Dollar strength has been the dominant trend as we head into the second half of the summer, with the PowerShares DB US Dollar Index Bullish ETF (NYSE: UUP) starting the month at new highs.  These moves have been propelled largely by geopolitical concerns in areas like the Ukraine, Gaza, and Iraq.  Typically, the summer months tend to be market by slower price volatility, but geopolitical concerns like these can have the potential to influence short-term trends in illiquid markets.  Here, we look at the latest technical developments in the forex majors.

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AUD/USD – Australian Dollar vs. US Dollar

Critical Resistance:   0.9505

Critical Support:   0.9210

(Chart Source:  CornerTrader)

AUD/USD Forex Strategy:  Wait for additional pushes lower before getting long again.  Buy at 0.9110, with stop losses below the 0.90 mark in AUD/USD.

The Aussie is starting to show slowing momentum and prices are now rolling over after hitting highs at 0.9505.   Further downside is now expected, given that the AUD failed at 78.6% Fibonacci retracement at 0.95.  Critical support can now be found at 0.92 but any approach of this level would create a head and shoulders pattern on the hourly charts, and a break of 0.92 could be defined as the neckline.  Daily RSI is approaching oversold territory, so bounces are still possible.  The data in these trends has also been confirmed by reports released by FXPips.

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GBP/JPY – British Pound vs. Japanese Yen

Critical Resistance:   1.7530

Critical Support:   1.6950

(Chart Source:  CornerTrader)

GBP/JPY Forex Strategy:  Stay with the positive trend but wait for better buying opportunities, after prices move into oversold territory.  Go long at 1.7050, with a stop loss below 169.50.  

The GBP/JPY is showing a strong uptrend, with long-term highs posted at 175.30  But we are seeing prices drop below the 100-day moving average and break the uptrend line that started back in February.  This suggests that the forex pair has further to fall, and the RSI still has more room to the downside before becoming oversold.  Strong support is not seen until we reach 1.6950, so it is prudent for forex traders to wait until price reach these areas before buying again.

When we think of traditional investments, stocks and mutual funds are probably the first things that come to mind.  But when we think in historical terms, precious metals have been around far longer, and are still actively used by investors today.  Assets like gold and silver have set a strong historical precedent in the marketplace but there can be difficulties when trying to figure out when and how to invest.  There are common market instruments like the SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV), but these are typically referred to as “paper assets” because they do not allow you to take ownership is physical assets.

Physical Assets vs. Market Funds

In these cases (GLD and SLV), you are buying into a fund.  This is very different from buying a gold coin or gold bar, and these two asset types will generally not trade at the same value.  For these reasons, most traditional investors feel much more comfortable owning physical gold or silver, which generally comes in the form of jewelry, gold coins, or gold bars.  There is a variety of ways to buy these types of assets but it is important to understand that much of what you might typically see in the financial news headlines does not actually refer to gold prices, but instead to funds that are designed to trade close to the underlying prices in the physical metal.

When To Buy Gold

Now comes the real question:  When is the best time to start buying gold?  Traditionally, investors have used gold as a hedge against price inflation and a falling US Dollar.  When the Dollar is buying, your cash purchasing power is falling, and it will often make sense to start moving into safer assets in order to gain additional financial protection.  Most investment managers recommend that you have at least some precious metals exposure as part of your portfolio.

Gold also tends to perform well during times of uncertainty.  If we think back a few years to the financial crisis of 2008, gold markets began trading in an incredibly strong rally that ultimately reached valuations above $1,900 per ounce.  This was largely because investors were looking for asset security during a time of financial turmoil.  Since gold has one of the longest histories as a stable financial market asset, gold tends to be one of the first choices when the economy starts to look gloomy and negative.

But even when we understand these historical tendencies, there are still difficulties that can be found when you first start trying to invest in gold and other precious metals (like silver or platinum).  Daily commodities market updates at ForexMinute offer a good way for investors to stay ahead of the market and to monitor gold prices as they begin to change.  It can be easy to miss new information and start to make position mistakes if this is not done correctly.  Fortunately, these mistakes can be avoided when we take a conservative approach.

