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Welcome to the markets!!!

Twitter: @awolam

USDJPY[4HR]: Could be offering a "buy" opportunity after this double-bottom.

WHAT TO EXPECT THIS WEEK

Daily FX Market Roundup 06-29-12

FX: Prepare for Short but Busy Week
EUR: Making Sense of the EU Summit Announcements
GBP: Close Call for BoE Next Week
CAD: Stronger than Expected Rise in GDP
AUD: RBA Expected to Keep Rates on Hold Next Week
NZD: Sharp Gains in Oil and Gold
JPY: Mostly Weaker Data Points to Need for More Stimulus
FX: Prepare for Short but Busy Week

For North American traders, it will be a shortened trading week broken up by July 4th or Independence Day on Wednesday. The mid-week nature of this holiday means that most U.S. traders will either take the entire week off or come into work for only 2 days. Although our desks will be manned the entire week, if we were to take time off, it would certainly be Monday and Tuesday and not Thursday and Friday. The reason is because it’s a busy trading week filled with market moving events and economic data, the most important of which are due at end of the week. The agreement by European leaders to directly recapitalize banks helped to restore confidence in European assets and prevented an exacerbation of Europe’s debt crisis. Without today’s announcements, currencies and equities would be trading at much lower levels, putting us in a very different position as we head into the new trading week.

The outcome of the European summit has global ramifications not only for asset markets but also policymakers around the world. Three central banks have monetary policy announcements next week and each one of them have attributed part of their dovish monetary policy statement to the Eurozone’s debt crisis. Now that there has been some relief, there is also less pressure on these central banks to cut interest rates or increase their asset purchase programs. The Reserve Bank of Australia, the Bank of England and the European Central Bank will have a lot more breathing room this week and could very well reserve their stimulus for a more desperate time in the global economy.

The past week has been focused on Europe but this should change to some degree with non-farm payrolls and other important pieces of U.S. data on the calendar. Job growth is expected to remain weak but economists are looking for a small uptick after 2 months of particularly bad NFP reports. In addition to payrolls, manufacturing and non-manufacturing ISM reports are scheduled for release along with factory orders and the usual leading indicators for NFPs. This morning’s U.S. economic reports were mixed. Personal incomes grew by 0.2 percent in May, same pace as the previous month while personal spending remained flat. The PCE, a measure of inflation dropped 0.2 percent while core prices rose a mere 0.1 percent. Consumer confidence was revised lower according to the University of Michigan report but manufacturing activity in the Chicago region accelerated slightly. As with most of this week’s U.S. economic reports, the changes are not significant enough to alter the Federal Reserve’s outlook for monetary policy.
EUR: Making Sense of the EU Summit Announcements

The euro ended the day sharply higher against the U.S. dollar thanks to concessions from Germany and details for a broader plan to bring down bond yields and restore confidence in Europe. Expectations were extremely low going into the Summit with investors expecting nothing more than a growth pact and the formation of a single banking supervisor. When Van Rompuy delivered more, the EUR/USD soared in approval. We attempt to explain to you in plain English what was delivered during the EU Summit and what is still missing.

Four Key Announcements:

1. EUR120 billion Growth Pact – While the growth pact was preannounced on Thursday, it was the bargaining chip used by the Spanish and Italian Prime Minister to get Merkel to cave on debt issues. The money will come from existing EU funds and will be used for short term growth boosting measures such as building highways, railways and air links in the same spirit as the Franklin D Roosevelt’s economic programs to promote growth during the Great Depression.

2. Quasi Banking Union and Direct Rescue of Banks – A banking union is one of the core solutions to Europe’s debt crisis that the market did not expect so quickly from Europeans Leaders. However the Italians got the Germans to relent on allowing the European Stability Mechanism (ESM = Europe’s rescue fund) to give money to banks directly without adding to the debt burden of individual governments. What is wonderful about this is that it helps to cap the rise in European bond yields and hopefully prevent further downgrades by providing a bailout for banks without adding to the total debt sovereign owed by countries like Spain and Ireland. U Leaders aim to start allowing direct rescues of banks as quickly as year end instead of 3 years from now, when the crisis will probably be behind us. This is the short term rescue that the market desperately wanted and the main catalyst for the EUR/USD rally. The ECB will also become the sole supervisor of banks and any loans will be attached with strict rules.

3. Give Spanish Bondholders Seniority Over the EU – EU Leaders promised to not subordinate Spanish bondholders, giving creditors the confidence that they will not lose their place in the debt restructuring line to the ESM. As the second groundbreaking announcement from European Leaders this morning, loans from the rescue fund will now be on equal footing with loans from private investors, giving them the reassurance they need to buy Spanish bonds again.

