Forex Trading Blog

Euro Declines, Canada Hikes!

By Mike Conlon | June 1, 2010

Now that the debt crisis in the Euro zone appears to have stabilized, the market now turns its attention to EU economic fundamentals. The outlook for the Euro is negative, as governments adopting austerity plans means that GDP growth will like stall and contract. The bounce we saw last week in the Euro was the result of short-covering as the Euro fell too far, too fast. In addition to the weakening fundamental data, political uncertainty in Germany has risen as its President unexpectedly quit. The Euro made new lows against the dollar at 1.211 in the overnight session.

Over the long weekend, news out of Australia showed that the economy there may be slowing and the RBA declined to further tighten interest rates by holding the rate steady.

In an opposite move, Canadian GDP came in better than expected yesterday the Bank of Canada’s rate decision is due out any minute.

The British pound is higher as manufacturing growth remained at 15 year highs, and housing prices rebounded showing signs of economic growth.

In addition, an apparent “fat-finger” error in the Nikkei futures market sent the index lower, though it has rebounded off of erroneous lows. World stock markets are lower, as are the US equity futures. Oil is down as well, though gold is higher as it is viewed as a store of wealth.

The market is in risk-aversion mode, though the open of the US exchanges after the long weekend could change that sentiment.

In the forex market:

Aussie (AUD): The Aussie is lower as the RBA declined to hike interest rates, citing Euro zone uncertainty and a potential economic slowdown in China as threats to economic growth. In addition, building permits were down some 15%, but retail sales came in much better than expected. This shows that investors are treading cautiously down under, as housing prices may be a bit over-blown. So consumers are directing their dollars to smaller ticket items, preferring to hold off on larger investments.

Loonie (CAD): The Loonie is lower on risk-aversion and lower oil prices, as the market waits for the BOC rate decision to be announced. Speculation has the BOC raising rates .25% to .5%, after yesterday’s GDP report showed a gain of 6.1% vs. an expectation of 5.9%. As Canada’s largest trading is the US (the only country NOT enacting austerity measures to combat excessive debt), the Canadian economy appears to be ready to out-perform. *Edit: Rates were increased as expected to .5%, yet the Loonie is lower as the market may have been expecting more.

Kiwi (NZD): The Kiwi is lower on risk aversion, and a slowing European and Chinese economy could stall growth in the region. Also, New Zealand’s own austerity measures could contribute to economic weakness if they attempt to reign in their public debt. Business confidence figures were lower as well.

Euro (EUR): The Euro is lower as well, after the German President Koehler unexpectedly quit, further weakening Chancellor Merkel’s political alliance. Retail sales in Germany were lower, and unemployment came in lower than expected, showing signs that a weaker Euro will be good for German exports. However, unemployment in the EU overall was higher, highlighting the disparity between Germany and the rest of the EU. Meanwhile, French PPI came in higher than expected. It seems as though EU residents are preparing for the worst, and scaling back as negative economic data has a “chicken and egg” effect in the region. The long-term trend of the Euro is still down, and while a lower Euro will help exports and tourism to bring cash to the region, it is going to get worse before it gets better. Now if the banks can just hang on.

Pound (GBP): The Pound is higher across the board, as house prices had their largest annual increase in nearly 3 years. In addition, UK PMI figures showed that manufacturing expanded at its highest level in over 15 years, and money flows are leaving the Euro to invest in the Pound as the economic outlook is far better in the UK which could mean a normalization of monetary policy later in the year.

Dollar (USD): The US dollar is bid vs. the commodity currencies as risk aversion is the theme to start the trading week in the US after the long holiday weekend. Stock futures are off of their lows, and we could see a rebound today if the ISM manufacturing figures come in better than expected. This has become a familiar “pattern”, as fear in the Euro zone and Asia start the session in risk-aversion mode, which flips to risk-taking if all appears well here in the US.

Yen (JPY): The Yen is also higher on risk themes, and also received a bid as a “fat finger” mistake in the Nikkei futures markets sent the index lower. The Yen trades somewhat inversely to the Nikkei, so it started off higher. Regional instability from a potential Korean conflict could cause volatility in the Yen if it escalates.

