Unlike the futures and equities markets, the forex market trades actively 24 hours a day with active trading hours following the sun around the globe to each of the major money centers.As the foreign exchange market is an over the counter market where two counterparties can trade with each other whenever they want, technically the market never closes. Most electronic trading platforms however open for trading at around 5 PM Eastern Time on Sunday, which corresponds to the start of Monday’s business hours in Australia and New Zealand. While there are certainly banks in these countries which actively make markets in foreign exchange, there is very little trading done in these countries when compared to other major money centers of the world. The first major money center to open and there fore the start of the first major session in the forex market is the Asian Trading session which corresponds with the start of business hours in Tokyo at 7pm Eastern Time on Sunday. While still considered 1 of the three major money centers, only 7.6% of forex transactions flow through Tokyo trading desks, so the Asian trading session is the least active of the three. While there is active trading in Yen based currency pairs during Asian hours the market for currencies outside of Yen based pairs is relatively thin, making Asian trading hours a time when the larger banks and hedge funds in the market will sometimes try and push the market in their favor. Next in line is the European trading session which begins with the start of London business hours at 2 AM Eastern Standard Time. While New York is considered by most to be the largest financial center in the world, London is still king of the forex market with over 32% of all forex transactions taking place in the city. Before the Euro there were more than a dozen additional currencies in Europe making foreign exchange part of every day life for both individuals and businesses operating in the region. In addition to this, London is situated perfectly from a time zone standpoint with business hours for both the large eastern and western economies taking place during London trading hours. As London is the most active session in the forex market it is also the session with the most volatility for all the currency pairs which we will be studying in this course. Last but not least is the US session which begins with the start of New York business hours at 8 AM Eastern Standard Time. New York is a distant second to London in terms of forex trading volumes with approximately 19% of all forex transactions flowing through New York Dealing Rooms. The most active part of the US Trading session, and the most active time for the forex market in general, is from about 8am to 12pm when both London and New York trading desks are open for business. You can see very large volatility during this time as in addition to both New York and London trading desks being open, most of the major US economic announcements are released during these hours as well. The trading day winds down after 12pm New York time with most electronic platforms closing for business at around 4 PM Eastern Standard Time on Friday.That’s our lesson for today, in our next lesson we will look at the main currencies of the world which we will be learning to trade throughout the rest of this course so we hope to see you in that lesson. As always if you have any questions or comments please leave them in the comments section below, and good luck with your trading!
Saturday, May 23, 2009
EUR/USD: Trading the Euro-Zone Gross Domestic Product (GDP) Report
The 1Q GDP reading for the Euro-Zone is likely to reinforce a weakening outlook for the nation as economists forecast the growth rate to contract 2.0% from the fourth quarter, and fundamental headwinds are likely to weigh on the exchange rate as the region faces its worst economic downturn in over half a century. The jobless rate surged to 8.9% from a revised reading of 8.7% in February, which is the highest since November 2005.
Trading the News: Euro-Zone Gross Domestic ProductWhat’s Expected
Time of release: 05/15/2009 10:00 GMT, 05:00 EST
Primary Pair Impact : EURUSD
Expected: -2.0%
Previous: -1.6%Effect the Euro-Zone Gross Domestic Product report had over EURUSD for the past 2 months
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4Q 2008 Euro-Zone Gross Domestic Product
The advanced GDP reading for the Euro-Zone showed the economy contracted 1.5% in the fourth quarter to mark the biggest downturn since the series began in 1995, while the annual rate of growth slipped 1.2% from the previous year, which is the first full-year drop on record, and conditions are likely to get worse as the International Monetary Fund forecasts economic activity to contract 2.0% in 2009. As the region faces its first recession in over a decade, fears of a deepening downturn may lead policymakers to take further steps to shore up the economy, and the European Central Bank is expected to lower the benchmark interest rate by another 50bp to a record-low of 1.50% as the outlook for growth and inflation falter. Meanwhile, as the overnight rate falls close to zero, the Governing Council may look beyond the interest rate to manage monetary policy, and is likely to adopt unconventional measures to stimulate the economy.
3Q 2008 Euro-Zone Gross Domestic Product
The Euro-Zone slipped into its first recession in 15-years as the advanced GDP reading for the third quarter showed that economy contracted another 0.2% from the previous quarter, which lowered the annual rate of growth to 0.7% from 1.4%. Mounting growth fears paired with the fall in global commodity prices led the European Central Bank to lower the benchmark interest rate by 100bp over the last two-months to 3.25% after hold rates at a seven-year high of 4.25% throughout the third quarter, and the central bank is likely to ease policy further over the coming months as price pressures alleviate. Nevertheless, as global trade conditions falter, economic activity throughout the region is likely to weaken further, and may lead policy makers to step up their efforts in the coming months in order to steer the economy out of a recession.
What To Look For Before The Release
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
Bearish Scenario:If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
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How To Trade This Event Risk
The 1Q GDP reading for the Euro-Zone is likely to reinforce a weakening outlook for the nation as economists forecast the growth rate to contract 2.0% from the fourth quarter, and fundamental headwinds are likely to weigh on the exchange rate as the region faces its worst economic downturn in over half a century. The jobless rate surged to 8.9% from a revised reading of 8.7% in February, which is the highest since November 2005, while the annual rate of consumption plunged 4.2% from the previous year to mark the biggest drop since recordkeeping began in 1996, and conditions are likely to get worse as firms may continue to scale back on production and employment in an effort to weather the slump in the global economy. A report by the European Union’s statistics office showed industrial outputs fell 20.2% in March from the previous year to mark the biggest downturn since the series began in 1986, while new orders dropped at a record pace as demands slipped 34.5% from last year, and fading demands from home and abroad is likely to weigh on economic activity throughout the year. Meanwhile, a separate report showed exports to the U.S., the Euro-Zone’s second-largest trading partner, slumped at an annual pace of 27% in February, while demands from the U.K. plunged 29% from the previous year, and the data reinforces a dour outlook for future growth as the downturn in the global economy intensifies. As a result, the European Central Bank lowered the benchmark interest rate by 25bp to a record-low of 1.00% earlier this month in an effort to steer the economy out of the worst recession in over half a century, while the Governing Council ‘agreed in principle’ to utilize tools beyond the interest rate to manage monetary policy as the board attempts to put a floor on the interest rate. However, the lack of decisive action by the central bank paired with the dissenting views amongst policymakers have raised speculation that the ECB has done too little too late, and uncertainties surrounding the outlook for future policy could weigh on the exchange rate over the near-term. As a result, expectations for further easing are likely to stoke increased selling pressure for the euro over the remainder of the month as the central bank maintains a dovish stance however, as risk trends continue to drive price action in the foreign exchange market, the rise in market sentiment could drive the single-currency higher as investors increase their appetite for risk.
Trading the given event risk favors a bearish outlook for the single currency as the growth rate is expected to fall further in the first quarter but nevertheless, an enhanced growth reading could set the stage for a long euro trade as market participants move into higher risk/reward investments. Therefore, if economic activity contracts 1.5% or less in the first quarter, we will look for a green, five-minute candle following the release to validate a buy entry on two lots of EUR/USD, and once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
In contrast, the downturn in global trade paired with the rise in unemployment is likely to weigh on economic activity, and fears of a deepening recession are likely to weigh on the exchange rate as the economic downturn intensifies. As a result, an in-line print, or a drop of more than 2.0% in the growth rate would lead us to hold a bearish outlook for the single currency, and we will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.
Trading the News: Euro-Zone Gross Domestic ProductWhat’s Expected
Time of release: 05/15/2009 10:00 GMT, 05:00 EST
Primary Pair Impact : EURUSD
Expected: -2.0%
Previous: -1.6%Effect the Euro-Zone Gross Domestic Product report had over EURUSD for the past 2 months
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4Q 2008 Euro-Zone Gross Domestic Product
The advanced GDP reading for the Euro-Zone showed the economy contracted 1.5% in the fourth quarter to mark the biggest downturn since the series began in 1995, while the annual rate of growth slipped 1.2% from the previous year, which is the first full-year drop on record, and conditions are likely to get worse as the International Monetary Fund forecasts economic activity to contract 2.0% in 2009. As the region faces its first recession in over a decade, fears of a deepening downturn may lead policymakers to take further steps to shore up the economy, and the European Central Bank is expected to lower the benchmark interest rate by another 50bp to a record-low of 1.50% as the outlook for growth and inflation falter. Meanwhile, as the overnight rate falls close to zero, the Governing Council may look beyond the interest rate to manage monetary policy, and is likely to adopt unconventional measures to stimulate the economy.
