Forex - FX Market Commentary – July 2011

Euro weakness persisted last week with Friday’s better-than-expected banking stress test results only momentarily helping its fortunes. Only eight out the ninety banks tested failed the tests which are designed to gauge the health of the financial system in the event of an economic meltdown. Nevertheless, the news brought little solace to the broader market place with many questions just how ‘stressful’ these test actually are. The European Banking Authority priced the total shortfall of 2.5bn-Euros – however credit Suisse were quick to point out their belief the actual shortfall is actually 18 times greater than the EBA’s estimates requiring an additional 45bn-Euros with 14 banks deserving of the failed stamp.
The Euro lost near to 0.8 percent over the week against the greenback, but the real story can be seen by looking at its performance against the perceived safety of the franc. The Swiss franc continues to strengthen against the greenback with the EURCHF pair falling to another all-time low last week of CHF 1.1492 and falling even further in early trade to fresh all-time lows of 1.1375.
Likewise the US dollar also forged a new all-time lows against the Swiss franc this morning falling to lows of 0.8046.
The incessant rise of the Swiss franc has Swiss National Bank watchers on alert as the bank continues to express concern over its unprecedented appeal as a safety play. The persistence of the Euro-American debt concerns further increase the likelihood of Swiss franc strength, thus fueling speculation the SNB may impose capital controls to stem the rising currency. Of course another possibility is government relief directly to exporters or direct currency intervention. The latter would not be the favored option considering the losses sustained by the SNB as a result of directly intervening in the currency market. The central banks attempts to halt the strengthening currency lost CHF14bn in the first half of 2010.
We only need to look to the unrelenting rise of the Japanese Yen for clues in the sustainability of direct intervention.In response to the horrific events in Japan earlier this year – the G7 jointly intervened to stem the Yen’s advance. The threat of large scale repatriation of capital was enough to induce G7 nations to conduct joint intervention – but the action failed to have a sustained impact. These safe haven attributes have once again seen the JPY strengthen against its major rivals most notably making a convincing break to the downside of the ¥80 to the US dollar.
Like its neighbour across the Atlantic, the US is not without its potential pit falls. From debt ceiling woes to QE3 conjecture, there’s a veritable treasure trove of themes that could further devalue the greenback in the week ahead. Further complicating the US dollar matrix is the strengthening argument inflation is beginning to take hold - with Friday’s CPI numbers showing core inflation which excludes food and energy rose 0.3 percent in June. Although headline inflation declined 0.2 percent, (attributed to a drop in energy prices) core inflation rose at an annual pace of 1.6 percent once step closer to the Fed’s target of close to but below the 2 percent level. Headline inflation grew at an annual pace of 3.6 percent. The university of Michigan consumer confidence data sank below expectations to record a drop to 63.8 in June from a previous 71.5. Economists had tipped a rise to 72.2.
Considering this inherent lack of faith in fiat currency, it’s no coincidence the price of gold continues to forge new all-time highs. Last week spot Gold rose to highs of $US1,595.00 a troy ounce and has kicked off the week in spectacular style making new highs of $US1,599.00 a troy ounce.
It’s a fairly light week for economic data in the US this week with feedback on the housing sector the primary focus. The local week ahead will also be light on economic directives with the exception of to the RBA minutes for July, which will no doubt keep interest rate talk in the headlines.
We have another European summit coming up on Thursday which is expected to provide an understanding on how Greece’s custodians plan to structure a second round of financial assistance. Whatever the summit may bring, time is running out – the threat of contagion has amplified and threatens to spread to the heart of Euro-zone.

Source: http://www.forextv.com

FX Market Commentary – July 2011

Despite moderate Euro strength overnight the appeal of the Aussie dollar remained subdued with price action capped in a tight range below 107.5 US cents. With US markets closed for Independence Day, a decline in market participants made for light volumes resulting in general risk-neutral environment which provided little impetus to resurrect the Aussie following yesterday's slide in the domestic session.

