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Archive for May, 2009

Opportunities for minor Forex Currencies

One of the interesting things about the global economic meltdown is the opportunity it has presented for some currencies that would have been somewhat…well around the fringes, if you know what I mean.

Case in point – the Norwegian Krone. Do you know about the Norwegian Krone? Well, you’re not alone if you don’t. It’s only recently risen up the ranks because of all the uncertainty surrounding major currencies. All the regular names have suffered and recovered as this thing has moved along, but currencies like the Krone have definitely benefited more from the problems we have all been experiencing.

That’s the thing about upheavals; they shake things up. It’s really all about safety. America has been viewed as a safe place to put your money…whether that’s the US Dollar, or US based assets. The Japanese Yen has also done quite well. You might not gain too much in terms of return (interest rates are rubbish in Japan), but the risk is also low. So, when things have been bad, the US Dollar and the Yen have gained. When things have done well, the US dollar has suffered, except against the Yen. That’s because, the dollar is a higher yielder than the Yen. This is the way it has been.

Last week, we saw something different between the Dollar and the Yen. There is some consensus that the rate of things getting worse has reduced – whether that translates to things getting better is an open question – so the risk-takers have been out there, putting their money into the higher yielders…places where they will get more return in interest etc. This means the US Dollar has taken a beating, rightfully. At the end of last week, the Euro was at a 2-month high against the Greenback. Not a problem, right? Expected, right? Fine. Well, look the the Dollar Yen Forex pair. You would expect the Dollar to have strengthened against the yen. There should have been somehthing. No change would have been fine. It would have seemed pretty negative for the Dollar, but that would have been acceptable…sort of. Instead, the Yen is at a 9-week high against the dollar. That is a major indictment of the US economy.

The US is deteriorating in Creditworthiness. You know those folks out there that tell us what ranks as a great investment? Well, there is talk that they might be dropping the US from it’s “AAA” Credit Rating. That’s saying the US is in trouble. That’s saying that it might not be such a good place to stick your money ‘cos they can’t vouch for it 100%. That’s not good. It’s a double whammy. First, the Risk takers are coming back in, so safety is not such a huge concern; then now, the US is losing it’s badge as a safe place for investment. The Forex trading chaps agree. The dollar gained against pretty much nobody. This trend is even more likely to continue in the short term.

I started out this post talking about obscure currencies. Well, the Krone has been doing well. The Brazilian real has been doing great as well. Also, the South African Rand is another one. It’s time to start looking at the so-called Majors, and start “diversifying your portfolio” as regards to the Forex Pairs you trade. Keep that in mind as you do more trading.

This week in Forex Trading: It’s a holiday on the Monday in the US, so not much activity in the US; but there will be plenty elsewhere. The IFO surveys are coming out for Europe on Monday. The ECB is starting to worry about the strength of the Euro. It seems that a stronger Euro might make a recovery in Europe harder. We saw some reflection of this in the last couple of months, with the Swiss National Bank actually letting the value of the Franc fall against the Euro to help themselves and their exports. We might see the ECB officials making statements to this effect this week, so the strength of the Euro might wane a little. Maybe it will work more against the Pound, which has erased it’s losses against the Euro in recent times. So, we might see the Pound gaining more against the Euro.

We’re expecting some numbers in the US; the Consumer Confidence Index on Tuesday…also Durable goods and GDP on Friday. If some of these numbers can show that the US is doing better, then that might help the US Dollar against the Yen, IF there hasn’t been much negative news elsewhere.

Happy trading.

“Once bitten, twice shy” resonates pretty strongly with forex traders – most investors, in fact – in the current environment we find ourselves in. Things are starting looking up, in general, but some have been badly burned. This can produce fear, and the unwillingness to open positions. Paralysis, one might call it. However, there are opportunities currently. More and more forex traders have been taking them lately…against the US Dollar.

Just take a look at the Volatility index, courtsey of Yahoo Finance:

Yahoo finance Volatility Index

See how much it has fallen in the last week. That’s fear leaving the market, slowly being replaced by growing confidence. The mood is bullish…enough to allow the market shrug off some bad news.

The effect is evident on our Forex Pairs. EURUSD, GBPUSD, AUDUSD, NZDUSD etc. They are all up. The general consensus at the moment is that they will continue to rise, as long we don’t get any major negative news. However, since we have established previously that this thing is not completely over yet, there will still be some bad news to come. Care is still required.

How much care though? Some longer term traders – along with learner traders – have lost money in this environment. The quote “Nothing ventured, nothing gained” comes to mind. You have to put your money where your mouth is, or you’ll never make progress. The key is MONEY MANAGEMENT. If you ensure that you only risk 2-5% of your account per trade, then chances are that you will have many-an-opportunity to make some profit.