3Q 2008 Euro-Zone Gross Domestic Product
The Euro-Zone slipped into its first recession in 15-years as the advanced GDP reading for the third quarter showed that economy contracted another 0.2% from the previous quarter, which lowered the annual rate of growth to 0.7% from 1.4%. Mounting growth fears paired with the fall in global commodity prices led the European Central Bank to lower the benchmark interest rate by 100bp over the last two-months to 3.25% after hold rates at a seven-year high of 4.25% throughout the third quarter, and the central bank is likely to ease policy further over the coming months as price pressures alleviate. Nevertheless, as global trade conditions falter, economic activity throughout the region is likely to weaken further, and may lead policy makers to step up their efforts in the coming months in order to steer the economy out of a recession.
What To Look For Before The Release
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
Bearish Scenario:If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
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How To Trade This Event Risk
The 1Q GDP reading for the Euro-Zone is likely to reinforce a weakening outlook for the nation as economists forecast the growth rate to contract 2.0% from the fourth quarter, and fundamental headwinds are likely to weigh on the exchange rate as the region faces its worst economic downturn in over half a century. The jobless rate surged to 8.9% from a revised reading of 8.7% in February, which is the highest since November 2005, while the annual rate of consumption plunged 4.2% from the previous year to mark the biggest drop since recordkeeping began in 1996, and conditions are likely to get worse as firms may continue to scale back on production and employment in an effort to weather the slump in the global economy. A report by the European Union’s statistics office showed industrial outputs fell 20.2% in March from the previous year to mark the biggest downturn since the series began in 1986, while new orders dropped at a record pace as demands slipped 34.5% from last year, and fading demands from home and abroad is likely to weigh on economic activity throughout the year. Meanwhile, a separate report showed exports to the U.S., the Euro-Zone’s second-largest trading partner, slumped at an annual pace of 27% in February, while demands from the U.K. plunged 29% from the previous year, and the data reinforces a dour outlook for future growth as the downturn in the global economy intensifies. As a result, the European Central Bank lowered the benchmark interest rate by 25bp to a record-low of 1.00% earlier this month in an effort to steer the economy out of the worst recession in over half a century, while the Governing Council ‘agreed in principle’ to utilize tools beyond the interest rate to manage monetary policy as the board attempts to put a floor on the interest rate. However, the lack of decisive action by the central bank paired with the dissenting views amongst policymakers have raised speculation that the ECB has done too little too late, and uncertainties surrounding the outlook for future policy could weigh on the exchange rate over the near-term. As a result, expectations for further easing are likely to stoke increased selling pressure for the euro over the remainder of the month as the central bank maintains a dovish stance however, as risk trends continue to drive price action in the foreign exchange market, the rise in market sentiment could drive the single-currency higher as investors increase their appetite for risk.
Trading the given event risk favors a bearish outlook for the single currency as the growth rate is expected to fall further in the first quarter but nevertheless, an enhanced growth reading could set the stage for a long euro trade as market participants move into higher risk/reward investments. Therefore, if economic activity contracts 1.5% or less in the first quarter, we will look for a green, five-minute candle following the release to validate a buy entry on two lots of EUR/USD, and once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
In contrast, the downturn in global trade paired with the rise in unemployment is likely to weigh on economic activity, and fears of a deepening recession are likely to weigh on the exchange rate as the economic downturn intensifies. As a result, an in-line print, or a drop of more than 2.0% in the growth rate would lead us to hold a bearish outlook for the single currency, and we will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.
Trading on the Dangerous Side of a Head and Shoulders Range
Last week, we were looking at EURGBP for a range trade. The technical interest in this pair followed a pressurized head-and-shoulders formation while fundamentals pointed to a long-term shift in the interest rate and growth bias. Today, we are on the opposite side of the same range; but the situation is very different.
Why Would EURGBP Hold a Range?
· Levels to Watch:
-Range Top: 0.9020 (Trend, Fibs, SMAs)
-Range Bottom: 0.8790 (Range Low, Fib)
· There is back and forth in EURGBP that has yet to be resolved through Fundamentals. The long-term outlook for the UK has long drawn a consensus for the worst performing, industrialized economy. On the other hand, the Euro Zone’s benchmark lending rate (one of the primary catalysts for euro strength) has steadily fallen while recent growth readings from the region reveal a deeper recession than many though. Is the euro more stable than the pound?
· The technical scene for EURGBP is plentiful but somewhat complex. Starting with the long-term view of the market, we have a struggle for a gradual, bearish reversal following the record high set at the end of 2008. And, while this turn has stalled, it has produced a clear line in the sand for a breakout. An extended range and Fib floor around 0.88 is key.
Suggested Strategy
· Short: Half-sized entry orders will be placed at 0.8805 aims to find entry near support.
· Stop: An initial stop of 0.8745 looks only to cover the spike low from May 7th. To secure profit, move the stop on the second lot to breakeven when the first target hits.
· Target: The first objective equals risk (60) at 0.8865 and the second target will be 0.8930.
Trading Tip – Last week, we were looking at EURGBP for a range trade. The technical interest in this pair followed a pressurized head-and-shoulders formation while fundamentals pointed to a long-term shift in the interest rate and growth bias. Today, we are on the opposite side of the same range; but the situation is very different. A cursory look at a daily chart reveals the head-and-shoulders pattern that has been in development since February offers a clear breaking point in its ‘neckline’ around 0.8800/750 for what is looking more and more like a gradual, bearish reversal. A break at this level could potentially signal a major shift in market sentiment; and as such, it would likely take a prominent economic driver to catalyze such a move. Looking at the economic docket, there are more than a few indicators that are noteworthy. On the other hand, few of the releases have the necessary sway to drive such a dramatic change in market direction – a boon for our range setup. Our entry is set below today’s low; but this is necessary to maintain a reasonable risk/reward profile. However, things can still change quickly should momentum develop from an unforeseen event. To account for this threat, we have set the stop just below recent lows to cut risk quickly. We have also cut our position size in half (we are dealing with pound pips) to further lower our risk. If this entry doesn’t trigger by tomorrow’s US session close, we will cancel all pending orders.
Event Risk for Euro Zone and UK
Euro Zone – The euro may have assimilate the most influential round of event risk the currency has seen since the ECB’s rate decision two weeks ago. A sharper than expected, negative revision to first quarter GDP subverts the market’s attempt at calling an early recovery from this economic leader. What’s more, it tips the scales on the argument for further rate cuts and expanding the bank’s unorthodox covered bond plan. This will hold over the market as each day passes without a severe shock to general risk appetite. Looking at the economic docket this week, the euro has a number of indicators that could add to the disappointing outcome of the growth figures. The PMI numbers are the most influential considering they will give a leading measure of growth from the business side of the market. The ZEW survey will offer a sentiment view of things. As investors are the most speculative of economic groups, their outlook on growth and monetary policy will be taken seriously by the market. UK – At one point in the past, each of the scheduled events and indicators on the UK docket was a primary driver for the sterling. Today, however, these indicators hold less tout for the fundamental crowd. While each is important from an economic perspective (they all feed into the medium-term growth and interest rate outlook), each is simply a component of the larger concern about growth and returns in the United Kingdom when everything is said and done. For surprise and market-movement quotient, the preliminary reading for GDP could offer drive. As the first revision, there is no adjustment expected; but given the market’s focus on this front, a shift would be market moving. Potential also rests with the CBI trends report as a leading and long-term gauge for manufacturing health.
