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Archive for April, 2009

The Dice Throw…

I have said in at least a couple of the articles I have written about Forex Trading and the Money markets that Trading should be as far from gambling as possible. This rule holds true for all traders, but is particularly important for people who are just starting forex trading…newbies. If it feels like a dice throw, then you’re doing it wrong. Bringing Money Management strategies in obviously helps to mitigate risks, but you want to keep the risk minimal to start with.

The reason I bring this up is because of an article on Bloomberg.com. Five years ago, Alan Greenspan said that predicting currencies is no better than tossing a coin. It’s true that things have a been a tad unpredictable lately. However, that comes with the territory. We’re in the midst of an economic upheaval. A lot is driven by fear or lack of it. Still, you can still make a decent play, even in this condition, as long as you stick with the rules.

The currency pairs haven’t changed much against the dollar in the last 2 days. Well, that’s not exactly true. There has been quite a bit of movement. It’s just that we are back to where we were at the start of the week. It’s the same story. It’s starting to get old now. Fear = Dollar Strength. The changes to that are proving hard to sustain in this climate.

A further complication is that Swine Flu pandemicoutbreak which is spreading all over the world. Trying to contain it at this point is…well…pointless. The cat is out of the bag. The possible scenarios are quite scary. For now, it seems that almost all the reported deaths have occurred in Mexico, where this whole thing began. I think it’s safe to say that some of that is going to start spreading around. Predictably, the markets reacted with apprehension. More Dollar strength. That abated today because of confidence in the US. If things get worse with the Swine flu, expect more Dollar strength. Everything affects everything.

It was a bit of a rollercoaster last week. That statement could have been applied to any of the last few weeks. It was just more of the same up and down in tandem with the equity markets. WE saw, once again, just how much a piece of news could influence the currency markets.

After the relative confusion the European Central bank seemed to be at the start of last week, the positive numbers helped the Euro to rise substantially against the dollar. Things seem to be getting better in Europe. There is more news next week for Europe. If the positivenot so negative trend continues, then it is likely that the dollar will lose more ground against the Euro.

Not so for the pound. It wasn’t able to stand up to the dollar as well as everyone else last week. Fundamentally, Britain is still in serious trouble. A different picture from some months ago. At that time, it seemed that Europe was in much bigger trouble than the UK. A lot of people reiterated the thought that England not joining the Euro was a good idea. They heaved a sigh of relief as Europe suffered…at least more than Great Britain did. Now, I am not sure what they will be doing, as figure after figure comes out showing that the UK is on a much longer path to recovery than the European entity. It might turn around soon, but for now, it looks like the Pound will have more work to do to stop itself from falling considerably against the Dollar. The lack of news affecting the Pound directly this week will probably be a sigh of relief.

The commodity currencies did well in Forex Trading this week. The Canadian Dollar did well as Oil rose a little. The Australian Dollar and its cousin the New Zealand Dollar also did well. Risk appetite returning also helped these pairs. The thing now is that things are not perfect in these economies. The Central banks for all of these are poised to take some action. A Rate cut is definitely expected in New Zealand. This might mean that a loss of value against the Dollar might occur, depending on what decisions are made.

Much to observe this week. Will keep you folks posted.

Happy Trading

Economy still headed down?

A somewhat frightening assessment of where the global economy is right now is shown in the video from CNBC below. Bear in mind that the dude’s name is Stephen King. There’s another chap by that name who’s a good story teller!

Things do seem to be getting better though. The Euro, Swiss Franc, Aussie and Canadian Dollar all gained on the Dollar this last few days. I have said that the Risk Aversion trade which we have been seeing might be losing it’s edge though. That means that we can no longer assume that things are getting better simply because the Dollar is losing value. This is especially true as the Yen also gained on the Dollar! Normally, the Yen would lose as well.

The numbers out of Europe this week have been good. Commodities are also doing well. Oil is back above 50 Dollars a barrel. There is hope that we have turned the corner. Maybe Mr. King is just being a killjoy.

Till there is more stability, it is still a trade by the day type scenario. Good news in a particular region will mean up, bad news down.

Forex Trading: The Negative Sandwich

ChartToday

Sorry about the title. The Sandwich in question refers to the chart above. This chart is of the GBP/USD Forex pair. You can see how there was a massive Down-day on Monday, then a massive Up-day on Tuesday, followed by another massive Down-day on Wednesday. It’s just like a roller-coaster…sort of.

It seemed for a second that the Dollar was on the backfoot, but clearly the action today has proved that wrong. I am not saying that we will necessarily be seeing a strong dollar against the pound in the short term, but you can’t argue with price action. What’s funny is that the Euro actually gained a little bit on the Dollar today. There were some slightly contradictory comments out of the ECB as I mentioned earlier this week. Those comments obviously fueled the Euro drop we saw. However, the negativity around that has eased a bit. The ECB will not be engaging in Quantitative easing on the scale we have seen in the US. They have no intention flooding the markets with Euros, nor will they drop interest rates to 0. The remarks as to whether or not the rates will drop below 1% might have caused a stir, but I think it’s safe to say that they will not go below 0.5%.

