Forex Trading Daily Outlook For 27 January 2011

Forex trading outlook for january 27th 2011

Forex and Dow Jones recommended levels

EUR/USD
Today’s support: - 1.3613, 1. 3570 and 1.3546 (main), where correction is possible. Break would give 1.3518, where correction also may be. Then follows 1.3500. Break of the latter would result in 1.3486. If a strong impulse, we would see 1.3447. Continuation will give 1.3412. Today’s resistance: - 1.3726 (main). Break would give 1.37445, where a correction is possible. Then goes 1.3758. Break of the latter would lead to 1.3776. If a strong impulse, we’d see 1.3788. Continuation will give 1.3815.
USD/JPY Today’s support: - 81.87 (main). Break would bring 81.68, where correction is possible. Then 81.46, where a correction may also happen. Break of the latter will give 81.22. If a strong impulse, we would see 81.00. Continuation would give 82.41, 82.78, 83.16 and 83.39 (main), where a correction may happen. Break would bring 83.58, where also a correction may be. Then 83.70 If a strong impulse, we would see 83.82. Continuation will give 84.02.
DOW JONES INDEX

Today’s support: - 11920.40, 11881.36 and 11868.73 (main), where a delay and correction may happen. Break of the latter will give 11832.11, where correction also can be. Then follows 11790.00. Be there a strong impulse, we shall see 11767.50. Continuation will bring 11730.72. Today’s resistance: - 12026.28 and 12045.67 (main), where a delay and correction may happen. Break would bring 12069.30, where a correction may happen. Then follows 12098.42, where a delay and correction could also be. Be there a strong impulse, we’d see 12121.80. Continuation would bring   12147.38.

how to start forex trading

 

Tips On How to Start Forex Trading

1. You can make money with Forex Trading if you are fully equipped with the knowledge and skills required in Forex trading.

2. You can make money with Forex Trading if you are committed to online currency trading since online currency trading is considered the future of Forex trading

3. Before you start in Forex trading, it is necessary for you to set up your account with a Forex broker. Choose from the best of the available Forex brokers online. Research on those who require fees which fit your budget and most especially those who are very experienced and skillful in Forex trading

Source: http://www.start-forex-trading.blogspot.com/

Exploiting Currency Options Expiries for Forex Trading

Options are contracts that give the buyer the right to buy or sell an asset at a pre-specified time and price. In return, the seller receives a fee for writing the contract which is termed a premium. A put option is one in which the terms of the contract grant the right to sell the underlying, and a call option is one where the right to buy is granted. Since we will only explore the exploitation of options market data for the benefit of the spot trader, there’s no need to examine the details of this trade. Here we invite the trader to regard the currency options market as a closed box, and to concern himself merely with the aspects that we will utilize to predict the movements of spot.

The strategies we will discuss are simple and easy to use, and depend on the exploitation of implied volatility for long term trades and expiration data for short term use. To utilize these methods we only need to understand a few simple concepts.

•Strike price: This is the price at which the option will grant a payout, in other words, it will register a profit for the option buyer, depending on the kind of option contract.
•Expiry date: This is the date at which the contract is settled, and payments are made. This is perhaps the most important data for trading spot forex.
•Option size: The payout that the option contract stipulates.
Data on open currency options contracts that are close to expiry is regularly provided by IFR and the information can be acquired by registering with brokers that offer the service. Most major forex brokers will offer at least one financial news provider on their platform or website, and the news flow provided by open interest on CBOE options is also available from COT reports which the trader can use to form an opinion on trader positioning, and therefore the potential impact of the option on the market. How to use currency option expiration data to trade the spot market?

One of the easiest and most successful ways of trading the spot currency market is through the use of option expiry data. Options contracts are typically for sums of anywhere between 100 million to 500 million USD, and values beyond the range are not uncommon. Since these are relatively large sums to be concentrated in a few minutes before the expiration, the traders of these options will do all that they can, within reasonable limits, to move the quote to the strike price of the option, provided that the quote is within about 20-30 pips of the strike price at the time of expiry.