Long weekends in the US markets can sometimes have disastrous results as trading does not cease in other areas of the world. Risk and fear can cause markets to react violently, as correlations between the markets move back toward their natural order.

This weekend, the market was fairly lucky in that while there was some negative news, there was nothing earth-shattering that would cause a panic.
In the forex market, we are now seeing shifts in the balance of power, as some nations strengthen while others weaken. If the Euro debt crisis can be contained, then expect traders to revert back to the fundamentals as we enter the summer trading season.

While the summer session is normally slower, I’m not certain that will be the case this year. With the markets on high alert and fear still rampant in the market, expect volatility to remain high.

And that’s just what we as traders want!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

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Topics: What To Look At In The Market | No Comments »

A Perfect Storm!

By Mike Conlon | May 25, 2010

World financial markets are facing a “perfect storm” as a combination of geo-political and financial uncertainty is driving risk-aversion. The first issue is coming from the Euro zone as Spain seeks to shore up its banking system. A series of banking mergers aimed at pairing weak banks with stronger ones has caused investors to fear that indeed contagion from the debt crisis has taken place.

Secondly, news out of Asia that N. Korea may have been responsible for the sinking of a S. Korean vessel has heightened political tensions in the region. Whether or not there will be consequences remains to be seen but N. Korea has been known to make idle threats which are intended to destabilize the status quo.

Lastly, news out China that Secretaries Geithner and Clinton are making headway with the Chinese regarding Yuan revaluation may be picking up has brought further uncertainty to the marketplace as there is no telling what the lasting effect may be IF such actions were taken.

This all adds up to MAJOR risk-aversion in the markets in a continuation of yesterday’s selloffs and flight to safety. Libor rates (the rates at which banks lend to one another) have increased to levels last seen during the initial banking crisis here in the US from 2008. Both Asian and European stock markets have sold off to the tune of 2.5-3%, and both gold and oil are trading lower.

In the forex market:

Aussie (AUD): The Aussie is lower on risk aversion. While the economy in Australia has been strong, the unwinding of carry trades has punished the Aussie dragging it down to 10-month lows. Should China effectively attempt to slowdown its over-heating economy, the economic situation in Australia could change dramatically for the worse.

Loonie (CAD): The Loonie is also lower this morning, taking cues from oil prices which are below $68. Economists are still predicting a rate hike at next week’s rate policy meeting, though global economic uncertainty may derail that plan. However, since the Loonie has been beaten up by risk-aversion, this may actually be a good time to sneak in a rate hike that won’t strengthen the currency too much.

Kiwi (NZD): Same deal for the Kiwi; risk aversion dragging it lower. The RBNZ reported its 2-year inflation outlook that was largely in line with expectations.

Euro (EUR): First Greece, now Spain. The moves taking place in Spain’s banking system have put investors on high alert, though it must be noted that Spain has not sought out any assistance as of yet. File this under the, “where there’s smoke there’s fire” sentiment. In the meantime, Industrial orders in the Euro zone were higher showing signs that they are benefitting from a weaker Euro. Stay tuned.
Pound (GBP): UK GDP figures came in largely in line with expectations, indicating that the UK economy grew .3% in the last quarter on the back of the highest manufacturing gains seen in 4 years. The Pound is still vulnerable to any fallout from the Euro debt crisis, but BOE policy-maker Posen said that the UK was at a low risk of experiencing the type of economic stagnation that plagued Japan in there “lost decade”.

Dollar (USD): The Dollar is higher as the rush to the flight to quality is in full effect. Yesterday, existing home sales came in better than expected, but it was not enough to reverse losses. Later this morning, we are going to get consumer confidence and the home price index which will show whether or not a consumer-led recovery may be taking place.

Yen (JPY): The Yen is the best performer this morning as the un-wind of carry trades has increased demand. In addition, a sell-off in Japanese equities has also increased yen demand as the yen experiences a similar correlation to its stock markets as in the US. As tensions heat up in the region due to N. Korea, people forget that almost a year ago, N. Korea fired off nuclear test missiles in the direction of Japan. They are a major destabilizing force in the region and the former policies of trying to appease and placate them may have run its course. The yen is fast approaching its 2010 high vs. USD, just above 88.