4. Allow EFSF/ESM To Buy Bonds Directly – Allowing the EFSF/ESM to buy bonds in the secondary market is also a big deal because it is an aggressive and quick way to prevent the crisis from worsening by allowing the EFSF/ESM to control bond yield.

What was missing however are guaranteed deposit insurance and a roadmap for a fiscal union, which EU Leaders have tasked EC President Van Rompuy with delivering by the October summit. While there is no question that EU Leaders have announced more aggressive measures today than investors had anticipated, without fiscal changes or anything directly targeted at Italy, everything now rests on the hope of lower bond yields. In light of this, we are skeptical about whether steps taken today are enough to turn things around for Europe and end the crisis.
GBP: Close Call for BoE Next Week

Like the euro, the British pound benefitted significantly from the decisions made at the EU Summit. It was a full risk on rally today with money flowing out of safe haven currencies into high beta currencies. While the latest U.K. economic reports showed service sector activity grinding to a halt in the month of April, the data is backwards looking and paid little attention to by market participants. Despite the recent weakness in U.K. economic data and the uncertainty surrounding Europe’s debt crisis in June, consumer confidence held steady. PMI numbers are scheduled for release next week ahead of the Bank of England’s monetary policy announcement. This month’s decision by the BoE will be a close one. When monetary policy committee members last met, they voted by a slim 5-4 margin to keep asset purchases unchanged. Since then we have seen evidence of weaker economic conditions in the U.K. but with the relief from the EU Summit, central bank officials may vote to hold off another month. Nonetheless economists are looking for a GBP50 billion in asset purchases. The PMI reports could help to shape the central bank’s decisions. If the BoE eases, the British pound will weaken across the board, especially if the U.K. is the only central bank that eases this month.
CAD: Stronger than Expected Rise in GDP

The Canadian, Australian and New Zealand dollars traded higher against the greenback today while commodities jumped the most in 39 months in response to the EU Summit. There was no economic data from New Zealand and Australia but Canada released GDP, Industrial Product Price, and Raw Materials Price Index figures. Industrial Product Price remained unchanged at 0.0%, while the GDP and Raw Materials Price Index increased to 0.3% and -1.0% respectively. The Canadian GDP was surprisingly strong after two months of sluggish data. Mining, oil and gas were responsible for the unexpected turn of events. Oil and gas rose 2.4% in April after declines in February and March. Mining grew 3.1% after an 8.4% drop in February. Expected for next week is Australian data for Manufacturing PMI on Sunday night. The Reserve Bank of Australia will meet on Tuesday and might avoid further lowering its rates as its country had a strong month in terms of GDP, and employment data. The RBA dropped its rate by 25 basis points to 3.5% on June 5th. Had the markets responded poorly to the EU Summit, the RBA may have been motivated to ease again but when they last met, their tone was decidedly neutral and for this reason, we are practically certain that they will keep policy unchanged next week.
JPY: Mostly Weaker Data Points to Need for More Stimulus

The Japanese yen traded lower against all of the major currencies today as money moved out of safe haven and into riskier currencies. It was a busy night for Japan but the data was not meaningful enough to make a big dent in the Yen. The jobless rate decreased from 4.6% to 4.4% and household spending increased from 2.6% to 4.0%. This month’s housing starts decreased from 10.3% to 9.3%. Japan’s industrial output fell the most since March 2011 and CPI declined which may mean the need for stimulus to sustain the nation’s economic recovery. The growth forecast for the second quarter is expected to slow to 2% from 4.7% and the third quarter is forecasted to decline to 1.3% according to economists. The yen has risen 5.4% since March which causes concern for exports. Several central banks had increased their yen-denominated reserves to the highest level in at least a decade, according to the BoJ, which is an indication that the Eurozone crisis has favored the safe haven currency’s appeal. The European leaders came to an agreement at their two-day summit to create a permanent bailout fund to recapitalize troubled banks. The Nikkei 225 leaped 1.50% in response to this surprising news. In the new week, expect Japan to release Tankan Large Nonmanufacturing and Manufacturing Index and Outlook.

Happy Trading all!!

CRUDEOIL AND GOLD LIFTED BY EU OPTIMISM

Commodities rebounded sharply on Friday as new measures announced after the EU summit boosted optimism. The 17-nation leaders proposed to create a single supervisory mechanism with the ECB involved. With such mechanism, the funds could be lent directly to banks for recapitalization without penalizing existing debt holders. Funding will be provided by the EFSF until the ESM becomes available. The bailout fund for the Spanish banking system will be financed through the EFSF for the moment and will later be replaced by the ESM. The Commission agreed to eliminate the seniority status of the ESM for this case. Moreover, EU leaders also proposed to use the existing EFSF/ESM instruments "in a flexible and "efficient manner in order to stabilize markets for Member States". We believe this refers to sovereign debt purchases. It's also stated that the ECB would serve as an agent to EFSF/ESM in conducting market operations.

