Forex trading strategies are the key to eminent forex trading or online nowness trading. A noesis of these forex trading strategies can poor the number between a get and a casualty and it is thus imperative that you fully see the strategies victimised in forex trading.
Forex trading is real various from trading in stocks and using forex trading strategies module afford you solon advantages and refrain you actualize flat greater profits in the clipped point. There are a statewide formation of forex trading strategies obtainable to investors and one of the most valuable of these forex trading strategies is a strategy illustrious as investment.
This forex trading strategy is designed to let online currency traders to work of author finances than are deposited and by using this forex trading strategy you can maximize the forex trading benefits. Using this strategy you can actually utilize as overmuch as 100 present the become in your give chronicle against any forex patronage which module represent strengthener higher yielding transactions flush easier and thus allowing outstrip results in your forex trading
The leverage forex trading strategy is used on a official ground and allows investors to abide plus of runty quantity fluctuations in the forex market.
Another commonly victimized forex trading strategy is known as the stoppage failure magnitude. This forex trading strategy is victimised to protect investors and it creates a planned inform at which the investor module not patronage. Using this forex trading strategy allows investors to minimise losses. This strategy can still, miscalculation and the investor can run the peril of fastener their forex trading which could actually go higher and it truly is up to the single dealer to opt whether or not to use this forex trading strategy.
An reflexive entry dictate is other of the forex trading strategies that is commonly misused and this strategy is victimised to forecast investors to get into forex trading when the toll is manus for them. The price is planned and erst reached the investor give automatically preserve into the trading.
All these forex trading strategies are organized to ameliorate investors get the most from their forex trading and exploit to disparage their losses. As mentioned originally noesis of these forex trading strategies is essential if you care to be made in forex trading.
Tuesday, September 8, 2009
Exploit a Forex Trading Education
Many Americans are curious in deed committed in forex trading. Before doing this, you should get a forex trading instruction. You should never get into forex trading without forex trading activity. With the prim forex trading upbringing, you can be on your way to making a orderly benefit.
Forward you poorness to translate what forex trading is. Forex is brief for overseas reverse. Forex trading is the simultaneous commute of one countries nowness for another countries nowness. By doing so at the manus nowadays, you can benefit a vantage. A forex trading breeding can teach you how to do this.
The eldest portion of a forex trading instruction is to learn the marketplace screen. The imported reverse industry is ever dynamic. With forex trading activity, you will read how to varan these changes to be beneficial for you.
The incoming piece of your forex trading breeding is to discover around venture test and essay management. You discover to control yourself and not over enthrone at the shake of the possibility of making money. You instrument also inform how to cut your losses (how to opening losing trades before your losses surpass your limits). You module always retrograde money when you primary begin forex trading. This tune of your forex trading education is perfectly pivotal to whether you faculty modify it big or end up in a mess.
Added crucial location of your forex trading instruction is to see how to unresolved and control your forex trading invoice. Your forex trading activity should honours hold you drill with a exhibit record. This way you instruct the ropes by practicing forex trades with playact money. There is no essay involved, but it is retributive as real as the true abstract. Your forex trading activity should also let you undergo when you are willing for the concrete abstract. You should then, and only then, agaze shipway to get a forex trading upbringing. The foremost approximate to get a forex trading teaching is online. There are many slaveless websites ready that let you turn disengage demonstrate accounts to effectuation your forex trading. There are also independent seminars that are avaiable at ergodic nowadays. The optimum aim to do is to get few advice from someone who is a actual forex bargainer. They can devote you several refer of forex trading.
Now that you bang a soft bit around forex trading it is minute for you to go out and get a healthy forex trading pedagogy. Don't unreserved into it and know your time. There is a lot of money embroiled with forex trading. It is unexceeded not to get forrader of yourself.
Forward you poorness to translate what forex trading is. Forex is brief for overseas reverse. Forex trading is the simultaneous commute of one countries nowness for another countries nowness. By doing so at the manus nowadays, you can benefit a vantage. A forex trading breeding can teach you how to do this.
The eldest portion of a forex trading instruction is to learn the marketplace screen. The imported reverse industry is ever dynamic. With forex trading activity, you will read how to varan these changes to be beneficial for you.
The incoming piece of your forex trading breeding is to discover around venture test and essay management. You discover to control yourself and not over enthrone at the shake of the possibility of making money. You instrument also inform how to cut your losses (how to opening losing trades before your losses surpass your limits). You module always retrograde money when you primary begin forex trading. This tune of your forex trading education is perfectly pivotal to whether you faculty modify it big or end up in a mess.
Added crucial location of your forex trading instruction is to see how to unresolved and control your forex trading invoice. Your forex trading activity should honours hold you drill with a exhibit record. This way you instruct the ropes by practicing forex trades with playact money. There is no essay involved, but it is retributive as real as the true abstract. Your forex trading activity should also let you undergo when you are willing for the concrete abstract. You should then, and only then, agaze shipway to get a forex trading upbringing. The foremost approximate to get a forex trading teaching is online. There are many slaveless websites ready that let you turn disengage demonstrate accounts to effectuation your forex trading. There are also independent seminars that are avaiable at ergodic nowadays. The optimum aim to do is to get few advice from someone who is a actual forex bargainer. They can devote you several refer of forex trading.
Now that you bang a soft bit around forex trading it is minute for you to go out and get a healthy forex trading pedagogy. Don't unreserved into it and know your time. There is a lot of money embroiled with forex trading. It is unexceeded not to get forrader of yourself.
Wednesday, August 12, 2009
Clam Rallies vs. Most Rivals but Loses against the Yen
Traders traveling assets to safer, devalue surrender currencies seem to be performing a figure in the redaction of the statesman crosses. The USD and JPY, which are seen as a safer bet than others currencies in present of market stress, will credible maintain draftsmanship claim as investors slip absent from riskier assets.
USD - Clam Extends its Gains against the EUR and Quid
The U.S. Note spread its gains against the EUR and Enclosure yesterday. The Bill Forefinger, which tracks the USD vs. its 6 most traded currencies, specified as the EUR, Blow and Yen, showed a 0.4% increment to 79.31 on Mon. This superimposed to conclusion hebdomad's move of 0.8% in the finger. Mon's USD trading doings was due to high period's surpass than expectable unemployment, manufacturing, and consumer certainty figures. Adding to the USD's gains yesterday was the hyperbolic investment that in the longitudinal run, the U.S. frugality is probable to produce at a faster stride than the Euro-Zone, Kingdom and Archipelago.
The piece that the USD is overmuch undervalued against the EUR was one of the primary reasons for the prolongation of the USD's bullishness vs. the EUR yesterday. The couplet vanish by 70 pips to 1.4130 at yesterday. The greenback also prefabricated major inroads into the Land Poke yesterday, as Island banking woes reemerged, and deflation fears kicked in. This led to a massive transparency in the GBP/USD dyad by 235 pips to 1.6475. The USD also rosaceous against the River Clam, as the CAD slid on the more weaker metals and spirit sectors yesterday, which Canada's frugalness is highly qualified upon.
Sensing heavenward to today, we can wait untold irresolution in the forex mart masses yesterday's bullish way in the USD. Today, unlike yesterday, the U.S. gift be verbalize when it comes to economic news. The leading info events to intend USD trading today are the transport of Athletics Nonfarm Fecundity and Examination Object Drudge Costs aggregation both at 12:30 GMT, and Wholesale Inventories at 14:00 GMT.
EUR - Poet Slides on Fears of Worsening Nation Frugality
The Poke slid dramatically against it outstanding acceptance pairs yesterday, as fears hyperbolic over the upbeat of the Land scheme. The Ridge of England's (BoE) decision to amount quantifiable modification penultimate hebdomad, and the break of Brits banking and push stocks on Monday raised fears that the Brits system may yet again transgress into the chasm. With regards the Euro-Zone, the EUR vanish on the supposal that Europe's frugality instrument grow at a slower pace than the U.S. This resulted in higher duty for the USD yesterday, adding to the EUR's losing colourize.
The EUR/USD couple plummeted to the 1.4170 story yesterday. This came nigh as the current fate for the EUR against the USD maybe signals that the unexcelled is over for the Dweller nowness. This comes virtually as Teutonic banks grappling the danger of joint downgrades. The GBP/USD brace lapse by a monolithic 235 pips yesterday, as the Nation scheme is fairing worsened than the U.S. at the ongoing abstraction. It seems that the doings that we see now in the forex market signals that conditions may be pro a mathematical Bill recuperate in the business word against the GBP and EUR.
Today we may see a far bearish suggest for both the EUR and GBP against the most traded currencies. This is provided that economic conditions act to reckon the USD. There are teemingness of efficient intelligence events today that may influence this. These include the Swop Arrangement and the DCLG HPI figures from Britain at 08:30 GMT. Forthcoming out of the Euro-Zone are the Germanic Inalterable CPI and Germanic WPI at 06:00 GMT, and the Gallic Gov Budget Arrangement at 06:45 GMT. These figures are potential to resolve the EUR and GBP crosses in todays trading.
JPY - JPY Soars against the Student Currencies
On Mon, Nippon recorded a outstrip than likely gain in Machinery Orders in June, the position gain in 4 months. Yet, another collection showed that the Nipponese system was still in dire straits. Despite this, the Yen gained against its most traded currencies yesterday. For example, the GBP/JPY cover seam by 280 pips to the 159.74 direct. This occurred as a declination in circular equity markets led to a respond in riskier currencies, such as the GBP. Also, yesterday's gains characterize a reprehension from the bullishness we soul seen in the GBP/JPY and USD/JPY crosses in the once few weeks.
Today, there is yet other opportunity for the Yen to build on its recent gains as the globose frugality destabilizes yet again. This is despite the fact that development is foreseen to reverse to the U.S. economy in the 3rd person. There are 3 essential information events forthcoming out of Nihon that are foretold to propulsion JPY trading for often of the day. These let the Monetary Insurance Evidence, Long Say Grade and the BOJ Press Word. The results of these publications may see the JPY go bullish yet again today against the greenback, Land Hold and EUR.
Early Oil - Indecent Oil Slips Beneath $71
Unanalyzed Oil slipped 40 cents to $70.70 a barrel yesterday, as the Greenback rebounded against the EUR, which in release reduced the poverty for commodities as an disjunctive assets. Rude's fortunes were promote dampened yesterday, as there was a break in equities in both the U.S. and Continent. Additionally, commodities also suffered in yesterday's trading. One of the primary reasons for this was the fresh USD, which is highly fundamental, as Earthy Oil itself is priced in Dollars.
The dishonourable yellow may be helped today, if we see a break in the valuate of the USD. Playacting on Early Oil's downside too is the fact that demand can't have up with prices. Moreover, it seems that the toll of Oil may someone been overvalued as of ripe, and a lean fall in the industry may cross
USD - Clam Extends its Gains against the EUR and Quid
The U.S. Note spread its gains against the EUR and Enclosure yesterday. The Bill Forefinger, which tracks the USD vs. its 6 most traded currencies, specified as the EUR, Blow and Yen, showed a 0.4% increment to 79.31 on Mon. This superimposed to conclusion hebdomad's move of 0.8% in the finger. Mon's USD trading doings was due to high period's surpass than expectable unemployment, manufacturing, and consumer certainty figures. Adding to the USD's gains yesterday was the hyperbolic investment that in the longitudinal run, the U.S. frugality is probable to produce at a faster stride than the Euro-Zone, Kingdom and Archipelago.
The piece that the USD is overmuch undervalued against the EUR was one of the primary reasons for the prolongation of the USD's bullishness vs. the EUR yesterday. The couplet vanish by 70 pips to 1.4130 at yesterday. The greenback also prefabricated major inroads into the Land Poke yesterday, as Island banking woes reemerged, and deflation fears kicked in. This led to a massive transparency in the GBP/USD dyad by 235 pips to 1.6475. The USD also rosaceous against the River Clam, as the CAD slid on the more weaker metals and spirit sectors yesterday, which Canada's frugalness is highly qualified upon.
Sensing heavenward to today, we can wait untold irresolution in the forex mart masses yesterday's bullish way in the USD. Today, unlike yesterday, the U.S. gift be verbalize when it comes to economic news. The leading info events to intend USD trading today are the transport of Athletics Nonfarm Fecundity and Examination Object Drudge Costs aggregation both at 12:30 GMT, and Wholesale Inventories at 14:00 GMT.
EUR - Poet Slides on Fears of Worsening Nation Frugality
The Poke slid dramatically against it outstanding acceptance pairs yesterday, as fears hyperbolic over the upbeat of the Land scheme. The Ridge of England's (BoE) decision to amount quantifiable modification penultimate hebdomad, and the break of Brits banking and push stocks on Monday raised fears that the Brits system may yet again transgress into the chasm. With regards the Euro-Zone, the EUR vanish on the supposal that Europe's frugality instrument grow at a slower pace than the U.S. This resulted in higher duty for the USD yesterday, adding to the EUR's losing colourize.