Late yesterday the Aussie came under pressure alongside the Euro after ratings agency Standard and Poor's warned an extension of debt maturities held by private investors - although voluntary - may still warrant a 'selective default' rating. The Euro recovered after briefly slipping back through US$1.45 levels yesterday and maintained a slow upward trajectory overnight despite S&P's warning. The forthcoming rates decision, which is expected to see the ECB increase rates to 1.5 percent, gave participants a welcome distraction from the threat of default. Nevertheless, one can expect this threat to rare up again given the shock waves it would send through global markets. The European Central Bank has said they will not accept Greek debt as collateral in the event of a default rating. According to an article in the financial times citing a senior official, the ECB will continue to accept Greek debt as collateral unless all three major ratings agencies declare Greece to be in default.


The primary risk event for the local unit today will be the RBA interest rate decision due for release at 14.30 AEST. Although the decision will almost certainly see the RBA remain on hold at 4.75 percent, the usual post decision conjecture should prove to induce movement on the local unit as participants look to clues into the RBA's next move. Nevertheless, with much of the RBA's lukewarm rates outlook well and truly priced in the market, we expect the primary directive for the Aussie dollar to remain at the mercy of global risk trends. Earlier today we have the trade balance for May and HSBC Chinese PMI (Services) due for release. At the time of writing the Aussie dollar is buying 107.4 US cents.

Source: http://www.ibtimes.com

British Pound Tumbles on BoE Minutes Consideration of More Stimulus

If expectations for the Fed’s monetary policy decision were low, the prospects for the Band of England’s minutes were non-existent. However, it is when the entire market is caught off-guard that we see the biggest market reactions. In the wrap up to the central bank’s last rate decision, we found a few surprises that were influential enough to send the British pound tumbling. Adding a notable dovish twist to speculators’ already fading hopes for a rate hike sometime this year, the statement noted that some members felt that is was possible that “further asset purchases” may need to be made in the future if conditions warrant. This is far from a commitment; but set against slowing growth, challenges from the EU periphery and downplaying inflation pressures, it douses lingering speculation. We need to keep an eye on market rates to see if they ease.

FOREX: Dollar Climbs, S&P 500 Stumbles after Fed Offers No QE3 Security

• Dollar Climbs, S&P 500 Stumbles after Fed Offers No QE3 Security
• British Pound Tumbles on BoE Minutes Consideration of More Stimulus
• Euro and European Yields Quickly Lose Confidence after Greece Vote
• Canadian Dollar Wavers with Fed Festivities, BoC Warns of Rising Financial Risk
• Japanese Yen and Nikkei Futures Steady through 6.7 Earthquake
• Australian Dollar Finds More Guidance in Equities than Leading Index Release
• Gold Briefly Rallies to Six-Week High before Fed Saps Inflation, Stimulus Influence

Dollar Climbs, S&P 500 Stumbles after Fed Offers No QE3 Security

It was the dollar’s turn Wednesday to steal the fundamental headlines. However, after the disappointing reaction to the Greek confidence vote (a vote that kept the administration in place and thereby supports the bailout initiative and the euro); Forex traders were more reserved in their expectations to the FOMC rate decision. The gravity of the event however was not lost on the market; and traders showed their appreciation for its influence by holding steady on most fronts until the announcement and commentary was crossing the newswires. After the data was fully disseminated and speculators had accounted for the adjustments it made to the markets’ future; a measured decline in risk positioning and climb in the dollar began. Through the opening half of the Asian trading session, we find S&P 500 futures down 1.5 percent from the previous session’s highs while the Dow Jones FXCM Dollar Index has advanced as much as 0.9 percent to 9,661.