How Long Should You Hold a Gold Investment?

Gold investments tend to be long-term investments.  This means that most people buying exposure in these sectors tend to avoid the “day trader mentality” and hold their positions for extended periods of time.  When price moves occur in gold and other metals, those moves tend to unfold over years (rather than months or days).  This is the reason that a majority of investment advisers recommend obtaining exposure with a “retirement mindset” rather than to assume you will be actively buying and selling your assets on a regular basis.  Fortunately, this makes investments in these areas much easier as you will not be forced to “time the market” and risk significant losses if you happen to buy or sell at the wrong time.

When we look at the price activity seen in recent weeks, it certainly looks like the tide is turning for the Euro and that we are ready to see lower market valuations into next quarter.  From a chart perspective, we have already seen a break in critical support in the 1.3630 region and was a highly bearish move that has built in momentum and sent prices much lower as we head into the middle of June.

On the other side of the coin (looking at the fundamentals), there are plenty of factors that support these moves.  So while the US Dollar has been on the receiving end of most of this year’s selling pressure, there have been many developing reasons for why forex traders should have expected bearish moved in the Euro shared currency.  For stock traders, it will be important to see how the PowerShares DB US Dollar Index Bullish ETF (NYSE:UUP)  and SPDR S&P 500 Trust ETF (NYSE:SPY) behave in response.  But there is likely to be some carry over into precious metals, as well.  So watch for increased volatility in the SPDR Gold Trust ETF (NYSE:GLD) and the iShares Silver Trust ETF (NYSE:SLV).

New investors should consider researching these topics further, and learn finance online at Global Finance School.

Sovereign Debt Crisis

Most important is the fact that there is little reason to believe that the Eurozone has officially recovered from its sovereign debt crisis from just a few years back.  If you remember, these negative economic scenarios tyrannized financial news headlines for an extended period of time and then quickly disappeared.  But when we look at the underlying economic data, this lack of attention makes little sense.  What makes even less sense is the fact that the currency has been rallying against the Dollar for most of this year even though the Federal Reserve has made it abundantly clear that its QE stimulus programs will be completed before the end of this year.

Since this essentially means that fewer Dollars will be running through the global economic system (and no real change in the underlying demand for the US currency), the implications here should be bullish for the currency.  But the broader cross-currency correlations have snowballed and the resulting forex news stories for most of the year have involved higher market valuations in the EUR/USD and GBP/USD.  These latest moves signal that a change is afoot and that the market is now ready to correct back toward its fundamentals.  This means that forex traders will need to acknowledge the 11.3% unemployment that is seen in the region as a whole along with the fact that annual growth numbers as measured by GDP clearly favor the US economy on a relative basis.

Chart Perspective:  EUR/USD

But while most of the market has ignored the fundamentals and traded almost entirely using momentum based strategies, the break of 1.3630 has confirmed that a new environment is in place and that the Euro itself is likely to encounter prolonged weakness.  “Critical support for the EUR/USD was originally found at 1.3630, but since this area was invalidated we are not likely to encounter additional support until we reach 1.3480,” according to the expert market analysis team at ForexAbode.  “1.35 is likely to give some psychological support in the interim but the overall bias is clearly bearish given the latest price trajectory.”

Total number of deaths in the last 15 months is considered to be around 18000, most of them civilians. What’s triggering this continous killing is still unknown, but 2000 of them have died since Russia and China vetoed the first draft resolution. This is the third time China and Russia have rebuffed decisions towards stopping the bloodshed in Syria.

13 members of the U.N. security council have voted in favor of the resolution calling for the Syrian president to step down. All except for Russia and China who’s veto sets the future of U.N.-s unarmed observer mission in question, because its mandate expired on Friday.

3 months ago al-Assad agreed to the peace plan, but since then has ignored the plan almost entirely. The resolution would have given Syrian president Bashar al-Assad 10 days to act towards ending the bloodshed.