Don’t get greedy, even when things seem good.

Happy trading

Forex for this week…the saga continues

Forex Image

At the start of Monday last week, it was clear the markets were riding high off the new wave of positivity that has captured investors. Some negetive numbers were even shaken off by this hugely positive outlook. The Risk Aversion trade was no where to be found. It seemed like there was some agreement among everyone that we were going to get out of this thing. I thought it might be the beginning of the end for the dollar, at least in the short term.

Not so. The Dollar fought back before the end of the week. I suppose there was good reason. While there is much hope that things are getting better (I should really say that the rate of getting worse is less), there are still issues. Some economists have urged caution. The recent rally in the Equity markets will not continue indefinitely. There will likely be another dip before we go back up. So it’s no surprise that bad news is still there.

The GDP numbers out of Europe were pretty bad…I’m talking a Growth rate that is the worst on record. What a way to bring everyone back down to earth. That overshadowed some not so bad news…like the fact the consumer prices rose slightly. The result of this was a beating at the hands of the dollar. The Single Currency did gain on the Swiss Franc though. It’s an interesting offshoot of steps the Swiss National Bank has been taken to devalue it’s currency. There was a bit of an uproar about this some time ago, but it seems everyone has forgotten. The Pound is in a similar situation as the Euro. Both of these forex pairs (EURUSD and GBPUSD) seem to be the most susceptible to news this week. We will have to watch carefully for any more disappointing news.

The Commodity pairs all got drubbed as well. A combination of dodgy economic data and a stall in Commodity prices. The Yen was the most triumphant currency for the week, gaining on everyone, in spite of the bad news on their economy. The Risk Averse trade is still helping the Yen, but we’ll see how much longer this lasts. There is a load of news for the Yen this week as well. A reaction is guaranteed.

It’s back to watching the news events closely. No telling where things are going to go…

The beginning of the end for the Dollar…in the short term anyway

You know the scene I’m thinking about. The one where a former great leader is surrounded by the same people off of whom’s misery he has derived his wealth and power for a long period of time. Now, he lies there, beaten and bloody. Everyone of them wants a piece of him. The poor guy has no where to go. He might not be responsible for everything that went wrong in their lives, but he’s an easy target now, so he gets it.

That dude is the US Dollar right now. The mighty dollar has benefited quite a bit from all the stuff that’s being going on. Falling Equity prices, poor commodity prices, cheap oil,bad economic news (even the ones in the US)…all round fear. It’s all been good for the Dollar. While we have seen some forex market pairs fight back over the last few weeks, last week was quite important.

A couple of things happened that could signal a more powerful shift in trading sentiment. First of all, you have the job numbers in form of Non-Farm Payrolls. They came in at 539,000 jobs. Now that’s lot, no lie. However, it was significantly less than the 590,000 that experts had estimated. This is good. Very good. We then have the results of the Obama Administration Stress tests which were quite interesting. There has been a lot of debate about these tests. There was skepticism by some about whether they were anything more that a PR stunt to cover up what was really going on. No one was really sure what metric would be used to score these institutions. It just didn’t add up. At the end of the day, the tests turned out alright. Some clarity was brought to bear on the financial system. In fact, the results were pretty much what people expected, in terms of the institutions that need help and those that don’t. No major surprises. It has boosted confidence, and it seems pretty clear that there will be no more major bank failures.

The US Government seems to have a plan on how to tackle the issues with the problem companies. If a company is not viable, then it must be restructured. Think Chrysler. Buy outs, Bankruptcy etc. The options are being used. I think more people (myself included) are fully convinced now that these money-sucking pits (supposed companies) will be allowed to fail if that is what it takes. Companies have been given deadlines to raise certain amounts of money, as proof that they can survice. If they don’t, then further steps will be taken. The Administration is now the strict parent. I am not entirely sure that putting a deadline on a drive for funds will work as intended, but it seems alright to investors…at least for now.

So it was a two-hit combo against the dollar last week. For this week, we have retail sales numbers to look forward to. Those are expected to be better. Mind you, this optimism is of the cautious variety. No one wants to jump the gun. However, it seems like the dollar will keep taking a beating. Commodities are on the rise. Oil is going up. Risk appetite is rising. Investors are starting to walk with a skip in their steps. It’s all good.

So, unless the dollar can make like Popeye and suddenly starting whooping everyone’s ass, I think the dollar will lose more ground. Popeye needs spinach to do his magic. Spinach here would be negativity. We are seeing less and less of that these days.

Happy trading.