Looking at the progress from the markets after the Federal Reserve announced its policy decisions and projections; it is clear that there were no exceptional surprises. That said, there was enough there to alter the outlook for monetary policy expectations and risk trends. With EURUSD retreating back below 1.4300 and GBPUSD slipping below the floor of a five-month rising trend channel, this is not an idle correction. Evaluating the events of the active afternoon New York session, no one was caught off guard by the decision to maintain the benchmark lending rate unchanged at its range between zero and 0.25 percent. The statement was similarly lacking for notable changes beyond a mention of the economic impact Japan’s natural disaster back in March has had. Things get interesting though with the updated economic forecasts. Dampening any lingering hopes that a rate hike could still come before the year is out, the group lowered its growth forecasts through 2013 and softened its near-term inflation outlook. For 2011, the central bank predicts expansion of 2.7 to 2.9 percent (from April’s 3.1 to 3.3) while PCE inflation was set to a 2.3 to 2.5 percent range (from 2.1 to 2.8 percent previously).

Tempering already anemic rate expectations should actually deliver a slight boost to risk and hit to the greenback. Instead, we are responding to the far more contentious scenario for a withdrawal of the extraordinary stimulus that has been pumped in the system, lowered US rates to near-record low levels and subsequently leveled the dollar. In the press conference that followed the decision, Chairman Bernanke reiterated the $600 billion QE2 program would expire at the end of the month. And, while he left the door open for future accommodation “if warranted”, such flexibility to is to be expected. The level of stimulus now looks like it will be held steady for a number of months while the central bank assess, the financial and economic stability. When the market starts speculating on its unwinding, we’ll see risk fall while rates and the dollar surge.

Source: www.dailyfx.com 

Forex trading: Did US Special Forces just rescue the dollar?

With the death of Osama bin Laden, U.S. forces ended a nearly 10-year worldwide hunt for the mastermind of the Sept. 11 attacks and boosted the U.S. dollar's reserve currency status, too, trader Steve Cortes said Wednesday.

"History shows us that the country with the strongest military is always the reserve currency," said Cortes, founder of Veracruz. "I think the ability of those heroes, of SEAL Team 6, to project power globally shows us that U.S. military is uncontested in its dominance and I think the currency will re-assert accordingly."

The dollar hit a three-year low against a basket of currencies on Wednesday, as the euro gained to nearly $1.50. Being as the dollar has taken a "huge hit" over the past few months, Cortes thinks there's now a lot of opportunity in being long the greenback.

RELATED: 2011 forecasts for interest rates around the world

"Wave the flag and buy the U.S. dollar," Cortes said, adding he thinks the dollar will soon hit its base with the end to the U.S. Federal Reserve's bond-buying program, commonly referred to as quantitative easing or QE. "It's very lonely to be a dollar bull right now, but I think it makes sense."

Cortes said he's short the euro into the European Central Bank's meeting scheduled for Thursday. The central bank is expected to keep rates on hold. It raised rates in April.

Kanundrum Capital founder Brian Kelly, on the other hand, is short the dollar and long the euro. Kelly plans to keep that trade on through the ECB's meeting Thursday. He noted that the likelihood of Portugal getting a bailout will "pave the way" for the ECB to raise rates, adding that inflation is running "much hotter" in Europe than most expected.