Data for May 19 – May 26
Data for May 19 – May 26
Date (GMT)
European Economic Data
Date (GMT)
UK Economic Data
May 19
German ZEW Survey (MAY)
May 19
CPI (APR)
May 21
Euro Zone PMI Composite (MAY A)
May 20
Bank of England Minutes
May 25
German IFO – Business Climate (MAY)
May 20
CBI Industrial Trends Total Orders (MAY)
May 26
Euro Zone Industrial New Orders (MAR)
May 21
GDP (1Q P)
Why Would EURGBP Hold a Range?
· Levels to Watch:
-Range Top: 0.9020 (Trend, Fibs, SMAs)
-Range Bottom: 0.8790 (Range Low, Fib)
· There is back and forth in EURGBP that has yet to be resolved through Fundamentals. The long-term outlook for the UK has long drawn a consensus for the worst performing, industrialized economy. On the other hand, the Euro Zone’s benchmark lending rate (one of the primary catalysts for euro strength) has steadily fallen while recent growth readings from the region reveal a deeper recession than many though. Is the euro more stable than the pound?
· The technical scene for EURGBP is plentiful but somewhat complex. Starting with the long-term view of the market, we have a struggle for a gradual, bearish reversal following the record high set at the end of 2008. And, while this turn has stalled, it has produced a clear line in the sand for a breakout. An extended range and Fib floor around 0.88 is key.
Suggested Strategy
· Short: Half-sized entry orders will be placed at 0.8805 aims to find entry near support.
· Stop: An initial stop of 0.8745 looks only to cover the spike low from May 7th. To secure profit, move the stop on the second lot to breakeven when the first target hits.
· Target: The first objective equals risk (60) at 0.8865 and the second target will be 0.8930.
Trading Tip – Last week, we were looking at EURGBP for a range trade. The technical interest in this pair followed a pressurized head-and-shoulders formation while fundamentals pointed to a long-term shift in the interest rate and growth bias. Today, we are on the opposite side of the same range; but the situation is very different. A cursory look at a daily chart reveals the head-and-shoulders pattern that has been in development since February offers a clear breaking point in its ‘neckline’ around 0.8800/750 for what is looking more and more like a gradual, bearish reversal. A break at this level could potentially signal a major shift in market sentiment; and as such, it would likely take a prominent economic driver to catalyze such a move. Looking at the economic docket, there are more than a few indicators that are noteworthy. On the other hand, few of the releases have the necessary sway to drive such a dramatic change in market direction – a boon for our range setup. Our entry is set below today’s low; but this is necessary to maintain a reasonable risk/reward profile. However, things can still change quickly should momentum develop from an unforeseen event. To account for this threat, we have set the stop just below recent lows to cut risk quickly. We have also cut our position size in half (we are dealing with pound pips) to further lower our risk. If this entry doesn’t trigger by tomorrow’s US session close, we will cancel all pending orders.
Event Risk for Euro Zone and UK
Euro Zone – The euro may have assimilate the most influential round of event risk the currency has seen since the ECB’s rate decision two weeks ago. A sharper than expected, negative revision to first quarter GDP subverts the market’s attempt at calling an early recovery from this economic leader. What’s more, it tips the scales on the argument for further rate cuts and expanding the bank’s unorthodox covered bond plan. This will hold over the market as each day passes without a severe shock to general risk appetite. Looking at the economic docket this week, the euro has a number of indicators that could add to the disappointing outcome of the growth figures. The PMI numbers are the most influential considering they will give a leading measure of growth from the business side of the market. The ZEW survey will offer a sentiment view of things. As investors are the most speculative of economic groups, their outlook on growth and monetary policy will be taken seriously by the market. UK – At one point in the past, each of the scheduled events and indicators on the UK docket was a primary driver for the sterling. Today, however, these indicators hold less tout for the fundamental crowd. While each is important from an economic perspective (they all feed into the medium-term growth and interest rate outlook), each is simply a component of the larger concern about growth and returns in the United Kingdom when everything is said and done. For surprise and market-movement quotient, the preliminary reading for GDP could offer drive. As the first revision, there is no adjustment expected; but given the market’s focus on this front, a shift would be market moving. Potential also rests with the CBI trends report as a leading and long-term gauge for manufacturing health.
Data for May 19 – May 26
Data for May 19 – May 26
Date (GMT)
European Economic Data
Date (GMT)
UK Economic Data
May 19
German ZEW Survey (MAY)
May 19
CPI (APR)
May 21
Euro Zone PMI Composite (MAY A)
May 20
Bank of England Minutes
May 25
German IFO – Business Climate (MAY)
May 20
CBI Industrial Trends Total Orders (MAY)
May 26
Euro Zone Industrial New Orders (MAR)
May 21
GDP (1Q P)
Risk Appetite and Carry Interest Stalled by Long-Term Concerns
Risk appetite is still on shaky ground following the release of the Fed’s Stress Test just a few weeks ago. Since then, another attempt to spark investor optimism was made; but fundamentals are stacking up against a true changing of the guard for the market. Before credit is restored and capital is once again freely invested in risk-laden capital markets, participants will need to reconcile a lack of returns against an ongoing recession, the eventual removal of government aid and the inevitable sale of toxic debt that has been held in escrow with central banks.
• Risk Appetite and Carry Interest Stalled by Long-Term Concerns• When Is It Prudent To Unwind Government Aid?• UK Sovereign Debt Rating Under Watch – What’s At Stake?
Risk appetite is still on shaky ground following the release of the Fed’s Stress Test just a few weeks ago. Since then, another attempt to spark investor optimism was made; but fundamentals are stacking up against a true changing of the guard for the market. Before credit is restored and capital is once again freely invested in risk-laden capital markets, participants will need to reconcile a lack of returns against an ongoing recession, the eventual removal of government aid and the inevitable sale of toxic debt that has been held in escrow with central banks. However, these are long-term and ill-defined themes for the investment community; so how much immediate influence will they have on the capital markets? This past week, we have seen equities fail to hold on to their highest levels this year. The Dow Jones Industrial Average recently been restrained by a channel of congestion between 8,600 and 8,250 whilst volatility (as measured by the VIX) has seen a sharp advance from a recent stumble to eight month lows. The picture is much the same in the currency market. The DailyFX Carry Index has failed to mark a higher high this week; but the general bias towards positive rate differentials is clearly still on pace. As for condition indicators, volatility seemed to have marked a temporary bottom around 13.5 percent – around the same levels the market was at just before the credit crisis grew severe back in late September. On the other hand, interest rate expectations are still inching higher and risk reversals on interest-heavy pairs mark a demand for return. Panic has been exercised from the market’s memory; but the catalysts that aroused such a violent reaction from investors in the first place lingers in the background. How the market progresses from here depends on whether market participants are willing to ruminate on the potential catalysts for another financial crunch (thereby casting the general outlook in pessimism and setting the market on edge) or otherwise place their confidence in policy authorities and keep their capital in the pursuit of market-beating returns. The world’s governments and central banks have been integral to developing the stability that we see today. However, the powers that be are already starting to remind the market that this support will eventually be removed from the market. At this point it is still a gamble to forecast whether we are currently in a sustainable recovery or one manufactured by the government guarantees and lending. Another eventuality is the transfer of toxic debt used as collateral for aid will cycle back out into the market. Either a bullish market will boost these products’ attractiveness or they will clog the lines of liquidity again. With expirations still far off, they will not simply disappear. In the meantime, event the risk-free title assigned to government securities is coming under fiscal strains. The UK is at risk of losing its top rating and speculation is now focusing on the US. Without utter confidence from the market, these threats could leverage fear.
Is Carry Trade a Buy or a Sell? Join the DailyFX Analysts in discussing the viability of the Carry Trade strategy in the DailyFX Forum
Risk Indicators:
Definitions:
What is the DailyFX Volatility Index:
The DailyFX Volatility Index measures the general level of volatility in the currency market. The index is a composite of the implied volatility in options underlying a basket of currencies. Our basket is equally weighed and composed of some of the most liquid currency pairs in the Foreign exchange market.
In reading this graph, whenever the DailyFX Volatility Index rises, it suggests traders expect the currency market to be more active in the coming days and weeks. Since carry trades underperform when volatility is high (due to the threat of capital losses that may overwhelm carry income), a rise in volatility is unfavorable for the strategy.