Swine Flu splutters…The Markets love it

First off, I am glad that the global pandemic didn’t quite happen. It was a near thing. I have to admit, I was really worried about it. I had to fly out from one of the New York Airports last weekend. I was suffering from a bout of Hay Fever…which means I was sniffing a little…and sneezing…and my eyes watered. End result: Nervous stares in my direction everytime any of those happened. Consequently, I worked extremely hard to avoid showing any symptoms. I also overdosed on a homeopathic drug I had purchased to supplement my one-a-day Claritin. That provided some relief…along with other side effects that I won’t discuss here.

The markets are also quite happy that Swine Flu has not evolved into anything as bad as some thought it would. It’s done some damage, and the danger is by no means over yet; but things are better. At least it’s one less thing to worry about in a recession.

In Forex Trading, The dollar did well against the Euro today, along with the Canadian dollar. Not so great against the Pound, but there was a subsequent pullback. There has been a lot of optimism lately. Oil has been picking up as well. Some have said that Oil will need to rise substantially, and hold those gains, for us to feel like we are out of the woods. All of this will be bad for the dollar. However, all of this is still a little premature.

We are seeing a little bit of a pause in optimism…at least until the news is out, or in. We have a European Central Bank rate decision. If rates are cut, the Euro will most likely lose value. Also, more job figures out of the US are expected. There will be large losses, as consistent with all we have seen this year. However, if the figures are worst than expected (bearing in mind that we are all getting a bit optimistic, and therefore have better expectations…a potentially dangerous thing today), then we can expect more negative sentiment. This will be good for the dollar.

One more thing that could cause problems: The results of Obama’s Stress Tests on the Banks. If more banks need more money, then that will be bad. It will undermine some of the progress that people think we have made. And yeah, it will be good for the dollar.

So, the dollar and yen remain the primary beneficiaries of strife and unhappiness. You know that friend you have that just ruins the mood when everyone is having a good time…well, that’s the Dollar.

Forex Trading strategy: The Undercover Cop or the Detective

Trading over the last 8 months or so has been pretty brutal. Some many ups and downs. No doubt, a substantial amount of new Forex traders have been wiped out. It’s not the sort of climate for the inexperienced…unless you like swimming with sharks…or skydiving.

Seriously, though. There are times during an economic upheaval when you can predict with some accuracy what direction things will go, based on some event, or economic figures. Times like these present an opportunity to make large profits in a short amount of time. Think October last year for instance…the market reaction to the announced auto bailout. Infact, the savvy trader only had to keep betting the dollar against everything to make profits during that period.

This type of almost “no-brainer” trades are not available often though. If you have a long term strategy in place, it becomes a lot harder to get any action when there is so much volatility. It’s at times like these that a lot of newbie traders start to flirt with the dark side. For instance, by moving from trading Daily Charts to Hourly charts, in the hopes of taking some profits from all the noise. Some are can be quite successful at this. However, you invariably have to risk more to trade this way.

It’s like working undercover trying to infiltrate the Mob from the inside, rather than as a detective investigating from the outside. You can do more damage with the former, but it is much more risky. One major mistake could mean disaster. The lather, well it’s not quite as exciting, but you can make steady gains without having to risk your life…well not nearly as much as in the first case.

Sometimes, when things are too wild, you just have to sit back a little. Feel free to try new things every now and then, but always stick to your strategy as much as possible. Stay low on the dice throws.

In keeping with that, we will try to to jump in without proper evaluation this week. There is quite a bit of news expected affecting the major currency pairs. At this point, the potential trade is looking fairly straight-forward. If the news is decent in general (i.e. not as bad as expected), then the dollar will continue to lose steam. I should say that people have started to EXPECT BETTER NEWS. This could mean that bad news might have greater impact than, say, a month or two ago when everyone just thought everything was bad. Will keep you posted.

Happy trading

Chart of the day

The forex chart shows it. After a couple of days of losses, the dollar fought back on Thursday to regain some strenght after some initial losses. There are some good reasons for this. The US seems to be on the way out from the crisis. We are seeing declines in Jobless claims amongst other things. Timm Geithner, Treasury Secretary extraordinaire, has said that he sees no further need for more bailout funds. That’s a big one. It just means that things are not getting worse, if nothing else.

Chrysler going bankrupt is a relief, if you ask me. It had to stop somewhere. Chrysler car owners are protected, and the comany will come out stronger after this.

The Commodity companies…AUD, NZD and the Canadian Dollar…they all had a good day against the dollar. However, the dollar fought back in the end. There is still some strength left here. I wouldn’t bet against it just yet.

It’s the end of the week. There’s not much we can do, except some back next week and see what happens

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