyone has the brain power to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether." Anthony Bolton In the midst of the great TMT dot com boom, Warren Buffett famously refused to get involved. And yet retail investors were crying out for funds investing in these stocks.  Consequently many fund management groups were more than happy to launch TMT funds which subsequently blew up and lost their investors a lot of cash. The same with financial funds  –  in the glory credit boom days there were again plenty of such specialist funds, many of which again proved disastrous for their investor's financial health.  These are all great examples of herd behaviour, following the latest investment trend or fashion. And even for short term trading, betting against consensus can be highly lucrative. A forex trader friend of mine consistently uses a trading strategy based on going against the herd. Knowing where the majority will place their stops and trading against their emotional pain. Herding behaviour is not a surprise – humans are intrinsically wired to conform. The primary angst of most school age children is the fear of being different.  That may abate as we get older, but any analysis of adult group behaviour, especially in organisations, shows the instinct persists. People tend to act like the people around them. When I look at my Twitter feed, it is highly fashionable to be hugely bearish and critical on the Eurozone.  There is comfort in conformity, contentment in consensus. But in financial markets, the consensus is not where the real money is made.  It is the players that act against the herd that make the money. It's not education and brains that make a great investor or trader, its attitude – those few who are comfortable without the safety net of conformity.

It’s that time of the day again… Posted: 24 May 2013 01:01 PM PDT …The time of day where i get to thank you all for keeping me company and say goodbye. To those of you lucky enough to be having a long weekend i want you all to know just how jealous i am so please enjoy it just that little bit more so i can live vicariously through you.

ForexLive US wrap 24 May: Stocks hold up well despite Japanese uncertainty Posted: 24 May 2013 12:49 PM PDT Forex trading headlines for May 24, 2013: US April durable goods post a gain of 3.3% vs 1.5% exp. Higher revisions for March are also seen. BOE King says that there are still problems on bank balance sheets ECB’s Constancio says non-euro countries may join SSM Westpac forecast more woe for the aussie dollar US ECRI index rises to 130.6 from 130.2 prior Stocks were destined to be centre stage as the US came online. Nikkei futures were running around like a headless chicken after the main index closed with wild 100 pip moves in minutes. US indices opened lower by didn’t get spooked by the mentalist Nikkei. After trading down to the day’s lows in the first hour of trading the S&P500 recovered most of its losses but remained capped at the 1650 level and just short of positive territory. Currencies had some nice moves with sterling and the euro seeing off some dollar buying after the durables release. We fell to a session low of 1.5073 and 1.2913 on the data but turned the selling around. GBP/USD made new highs at 1.5143 while the euro struggled to regain composure above 1.2950 and spent most of the session filling bids ahead of the 1.2910 level before heading higher as US equity indices recovered lost ground. EUR/GBP was hit alongside the euro, after getting rejected at 0.8600, and fell to a low of 0.8535. A think tank report on expectations of the ECB cutting interest rates and discussing negative rates at the June meeting was pushed forward as the cause. USD/JPY spent the whole day drifting lower and after several attempts broke 101 albeit half heartedly, triggering small stops before bouncing in thin pre long weekend NY afternoon trading. USD/JPY lost around 1.6% on the week. The swiss pairs went in tandem with the yen and fell all day. EUR/CHF fell off 125 pips from the days high while USD/CHF battled back from under 0.9600 AUD/USD was surprisingly calm maintaining a 30 odd pip range during the session. Oil managed its worst weekly loss in over a month with WTI crude losing around 2.5% on the week.

Some college graduation cartoons to amuse us as the long weekend draws nearer Posted: 24 May 2013 12:23 PM PDT These are quite well done and good for a giggle…although its scary how true they may be.

WTI crude to end the week down over 2% Posted: 24 May 2013 12:12 PM PDT After having failed ahead of the key 98.20 level that has capped WTI crude’s attempts to move higher in 2013 the contract looks like closing down around 2.5% for the week. This is the worst weekly loss for oil in a month. The risk now remains that WTI crude continues its move lower, targeting the 84.04-85.93 support region.

S&P500 can’t quite make it back into positive territory Posted: 24 May 2013 11:51 AM PDT After dipping to the day’s lows at 1637 during the first hour of trading as indices were weighed down by the selloff in Nikkei futures, the recovery has continued to stall ahead of positive territory and the 1651 level. Better than expected US durable goods data saw the futures regain some lost ground ahead of the open in NY but not enough to make up for the damage being done to confidence by the Nikkei. The S&P500 was last at 1648.

EUR/JPY holding above 130.00 for now Posted: 24 May 2013 11:32 AM PDT EUR/JPY has remained heavy in line with yen crosses and USD/JPY weakness with the sell off in Nikkei futures having weighed. The 21-DMA in EUR/JPY is noted at the 130.55 level and a close below would add weight to the bearish case for EUR/JPY that is currently unfolding. With stops noted below the May 23 low making a good target for early trading on Monday morning, if the pair can gain momentum below the 130.00 level we should be on track for a continuation lower that retests the 127.00 level.

US equity indices drifing higher in quiet afternoon trading Posted: 24 May 2013 10:22 AM PDT The Dow is the first of the indices to claw its way back into positive territory today and was briefly up 1 whole point, no not a percentage point, just one measly pip. The S&P500 remains in negative territory and was last down 4 points or 0.21%. US equity markets opened in negative territory and headed lower, weighed down by the Nikkei futures being down over 400 points.

AUD/USD looking a little heavy Posted: 24 May 2013 10:00 AM PDT After remaining capped by sellers at the 0.9780 level during Asian and London morning trading AUD/JPY selling seems to be weighing on the AUD/USD. Earlier today i wrote about Westpac looking for a retest of the 2012 low early next week before a bounce back towards the 0.9800 level and it looks like the first part of the prophecy will be spot on but not sure about the bounce back to the 0.9800 level, although the very oversold daily tech studies do favour a long overdue bounce. The AUD/USD is currently trading just above the day’s lows of 0.9634 and was last at 0.9643.

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