Morgan Stanley predicts the strengthening of the Swiss franc

According to currency analysts Morgan Stanley, by the end of the Swiss franc could strengthen to a mark of 1.50 against the euro (compared to before. Forecast 1.54), as well as economic recovery and higher inflation leads central bank to stop selling the currency. As noted in the bank, some central banks began to tighten monetary policy, while others have begun to reduce the amount of anti-crisis program - against the background of these circumstances, market participants would react with great attention to the question whether the Swiss National Bank to change the selected course of monetary policy. The bank believes that this will happen as soon as eliminating the need for its conservation. At Morgan Stanley believes that, given the emergence of an increasing signs of economic recovery, both global and domestic foreign exchange intervention policy is increasingly irrelevant. By the end of March, analysts predict a rise in bank franc to a level of 1.48 (compared with before. Prognosis 1.55). Currently, the euro / franc traded at 1.5119.

Mizuho expects weakening the Japanese currency

The Japanese yen fell to a two-month low against the single European currency against the backdrop of growth in the stock markets, triggered by good data on the earnings of the companies - this is yet another sign of reviving the global economy boosted demand for higher-yielding currencies. As the currency analysts Mizuho, interest risk, in general, increases, and this is the explanation for weakening the Japanese currency. In a situation of increasing "risk appetite", subject to the overall growth in the commodity and stock markets, the yen will remain under pressure. The Bank believes that the end of 2009 the Japanese currency against the dollar may fall to the level of 95.0, against the European currency, bank analysts predict the trade in the range 135.0 - 138.0. Euro / yen is currently traded at 137.97, the dollar / yen is at around 91.91.

The Chinese disengagement

Representatives of the financial community tend to follow set of rules. When Fed chairman Ben Bernarke (Ben Bernanke) said about Asia, global imbalances and financial crisis, he did not directly criticize outrageous monetary policy in China.

But he never had: and all so read between the lines. Defiance of China poses a growing threat to the world economy. The only question now is how will react to this world and the United States in particular.

Here are some prerequisites: the value of currency in China, in contrast to, say, the British pound, is not determined by supply and demand. Instead, the Chinese government set the target rate by buying and selling their currencies on the foreign exchange market. Such a policy is possible due to a restriction on private investors to move funds within the country and beyond.

There is nothing wrong with such policies, especially given the fact that it is still a very poor country, the financial system which can easily be destabilized by volatile flows of "hot money". Indeed, such a system was very useful to China during the Asian financial crisis of the late 90s. The key question now is whether the target value of the yuan is reasonable.

Until about 2001 it was possible to argue that the price was reasonable: China's overall trade position was not too far from equilibrium. Since that time, however, the policy peg pairs yuan / dollar is becoming more and more bizarre. First of all, the dollar is declining, especially on the Euro, therefore, maintaining a fixed rate of the yuan / dollar, the Chinese officials, in fact, engaged in the devaluation of national currency in relation to all others. Meanwhile, increased productivity in the export industries of China, coupled with the actual devaluation has made it extremely cheap Chinese goods on world markets.

The result was a huge surplus in trade balance. If demand and supply was allowed to play a crucial role - it would have dramatically increased the value of Chinese currency. But Chinese authorities did not allow such a development. They kept the cost low by selling large amounts of currency, instead of acquiring huge holdings of foreign assets, mostly in dollars, at present, velchichina assets of approximately $ 2.1 trillion.

Many economists, including myself, believe that the consumer boom has helped inflate asset bubble in the housing sector, creating conditions for the global financial crisis. However, China still insists on maintaining a pair of yuan / dollar at a fixed level, even though the dollar is falling, which could cause even more harm to the present.

Although it was a lot of thinking about the sinking dollar, nevertheless, this reduction is actually a natural and desirable. The U.S. needs a weaker dollar to help reduce the trade deficit, and it turns out that the weak dollar as jittery investors, who were drawn to a safe U.S. government debt at the peak of the crisis, but has already begun to invest their money in other places.

But China kept its currency pegged to the dollar. This means that a country with a huge trade surplus and rapidly recovering economies in countries whose currency should rise in value, in fact, engaged in the devaluation.