This seems more likely as the figures that came out of Germany, Europe’s biggest economy, were not nearly as bad as people had predicted. They have quite some clout in influencing European Policy. They don’t want quantitative easing. They will use the figures to show that things may not be as bad as some think, thus reducing the need for more action e.g. interest rate cuts by the ECB. The case for this might be even stronger if the figures expected next week come in better than expected. All of this meant that the Euro was able to hold its own against the dollar.

Not so for the Pound. The pound is suffering. It really wants to rally against the dollar. It really does. But every time it’s about to shoot off, the brits get another round of crappy news. So you end up with a sandwich. There’s also some more bad news to come. That rally will have to wait.

Still, all of this might not last long. There’s nothing really strong driving the movements we are seeing in the Euro. Positive Equity markets did not uniformly provide a massive boost, so there might be a change in how the Risk trade works soon. The Forex markets are still very sensitive to the stuff that is going on in the equity markets, however, things may be changing. The sensitivity remains, but the beneficiaries may change. In essence, we might be on the way back to how things normally are. In normal times, positive sentiment in US Equities would be good for the Dollar. The same would apply to Europe…anywhere infact. Lately, that has been reversed for the Dollar because it has been used as a haven against risk. So a positive day meant people took their money out of the dollar and US-based assets into more dangerous waters, so to speak. Well, last week, we actually had a couple of days where the Dow was positive, and the dollar was as well. As Volatility comes down, we will see more of this.

More analysis will have to be done as we trade because each different Dollar Currency pair will have to be traded on it’s own merits – or lack there of – in order to make money.

Dollar dishes out bloody revenge in the Forex Markets

Dollar Revenge

Just take a look at the picture above. It’s a chart of the AUD/USD Forex Pair. In one fell swoop the dollar has wiped out the gains from weeks before. Look at the last bar that represents the day’s trading. There is no shadow. It was a straight drop. Pretty hardcore. it is slightly exagerrated on this particular currency pair, as the Australians had some worrying news to compound the situation. That said, the sentiment pervaded the Forex market today. Risk aversion is back in a major way…at least for this day. End Result: Yen and Dollar have a great day.

It’s happening like we thought it would, except it seems slightly more intense than I had estimated. Some of the bad news isn’t even in yet! The Equities had a pretty bad day. I don’t think we can say that we are heading back down though. I think the bottoming process is expectedly more complex than that. We made some big moves in an upward direction recently. It is only right that there be some correction. We can still expect some more moves lower. There is some way to go before we start panicking about the prospect of a longer recession than is already on the table.

So, for the rest of the week: Watch/listen/read the news. If more bad news comes out, then we will have some more downside. However, I don’t expect the dollar to gain much more in the short term.

Happy trading

April, The ECB and The Forex Markets

Last week was not a good one for Euro, against the dollar. It started out quite promising, but went downhill from there…fast. This was more noticeable because other forex currency pairs did alright against the US Currency. Maybe not great, but at least we saw a mix.

The ECB have gotten themselves into a bit of a pickle. How did that happen? It’s quite interesting. Central Banks have characters. The character of a Central Bank is usually a derivative of the people who run it, along with the relative strength of the country’s currency, along with some spice. Well, it is well known that the European Central Bank is generally against dropping Interest rates to very low levels, if they can help it. They responded to this crisis by cutting rates, just like everybody else. However, they responded late. They came along kicking and screaming. Along the way they have often indicated their desire to maintain a strong euro. That desire seemed to stand, even as the pillars collapsed around them.

Well, now we have a rate decision approaching. Things are still not great. In fact, new data seems to indicate the Europe is still in dire straits. They need to do more. To that end The President of the ECB, Trichet, has shown (key here: actually spoken this aloud) a willingness to drop rates lower than 1.0%. This is unprecedented. Finally, they are coming to their senses! Great! Well not quite. You see, another big official also said pretty much the opposite in the news. The unwillingness to drop below 1.0.

What’s going on here? Is El-Presidente losing his grip? Where’s the unity? At least people knew what to expect before this. Now…well now there’s confusion. An incongrous message is put out there. The end result: The Euro is left with a four day losing streak against the dollar. This, when the others such as the pound and Commodity currencies were fighting back. With more negativity expected in the news this week, the ECB fellas will have to get their act together.

Things aren’t all rosy for the others either. The pound, though it fared better than it’s european cousin, also has it’s problems. There was no real news last week. That won’t be an issue this week. There’s plenty to go round. Some of it will be bad, and we will all see that, in spite of the optimism, we are not out of this yet. This should bode well for the US Dollar. Also, a major investment firm has boycotted bets that the Pound will continue gaining against the dollar since the pair failed to close above major resistance just above 1.5000. That will just add to negative pound sentiment.

All in all, it looks like a week for the dollar. Happy trading.

Still not sure about Dollar weakness…

Chart

Guess what folks? China still thinks the US is safe to invest in. Yes. I know. Weird, right? It wasn’t so long ago (think, weeks) that China was talking about the US treasuries dropping in value, what with the dollar flood that Bernanke and the Fed unleashed on us. In fact, China still seems to maintain that position, at least as far as their comments go. However, there’s data out there today that shows that China took on more of these treasuries in February, just a short time before those comments. Everything isn’t as black and white as it seems. The US still remains a haven. That won’t change quickly.