For the coming week, the ECB is expected to lower the main refinancing rate by -25 bps to 0.75% on Thursday. Meanwhile, the BOE would also likely approve further QE measures as Governor Mervyn King and the Treasury have hinted in previous weeks regarding additional stimulating measures to boost growth. Other important events would be the RBA meeting on Tuesday, Japan's June Tankan survey, the US June employment report and PMI data from various countries.

Energy: Crude oil prices were pressured most of the week amid worries over the sovereign debt crisis in the Eurozone and signs of global economic slowdown. However, prices jumped significantly on Friday as the pleasant outcomes of the EU summit raised optimism and lifted risk appetite. The front-month contract for WTI crude oil gained +6.52% to settle at 84.96 while the equivalent Brent crude contract soared +7.50%, finishing the week at 97.8.

While some attributed the sharp correction of oil prices since the second quarter of this year to the continuous increase in Saudi Arabia output, the accusation is far from accurate. According to the DOE/EIA, while Saudi's production had reached 10M bpd in March and April, a decline back to 9.8M bpd was seen in May. Although the OPEC did not react to the recent sharp fall in oil prices at the general meeting, most member nations still favored oil price at $100/bbl. If the market indeed severe surplus and threatened the breakeven prices of the oil-producing countries, we continue to believe joint action from the cartel will be made.

Inline with other in the complex, natural gas jumped +7.58% during the week. The DOE/EIA reported that gas storage increased +57 bcf to 3063 bcf in the week ended June 22. Stocks were 653 bcf higher than the same period last year and 613 bcf above the 5-year average of 2450 bcf. Separately, Baker Hughes reported that the number of gas rigs dropped -7 units to 534 in the week ended June 29. Oil rigs stayed unchanged at 1 421 rigs and miscellaneous rigs stayed at 4 units and the total number of rigs was down -7 units to 1 959 units. Directionally oriented combined oil, gas, and miscellaneous rigs added +2 units to 235 units while horizontal rigs increased +6 units to 1 171 and vertical rigs slid -15 units to 553 during the week.

Precious Metals: The complex gained across the board with the exception of palladium. Gold traded below 1600 most of the week after breaching below this psychological level on June 21. The yellow metal slumped to as low as 1547.6 on Thursday but then staged a strong rebound on Friday. The benchmark Comex contract jumped to the highest level in more than a week before settling at 1604.2, gaining +2.39% during the week.

Gold has been performing more inline with risk assets rather than safe-haven in recent months. Thus, the price has been pressured amid worries over global economic slowdown and the debt problems in the Eurozone. Similarly, Friday's rebound was also driven by the optimism driven by the plans announced after the EU summit.

Cheers!!!

CRUDE-OIL SET FOR CORRECTION LOWER

Locked in a long-term downtrend, the black gold enjoyed a relief rally following the "positive" outcome of the EU summit penultimate week. However, with global financial/market risk still pervasive, I will continue to be a seller of the Oil capitalizing on rallies such as occurring right now. Crude-oil just broke above its its 200HrSMA with Slow Stochastics well in overbought territory. It is currently trading @ $84.75/barrel thus offering a good selling opportunity targeting the $80/$75 per barrel price bracket going forward. See chart below.

VULNERABLE GOLD AND CRUDEOIL PRICES AS EU SUMMIT EUPHORIA DIES DOWN

Talking Points

Crude Oil, Copper Vulnerable as Risky Assets Reverse EU Summit Rally
Gold and Silver May Turn Downward as US Dollar Regains Lost Ground

Commodity prices are correcting broadly lower overnight as markets correct after Friday’s sharp surge in risk-linked assets and tumble in the US Dollar, a move driven by an unexpected outcome to the EU leaders’ summit. S&P 500 stock index futures are accelerating lower in late Asian trade, hinting more of the same is ahead as kneejerk optimism gives way to a more sober outlook on what the sit-down practically achieved.

On balance, the summit did little to alter the near-term status quo. Spain will still get its bank bailout funneled through the sovereign channel, increasing the government’s liabilities. The empowerment of the EFSF/ESM rescue funds to recapitalize financial institutions directly will not be available until year-end, and only if banking union negotiations proceed as planned. That leaves the Eurozone with no more of a firewall against the crisis than before, at best for the next six months.