This is particularly bad at the moment when the world economy remains deeply depressed because of inadequate aggregate demand. Continuing a policy of weak currencies, China grab part of the inadequacy of demand from other countries, which are detrimental to growth everywhere. The most affected are likely to work in other poor countries. In normal times I would have been one of the first who denied the allegation that China is stealing other people's work, but now it is a simple truth.

So what are we going to do?

American officials have been extremely careful about the problems associated with China, to such an extent that last week the Finance Ministry, expressing "concern" and speaking before Congress, announced that Cathay is NOT manipulating its currency. They're joking, right?

The fact is that at the moment this political correctness is irrelevant. Assume that the Chinese have begun to do what so afraid of Wall Street and Washington: began to sell part of their dollar reserves. In the present circumstances it may even help the U.S. economy, because such actions will make our exports more competitive.

The fact that some countries, especially Switzerland, tried to bolster their economies by selling their currency to the currency markets. United States, mainly for diplomatic reasons, can not do this, but if China decides to do so on our behalf, we will send them a thank you letter.

The fact that the world economy is still in a difficult position, policy toward "beggar-thy-neighbor" is not acceptable major players. But something must be done with the Chinese currency.

The New York Times
October 23

Slowly but surely, the U.S. dollar strengthened against the Japanese yen

Drawing attention to the 4 hours chart, you will notice that for the second consecutive day, continuing the slow but steady growth (after the currency was able to penetrate the upper limit of the symmetrical triangle) of the American dollar against the Japanese yen

USD/JPY

Current price levels are still located above the moving averages with periods of 34, 55, 89 and 144, which is directed upwards and point to the continuing bullish sentiment.

The MACD histogram is located in the positive zone, located above its signal line, continues to rise and thus sends a signal to buy the dollar / yen.

Stochastic Oscillator re-entered the overbought zone and formed a similar signal, since the beginning of the% K line rises above the% D.

Therefore, we expect that growth in dollar / yen will continue, but the immediate goal of bulls is located on 92.50.

Levels of resistance: 92.00/10, 92.50, 92.70, 93.00

Support levels: 91.50, 91.00, 90.70, 90.50, 90.20/00

Strengthening of the ruble could become a problem

Financial Analyst FxPro Alexander Kuptsikevich: Today, the dollar fell below a mark of 29 rubles. The reason for this building served as the weakening U.S. currency, as well as skyrocketing oil prices to $ 81. Strengthening of the ruble could become a significant problem for the restoration of Russia's economy, and the authorities know about it.

A little over a year has passed since the Central Bank has used an arsenal of non-standard methods to support the ruble and a bailout of the banking system with smaller losses. In October, the Central Bank once again become actively replenish gold reserves to prevent excessive strengthening of the ruble. However, monetary authorities seem unable to take action to influence the market movement. Thus, following the decline of the dollar, which is clearly in favor of the States, and rising oil prices, domestic currency becomes more expensive.

Encourage the reduction of the ruble may be three factors:

Short-term, seasonal - often stops ruble strengthened after the 20's numbers before the end of the month, which is associated with the period of tax payments.

Short-term, foreign - as an adjustment to the growth sites. Already we see how willing investors are to get rid of the shares on bad data. They later redeemed, but short-term speculators clearly record profits before the publication of data on the level of U.S. GDP in the third quarter, which will be next week.

Long - Oil prices are unlikely to show an equally impressive dynamics due to high unemployment in the world, greater caution by financial institutions to use leverage, as well as banal impossibility increase export of petroleum products, that is, the further growth of revenues is limited.

As a result, a higher inflation rate in comparison with developed countries would put pressure on the ruble, but a very moderate pace of recovery in economic activity because of falling costs and a slowdown in lending may reinforce this trend. As a result, year-end pair dollar / ruble might revisit the region above 30, and next week "seasonal" decline in interest in the ruble may discard a pair of 29,10.

Number of applications for unemployment benefits in the United States rose to 531 thousand

The number of primary applications for unemployment insurance in the United States increased over the past week for the first time after two weeks of decline.
Index rose for the week of October 17 to 11 thousand to 531 thousand, being at the highest level since 26 September.
At the same time, the number of Americans continuing to receive unemployment benefits fell for the week to October 10 to 98 thousand to 5.92 million. This indicator is at record low level since March this year.

The truth about indicators of economic sentiment

At any given time, the theoretical value of the shares - this is just your present value of future dividends. Because the company earns money, theoretically, the profits will be paid to investors.