What are Risk Reversals:Risk reversals are the difference in volatility between similar (in expiration and relative strike levels) FX calls and put options. The measurement is calculated by finding the difference between the implied volatility of a call with a 25 Delta and a put with a 25 Delta. When Risk Reversals are skewed to the downside, it suggests volatility and therefore demand is greater for puts than for calls and traders are expecting the pair to fall; and visa versa.
We use risk reversals on AUDUSD as global interest rates have quickly fallen towards zero and the lines between safe haven and yield provided has become blurred. Australia has a historically high and responsive benchmark, making it more sensitive to current market conditions. When Risk Reversals grow more extreme to the downside, it typically reflects a demand for safety of funds - an unfavorable condition for carry.
How are Rate Expectations calculated:
Forecasting rate decisions is notoriously speculative, yet the market is typically very efficient at predicting rate movements (and many economists and analysts even believe market prices influence policy decisions). To take advantage of the collective wisdom of the market in forecasting rate decisions, we will use a combination of long and short-term, risk-free interest rate assets to determine the cumulative movement the Reserve Bank of Australia (RBA) will make over the coming 12 months. We have chosen the RBA as the Australian dollar is one of few currencies, still considered a high yielders.To read this chart, any positive number represents an expected firming in the Australian benchmark lending rate over the coming year with each point representing one basis point change. When rate expectations rise, the carry differential is expected to increase and carry trades return improves.
Additional Information
What is a Carry TradeAll that is needed to understand the carry trade concept is a basic knowledge of foreign exchange and interest rates differentials. Each currency has a different interest rate attached to it determined partly by policy authorities and partly by market demand. When taking a foreign exchange position a trader holds long position one currency and short position in another. Each day, the trader will collect the interest on the long side of their trade and pay the interest on the short side. If the interest rate on the purchased currency is higher than that of the sold currency, the result is a net inflow of interest. If the sold currency’s interest rate is greater than the purchased currency’s rate, the trader must pay the net interest.
Carry Trade As A StrategyFor many years, money managers and banks have utilized the inflow and outflow of yield to collect consistent income in times of low volatility and high risk appetite. Holding only one or two currency pairs would invite considerable idiosyncratic risk (or risk related to those few pairs held); so traders create portfolios of various carry trade pairs to diversify risk from any single pair and isolate exposure to demand for yield. However, even with risk diversified away from any one pair, a carry basket is still exposed to those conditions that render this yield seeking strategy undesirable, such as: high volatility, small interest rate differentials or a general aversion to risk. Therefore, the carry trade will consistently collect an interest income, but there are still situation when the carry trade can face large drawdowns in certain market conditions. As such, a trader needs to decide when it is time to underweight or overweight their carry trade exposure.
• Risk Appetite and Carry Interest Stalled by Long-Term Concerns• When Is It Prudent To Unwind Government Aid?• UK Sovereign Debt Rating Under Watch – What’s At Stake?
Risk appetite is still on shaky ground following the release of the Fed’s Stress Test just a few weeks ago. Since then, another attempt to spark investor optimism was made; but fundamentals are stacking up against a true changing of the guard for the market. Before credit is restored and capital is once again freely invested in risk-laden capital markets, participants will need to reconcile a lack of returns against an ongoing recession, the eventual removal of government aid and the inevitable sale of toxic debt that has been held in escrow with central banks. However, these are long-term and ill-defined themes for the investment community; so how much immediate influence will they have on the capital markets? This past week, we have seen equities fail to hold on to their highest levels this year. The Dow Jones Industrial Average recently been restrained by a channel of congestion between 8,600 and 8,250 whilst volatility (as measured by the VIX) has seen a sharp advance from a recent stumble to eight month lows. The picture is much the same in the currency market. The DailyFX Carry Index has failed to mark a higher high this week; but the general bias towards positive rate differentials is clearly still on pace. As for condition indicators, volatility seemed to have marked a temporary bottom around 13.5 percent – around the same levels the market was at just before the credit crisis grew severe back in late September. On the other hand, interest rate expectations are still inching higher and risk reversals on interest-heavy pairs mark a demand for return. Panic has been exercised from the market’s memory; but the catalysts that aroused such a violent reaction from investors in the first place lingers in the background. How the market progresses from here depends on whether market participants are willing to ruminate on the potential catalysts for another financial crunch (thereby casting the general outlook in pessimism and setting the market on edge) or otherwise place their confidence in policy authorities and keep their capital in the pursuit of market-beating returns. The world’s governments and central banks have been integral to developing the stability that we see today. However, the powers that be are already starting to remind the market that this support will eventually be removed from the market. At this point it is still a gamble to forecast whether we are currently in a sustainable recovery or one manufactured by the government guarantees and lending. Another eventuality is the transfer of toxic debt used as collateral for aid will cycle back out into the market. Either a bullish market will boost these products’ attractiveness or they will clog the lines of liquidity again. With expirations still far off, they will not simply disappear. In the meantime, event the risk-free title assigned to government securities is coming under fiscal strains. The UK is at risk of losing its top rating and speculation is now focusing on the US. Without utter confidence from the market, these threats could leverage fear.
Is Carry Trade a Buy or a Sell? Join the DailyFX Analysts in discussing the viability of the Carry Trade strategy in the DailyFX Forum
Risk Indicators:
Definitions:
What is the DailyFX Volatility Index:
The DailyFX Volatility Index measures the general level of volatility in the currency market. The index is a composite of the implied volatility in options underlying a basket of currencies. Our basket is equally weighed and composed of some of the most liquid currency pairs in the Foreign exchange market.
In reading this graph, whenever the DailyFX Volatility Index rises, it suggests traders expect the currency market to be more active in the coming days and weeks. Since carry trades underperform when volatility is high (due to the threat of capital losses that may overwhelm carry income), a rise in volatility is unfavorable for the strategy.
What are Risk Reversals:Risk reversals are the difference in volatility between similar (in expiration and relative strike levels) FX calls and put options. The measurement is calculated by finding the difference between the implied volatility of a call with a 25 Delta and a put with a 25 Delta. When Risk Reversals are skewed to the downside, it suggests volatility and therefore demand is greater for puts than for calls and traders are expecting the pair to fall; and visa versa.
We use risk reversals on AUDUSD as global interest rates have quickly fallen towards zero and the lines between safe haven and yield provided has become blurred. Australia has a historically high and responsive benchmark, making it more sensitive to current market conditions. When Risk Reversals grow more extreme to the downside, it typically reflects a demand for safety of funds - an unfavorable condition for carry.
How are Rate Expectations calculated:
Forecasting rate decisions is notoriously speculative, yet the market is typically very efficient at predicting rate movements (and many economists and analysts even believe market prices influence policy decisions). To take advantage of the collective wisdom of the market in forecasting rate decisions, we will use a combination of long and short-term, risk-free interest rate assets to determine the cumulative movement the Reserve Bank of Australia (RBA) will make over the coming 12 months. We have chosen the RBA as the Australian dollar is one of few currencies, still considered a high yielders.To read this chart, any positive number represents an expected firming in the Australian benchmark lending rate over the coming year with each point representing one basis point change. When rate expectations rise, the carry differential is expected to increase and carry trades return improves.
Additional Information
What is a Carry TradeAll that is needed to understand the carry trade concept is a basic knowledge of foreign exchange and interest rates differentials. Each currency has a different interest rate attached to it determined partly by policy authorities and partly by market demand. When taking a foreign exchange position a trader holds long position one currency and short position in another. Each day, the trader will collect the interest on the long side of their trade and pay the interest on the short side. If the interest rate on the purchased currency is higher than that of the sold currency, the result is a net inflow of interest. If the sold currency’s interest rate is greater than the purchased currency’s rate, the trader must pay the net interest.