Economic data stands to reinforce the risk-off mood as a roundup of dismal European Manufacturing PMI readings reminds investors the region presents the most significant headwind to global economic growth this year. Final revisions of Eurozone figures are expected to confirm region-wide factory sector growth shrank at the fastest pace in 3 years. Manufacturing activity is also expected to fall again in Switzerland and the UK, although the rate of contraction is forecast to accelerate in the former while declining n the latter. The analogous US ISM metric is expected to reveal a bit of a slowdown as well, although the gauge is expected to hold above the 50 boom-bust level.

WTI Crude Oil (NY Close): $84.96 // +7.27 // +9.36%

Prices are testing resistance at 85.11, the 23.6% Fibonacci retracement, with a break higher exposing the 38.2% level at 89.97 (a barrier reinforced by the psychologically significant 90.00 figure). Near-term support lines up at 81.19, with a break below that exposing the June 21 close at 78.11.

Spot Silver (NY Close): $27.48 // +1.11 // +4.19%

Prices bounced from Triple Bottom support at 26.06 to retest the formerly broken bottom of a Flag chart formation, now at 28.07. Near-term support is at 26.75, with a break below that exposing 26.05 anew.

COMEX E-Mini Copper (NY Close): $3.496 // +0.164 // +4.92%

Prices are retesting falling trend line support-turned-resistance set from late January, with a break higher exposing 3.618. Initial support lines up at 3.424, with a break below that exposing 3.250.

Fundamental Forecast for US Dollar: Bullish

US Dollar plummets following European Summit announcement
US economy growth stable if unspectacular, stabilizes US currency?
Forex seasonality emphasizes that first week of month and quarter is critical

A remarkably volatile end to the week of currency trading left the US Dollar (ticker: USDOLLAR) sharply lower across the board, and a critical stretch of US labor market data and global central bank interest rate decisions set the stage for big moves through the first week of the new month and quarter.

The Dollar heads into a potentially pivotal stretch with weakness as the Dow Jones FXCM Dollar Index posted its single-largest daily decline since the European Union announced its previous grandiose bailout agreement in October, 2011. Fitting—the recent US Dollar sell-off started on the announcement of the newest bailout agreement from the highly-anticipated European summit.

What has happened in the past is never a guarantee of what will happen in the future, but it is very interesting to note that the tremendous EURUSD rally on the 10/27/2011 summit marked the exact Euro top. The USDOLLAR likewise plummeted and bottomed on that day, going on to surge into the following week and the rest of the year.

Could history repeat itself? It’s certainly possible; the beginning of the week, month, and quarter means the time is right for an important turn in trend. Yet even the purest of market technicians would agree that the coming week of fundamental event risk could make or break USDOLLAR price action through the foreseeable future.

We cannot understate the significance of seasonality in forex markets, and the coming days could easily set the tone for the month of July and the third quarter of the year. With that in mind we’ll pay especially close attention to Friday’s US Nonfarm Payrolls data release. The usual mix of pre-NFP economic data and similarly important Reserve Bank of Australia, Bank of England, and European Central bank rate decisions will keep traders on their toes through earlier price action.

Expectations point to another week of mostly disappointing US economic growth figures, and the US Nonfarm Payrolls report will likely show that the domestic unemployment rate remained stubbornly high on lackluster jobs growth. Yet market reactions to the recent European summit announcements emphasize that setting a low bar is not necessarily a bad thing. Indeed, low forecasts leave ample room for positive surprises and potentially a US Dollar-bullish reaction to NFP data.

We’ll otherwise keep an eye on key central bank rate decisions starting with the Reserve Bank of Australia and finishing up with the Bank of England and European Central Bank. Each decision is contentious and each of the RBA, BOE, and ECB could rattle markets. According to Overnight Index Swaps, the RBA is quite unlikely to move rates. Yet Aussie Dollar traders will want to see how the central bank reacts to global financial market turbulence and implications for domestic yields. Any pronounced surprises could carry over into other high-yielding and relatively high-risk currencies against the safe-haven US Dollar.

The same Overnight Index Swaps show a non-trivial probability that both the Bank of England and European Central Bank will further ease monetary policy. The BOE may expand its balance sheet and buy UK Government debt as a method of quantitative easing—increasing the money supply and presumably weakening the value of the British Pound. Interest rate traders predict a 40% chance that the ECB will cut interest rates on clear European stresses. Both events could really force major moves in European currency pairs—especially against the benchmark US currency.

It should be another eventful week of forex trading, and it is little exaggeration to claim that the coming days could set the tone for US Dollar price action through the coming month and the rest of the quarter.

cheers!!!