According to Syrian activists, 310 people were killed a few days ago, which is a deadliest attack since the revolt against al-Assad.

Rebels have attacked the capital Damaskus in an organized suicide attack killing Assad’s family member, defense minister and deputy defense minister.

China and Russia opposed to military intervention

The 2 opposing countries blocked the resolution, because of U.N.’s regulations which would allow UN to enforce its decisions with military intervention. Moscow and Beijing figured that might lead to external wars like the ones occurred in Libya last year.

Syria has been Russian ally since Soviet era and Moscow has opposed any UN demands that could lead to military intervention or regime change.

US ambassador Susan Rice assumed that Russia and China’s history is to blame, because they were once alleys in the soviet era, she also added that they: “have consigned the Syrian people “to more violence and have increased the risk of the conflict spilling over into the region.”

Western countries don’t rule out military enforcement if political solutions could not be imposed. The following steps by U.N. are not clear yet, but there have been rumors referring to UN’s reputation going down if the security council won’t take any steps towards stopping the bloodshed.

According to the National Bureau of Statistics, this has been the slowest growth of China since the second quarter of 2009. In that year, the gross domestic product grew 8.9 percent.

The slow growth affected the Australian dollar, which fell down $0.05. It is currently trading to US$1.04. And because China is one of Australia’s biggest trading partners, China’s numbers also affected local stocks.

This quarter marks China’s fifth consecutive slowdown. Sheng Laiyun said the slow growth has put tremendous pressure on its exports.

Other numbers of China are also not encouraging. Data for its manufacturing industry showed 11.6-percent growth in the first quarter of 2012. The number is smaller compared to 15.7 percent a year ago. The dip was fueled by the slow in demand from Europe, which also experiences economic crisis.

Last year’s numbers also showed that China’s economy slowed down. It posted a growth of 9.2 percent in 2011 while 2010’s growth was at 10.4 percent.

Industry observers, though, expect that China will recover in the second semester of 2012. China has implemented small changes that provide credit access to small companies. This should provide more jobs to its billions of citizens.

HIS Global Insight, however, said that things don’t look good. China is expected to lower its annual economic growth target to 7.5 percent from its original 8 percent. Economist Xianfang Ren said the exports industry of the country will continue to slow down.

The new ruling, which takes effect immediately, puts a stronger hold over state-owned enterprises and will make executives accountable for investments made overseas. The Chinese commission is demanding a more thorough risk management when it comes to overseas investments. 

The Chinese entered into one of its largest investment projects in Australia with CITIC Pacific Sino Iron, which reportedly racked up $7 billion from its initial $2.5 billion estimate. The project has been marred by delays and other problems. 

A second project involving Sinosteel Midwest was pegged at $2 billion but was stopped in 2011 after several investment failures in Western Australia. The head of the company lost his job as a result. 

Australia has been a chosen investment ground for China since it initiated overseas business relations in 2003. The government has approved more than $70 billion worth of projects since 2007. 

Investors who failed in Australia are more likely to put the blame there. Some fear this can affect other potential business relationships, especially if more bad investments by China continue.  The difficulties can affect bilateral relationships between these two nations, as a whole. 

Meanwhile, the Chinese government can look at Minerals and Metals Group as a shining example of good investment in Australia. Since 2009, the company has been an asset to trade relations with Oz Minerals and its business deals in Australia continue to be successful.

The State Internet Information Office implemented the web crackdown. It is the government agency in charge of monitoring and policing Internet activities.

The crackdown reflects the government’s uneasiness of its citizens’ increasing use of the web to discuss political matters. It is also a way to prevent rumors from getting blown out of proportion.

The detained people have not been identified. The closed websites had as many as 300 million active users. Sina Corporation and Tencent Holdings, owners of websites similar to social networking site Twitter, also announced that the comment sections would be disabled temporarily to clean them up.

China is experiencing one of its worst political crises. The punishments arose after rumors spread about military vehicles entering China’s capital Beijing.

