The Party’s Over!
By Mike Conlon | June 29, 2010
This morning we are seeing a slew of consumer confidence figures coming out around the globe which are lower but largely in line with expectations. The Euro zone debt crisis is continuing to weigh heavily on the markets, and a leading economic index in China had its smallest gain in nearly 5 months, signaling that the Chinese economy may be slowing down.
Later this morning we are expecting consumer confidence figures here in the US as well as housing price figures. These are expected to come in lower as well, as the removal of the home buying tax credit has caused demand to wane.
Overnight in New Zealand, building permits were lower, and the Japanese jobless rate increased to 5.2%, higher than expected.
This has all contributed to lower equities markets, with US stocks and commodities set to open lower as well. As a result, we are in risk-aversion mode this morning. Keep an eye out for the 10AM numbers, as they may be the stock market’s only chance to recover.
Aussie (AUD): The Aussie is lower as risk aversion is reducing demand for carry trades due to global slowdown concerns, particularly from China. In addition, the market is looking for the new PM to move quickly on the proposed mining tax, which is seen as “anti-business” and bad for the economy.
Kiwi (NZD): In addition to risk aversion, the Kiwi is lower as building permits declined 9.6%, the second decline in 3 months. The Chinese leading index decline is also affecting NZ, as a number of exports go to China as well.
Loonie (CAD): The Loonie is also lower on a classic risk-aversion day, as oil prices retreat on fears of a global slowdown. Tomorrow will bring the Canadian GDP figures which will show how solid recovery is north of the border.
Euro (EUR): The Euro is lower this morning, though higher against the commodity currencies. Fears of the debt crisis have resurfaced, and bank stress tests are to include bank exposure to sovereign debt risk. This is sure to uncover a land mine or two, and the market is fearful of the size and the scope. However, business confidence came in higher than expected as a lower valued Euro should encourage exports.
Pound (GBP): The Pound is lower as well on risk aversion, though it is still above 1.50 vs. USD. Mortgage approvals came in slightly lower than expected, but expect the Pound to fare better than the Euro as GDP figures are due out tomorrow.
Dollar (USD): The Dollar is catching a bid from risk-aversion and is higher against all but the Yen. Consumer confidence figures are due out at 10AM EST and they may be the stock market’s last hope for a turn-around today if the numbers are better than expected. Home price figures came in slightly better than expected, most likely due to the tax credit. Today looks ugly for stocks, which should mean continued dollar strength.
Yen (JPY): The Yen is higher as the rapid unwind of carry trades is driving demand for the Japanese currency despite the fact that industrial production and household spending fell. In addition, unemployment ticked higher to 5.2% vs. an expectation of 5% in a sign that recovery is clearly slowing down.
Well, we knew it was only a matter of time before this global charade was exposed as unsustainable and now the market is starting to realize that it may be time to pay the piper. Obama’s pleas at the G-20 fell on deaf ears, and governments outside of the US have decided that it’s better to cut bait than to try to continue to fish.
In other words, countries are trying to cut their losses and get back to economic health. The only way to do this by taking the “medicine” of financial austerity and debt reduction. This is going to be one heck of a hangover, as now the party may be finally over.
However, all is not lost and I am not trying to be a doomsday forecaster. There are definitely pockets of strength in our economy, including corporate America. All of the lay-offs of the past have allowed corporations to increase profitability, and many are trading at low multiples.
However, it is definitely time for people to wake up. The eventual fallout and backlash against our big-spending government will only bring about better policy in the future. Government, no matter what type of social engineering they try, CAN NOT control economic cycles. The longer they try to pro-long an unnatural order, the worse the pain will be.
Usually the “summer slowdown” takes effect, though this time it may be different. I expect there to be heightened volatility as the world navigates the treacherous waters of the global economy. Expect there to be highs and lows, as well as gains and set-backs.
There is no better time than RIGHT NOW to protect yourself from global economic conditions through the forex market! Don’t be one of the ones left standing when the music stops!
