Trade Idea: EUR/JPY - Hold Long Entered At 133.75

New trading strategy

Hold long entered at 133.75, Target: 135.50, Stop: 133.90

Despite Friday's drop to 133.20, as the single currency found decent demand there and has rebounded today, retaining our bullishness for gain towards 135.76, however, it is necessary to see a breach of resistance at 136.00 to confirm the correction from 138.49 has ended at 131.01 and extend further rise to 137.00.

Our preferred count is that: the upmove from 127.00 is treated as the wave 3 with wave (1) of 3 ended at 138.72 and wave (2) is re-labeled as an (A)-(B)-(C) move with (A) ended at 131.01, (B) ended at 135.49 and impulsive wave (C) commenced from there and has ended at 129.02. Euro's rally after breaking indicated resistance at 132.04 signals the wave i of (3) has ended at 131.66 which followed by wave ii at 129.58, hence wave iii ended at 136.07 and wave v as well as wave 1 of (3) has ended at 138.49. Above 136.00 resistance would be the first sign that wave 3 is under way for gain to 137.35/40, break there would confirm and bring retest of 138.49-72 key resistance area.

In view of this, we are still holding on to our long position entered at 133.75 with stop now raised to the indicated level. Only below support at 133.20 would prolong choppy trading and risk weakness to 132.50 but support at 131.74 should hold.

Our larger degree count remains that wave 1 from 112.08 ended at 139.26 and wave 2 is a 3-legged move (as indicated in the attached chart) with a: 131.41, b: 136.90 and c: 127.00. Under this count, the wave 3 has commenced from 127.00 with wave (1) ended at 138.72.

On the bigger picture, we are treating the rally to 169.97 as end of wave A, then followed by a selloff in wave B (abc-x-abc) at 112.08. The wave C from there should unfolding as an impulse with wave 1 of C ended at 139.26, then the 3-legged wave 2 has ended at 127.00 and wave 3 should bring retest of 139.26, then towards 142.00.

Early signs of steady growth in the 2008 prime London rental market

Earlier this month, we reported a flattening out of central London house prices in line with other research reports. A shortage of mortgage products, changes in capital gains tax legislation and a general stagnancy in the creation of city jobs have all had negative effects on house prices. These factors should be placed against the continuous growth in the international demand for prime London property, a shortage in luxury one bedroom & family houses, expected drops in the London interbank loaned rate (LIBOR), a continuous halo effect surrounding the 2012 Olympics and more importantly a steady growth in the rental market.

Although recent reports show a 1.5% drop in the prime central London sales market, the first quarter 2008 rental sector shows different results- at least in the very marketable one-bedroom property category. Our research based on data of one bedroom properties let in London’s W1 show a rent increase of 3.4% compared to 2007 figures. We analysed 38 one bedroom properties located in London’s Mayfair and Marylebone that were let in the first quarter of 2007 and re-let succesfully in the first quarter of 2008. Twenty eight of these properties recorded identical prices or stable increases that ranged from 0% to 11.6%. We also noted that ten of these properties recorded drops of up to 10%.

Overall we believe that the rental market will fair well in the second quarter of 2008. Demand for prime central London rental property in 2008 will depend on the continuous influx of professionals in the legal sector, from international students and from potential buyers who are unable to get immediate finance. We will be carrying further research on larger properties in the prime area over the next two weeks.

City of Westminster Property Prices Increase by 8% in the Last Quarter

Based on data from the UK Land Registry which uses a Hedonic Regression methodology (based on around 490 flat sales in the area), City of Westminster properties have performed well above the London average which registered a 2.9% growth.

Land Registry statistics may be accessed via a simple platform provided on the BBC website:

Similar increases of around 8% were recorded based on the average asking price within the Westminster area as recorded in Primelocation’s House Price Index.

The Central London property market needs to be seen in isolation from national or regional price statistics because of a number of important factors:

• Demand based on both local and international demand
• Because of a diverse demand base, several buyer and tenant profiles account to a demand across the price spectrum.
• Central London planning legislation restricts large supplies of new developments. The largest supply of new developments tends to concentrate on city fringes and the edges of London.

