Follow Up With Abe!
By Mike Conlon | July 8, 2010
As a follow up to my original interview and due to overwhelming viewer response, Abe Cofnas has provided the answers to your questions. You can view that interview here. In addition and going forward, Abe has graciously agreed to provide forex trading blog with a weekly feature, giving us insight into his unique perspective accumulated through years of forex trading.
So I’d like to extend a warm welcome to Abe and look forward to his weekly feature.
QUESTION: HOW DO YOU SUGGEST TRADERS SCAN THE MARKET AS THEY START THEIR TRADING DAY?
The best approach is first to have a mind-set that realizes that there is a lot of volatility in forex and therefore it is important to get a top-down viewpoint of what is happening. So one of the first things to do is to use multiple time frames.
When you are looking at a currency pair, look at three time frames at once. I suggest a 4 hour, 15 minute, and 5 minute time frame. The example below shows this for the EURUSD.
(click chart to enlarge)
Now follow that and the 15 minute chart offers a lot more granularity. Of course we have swings down, but the prevailing sentiment from the 4 hour was up and this means that the trader should only look for buy situations.
QUESTION: WHAT ROLE DOES THE 5 MINUTE CHART PLAY?
The 5 minute chart acts like the local traffic guard. If you want to go long, then you need confirmation on the 5 minute chart.
QUESTION: ARE THESE THE ONLY TIME FRAMES ONE SHOULD USE?
The concept is 3 time frames. One can use a 2 hour, a 15 minute, and a 3 minute chart. The essential feature is to never only look at one time frame.
QUESTION: WHEN DO YOU GO COUNTER-TREND?
Counter-trend moves can make you money, but a starting trader should not go against the trend. It’s a numbers game and the trend is your friend because it can provide you with more winning trades if you go with it.
Having said that, if the 4 hour breaks down support- or, I will be flexible - the 2 hour breaks support, you can look to the 15 and 5 to confirm it. The 2 hour chart below shows support at 1.255. So if the EURUSD broke through this- even though the 4 hour chart is still not broken looking for a sell is legitimate.
QUESTION: WHAT ELSE IS GOOD TO LOOK AT ?
Definitely look at the Dollar Index (DXY). It provides a quick look at global sentiment. So make sure you’re trading WITH the sentiment
QUESTION: ARE THERE ANY OTHER GOOD INDICATORS YOU LOOK AT?
Let’s deal with that on the next blog.
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Scared of the Weekend?
By Mike Conlon | June 18, 2010
In what has become a familiar pattern, Friday selling of risk assets heading into the weekend is taking place as the risk posed by the Euro zone debt crisis is still prevalent. In fact, various policy makers around the globe have expressed concern about the Euro zone, even as the market has been in risk-taking mode as of late.
Today there is a lack of market making news so we’ll turn our attention to more macro themes, one of them being oil prices. It was only a matter of time before fallout from the oil spill in the US began to show up in the markets. The proposed ban on offshore drilling will only reduce supply, thereby causing prices to move higher. The cruel irony is that this would actually benefit BP, the company responsible for this disaster. That means higher prices for consumers.
This is also falls in line with yesterday’s discussion of biflation, where we are likely to see higher commodity prices yet debt-based asset prices go lower.
If the usual correlations hold up, this will benefit the Canadian dollar the most, and the US dollar the least. It’s amazing to think that even in the face of nascent recovery, that oil prices are around $75/barrel. What would it be if we were in full-blown recovery mode? Conspiracy theorists will tell you that high oil prices increase the demand for alternative energy, one of the largest pieces of the Obama agenda. Now I’m not a conspiracy theorist, however I believe in “cui bono”, meaning who stand to benefit the most. You decide for yourself.
So this morning we’re seeing some mild risk aversion, as traders wish to avoid weekend risk from the Euro zone.
In the forex market:
Aussie (AUD): Risk aversion is pushing the Aussie slightly lower going into the weekend. If commodity inflation persists, higher gold prices would benefit the Aussie.
Kiwi (NZD): Same as the Aussie though slightly lower following the “risk ladder”.
Loonie (CAD): The Loonie is lower as oil prices have pulled back as there is concern over the pace of global recovery. In addition the BOC said that there are no “pre-ordained” rate hikes, leaving the door open for a possible pause.