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, AUD, Aussie, bank, cad, carr, carry trade, China, commodities, commodity, course, crisis, currenc, currencies, currency, currency market, currency trading, dollar, dow, economic, economy, EUR, Euro, fear, financial, forex, forex market, free, fx, fxedu, gbp, home, Il, index, Japan, jpy, Kiwi, live, loonie, lower, Mike Conlon, new zealand, nzd, oil, pip, pound, practice, practice account, rate, RSI, ssi, stock, stocks, time, tip, trade, trades, unemployment, USD, Yen
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BOE Not Unanimous!
By Mike Conlon | June 23, 2010
Minutes released from the Bank of England’s rate policy meeting showed that the vote was not unanimous to keep rates unchanged at .5%, for the first time in nearly 7 months. Inflation concerns were the cause of the dissenting vote, as CPI figures in the UK have been above targets. While the BOE expects inflation to subside in the ensuing months, that may not necessarily be the case.
This comes a day after the emergency budget which was announced yesterday, calling for a reduction in spending and an increase in taxes.
In the US, the FOMC rate decision is due out later today, so expect to see some volatility in dollar-related pairs. It is widely held that there will not be a change in policy, but some market participants are betting that we may see a change in the language regarding policy. This would give credence to the rising sentiment that the Fed may raise rates later this year. Personally, I don’t see this happening and I think the Fed will be on hold for the remainder of the year.
Yesterday’s abysmal housing data confirmed that deflationary forces in the housing market may be the start of another leg down.
In the Euro zone, German consumer confidence came in slightly better than expected and PMI figures were largely in line. However, concerns over Greek debt have perked up again.
Overnight, the Yen was higher as the Nikkei was down taking its cues from yesterday’s sell-off in the US stock market.
This morning will bring US new home sales figures as well as Canadian retail sales figures. Any major deviations could send the respective currencies lower.
But expect volatility going into the FOMC announcement at 2:15 EST.
In the forex market:
Aussie (AUD): The Aussie is lower as stocks sold-off in the overnight session but it is gaining back some ground heading into the US session. Risk aversion has driven the Aussie lower, and there is some concern that Chinese demand for metals and energy is causing a rift in the Australian economy.
Kiwi (NZD): The Kiwi is higher this morning in anticipation of GDP figures which are due out later tonight. The expectation of .5% growth will likely be exceeded as demand from China for raw materials has the NZ economy picking up steam. Should the number best expectations, then the likelihood of a rate increase at July’s policy meeting will increase.
Loonie (CAD): The Loonie is lower this morning as oil prices are pulling back from the $78 level, and retail sales figures came in worse than expected. Analysts were expecting a decline of .4% and the figure showed a decline of 2.2%, a big miss. Canada is to the US what Australia and New Zealand are to China. If recovery here in the US is floundering, then it may not bode well for the Loonie and the Canadian economy in general.
Euro (EUR): The Euro is a mixed bag this morning, as it is up against the North American currencies but down against the rest. The EU is considering a bond levy on countries that don’t adhere to debt-to-GDP guidelines which of course brings the Greek debt crisis back to center stage. In addition, business confidence was down in France, though consumer confidence was higher in Germany. Go figure.
Pound (GBP): The Pound is higher across the board, giving a vote of confidence to both the government for their budget and the BOE. The lone dissenter in the rate policy meeting is concerned about inflation, as growth targets may exceed expectations. That’s a “nice” problem to have, considering the economic condition of the US.
Dollar (USD): The Dollar is mostly lower prior to today’s FOMC meeting. Yesterday’s poor housing data sent stocks lower, and today’s new home sales aren’t expected to be much better. This should be enough to keep the Fed unchanged in both language and policy, and the market is starting to catch on to the fact that the smoke and mirrors of government spending may not be enough to stoke the economy. Go back and take a look at my discussion of biflation from a few days ago.
Yen (JPY): The Yen is mixed as well, trading higher vs. USD and CAD (both showing weakness) and the Euro (debt concerns) but lower vs. GBP, AUD, and NZD. So today can neither be classified as risk-taking or risk-aversion, but much of the yen strength was derived from weakness in the Nikkei, which sold off following the US stock market decline.