One important point that the forex trader can keep in mind is the distinction between the European style, and American style options. Since European style options can only be exercised at their expiration date, they are likely to be defended more vigorously if the quotes happen to be close to the strike price. In addition, at the beginning the trader is advised to utilize non-exotic expiries (so called, vanilla put or call options) for the strategy, as he betters his skills by examining contract types and similar details provided by the news providers. As usual, there is no need to trade every option expiry that is reported. One can simply begin with smaller sums to test his knowledge, and then increase the size and scope of his trades as he gains experience.

The ideal conditions for this method are:

1.Option expiry is at 10 am EST.
2.Option size is greater than 500 million USD.
3.The quote is at the strike price before the news release at 8:30 am EST
4.The news release is not a major event, such as a Fed decision.
But even without the realization of these conditions sizable profits can be made with this method in a calm and unexcited market. But these overall conditions, along with the significance of the news release, are the main determinants of the market’s mood which will in turn influence our stop-loss and the profit potential.

What happens during an option expiry?

If the price quote is close to the strike price of the option, option traders and other market participants will attempt to steer the quote in direction they desire.

A strong sign that the option traders will defend their position is the early gravitation of the price quote to the strike price. In an example scenario, if there’s a European EUR/USD vanilla put or call option with a strike at 1.2540, and the quote is at 1.2570 at 7:30 am, the quote will be steered to sit on the option strike value at about the news release at 8:30 am. After that, as the price reacts to the news, the quote may move away from the strike price in an unwanted. To successfully profit from this pattern the trader would need to join the option traders as they try to move the quote back to the strike value, and since a lot of people play this game the odds of success are quiet high.

As long as option expiries are proclaimed by news providers, and as long as large expiries tempt option traders to risk relatively small sums to ensure that they receive their payouts, this method will keep paying dividends. An important point that we should keep in mind is the momentum created by option expiries. As option traders buy or sell, their actions will be joined by all sorts of other traders and snowballing effect creates its own power as a mini-bubble is generated. Needless to day, right after the option expiry occurs, the strike price will be just another number on the charts, and will lose all its significance.
Source: http://www.forextrading.com/

Forex, Fed Paper: Power of Technical Analysis in Forex is Declining

Being a practitioner of fundamental analysis, you could say that I’m always on the lookout for hard evidence that fundamental analysis is superior to technical analysis. Thus, I was delighted to discover a working paper (“Technical Analysis in the Foreign Exchange Market“) by the St. Louis Branch of the Federal Reserve Bank, released just this month. Alas, the paper barely touched upon fundamental analysis, but its conclusions on technical analysis in the currency markets were startling. In short, the effectiveness of technical analysis in the currency markets has declined steadily since the 1970s, such that only the most sophisticated/complicated strategies are currently profitable.
Rather than conduct original research, the report’s authors – Christopher J. Neely, an assistant vice president and economist at the Federal Reserve Bank of St. Louis, and Paul A. Weller, the John F. Murray Professor of Finance at the University of Iowa – performed a meta analysis of the existing research. They cited a litany of studies, covered a variety of topics, sometimes with contradictory conclusions. In order to ensure comprehensiveness, they looked at the profitability of numerous types of technical analysis indicators, across numerous currency pairs, over time, in different types of trading environments, and adjusted for risk.
All of the earlier studies, dating back to the 1960s, established the profitability of technical analysis, even when it was simplistic. Since then, however, most studies have shown steadily declining effectiveness: “TTRs [Technical Trading Rules] ere able to earn genuine risk-adjusted excess returns in foreign exchange markets at least from the mid-1970s until about 1990…and that rule profitability has been declining since the late 1980s.” The same trend has unfolded in the last decade, as traders have relied increasingly on computerized trading strategies: “Kozhan and Salmon (2010), using high frequency data, find that trading rules derived from a genetic algorithm were profitable in 2003 but that this was no longer true in 2008.”
Given that the two authors also concede that the financial markets are undoubtedly inefficient and that currency markets in particular are filled with observable trends, how should we understand this decline in the effectiveness of technical analysis? In one word, the answer is competition. “Profit opportunities will generally exist in financial markets but…learning and competition will gradually erode ["arbitrage away"] these opportunities as they become known.” In addition, there has been a “dramatic rise in the volume of algorithmic trading,” which has given rise to a so-called financial arms race to develop ever-more sophisticated trading strategies.
Indeed, the research shows that “more complex strategies will persist longer than simple ones. And as some strategies decline as they become less profitable, there will be a tendency for other strategies to appear in response to the changing market environment.” In addition, technical analysis that is used to trade exotic (i.e. less liquid) currencies is more likely to be profitable than major currencies, especially the US Dollar.
The report opens the door to further research, by indicating that “Technical trading can be consistently profitable in certain circumstances.” As if it wasn’t already clear, though, the vast majority of technical traders (perhaps all traders for that matter) are destined to be outmaneuvered and will ultimately lose money trading forex. Another way of looking at this, however, is that the the savviest traders – those that can spot complex trends and execute trading strategies quickly – still have a chance at earning consistent profits.
Source: http://www.forexblog.org/