The World of Stocks
Understanding the wide variety of stocks you can purchase is one key to successful investing.[i][/i]
When you're choosing stocks from among the thousands that are available in the United States and around the world, you can narrow the field in many ways. You might buy shares in the company you work for. You might concentrate on companies you know, either because they're local firms or because they provide products and services that you use. You might make some investments in large, well-established companies, or in companies that are just emerging as leaders in a new field.

Stocks with histories of paying dividends consistently are sometimes described as income stocks, though that's not an official designation. Companies like General Electric have paid dividends for more than 50 consecutive years.

Growth stocks are shares in companies that have the potential to increase in value over time. Often the issuing company reinvests its profits to expand and strengthen the business. Investors buy these stocks because they expect the price to go up as the company grows.

Both dividend income and and any profit you may realize from selling a stock you've owned for more than a year are taxed at the long-term capital gains rate. That's 15% for people whose regular income tax rate is 25% or higher, and 5% for those whose regular rate is 10% or 15%.

Stocks in the largest, consistently most profitable companies are known as blue chips, after the most valuable poker chips. It's not an official designation, though, and the list does change from time to time.

Blue chips usually offer predictable dividend income, and steady if slow to moderate growth in value. They are often more expensive than stock in lesser-known or smaller companies, though they can fall significantly in price in a market downturn.

Penny stocks are at the other end of the scale. They generally sell for $5 or less a share, which makes them more affordable than higher-priced stocks. But penny stocks are more risky investments. While some penny stocks may increase substantially in value, many of the companies may never be profitable or may fold entirely. And there's usually little information available that you can use to evaluate them.

Some stocks are described as value stocks. They tend to be lower-priced than the reputation or potential of the issuing company would suggest is justified. That may be the case for a variety of reasons. Often the company has had financial or management problems, its products or services have been underestimated, or its industry out of favor with investors.

Defensive stocks, in industries such as utilities, drugs, healthcare, and food, are often more resilient in recessions and stock market slides — at least theoretically — because product demand continues. Many investors include these types of stocks in their portfolios as a hedge against sharp losses in other stocks.

Cyclical stocks, on the other hand, may flourish in good times and suffer when the economy dips. Hotels and resorts, for example, tend to lose money when business and pleasure travel are cut back. If you buy cyclical stocks as the economy rebounds, the cycle may work in your favor. Common Stock vs. Preferred Stock Some companies offer different categories of stock to appeal to different types of investors. If you have common stock, you share directly in the success or failure of the business. If it has large profits, you may receive a larger dividend or the share price may climb. If the company has a bad year or a series of bad years, usually you earn less or your stock loses value.

With preferred stock, the dividends are usually fixed and are paid before dividends on common stock. You may even get some of your investment back even if the company goes out of business. The downside is that your dividends usually stay the same even if company profits jump, and the share price climbs slowly if at all.

Another choice is between large and small companies. A company's size is determined by its market capitalization, or the number of outstanding shares multiplied by the current price of one share.

Large company stocks often pay dividends, and their share price may increase as well. They're often more resilient in tough times because they have more assets, though there's no guarantee that will be the case. They also tend to be more expensive than stocks in smaller companies.

Small company stocks are usually considered growth stocks, but sometimes stocks in profitable small companies provide income as well. Small companies have fewer resources to fall back on in tough economic times, so declining profitability can hurt the value of your investment.

If a company thinks the price of its stock is too high to attract investors, it can split the stock — that is, give stockholders more shares and revalue the stock at a lower price.

If the stock is split two for one, the price is cut in half and the number of shares is doubled. Initially, the total value of your stock is the same — like getting two nickels for a dime.

For example, if you had 100 shares of a stock selling for $80 a share that split two for one, you'd have 200 shares valued at $40 a share. But if the price climbs back toward its presplit price you might end up with 200 shares valued at $80 a share. Of course, there's no guarantee that will happen.

WHAT IS A STOCK SPLIT
Stocks can split three for one, three for two, ten for one or any other combination. There can even be a reverse split, where you exchange more shares for fewer. If the reverse split is 10 for 5, each new share will be worth twice as much as an old one. Reverse splits can make a stock attractive to many institutional investors who often do not buy stocks priced under $5 per share. They are also sometimes used to increase the stock price enough to meet a stock market's listing requirements.

RISK CURRENCIES HOLDS STEADY BEFORE HOLIDAY


July 3rd, 2012

Market Drivers July 3, 2012
RBA keeps rates on hold
EZ PPI much weaker, UK Construction PMI plunges below 50
Nikkei up 0.70% Europe up 0.42%
Oil $84/bbl
Gold $1610/oz.

