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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.

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…

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

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

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.

Central Banks…making moves

The Central Banks of the world are among the biggest players in the Forex markets. They buy and sell their country’s own currency to influence it’s value for the country’s benefit. All of them do this in some way or form. It doesn’t always have the intended effect, and it can also piss off others who are affected by the move.

Take what happened earlier this month. The Swiss Central Bank sold of the Swiss Franc (it’s national currency) in droves to drive down it’s value. Amongst other things, exports were taking a hit because the value of the Franc was strong. This was viewed as an inherently selfish act by the rest of the Europeans on the single currency, the Euro. Devaluing the Swiss Franc (against the Euro) would have the opposite effect on them…stronger Euro, bad for THEIR exports.

There are all sorts of examples, from the US to China, where these Banks do their thing. Here is a video I found that highlights how this works:

Bull Market or Bear Market Rally?

They say a picture says a thousand words. That’s also true for the EUR/USD Forex Chart below; except in this case I am not all that sure what those words would be.

Forex Chart

Geithner and his friends came out with more details about they were going to do to fix…you know…everything. It’s funny. I saw Geithner make his initial announcement about the plan a little while back. It was notable. Investors expected substance to go with whatever confidence would be on display. They pretty much got neither. They sure as hell weren’t satisfied. That was not a good day for the markets.

Well, this time, he looked like a different person. You can see why Obama chose him. He knows his stuff. He seemed confident, knowledgeable…there was even a hint of humour there. Mind you, this was coming on the heels of the rally on Wall Street (Bernanke opened the flood gates…). His plan is also clearer, containing more of the aforementioned (and greatly desired) SUBSTANCE. Result – Good day on Wall Street. Bad Day for the Dollar. So, you can see how on the EUR/USD chart above, yesterday’s bar shows that move.

Today, there was some profit-taking, as would be expected after a big move like we saw yesterday. Once again, this is clearly visible above. What does it mean? Are we about to continue the downward trend? We are still very much in that trend. Was this merely a Bear Market Rally, of is this the real deal?

It’s difficult to say. Things just aren’t as clear cut as I would like them. The Fed unleashing a trillion dollars on the World is, in itself, dollar bearish. However, the dollar is still the most trusted currency. It’s status is being challenged, no doubt. China went as far as to call for a new super currency today. That was not enough to stop the rebound today though. If the Feds ploy starts to work really soon, then that would be good for the Dollar, longer term. Europe is still showing cracks. The US is still on the leading edge here.

In October last year, all of this was straight-forward. I made the most money in my Forex trading carreer when the initial Bailout was announced, along with the plan for the auto bailout. All that went to hell and it was literally buy dollars and yen against everything! Simple times. Predictable times. Good times.

I think there will be a cooldown while people wait for news. There are numbers out that will affect the US Dollar and Europe tomorrow. I don’t expect any major moves, but you never know.

Another thing worth mentioning is that Oil has been quietly gaining. How long will it be before we’re up to the levels we had last year? not long enough, if you ask me…

Pop goes the Dollar

The EUR/USD chart below shows what happened to the dollar in the Forex Markets after the Fed announced that it was going to buy up US Treasuries…to the tune of 1 Trillion Dollars.

EURUSD Chart

1 Trillion Dollars…That is some major dough. The US Dollar lost ground across the board, even to the Yen. That highlights an interesting point. In the past, we’ve seen the Yen lose value when confidence is up and Equities gain. In situations like these, the US Dollar would lose value against most other currencies, but gain on the Yen. Yesterday’s case was different. The Fed buying up all treasuries on this scale is bad for the dollars. When a commodity becomes available in large quantities, it loses value. The Fed is going to be printing shedloads of money, so the dollar will lose value.