I think today really shows the difference to how the market reacts to different policy pursuits from around the globe heading into this weekend’s G-20 meeting. On the one hand, you have the EU and the UK who are committed to reducing deficits and trying not to raise taxes too much to discourage business (in fact the corporate tax rate was lowered in the UK), and the policies taken by the US.
The US is going the other way, expanding deficits and throwing good money after bad at our financial problems which can only result in higher taxes when it comes time to pay the piper. President Obama was rebuffed by Chancellor Merkel of Germany with regard to how to best combat the global financial crisis, and it appears as though the market agrees with the EU.
Weak housing data here in the US show that the stimulative effects of government spending may have slowed a decline in the economy, but have not fixed the problem. Now taxpayers (and their children and grandchildren) face an enormous burden for what adds up to temporary conditions.
The change people voted for was for less government spending and indeed we’re seeing change—even more and more spending! Hopefully this course can be reversed before it’s too late. I never thought I’d say this but now is the time we should be taking our economic cues from Europe, and not their prior policies that landed them in this mess.
Those who don’t learn from the past are doomed to repeat it.
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, AUD, Aussie, Australia, bank, BOE, cad, canada, China, course, crisis, currenc, currencies, currency, currency market, currency trading, data, decision, dollar, dow, economic, economy, EUR, Euro, Europe, fed, financial, forex, forex market, franc, free, fx, fxedu, gbp, home, housing market, Il, jpy, Kiwi, live, loonie, lower, meeting, Mike Conlon, minutes, money, new zealand, nzd, oil, pair, pairs, pip, pound, practice, practice account, rate, rate decision, release, retail sales, RSI, sentiment, ssi, stock, stocks, time, USD, Yen
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A Good Friday?
By Mike Conlon | April 2, 2010
All eyes are on this morning’s Non-Farm Payrolls report which is due out at 8:30AM EST. Stockholders anxiously await this figure as their market is closed today so those that didn’t hedge against potential downside risk may be a bit nervous going into this number and subsequently this weekend.
The NFP report is expected to show a gain of 184K jobs; however I read somewhere that some 70K of those jobs were due to hiring by the government for the census, which by all accounts is temporary. So there is a lot of uncertainty about what the market needs to see to form the opinion that the UD economy is recovering. Regardless, of what the number is, expect mucho volatility surrounding it.
In other news, the Swiss Franc made headlines yesterday as a major amount of selling hit the market near the close in Europe. While not confirmed by the Swiss National Bank (SNB), speculation is that the government intervened in the currency to weaken it and keep it from appreciating to further record highs. I don’t talk about the Franc much here, but the Swiss have been known to do this in the past as recent Euro weakness has caused Franc strength. The sell-off was good for roughly 350 pips vs. the Euro, a tidy profit if one were on the right side of the trade.
So this morning we are seeing dollar strength, and without the other markets trading to provide correlations and historical trends, the forex market is on its own today. So expect trading to be dominated by risk themes and little else today.
In the forex market:
Aussie (AUD): The Aussie is slightly lower as the market as traders pare back positions heading into NFP. The AUD/USD will be extremely volatile as it best represents the risk on, risk off trade.
Kiwi (NZD): The same deal for the Kiwi as the Aussie, though slightly more at risk as the Kiwi attempts to shake off the IMF’s claim form yesterday that it is over-valued by 10-25%.
Loonie (CAD): Will today be the day that the Loonie reaches parity with the US dollar? It came within 65 pips of doing so yesterday, and is currently sitting just over a penny away.
Euro (EUR): The Euro is just hanging in there above 1.35 vs. USD and is benefiting from the “no news is good news” mantra today.
Pound (GBP): The Pound has been on a tear as of late as exports have improved causing stocks to move higher. In addition, advance polls show that the Conservatives are leading right now, giving a glimmer of hope that fiscal responsibility may return to the UK.
Dollar (USD): I’ve already mentioned the Dollar above and the expectations, but my feeling is that initially we are going to see dollar strength, followed by dollar weakness brought on by a better than expected number. While I don’t like to guess at these things and I’m not trading this event, I must admit I’m totally confounded by this report. So I’m just gonna sit on my hands and watch the action from the sidelines.