The EUR/USD couple plummeted to the 1.4170 story yesterday. This came nigh as the current fate for the EUR against the USD maybe signals that the unexcelled is over for the Dweller nowness. This comes virtually as Teutonic banks grappling the danger of joint downgrades. The GBP/USD brace lapse by a monolithic 235 pips yesterday, as the Nation scheme is fairing worsened than the U.S. at the ongoing abstraction. It seems that the doings that we see now in the forex market signals that conditions may be pro a mathematical Bill recuperate in the business word against the GBP and EUR.
Today we may see a far bearish suggest for both the EUR and GBP against the most traded currencies. This is provided that economic conditions act to reckon the USD. There are teemingness of efficient intelligence events today that may influence this. These include the Swop Arrangement and the DCLG HPI figures from Britain at 08:30 GMT. Forthcoming out of the Euro-Zone are the Germanic Inalterable CPI and Germanic WPI at 06:00 GMT, and the Gallic Gov Budget Arrangement at 06:45 GMT. These figures are potential to resolve the EUR and GBP crosses in todays trading.
JPY - JPY Soars against the Student Currencies
On Mon, Nippon recorded a outstrip than likely gain in Machinery Orders in June, the position gain in 4 months. Yet, another collection showed that the Nipponese system was still in dire straits. Despite this, the Yen gained against its most traded currencies yesterday. For example, the GBP/JPY cover seam by 280 pips to the 159.74 direct. This occurred as a declination in circular equity markets led to a respond in riskier currencies, such as the GBP. Also, yesterday's gains characterize a reprehension from the bullishness we soul seen in the GBP/JPY and USD/JPY crosses in the once few weeks.
Today, there is yet other opportunity for the Yen to build on its recent gains as the globose frugality destabilizes yet again. This is despite the fact that development is foreseen to reverse to the U.S. economy in the 3rd person. There are 3 essential information events forthcoming out of Nihon that are foretold to propulsion JPY trading for often of the day. These let the Monetary Insurance Evidence, Long Say Grade and the BOJ Press Word. The results of these publications may see the JPY go bullish yet again today against the greenback, Land Hold and EUR.
Early Oil - Indecent Oil Slips Beneath $71
Unanalyzed Oil slipped 40 cents to $70.70 a barrel yesterday, as the Greenback rebounded against the EUR, which in release reduced the poverty for commodities as an disjunctive assets. Rude's fortunes were promote dampened yesterday, as there was a break in equities in both the U.S. and Continent. Additionally, commodities also suffered in yesterday's trading. One of the primary reasons for this was the fresh USD, which is highly fundamental, as Earthy Oil itself is priced in Dollars.
The dishonourable yellow may be helped today, if we see a break in the valuate of the USD. Playacting on Early Oil's downside too is the fact that demand can't have up with prices. Moreover, it seems that the toll of Oil may someone been overvalued as of ripe, and a lean fall in the industry may cross
Wholesale Prices Expected to Decline Sharply, Euro May Follow (Euro Open)
German wholesale prices are expected to have contracted by a sharp amount in July after labor data came in significantly weaker-than-expected. Asia saw the Bank of Japan state that conditions in the country had improved after a resurgence in exports and industrial production, but failed to give any hints as to whether the bank would raise its policy rate at any time in the coming months.
Key Overnight Developments
• Australian Business Confidence Rises to Two-Year High
• Bank of Japan Says Conditions Are Improving
• China Exports Surge on Rise in U.S. Demand
Critical Levels
Euro price action remained mostly calm throughout the day after five consecutive sessions in which the currency lost value against the U.S. Dollar. Losses on the pair may be coming to an end after inching closer toward upward sloping support dating back to the lows on 06/16, 07/08, and 07/30. At the time of this publishing the British Pound
Asia Session Highlights
New Zealand purchases made with either credit or debit cards rose by 0.8% in July after a month in which they fell by 1.0%. When adjust for seasonality effects, such transactions rose by 1.2%. Most of the activity came from the non-retail and consumables industries. This marks the fifth time in six months that the metric rises. As such, the trend for purchasing goods with electronic cards has been upward. A closer look reveals that New Zealanders have actually been reducing their reliance on credit. July marked the 10th straight month in which the annualized percentage of card purchases were based on credit declined.
Australian Business Confidence rose to a two-year high as global activity saw demand for Australian-made goods unexpectedly jump. Indeed a National Australian Bank survey of business confidence rose to an index level of 10 from a level of 4 in July. Marked by an impressive June, which saw the trade deficit shrink on a 1.5% gain in exports, businesses may be feeling a bit more optimistic about their future state. Reserve Bank of Australia seems to be sharing some of the sentiment. At their latest meeting on July 04, the bank stated that "economic conditions in Australia have to date not been as weak as expected a few months ago." Indeed, they also revised their growth estimate significantly upward by 0.5% after initially expecting the economy to contract by 1.0%.
China’s Exports surged ahead 10.5% in July from the month prior. The yearly figure, however, continued to decline from that of June. Overall, the trade balance actually improved to $10.63 billion from $8.25 billion. Business with the United States continued to improve for a second straight month as exports to the country jumped 14.21%.Despite the resurgence in export activity Consumer Prices in the nation declined more than expected by 1.8% vs 1.6%, marking the seventh straight month in which deflation gripped the economy.
Not surprisingly, the Bank of Japan left its policy rate at 0.10% by unanimous vote.The statement accompanying the release made it a clear point that “Japan’s economic conditions have stopped worsening.” They cited improvements in exports and production after Machine Orders rose 9.7% with such orders from abroad surging 43.8%.Overall exports had risen 6.3% as well. Despite the initially positive tone in the statement, the bank noted that there would likely be an acceleration in the rate at which prices decline.They did, however, state that a significant reason for the year-over-year decline in prices was due to the historically high cost of oil last summer compared to the price of the commodity at the present time. The Bank of Japan offered no new insights as to any possibly redirection in the manner that they conduct their monetary policy.
Euro Session: What to Expect
Germany will be releasing the final revision of July’s Consumer Price Index. Preliminary data showed that such prices declined 0.1% in the period, but had contracted 0.6% in the 12 months leading up. Wholesale Prices, however, will be more closely watched. The consensus forecast expects the price of raw goods to have declined by 9.7% in the year through July. A sharp move down is very likely after Retail Sales plummeted in the month prior. Expectations for the figure had called for an increase in such spending of 0.5%, but in reality, consumers reduced their expenditures by 1.8%. Decreases in the amount of inventory sold would lead store owners to also decrease the demand for the consumer goods they wish to sell. As such, one might expect production of these items to decline as well. Such a dynamic might then lead the sellers of wholesale goods to decrease their prices in an effort to induce manufacturers to purchase such materials while they’re still affordable. Furthermore, July saw employers within Germany shed 6,000 jobs after expectations had called for an increase of 43,000 of such positions. The downward pressure exerted on the broader price scheme by a country with dwindling working population will likely be seen in tomorrow’s data release.
The Visible Trade Balance for June is expected to have slightly improved from its current deficit into one that is not as wide. A move to a £6200 million deficit would be the best of such cases since May 2006. UK House Prices, according to the Department of Communities and Local Government (DCLG) are expected to have slowed the pace of deterioration in the year through June. We might, however, see the mentioned pace decline by even more than that which is expected by a survey of economists. During the Asian session we saw the RICS House Price Balance beat expectations by a significant amount. While forecasts called for this figure to decline by 10.0% (which still would have been better than the previous decline of 17.6%), the realized figure was published at -8.1%. This surprisingly optimistic result may spill into the DCLG figure.
Key Overnight Developments
• Australian Business Confidence Rises to Two-Year High
• Bank of Japan Says Conditions Are Improving
• China Exports Surge on Rise in U.S. Demand
Critical Levels
Euro price action remained mostly calm throughout the day after five consecutive sessions in which the currency lost value against the U.S. Dollar. Losses on the pair may be coming to an end after inching closer toward upward sloping support dating back to the lows on 06/16, 07/08, and 07/30. At the time of this publishing the British Pound
Asia Session Highlights
New Zealand purchases made with either credit or debit cards rose by 0.8% in July after a month in which they fell by 1.0%. When adjust for seasonality effects, such transactions rose by 1.2%. Most of the activity came from the non-retail and consumables industries. This marks the fifth time in six months that the metric rises. As such, the trend for purchasing goods with electronic cards has been upward. A closer look reveals that New Zealanders have actually been reducing their reliance on credit. July marked the 10th straight month in which the annualized percentage of card purchases were based on credit declined.
Australian Business Confidence rose to a two-year high as global activity saw demand for Australian-made goods unexpectedly jump. Indeed a National Australian Bank survey of business confidence rose to an index level of 10 from a level of 4 in July. Marked by an impressive June, which saw the trade deficit shrink on a 1.5% gain in exports, businesses may be feeling a bit more optimistic about their future state. Reserve Bank of Australia seems to be sharing some of the sentiment. At their latest meeting on July 04, the bank stated that "economic conditions in Australia have to date not been as weak as expected a few months ago." Indeed, they also revised their growth estimate significantly upward by 0.5% after initially expecting the economy to contract by 1.0%.
China’s Exports surged ahead 10.5% in July from the month prior. The yearly figure, however, continued to decline from that of June. Overall, the trade balance actually improved to $10.63 billion from $8.25 billion. Business with the United States continued to improve for a second straight month as exports to the country jumped 14.21%.Despite the resurgence in export activity Consumer Prices in the nation declined more than expected by 1.8% vs 1.6%, marking the seventh straight month in which deflation gripped the economy.
Not surprisingly, the Bank of Japan left its policy rate at 0.10% by unanimous vote.The statement accompanying the release made it a clear point that “Japan’s economic conditions have stopped worsening.” They cited improvements in exports and production after Machine Orders rose 9.7% with such orders from abroad surging 43.8%.Overall exports had risen 6.3% as well. Despite the initially positive tone in the statement, the bank noted that there would likely be an acceleration in the rate at which prices decline.They did, however, state that a significant reason for the year-over-year decline in prices was due to the historically high cost of oil last summer compared to the price of the commodity at the present time. The Bank of Japan offered no new insights as to any possibly redirection in the manner that they conduct their monetary policy.
Euro Session: What to Expect
Germany will be releasing the final revision of July’s Consumer Price Index. Preliminary data showed that such prices declined 0.1% in the period, but had contracted 0.6% in the 12 months leading up. Wholesale Prices, however, will be more closely watched. The consensus forecast expects the price of raw goods to have declined by 9.7% in the year through July. A sharp move down is very likely after Retail Sales plummeted in the month prior. Expectations for the figure had called for an increase in such spending of 0.5%, but in reality, consumers reduced their expenditures by 1.8%. Decreases in the amount of inventory sold would lead store owners to also decrease the demand for the consumer goods they wish to sell. As such, one might expect production of these items to decline as well. Such a dynamic might then lead the sellers of wholesale goods to decrease their prices in an effort to induce manufacturers to purchase such materials while they’re still affordable. Furthermore, July saw employers within Germany shed 6,000 jobs after expectations had called for an increase of 43,000 of such positions. The downward pressure exerted on the broader price scheme by a country with dwindling working population will likely be seen in tomorrow’s data release.
The Visible Trade Balance for June is expected to have slightly improved from its current deficit into one that is not as wide. A move to a £6200 million deficit would be the best of such cases since May 2006. UK House Prices, according to the Department of Communities and Local Government (DCLG) are expected to have slowed the pace of deterioration in the year through June. We might, however, see the mentioned pace decline by even more than that which is expected by a survey of economists. During the Asian session we saw the RICS House Price Balance beat expectations by a significant amount. While forecasts called for this figure to decline by 10.0% (which still would have been better than the previous decline of 17.6%), the realized figure was published at -8.1%. This surprisingly optimistic result may spill into the DCLG figure.
Dollar Continues to Rise on Jobs Boost
The movements we saw during Friday's trading session may have been exaggerated and may be reversed. Today is a quiet news day for the U.S. as there are no major economic data releases on the calendar today. However, Britain and Euro-zone appear to be releasing the bulk of today's news, which means we may see a day of trading with low liquidity and therefore increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.
USD - USD's Bullish Spike at an End?
Last Friday's release of the US Non-Farm Payroll figures drastically altered the forex market with a sharp uptrend for the US Dollar. Ending the week at 1.4181 against the EUR, down from the weekly high of 1.4447, and dropping the GBP/USD rate back towards the 1.6600 level, the greenback is beginning to benefit from positive economic news. Should forex traders go long on the USD? Not necessarily.
As was anticipated by many analysts, when economic recovery comes online, the first result will inevitably be a weakening of the USD versus its currency counterparts. As the world's number one safe-haven investment, the USD must by this definition suffer a significant loss as banks and investors dump their Dollar reserves for riskier assets and portfolio diversification. The immediate effect of the NFP report was a strong bullish movement priced in for the greenback, but the long-term trend will likely be a continuation of the bearishness experienced over the previous two weeks.