Euro (EUR): The Euro is lower as the ECB head maintained that rates were appropriate in light of the debt situation in the region. However, German PPI figures came in higher than expected, showing signs that inflation may be heating up in the Euro zone’s largest economy.
Pound (GBP): The Pound has given back overnight gains that pushed it to 1,4885 vs. USD. Next Tuesday, the government will release its budget statement that is expected to show a significant deficit and major cost-cutting measure to combat that problem. So far, the market has reacted favorably to the plan as the Pound has had recent gains.
Dollar (USD): The Dollar is slightly higher on risk-aversion, as traders use the safe-haven aspects as a temporary holding vessel.
Yen (JPY): Consumer lending and bank stocks fell on the Nikkei taking the index lower and causing a rise in Yen. In addition, the BOJ is concerned about the Euro zone debt crisis spreading to Japan according to it rate policy meeting’s minutes.
On a day that is light on news, the markets may not tend to move much. As of right now, the market is largely unchanged, with a slight bias toward risk-aversion.
This just goes to show that the daily news events that occur around the globe really do have an impact on the currency and other financial markets. While one doesn’t need to be an expert economist to understand why things move as they do, it is important to know if there is news for a specific currency you like to trade.
And that is the purpose of this blog; to give readers a brief run-down of what’s happening so that they may be aware of potential drivers or obstacles to their favorite currency pair.
So I expect today to be a quiet one, with the start of the summer season picking up as the market slows. In fact, I am on a long vacation weekend myself!
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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The Great Unwind!
By Mike Conlon | May 20, 2010
I talk often about carry trades in the currency market which go hand in hand with the risk themes that drive daily price action. When there is confidence in the financial markets, investors look to take on risk and seek out higher yielding assets. They can do this by selling the currency of a low interest rate country and buying the currency of a higher interest rate country, thereby capturing interest through yield differentials. This is known as a carry trade.
The currency pair that represents the greatest “carry” among the most actively traded pairs is the AUD/JPY pair which can also be used as a proxy for risk-taking in the market. Currently, the positive carry of this pair is roughly 4.4%, as rates in Australia are at 4.5%, and rates in Japan are .1%. So just by owning this pair, an investor would earn that rate difference. This is a common trade when there is confidence in the financial markets.
Currently, there is little confidence in financial markets, as the EU debt crisis has brought to light many problems in the global marketplace. And unless you have been living under a rock for the past few weeks, this should not come as news to you.
So what we are seeing is major risk-aversion in the markets, and no pair is getting hit harder than the above mentioned as investors unwind a risk-taking position. In addition, global stock markets and commodities are selling off, adding additional fuel to the fire as investors run to the “safety” of the Japanese yen and US dollar.
In the forex market:
Aussie (AUD): The Aussie is the biggest loser this morning, as risk-aversion is causing the un-wind of carry trades. It is currently at an 8 month low vs. the US dollar, as gold prices have sold off to the 1178 level. Gold is often used as a proxy against inflation, which does not appear to be as great a concern as deflation is, as the world prepares for a global slowdown. Concerns about a Chinese slowdown could really derail the world economy, but all eyes are on the Euro crisis for now.
Loonie (CAD): The Loonie is also selling off as commodity prices, particularly oil at 68, are lower across the board. The Loonie does not benefit as much as the Aussie (or Kiwi) from carry trades, as low rates in Canada do not encourage carry trades. The Loonie may be better off in the long run, as the US is its largest trading partner, and the US keeps throwing money at its financial woes instead of adopting austerity measures that the rest of the globe seems to be taking.
Kiwi (NZD): The Kiwi is selling off for the same reasons as the Aussie; however in NZ they just announced that they will be cutting income taxes but raising sales taxes to encourage savings and debt reduction. This will help NZ reduce its foreign debt as financial discipline is needed in the region.
Euro (EUR): The Euro is higher vs. the commodity currencies above on the carry un-wind as well as risk aversion pervades the marketplace. Now this may seem counter-intuitive to some as the major risk in the market is the Euro, which appears to be stabilizing as banter about Euro intervention is thrown about. In somewhat decent news, PPI figures in Germany were higher showing signs that massive deflation has not taken hold. Yet.