Carry Trade As A StrategyFor many years, money managers and banks have utilized the inflow and outflow of yield to collect consistent income in times of low volatility and high risk appetite. Holding only one or two currency pairs would invite considerable idiosyncratic risk (or risk related to those few pairs held); so traders create portfolios of various carry trade pairs to diversify risk from any single pair and isolate exposure to demand for yield. However, even with risk diversified away from any one pair, a carry basket is still exposed to those conditions that render this yield seeking strategy undesirable, such as: high volatility, small interest rate differentials or a general aversion to risk. Therefore, the carry trade will consistently collect an interest income, but there are still situation when the carry trade can face large drawdowns in certain market conditions. As such, a trader needs to decide when it is time to underweight or overweight their carry trade exposure.
FX Technical Weekly
The dollar decline is extended. Wave structure at multiple degrees of trend favor in multiple pairs favor a turn towards USD strength. New highs in the EURUSD, AUDUSD, and NZDUSD are divergent with daily RSI. The USDJPY trend remains down below 96.71. The only open trade is the EURCAD long (triggered this week).
EURO / US DOLLAR
Elliott Wave Outlook: The EURUSD rally is stretched and due for at least a pullback and maybe a reversal. Wave structure favors a reversal sooner rather than later. The form of the declines from 1.6000 and 1.4723 and their subsequent rallies are the same. The rally from 1.2886 is in 5 waves and wave 5 has hit and slightly exceeded the 1-3 line. Until there is evidence of one, going short is too risky.
BRITISH POUND / US DOLLAR
Elliott Wave Outlook: There is no change to the bigger picture pattern in which wave 4 within the 5 wave decline from the 2007 high is nearing completion. Cable has tested a former 4th wave extreme at 1.5730... and exceeded it. The pair has touched the top of a parallel channel, which is a possible reversal point. The rally from 1.3500 is taking the structure of a complex (w-x-y) correction.
AUSTRALIAN DOLLAR / US DOLLAR
Elliott Wave Outlook: Despite the new high in the AUDUSD, nothing has changed regarding the long term bearish implications (5 wave decline from 2008 high indicates additional bearish potential and the corrective rally from .6000 confirms as much). Near term, RSI divergence along with a mature wave structure at multiple degrees of trend (3 waves up from .6000, 5 waves up from .6245 and 5 waves up from .6950) suggests that a turn is imminent.
NEW ZEALAND DOLLAR / US DOLLAR
Elliott Wave Outlook: The NZDUSD has soared to a new high. The rally from .5484 is in 5 waves therefore the risk of at least a pullback, potentially to .5829, is high. The advance from below .5000 is most likely an A-B-C (zigzag) and wave C would equal wave A at .6581.
US DOLLAR / JAPANESE YEN
Elliott Wave Outlook: The USDJPY is approaching 93.50…a break below there would completely clear the head and shoulders top that has formed since March. The triangle count that I have presented in recent days is still valid but becoming less probable by the day. At this point, remaining below 96.71 keeps the near term trend pointed down.
US DOLLAR / CANADIAN DOLLAR
Elliott Wave Outlook: RSI divergence at the low along with potential support from a line extended from the 4/16 and 5/8 lows indicates reversal potential. Structurally, the decline from 1.3068 is in 7 waves. This decline could be counted in several ways, but the near term implications are bullish for nearly all counts. The decline could an A-B-C correction that is nearing completion, a double 3 (two flats), or waves 1 through 3 of an impulse. At least a rally back to 1.1820 is expected.
US DOLLAR / SWISS FRANC
Elliott Wave Outlook: The USDCHF has dropped below its March low of 1.1157. In other words, minimum expectations have been met for wave Y. Look for a low.
EURO / JAPANESE YEN
Elliott Wave Outlook: 5 waves down from 137.46 is bearish and suggests that the long term trend is down. However, the decline could be wave C of an expanded flat or part of a triangle. Intraday momentum studies are overbought, which suggests at least a pullback is due. The downside is favored as long as price is below the origin of the 5 wave decline (137.46).
EURO / BRITISH POUND
Elliott Wave Outlook: It is possible that a triangle is unfolding. This would define the near term trend as bullish in wave D of the triangle up towards .9200. A drop below .8634 would warrant a bearish breakout strategy against .9085.
EURO / CANADIAN DOLLAR
Elliott Wave Outlook: The rally from 1.5460 is an impulse (5 waves) so a bullish bias is warranted against that level.
TRADE LIST
*Entry prices for trades that are recommended ‘at market’ are listed as the close price on the date published.
Long-Term Technicals May Offset Unusual EUR/NZD Price Action
We are heading into a period of potentially unusual price action early next week. An extended holiday for US, UK and New Zealand markets will warp liquidity which could lead to untimely breakouts or simply a drop back into congestion bands. This presents significant risk to all range-based strategies; but EURNZD may have a better grounding for holding its congestion.
Why Would EURNZD Hold a Range?
· Levels to Watch:
-Range Top: 0.8935 (Fib, Range High)
-Range Bottom: 0.8785 (Trend, Fibs, SMA)
· Though there has been a break in steady risk trends over the past few weeks; the larger trend is still offering general guidance to the market. This is what makes the EURNZD’s month-and-a-half of congestion so unusual. The kiwi has a clear association to risk appetite and the euro can easily be labeled the comparatively stable one. Should price action disregard broader risk trends, a sizable fundamental risk is removed from the equation.
· Price action for EURNZD has been congestive since early April. Support has played a big role in establishing this recent range. A long-term 38.2% Fib initially put a floor under a very steady, bear trend near 2.25 last month. Since then, the bearish momentum has ebbed, but minor trends have developed; while support has taken more hits.
Suggested Strategy
· Long: Half-sized entry orders will be placed at 2.2525, is above the past weeks’ range of lows.
· Stop: An initial stop of 2.2375 is notionally wide, but technically it doesn’t cover our extremes. To secure profit, move the stop on the second lot to breakeven when the first target hits.
· Target: The first objective equals risk (150) at 2.2675 and the second target will be 2.2850.
Trading Tip – We are heading into a period of potentially unusual price action early next week. An extended holiday for US, UK and New Zealand markets will warp liquidity which could lead to untimely breakouts or simply a drop back into congestion bands. This presents significant risk to all range-based strategies; but EURNZD may have a better grounding for holding its congestion. From a fundamental perspective, we have seen price action for this high-yielding pair deviate from clear trends in risk appetite seen in other corners of the market. And, in the absence of sentiment or event driven volatility, technicals will stand in to hold the market back. Currently, this pair is at the head of two converging trends. In the short-term, the bear wave that was born through March is so far just a retracement in a much larger trend. The dominate drive behind price action comes from the general, bullish drift since the summer of 2007. Consistency was given to this advance last March with a rising trendline that now stands around 2.2330. Our strategy holds with the otherwise solid range of lows and Fib support somewhat higher at 2.2475/500; so the risk of a spike low to test the trendline (like we saw on May 10th and 11th) is a possibility. Regardless, even after cutting our position size in half and the fact that we are trading with kiwi pips, we will still live with this risk to maintain a reasonable risk profile. This setup should play out relatively quickly considering average volatility and the position of our targets; but a breakout also grows more likely with each passing day. Therefore, we will cancel all open orders by the Asian session on Tuesday or should spot hit 2.2350 or 2.29 before we are entered.
Event Risk for Euro Zone and New Zealand
Euro Zone – The euro is straddling the line as a bulwark economy with an attractive yield and a risk laden financial system that could see its interest rates further deflate. Debate will rage on over whether the ECB will further ease rates and take further steps toward outright quantitative easing; and most of the fuel for market driver will come from the high level market movers on the economic docket. The hurdles will be relatively consistent next week. Sentiment readings from the consumer and business sectors will offer a timely benchmark for growth expectations. For less discretionary views of economic health, industrial new orders and German employment numbers are available. Finally, for rate speculators, the leading German and EZ CPI numbers will discount the possibility of another cut. New Zealand – As is obvious amongst its crosses, the kiwi dollar has been, and will remain, linked to risk trends. General market sentiment is a difficult dynamic to benchmark without specific, market-moving economic indicators to speculate on. There are few key readings on the docket that could act as a catalyst for broader sentiment; so vigilance is necessary. As for internal factors, there is plenty of data on the New Zealand calendar; but there is no guarantee that it will be market moving. Trade and inflation expectations have obvious implications to growth and rate cuts; but the annual budget announcement could be the most pressing driver. With a renewed focus on sovereign credit ratings (after the UK outlook was downgraded), New Zealand debt will be brought into focus.