While some analysts claim that the recovery began prior to last week, and thus the USD may be reacting positively to favorable economic news, this is less likely to be the case. It may be more likely that global investors saw the sudden decrease in American unemployment as a sign that the US may be a calmer market to invest in, and not just as a safe-haven.
After the hectic news week experienced for the first week of August, this week may appear mild in comparison. With hardly any significant news being released from the United States until at least Wednesday, forex traders are advised to follow the British Pound as it may end up being this week's focal currency.
EUR - EUR Reaches near 2009 High against JPY
The EUR was one of the primary victims of Friday's Non-Farm Payroll release from the United States. After the release, which showed employment shrinking much slower than expected, and witnessing the first drop in the Unemployment Rate since May of 2008, the EUR saw a sharp sell-off with investors' protective strategies adding downward pressure on the EUR as the price fell below significant resistance levels, triggering massive Stop Orders.
Good news for the EUR is that it was not the biggest loser on the day last Friday. It managed to cling to a few of the gains made Thursday against the Pound, and reached a year high of 138.69 against the JPY. While the bearish move experienced against the USD appeared to be a reversal to the EUR's bullishness, many analysts actually claim that this spike merely represents values which had been priced in before the NFP release. Now that the market is on the path to recovery, the safe-haven USD should enter a sell-off phase of its own and push its rival currencies to new highs in the near future.
For the days ahead, forex traders should focus their attention away from the Euro-Zone for their economic news, primarily as there will be very little news coming from Europe this week. Most attention will be placed on Great Britain following its announcement of the increase in quantitative easing from 125B Pounds to 175B. This week's announcements from the UK will no doubt assist traders in determining the direction of the GBP for this week and next.
JPY - JPY Drops from Surging Risk Appetite and Dollar Strength
What most analysts are now calling Friday's biggest loser, the Japanese yen suffered more than any other currency following the release of America's Non-Farm Payroll data. The JPY indeed plummeted to price levels near 2009 lows against the EUR and GBP, prices of 138.69 and 163.08, respectively. Against the USD, the JPY dropped to 97.76, a price level unseen since mid-June.
The surge in risk appetite, and the sudden spike of the USD combined to put insurmountable pressure on the island currency last Friday, causing major breakouts to occur in the moments after the release of the NFP report. With a surprisingly heavy news week for the Japanese currency ahead of forex traders, there is the possibility for this bearishness to continue, since many are expecting positive results which may likely boost the appetite for risk in the market and thus put additional selling pressure on the traditional safe-havens like the JPY and USD.
Crude Oil - Crude Oil Hits 10-Month High, then Tumbles
The price of Crude Oil spiked on Friday, following the sudden surge in market volatility after the release of US Non-Farm Payrolls. Prices climaxed at a 10-month high of $72.81 before tumbling back towards the $70 price level. Much of the market pressure and volatility was correlated with the strength of the US Dollar.
The sell-off of the USD following the report pushed oil prices higher, however, the sudden rapid sell-off of all other currencies directly thereafter led to a surprising surge in the value of the Dollar. Considering the greenback's relationship to commodities, the price of Crude Oil mirrored the movements of the EUR/USD almost perfectly, with a strong upward surge followed by an even more rapid decline. Now that the market appears to have stabilized, the growth pattern forecast by many economists may very well be underway. If predictions are correct, the USD should drop in the coming weeks and oil prices should climb as a result.
USD - USD's Bullish Spike at an End?
Last Friday's release of the US Non-Farm Payroll figures drastically altered the forex market with a sharp uptrend for the US Dollar. Ending the week at 1.4181 against the EUR, down from the weekly high of 1.4447, and dropping the GBP/USD rate back towards the 1.6600 level, the greenback is beginning to benefit from positive economic news. Should forex traders go long on the USD? Not necessarily.
As was anticipated by many analysts, when economic recovery comes online, the first result will inevitably be a weakening of the USD versus its currency counterparts. As the world's number one safe-haven investment, the USD must by this definition suffer a significant loss as banks and investors dump their Dollar reserves for riskier assets and portfolio diversification. The immediate effect of the NFP report was a strong bullish movement priced in for the greenback, but the long-term trend will likely be a continuation of the bearishness experienced over the previous two weeks.
While some analysts claim that the recovery began prior to last week, and thus the USD may be reacting positively to favorable economic news, this is less likely to be the case. It may be more likely that global investors saw the sudden decrease in American unemployment as a sign that the US may be a calmer market to invest in, and not just as a safe-haven.
After the hectic news week experienced for the first week of August, this week may appear mild in comparison. With hardly any significant news being released from the United States until at least Wednesday, forex traders are advised to follow the British Pound as it may end up being this week's focal currency.
EUR - EUR Reaches near 2009 High against JPY
The EUR was one of the primary victims of Friday's Non-Farm Payroll release from the United States. After the release, which showed employment shrinking much slower than expected, and witnessing the first drop in the Unemployment Rate since May of 2008, the EUR saw a sharp sell-off with investors' protective strategies adding downward pressure on the EUR as the price fell below significant resistance levels, triggering massive Stop Orders.
Good news for the EUR is that it was not the biggest loser on the day last Friday. It managed to cling to a few of the gains made Thursday against the Pound, and reached a year high of 138.69 against the JPY. While the bearish move experienced against the USD appeared to be a reversal to the EUR's bullishness, many analysts actually claim that this spike merely represents values which had been priced in before the NFP release. Now that the market is on the path to recovery, the safe-haven USD should enter a sell-off phase of its own and push its rival currencies to new highs in the near future.
For the days ahead, forex traders should focus their attention away from the Euro-Zone for their economic news, primarily as there will be very little news coming from Europe this week. Most attention will be placed on Great Britain following its announcement of the increase in quantitative easing from 125B Pounds to 175B. This week's announcements from the UK will no doubt assist traders in determining the direction of the GBP for this week and next.
JPY - JPY Drops from Surging Risk Appetite and Dollar Strength
What most analysts are now calling Friday's biggest loser, the Japanese yen suffered more than any other currency following the release of America's Non-Farm Payroll data. The JPY indeed plummeted to price levels near 2009 lows against the EUR and GBP, prices of 138.69 and 163.08, respectively. Against the USD, the JPY dropped to 97.76, a price level unseen since mid-June.
The surge in risk appetite, and the sudden spike of the USD combined to put insurmountable pressure on the island currency last Friday, causing major breakouts to occur in the moments after the release of the NFP report. With a surprisingly heavy news week for the Japanese currency ahead of forex traders, there is the possibility for this bearishness to continue, since many are expecting positive results which may likely boost the appetite for risk in the market and thus put additional selling pressure on the traditional safe-havens like the JPY and USD.
Crude Oil - Crude Oil Hits 10-Month High, then Tumbles
The price of Crude Oil spiked on Friday, following the sudden surge in market volatility after the release of US Non-Farm Payrolls. Prices climaxed at a 10-month high of $72.81 before tumbling back towards the $70 price level. Much of the market pressure and volatility was correlated with the strength of the US Dollar.
The sell-off of the USD following the report pushed oil prices higher, however, the sudden rapid sell-off of all other currencies directly thereafter led to a surprising surge in the value of the Dollar. Considering the greenback's relationship to commodities, the price of Crude Oil mirrored the movements of the EUR/USD almost perfectly, with a strong upward surge followed by an even more rapid decline. Now that the market appears to have stabilized, the growth pattern forecast by many economists may very well be underway. If predictions are correct, the USD should drop in the coming weeks and oil prices should climb as a result.
Japan's Reliance on the World Pays Off As Exports Jump (Euro Open)
Japan dominated Asian headlines after its Current Account Balance surged to a 13-month high and its Machine Orders jumped by the most since April of 2008. A 6.3% rise in exports sent the Nikkei rallying 1.21% by 00:00 EST. Price action on the Japanese Yen initially reacted favorably, but ultimately lost its footing.
Key Overnight Developments
• Japanese Machine Orders Rise by Most in 14 Months
• Current Account Balance in Japan Surges on Exports
Critical Levels
Euro and Pound action against the U.S. Dollar opened the week similarly to each other after labor figures came in stronger than expected for the American country at the end of trading on Friday. Both pairs found themselves trading tangent to the 200-hour moving average with the slow stochastic oscillator suggesting both EUR/USD and GBP/USD rising from “oversold” conditions.
Asia Session Highlights
Japanese Machine Orders, when excluding ships and utilities, June rose by 9.7% in June, beating expectations of a 2.6% increase in the figure. The latest release is the highest of such since April of 2008. Last month’s release saw orders for such industrial needs contract by 3.0%. Most of the increase in demand in June came from abroad, growing 43.8% on the month. The domestic public sector weighed in only slightly. Overall, when including when including orders for ships and utilities, total orders rose only 2.3% with private demand actually slipping by 15.9%. But it is important to strip the metric of boat orders because such expenditures are generally used for military or freighters. Still, it may somewhat worrisome to see such a substantial gap between the headline figure and the figure with the two excluded items. Such a great magnitude in difference may indicate that orders for the two products are generally quite large.
Japan's Current Account Balance, when adjusted for fluctuations in the Yen exchange rate, surged to it's highest level since May 2008 to 1798.8 billion Yen. The news comes as demand for Japanese industrial products from abroad jumped ahead. In fact, the demand for machinery from other countries made a leap of 43.8% in the month alone. In it's third rise in four months, the Trade Balance made a sizable move ahead to 602.2 billion Yen. With a 6.3% increase in its exports, the Asian country may soon be moving out of recession. But much of this good news comes on the back of conditions abroad. The risk here, then, is that if other countries experience a downturn then Japan will surely go down just as quickly.
Home Loans in Australia got a boost in June as well, rising 1.1% after the sharp upward revision of 6.2% in the month prior. Despite posting a 9th straight month of growth, the economy still remains weak. Estimates for the latest figure had called for a much stronger 1.8% increase in the metric. It is thus no wonder that Investment Lending in the same month declined for the first time since February. Perhaps the Australian economy isn’t as resilient as many had originally hoped. May’s such lending was also weaker than initially thought after it was revised down 0.6 percentage points to 1.8%.
Euro Session: What to Expect
The light European calendar offers some insight into the current direction of the region’s economic environment. French Industrial Production, expected to rise 0.2% in July, will be coming off of the largest monthly gain in the figure since November of 2005. This current estimate may be substantially conservative; afterall, the previous month’s expectations called for a 0.2% contraction. Clearly such estimates proved to be poor. Previously released data may also show that French production may be on a spree. The Purchasing Manufacturer’s Index of Manufacturing rose to its highest level since June of 2008. Manufacturing Orders in the country are also expected to rise on the month. Like the industrial production figure, manufacturing orders performed unusually strong in the previous month.
Key Overnight Developments
• Japanese Machine Orders Rise by Most in 14 Months
• Current Account Balance in Japan Surges on Exports
Critical Levels
Euro and Pound action against the U.S. Dollar opened the week similarly to each other after labor figures came in stronger than expected for the American country at the end of trading on Friday. Both pairs found themselves trading tangent to the 200-hour moving average with the slow stochastic oscillator suggesting both EUR/USD and GBP/USD rising from “oversold” conditions.
Asia Session Highlights
Japanese Machine Orders, when excluding ships and utilities, June rose by 9.7% in June, beating expectations of a 2.6% increase in the figure. The latest release is the highest of such since April of 2008. Last month’s release saw orders for such industrial needs contract by 3.0%. Most of the increase in demand in June came from abroad, growing 43.8% on the month. The domestic public sector weighed in only slightly. Overall, when including when including orders for ships and utilities, total orders rose only 2.3% with private demand actually slipping by 15.9%. But it is important to strip the metric of boat orders because such expenditures are generally used for military or freighters. Still, it may somewhat worrisome to see such a substantial gap between the headline figure and the figure with the two excluded items. Such a great magnitude in difference may indicate that orders for the two products are generally quite large.
Japan's Current Account Balance, when adjusted for fluctuations in the Yen exchange rate, surged to it's highest level since May 2008 to 1798.8 billion Yen. The news comes as demand for Japanese industrial products from abroad jumped ahead. In fact, the demand for machinery from other countries made a leap of 43.8% in the month alone. In it's third rise in four months, the Trade Balance made a sizable move ahead to 602.2 billion Yen. With a 6.3% increase in its exports, the Asian country may soon be moving out of recession. But much of this good news comes on the back of conditions abroad. The risk here, then, is that if other countries experience a downturn then Japan will surely go down just as quickly.
Home Loans in Australia got a boost in June as well, rising 1.1% after the sharp upward revision of 6.2% in the month prior. Despite posting a 9th straight month of growth, the economy still remains weak. Estimates for the latest figure had called for a much stronger 1.8% increase in the metric. It is thus no wonder that Investment Lending in the same month declined for the first time since February. Perhaps the Australian economy isn’t as resilient as many had originally hoped. May’s such lending was also weaker than initially thought after it was revised down 0.6 percentage points to 1.8%.