I call what is taking place in the markets right now the “perfect storm” because there is much uncertainty due to events that can’t be quantified. It is one thing when there is bad economic data for a region or two; however when there are political threats that could potentially cause a war, all bets are off.

And while N. Korea has been known to posture and bluff its position in order to gain, this time it could be different. No one wants to see military action in the region, but N. Korea is such a wild card that no one knows what to expect.

In addition, world recovery has pretty much been driven by Chinese demand and should they slow down, it could affect the nations which have been experiencing economic recovery.

Oh yeah, don’t forget about potential sovereign debt contagion in Spain, which could potentially be a MUCH larger problem than what was seen with Greece.

Meanwhile, everyone rushes to the safety of the US dollar and Japanese yen and both countries government bonds as it is better to earn almost no interest than to lose out entirely.

Are we having fun yet?

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

Tags: account, alert, AUD, Aussie, Australia, bank, BOE, cad, carr, carry trade, China, course, crisis, currenc, currency, currency market, currency trading, data, dollar, dow, economic, economy, EUR, Euro, Europe, existing, fear, financial, forex, forex market, free, fx, fxedu, gbp, Geithner, gold, home, Il, index, interest, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, meeting, Mike Conlon, missile, news, nzd, oil, pair, pound, practice, practice account, rate, RSI, sales, sentiment, ssi, stock, time, trade, trades, USD, Yen

Topics: What To Look At In The Market | 2 Comments »

Alert: BOE holds rates unchanged at .50%! Pound rallies!

By Sean Hyman | July 9, 2009

Alert: BOE holds rates unchanged at .50%! Pound rallies! GBP/USD up about 75 pips within minutes!

Tags: alert, BOE, dollar, fxedu, gbp, Hyman, minutes, mywealth, pip, pips, pound, rate, Sean, Sean Hyman, USD

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How to Spot a Longer-Term Trend!

By Sean Hyman | June 30, 2009

When I’m teaching my courses each day, I get this question quite often. So I thought I’d share it here with you too! How in the world do you know how to spot the long term trend? Well it’s really simple.

First, you should pull up a daily chart that goes back in time at least a year (even more time is even better). Then place a 200 Simple Moving Average (SMA) on the chart. That’s the line that I’ve got the arrows pointing to on the chart below. The SMA can be found under the “Studies” or Indicators” section of most any charting package.

Let the 200 Day SMA be Your Guide

One of the most widely used indicators in the world is the 200 SMA. I even catch purely fundamental traders putting it on their charts. Why? Because everyone needs to be able to tell which way the long term trend is headed, even pure fundamentalists.

I’ve charted the EUR/USD pair on the daily chart going back several years in time.

The 200 SMA Smoothes out the Trend and Points the Way to Trade

Towards the left of the chart we can see that the “average” price moves upward over time. So while the price may be jagged and spiky at times, they moving average smoothes all of this out so that we can tell if the price is headed up overall or downward overall. To the left of the chart, the price continues to climb higher, so it’s in an uptrend at that point. However, on the latter part of the chart (right side), then trend turns downward and the longer term trend is then downward. You want to define the trend’s direction and trade with it because that’s where the higher probability trades lie. Low probability trades would be shorting an uptrend or buying a pair in a downtrend. You will notice that the price tends to trade at or above the 200 SMA in an uptrend and in a downtrend the price dips below the 200 SMA and holds at or below it.

How to know when a New Longer-Term Trend is likely Beginning!

Therefore, we’re alerted to a “new long term trend” emerging when the price makes this shift. We can see that in August of 2008 when the price fell below the 200 SMA. At that point, the long term uptrend ceased and the “new” downtrend emerged. Then in May of 2009, the uptrend re-emerged for the EUR/USD. As long as the pair can hold above this 200 SMA, then it’s still in its longer term uptrend. Once the pair drops back below the SMA and holds below it, we know that the uptrend has likely ended. So let the 200 Daily SMA on the daily chart be your guide as to whether you should be looking for “long” (buying) entry opportunities or whether you should be looking for “shorting” (selling) opportunities for your entries into a trend. Using this as your guide will enhance your trading performance. No matter how much you get tempted…don’t trade against this trend, but stick with it. Oh sure, you can take profits if you wish, once it trades way away from the 200 SMA…just don’t counter trend trade against it. Be patient and wait for a re-entry back into the trend once the pair retraces back towards its 200 SMA once again!