Pound (GBP): Retail sales were higher in the UK for the third month in a row, in what may be short-lived gains in consumer sentiment. With the new government looking toward austerity measures and a return to fiscal responsibility, and the BOE pledging to stay the course on monetary policy, the Pound may continue to be weaker vs. the Yen and the Dollar.
Dollar (USD): US jobless claims came in higher than expected though continuing claims fell, most probably the result of discouraged workers losing their benefits. This does not bode well for the US economy which, quite frankly is only seeing strength because everything else looks so bad. US equity futures are lower, though off of their lows of the morning.
Yen (JPY): GDP figures came in worse than expected to 4.9% vs. an expectation of 5.5%. The export led recovery did not encourage consumers to spend, and higher yen values due to risk-aversion could derail exports going forward. Nevertheless the yen is higher on the flight to safety trade, despite the fact that the BOJ may have to do more to combat deflation.
What we are seeing now is a global “ratcheting down” of economic bubbles that ran rampant over the last few years. As different economies around the globe pare back spending and attempt to get their debt under control; economic slowdown is the natural consequence.
This is going to send a ripple effect through the global market place and fears of a global double-dip recession may not only be founded but likely. I believe there is much more pain to be felt in the market place and have little confidence that world leaders can come up with a solution.
Because of the fractured nature of the world economy and competing interests, a solution may be impossible. In my opinion, we are going to start to see either debt defaults or massive money printing which will eventually lead to inflation. But that could be YEARS away.
So for now, think globally, but act prudently locally.
And take advantage of these extraordinary times by trading forex and shoring up your own personal balance sheet!
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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Greek Tragedy, Act II!
By Mike Conlon | April 8, 2010
Credit spreads are at the widest levels since the inception of the Euro as skepticism over Greek austerity is causing borrowing costs to skyrocket to the point where they may become unworkable. This has greatly heightened fears of Greek default, which in turn has put pressure on the Euro this morning.
In addition, the ECB predictably left interest rates unchanged at 1% in the wake of yesterday’s stagnating GDP report. ECB Prez Trichet is going to speak later and whether or not he dodges the Greek issue will be interesting to see.
In the UK, the BOE left both its asset purchase plan and interest rate unchanged going into the May elections as economic recovery is still on shaky ground and fears of the “double dip” persist.
All of this adds up to risk-aversion this morning and the different currency pairs are behaving as expected.
In the forex market:
Aussie (AUD): Australia added 19.6 K jobs last month and its unemployment rate held steady at 5.3%, almost half that of the US and Europe, giving support to the RBA decision to raise interest rates earlier this week. The economy appears to be chugging along in Australia as exports have been rising due to Chinese demand and the fact that Australia was largely able to sidestep the economic problems which are plaguing other world markets. Nevertheless, the Aussie is lower vs. Yen and USD on risk aversion.
Loonie (CAD): The Loonie is lower this morning as oil prices are lower as risk aversion is the theme of the morning. The Loonie is above parity with USD but still hovering. Canada will report its unemployment change tomorrow which if better than expected, could push the Loonie back to parity regardless of risk themes.
Kiwi (NZD): The Kiwi is just kicking about, trading lower on risk themes and commodity prices. No news on the Kiwi.
Euro (EUR): I feel like this story had been beaten to death already and without any positive news regarding backstops for Greece, the Euro will trade lower. A lower Euro is obviously good for exports (Germany), but default would be a catastrophe for the Euro which may bring structural issues to the forefront.
Pound (GBP): UK manufacturing surged to its highest level in almost 2 years, besting estimates two-fold. This is a good sign for the UK economy, which undoubtedly has benefited from a lower Pound. Despite this good news, the pound is lower as the BOE left the interest rate and QE program unchanged, and additional polls are showing that the Labor Party is gaining on the Conservative Party, which could lead to neither party holding a majority. It’s interesting to see that it is BAD news in the UK to have political gridlock, while it is actually favored here in the US. Go figure.
Dollar (USD): “Initial jobless claims increase unexpectedly” (AP). True headline. I mean really, is this really unexpected? We have a situation here in the US where Congress is spending like drunken sailors, our President is constantly speaking about everything under the sun EXCEPT jobs, and landmines keep trickling out of this new healthcare bill which shows that it will cost employers more and not less to implement. And people are “surprised” that jobless claims are higher? The Dollar is higher on risk-aversion. Nuff said!