Euro Session: What to Expect
The light European calendar offers some insight into the current direction of the region’s economic environment. French Industrial Production, expected to rise 0.2% in July, will be coming off of the largest monthly gain in the figure since November of 2005. This current estimate may be substantially conservative; afterall, the previous month’s expectations called for a 0.2% contraction. Clearly such estimates proved to be poor. Previously released data may also show that French production may be on a spree. The Purchasing Manufacturer’s Index of Manufacturing rose to its highest level since June of 2008. Manufacturing Orders in the country are also expected to rise on the month. Like the industrial production figure, manufacturing orders performed unusually strong in the previous month.
Euro, British Pound in Play Ahead of Key Interest Rate Decisions (Euro Open)
The Euro and the British Pound may see volatility in European trading hours with pivotal interest rate decisions on tap from the European Central Bank and the Bank of England. While neither central bank is likely to change benchmark lending rates, the commentary surrounding the releases is of utmost interest.
Key Overnight Developments
• New Zealand’s Jobless Rate Surges to Highest in Nearly a Decade
• Australian Unemployment Rate Holds Steady on Part-Time Job Gains
Critical Levels
The Euro and the British Pound oscillated near familiar levels in overnight session to stand effectively unchanged ahead of the opening bell in Europe as traders braced for volatility ahead of interest rate announcements from the Bank of England and the European Central Bank.
Asia Session Highlights
New Zealand’s Unemployment Rate surged more than economists expected, rising a full percentage point through the second quarter to register at 6.0%, the highest in nearly 10 years. On balance, the report in and of itself does not introduce a significant change to the near-term outlook for the smaller antipodean nation. Indeed, the central bank noted in June and reaffirmed last week that the labor market is projected to continue deteriorating “well into 2010”. The release is significant in terms of its implications for wage growth and thereby the overall trajectory of inflation. Private wages rose at the slowest pace in 9 years in the second quarter and outsized gains in the jobless rate point to more of the same ahead, creating a supportive environment for the central bank to lower benchmark interest rates. As we noted in this week’s New Zealand Dollar weekly forecast, a rate cut is the next logical step to help decouple the domestic currency from risk trends and check its recent appreciation, which has weighed on exports and thereby “derailed” the economy according to Prime Minister John Key as well as “complicated” the necessary adjustments to New Zealand’s public and current account deficits according to Fitch, a ratings agency.
Turning to Australia, headline labor market figures surprised to the upside: the Unemployment Rate held steady at 5.8% in July, marking only the second time that the figure did not rise since August of last year. The details of the report are not nearly as rosy as the headline outcome seems, however. Part-time hiring accounted for all of the 32.2K net jobs gain in July; indeed, full-time employment fell by 16K. Looking at the longer-term picture of employment trends, full time positions have fallen -189.4K in the 12 months from July 2008 while part time jobs have gained a nearly equivalent 190.7K over the same period. Simply put, this means that over the past year, around 190,000 Australians were transferred from full-time to part-time employment and thereby from higher to lower wages. Needless to say, this does not bode well for consumer spending and by extension for overall economic growth.
Euro Session: What to Expect
Interest rate decisions from the European Central Bank and the Bank of England headline the economic calendar in European hours. For the ECB, the name of the game is deflation. Consumer prices have now registered in negative for two months straight and are likely to continue along the same trajectory with producer prices shrinking at a record annual rate of -6.6%. Downward price pressure born of overall economic weakness is being compounded by a buoyant currency, which has boosted the Euro’s purchasing power and thereby helped to drive costs downward. Needless to say, entrenching expectations of lower prices in the future threaten to commit the Euro Zone to prolonged stagnation as consumers and businesses wait for the best possible bargain and perpetually delay spending and investment. Up to this point, Jean-Claude Trichet and company have focused primarily on offering banks unlimited borrowing ability, including an unprecedented 442 billion euro in 12-month bank loans, in the hopes that this would be passed on to the overall economy to both stimulate growth and put a floor on prices by making money cheaper. So far, this has not worked: although interbank borrowing costs have stayed well below 0.5% for over two months, this has not filtered through into the economy at large. Indeed, loans to Euro Zone businesses and households grew just 1.5% in June, the lowest since records began in 1991. European banks have yet to come to terms with an estimated $1.1 trillion in unrealized sub-prime related losses (courtesy of the IMF), a hit that could be compounded by losses from default or devaluation in some of the newly-minted EU member states, and so may be perfectly content to sit on the money they have borrowed for the time being. The ECB has also flirted with the direct approach, putting in place a 60 billion euro bond-buying scheme. Although it is too early to tell for certain, this seems too small of a program to have any meaningful impact. Bottom line, greater monetary easing is clearly needed if deflation is to be averted. A rate cut is probably too much to ask for and would be largely a moot point considering the bank has clearly allowed real overnight lending rates to drift much lower than the 1% target level. Rather, traders will be watching Jean-Claude Trichet’s post-announcement Q&A session for any clues that policymakers are open to expanding upon the current asset-buying program. The likelihood of such an outcome hinges entirely on the ECB’s perception of the moderate stabilization in leading economic indicators over recent months: if the bank believes that current trends could lead to a sustainable recovery, a wait-and-see approach is likely; conversely, if the bank sees the current environment as a temporary reprieve courtesy of government spending and (overly) optimistic financial markets, additional measures will be taken. Given the ECB’s perennially slow-moving approach to monetary policy, we tend to lead towards the former outcome, although the latter surely seems more prudent.
Turning to the BOE, an actual change in benchmark borrowing costs is effectively off the table, but traders will be closely watching to see if policymakers choose to ramp up quantitative easing measures after promising to “review the scale” of the program for the August rate decision in conjunction with the release of their quarterly inflation report. Despite the BOE’s apparent optimism and signs of stabilization in some leading indicators, economic growth disappointed in the second quarter, bolstering dovish arguments from the likes of the British Chamber of Commerce and the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-based Institute of Economic Affairs). Further, as has been aptly noted by DailyFX Strategist Terri Belkas, the BOE has not done a whole lot better than the ECB having largely failed to affect lending to the real economy. Indeed, loans to non-financial firms fell by a record 14.7 billion pounds while the pace of money supply growth fell for the first time in close to a decade in the second quarter. The question facing the central bank now is whether they believe expanding the QE program by 25 billion pounds will make much of a difference to the program’s success considering 125 billion pounds have already been put in use (a total of 150 billion was authorized by the government). On balance, policymakers could make use of the recent upswing in sentiment as cover to retire the program and wait for the positive vibes now swirling around the world economy to become a self-fulfilling prophecy. Unfortunately, we are of the view that this will prove to be wishful thinking in the coming months as the flow of government cash dries up while equity markets are shown to be grossly overvalued and begin to retreat. Indeed, stocks finished July trading at the highest level relative to earnings since October 2003, which seems more than a little overdone considering the kind of revenue growth that can be expected in a year when real global output is set to shrink for the first time in the postwar period. How the BOE will deal with such an outcome remains a mystery for the time being.
Key Overnight Developments
• New Zealand’s Jobless Rate Surges to Highest in Nearly a Decade
• Australian Unemployment Rate Holds Steady on Part-Time Job Gains
Critical Levels
The Euro and the British Pound oscillated near familiar levels in overnight session to stand effectively unchanged ahead of the opening bell in Europe as traders braced for volatility ahead of interest rate announcements from the Bank of England and the European Central Bank.
Asia Session Highlights
New Zealand’s Unemployment Rate surged more than economists expected, rising a full percentage point through the second quarter to register at 6.0%, the highest in nearly 10 years. On balance, the report in and of itself does not introduce a significant change to the near-term outlook for the smaller antipodean nation. Indeed, the central bank noted in June and reaffirmed last week that the labor market is projected to continue deteriorating “well into 2010”. The release is significant in terms of its implications for wage growth and thereby the overall trajectory of inflation. Private wages rose at the slowest pace in 9 years in the second quarter and outsized gains in the jobless rate point to more of the same ahead, creating a supportive environment for the central bank to lower benchmark interest rates. As we noted in this week’s New Zealand Dollar weekly forecast, a rate cut is the next logical step to help decouple the domestic currency from risk trends and check its recent appreciation, which has weighed on exports and thereby “derailed” the economy according to Prime Minister John Key as well as “complicated” the necessary adjustments to New Zealand’s public and current account deficits according to Fitch, a ratings agency.
Turning to Australia, headline labor market figures surprised to the upside: the Unemployment Rate held steady at 5.8% in July, marking only the second time that the figure did not rise since August of last year. The details of the report are not nearly as rosy as the headline outcome seems, however. Part-time hiring accounted for all of the 32.2K net jobs gain in July; indeed, full-time employment fell by 16K. Looking at the longer-term picture of employment trends, full time positions have fallen -189.4K in the 12 months from July 2008 while part time jobs have gained a nearly equivalent 190.7K over the same period. Simply put, this means that over the past year, around 190,000 Australians were transferred from full-time to part-time employment and thereby from higher to lower wages. Needless to say, this does not bode well for consumer spending and by extension for overall economic growth.
Euro Session: What to Expect
Interest rate decisions from the European Central Bank and the Bank of England headline the economic calendar in European hours. For the ECB, the name of the game is deflation. Consumer prices have now registered in negative for two months straight and are likely to continue along the same trajectory with producer prices shrinking at a record annual rate of -6.6%. Downward price pressure born of overall economic weakness is being compounded by a buoyant currency, which has boosted the Euro’s purchasing power and thereby helped to drive costs downward. Needless to say, entrenching expectations of lower prices in the future threaten to commit the Euro Zone to prolonged stagnation as consumers and businesses wait for the best possible bargain and perpetually delay spending and investment. Up to this point, Jean-Claude Trichet and company have focused primarily on offering banks unlimited borrowing ability, including an unprecedented 442 billion euro in 12-month bank loans, in the hopes that this would be passed on to the overall economy to both stimulate growth and put a floor on prices by making money cheaper. So far, this has not worked: although interbank borrowing costs have stayed well below 0.5% for over two months, this has not filtered through into the economy at large. Indeed, loans to Euro Zone businesses and households grew just 1.5% in June, the lowest since records began in 1991. European banks have yet to come to terms with an estimated $1.1 trillion in unrealized sub-prime related losses (courtesy of the IMF), a hit that could be compounded by losses from default or devaluation in some of the newly-minted EU member states, and so may be perfectly content to sit on the money they have borrowed for the time being. The ECB has also flirted with the direct approach, putting in place a 60 billion euro bond-buying scheme. Although it is too early to tell for certain, this seems too small of a program to have any meaningful impact. Bottom line, greater monetary easing is clearly needed if deflation is to be averted. A rate cut is probably too much to ask for and would be largely a moot point considering the bank has clearly allowed real overnight lending rates to drift much lower than the 1% target level. Rather, traders will be watching Jean-Claude Trichet’s post-announcement Q&A session for any clues that policymakers are open to expanding upon the current asset-buying program. The likelihood of such an outcome hinges entirely on the ECB’s perception of the moderate stabilization in leading economic indicators over recent months: if the bank believes that current trends could lead to a sustainable recovery, a wait-and-see approach is likely; conversely, if the bank sees the current environment as a temporary reprieve courtesy of government spending and (overly) optimistic financial markets, additional measures will be taken. Given the ECB’s perennially slow-moving approach to monetary policy, we tend to lead towards the former outcome, although the latter surely seems more prudent.
Turning to the BOE, an actual change in benchmark borrowing costs is effectively off the table, but traders will be closely watching to see if policymakers choose to ramp up quantitative easing measures after promising to “review the scale” of the program for the August rate decision in conjunction with the release of their quarterly inflation report. Despite the BOE’s apparent optimism and signs of stabilization in some leading indicators, economic growth disappointed in the second quarter, bolstering dovish arguments from the likes of the British Chamber of Commerce and the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-based Institute of Economic Affairs). Further, as has been aptly noted by DailyFX Strategist Terri Belkas, the BOE has not done a whole lot better than the ECB having largely failed to affect lending to the real economy. Indeed, loans to non-financial firms fell by a record 14.7 billion pounds while the pace of money supply growth fell for the first time in close to a decade in the second quarter. The question facing the central bank now is whether they believe expanding the QE program by 25 billion pounds will make much of a difference to the program’s success considering 125 billion pounds have already been put in use (a total of 150 billion was authorized by the government). On balance, policymakers could make use of the recent upswing in sentiment as cover to retire the program and wait for the positive vibes now swirling around the world economy to become a self-fulfilling prophecy. Unfortunately, we are of the view that this will prove to be wishful thinking in the coming months as the flow of government cash dries up while equity markets are shown to be grossly overvalued and begin to retreat. Indeed, stocks finished July trading at the highest level relative to earnings since October 2003, which seems more than a little overdone considering the kind of revenue growth that can be expected in a year when real global output is set to shrink for the first time in the postwar period. How the BOE will deal with such an outcome remains a mystery for the time being.