These rumors, meanwhile, stemmed from the termination of Bo Xilai two weeks ago. Xilai revealed leadership issues of the Communist Party, a topic that is not usually shared outside the group.

Before Xilai’s termination, a top aide from the party escaped and fled to a US consulate. The aide wanted to seek an asylum status, a move that violates the ruling party’s rules.

Xilai is believed to being groomed for a senior leadership role in the party. The job is highly sought and is the center of intense bargaining.

Huawei Technologies is one of the world’s largest providers of telecommunications equipment. It provides services to major telecoms company in the different parts of the world. The decision of the Federal Government’s to exclude Huawei stemmed from security concerns on different cyber attacks that apparently originated from China. Prime Minister Julia Gillard explained that the $36-billion NBN program is a major and vital national infrastructure project and all aspects must be considered.

The office of Attorney General Nicola Roxon issued a statement saying the IT infrastructure would serve as Australia’s backbone and that it is the Federal Government’s duty to secure information and maintain its integrity.

Andrew Robb, opposition Finance spokesman, said that the decision to ban Huawei would have a negative impact on Australia’s relations with China. He added that he had a chance to tour Huawei’s facilities and was impressed by them.

Robb added that Huawei was instrumental in the growth of Britain’s telecommunications industry and the Federal Government must take this into account. Huawei was also part and parcel of at least eight NBN implementations around the world.

Huawei has released a statement saying it is open to inviting all MPs and the media people to visit its facilities. Jeremy Mitchell, spokesma of Huawei, said that the country has not gotten used to having relations with privately owned Chinese companies.

He added that despite being a Chinese company, 70 percent of Huawei’s operations are outside of China.

Apple’s audit was conducted by Fair Labour Association, a non-profit organization that audits overseas suppliers and ensures that good working practices are implemented. FLA usually caters to fashion and apparel companies. Apple is the first tech company to join the organization.

Foxconn’s work practice is in direct violation of Chinese laws. The audit also found that the factories run by Foxconn also extend operations to overtime in an effort to make more money.

Hon Hai Precision Industry Co, the official company name of Foxconn, has made a commitment to reduce working hours to a maximum of 49 hours a week. Hon Hai also agreed to increase workers’ hourly salaries despite the reduction of work hours.

This is not the first time that Foxconn figured in controversy. Last year, the factories had an incidence of seven deaths and nine suicide attempts. More than 350 of its workers also threatened to commit mass suicide after Foxconn rejected their proposal for a salary increase.

FLA chief executive officer Auret van Heerden said that it’s a common practice for employees in developing countries to work overtime because this brings in more money. Many workers don’t see it as inhuman and instead, appreciate the opportunity to have steady income.

FLA said that workers in the Foxconn factories earn from US$347 to US$437 monthly.

There are so many potential triggers… so many elephants in the region. If we make the anarchical assumption, everyone will behave according to the worst-case scenario.

He conceded the new deployment of US Marines in Australia was not a threat to Indonesia, a sentiment shared by his countrymen. But there are other powers, especially China who tend to see any military build up in the region as a slight against them. Apparently, the shock of the Marine base announcement has died down.

In a statement of profound wisdom, Mr Natalagawa claimed:

In the recent past the largest source of death and destruction has not been conflict but natural disasters. So if there’s a common enemy, that’s it. We want to bring the US Marines into that. Since the US Marines basing has created some excitement in some quarters, we have been told it’s for disaster response. So we may as well try it out.

His comments came after a meeting with the new Foreign Minister, Bob Carr, as well as the Defence Minister Steven Smith.

Mr Natalagawa appears to be a moderate in the often right of centre political spectrum in Indonesian politics. His pragmatic approach to regional issues could make him an asset to the region, which has been severely affected by natural disasters in recent years.

Bob Carr is believed to have taken meetings with at least a dozen of his international contemporaries in his first week as Foreign Minister. His acute intellect is expected to be a firm asset to the negotiation of peace not just in the region, but in international trouble spots.