Click on the chart to enlarge it.

Tags: alert, blog, charts, course, dow, downtrend, EUR, forex, forextrading, fundamental, Hyman, pair, Sean, Sean Hyman, short, simple, spot, teach, time, trade, trader, trades, uptrend, USD

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Short Term Traders: Get Ready for a Big Breakout Soon!

By Sean Hyman | May 12, 2009

If you look at most daily charts, you will see that we’ve had some narrow trading days the last couple of days. That means that there will be a huge breakout coming soon once again…and it should produce some huge percentage movements on the day when it does. So be on the look out and alert. If you’re there at the right time, you can have a huge gain in a short amount of time. It can be very rewarding if you catch it right. In particular, the “dollar pairs” could be huge movers soon! Get a free practice account here: http://www.fxedu.com/practice-forex-account

Tags: account, alert, breakout, charts, dollar, forex, free, fx, fxedu, movement, pair, practice, practice account, Sean Hyman, time, trading

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Low Momentum Begets High Momentum!

By Sean Hyman | May 7, 2009

Yesterday was the “ho-hum” day for intra-day traders. However, low volatility begets high volatility. It doesn’t have to occur the very next day…but one thing’s for certain…if there’s low volatility for a period of time, your “radar” should be on alert for the breakout because it will usually be powerful and directional.

Today is that day. The yen is tanking against the commodity currencies the most (NZD/JPY, AUD/JPY) but also is tanking vs. the euro too (EUR/JPY). So all of these pairs have bolted higher to the top of the percentage gainers on the list.

That means that “today”, big traders are “risk seekers” and have their offensive team out on the field. They’re buying commodity currencies predominately.

NZD/JPY is up a whopping 3.29% so far on the day and AUD/JPY is right behind it at 2.39%.

Also, as I’m writing, AUD/USD and NZD/USD are working their way up the lists. So they’re now buying up these currencies vs. the buck too.

So the theme of the day so far is yen and dollar selling (selling defensive currencies) and buying commodity currencies.

Also, I hope you noticed last night that Australia ADDED JOBS rather than lost jobs in their latest employment report. Their unemployment rate DECREASED.

Australia, in my opinion, has the strongest fundamentals of all major currencies out there right now. Therefore, if you agree, you’d want to look to AUD/USD, AUD/JPY, AUD/CHF, etc. for “long” opportunities as they arise and take them over other currency pairs that have buy signals with “lesser fundamentals”. Get started with a demo account today: http://www.fxedu.com/practice-forex-account

Sean Hyman

www.forextradingblog.com

Tags: alert, AUD, blog, breakout, buck, CHF, commodity, currencies, currency, currency pair, currency pairs, dollar, EUR, Euro, forex, forextrading, fundamental, jpy, nzd, rate, Sean Hyman, time, trade, trader, unemployment, USD, Yen

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Intraday update: AUD/JPY + 4.23% intraday!(280 pips)

By Sean Hyman | March 31, 2009

AUD/JPY c9ntinues to charge higher. This morning when I alerted you to it, it was up 194 pips on the day. Now it’s up about 280 pips on the day! So that’s about another 90 pips per lot traded!

It pays to watch where the intraday momentum is headed and who’s leading the pack, when you are an intraday trader.

The yen continues to weaken across the board. Upon looking to their daily charts, it appears that there could be more room to go in the upcoming days to weeks overall. So the bias should be to the upside and in looking for buy signals rather than shorting opportunities since that’s the way the overall momentum is positioned.

Also, watch USD/JPY to see if it can make it back up above its 200 SMA (simple moving average) on its daily chart. If so, this could be great for the intraday trader and swing trader. Be patient and wait to see. Click on the chart to enlarge it.