On the other side of that equation, such an action is actually perceived to be GOOD for the US economy; and good for confidence. So, people tend to invest in high yielding currencies when they have confidence in the markets. The Euro, Aussie Dollar etc. all do well in these conditions. Add to the fact that confidence has been returning (based on that rally we just had), and you have a particularly violent Mortal Kombat finishing move. For non-Mortal Kombat initiates…this is a devastating effect that isn’t likely to reverse easily.

It’s funny how things can change. It was just a couple of days ago when most people still thought the dollar would retain its strength for some time to come, barring some major incident. Voila! Major Incident!!

This is what being decisive means. Bernanke gets points for doing this. This should unplug all the drains. Loans, Credit, everything. This is going all in. Hopefully it works, or else…

So, long term dollar trend anyone? My guess for now is…well, down.

Forex Trading today…frame of reference

There are times when I wish I didn’t have to sleep. I know this is true for everyone at some time or the other, but that doesn’t make me feel any better about it.

It’s like this – when there’s a Global economic upheaval in play (that would be now), it gets harder for forex traders to predict medium to long term direction of a currency pair. So, if you’re the sort of person who trades the daily charts, and stays in a trade for a day or three, then you would have trouble in this market. Take the pairs that the dollar is quoted against e.g. EUR/USD, AUD/USD; we have one day up, when the Equity markets go up, then back down when the markets go down.

The end result is that some forex traders shrink their frame of reference i.e. trade a lower time frame…or at least refer to it more. That might mean going down to 4-Hour and 1-Hour charts. There have been periods in these last months when this was the only way to get any real action in trading Forex. Of course, there is risk with this approach. It’s not really the sort of thing someone learning forex trading might do. However, once you’ve got some experience, it should be fine. It might not be worth the trouble for Forex traders with a lot of dough, but smaller account holders might be able to get a little something. The key is not to devolve into a Day trader, unless that is your area of expertise. Otherwise, it would be a good way to lose all your money.

To my point of being an insomniac…it should be a good way of trying to make some money in this climate…watching the news and charts 24-7 during the Asian session. A lot of the action happens then, when everyone is asleep in the US. Economic news being one of the biggest market movers now, one can get a good idea of market reactions to announcements in the Asian Session and potential direction of currency pairs heading into other sessions etc. Unfortunately, this would take away from the whole “only needing to check your charts for an hour in the evenings”. Plus it would be bad for my heart…and social life.

Sometimes patience is the only way to survive as a trader. No rash decisions. Stick to the strategy. Must avoid coffee…

4 days and counting…

This hasn’t happened for over 3 months. 4 days of Stock Market gains in a row. Wow.

Could this be it? Have we hit the bottom? Our we on our way back up?
No one wants to call it. No one wants to jinx it. However, there is reason to be a optimistic. The fundamentals are starting to strengthen; some confidence is returning.

The US Treasury Secretary, having messed up the message the first time he tried to “instill confidence” in the markets, promised to release details of the plan to deal with the Toxic Assets of the US Banks. This is in line with word out of the G20 meeting this weekend.

What does this mean for the Forex Markets? Well, the most obvious thing would be the move away from Risk-averse trades; more investment in higher yielding currencies…at least the few there are left. With most major central banks cutting interest rates during this time, almost all of them have really low rates.

If we go with the trends that have established themselves since this recession thingy got going, we would say that the Dollar and the Yen would be the immediate losers. The fundamentals of the Japanese economy are not good. With confidence returning and Equities gaining, I think it’s pretty safe to say that the Yen is going to go down. The Dollar, on the other hand…well it’s not that certain. There have been instances this year when Equities have done well, and the dollar has done well, or at least not as bad as the Yen. I think with the US seeming like its coming out of this thing might favor the Dollar in the long term, especially if the fear in the markets reduces substantially.

In the short-term though, the other major currencies should get a boost from Equity markets at the expense of the dollar. I don’t expect any major moves upwards for the markets, but we should hopefully be inching our way higher.

It really is time for things to start getting better. We will take this one day at a time.

Happy Trading

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