An overview of Forex investment strategies

FOREX trading refers to an international, 24/7, over the counter, exchange market where currencies of different nations are bought and sold. Trading is always done in pairs assuming the price of currency bought to go up and that sold to fall down. It is the largest liquid financial market making it impossible for any single investor to influence the prices of currencies.
There are two kinds of FOREX investing strategies:
TECHNICAL ANALYSIS
FUNDAMENTAL ANALYSIS
TECHNICAL ANALYSIS:
Technical analysis is mostly undertaken by small and medium size investors.
A technical analysis considers factors that are actually affecting the market rather than factors that can affect it. Thus the price quoted reflects all the factors that have influenced it. Only market generated facts and figures are taken into account and factors like fear, hope, expectations or other changes are not considered. Thus the analysis is generally based on these suppositions:
• Price reflects all actual market movements. That means price includes everything known to the market like supply and demand of foreign exchange, political factors, trade agreements etc. It is not concerned with what resulted in change rather deals with actual changes. It works on the assumption that price can take only one of the three directions:
 Upward
 downward
 sideward
• It rest on those market patterns that have been identified as significant. That means those factors which are repetitive in nature or will produce desired results.
• History always repeats itself as human psychology changes very slowly with time. That is market movements are predictable.
VARIOUS TECHNICAL INDICATORS ARE:
1. RELATIVE STRENGTH INDEX:
It takes into account the ratio of upward and downward movements in index and expresses it in the range of zero to hundred.
2.CHARTS:
Charts include various hills, slopes, curves that develop on a chart over a time and reflect some major and minor changes in pattern. Some of the chart formations include:
• TRIANGLE
• RECTANGLE
• HEAD AND SHOULDERS
• DOUBLE TOP AND BOTTOM
• SAUCERS
• V
3.GAPS:
A gap represents area on a bar chart where no trading took place.
• UPGAP: it is formed when the lowest price on a particular day is more than the highest price of previous day.
• DOWNGAP: it is formed when highest price of a certain day is less than the lowest price on previous day.
NUMBERS:
Various number theories are used in technical analysis like:
• Fibonacci theory
• GANN
STOCHASTIC OSCILLATOR:
This indicates the overbought or/and undersold condition. It uses a scale of zero to hundred percent.
FUNDAMENTAL ANALYSIS:
It is the one where current economic, political, financial situation of the country of currency is studied. A country’s economical and political condition depends upon many factors like the interest rate, unemployment level, exports and imports, per capita income, percentage of population living above and below the poverty line, inflation, trade relations with other countries, tax policies etc.
A fundamental analyst studies and evaluates all these factors before coming to any decision. Thus it helps in long tem decision making and making profits in short term by extra ordinary developments.
Some of the indicators that help in fundamental analysis include:
1. GROSS DOMESTIC PRODUCT:
It reflects total market value of all the goods and services produced in a country during a given year.
2. RETAIL SALES:
This reflects total receipts by all the retail stores in a country.
3. CONSUMER PRICE INDEX:
It reflects change in prices of consumer goods.
4. BUSINESS CYCLE:
It reflects various phases through which a business passes. These phases include:
• EXPANSION
• PEAK
• RECESSION
• DEPRESSION
5. MONETRY POLICY:
It controls the supply of money in an economy.
Trading successfully needs knowledge, time and understanding of a market. You cannot earn continuously in a Forex market due to its volatile nature. Thus as a trader you should try to consider both technical and fundamental strategies of forex trading and make decision based on market expectations and trends. Try trading with money that you can afford to loose without any regrets. Trade with logic and if you are not sure quit and take rest for some time.

EUR/JPY Goes Up on Interest Rates Prospects

The euro advanced against the Japanese yen today on the speculation that the European Central Bank will raise the interest rates on its next meeting, while the Bank of Japan will likely keep its rates unchanged. The currency slipped versus the US dollar.
The good economic data supports the anticipation of higher interest rates. The consumer spending in France rose 0.9 percent in February, while the inflation in Germany is expected to show strong growth.
EUR/JPY rose from 115.09 to 115.89 as of 13:12 GMT today. EUR/USD retreated to 1.4059 after rising earlier from 1.4086 to 1.4148.
If you want to comment on the euro’s recent action or have any questions regarding this currency, please, feel free to reply below.

Source: http://www.topforexnews.com/

Best Forex Strategy

What is the best forex trading strategy? If you have been searching for currency trading strategies you might have come across various strategies. New traders are always jumping from one strategy to another looking for the best forex strategy online. You can visit online forex trading forums, attend forex training programs or read forex books, but you will soon notice that there are a number of forex trading strategies and each one of them claims that it is a winning forex strategy. So how do you know which is the best forex strategy? The truth is that there are many winning strategies and the best forex strategy will depend upon your currency trading system. Remember the old saying, there is more than one way to skin a cat!
For instance a forex strategy might work extremely well if you are trading with the aim of long term profits while the same strategy might not do good if you are more into day trading or looking for short term profits.