Asia and Europe:
AUD RBA Rate Decision no change
AUD Building Approvals 27.3% vs. 5.1%
JPY Labor Cash Earnings -0.8% vs. 0.6%
NZD ANZ Commodity Price -2.4% vs. -4.2%
EUR Eurozone PPI -0.5% vs. -0.2%
GBP PMI Construction 48.2 vs. 53.1
GBP Net Consumer Credit 1.3B vs. 1.1B
GBP Mortgage Approvals 51K

North America:
USD Factory Orders 10:00

An extremely quiet night of trade in the FX market with most of the majors hugging to their very narrow ranges in morning European session as newsflow remains non-existent and markets are happy to tread water until the ECB meeting on Thursday. In Australia the RBA, as expected kept rates on hold, noting that monetary policy was “appropriate” for the time being.

The RBA stated that while the housing market remains “subdued” labor conditions “firmed a little, notwithstanding job shedding in some industries; the rate of unemployment remains low.” Despite the cautious assessment of housing, today’s data showed that Building Approvals soared in the month of June rising by 27.3% versus 5.1% eyed.

Overall the RBA appeared to be content with the current state of monetary policy and may continue to keep rates on hold for the foreseeable future. Conditions in the Australian economy remain near equilibrium levels and unless global demand and more especially growth in China weakens materially the RBA is unlikely to ease further after having cut rates by 125 basis points since last November.

The Australian dollar saw little reaction to the news but remained generally well bid in Asian and early European trade holding near the top if its range at 1.0265. As the threat of further rate cuts by the RBA appears to have eased, the Aussie is beginning to reclaim its status as king of the carry trade amongst the majors and therefore could rally further towards the 1.0300 level if risk flows prove supportive as the day proceeds.

In UK the housing data was abysmal with Construction PMI printing at 48.2 vs. 53.1 eyed. This was the first contraction in housing in nearly two years and speaks volumes about the UK housing sector which remains mired at very low levels of activity. In addition to the dour news on the economic front UK traders were also rocked by the announcement that Barclay’s CEO Bob Diamond has resigned as a result of the LIBOR fixing scandal, but the news had very little impact on UK assets with shares of the bank actually rising today. Still cable is somewhat weaker against the euro today, although for the most part currency traders are ignoring the news, focusing instead on the prospect of further monetary stimulus from the BOE in the form of additional Asset Purchases.

Monetary easing is also on the minds of EURUSD traders as markets await the ECB rate decision on Thursday. Today’s very weak EU PPI data which printed at -0.5% vs. -0.2% provides the European central bank with plenty of ammunition to lower rates further as price pressures in the region are not only non-existent but are actually turning negative threatening the prospect of deflation.
In North America the calendar is barren ahead of the July 4th holiday with only Factory orders on the docket. With little newsflow for the rest for the day the markets may continue their quiet summer trade as everyone positions for Thursday’s marquee events including BOE and ECB meeting and US ISM Services report. For now quite trade continues.

Safe trading!!!

CRUDEOIL PRICE COULD RISE AS IRAN THREATENS TO CLOSE THE "STRAIT OF HORMUZ"


After crude oil declined yesterday, it rebounded to the upside today on a draft that Iran may close the Strait of Hormuz against EU ships and sanctions supporters, which might end the situation political escalation and military action. This upside effect has countered the downside pressure from the United States' contracting manufacturing data reported yesterday.

Crude oil opened today's session at $83.64 where it rallied to the high of $84.61 after it reached a low of $83.32 and it is currently trading around $84.20 a barrel.

After negotiations failed between Iran and the west on Iran's nuclear program, the EU embargo on Iranian oil exports started two days ago which also prevents EU companies from providing insurance to tankers carrying Iranian oil to other countries, clamping down Iran's main source of income. However, Iran will not tolerate these sanctions and it might implement its previous warnings to close the Strait of Hormuz.

Iran`s National Security and Foreign Policy Committee has drafted a bill urging the country to halt oil tankers from shipping crude through the Strait of Hormuz to countries that support sanctions against it including the European Union. Noting that more than third of the world`s oil exports pass through the strait coming from Saudi Arabia, Kuwait, Iraq, the United Arab Emirates and Qatar.

Iranian MP Ibrahim Agha-Mohammadi said to Iran`s parliamentary news agency "There is a bill prepared in the National Security and Foreign Policy committee of Parliament that stresses the blocking of oil tanker traffic carrying oil to countries that have sanctioned Iran, this bill has been developed as an answer to the European Union`s oil sanctions against the Islamic Republic of Iran."

Crude oil has neglected the negative effect from the world's largest economy's manufacturing which contracted for the first time in three years during June reflecting the weak recovery pace due to the negative impact from the deepening European debt crisis.

Also, hopes in Europe that appeared after last week summit started to fade after the Finnish and the Dutch governments said that they would not approve the use of the euro zone's bailout funds for buying bonds from the market to halt the rising borrowing costs on some European members.