Yen (JPY): The Yen has been weakening as appetite for risk and yield-seeking has been ferocious. This suits the Japanese just fine as a weak yen is good for exports.
So unless you have nerves of steel, I suggest you grab a bag of popcorn and sit back and watch this event unfold. (I realize its 8:30 AM and no one eats popcorn then, but I do have a European following and as they say with regard to other pastimes, “it’s always noon somewhere!”
I’m going to try to do the video live for the release of the number and am hoping that the increased craziness surrounding it doesn’t invoke technical difficulties.
Happy Good Friday and Easter weekend to those that celebrate it!
To learn more about how you can get started in the forex market, be sure to check out our currency trading courses!
To get started with a free, real-time practice account, click here!
Tags: account, AUD, Aussie, bank, cad, closed, course, currenc, currency, currency trading, dollar, dow, easter, economy, EUR, Euro, Europe, forex, forex market, franc, free, fx, fxedu, gbp, good friday, Il, intervene, Japan, jpy, Kiwi, live, loonie, lot, lower, market, mike conlon, news, nfp, nzd, payrolls, pip, pips, pound, practice, practice account, rate, release, ssi, stock, stocks, Swiss, technical, time, trade, trader, trend, USD, video, Yen
Topics: What To Look At In The Market | 1 Comment »
The “Calm” Before the Storm!
By Mike Conlon | April 1, 2010
Today will be an interesting day for the markets as the US stock market is closed tomorrow for Good Friday. Traders may be positioning themselves ahead of the Non Farm Payrolls number due out tomorrow, which is expected to show a gain of 184K jobs vs. a loss of 36K last month. As I have mentioned ad nauseum, this number is of extreme importance as the market will use this figure to determine whether the US is beginning economic expansion, or still in decline.
In other regions, the Pound is higher on better than expected UK manufacturing numbers, and the New Zealand dollar is lower after an IMF report stated that the Kiwi was “over-valued”.
Today we are expecting the US ISM manufacturing number, which will signal how far along we are in economic recovery.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on renewed optimism over global recovery and risk-taking despite the fact that the trade deficit widened more than expected. Also adding to pressure on the Aussie was that manufacturing growth slowed last month, which may further contribute to sentiment that the RBA may hold on rates next week. However with oil above $84 a barrel, there is no doubt that commodity inflation is picking up. Futures and swaps are showing a 65% chance that the RBA will raise rates next week, though that figure is bound to change after NFP tomorrow.
Kiwi (NZD): The Kiwi is lower this morning despite risk appetite after an IMF report that reported that the Kiwi may be overvalued by “10-25%”. They also said that New Zealand should make spending cuts to return to economic surplus sooner. However it should be noted that part of this assessment was based upon an assumption that the US may tighten, which unfortunately may be economic fantasy.
Loonie (CAD): The Loonie is screaming this morning with oil above $84 a barrel and NFP on tap. The Loonie is only 100 pips away from parity with USD, and could get there tomorrow with a good NFP reading. No other news out of Canada. And frankly the Bank of Canada is happy for that.
Euro (EUR): The Euro is mixed this morning as German retail sales figures came in worse than expected in a sign that the Euro zone’s strongest economy may be weakening. In addition, the “rescue plan” for Greece appears to not be working as its primary function was to reduce Greece’s borrowing costs which as of today, is not happening.
Pound (GBP): The Pound keeps trucking along as signs are showing that the UK economy is improving. The UK Factory Index rose to a 15-year high as exports improved dramatically, no doubt in part of recent Pound weakness. In addition, the conservative party is increasing its lead at the election polls which many believe will bring the UK back to fiscal responsibility.
Dollar (USD): The Dollar is lower today as risk appetite is higher going into the 10 AM ISM Manufacturing number and in advance of tomorrow’s NFP. Should the number come in above analyst expectations of 184K, then we could see some major risk-taking (dollar weakness). If the number comes in positive but below analyst expectations, then we could see some mild-risk taking (mixed dollar). Should the number come in negative, we could see some MAJOR risk-aversion (dollar strength). Part of the problem is that the stock market is closed tomorrow and won’t reopen until Monday. A bad reaction could push equity futures lower over the weekend which could in turn cause a lower (much) open on Monday. So that is the basic scenario. However, with oil above $84 and possibly going higher, commodity inflation may force the Fed to move on rates sooner than later which could cause some dollar strength. Regardless of which way the number goes, expect to see some major movement.