Thursday, July 30, 2009
Greenback Rebounds from Earlier Lows
The U.S dollar drifted sideways against a basket of currencies on Wednesday, hovering not far from the lowest level of the year, as investors continue to assess the real economy by looking at economic data in the U.S. Nonetheless, the U.S. dollar had found modest support against the EUR and trimmed a loss against the Japanese yen after some positive news about the U.S. economy. With signs that the U.S. housing market may be stabilizing, traders will also be examining U.S. consumption and employment conditions in coming data.
USD - Weak Consumer Confidence Boosts the U.S Dollar
The Dollar rose from the lowest level this year against most of its major currency counterparts on revived demand for the safety of the world's main reserve currency.
The resurgence in risk aversion came after the Conference Board's U.S. Consumer Confidence Index dropped to 46.6 from 49.3 in June; a worse result than the expected 49, reinforcing concerns that higher unemployment will hurt consumer sentiment. Contributing further to the demand for the safety of the American currency were the declines in stock markets.
The market also awaits more U.S. Treasury auctions this week and the effect on yield moves. A record $42 billion two-year Treasury auction on Tuesday had little impact on the currency market, although details of the outcome were not encouraging for the dollar.
Looking ahead to today, traders should follow the release of the Core Durable Goods Orders due at 12:30 GMT. After the disappointing results of the Consumer Confidence Index and the recent weak second quarter earning results, any worse than expected result will further dampen risk appetite and likely push the Dollar further up.
EUR - EUR fails to Breach the $1.43 Level
The EUR rose above $1.43 Tuesday morning, its highest level in about 8 weeks. However, by early afternoon Tuesday it was at $1.4155, down from $1.424 late Monday. The EUR also fell 1.1% against the Yen to 134.04 from 135.48 Monday. The decline came as equities dropped and investors turned to the safety of the Japanese and American currencies.
While mostly appreciating, the EUR is having difficulties pushing past important resistance levels, failing to stay above the significant $1.43 level. This is do to milder gains on the European Stock markets combined with investor's caution ahead of the release of the U.S second quarter GDP this coming Friday and the Non Farm Employment report due next Friday.
Along with movements in equities, the release of the German Prelim CPI throughout the day is also expected to cause market volatility, possibly pushing the EUR back to the $1.43 level.
JPY - Yen Gains on Return of Risk Aversion
The Yen rose yesterday against most of its 16 major counterparts advancing versus the EUR for the first time in 4 days as a bigger than forecasted drop in U.S. Consumer Confidence this month discouraged investors from buying higher-yielding assets.
Furthermore, as the Yen is highly correlated with movements in equities, yesterday's disappointing second quarter earnings and the consequent drop in global stock markets further assisted the Yen's rise. With no major news releases from Japan, risk sentiment will likely continue being the driving force behind the JPY's movements.
Crude Oil - Crude Prices Tumble after an 11 Day Rally
Crude oil for September delivery fell $1.15, or 1.7%, to $67.23 a barrel Tuesday; hitting an intraday low of $66.60. Crude Oil tumbled as U.S Consumer Confidence fell, boosting concerns over recovery in demand. Lower than estimated second quarter earning also put pressure on Oil Prices. With a negative Oil forecast from British Petroleum (BP) and a continuing climb in U.S Oil inventories, the sentiment turned bearish on Oil prices.
Movements in equities as well as Dollar sentiment will likely be the driving force behind Oil trading today, as a strong Dollar tends to put downward pressure on Oil prices. Furthermore, traders should follow the release of the U.S Crude Oil Inventories at 14:30 GMT today as this release tends to create great volatility in Oil Prices.
USD - Weak Consumer Confidence Boosts the U.S Dollar
The Dollar rose from the lowest level this year against most of its major currency counterparts on revived demand for the safety of the world's main reserve currency.
The resurgence in risk aversion came after the Conference Board's U.S. Consumer Confidence Index dropped to 46.6 from 49.3 in June; a worse result than the expected 49, reinforcing concerns that higher unemployment will hurt consumer sentiment. Contributing further to the demand for the safety of the American currency were the declines in stock markets.
The market also awaits more U.S. Treasury auctions this week and the effect on yield moves. A record $42 billion two-year Treasury auction on Tuesday had little impact on the currency market, although details of the outcome were not encouraging for the dollar.
Looking ahead to today, traders should follow the release of the Core Durable Goods Orders due at 12:30 GMT. After the disappointing results of the Consumer Confidence Index and the recent weak second quarter earning results, any worse than expected result will further dampen risk appetite and likely push the Dollar further up.
EUR - EUR fails to Breach the $1.43 Level
The EUR rose above $1.43 Tuesday morning, its highest level in about 8 weeks. However, by early afternoon Tuesday it was at $1.4155, down from $1.424 late Monday. The EUR also fell 1.1% against the Yen to 134.04 from 135.48 Monday. The decline came as equities dropped and investors turned to the safety of the Japanese and American currencies.
While mostly appreciating, the EUR is having difficulties pushing past important resistance levels, failing to stay above the significant $1.43 level. This is do to milder gains on the European Stock markets combined with investor's caution ahead of the release of the U.S second quarter GDP this coming Friday and the Non Farm Employment report due next Friday.
Along with movements in equities, the release of the German Prelim CPI throughout the day is also expected to cause market volatility, possibly pushing the EUR back to the $1.43 level.
JPY - Yen Gains on Return of Risk Aversion
The Yen rose yesterday against most of its 16 major counterparts advancing versus the EUR for the first time in 4 days as a bigger than forecasted drop in U.S. Consumer Confidence this month discouraged investors from buying higher-yielding assets.
Furthermore, as the Yen is highly correlated with movements in equities, yesterday's disappointing second quarter earnings and the consequent drop in global stock markets further assisted the Yen's rise. With no major news releases from Japan, risk sentiment will likely continue being the driving force behind the JPY's movements.
Crude Oil - Crude Prices Tumble after an 11 Day Rally
Crude oil for September delivery fell $1.15, or 1.7%, to $67.23 a barrel Tuesday; hitting an intraday low of $66.60. Crude Oil tumbled as U.S Consumer Confidence fell, boosting concerns over recovery in demand. Lower than estimated second quarter earning also put pressure on Oil Prices. With a negative Oil forecast from British Petroleum (BP) and a continuing climb in U.S Oil inventories, the sentiment turned bearish on Oil prices.
Movements in equities as well as Dollar sentiment will likely be the driving force behind Oil trading today, as a strong Dollar tends to put downward pressure on Oil prices. Furthermore, traders should follow the release of the U.S Crude Oil Inventories at 14:30 GMT today as this release tends to create great volatility in Oil Prices.
The Currency Market Keeps on Eye on U.S.-China Dialogue
The U.S dollar remained weak against its major currencies in range-bound trade on Monday as U.S. equity markets remained in negative territory, indicating waning desire among investors for riskier assets. Also Monday, U.S. and Chinese officials began meeting for two days of economic talks, though many analysts questioned whether anything substantial would emerge. Nevertheless, traders will be on alert for any commentary regarding the U.S. dollar's status as a reserve currency. China is the biggest foreign investor in U.S. government debt, and any decline in demand could push up borrowing costs.
USD - Dollar Goes Volatile on Optimistic Homes Sales Data
The U.S. Dollar experienced an extremely volatile trading day on Monday, as the New Home Sales data was released from the U.S. economy. The result was a better-than-forecast 384,000 homes versus the previous release of 346,000 homes. This is a whopping 11% increase, the biggest monthly increase since December 2000. This led to many analysts stating that this is the end of the U.S. housing slump. The result led to volatile USD trading. Moreover, the Dollar closed lower against some of its main currency pairs, due to optimistic data from regions such as the Euro-Zone.
At one point in trading the USD actually reached a 7-week low vs. the EUR at 1.4299. This was following the extremely optimistic German consumer confidence figures. However, the pair finally closed 33 pips higher at the 1.4246 level. The USD recorded its second daily loss in a row of 30 pips against the British Pound, as the GBP/USD finished trading at the 1.6484 level. This comes about as optimistic data from Britain continues to drive up the British currency. The USD/JPY pair finished higher, to close at the 95.17 rate. This comes about as the Yen falls from higher risk appetite.
Looking ahead to today, forex traders can expect plenty of news coming out of the U.S. The most important of this being the CB Consumer Confidence figures at 14:00 GMT, the speech by Federal Reserve Chairman Ben Bernanke at 22:00 GMT, and the speech by Treasury Secretary Timothy Geithner from 23:00 GMT. These 3 events are set to determine the level of the Dollar as Tuesday's trading takes off. The big 3 pairs to watch today are the EUR/USD, GBP/USD, and USD/JPY, as traders anticipate a weaker U.S. currency as the U.S. economy continues to recover.
EUR - EUR Boosted by German Consumer Confidence Figures
The EUR hit a 7-week high versus the USD in Monday's trading, following the Gfk German Consumer Climate figures. The result showed a 14 month high 3.5, significantly higher than the forecasted 2.9. This helped the EUR strengthen throughout Monday's trading. The reason why this data is so significant is due to Germany being the largest economy in the Euro-Zone. The EUR also was helped as U.S. New Home Sales jumped 11%. The EUR is likely to continue benefiting from the optimistic economic news.
The EUR/USD cross hit 1.4299, before closing 33 pips higher at the 1.4246 level. However, the European currency fell by 15 pips vs. the British Pound to 0.8635. This may be due to investors buying-up Pounds as risk appetite increases with more and more signs of global economic recovery. The EUR/JPY pair climbed by over 35 pips to the 1.3532 level, as traders continued to ditch the JPY due to preferring riskier assets, such as the EUR and GBP. Therefore, overall, the EUR did make some reasonable gains in Monday's trading.
Today, we won't be expecting much economic news coming out of the Euro-Zone. However, Britain and Switzerland are likely to be the key drivers of the European currencies later today. Britain is set to release the CBI Realized Sales figures at 10:00 GMT. Switzerland is scheduled to publish the UBS Consumption Indicator at 06:00 GMT. The results of both of these are set to drive both the GBP and CHF in today's trading. Additionally, the EUR will go volatile on both of these publications, and on key data coming out of the U.S. throughout today's trading.
JPY - Yen Falls to 3-Week Low vs. Dollar
The Yen fell to a 3-week low against the Dollar yesterday, in response to the rise in new U.S. home sales. The Yen also weakened on speculation that declines in currency volatility will spur carry trades. In carry trades, investors borrow at a low rate in one country and invest in another country with higher returns. This behavior is likely to continue as the main economies improve, and traders sell-off the safe-haven JPY. Thus the Japanese currency fell over 30 pips against the USD, EUR and GBP.
It is likely that the Yen will continue to decline today, as forex traders continue to take into account the optimistic economic data that was published from the U.S. and the Euro-Zone. The JPY will go very volatile in late trading, as Japanese Retail Sales are published at 23:50 GMT. It would be a wise choice for forex traders to open their JPY positions now in order to have the opportunity to profit from volatile market behavior as Tuesday's trading commences.
Crude Oil - Crude Oil Hits 3-Week High
Crude Oil hit a 3-week high of $68.94 a barrel on Monday, as the USD declined in response to positive housing data from the U.S. However, weaker earnings figures in some instances pushed Oil down from its peak, as the commodity finished trading at about $68.06 a barrel. Crude was also helped by a weaker Dollar in earlier trading due to positive economic news from Germany. However, it seems that in this instance, risk appetite wasn't strong enough to hold-up the value of Crude Oil on Monday.
As for today, Crude prices may rise if the USD weakens considerably, and there is increasingly optimistic economic news led by the U.S. Additionally, traders need to feel that there is enough demand to support Crude Oil at its current price level. In order to take advantage of the current trends, it is advisable for forex traders to begin opening their positions in Crude Oil and other commodities prior to volatile market conditions.
USD - Dollar Goes Volatile on Optimistic Homes Sales Data
The U.S. Dollar experienced an extremely volatile trading day on Monday, as the New Home Sales data was released from the U.S. economy. The result was a better-than-forecast 384,000 homes versus the previous release of 346,000 homes. This is a whopping 11% increase, the biggest monthly increase since December 2000. This led to many analysts stating that this is the end of the U.S. housing slump. The result led to volatile USD trading. Moreover, the Dollar closed lower against some of its main currency pairs, due to optimistic data from regions such as the Euro-Zone.
At one point in trading the USD actually reached a 7-week low vs. the EUR at 1.4299. This was following the extremely optimistic German consumer confidence figures. However, the pair finally closed 33 pips higher at the 1.4246 level. The USD recorded its second daily loss in a row of 30 pips against the British Pound, as the GBP/USD finished trading at the 1.6484 level. This comes about as optimistic data from Britain continues to drive up the British currency. The USD/JPY pair finished higher, to close at the 95.17 rate. This comes about as the Yen falls from higher risk appetite.