In general, the market a movement is hardly to predict at the current time especially crude's moves, as many factors are affecting the market. As for the United States, hopes that the FED may announce more policy easing increased after the contracting manufacturing. On the other side, the summit's outcome which supported the market might be negated shall Europe again fall into mixed messages and disarray over the course of policy action that still lacks the details on how to implement the decisions taken at the summit

IRAN ISSUES JERKS OIL TO $88 PER BARREL

Crude oil skyrocketed yesterday on rising tensions between Iran and the West which managed to push crude up to $87 a barrel. The upside momentum still exists but correctional moves are taking crude slightly downwards.

In the past couple of days, crude oil jumped from levels around $78 to the current levels a little below $88 due to the good EU summit result which showed that leaders is trying seriously to combat the debt crisis and mainly on tensions over Iran as the EU ban of Iranian crude oil started on the first of July.

From that date, tensions continued to intensify every hour as Iran was obviously worried about its oil exports which will be hit badly after these sanctions. The Islamic Republic warned that it may close the Strait of Hormuz on all ships that carry oil to EU and that was the generator of fears over oil supplies as almost 40% of global oil passes through this narrow Strait.

Also, Iran said on Tuesday that it had successfully tested medium-range missiles capable of hitting Israel as a response to threats of attack, as Israel said it could attack Iran if talks fail to stop its nuclear energy program. The United States also put the military option on the table but has repeatedly encouraged Israel to wait until economic sanctions that implemented against Iran force it to stop from developing the nuclear program.

Experts from Iran and world powers met yesterday in a confidential and critical "technical meeting" on Iran`s nuclear program. Away from the media, officials from both sides met to narrow the dispute over the country's nuclear program, but no official statements announced so far.

More upside pressure appeared after the American Petroleum Institute reported a drop in U.S. oil inventories by 3 million barrels last week. However, the decline in the inventories came after oil producers shut most of its output in the Gulf of Mexico due to the threat of Tropical Storm Debby, which eventually shifted course and headed away from the energy-rich region.

In general, crude oil is expected to decline today in a downside correctional wave after yesterday's gains especially that the U.S. market is on Independence day holiday make it easier for crude to move faster and will raise the volatility indeed.

Eyes will track the meeting between Iran and world powers which will proceed its second day and how things going to be after this meeting and whether the war possibility will rise or it will vanish. Both cases will be reflected on today's trading.

MARKETS UPDATE

Note: US cash equity markets closed for July 4th Independence Day holiday

**Economic Data***
- (IE) Ireland Jun Consumer Confidence: 52.3 v 61.0 prior
- (RU) Russia Jun Consumer Prices M/M: 0.9% v 0.6%e; Y/Y: 4.3% v 4.0%e; CPI YTD: 3.2% v 2.3% prior
- (RU) Russia Jun CPI Core M/M: 0.4% v 0.2% prior; Core CPI YTD: 2.3% v 2.0% prior
- (BR) Brazil Jun PMI Services: 53.0 v 49.7 prior
- (MX) Mexico Jun Consumer Confidence: 95.5 v 97.7e
- (BR) Brazil Jun Commodity Price Index M/M: -1.4% v 1.5% prior; Y/Y: 2.6% v 2.1% prior

Speakers:
- Italy PM Monti reaffirmed his country's commitment to fiscal discipline and growth during his press conference with German Chancellor Merkel. Italy needed to cut costs to avoid VAT tax increase in Oct. EU priority was growth and effectiveness of spending
- German Chancellor Merkel added that both Germany and Italy were firmly committed to solving the EMU crisis together
- Spain was said to be asked to make further budget cuts by the EU and would be given an extra year to achieve budget targets
- EU Commission commented on Portugal's reform process which highlighted that the EU/IMF/ECB Troika Program was going broadly to plan but could lose momentum. The country's 2012 fiscal target remained attainable but implementation risks had risen.
- Germany Finance Ministry lowered 2012 Public Deficit to GDP forecast to 0.5% from 1.0% prior view. Medium-term budget is in line with fiscal pact
- Finland Fin Min official Martti stated that the country was opposed to EU Leader wording on seniority and believed Spanish bailout could include taxpayer seniority. It had begun preliminary discussions with Spain on collateral
- Poland Central Bank Gov Belka commented at his post rate decision press conference after keeping rate unchanged that it would remain vigilant on inflation and not ruling out interest rate adjustment if CPI worsened
- IFO, INSEE and ISAE Institutes lowered EMU Q2 GDP to -0.2%. It saw Q3 GDP at -0.1% with recovery slowly gaining pace in Q4
- Sweden Fin Min Borg amended 2012 and 2013 GDP growth forecasts (in line with the central bank). It raised 2012 GDP growth to 1.0% from 0.4% prior and cut 2013 GDP growth to 3.0% from 3.3%
- Austria Parliament ratified the ESM
- Brazil Fin Min Mantega commented that the country was being affected by Euro Zone crisis and that the situation was getting worse. He cautioned that the appearance was that today crisis seemed to be less intense than the situation experienced 2008, but it was not the case. Today was a crisis in slow motion
- EFSF's Frankel stated that it would offer an additional benchmark deal in the near future
- Former Barclays CEO Bob Diamond testified to the UK Treasury Select Committee that the action by a small group of traders on LIBOR was guilty of 'reprehensible behavior' and that clearly mistakes were made. Bank's decision to lower Libor submissions was taken a year before October 2008 conversation with BoE's Tucker
- BoE Tucker sought a Treasury Select Committee hearing as soon as possible on LIBOR
-UK MP Ed Balls stated that he had no conversation with BOE's Tucker at any time regarding LIBOR scandal