The Weekly Bottom Line

• U.S. ISM indexes paint a muddled picture of the U.S. recovery. Manufacturing index jumps to 55.7 from 52.6, while non-manufacturing dropped slightly to 50.6 from 50.9.
• FOMC statement keeps to the script, leaving interest rates at “exceptionally low levels” and expecting them to remain there “for an extended period.” Statement also adds flavour on the conditions that would lead the Fed to change its mind: resource utilization, inflation trends, and inflation expections. We comment on the prospects for all three.
• U.S. payrolls shed 190,000 jobs in October and the unemployment rate tops 10.2%, its highest level since 1983. Upward revisions to past data add 91,000 to payrolls.
• U.S. weekly jobless claims drop by 3.5%. Continuing claims also drop, likely reflecting expiring benefits more than renewed job growth.
• U.S. nonfarm productivity rises by a better than expected 9.5% Q/Q annualized in the third quarter - its fastest pace since 2003.
• Canadian labour market sheds 43,000 jobs in October; unemployment rate rises to 8.6%.
• Value of building permits in Canada rose 1.6% in September.

UNITED STATES - GOTTA GET, GET JOBS, JOBS, JOBS

With an FOMC meeting, ISM reports and - last but not least - the U.S. jobs report out this week, to say it was a busy week in economics, would be putting it lightly. The week began on an uplifting note courtesy of the ISM index of manufacturing activity, which rose to 55.7, its highest level since 2006. Unfortunately, the outturn was not matched by the larger non-manufacturing index, which fell slightly to 50.6 from 50.9. The relative outperformance of the manufacturing index is more reflective of the greater pace of past declines in the goods producing sector than it is of burgeoning demand. The slower pace of recovery in the services sector reveals the soft underbelly of the U.S. recovery. As the Fed outlined in its statement on Wednesday, week job and income growth, continued household deleveraging, and still tight credit conditions will continue to restrain the pace of growth in the broader U.S. economy.

Speaking of the Fed statement, with the federal funds rate firmly at its lower bound, the task of parsing out the FOMC's statement has turned increasingly to tone and nuance. For the most part, this week's statement kept to the playbook and importantly maintained the expectation that the federal funds rate would be kept at “exceptionally low levels…for an extended period.” What was interesting about this statement was the Fed's characterization of the conditions behind the need to keep rates “exceptionally low.” In particular, the Fed specified, “low rates of resource utilization, subdued inflation trends, and stable inflation expectations” as the key factors it is watching. With these three conditions specified, the FOMC threw some meat to Fed watchers looking for indicators to track the future path of monetary policy. So, from one information carnivore to another, a quick assessment: In terms of resource utilization, capacity utilization has seen modest improvements over the last three months but still remains at its lowest levels since the data series began in the 1960s (and for the manufacturing sector since the 1940s). Likewise, with the unemployment rate topping 10.2% (more on this later) we're into pretty unprecedented territory in terms labor market slack. As for inflation, while core CPI inflation has remained fairly steady at 1.5% over the past several months, other indicators of price pressures such as core PPI and unit labor costs show an unambiguous downward trend, weakness that will likely begin to show in the CPI numbers in the months ahead. Finally, in terms of inflation expectations, market based measures such as the spread on nominal and real return bonds show a modest upward movement but for the most part remain relatively well anchored. As real time measures of inflation continue to trend down, it is not unreasonable to expect inflation expectations to move along with them.

Of course the biggest data release to come out this week was the U.S. jobs report. While the median headlines will inevitably focus on the 10.2% unemployment rate (the highest in twenty-six years), several other details of the report are also worth mentioning. On the positive side, the pace of job losses improved slightly from September and revisions to past data added 91,000 to the total number. Even more positive, weekly initial jobless claims continued to point to a slower pace of lay-offs by the end of October. Likewise, strong gains in labor productivity (up a whopping 9.5% in the third quarter), mean that firms are in very good position to begin hiring as the economy continues to improve.

Unfortunately, while there are glimmers of hope in the labor market there are at least as many deep, dark pools of gloom. Foremost on this list, broader based measures of labor market weakness are even bleaker than the headline number. The full scale of job market slack in the U.S., which is measured by adding discouraged workers and people in part time work for economic reasons to the official number, rose to 17.5% and while data only goes back to 1994 the spread between the official rate and this broader measure has shot up dramatically over the course of the recession. Perhaps even more discouraging, both the mean and median duration of unemployment continued to rise in October with average duration reaching an all time high of 26.9 weeks and the median duration rising over a full week from 17.3 to 18.7. So, while we continue to look for improvement on the job front in the months ahead, it is going to take a long time before the U.S. is operating anywhere near its full potential.