Looking ahead to today, forex traders can expect plenty of news coming out of the U.S. The most important of this being the CB Consumer Confidence figures at 14:00 GMT, the speech by Federal Reserve Chairman Ben Bernanke at 22:00 GMT, and the speech by Treasury Secretary Timothy Geithner from 23:00 GMT. These 3 events are set to determine the level of the Dollar as Tuesday's trading takes off. The big 3 pairs to watch today are the EUR/USD, GBP/USD, and USD/JPY, as traders anticipate a weaker U.S. currency as the U.S. economy continues to recover.
EUR - EUR Boosted by German Consumer Confidence Figures
The EUR hit a 7-week high versus the USD in Monday's trading, following the Gfk German Consumer Climate figures. The result showed a 14 month high 3.5, significantly higher than the forecasted 2.9. This helped the EUR strengthen throughout Monday's trading. The reason why this data is so significant is due to Germany being the largest economy in the Euro-Zone. The EUR also was helped as U.S. New Home Sales jumped 11%. The EUR is likely to continue benefiting from the optimistic economic news.
The EUR/USD cross hit 1.4299, before closing 33 pips higher at the 1.4246 level. However, the European currency fell by 15 pips vs. the British Pound to 0.8635. This may be due to investors buying-up Pounds as risk appetite increases with more and more signs of global economic recovery. The EUR/JPY pair climbed by over 35 pips to the 1.3532 level, as traders continued to ditch the JPY due to preferring riskier assets, such as the EUR and GBP. Therefore, overall, the EUR did make some reasonable gains in Monday's trading.
Today, we won't be expecting much economic news coming out of the Euro-Zone. However, Britain and Switzerland are likely to be the key drivers of the European currencies later today. Britain is set to release the CBI Realized Sales figures at 10:00 GMT. Switzerland is scheduled to publish the UBS Consumption Indicator at 06:00 GMT. The results of both of these are set to drive both the GBP and CHF in today's trading. Additionally, the EUR will go volatile on both of these publications, and on key data coming out of the U.S. throughout today's trading.
JPY - Yen Falls to 3-Week Low vs. Dollar
The Yen fell to a 3-week low against the Dollar yesterday, in response to the rise in new U.S. home sales. The Yen also weakened on speculation that declines in currency volatility will spur carry trades. In carry trades, investors borrow at a low rate in one country and invest in another country with higher returns. This behavior is likely to continue as the main economies improve, and traders sell-off the safe-haven JPY. Thus the Japanese currency fell over 30 pips against the USD, EUR and GBP.
It is likely that the Yen will continue to decline today, as forex traders continue to take into account the optimistic economic data that was published from the U.S. and the Euro-Zone. The JPY will go very volatile in late trading, as Japanese Retail Sales are published at 23:50 GMT. It would be a wise choice for forex traders to open their JPY positions now in order to have the opportunity to profit from volatile market behavior as Tuesday's trading commences.
Crude Oil - Crude Oil Hits 3-Week High
Crude Oil hit a 3-week high of $68.94 a barrel on Monday, as the USD declined in response to positive housing data from the U.S. However, weaker earnings figures in some instances pushed Oil down from its peak, as the commodity finished trading at about $68.06 a barrel. Crude was also helped by a weaker Dollar in earlier trading due to positive economic news from Germany. However, it seems that in this instance, risk appetite wasn't strong enough to hold-up the value of Crude Oil on Monday.
As for today, Crude prices may rise if the USD weakens considerably, and there is increasingly optimistic economic news led by the U.S. Additionally, traders need to feel that there is enough demand to support Crude Oil at its current price level. In order to take advantage of the current trends, it is advisable for forex traders to begin opening their positions in Crude Oil and other commodities prior to volatile market conditions.
Australian Dollar Surges as RBA Chief Talks Up Economy, Hints at Rate Hikes (Euro Open)
The Australian Dollar pushed higher to challenge the 0.83 level against its US counterpart in overnight trading after a speech by RBA Governor Glenn Stevens struck a hawkish tone, hinting that the central bank is now actively trying to time a return to higher interest rates.
Key Overnight Developments
• Australian Leading Index Fell for First in Four Months, Says Conference Board
• National Australia Bank Says Business Confidence Rose to 15-Month High in Q2
• Australian Dollar Surges as RBA’s Stevens Talks Up Economy, Hints at Rate Hikes
Critical Levels
The Euro advanced in overnight trading, testing 1.4270 ahead of the opening bell in Europe. The British Pound followed suit, adding 0.2% against the greenback.
Asia Session Highlights
New Zealand’s Trade Balance sank into deficit in June, revealing a monthly shortfall of –NZ$417 million. In annual terms, the deficit widened to –NZ$3.2 billion. The discouraging result came as exports fell 11% from a year before, the largest annualized decline since July 2007. We had forecast the outcome in our New Zealand Dollar Weekly Outlook, noting that outbound shipments were likely to take a beating after the local currency gained nearly 1% in June after jumping 8% in the previous month, making New Zealand’s goods comparatively more expensive for overseas buyers while boosting domestic purchasing power of foreign products. The release may weigh on the currency in the days ahead as it reminds the markets of New Zealand’s credit outlook downgrade by Fitch, which cited the “persistently large current account deficit” as a reason for concern about the country’s medium-term growth outlook.
In Australia, Conference Board’s Leading Index fell for the first in four months in May, dropping -0.1%. April’s reading was also revised downward to 0.3% from the originally reported 0.7% result. The metric tracks a number of leading indicators including rural goods exports, building approvals and stock prices to gauge the short- to medium-term trajectory of the overall economy. Perhaps the most important takeaway from the report is that the sales-to-inventory ratio, the largest component of the index, fell for the sixth consecutive month to reveal companies continue to suffer from lackluster demand. This underscores an increasing disparity between market sentiment and the underlying fundamentals of the economy. Buoyant stock markets and money supply growth had catalyzed the most recent run-up in the index, a dynamic that may be repeated in the forthcoming release considering Australia’s S&P/ASX 200 benchmark equity index added 3.6% in June. However, the equity rally seems hardly sustainable if sales growth remains lifeless, robbing firms of the kind of earnings that will not disappear once cost-cutting invariably reaches its natural limits.
Separately, National Australia Bank’s measure of Business Confidence printed at -4 in the second quarter, the highest reading since the three months ending March 2008. The forward-looking component of the report points to continued improvement in overall business conditions in the third quarter, albeit at a much slower pace than this time around. Employment and orders are both expected to improve, though firms’ profitability is forecast to decline.
Reserve Bank of Australia Governor Glenn Stevens struck a decidedly hawkish tone at a speech in Sydney, driving home the point that going forward the central bank is now actively trying to time a return to higher interest rates. Stevens said Australia is faring better through the global downturn than other developed economies, noting that “confidence has recovered ground” and boasting that “unemployment is rising slower than expected”. He went on to stress that central banks should not relax their commitment to keep inflation anchored through the recession, a clear hint that global tightening of monetary policy should now be on the table. That said, Stevens conceded that some stimulus needs to remain in place for now and conceded that the timing of unwinding expansionary policy presents a challenge. The market greeted the RBA chief’s comments, with the Australian Dollar surging 50 pips in a mere 30 minutes.
Euro Session: What to Expect
The UK CBI Distributive Trades report will offer insight on short-term trends in the retail and distribution sector. Retail Sales surged in June but the metric have exhibited extraordinary volatility since the beginning of this year so traders will be eager to look for any signs that a discernable trajectory is being established. On balance, cues from the labor market seem to point to subdued retail activity for the time being, with the jobless rate to approach 9% by the end of next year for the first time since 1994, trimming disposable incomes and weighing on spending.
In Switzerland, the UBS Consumption Indicator that aims to forecast the trend in private spending in the coming 3-4 months is likely to fall to a fresh 5-year low in June as the pace of unemployment continues to push higher, ticking up to a seasonally-adjusted rate of 3.8% in the same period for the first time since September 2005.
Key Overnight Developments
• Australian Leading Index Fell for First in Four Months, Says Conference Board
• National Australia Bank Says Business Confidence Rose to 15-Month High in Q2
• Australian Dollar Surges as RBA’s Stevens Talks Up Economy, Hints at Rate Hikes
Critical Levels
The Euro advanced in overnight trading, testing 1.4270 ahead of the opening bell in Europe. The British Pound followed suit, adding 0.2% against the greenback.
Asia Session Highlights
New Zealand’s Trade Balance sank into deficit in June, revealing a monthly shortfall of –NZ$417 million. In annual terms, the deficit widened to –NZ$3.2 billion. The discouraging result came as exports fell 11% from a year before, the largest annualized decline since July 2007. We had forecast the outcome in our New Zealand Dollar Weekly Outlook, noting that outbound shipments were likely to take a beating after the local currency gained nearly 1% in June after jumping 8% in the previous month, making New Zealand’s goods comparatively more expensive for overseas buyers while boosting domestic purchasing power of foreign products. The release may weigh on the currency in the days ahead as it reminds the markets of New Zealand’s credit outlook downgrade by Fitch, which cited the “persistently large current account deficit” as a reason for concern about the country’s medium-term growth outlook.
In Australia, Conference Board’s Leading Index fell for the first in four months in May, dropping -0.1%. April’s reading was also revised downward to 0.3% from the originally reported 0.7% result. The metric tracks a number of leading indicators including rural goods exports, building approvals and stock prices to gauge the short- to medium-term trajectory of the overall economy. Perhaps the most important takeaway from the report is that the sales-to-inventory ratio, the largest component of the index, fell for the sixth consecutive month to reveal companies continue to suffer from lackluster demand. This underscores an increasing disparity between market sentiment and the underlying fundamentals of the economy. Buoyant stock markets and money supply growth had catalyzed the most recent run-up in the index, a dynamic that may be repeated in the forthcoming release considering Australia’s S&P/ASX 200 benchmark equity index added 3.6% in June. However, the equity rally seems hardly sustainable if sales growth remains lifeless, robbing firms of the kind of earnings that will not disappear once cost-cutting invariably reaches its natural limits.
Separately, National Australia Bank’s measure of Business Confidence printed at -4 in the second quarter, the highest reading since the three months ending March 2008. The forward-looking component of the report points to continued improvement in overall business conditions in the third quarter, albeit at a much slower pace than this time around. Employment and orders are both expected to improve, though firms’ profitability is forecast to decline.
Reserve Bank of Australia Governor Glenn Stevens struck a decidedly hawkish tone at a speech in Sydney, driving home the point that going forward the central bank is now actively trying to time a return to higher interest rates. Stevens said Australia is faring better through the global downturn than other developed economies, noting that “confidence has recovered ground” and boasting that “unemployment is rising slower than expected”. He went on to stress that central banks should not relax their commitment to keep inflation anchored through the recession, a clear hint that global tightening of monetary policy should now be on the table. That said, Stevens conceded that some stimulus needs to remain in place for now and conceded that the timing of unwinding expansionary policy presents a challenge. The market greeted the RBA chief’s comments, with the Australian Dollar surging 50 pips in a mere 30 minutes.
Euro Session: What to Expect
The UK CBI Distributive Trades report will offer insight on short-term trends in the retail and distribution sector. Retail Sales surged in June but the metric have exhibited extraordinary volatility since the beginning of this year so traders will be eager to look for any signs that a discernable trajectory is being established. On balance, cues from the labor market seem to point to subdued retail activity for the time being, with the jobless rate to approach 9% by the end of next year for the first time since 1994, trimming disposable incomes and weighing on spending.
In Switzerland, the UBS Consumption Indicator that aims to forecast the trend in private spending in the coming 3-4 months is likely to fall to a fresh 5-year low in June as the pace of unemployment continues to push higher, ticking up to a seasonally-adjusted rate of 3.8% in the same period for the first time since September 2005.
Futures Spread Trading
How professional traders optimize profits
Futures spread trading is probably the most profitable, yet safest way to trade futures. Almost every professional trader uses spreads to optimize his profits. Trading spreads offers many advantages which make it the perfect trading instrument, especially for beginners and traders with small accounts (less than $10,000).
The following example of a Soybean-Spread shows the advantages of futures spread trading:
Example: Long May Soybeans (SK3) and Short November Soybeans (SX3)
Four Advantages of Futures Spread Trading
Advantage 1: Easy to trade
Do you see how nicely this spread starts trending in mid February? Whether you are a beginner or an experienced trader, whether you use chart formations or indicators, the existence of a trend is obvious. (If you are looking for a concept of how to identify a trend, we strongly recommend visiting http://www.tradingeducators.com/?source=Tradejuicetrading_philosophy.htm). Spreads tend to trend much more dramatically than outright futures contracts. They trend without the interference and noise caused by computerized trading, scalpers, and market movers.
Advantage 2: Low Margin requirements
Many spreads have reduced margin requirements, which means that you can afford to put on more positions. While the margin on an outright futures position in corn is $540, a spread trade in corn requires only $135 — 25% as much. That’s a great advantage for traders with a small account. With a $10,000 trading account risking 8% of your account, you can enter 6 corn spreads, instead of only 1-2 outright corn futures trade. How’s that for leverage?