Fixed Income:
- (EU) EFSF sold €1.0B vs. €1.0B indicated in 3.375% Apr 2037 bond; guidance was set at 115bps above mid-swaps; Yield 3.472%

- In FX the EUR/USD continued to drift lower during quiet NY trading on Wednesday. The pair tested 1.2510 just ahead of the European equity close. Dealers took notice that the pair closed below 1.2540 moving average. All eys are now focused on theECB rate decision on Thursday with a 25bps cut is the consensus expectations.

**Looking Ahead***
- 12:00 (IT) Italy PM Monti with EU's Juncker
- 17:00 (CO) Colombia Jun Producer Price Index M/M: No est v -0.2% prior; Y/Y: No est v 0.8% prior

PESSIMISTS PREVAIL AS THE EURO CURRENCY DRIFTS LOWER

Market Drivers July 5th, 2012

Markets tread water ahead of ECB, BoE US ISM Svc and ADP
Australian Trade slightly better
Nikkei down by -0.27% Europe down -0.18%
Oil at $87/bbl
Gold at $1616/oz.

Asia and Europe:
AUD Trade Balance -0.29B vs. -0.51B
EUR ECB Bank Rate Decision n/a
EUR German Factory Orders n/a
GBP BoE Rate Decision n/a
GBP BoE Asset Purchase Target n/a

North America:
USD ADP Employment Change 8:15
USD Initial Jobless Claims 8:30
USD Continuing Jobless Claims 8:30
USD ISM NonManuf Composite 10:00

FX markets were extremely quiet in post US holiday dealing as traders positioned themselves for a very busy North American session that includes the BoE and ECB rate decisions as well as US ISM Services and ISM report. The listless, low liquidity trade of the past twenty four hours may indeed be the calm before the storm as markets prepare for the news to come.

Presently market expectations are for the ECB to cut the benchmark rate by 25bp while the BoE is expected to increase its Asset purchase program by another 50B GBP to 375B GBP. However, those factors have been largely priced into the market. Instead traders will be keenly watching Mario Draghi’s press conference for any clues to additional LTRO or SMP measures. The EUR/USD has given back all of its post summit gains, as currency markets continue to be concerned with the state of the EZ credit. The announcement on ESM was a step in the right direction but is seen by many as too little too late.

The ECB therefore stands as the only actor in the EZ that is capable of providing the scope and scale for necessary stimulus and if they choose to follow their typical gradualist path lowering the interest rates only, the market will likely be disappointed. Under that scenario the EUR/USD will breaking below the 1.2500 level as most traders will bail from the long trade concerned over the prospect of renewed stress in the peripheral credit markets.

In UK the BoE is expected to increase its QE measures which typically would be viewed as dilutive and therefore negative for the pound, but given the moribund state of the UK economy additional QE is now viewed as positive for risk and could in fact be supportive of cable. The pair however remains under a moderate amount of stress as the LIBOR fixing scandal continues to dominate the headlines and for now any rally is likely to be capped.

After the markets digest the latest monetary policy moves attention will turn to US economic data with both ADP and ISM Services report on tap. The ADP is expected to print at about 103K and anything above 100K will be viewed as mildly positive suggesting that the slide in US labor demand may have stabilized. The other key data point will be the employment sub-component of the US ISM services report which as we have noted many times in the past is one of the more accurate predictors of NFPs.

If the US labor data surprises to the upside it should provide a boost to equities and may help stabilize risk FX if European monetary authorities prove to be reticent to take any further action. Ahead of the day’s events however, the skeptics have the upper hand with most risk currencies drifting lower as markets hold out little hope for any dramatic gestures.

Happy trading!!!