Yen (JPY): The Yen is mostly lower today as the Japanese Tankan index sentiment rose to its highest levels since 2008. This index represents manufacturing confidence as exports have been stronger than expected. So the familiar story of Japanese stocks up, yen down as investors seek yield through carry trades is in full effect.
Tomorrow’s NFP is a unique situation for a couple of reasons. With stock markets closed for Good Friday, and the number expected to be positive for the first time in who knows how long (sorry too lazy to look up—but you get the idea) this could be THE pivot point in world markets.
Now I’m not trying to be Debbie Downer here, but my experience in the markets has taught me that sometimes when things look too rosy in the markets, that just might be the case. This situation could set up to be the “perfect storm” if the numbers don’t come in as expected. I feel like there might be not enough pessimism in the marketplace despite all of the inherent risks facing the market.
March can be a tricky month for stocks, and we’ve seen some of the more spectacular moves down occur (2008, 2009 come to mind). In addition, today is April Fool’s Day which brings out my superstitious nature. Now I’m not saying that the NFP number will be bad tomorrow, however I’ll be sitting this one out and content to let the market do what it does.
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, AUD, Aussie, bank, cad, canada, carr, carry trade, closed, commodity, course, currenc, currency, currency market, currency trading, dollar, dow, economic, economy, EUR, Euro, fed, forex, forex market, free, fx, fxedu, gbp, good friday, idea, Il, index, interest, invest, investor, ISM, Japan, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, movement, new zealand, new zealand dollar, news, nfp, nzd, oil, payrolls, pip, pips, pound, practice, practice account, rate, retail sales, RSI, sentiment, ssi, stock, stocks, time, trade, trader, trades, trick, USD, Yen
Topics: What To Look At In The Market | 1 Comment »
Top Performers!
By Mike Conlon | March 3, 2010
Forex System Selector (FSS) Top Performers!
When considering any automated forex system providers, not only is it important to have good strategies, but also it is equally important to have a good platform. FSS has you covered on both fronts!
When investors select individual EAs to use, market conditions will determine how effective any one EA will be. If market conditions aren’t ideal, even the greatest strategies can have less-than-desired results.
And that’s the problem with the “one size fits all” approach. You wouldn’t take a sports car four-wheeling, would you? Nor would you want a golf cart on the Autobahn!
Not to worry, the FSS has you covered, as there are over 40 different systems that can excel in a variety of different market conditions. Now you have the power!
Well by now you must be thinking to yourself that, “these systems couldn’t possibly be any good”. Am I right?
Well how does earning 9000 pips in one month with a 95% winning rate sound to you? That’s the type of system you will find in the FSS.
Here’s a look at our top 5 performing systems from last month:
Are you skeptical like I am? Don’t take my word for it. Come see for yourself.
Sign up for a free, FSS demo account here and see what all of the excitement is about.
Say “good-bye” to individual EAs and MT4 and “hello” to FSS, the future of automated forex trading!
Tags: account, blog, demo, demo account, forex, forex trading, forextrading, free, fx, idea, Il, invest, investor, market, pip, pips, rate, ssi
Topics: What To Look At In The Market | 1 Comment »
Non-Farm Payrolls Disappoint!
By Mike Conlon | January 8, 2010
The US Non-Farm Payrolls Report (NFP) is usually one of the biggest market moving numbers in the currency markets. Today’s number is no exception. The report came in for December at -85K, a very disappointing figure. Estimates were expecting this number to be flat, that we neither gained or lost jobs for the month. Although I had seen some pretty wild numbers tossed around, anywhere from +/- 200K. The revisions for the prior two months showed a net loss of 1K jobs, a negligible but encouraging figure.
So what does this all mean? Well in a word: trouble.