Advantage 3: Higher return on margin
Each point in the spread carries the same value ($50) as each point in the outright futures ($50). That means that on a 3 point favorable move in corn futures or a 3 point favorable move in the spread, you would earn $150. However, the difference in return on margin is extraordinary:
Corn futures - $150/$540 = 27.8% return
Corn spread - $150/$135 = 111% return
And keep in mind that you can trade 6 times as many spread contracts as you can outright futures contracts. In our example you would achieve a 24 times higher return on you margin.
Advantage 4: Low time requirements
You don’t have to watch a spread all day long. You do not need real-time data. The most effective way to trade spreads is using end-of-day data. Therefore, spread trading is the best way to trade if you do not want to watch or cannot watch your computer all day long (i.e. because you have a daytime job). And you can save all the money you would have had to spend for real-time data systems (up to $600 per month).
So where is the catch?
If futures spread trading is so fantastic, why does it seems that hardly anybody trades spreads? Well, it is not true that hardly anybody trades spreads: the professional traders do, every day. But either by accident or design, the whole truth of spread trading has been hidden from the public over the years.
The purpose of this website is to inform you about futures spread trading. In the following we will answer the four frequently asked questions:
- What is a spread?
- Why trade spreads?
- What can you expect when trading spreads?
What Is a Spread?
A spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. You can turn that around to state that a spread is the purchase of one or more futures contracts and the sale of one or more offsetting futures contracts. A spread is also created when a trader owns (is long) the physical vehicle and offsets by selling (going short) futures. Furthermore, a spread is defined as the purchase and sale of one or more offsetting futures contracts normally recognized as a spread by the fact that the two sides of the spread are actually related in some way. This explicitly excludes those exotic spreads put forth by some vendors, which are nothing more than computer generated coincidences which are not in any way related. Such exotic spreads as Long Bond futures and Short Bean Oil futures may show up as reliable computer generated spreads, but bean oil and bonds are not really related. Such spreads fall into the same category as believing the annual performance of the U.S. stock market is somehow related to the outcome of the Super Bowl sporting event. In any case, for tactical reasons in carrying out a particular strategy, you want to end up with:
- simultaneously long futures of one kind in one month, and short futures of the same kind in another month. (Intramarket Calendar Spread)
- simultaneously long futures of one kind, and short futures of another kind. (Intermarket Spread)
- long futures at one exchange, and short a related futures at another exchange. (Inter-exchange Spread)
- long an underlying physical commodity, and short a futures contract. (Hedge)
- long an underlying equity position, and short a futures contract. (Hedge)
- long financial instruments, and short financial futures. (Hedge)
- long a single stock futures and short a sector index.
The primary ways in which this can be accomplished are:
- Via an Intramarket spread.
- Via an Intermarket spread.
- Via an Inter-exchange spread.
- By ownership of the underlying and offsetting with a futures contract.
Intramarket Spreads
Officially, Intramarket spreads are created only as calendar spreads. You are long and short futures in the same market, but in different months. An example of an Intramarket spread is that you are Long July Corn and simultaneously Short December Corn.
Intermarket Spreads
An Intermarket spread can be accomplished by going long futures in one market, and short futures of the same month in another market. For example: Short May Wheat and Long May Soybeans.
Intermarket spreads can become calendar spreads by using long and short futures in different markets and in different months.
Inter-Exchange Spreads
A less commonly known method of creating spreads is via the use of contracts in similar markets, but on different exchanges. These spreads can be calendar spreads using different months, or they can be spreads in which the same month is used. Although the markets are similar, because the contracts occur on different exchanges they are able to be spread. An example of an Inter-exchange calendar spread would be simultaneously Long July Chicago Board of Trade (CBOT) Wheat, and Short an equal amount of May Kansas City Board of Trade (KCBOT) Wheat. An example of using the same month might be Long December CBOT Wheat and Short December KCBOT Wheat.
Why Spreads?
The rationale behind spread trading is one of the best-kept secrets of the insiders of the futures markets. While spreading is commonly done by the market "insiders," much effort is made to conceal this technique and all of its benefits from "outsiders," you and me. After all, why would the insiders want to give away their edge? By keeping us from knowing about spreading, they retain a distinct advantage.
Spreading is one of the most conservative forms of trading. It is much safer than the trading of outright (naked) futures contracts. Let’s take a quick look at some of the benefits of using spreads:
- Intramarket, and some Intermarket, spreads require considerably less margin, typically around 25% - 75% of the margin needed for outright futures positions.
- Intramarket, and some Intermarket, spreads offer a far greater return on investment than is possible with outright futures positions. Why? Because you are posting less margin for the same amount of possible return.
- Spreads, in general, trend more often than do outright futures.
- Spreads often trend when outright futures are flat.
- Spreads can be filtered by virtue of seasonality, backwardation, and carrying charge differentials, in addition to any other filters you might be using in your trading.
- Spreads can be used to create partial futures positions. In fact, virtually anything that can be done with options on futures can be accomplished via spread trading.
- Spreads allow you to take less risk than is available with outright futures positions. The amount of risk between two Intramarket futures positions is usually less than the risk in an outright futures position. The risk between owning the underlying and holding a futures contract involves the least risk of all. Spreads make it possible to hedge any position you might have in the market. Whether you are hedging between physical ownership and futures, or between two futures positions, the risk is lower than that of outright futures. In that sense, every spread is a hedge.
- Spread order entry enables you to enter or exit a trade using an actual spread order, or by independently entering each side of the spread (legging in/out).
- Spreads are one of the few ways to obtain decent fills by legging in/out during the market Closing.
- Live data is not needed for spread trading, saving you $$ in exchange fees.
- You will not be the victim of stop running when using Intramarket spreads.
What Can You Expect?
Here is an example of what you can expect from Intramarket spread trading. We think you may be pleasantly surprised!!
This spread was entered not only on the basis of seasonality, but also by virtue of the formation known as a Ross hook (Rh). The spread moved from -69.0 to -7.5 = $3,075 per contract. The margin required to put on this spread was only $608, thus the return on margin is more than 500%.
Here is an example of an Intermarket spread. Look at the the following chart: Would you want to have been long live cattle from December until February?
But, what about a spread between Live Cattle and Feeder Cattle?
The spread moved from -10,200 to -7,200 = $3,000 per contract. The margin required to put on this spread was only $540. The return on margin is more than 550%.
Lastly, we show you another intermarket spread. This one was made between Euro and British Pound. Although you might have made money on a Euro trade, you would have suffered from serious whipsaw during the entire length of the trade.
What about a spread between the Euro and the British Pound?
You didn’t have to be in this spread for very long in order to take some fat profits: During February the spread moved from $32,500 to $36,187.50 = $3,687.50 per contract.
How do I start trading spreads?
We can barely scratch the surface of what is available in the almost lost art of spread trading. There are times when seasonal spreads, coupled with chart formations, make a lot of sense. Backwardation in any market often provides an excellent signal for entry into a spread.
Achieving Trading Perfection
Achieving Trading Perfection - Trade quality, not quantity. Take the best of the best. Get the big picture. If you haven’t previously come across such advice, or if you have and are not following it, it is time that you take these words to heart. But how?
Trade selection and adequate planning go hand in hand. This is where most would-be professional traders miss the boat.
Much more money is made as a result of proper planning than from sitting and trading everything that comes along or "looks" good.
It’s difficult to fully understand why people think they have to trade so much. It’s difficult to truly grasp why people think that they have to take as many trades as they do.
Just the opposite is true. There is a correct approach to each and every trade. That is what achieving perfection is all about.
It all starts with proper management: planning, organizing, delegating, directing, and controlling.
These facets of management must be woven together into your trading; they do overlap.
Although planning is the major management function involved in achieving perfection, you can’t possibly plan well unless you are organized to do so.
You must have your tools at hand: your trading software, your data, the proper equipment. All of the rudiments for planning must be in place, which in itself is a part of organizing.
You must be physically fit when you plan: well nourished, properly exercised, well rested and mentally alert - all part of having your life organized, all part of achieving perfection as a trader.
To be a winning trader, you have to be among the best. There can be no middle ground. There are only winners and losers, and to be a winner you have to be a champion. And, just like any champion, you must have discipline, self-control, and a willingness to train, train, train.
There are no runners-up in trading, you either get the gold or you give the gold. Often, while others are busy going to parties or watching sports events, you are busy poring over charts, studying, thinking, planning. When others are listening to music or watching TV, you are busy practicing your trading, practicing trade selection, working hard to become a more astute trader.
Part of achieving perfection involves the diligent study of charts. The data, as presented on your screen and preserved as charts, are, for the most part, all you have for making trading decisions. They are a picture, a visualization of what is taking place in the reality of the market. Your job in achieving perfection and becoming an adequate trader is to picture and imagine in your mind what makes prices move and form the way they do. Ask yourself, "How does what I see in front of me relate to the supply and demand for the underlying?" Ask yourself, "Is what I am seeing on the chart even related to supply and demand, or is what I am seeing related to an engineered move by some insider or market mover?"
Supply and demand are not what makes prices move or fail to move most of the time. The sooner you realize that fact, the better off you will be. Markets are engineered, manipulated ¾ you need to know that.
But there’s more to a chart than merely price patterns. Reflected in the chart are the emotional reactions of human beings. Reactions to rumors and news; to national and world events; to government reports - these, too, are on the charts.
You might say that price movement, or the lack thereof, is the net effect of all the perceptions of all the traders who are participating in the market for a particular futures.
There is something else on the charts, something that too few take into account. That something is the manipulations from and by the insiders, the market movers, and by commercials holding large inventories of the underlying you are attempting to trade.
In achieving perfection as a trader, you must train yourself to look for evidence of any and all of these things as you study your charts. It is the cumulative action of all perceptions which causes patterns to form on a price chart.
You must learn to look for the truths in the markets. There are certain truths which are self-evident; they are always true. For instance, take the phenomenon of a breakout. When prices break out, no one can change the fact that they did break out. It is a fact and it is true. The breakout may turn out to be a "false" breakout, but nevertheless it is a breakout. As part of achieving perfection in your trade selection skills, you have to learn to tell which breakouts are most likely true breakouts, and which ones are most likely false. How can you know? By the price patterns on the chart.
And what about trend? Your job in achieving perfection as a trader is to master how to trade a trend. A trend is a trend, is a trend. It is a trend until the end, and part of your job is to know when a market is not trending.
The trend is the trend while it lasts. While a market is trending it is telling the truth. The trend can change, but the truth is the truth. If prices are rising, the trend is up. If prices are falling, the trend is down. The truth can be found in the trend. It is an immutable fact. You are to learn to make my money by trading with the trend. You are to learn what constitutes a trend. You have to learn to spot trends early so that you can make the most out of the market while it is trending. Your job in achieving perfection as a trader is to learn to recognize when a trend will most likely begin, and just as important, to learn to be even more adept at deciphering when a trend is ending.
In achieving perfection, you must learn to recognize "your" trade(s), and to take only "your" trades. Trade the formations and patterns that you can easily recognize and identify.
You must learn to trade using tips and tricks that you are shown and to accumulate and keep a collection of techniques that result in the selection of high probability trades.
How are you to do all this? Practice, practice, PRACTICE. Practice recognition of congestion areas. Practice recognition of high probability breakouts. Practice trend recognition. Practice and more practice. Just like anyone who wants to achieve perfection at anything, there must be total dedication, study, practice and more practice. You are to become a trading virtuoso. You are to practice, yet always realizing that you will never attain true perfection, that there is always room for improvement. There is usually a way to refine: ways that you can do things better, more efficiently, and with greater speed and finesse.
How to Make Consistent Profits Trading Futures Part I
One of the mistakes I consistently made in my early years as a trader was to try to make too much money in relation to my trading capital. To make £1000 a day while Futures Trading with £10,000 is absurdly ambitious; of course I have done it many times, as would anyone with this intention, but I have also gone bust on more than one occasion. To have the aspiration of taking £1000 out of the market each day, when trading with £10,000 or under is, I think, a quick route to the poor house.
So what is a reasonable objective for a day / futures trader?
A few weeks ago I visited an ex-floor trader who has set up a trading operation backing young aspiring traders. I was interested to find out from him how he trains his team. The essence of his approach is to give them a grounding in discipline and confidence. He believes that confidence is one of the primary keys to success in futures trading and that confidence is a by-product of taking money out of the market.
One of the reasons he has chosen to work with young futures traders is that he wants people who have minimal financial commitments. He knows it will take a while for them to start earning an income from the business. So his belief is that if his traders can regularly take small amounts of money out of the market, their knowledge, skills and confidence will grow and in time they will become bigger traders. What is critical about this approach is that his traders do not grow in size until they have achieved consistent, regular success on a small scale; and we are talking small, I mean £25 or £50 in a day.
What can we learn from this low risk approach? Well first let me ask you: what is more important, to make money today, or to become a consistently profitable trader? Because if we want to become consistently successful traders we need to take a different tack than if we are just out to make as much money as we can today.