The key is to find a winning forex strategy and sticking to it. So, how do you find a profitable forex trading strategy which works best for you? Here is are some guidelines.

3 Golden Rules of Forex Trading Strategy

There are certain guidelines that any forex trading strategy should follow and these are true for everyone. These guidelines are called the golden rules of trading.
1. Trend is Your Friend
Always follow the trend. Majority of the forex trading strategies and systems concentrates on identifying trends and that is a right approach. Do not try to go against the trend and depending upon the rising or falling trend, choose to go long or short as appropriate. Resisting the trend will result in losing your money in most cases.
2. Goal Setting for Individual Trades
Before you enter a trade set a clear profit goal. This means you know when close the trade and exit. Sometimes people get greedy and try to stay in there with the hope of making more profits. New forex traders often commit this mistake. They might even get few high profit trades only to see that finally a huge drop in currency price destroying all their funds.
Similarly, if a trade goes against you, do not try to hold on in the hope that the market will turn back your way. In such a case your forex trading strategy should be to cut your losses and get out and when you set proper goal for each trade you know when to quit. You can also make use of stop losses to do this automatically.
3. Protect Your Funds
Forex trading is of course a risky business. However risking too much on one trade is a mistake you should avoid. Even experienced traders fall in this trap. You may have strong confidence on a particular trade, but never risk too much money on a single trade. You may feel that nothing will go wrong with that trade, but anything can go wrong in forex trading.
So how much risk is too much? The amount of risk depends on your funds and the forex trading strategy you use. I would say risking 2% of your fund per trade is a safer option though you could go up depending upon the trade. However never risk more than 5% of your balance for a single trade. Also remember that if you go with a fixed percentage, as your profits and funds increase the amount of money you risk in each trade will increase.
The above three golden rules will serve as a guideline when choosing the best one from the forex strategies or while developing your forex strategy.
Source: http://www.thepowhatan.com/

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Best Forex Strategies for March 2011

Learn to trade forex here , learn price action forex strategies that work.

Trading Forex Using A Currency ETF (Exchange Traded Fund)

Most people who trade the forex markets do so through one of the many different forex brokers that are available. However if you are interested in taking a long term view on a particular currency pair, you do have another cost-effective option and that's to buy the corresponding currency ETF (exchange traded fund).

If you don't already know what an exchange traded fund is, it is basically just a vehicle that tracks a certain instrument (or group of instruments). So for example a crude oil ETF will move in accordance with the underlying crude oil price and a wheat ETF will move broadly in line with the price of wheat.

You can find exchange traded funds for pretty much anything these days including stocks, bonds, futures and commodities. Plus you can of course find plenty of currency ETFs that track various different currency pairs, which is obviously the focus of this article.

These instruments can be bought and sold like ordinary stocks so you don't need to use a forex broker at all. You can simply log in to your share dealing account and trade them as part of your overall investment portfolio.

So for example if you think the GBP/USD pair is set to move a lot higher in the coming months and years, then you may wish to buy a GBP/USD ETF and treat it as a long term investment. Similarly if you are bearish about the British pound against the US dollar you could buy the corresponding USD/GBP ETF or you could buy a short ETF for the GBP/USD if this is available in your country.

You have lots of options. You can even buy leveraged instruments if you so wish. These work by giving you 2x your overall gains. So if the GBP/USD were to go up by 10%, for example, you would make approximately 20% instead of 10%. However they are of course very risky because you can also lose big amounts of money as well, and overall I would say that they are more ideally suited to short term traders rather than long term traders because of the costs involved.

Anyway the point I want to make is that if you think a particular currency pair is undervalued, or you are confident that a specific currency is really going to strengthen in the long run, then you might like to consider buying currency ETFs for your investment portfolio. They can be bought and sold really easily and they are great for anyone looking to take a long term view on a particular forex pair.