Yen (JPY): Japanese machine orders fell vs. an expectation that there would be a gain as a result of increased overseas demand for Japanese exports. The Japanese are typically more cautious in their spending habits, so it may not be surprising that they are waiting to see more recovery in other global economies. So Japanese stocks are down and the Yen is higher as demand for Yen is higher due to risk-aversion and the un-wind of carry trades.
One of the great advantages to the forex market is that certain economic themes can play out over the course of a few days, thereby creating excellent short-term trends which can be played until the theme changes. This typically occurs by the reporting of some contrary news which causes the theme to reverse.
So at times I may seem like a broken record when news like the problems in Greece or UK elections are still in effect; but what that effectively does is drive that currency in the same direction until a situation is changed or some equal and opposite news outweighs the original driver of that currency.
This is the main reason why the forex market tends to trend better than all other markets, as governments cannot typically “turn on a dime” to reverse an undesirable trend.
So what are you waiting for?
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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Yen: Good News/Bad News= No News
By Mike Conlon | November 16, 2009
There were a few reports coming out of Japan yesterday which could have seemingly moved the market, but the opposite effect has occurred. In this regard, the good news has negated the bad news and has caused the Japanese Yen (JPY) to trade in a tight range, though off slightly against other currencies.
The first bit of news was about the “horrific Japanese fiscal situation”, as reported by Bloomberg. This was the bad news.
The good news was that Japanese GDP came in at a surprising gain of 4.8%, ahead of all 20 analysts who had made projections on this figure. All told, this figure looms positive for the world’s second largest economy.
Also to note is that APEC, the Asia Pacific Economic Cooperation, pledged to maintain their stimulus measures until the recovery is on “solid footing”.
As a result, stocks and commodities are higher, and the Canadian dollar (CAD) is benefiting from this, +1.03% vs. USD and +.90% vs. JPY.
This also puts the risk-taking trade back in play.
I’m going to wait to see if the market decides to put any more emphasis on either of these news items and which way the market will move.
To follow this currency pairs in real-time, be sure to sign up for a free practice account!
Tags: account, cad, commodities, currenc, currencies, currency, currency pair, currency pairs, dollar, economic, economy, free, fxedu, Il, Japan, jpy, market, Mike Conlon, news, practice, practice account, stock, stocks, time, trade, USD, Yen
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EUR/USD Breaks 1.50!
By Mike Conlon | October 22, 2009
From the “just a matter of time dept.”, the Euro reached 1.50 today against the dollar. The trend is clearly up for this pair, as US dollar weakness is no big secret. However, for as much complaining as you hear around the world regarding the weak dollar, the Euro-zone is perhaps that area that is the MOST adversely affected by it. (click chart to enlarge)
A note out of UBS today stated that, “If euro-dollar continues to gain in a volatile manner ahead of the November Group of 20, action at that meeting can be expected”. That action could be a concerted effort to weaken the EUR/USD.
So keep I’ll be keeping an eye on this pair to look for clues that would indicate that a reversal may be imminent. But for now, US dollar weakness rules “supreme”!
To follow this pair real-time, get a free practice account today!
To learn about how government actions cannot affect different currency pairs, check out our currency trading courses!
Tags: account, blog, course, currenc, currency, currency pair, currency pairs, currency trading, dollar, EUR, Euro, eurusd, forex, forextrading, free, fx, fxedu, Il, meeting, Mike Conlon, practice, practice account, time, trend, USD
Topics: What To Look At In The Market | 1 Comment »
The Swiss confirm that they are intervening when the Franc strengthens!
By Sean Hyman | July 10, 2009
The Swiss are intervening in their currency when they notice the franc’s strength. This is likely to continue until their economy no longer suffers from the franc’s appreciation OR until global economic growth is solidly underway to where traders are “franc sellers” once again as they seek out higher yielding currencies at that point. Here’s the Bloomberg article that confirms the Swiss actions: http://www.bloomberg.com/apps/news?pid=20601083&sid=ad95AZDGUM9s So while many pairs are falling lately, the Swiss are attempting to put a floor under EUR/CHF in particular. If they are successful, then one could pick up some meager rollover interest daily with minimal downside risks when compared with other currency pairs out there.
Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.php
Also, get a free, real time demo trading station here: http://www.fxedu.com/practice-forex-account
Sean Hyman
Tags: account, article, blog, CHF, course, currencies, currency, currency pair, currency pairs, demo, demo trading, dow, economic, economy, EUR, forex, forextrading, franc, free, fundamental, fx, fxedu, Hyman, interest, mywealth, news, practice, real time, Sean, Sean Hyman, station, Swiss, technical, trade, trader, trading station
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When Support becomes Resistance!
By Mike Conlon | June 24, 2009
In my previous note today I mentioned that this morning was down for the Euro. As I was going through my charts I noticed something significant on EUR/USD. Earlier this month, I pointed out a technical pattern on this currency pair known as a “head and shoulders” pattern. The premise of the pattern is that when you draw the neckline it acts as support and if that support is breached it can become a pretty good short trade. Turned out to be a pretty good trade.
Now here we are, a couple of weeks later, and what was formerly short-term support has now become resistance! Let’s have a look… (click charts to enlarge)
As you can see from the charts, the area right around the neckline that had formerly been support has now become resistance and has held on two different occasions. This occurs often and is something that technical traders should be aware of. Short-term traders who like to trade “the range” can enter short positions below resistance with a stop placed just above.
Get ready for the FOMC announcement, just about an hour away!
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The dollar is on the fence. Could tip either way shortly!
By Sean Hyman | June 8, 2009
When you look to currency pairs like EUR/USD and USD/CHF, you’ll see that the dollar is right on the trend line on the daily chart. It’s threatening to break down on EUR/USD and break upward on USD/CHF…but the question is: Is it a fake out? Or will these recent trend changes stay intact? We’ll know shortly but we have to let the price “judge that” by what it does rather than “betting” ahead of time and gambling on which way we “think” it will go. Rather we should “follow” the way that it does end up going. Pros are trend followers. Novices are always trying to guess ahead of time on the near term trend. So see if “dollar strength” prevails or if it’s a fake out and the foreign currencies keep their recent uptrend against it. The verdict will be out shortly!
Tags: CHF, currencies, currency, currency pair, currency pairs, dollar, dow, EUR, fxedu, Hyman, lower, Sean, Sean Hyman, time, trend, uptrend, USD
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Know your Patterns!
By Mike Conlon | June 4, 2009
As currency traders, it is extremely important to know technical patterns. Especially if one plans to trade in shorter-term time-frames. Yesterday I wrote about looking at different time-frames and finding trades that I may not otherwise know existed. And this part of my daily routine. Allow me to explain.
Every morning when I begin my day, I look at all of the currency pairs I intend to trade in as many time-frames as possible. I am looking for discernible patterns that I recognize that will give me a clue as to which way a pair may be moving that day. Once I have a few patterns that I like, I then check for news or information which may give me a clue as to why a certain pattern is forming. Here’s one I found this morning:
(click chart to enlarge)
As I was flipping through my charts, I came upon EUR/USD and saw this beauty on a 3-hour chart. A near-perfect head and shoulders pattern! If you look at the chart, you can see both shoulders (marked by an ‘S’) and the head (marked by an ‘H’). This is a reversal pattern and tells me that if the BODY *note not the wick* breaks the neckline, then its going to be a pretty good short opportunity.
If the candle does not break the neckline, then I can consider getting long and using the neckline as support, placing my stop just below that area.
Upon checking out the news, I know that the ECB had a rate meeting and that ECB President Trichet made some comments. Now I’m not going to pretend to be able to know the effects of his comments or actually even what he said for that matter, but I will let the market tell me.
By using a technical set-up to get into a trade, I can sport low-risk entries for what I’m hoping will be profitable trades. To learn more about how you can spot patterns like this one, check out our currency course. Just think, if you learn just one set-up from our course and you make a profitable trade, then the course has paid for itself!
Tags: blog, charts, comments, course, currency, currency pair, currency pairs, EUR, explain, forex, forextrading, fx, fxedu, market, news, rate, spot, technical, time, trade, trader, trades, USD
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