The US economy is not adding jobs nearly as quickly as the government had hoped. With all of the enormous amounts of stimulus spending, we have little to show for it. As a result of this figure, the US dollar reversed course and immediately began to weaken. If anyone had any delusions about a US rate hike in the first quarter of the year, they can pretty much forget about it as its now off of the table. Unless the dollar tanks so badly that Bernanke HAS to do something.
My guess is that we’re going to be looking at Japan 2.0 here in the US, our own version of their “lost decade”.
Just to illustrate the volatility that can occur around this figure, take a look at this chart of EUR/USD: (click chart to enlarge)
Close to 100 pips in a few minutes!
This could make an interesting year for the US dollar. There are 2 basic ways that we will see dollar strength this year; either through interest rate hikes or risk aversion plays. So while this logic may be a bit counter-intuitive to some, it’s going to be very important to take our clues from the other markets to see which theme is playing out.
And of course don’t forget that the dollar can continue to weaken well into this year, the question is going to be that if things don’t get better on the employment front, at what point does that filter through to the other markets?
Only time will tell.
To learn more about how these government figures can affect your savings, be sure to check out our forex trading courses!
Tags: Bernanke, blog, cad, course, currenc, currency, currency market, dollar, economy, EUR, eurusd, forex, forex trading, forextrading, fx, fxedu, Il, interest, interest rate, Japan, Mike Conlon, minutes, nfp, payrolls, pip, pips, time, USD
Topics: What To Look At In The Market | 1 Comment »
Yen Weakness Persists!
By Mike Conlon | December 3, 2009
Yesterday I wrote here about how Japanese officials are attempting to jaw-bone the yen lower. Today it looks like its working. As of this writing, we’re looking at a move of almost exactly 1 point, or 100 pips in USD/JPY. Yen weakness is the theme of the day so far, with the yen depreciating 1.12% vs. USD, 1.38% vs. AUD, 1.35% vs. EUR.
Let’ take a look at today’s chart vs. yesterday’s on USD/JPY: (click charts to enlarge)
As you can see from the charts, today’s move in this pair is considered a “gap” up, meaning that there was strong demand to own this pair. This is likely the result of some short covering and unwinding of the carry trade, which has occurred due to the reasons I outlined in yesterday’s article.
This will show us if a new trend is emerging if price doesn’t return to “fill the gap”. I identified around the 89 level as the first layer of resistance yesterday so let’s wait to see if we can get to that level and then what occurs if we get there.
To follow this trade real-time in a free, practice trading account, click here.
To learn more about technical analysis in the forex market, be sure to check out our currency trading courses!
Tags: account, AUD, blog, charts, course, currenc, currency, currency trading, EUR, forex, forextrading, free, fx, fxedu, Il, Japan, jpy, lower, market, Mike Conlon, pair, pip, pips, practice, technical, time, trade, trend, USD, Yen
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Trade Update- GBP/AUD!
By Mike Conlon | October 21, 2009
As I’m sure you know by now, GBP had a nice move overnight and is currently up vs. (USD & JPY). Earlier this morning, it was also up a lot vs. AUD (this trade) to 1.8. When I saw this this morning, I placed a protective stop at 1.795 for another piece of my position and got stopped out on that piece.
Since that time, GBP/AUD has traded down and is now at 1.782. Anytime I am in a position that has a significant move, the DAY AFTER, I enter a new or confirm an older position, I will always take some profits. 150 pips looked good to me.
The commodity currencies, particularly NZD and AUD, are having good days as Reserve Bank Governor Bollard stated that the fact that the Kiwi is already strong would not preclude them from raising interest rates. Similar thoughts were made by Australia’s Glenn Stevens as well.
So while that all but kills any further chance of this trade succeeding more than it already has, I’m still going to sit in this last piece and see what happens. So my stop is at 1.766, my entry price on the initial trade.
Let’s see what happens as the all bank-talk seems to be heating up!
Tags: AUD, Australia, bank, commodity, currenc, currencies, gbp, interest, interest rate, interest rates, jpy, Kiwi, lot, Mike Conlon, nzd, pip, pips, time, trade, USD
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GBP/AUD Trade Follow-Up!