CANADA - LABOUR MARKET GIVES BACK RECENT GAINS

Although the Canadian economy has begun to shown signs of improvement, the road to recovery is likely to be long and bumpy. Markets got a dose of this reality this morning with the release of October's Labour Force Survey. The recent strength in the Canadian labour market - which added nearly 60,000 jobs in August and September - has proven to be unsustainable, as it gave up two-thirds of those gains in October. A net 43,200 jobs were lost during the month, pushing the unemployment rate up to 8.6%, from 8.4% in September. The losses in October were concentrated in part-time work, which shed 60,000 jobs for a second consecutive month, while full-time employment experienced a modest increase.

Despite the disappointing headline figure, the report did bear some positive news. The average hourly wage rate of permanent employees jumped from 2.3% Y/Y in September to 2.9% Y/Y in October, partly reflecting the strong performance of the labour market over the past couple of months. Unfortunately, with the economy recovering at only a tepid pace, this large uptick in wage growth is unlikely to be sustained, just as the rapid rate at which the economy was adding jobs proved to be unsustainable. Both wage and employment growth is likely to be volatile on a monthly basis, though the overall trend should be positive.

Overall, October's drop brings the tally of jobs lost in Canada since peaking a year ago to about 400,000. Employment in the private sector has been hit the hardest (down 450,000 jobs or 4%), while public sector employment has held up better (down 55,000 jobs or 1.6%). Self-employment, however, has been moving in the opposite direction, growing by over 100,000 jobs or 3.9%. This trend is not surprising given that self employment typically rises during recessions, as people take a stint at being their own boss when opportunities for payroll jobs are slim.

With the number of self-employed people on the rise in Canada, it came as welcome news when the federal government announced this week that it intends to increase employment insurance benefits for these workers. The new proposal would give self-employed workers the option of buying employment insurance, though coverage would be limited to maternity, parental, sickness and compassionate-leave benefits - hence, they would be excluded from the regular unemployment benefits. The cost would be 1.73% - the standard employee contribution (not the employer contribution) - which accounts for about 40% of the total premium paid for coverage for public and private sector workers.

In other employment insurance news, it was also announced that Human Resources and Skills Development Canada and Statistics Canada will begin tracking exhaustion rates of beneficiaries. While data indicating the number of people currently receiving employment insurance benefits is available, there is no such data for people who have run out of benefits before finding a new job. As such, when looking at the employment insurance statistics - which showed a drop (M/M) in beneficiaries for two consecutive months in July and August - it is unclear as to whether beneficiaries departed for a new job or if they exhausted their benefits and are still unemployed. Tracking exhaustion rates would provide a better indication of the real situation in the market, and could have important implications for social assistance programs.

U.S.: UPCOMING KEY ECONOMIC RELEASES

U.S. International Trade - September

• Release Date: November 13/09
• August Result: -$30.7B
• TD Forecast: -$30.0B
• Consensus: -$31.8B

U.S. International Trade - September Release Date: November 13/09 August Result: -$30.7B TD Forecast: -$30.0B Consensus: -$31.8B

CANADA: UPCOMING KEY ECONOMIC RELEASES

Canadian Housing Starts - October

• Release Date: November 9/09
• September Result: 149.3K
• TD Forecast: 160.0K
• Consensus: 154.0K

After plunging by a staggering 57% from its cyclical peak of 273.0K units, new residential construction is yet to catch the bug that is now powering the Canadian real estate activity to its best growth performance in many years. This, we believe, is about to change. Indeed, with residential permit approvals rising at a double-digit pace in both August and September and construction employment rising for the third straight month in October, we expect building activity to rise to 160.0K in October. This will mark the highest level of new residential building activity since December last year. Most of the gains are likely to be in the volatile multi-units component, though single-family construction is also expected to advance. However, with Canadian economic activity likely to remain tentative in the coming months, and the soft labour market conditions likely to keep a lid on housing demand, the recovery in Canadian residential construction should remain somewhat subdued relative to historical norms.