Data for May 24 – May 31
Data for May 24 – May 31
Date (GMT)
European Economic Data
Date (GMT)
New Zealand Economic Data
May 25
German IFO – Business Climate (MAY)
May 25
Trade balance (APR)
May 26
Euro Zone Industrial New Orders (MAR)
May 25
RBNZ 2yr Inflation Expectation (2Q)
May 28
Unemployment Change (MAY)
May 26
NBNZ Business Confidence (MAY)
May 29
Euro Zone Unemployment Rate (APR)
May 27
Annual Budget
Why Would EURNZD Hold a Range?
· Levels to Watch:
-Range Top: 0.8935 (Fib, Range High)
-Range Bottom: 0.8785 (Trend, Fibs, SMA)
· Though there has been a break in steady risk trends over the past few weeks; the larger trend is still offering general guidance to the market. This is what makes the EURNZD’s month-and-a-half of congestion so unusual. The kiwi has a clear association to risk appetite and the euro can easily be labeled the comparatively stable one. Should price action disregard broader risk trends, a sizable fundamental risk is removed from the equation.
· Price action for EURNZD has been congestive since early April. Support has played a big role in establishing this recent range. A long-term 38.2% Fib initially put a floor under a very steady, bear trend near 2.25 last month. Since then, the bearish momentum has ebbed, but minor trends have developed; while support has taken more hits.
Suggested Strategy
· Long: Half-sized entry orders will be placed at 2.2525, is above the past weeks’ range of lows.
· Stop: An initial stop of 2.2375 is notionally wide, but technically it doesn’t cover our extremes. To secure profit, move the stop on the second lot to breakeven when the first target hits.
· Target: The first objective equals risk (150) at 2.2675 and the second target will be 2.2850.
Trading Tip – We are heading into a period of potentially unusual price action early next week. An extended holiday for US, UK and New Zealand markets will warp liquidity which could lead to untimely breakouts or simply a drop back into congestion bands. This presents significant risk to all range-based strategies; but EURNZD may have a better grounding for holding its congestion. From a fundamental perspective, we have seen price action for this high-yielding pair deviate from clear trends in risk appetite seen in other corners of the market. And, in the absence of sentiment or event driven volatility, technicals will stand in to hold the market back. Currently, this pair is at the head of two converging trends. In the short-term, the bear wave that was born through March is so far just a retracement in a much larger trend. The dominate drive behind price action comes from the general, bullish drift since the summer of 2007. Consistency was given to this advance last March with a rising trendline that now stands around 2.2330. Our strategy holds with the otherwise solid range of lows and Fib support somewhat higher at 2.2475/500; so the risk of a spike low to test the trendline (like we saw on May 10th and 11th) is a possibility. Regardless, even after cutting our position size in half and the fact that we are trading with kiwi pips, we will still live with this risk to maintain a reasonable risk profile. This setup should play out relatively quickly considering average volatility and the position of our targets; but a breakout also grows more likely with each passing day. Therefore, we will cancel all open orders by the Asian session on Tuesday or should spot hit 2.2350 or 2.29 before we are entered.
Event Risk for Euro Zone and New Zealand
Euro Zone – The euro is straddling the line as a bulwark economy with an attractive yield and a risk laden financial system that could see its interest rates further deflate. Debate will rage on over whether the ECB will further ease rates and take further steps toward outright quantitative easing; and most of the fuel for market driver will come from the high level market movers on the economic docket. The hurdles will be relatively consistent next week. Sentiment readings from the consumer and business sectors will offer a timely benchmark for growth expectations. For less discretionary views of economic health, industrial new orders and German employment numbers are available. Finally, for rate speculators, the leading German and EZ CPI numbers will discount the possibility of another cut. New Zealand – As is obvious amongst its crosses, the kiwi dollar has been, and will remain, linked to risk trends. General market sentiment is a difficult dynamic to benchmark without specific, market-moving economic indicators to speculate on. There are few key readings on the docket that could act as a catalyst for broader sentiment; so vigilance is necessary. As for internal factors, there is plenty of data on the New Zealand calendar; but there is no guarantee that it will be market moving. Trade and inflation expectations have obvious implications to growth and rate cuts; but the annual budget announcement could be the most pressing driver. With a renewed focus on sovereign credit ratings (after the UK outlook was downgraded), New Zealand debt will be brought into focus.
Data for May 24 – May 31
Data for May 24 – May 31
Date (GMT)
European Economic Data
Date (GMT)
New Zealand Economic Data
May 25
German IFO – Business Climate (MAY)
May 25
Trade balance (APR)
May 26
Euro Zone Industrial New Orders (MAR)
May 25
RBNZ 2yr Inflation Expectation (2Q)
May 28
Unemployment Change (MAY)
May 26
NBNZ Business Confidence (MAY)
May 29
Euro Zone Unemployment Rate (APR)
May 27
Annual Budget
Forex Strategy Outlook: Dollar Breakdown Boosts Strategy Performance
A major breakdown in the US Dollar greatly boosted performance in several of our forex trading strategies, as our Momentum and Breakout systems were heavily long the Euro, Canadian dollar, Swiss Franc, Australian Dollar, and New Zealand dollar against the US currency. A continuation of the dollar downtrend would certainly bolster outlook for these trend-following systems, and the US Dollar Index’s break below a key 10-month trendline and 200-day SMA suggests further losses are likely. Of course, we cannot discount the possibility that the Dollar breakdown may lead to subsequent consolidation.
It remains important to monitor day-to-day price action in key currency pairs. Fresh lows in volatility expectations suggest that few anticipate major price moves through the medium term. Said drop really limits our optimism for Momentum and Breakout trading systems, but we cannot ignore the clear short-term trends in major currency pairs.
Forex Trading Automated Systems Outlook
Our Momentum and Breakout trading systems have had a strong run in the past week or so, with the US Dollar’s breakdown providing solid opportunities in these strategies. Momentum2 had previously shown negative performance in the preceding 60 days of trading, but the recent turn has been enough to lift the strategy into positive territory through time of reporting. Clearly a continuation of the USD downtrend would be beneficial to the Momentum2 and Breakout2 systems. Yet we remain clearly aware of the fact that low volatility figures suggest markets may re-enter large trading ranges through upcoming trade.
It remains critical to monitor US Dollar pairs through the near term and manage our trading biases accordingly. For the moment, we favor Breakout2 and Momentum2 trading signals. Yet we remain mindful that low volatility may in fact invite a turndown in currency movements and a return to trading ranges.
DailyFX+ Forex Market Conditions Outlook
NOTE: Data has once again been changed. Due to the ineffectiveness of the 30-day horizon, we are returning to the original 90-day time horizon.
Definitions
Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 30 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.
Trend – This indicator measures trend intensity by telling us where price stands in relation to its 30 trading-day range. A very low number tells us that price is currently at or near monthly lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s monthly range.
Range High – 90-day closing high.
Range Low – 90-day closing low.
Last – Current market price.
Strategy – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.
The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
Saturday, April 25, 2009
Trading Systems
We have developed absolutely superb Forex Signal system based on detailed research, close market watch and careful technical analysis which has perform fabulously so far bringing over 800 pips a month with 80-90% accuracy. The biggest advantage of our Forex Signal Trading System is that it works!It has performed numerous of winning trades over the last seven months.Forex Money Signal is the key towards a long-term profitable career in forex trading.
This article shows high lights the dangers and opportunities of using grid trading principles in trading the Forex (currency) markets. It also constructively suggests ways of overcoming the dangers
For the trader who employs a forex trading system, he can still face the losing trade with a smile, because he has had followed through the trading signals in a disciplined way, and it is only when a trader follows a system, he can be sure of keeping his losses small and to live to trade again another day. Is there a place for day trading in a forex trading system?
Trading Strategy
Endurance is counted as a high merit in great accomplishments, especially in forex trading. Great men frequently advise to be consistent in big changes of market tendencies and "Follow Through" in breakthroughs.