Currency Games for Trading

There is a “game” being played in the market place involving the Euro zone countries and it goes something like this: A debt-troubled nation is due to issue debt sometime during the week so the rumors start that the country may need to access the emergency facility so that yields will be pushed higher thereby increasing the rate of return to potential investors. It is then up to Germany to decide if they want to try to defend those nations or allow the ruse to spiral out of control.

Well if you are a country that has an extremely low corporate tax rate and “steals” businesses from Germany, then chances are you will fall by the wayside. Sorry, Ireland. If on the other hand, you are the smallest of three countries looking to peddle debt in the same week, then you will get a helping hand. So Portugal survives another day, as a counter-rumor is floated that the EU is thinking of expanding the emergency facility. As a result the Euro is higher this morning, despite the obvious risk.

Some other items of note this morning are that China has a trade balance that came in much lower than expected. As is always the case with the Chinese, this come ahead of an important meeting with the West and will surely be used as the reason why China can’t do anything about its currency peg to the Dollar. The game just continues.

Meanwhile, housing prices in the UK are falling as the austerity measures kick in ahead of this Thursday’s BOE rate decision. I’m expecting no further change in policy, but be on the lookout for a potential policy statement (different than the official release of the meeting minutes) to see if they may need to be more accommodative to offset fiscal austerity.

In the forex market:

Aussie (AUD): The Aussie is lower to start the morning despite higher commodities prices as global stocks are lower after news out of China and the EU. Retail sales figures came in as expected.

Kiwi (NZD): The Kiwi is mostly higher after reporting trade balance figures that came in better than expected. Aussie and Loonie weakness are helping to encourage money flows to NZ. (Click chart to enlarge)



Loonie (CAD): The Loonie is lower as building permits figures came in way worse than expected, posting a decline of 11.2% vs. an expectation of a gain of 1.5%. An oil leak in the Alaskan pipeline has halted supply so this could affect prices going forward. Oil is trading higher this morning.

Euro (EUR): The Euro is higher despite all of the chatter surrounding Portugal, as French Industrial and Manufacturing Production figures came in much better than expected. Talk of expanding the EFSF has prevented the Euro from decline, and Portugal, Spain, and Italy are due to auction some 33 billion euro in debt this week.

Pound (GBP): The Pound is mixed this morning as house prices declined more than expected, showing a decrease of 1.4% vs. an expected .4% decrease. This Thursday will be the BOE rate decision but don’t expect any change to policy.

Dollar (USD): The Dollar is mostly higher as the market determines the real risk in Portugal. With no economic data on tap for the US today, keep your ears open for Fedspeak—that is our Central bankers attempting to allay the markets—ahead of Friday’s busy calendar.

Yen (JPY): The Yen is showing some strength today as risk themes and a potential Chinese slowdown have increased demand for the safe haven status of the Yen. (Click chart to enlarge)



With all of the different games that go on in the market, one must have a clear understanding of how these games work in order to profit from them. While there is still considerable risk in the global economy, the constant media obsession helps speed up the game. If sovereigns or investors are slow to react, then the results could be disastrous.

Meanwhile, it is no secret that austerity measures are taking place in some regions around the globe, so it is extremely naïve to think that there won’t be some type of slowdown. Yet the market insists that someone has to pick up the slack, and Central bankers around the world believe that they can manage the ebb and flow of the global economy.

So the game continues, yet there are rule-changers, cheaters, liars, speculators, and those just happy to be at the table. How this group is going to figure out how to place nice is beyond me.

In the meantime, I will continue to take advantage of this motley bunch and the global inefficiencies that they create!