Canadian International Trade - September

• Release Date: November 13/09
• August Result: -$2.0B
• TD Forecast: -$2.2B
• Consensus: -$2.1B

Canadian trade is unlikely to benefit much from the improving U.S. and global economies, as the strong domestic currency continues to erode the competitiveness of Canadian products on the global market. In September, we expect the Canadian trade deficit to widen to $2.2B, which will be the highest level of trade deficit on record. During the month, exports are expected to rise marginally, though higher imports should offset any gains in export trade. In the months ahead, with the strong Canadian dollar continuing to wreak havoc on the Canadian export-base, we expect net exports to remain relatively unsupportive to overall economic activity

Focus on EU Economic Trends and BoE Inflation Report

Global financial markets this week will focus on industrial production and trade data. Generally, the trend appears to be that industrial output in Europe is finally recovering after the severe bout of destocking earlier in the year and at the end of 2008. However the UK appears to be lagging at present. Trade data will show that deficits remain wide, but that there is some modest narrowing underway. UK financial market attention will be focused on the Quarterly Inflation Report, where we look for justification for the MPC decision to leave rates on hold and increase QE by £25bn.

Strong UK data last week and the decision by the MPC to expand quantitative easing (QE) by less than expected supported the pound. Ahead this week, positive BRC retail sales and RICS house price reports may provide further succour in the short term. However, there is risk of a more dovish BoE Inflation Report on Wednesday which may again show inflation undershooting the target in the medium term. A continuing wide negative output gap and constrained credit conditions are the factors that the MPC cited in its letter to the Chancellor last week requesting extension of QE to £200bn. Assuming these arguments appear in the Quarterly Inflation Report this week, the inflation projection could show CPI inflation below target over the 2-year horizon, even with a continued loose policy stance. But the Governor also warned of the risk that consumer price inflation could rise sharply in the early part of 2010. This suggests that the shape of the inflation profile may shift from the last QIR in August, see chart below, to show a rise near term but a fall below target longer term. Labour market data are also due on Wednesday. For all the talk that the extra £25bn of QE announced last week will be the last, much still depends on the outlook for economic activity. Although recent indicators point to a return to growth in Q4, it is still not clear how strong growth will be in 2010 if policy accommodation is reversed.

In the euro zone, Germany will release September industrial production today, ahead of the first estimate of EU-16 Q3 GDP on Friday. Germany and France already posted positive quarterly growth in Q2 and so are technically out of recession. For the euro zone as a whole, however, quarterly growth was slightly negative in Q2, but it is expected to be positive in Q3. In line with the market consensus, we expect euro zone GDP to have risen 0.5%. The surprise would be if this were not the outcome. PMI data in recent months show a trend toward recovery. The only note of caution is that looking purely at business sentiment suggests that the consensus forecast may be too high. Comments from Trichet last week imply that some of the monetary loosening may start to be withdrawn soon. A positive outcome to the data this week will likely hasten this outcome. But money supply data suggest that growth will still be weak, so there may no quick rise in official interest rates. The German ZEW survey of investor sentiment on Tuesday will also receive attention.

Last week, US Data showed that the unemployment rate rose to 10.2% in October, up from 9.8% in September as non farm payrolls fell by 190,000. The unemployment rate has not been above 10% since 1983. The outcome is clearly negative for US consumer spending and growth prospects and suggests that the Fed could keep interest rates at record lows for some time yet, while waiting for signs of sustained improvement in underlying labour market trends. US bond markets will digest $81bn of supply this week, starting with $40bn of 3-year notes this evening. The trade balance and the University of Michigan consumer sentiment survey, both on Friday, are the main data releases. Elsewhere, China will release a raft of data on Wednesday, while the Bank of Korea on Thursday is expected to keep rates unchanged at 2%, but strong growth there means that the start of policy tightening could well occur in the coming months.

Sponsor Forex Brokers Aggregate Net Short Positions In USD Plunged Despite Price Weakness

Aggregate USD net shorts plummeted more than $5B to -$17.1B in the 6-week period ended November 3. Bringing down the dollar's new shorts were sharp declines in net speculative new long positions in Japanese yen, euro and Canadian dollar. However, -40% drop in GBP new shorts partly offset the result.

Although nets longs in Japanese yen picked up modestly following a sharp fall to 17530 in the previous week. It was still less than half of 45615, the highest in 8 months, recorded on September 22. Also, while yen's net long positions stayed in positive territory, current levels are far below the peak of 65920 in March 2008.