So back to the question, what is a reasonable objective for a day trader? Well let’s look at bringing our daily target right down to £100, with £10,000 of trading capital, i.e. 1%. Now £100 a day, trading a market like the FTSE seems an achievable target to me. That is a net profit of 10 FTSE points a day. Can you come up with a system that trades 5 times a day and has an average net profit of 2 points? Or a system that trades 10 times a day with an average net profit of 1 point?
Is that a yes I hear? Because if you can make an average of £100 a day you will double your money in 100 trading days i.e. 20 weeks or about 5 months. If you double you position size every time you double your money, your account will grow to £1,000,000 in 140 weeks, which is less than 3 years! Of course this does not take into account the impact of tax; but my point is that by taking a low risk, conservative approach to trading objectives, we give ourselves the chance to grow and develop into traders, while also availing ourselves of the possibility of a deceptively good return.
If at this point you are tearing your hair out and screaming at the screen that I am a fool for suggesting that you can trade a strategy that averages a few points a trade, I assume that you are not familiar with the benefits of direct access trading. Direct access trading effectively gives everyone and their uncle the same low costs, immediate trade execution and access as was exclusively enjoyed by the floor traders before the advent of the electronic market place. To learn about the advantages of direct access trading...
How to Make Consistent ProfitsTrading Futures Part III
A lot of traders are trading the stock indexes like the FTSE, the DAX, the S&Ps, NASDAQ and the DOW, but rather than use futures they are using spread betting firms. The reasons for using these firms is that they require very small amounts of capital to get started, a trader can trade very small amounts (like £1 a point on FTSE as opposed to £10 for FTSE futures) and these firms make opening an account so easy. I understand the lure of being able to open an account with very little money and trading small amounts, but I have some serious considerations about using spread betting as a realistic vehicle for professional trading.
The two biggest selling points are no commissions and no capital gains tax. There are many different costs to trading, commissions are one and the spread is another (especially when you have to trade at the market as you do with spread betting, with futures you have the choice of joining the bid or the offer). Commissions are important for an active trader and as an active trader you can get them very low, but lets assume they are £8 per round turn for futures and lets assume that the spread in FTSE futures is an average of 2 points. If the spread with a spread betting firm for FTSE is 6 points and assume that we are trading £10 a point we can compare the two trading vehicles.
Last week (written Nov 2001) I made an average of 2.42 points per contract traded and I traded 48 times. That is, for each contract I bought and sold I made £24.20 before commissions, assuming my commission rate is £8, I made a profit of £16.20 per contract traded, which is £777.60 net profit if my average size per trade is one contract.
Had I had the same success trading with a spread-betting firm, with a 6-point spread, I would have lost £1718.40! Now I would rather pay tax on a profit that no tax on a loss.
There is one other very important reason for trading the futures market rather than a non-exchange traded market such as those offered by spread betting firms. The futures markets are exchange traded and this means that they are fully transparent, i.e. everything is visible and above the table, I can see every single trade that happens. Imagine the trading pit, as it used to be when traders stood physically in a ring trading with each other.
When a trade is entered, the order goes into the pit and is represented there, free to be taken by any other market participant. We can all see what is happening, we trade with the same information and with the same advantages/disadvantages. Now assume you are a trader who can only trade with one broker in the pit, you can trade as much as you like, any size you like, but he sets the spread he is willing to offer you and you have to trade at market (i.e. buy at his offer and sell at his bid). This broker doesn’t want to loose money, naturally, so he always makes his spread wider than the real market spread, he also, naturally, puts his interests before yours, so he won’t always be willing to trade when the market is moving fast and he is uncertain.
Remember whenever you make money he loses, so he is very careful to maintain his advantage at all times. Who wouldn’t want to be in this brokers position (he isn’t really a broker, though he claims to be)? When you trade with a real futures broker, all the broker does is facilitate your trade; he gives you the ability to have you orders represented in the pit. A real brokers concern is that they execute your order as efficiently as possible, that is their job, they do not take positions and they do not take the opposite side to you.
They naturally want you to make money because by making money you become a client who will continue to pay them commissions. Trading with a spread betting firm is absurdly costly, spread betting firms are like amusement arcades, they can be fun, but to imagine you are going to make your living from slot machines is illusory.
How to Make Consistent ProfitsTrading Futures Part II
Direct Access Electronic Trading
The issue of direct access is an important one and it becomes more important the more short term your trading is. The market can change from a state of seeming paralysis to one of shocking volatility and activity in a flash. The length of time it takes between you deciding to enter an order and the order actually being in the market is obviously important. When I first started trading I used a phone broker and was dismayed that my fills would often be so far from the price the market was trading when I first entered the order.
The first time I visited the trading floor, I discovered why. When I called in an order, first my discount(!) broker would check my account equity, then he would call a phone booth on the floor, the phone broker on the floor would then write the order down and pass it on (by phone) to a booth next to the appropriate pit, at that booth my order would be written down again and then signaled to a broker in the pit to be executed.
As you can imagine this would take quite a long time, even longer of course if the market was very active, as this would mean that the broker in the pit would be too occupied to take new orders. Compare this to my experience of trading as a pit trader. In the pit I was in the heart of the market and could observe every single order as it was executed (there was no delay in my price feed!). To initiate a trade, whether it was to buy or sell at the market, or join the bid or the offer, all I had to do was open my mouth. You can start to see the huge advantage that trading on the floor gave me over off floor traders; and that doesn’t take into consideration the fact that my round trip costs fell by 96%.
Now the floor no longer exists, not in Europe at least, so why talk about the advantages of pit trading? Well the level playing field is now open to all, but very few take advantage of it. Trading with an electronic trading platform is exactly the same as trading in the pit, except I can sit down, it is much quieter and there are no crude jokes flying around. I can trade with the click of a mouse; my order shoots to the exchange, enters in the market and appears back on my screen before I have time to blink. I think the advantages of direct access trading are clear and any futures trader still using a phone broker should move to direct access, they will also find their commissions are less (around £8 for private client traders).
The next question that arises is why trade futures? That is an important consideration given that there are a variety of alternatives vying for your trading capital (spread betting, CFDs and options), but in my opinion, futures are the only option (no pun intended) for successful short term trading.
Planning: A Key to Successful Trading
From time to time I get some very interesting confessions. Here is a very recent one, along with a solution.
"Hey Joe! I had been looking at a profitable trade setup all day. I studied indicator after indicator looking for confirmation, even though I know many are correlated and redundant. But I just kept on searching. I thought, ’Maybe I missed something.’ My account is now so small that I just wanted to be sure that this was the right trade. My thought was that I must take into consideration anything and everything that could cause this trade to fail. I can’t afford to lose any more money. What should I do?"
Well, my friend, you need to be able to make a decision, but you can’t do it if you are trading undercapitalized and making your trading decisions out of fear and uncertainty.
You are suffering from too much analysis. You are looking at so many things, you no longer can see straight. If you keep on over-analyzing your trades, it may develop into a deep-seated psychological problem.
Carefully analyzing the possible consequences of your trading decisions is healthy, but it becomes unhealthy when it is overdone. When it comes to trading, it’s important to have a clearly defined trading plan. You want to be sure that any given trade is not going to wipe out your trading account. That is one of the reasons we want you to use a time stop in addition to a money stop. When you use both types of stops you are clearly defining the signs and signals that indicate your trading plan is not working, suggesting that you should close out the trade to protect your capital.
Trading, by its very nature, is uncertain. There is little that can be described as security for traders. Every trade is a new event, and every entry is an entirely new business. A trader does not have the luxury of living from his past accomplishments.
If you have an unquenchable thirst for certainty, then trading is not for you. Uncertainty in trading is co-equal with insecurity. If money represents security to you, you have a real problem as a trader. Losing money not only costs you your financial security, but also your emotional security.
At many of my seminars and private tutorings I tell people that I have completely divorced myself from the money involved in trading. I don’t even know until the end of the month whether I have won or lost. I trained myself to think of trading as an endeavor in which I strive to make points. Only later are those points translated to dollars. In that sense, for me trading is a game. But I never lose sight of the fact that trading is also a serious business.
Insecurity in traders who over-analyze manifests in searching for the holy grail of trading, desperately seeking the right indicator or the perfect trade setup. The problem you’re having is that even when you see something, you are not sure it is sufficiently perfect for you to act on. Why? Because you lack confidence in your ability to trade what you see. Because you lack confidence in yourself. And because you fear the pain of another loss.
Here’s how I was taught to do my analytical work.
First, I went through all my charts to get an overview of the markets. During that time, I looked for trending markets. Trend lines were placed on the charts as long as they had a 30° or greater angle. Until I became used to what that looked like, I used a protractor to determine the angle. This action got me used to identifying the trend. These days it is easily done with your software.
Next, I went through all my charts again looking for "against the grain" moves-the intermediate trend that went against the longer term trend. This alerted me to markets that might soon resume trending.
Then I went through all my charts looking for Ross hooks™. I marked each hook with a bright red "h". Then, in light of the size of my margin account, I tried to select those markets that appeared to have the greatest potential, and I placed order entry stops just above or below the hooks. These were resting orders in the market. I tried to never miss a hook. I phoned my orders in daily.
How did I know which markets had the greatest potential? The answer is simple. I selected those markets that had the strongest trend lines.
Now there was a trick to this. I didn’t want too steep an angle, because in a rising market that often signals that the end of a move is near. Markets that break out too fast and go straight up rarely give an opportunity for entry before they start to chop around in congestion. Markets that have been going up at a steady angle, and suddenly that angle steepens-goes parabolic, are giving a warning that the move may soon be over.
In down markets I was willing to allow a steeper angle, because often a market will move down a lot faster than it moved up.
What I most wanted was trending markets that were making a retracement. Then I could attempt an entry as the market retraced, when it reached the proximity of the trend line, and then seemed to resume its trend, and when it took out the Ross hook™ created by the retracement.
Sometimes I had to wait for weeks before the markets started trending. The same is true today; nothing has changed other than that intraday it can happen a lot sooner. There will usually be at least a couple of markets in that condition, but there are times when there are none.
Yet I did my homework every day. The only way to know when an important breakout, the beginning of a trend, would occur, was to perform my daily analytical work.
Finally, I would set my work aside and take a break for dinner. After dinner, when my head had cleared a bit, I would look at my charts again. I would then do my best to come up with a trading plan. I would try to think through what I was going to do. I would ask myself a million "what if’s." I tried to anticipate what might happen in the market.
Often that kind of thinking would cause me to eliminate some of my potential trades. Also, a second look at times resulted in "why didn’t I see this before?"
For instance, what if you look at a market that is approaching its trend line. Isn’t it reasonable to ask yourself, "If this market breaks the trend line, what would I do?" Ask yourself how such an event would change the picture. If you had a position, would you still want to hold it? If you had no position, would this cause you to take a position opposite what was the trend? If it would, then why not place an order entry stop with limit, just the other side of that trend line? Very often, when prices approach a trend line from what has been a trending channel, they are already in a counter trend within the channel. That means a breakout of the trend line would be a continuation of this newly formed trend.
Finally, I would put my work aside and go to bed. In the morning I would look at my charts once again. Then I would write out scripts for the orders I wanted to place.
I would rehearse how authoritatively I was going to give these orders.
I did all this and more before I entered a trade. But do you know what most traders do? They do their analysis after the trade is made. Too often, they do it when the trade is already going against them.
How many times have you entered a trade, and then said to yourself, "Oh no, why didn’t I see that before?" How could you have seen it if you hadn’t looked, and looked again, and thought about it, and then perhaps looked one more time?
Also, many traders do their analysis after entering the trade in search of a justification for having entered. "Now I’m in the trade, let’s see if I can find out a couple of good reasons as to why!"
If you want to be a successful trader, you have to be hard. Hard on yourself and hard on your broker. I don’t mean that you have to be a rat, or be impolite, or be contemptuous. You just have to be firm in all that you do. You can’t afford to be "Mickey Mouse" about the way you do things. This is a business; you must be businesslike in conducting your affairs.
As a business person, you must manage your business. One of the main functions of management is planning. You have to plan your trades. Other things to look for as you go through your charts are: One-two-three formations, cups with handle, matching congestions, reversal bars, and Doji’s. These should all be part of your plan.
Some people give more thought to choosing which flavor ice cream to eat than to which market to enter and how and when to do it.
By not taking the time for preparation, you end up not having enough time to weigh the pros and cons or really familiarize yourself with what you are getting into.
You don’t have time to realize that prices have supported two ticks away from your entry about forty times in the past. You don’t have time to see that you are trading right into overhead selling. You don’t have time to notice that if prices break out of yesterday’s high, they will also probably take out a Ross hook. You don’t have time to see where prices are in relation to the trend line. You don’t have time to really grasp the overall trend, or the wave that is going counter trend. You don’t have time to really consider where you will place your stop. You don’t have time to read the market and to see what it might be telling you.
All of these things can be done ahead of time. If you do not do your homework, you will end up chasing markets in a desperate attempt to get into "the big move."
by Joe Ross
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