By Mike Conlon | October 20, 2009
I just wanted to give readers a heads up on this trade that I called out last week. To give you a little background, I don’t typically like to say that I am doing this or that, but rather like to point out “possible trades” with “theoretical results.” Whether I am actually in the trade or not is immaterial for discussion purposes on this blog, as I don’t want to be seen as recommending specific trades, but rather as just trying to point out some tidbits that may be unconventional to some.
The reason I say this (and have disclaimers LOL) is because right after I posted this initial trade idea, I got a call from a good friend of mine who asked me in no uncertain terms, “Are you Nuts?” When I asked what he meant he gave me the usual response of don’t fight the trend, the fundamentals don’t add up, the Aussie is benefiting from the carry trade, BOE trying to keep GBP low through further threats of more QE, etc. And while I was aware of all of these factors before I picked this trade, something told me I should investigate this a little further.
Perhaps it was yesterdays sell-off of this pair that had me second guessing myself, but I realized that when dealing with trend-reversals rarely do they happen and then go strait up. So I decided to do some multi-time frame analysis.
Now you may be asking yourself, why don’t you use technical indicators? Well, I do, but do after the fact as confirmation to see if it matches up with what I’m seeing from the price action on the chart. What I’d rather do is begin looking at shorter time-frames to see if any discernible patterns are emerging.
Voila! I dropped down 1 time-frame (which for me is the 4-hour chart) and noticed what I thought to be a possible cup & handle formation. This is a very bullish pattern if it completes properly. Let’s look at the chart (click to enlarge):
Now you’ll have to forgive my awful chart-drawing skills, but as you can see, there is a very rudimentary c&h formation in progress. Should this pair breakout above the “brim” of the cup at around 1.785, then we could see some momentum to the upside.
To come up with a target price, I added the height of the cup to the breakout price of the handle and came up with roughly 500 pips. But because I am already in this trade (half position- I took some profits), I don’t need to take any action at this point. But if this should breakout above the handle, then one could play the break-out by buying just above that price level.
So while at this point the fundamentals still don’t add up for this trade, stranger things have happened. Its amazing to watch how the technicals sometimes predict fundamental action. Whether or not it will in this case is anyone’s guess. But that is what trading is about, not trying to guess where the market is going, but rather trying to increase your odds that a particular action may take place and having sufficient risk management in place if it doesn’t occur.
So keep an eye on this pair to see if this formation “activates”, and if so, listen to the news to see if anything material has taken place. Or you can just check back here… as I will be sure to update.
Good trading to all!
To learn about these possible set-ups, be sure to check out our forex trading courses!
Or get a live demo account to follow in real-time!
Tags: account, AUD, Aussie, blog, course, demo, dow, forex, forex trading, forextrading, fundamental, fx, fxedu, gbp, invest, live, market, Mike Conlon, momentum, news, pair, pip, pips, ssi, technical, time, trade, trades, trend
Topics: What To Look At In The Market | 1 Comment »
GBP Still Strong!
By Mike Conlon | October 16, 2009
The British pound is still strong today, showing a little bit of follow through from yesterdays gains. Yesterday I called out a trade in GBP/AUD as a low risk opportunity based on some technical factors, despite the fact that the trade was “counter-trend”. Let’s see how its doing:
(click charts to enlarge)
As you can see, this trade is up about 169 pips from yesterdays entry price (1.7828-1.7659=169 pips). While you’re not going to be able to retire just yet LOL, this high probabilty set-up is showing some initial gains and looks promising going forward. To give you an idea of what this means, with just one lot, you would have made $169 if you were in this trade.
And the cost to get into this trade? Just $50 in margin. So in theory, you put up $50 to make $169. That’s pretty good coin! Now imagine what happens when you use the multiplier effect of leverage!
While its never a good idea to over-leverage your account, taking high probability trade set-ups can be extremely profitable if you know what you’re doing!
To learn about how to spot trade set-ups such as these, check out our currency trading courses here.
Want to test my calls in real time with a practice account of your own? Get started here.
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