The task of the investor is to determine which company is going to profit and invest before the profit will be known.

Once the economic data becomes available, investors analyze them, and make forecasts for future profits.

Macro economists take account of these technical data, mainly in order to monitor investor sentiment. We try to focus on macroeconomic developments, which are driven by the market.

What seems meaningless to us, so that's why the markets reacted so strongly to indicators of moods.

These variables, as a rule, have no influence on consumer data, while investors often use them as important indicators for economic performance. In part, the sentiment indicators can be tracked in the media, which use them in their "intelligence forecasts. However, many educated and influential scholars, such as Christina Romer (Christina Romer), chairman of the Council of Economic Advisers, stated that economic recovery is directly related to the growth of consumer sentiment.

It would be wrong to think that sentiment indicators - this is empty talk, while they may raise the market on the same day the report was published, but is just as important to understand that the purchase should not be based on a simple interpretation of these indicators.

Consumer sentiment
The two main indicators of sentiment are University of Michigan Consumer Sentiment Index and the Conference Board Consumer Confidence Indicator. Both sources of data trying to explain the same thing: consumer behavior.

Consumer sentiment is very volatile. The chart above takes into account the three-month average of monthly changes in each of the indices from January 1979 to August 2009.

One of the biggest problems associated with the use of sentiment indicator is the ignorance of precisely what the indicator gives a correct estimate of consumer behavior. Of the 377 months, as reflected in the chart, 115 months show indicators that move in the opposite direction. How can we trust that, what they believe consumers if 31% of the time we are confronted with contradictory information

In fact, indicators of consumer sentiment - it's just snapshot of consumer sentiment. As you know, advertising can significantly affect the way that people will buy. Similarly, then, in the light of what the media convey news, plays an important role in determining consumer sentiment. The above graph shows two indicators of attitudes that are associated with reading a certain number of news in the title of which used the word "recession", according to Google.

Indicators sentiment began a trend to decrease smoothly when the word "recession" has entered the lexicon in the mid-2007. As soon as the line of this trend took off, the index of sentiment began to decline more rapidly. Similarly, when the word "recession" began to eat less often in the media, the indicators again moved up. We can see a similar relationship in the context of the indicators of sentiment, if we use "economic recovery" or "green shoots" as the search words.

Also, such relationships in terms of attitudes can be attributed to fuel prices.

Mainly, sentiment indicators point to media reports, fuel prices, unemployment and stock indices.

Consumer sentiment and consumption
Objective indicators of sentiment is to explain potrebitelelskoe behavior. Often means that consumer sentiment and consumption are inextricably linked. Consequently, consumer sentiment should reflect the growth in consumer spending.

Unfortunately, consumption and attitudes have nothing in common.

Using a simple statistical regression chart above predicts real personal consumption expenditures, based on an index of consumer sentiment. The obvious result is that there is no indicator of sentiment not cope with predicting actual consumption.

It is likely that the cause of the impossibility of predicting any indicator of overall consumer spending is that the mood dramatically volatility. Instead, perhaps they would be better used to predict changes in consumer spending. Thus, if the consumer feels better this month, it will increase their costs.

Using the same statistical method, changes in consumption can not be predicted a change in sentiment.

Consumption can not be predicted using simple indicators of mood.

What really predicts the level of consumption?
The best indicator for predicting consumption has always been profit.

As you can see, the prediction of consumption by means of real personal income is very close to the actual personal expenses.

Relationship should be very close. There are only two choices as consumers can do with income: save or spend.

The difference between projected and actual personal expenses is the difference between the rate of actual and intermediate savings. When in 2008 in connection with the beginning of the process of reducing leverage soared savings rate, the expected value of real private consumption expenditure differed from the existing one.

What it all means
Media have a tendency to over-inflate the importance of indicators of consumer sentiment and as a result, it causes an acute reaction in the markets is the day when the news sounded.

Economists think this is strange. Sentiment index simply demonstrate how the consumer responds to media reports, fuel prices, unemployment and stock prices.

For those who are going to work in the market in the long run, these indicators are not linked to the prediction of consumption. You should not use the positive developments and the mood as an indicator that the consumer back to consumption.

If you need to predict the level of consumption, the best indicator may be the level of income.

The Truth About Economic Sentiment Indicators
Briefing
October 12