Have you ever heard of a stop placement strategy that trails stop based on previous 'high' points? It is called Chandelier exit as it hangs down from the high point or the ceiling of our trade, just as a chandelier hangs from a room ceiling. The distance, which is usually calculated from the high point to the trailing stop; could also be calculated in dollars or in contract based points. However, the value of this trailing stop moves upward very promptly as higher highs is reached.
Many forex traders find themselves asking the age old question what’s the best forex strategy? To know the answer to that question, one must look at the history of trading. Not just forex trading, but trading, in general.
In reality, there can be profits in any forex strategy as long as you are well aware of the market movers and signals at any given time, and you have a clear understanding of all the elements that support your forex strategy.
The majority of Forex Trading Systems that are used by beginner traders are focused towards short term trading strategies, which aim to take small risk and promise to pile up massive profits and regular income. So we will look at how to succeed.
If you want to catch the serious profit in forex dealing you need to trend watch forex trends which are worse term. here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every superior forex trend and lead you to long-term term currency dealing success.
If you want to catch the big profits in forex trading you need to trend follow forex trends which are longer term. Here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every major forex trend and lead you to long term currency trading success.
Make money from Forex trading by breaking all the rules like: never trade without a stop; cut your losses and let your profit run; and always trade in the direction of the trend.
This article shows how it is possible to make money buying and selling investments at the same time.
The Federal Open Market Committee (FOMC) decision on interest rates is one of the most powerful market movers in the forex market and when the markets move traders trading the news have the opportunity to make money.
Technical Analysis
If you’re serious about developing your daytrading online career, you’ll want to learn about the various tools and indicators you have available to you, such as the Moving Average Convergence Divergence (MACD). The MACD is a momentum indicator that is based on moving averages. It helps us to determine potential buy and sell points in the trade. Developed by Gerald Appel in the late 1960s, this indicator is widely used as a part of many people’s daytrading systems.
A trendline is a main initial element for the price chart analysis. While the market moves in any direction not along a straight line but along a zigzag, the mutual placement of upper and bottom points of those zigzags permits to plot a line connecting the significant highs (peaks) or the significant lows (troughs) of an appropriate zigzag using technical tools of the computer program.
Successful forex traders understand the limitations of technical indicators and realize that technical analysis should incorporate just one part of their overall trading strategy.
Stock Market
Everybody starts out in CFD Trading wanting to make money but a whopping 95% of Traders lose, which leaves 5% winners. So what is it that the 5% of CFD Traders are doing to make them win in CFD Trading. What are the mistakes that the 95% of people are making, and how can you avoid them!
Successful stock market trading begins with a winning trading plan. It's as simple as that. If you develop a well-conceived trading plan to guide your actions in the stock market you will already have the advantage over most of your market competition. Put simply, it gives you the edge you need to win over the long haul when trading the stock market or forex market.
Contracts for Difference (are commonly known as a CFD) is a contract between the trader and a CFD provider, who will at the close of the contract, exchange the difference between the opening price and the closing price of the underlying index, share, commodity, per the number of specified CFD contracts.This is why CFDs are the flexible new way to trade.
Stock Market Trading- Are you ready to become a millionaire. Here are 3 proven strategies to make you become a more successful trader and increase your wealth. They can be used if you are forex trader, stock market trader.
FOREX is the Foreign Exchange market also known as FX. All three of these means the same thing, which is the trade of trading between different banks,
Both presidential candidates want to crucify SEC Chairman Cox for failing to control our creative financial institutions. But rumor has it that Congress specifically excluded the devilish derivatives from SEC purview. Let's fire the right bunch of "poips" for a change!
Losing money on an investment may not be the result of a mistake, and not all mistakes result in monetary losses. Your own misconceptions about how securities react to varying economic, political, and hysterical circumstances are your most vicious enemy. Step away from calendar year, market value thinking. Avoid these ten common errors to improve your performance:
Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money.
How do we create a confidence building Stock Selection Universe? Simply operating on blind faith with one of the common definitions may be too simplistic, particularly since many of the numbers originate from the subject companies. Here are five filters you can use to come up with a listing of higher quality companies:
Why aren't the wizards of Wall Street assuaging our nerves by explaining the cyclical nature of the markets and pointing out that similar crises have always preceded the attainment of new all time highs? Right, because the unhappy investor is Wall Street's best friend. Why can't politicians address economic problems with capitalist-economic solutions?
Money Management
Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a system with 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of their poor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is.
Essential money management skills for all types of investors.
Forex money management is one of the most important things you can learn before you actually begin making live trades.
How to handle money management in forex trading: Trade With Sufficient Captial, Exercise Discipline and Employ Risk-to-Reward Ratios.
Futures and Options
Forex option trading has emerged as an alternative investment vehicle for many traders and investors. As an investment tool, forex option trading provides both large and small investors with greater flexibility when determining the appropriate forex trading and hedging strategies to implement. With the plethora of real-time financial data and forex option trading software available to most investors through the internet, today's forex option market now includes an increasingly large number of individuals and corporations who are speculating and/or hedging foreign currency exposure via telephone or online forex trading platforms.
When it comes to giving people the hope of becoming a millionaire overnight, the stock market excels. Every day we see evidence of stocks that have flown upwards as if they had wings, providing investors with a windfall of profits. It's inevitable that catching one of those stocks just before it takes off is an exciting possibility, inspiring the beginning trader to take the plunge.
Fundamental Analysis
The Euro Bull: The New paradigm of FOREX
As the EUR/USD breaks 1.50, investors should take another look at foreign exchange. 100/barrel oil, $1,000 gold, and $10/bushel wheat are not anomalies, nor is there a bull market in commodities. The US dollar is losing its value and its relevance as a world reserve currency.
As the EUR/USD breaks 1.50, investors should take another look at foreign exchange. 100/barrel oil, $1,000 gold, and $10/bushel wheat are not anomalies, nor is there a bull market in commodities. The US dollar is losing its value and its relevance as a world reserve currency.
An explanation of how far dollar can go down - contrast with other markets and looking from value perspective.
Information on using fundamental analysis for FOREX trading.
Investors using fundamental analysis to make investment decisions are looking at the underlying aspects that determine company and stock valuations.
Remember, fundamental analysis is a very effective way to forecast economic conditions, but not necessarily exact market prices.
Forex Trading
Forex or Foreign exchange market is used for trading with various types of currencies found in the world. Forex trading system is highly valued by financial wizards round the globe because there are multifarious currencies in the world like Dollars, Pounds, Yens and Euros and there is a constant need of procuring one kind of currency by selling another.
Our site brings you the latest information on Global Forex Trading. It's a brief and straightforward guide on Global Forex Trade. Find the Global Trade, Global Currency Trading, Forex Trade, Global Fx Trade that's right for you, it's absolutely Free!
With the modern times of mobile communication, it is not unusual to find hidden in a home a trader or a broker who is doing their Forex Trading from the comfort of their own home. Today to be a forex trader all that you require is a computer setup to multi screen investing servers, the number of the casual or evens serious home based forex traders has grown a great deal of late and this is because of the internet and the popularity of certain commodity trades.
what to look for when choosing a forex training course.
We have all heard and read how much money we can make from Forex Trading, so what are the real rules and tips that will make us money from Forex Trading? Below we will uncover the real tips for Success.
When we are trading we will all from time to time make a mistake when forex trading and it is normal and sometimes can be looked upon as healthy, so as to know that the decisions will either make or break you. However, if this becomes severe to a point wherein you lose more than you can afford to, then you would have to take measures in order to avoid further damage.
To be a successful Forex Trader takes time, education and knowledge, but the great news is anyone can do it. You do not have to be a genius to be a Professional Forex Trader. There will be many people that disagree with the above and end up broker, because they people have been successful in other areas and they see Forex Trading simply as a financial game
When it comes to trading most professional traders will be trading with indicators, so when most people hear that someone is trading with out them there is an instant look of bewilderment. To them it sounds like driving in the dark with no lights. But in fact it is the opposite.