Since our last IMM report on September 28, Japanese yen only climbed +1.3%. However, price movement was volatile. It first rallied to as high as 88 against the dollar in early October as the Fed pledged to keep its policy rate at unprecedentedly low level. However, gains were pared as Japanese yen plunged to 92 2 weeks ago.

Net speculative long positions have been on a downtrend after making a 2009-high at 51045 in early October. The change was in tandem with price movement in EURUSD which pulled back to 1.46 after rallying to 1.5 last month. It's possible for traders to build up long positions in the currency pair again as EURUSD is prone to rise further.

In 6-week basis, net longs for CAD were cut one-third. In fact, net longs for CAD have been moving in a volatile manner. Although long positions stayed a relative high levels (above 30K) in August and most of September, they slumped to 18209 on the week ended September 29. Then, net longs surged again to as high as 44196 in mid-October. However, the positions slipped to 23369 last week.

For GBP, net speculative short positions reached a record high level at 65346 in the week ended October 13. This was inline with movement of GBPUSD which plummeted to 5-month low at 1.57/58 as the market speculated the BOE would extend the asset buying program by at least 50B pound. However, price then rebounded strongly as the less-than-expected expansion of the asset buying program signaled the last round of QE. Net shorts dropped for the 3rd consecutive week last week and dropped -40% on the 6-week basis.

Gold At New Record, Rally To Extend To $1,200/Oz

LONDON (Dow Jones)--Spot gold hit yet another record high Monday and market participants struggled to be bearish saying while the rise in gold has been driven largely by momentum buying, there is little to stop gold from rising to $1,200 a troy ounce before the end of the year.

Spot gold is in uncharted territory but its rise to current highs has been accompanied by more periods of weakness than the last time it traded above $1,000/oz. During the previous rise to a high of $1,032.35/oz in March 2008, gold prices nearly doubled over an 18-month period.

This time gold is up only $77 in a similar time frame and dipped and rose more dramatically as commodities across the board were victim to investor liquidation following the collapse of Lehman Brothers.

"We think this rally is sustainable based on dollar weakness, central bank buying and inflation volatility," said Deutsche Bank analyst Michael Lewis. "The target is now $1,200/oz."

As of 1023 GMT, spot gold was trading at $1,108.30/oz, having earlier hit a record high of $1,109.35/oz, which is up 1.4% from Friday's close.Most-active December gold on the Comex division of the New York Mercantile Exchange was at $1,108.80/oz.

Commodities across the board were up spurred by U.S. dollar weakness against the euro and European equities were higher.

Finance ministers from the Group of 20 leading economies pledged to maintain their fiscal stimulus measures at their meeting over the weekend and that weighed on the dollar.

"It looks as if we will have another period where we may see the euro/dollar make new highs for the year," said Mitsubishi analyst Tom Kendall.

Gold is viewed as a good hedge against dollar weakness because it is a physical asset and has a historical relationship with the dollar, having once backed the currency.

Deutsche's Lewis said going back to 1973, December has seasonally been a month of dollar weakness therefore that should continue to push gold up.

On top of the supportive backdrop of a weakening dollar, central banks are set to be net buyers of the precious metal this year after 20 years of being net sellers, said Deutsche's Lewis.

Last week, India's central bank bought 200 metric tons out of a total of 403.3 tons of International Monetary Fund gold earmarked for sale and Sri Lanka's central bank said it has been buying gold to diversify its reserves amid volatile currency markets.

The market is now playing the "guessing game" on who will buy the remainder of IMF's gold, said Kendall. The market expects China, India, Russia, Brazil or Taiwan to be central bank gold buyers.

Large option positions around $1,200/oz could see gold rise to that before the year end but some profit-taking is likely after that, Kendall said.

But gold's rise won't necessarily be in a straight line and exchange traded fund holdings haven't risen substantially, said Standard Bank.

The PHLX Gold & Silver Mining Index has underperformed the marginal gold price. This suggests that equity investors are not convinced of gold's ability to sustain these higher levels in the short to medium term, Standard Bank said.

Goldessential.com also cautioned that the rise could hit a snag because the large number of long positions in the market, or bets that prices will rise, isn't sustainable.

But it said "we acknowledge that the pronounced bull-run has to run its course."