That information should bode well for the dollar in the long run. Short term, well it had a mixed day today in Forex trading. You can see on the Forex Chart above, it’s gaining against the Euro, but not against the Pound. Some numbers out today weren’t too good for US, but others weren’t so bad. It’s still a mixed bag out there.

The Pound seems to have a lot of momentum right now. It will probably continue to strengthen. It lost way too much during this whole crisis, so this correction is expected. The Euro on other hand has not shown much spirit. We could be heading down.

Forex Chart

It’s a new week. Not much on the Calendar for today, but we’ve got Retail sales in the US out on Tuesday. That is currently forecast to have improved, in keeping with the new optimistic mood that a lot of people seem to be in in the US. We’ve also got consumer numbers coming in later in the week, for both the US and Europe. It will be interesting to see if the current positive mood can be maintained.

In any case, close attention has to be paid to the figures and the effect they will have on the forex dollar pairs, more so than usual because the driver of dollar sentiment seems to be undergoing a change, just like it did earlier in the year. This change has to do with the state of the US economy.

Typically, if a country’s economy is doing well, then its currency should be in good shape too. If things are bad, then faith in the currency is rightfully challenged. In this crisis, the dollar has been doing great because of its status as a reserve currency. People also invest in US-based assets. At the end of the day, the US seems a safer place than the rest of the world…the lesser of two evils. Thus, the dollar did well, even when things were bad in the US. Also, when things started looking up, the Dollar would lose some steam, as people would take their money out to invest in other riskier (not sure that’s a word) currencies.

Well, last week the dollar gained in the Forex markets because people are starting to believe that the US economy has seen the worst of things. They think it might all be up from here. This means that the blanket effect of Up Equities-Down Dollar and vice versa might now be over. Each Dollar pair will rise and fall by its own merits to a greater extent than we’ve seen recently. This obviously complicates things a little, but that’s trading for you.

Things might turn around again shortly, so we all have to keep up.

Happy Trading

Forex pairs go up, then down, then up…

These days, when I look at my charts and the state of the Forex market, I sometimes laugh at myself. It’s funny because, at some point, I genuinely believed that there was a legitimate argument to be made about fundamental or technical analysis. When I was learning about Forex Trading, I was under the impression I had to choose one. With that in mind, I chose what come naturally to me – technical.

I then spent the next year and a half attempting to test out a string of technical strategies and indicators, attempting to impose my ideas on the markets. Needless to say, I failed; but I learnt…I learnt a lot. That’s one of the most important things about mastering forex trading…or any other skill for that matter. Your student cap needs to be on all the time.

Fast-forward to Today. We’re in an Economic crisis. What stage of the crisis we are in still remains in debate. Whether the Dollar will be strong or weak in the long term…more debate. What is interesting are the ups and downs we see today in US Dollar versus other majors, mostly driven by the performance of the World Equity Markets. It’s still Up Equities, Down Dollar and vice versa.

In my trading framework, the fundamentals drive direction while the technicals set targets. So, for instance, if the Stock Market points higher, we get more risk takers in the market, the EUR/USD currency pair falls as the dollar loses steam. When it gets to the next level of support, traders re-evaluate, perhaps take some profit off the table as they work out whether the momentum will allow a further fall. This is obviously over-simplified, but it’s the general idea.

So, I find the choice of Technical against Fundamental completely removed from me. That is where we still are this April. It could change soon, if things get better, but we all have to pay attention.

Happy Trading

The Euro goes down…along with markets

What’s with the Finance Industry CEOs anyway? I mean things are looking up in general right now. It’s not over yet. I think everyone knows that. However, the numbers we have been getting recently are not nearly as bad as they could be. It seems like the US Administration finally have a fairly good idea what they want to do, for better or worse. Just recently, the IT companies mentioned that they thought we were at a bottom. Happy days…right?

So, what’s the problem with the Wallstreet CEOs? Why all the doom and gloom? I’ll tell you that it is. Uncertainty…for them. Since they accepted the Bailout money, they know they are going to have to account for it some day. No more massive payouts. People will get fired. It’s a new era. They don’t like it. The whole economy could suddenly get better right now and they still wouldn’t like it. They feel like they have been made scape goats. I agree. When things went well, the took the credit and a lot of them got really rich. They twisted, bent…downright discarded the rules. People want blood. The Government will give it to them. Plus, it’s good for votes…

In any case, that might be part of the reason the market has been down for the last few days. That, and some good old fashioned profit-taking. No one is really sure where we are right now, so we all have to exercise care. As I write this, the Dollar is gaining against all the majors, aside from the yen in the Forex Markets. The Fear trade is back in. I traded down to the support on the EUR/USD pair at 1.3200, so I’m out right now. I don’t know that the dollar has enough power to break through that right now. A third day of dollar gains seems to be firmly in the works for now.

Unfortunately, I won’t be able to find out…not tonight anyway. Sleep…the number one problem about Forex Trading. Will wait to see how the market reacts to the news hitting us tomorrow.

Happy trading

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