Everyone that is involved in Forex Trading for awhile would have all heard these 3 misconceptions about Forex Trading, but beginner traders continue to fall for them. These are also some of the reasons why many Forex Traders end up going broke.
The share market today is as volatile as we have seen it, as stock prices continue to fluctuate the only way to preserve your money is to sit on the sidelines and the chaos goes on in the financials and other sectors. With the wild swings in the market as it continues at times to make no sense. We have seen days of down 500 points, followed by days of up 450 points, actual trading sessions moving as much as 1000 points. How do we make sense of these crazy markets and more importantly how do we make money.
Forex Broker
Today we are seeing many people starting to trade the Forex Market, as it is recession proof. It is also the most liquid market in the world, turning over in excess of $3 trillion every day. So if you are looking to get into Forex trading then the most important step you can take is to find a great Forex Broker.
Today, this article will discuss about the CFD market, and how you can find a great online CFD broker when you do decide to jump on the wagon and become a CFD Trader. Most of the CFD Brokers today offer the ability to be able to trade online, CFD trade over the phone, or CFD trade from you mobile phone.
The Contracts For Difference (CFD) Market is the largest financial market and everyday new investors plan to jump in when they learn of the benefits, that is, high returns on investment which is as high as 20% per month a month.
Online brokers give an important role to play when you open an online trading account. Every Last broker can offer different services and features. You must research all the online brokers to find the foremost broker to meet your needs.
Online brokers give an important role to play when you open an online trading account. Every Last broker can offer different services and features. You must research all the online brokers to find the foremost broker to meet your needs
Most traders and investors out there know, the foreign exchange market is the largest market in the world. This is why we are seeing so many people making the transition from shares, options, futures to the Forex Markets. With the brilliant liquidity, much longer trading hours, we are seeing traders realize returns as much as 40% a month and in some cases even more.
Trading Forex, well one of the most important decisions that you can make is selecting a your Forex Broker, So here are 6 Golden Rules to use to Find the Best forex Broker
Time to Select a winning Forex Broker. This will help you find the best online brokers in the market. Finding the right Forex Broker is an important as selecting a winning trade. When you start trading you make sure you do your due dilligence on that stock or currency before you trade, well you should do exactly the same with selecting a Forex Broker. So what are the key requirements that you need?
Making a decision on which Forex broker to use to open a trading account can be difficult since there are so many brokers available. Because they all have different features, capabilities, advantages and weaknesses, some research must be done when making your selection. Below is a checklist to reference when deciding which broker to use in your Forex endeavors.
For a normal trader, finding a Forex broker can be a difficult experience. While many potential traders fall into the hands of a not-so-reliable Forex brokers, there are many strategies in securing a reputable brokerage firm.
Forex Beginner
1: Will I get rich from Forex? Definitely! Are you ready to learn?
2: Online Currency Trading requires Patience
3: Forex - What is it?
4: Short data about the origin and development of the currency exchange market
5: Risks by the foreign exchange on Forex
6: Charts for the technical analysis
7: Forex Glossary
8: Forex Trading Education - The London Open Checklist
The Foreign Exchange market (also referred to as the Forex or FX market) is the largest financial market in the world, with over $1.5 trillion changing hands every day.
2: Online Currency Trading requires Patience
When the going gets tough, the tough get going. This adage often brings back the memories of my past days when I was trading initially in the currency exchange market. Indeed, there's nothing more hurtful than losing your invested money in the FX market. But, online currency trading is like life where you're got to learn from your wrong moves and keep moving on.
3: Forex - What is it?
The international currency market Forex is a special kind of the world financial market. Trader’s purpose on the Forex to get profit as the result of foreign currencies purchase and sale. The exchange rates of all currencies being in the market turnover are permanently changing under the action of the demand and supply alteration.
4: Short data about the origin and development of the currency exchange market
Currency trading has a long history and can be traced back to the ancient Middle East and Middle Ages when foreign exchange started to take shape after the international merchant bankers devised bills of exchange, which were transferable third-party payments that allowed flexibility and growth in foreign exchange dealings.
5: Risks by the foreign exchange on Forex
The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.
6: Charts for the technical analysis
Kinds of prices and time units. Charts for the technical analysis are being constructed in coordinates price (the vertical axis) time (the horizontal axis). The following kinds of currency prices represented on charts are being distinguished on Forex:
7: Forex Glossary
Here are some of the most common terms used in FOREX trading. Ask Price ¨C Sometimes called the Offer Price, this is the market price for traders to buy currencies.
8: Forex Trading Education - The London Open Checklist
The start of the London trading session marks a period of increased volatility in the Forex market and a period of more opportunities to trade. As part of your Forex trading education, run through this checklist to see if you can identify good trade setups regularly at this time of day.
The stock exchange crisis is worrying Europe
On January 21st, the world's stock markets experienced their greatest fall since September 11th 2001. The world economy continues to suffer the consequences of the sub-prime crisis in the United States. Is recession inevitable ?
Le Temps - Switzerland
"The crash of January 21st 2008 is reminiscent of other periods in history. But there is something unique about this situation", considers Myret Zaki. "This is not a moment of panic following an act of terrorism like in September 2001. Nor is this the reflection of an excessive evaluation due to the bursting of a speculation bubble, like in 2000. This time, the brutal fall in stock exchanges has occurred while company balance sheets are healthy, outside of the financial and mortgage sectors. This crash represents an adjustment to reality since investors have understood that financial markets are infected by faltering bonds. ... The return of investors on the stock exchange, once it has been 'cleaned-up', must imperatively be accompanied by a fundamental consideration of the link between an actual bond and the financial title that is connected to it." (22/01/2008)
» full article (external link, French)
More from the press review on the subject » Financial Markets, » Global
All available articles from » Myret Zaki
Libération - France
Interviewed by Christian Losson, professor of economy Michel Aglietta explains why Europe is bound to be most affected in a grave crisis. "Ireland, the United Kingdom and Spain are going through a real-estate crisis that has a lot in common with the United States, though financing techniques differ with price bubbles, loans with variable inflation rates and excessive debts. The real-estate sector is going to crumble, if not collapse, and take its toll on the banks, which are considerably implicated. Germany, currently plumped up with its exportation, will also find itself with a bit of a chill. As for France, a country dreaming of 2 % growth, it's crazy. The most we can hope for is 1.5 %. Europe will be paying the price for its inert presence in globalisation. Incapable of mobilising a budgetary and monetary policy like the United States, it will take more time to recover." (22/01/2008)
Friday, April 17, 2009
What is Stock exchange ?
A stock exchange, (formerly a securities exchange) is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
Contents[hide] |
[edit] The First Stock Exchanges
In 11th century France the courtiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first brokers.
Some stories suggest that the origins of the term "bourse" come from the Latin bursa meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three purses), hung on the front of the house where merchants met.
However, it is more likely that in the late 13th century commodity traders in Bruges gathered inside the house of a man called Van der Burse, and in 1309 they institutionalized this until now informal meeting and became the "Bruges Bourse". The idea spread quickly around Flanders and neighbouring counties and "Bourses" soon opened in Ghent and Amsterdam.
In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower the price of government funds. There were people in Pisa, Verona, Genoa and Florence who also began trading in government securities during the 14th century. This was only possible because these were independent city states ruled by a council of influential citizens, not by a duke.
The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits—or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London.
On May 17, 1792, twenty-four supply brokers signed the Buttonwood Agreement outside 68 Wall Street in New York underneath a buttonwood tree. On March 8, 1817, properties got renamed to New York Stock & Exchange Board. In the 19th century, exchanges (generally famous as futures exchanges) got substantiated to trade futures contracts and then choices contracts.
There are now a large number of stock exchanges in the world.
[edit] The role of stock exchanges
Stock exchanges have multiple roles in the economy, this may include the following:[1]
[edit] Raising capital for businesses
The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.[2]
[edit] Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms.
[edit] Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
[edit] Redistribution of wealth
Stock exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.
[edit] Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical examples of corporate mismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Lehman Brothers (2008), and Satyam Computer Services (2009) were among the most widely scrutinized by the media.
[edit] Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.
[edit] Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.
[edit] Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
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