Source: http://www.forextradingblog.com/

Forex Trading Strategies for 2011

Forex is perhaps the best way to make oodles of money in the world currency market. Making money through Forex is much similar to making money through holding stocks. The strategies of the Forex market is highly in demand as more and more investors are plunging into the Forex investment market, shifting their bases from the stock and the bond market. If you’ve incurred credit card debts and you haven’t received a desirable result through debt settlement companies, make sure you try investing in the Forex market to earn money and utilize the proceeds in paying off debts.


No one can predict how the war of the currency will play themselves in 2011 but the investors playing with their luck by trading in the Forex market in 2011 need to keep their wits about them more than ever, this year. Though the elevated forex market volatility continues to imply on the major swings in the US dollar and other key pairs, yet there are some break out strategies that may be followed by the investors. Here are a bunch of some such successful strategies.

1. Learn the Forex scalping method: Forex scalping involves a process of fast opening and liquidation of currency positions. As the word ‘fast’ is relative, it refers to a time period of about maximum 3-5 minutes. The not-so-novice Forex scalpers maintain their currency positions for as less as one minute. Most Forex traders are of the opinion that as the Forex scalpers secure their positions for a less period of time than the regular traders, the time for market exposure is much shorter than that of a regular trader and hence they are much less exposed to the market risks. However, as a Forex beginner, you also need to be aware of the fact that the method of Forex scalping is not an efficient one for all types of traders. The scalpers do not prefer taking big risks as they are more willing to let go of greater opportunities in comparison to smaller gains.

2. Stay aware of the market cycles and currency trading: There is a direct proportional relation between the market cycles and the Forex currency trading system. The market cycle is nothing but the growth and contraction phases of the financial life. The market cycle is the primary thing that determines the economic trend and no trader can ever become successful without knowing the nature of the market cycles. As the supply of money is closely related to the value of the currency, the trend of the Forex market also responds to the movements of the currency market cycle.

3. How you can trade pegged currencies: If you’re an amateur investor in the Forex market, you also need to know about the pegged currency. A pegged currency is one where the value of the currency is matched to that of another asset. That asset may be a single currency or even a basket of currencies. The fixed trading rate of the currencies will be valued by the central banks and will be maintained throughout in order to preserve the economic stability. The simplicity and clarity of the fixed exchange rate system is the biggest benefit of pegged currency trading.

You can soon become a confident Forex trader by following the breakout strategies discussed above. Try identifying high profitability trading set ups so that you can make the most out of your Forex trading skills and earn an overwhelmingly large amount of easy cash. The string of profits will boost your confidence and enable you to maintain a good winning percentage.

Source: http://www.forexmachines.com/

Strategies for Trading Forex in 2011.

Interesting video from tradeartist. Source: http://www.youtube.com/watch?v=tv361k9S_D4
"People from all around the world keep telling me that they are so grateful for discovering Forex trading because it is the most ideal business in the world and enables some traders to make the world a better place through charity and philanthropy. Not just a home based business, Forex trading provides freedom of mobility. Using technical analysis and sound Forex trading strategies, a trader can enter and exit trades on currency pairs while travelling virtually anywhere in the world. You will be amazed when you compare this business wih any other business opportunity available. In terms of potential income it is virutally unmatched. And once you discover what really works in Forex trading you may develop a skill that creates income in any economic cycle for the rest of your life."

Canadian Dollar: Parity Vs Reality

After a stellar 2009, the Canadian Dollar (”Loonie”) has had a relatively lackluster 2010 against the Dollar, rising by only 3-4%. As the Loonie has inched (back) towards parity, it has encountered significant resistance. I think there is reason to believe that the currency has reached its limit, and that there are little prospects for further appreciation for at least the first half of 2011.
Everyone likes to think of the Canadian Dollar as a commodity currency, but I don’t think this is an accurate representation. Net energy exports account for only a small portion (2.9%) of Canadian GDP, a fraction which is dwarfed by the export of automobiles, for example. In fact, eastern Canada, which is comparatively poor in natural resources, is actually a net energy importer. I think that investors have largely come to the same conclusion, and significant rallies in oil and other commodity prices in the second half of 2010 spurred only a modest appreciation in the Loonie.

The currency has risen so fast over the last couple years that Canada has run a trade deficit for six consecutive months, including a record $2.5 Billion in July. (In some ways, doesn’t this prove that economic imbalances will ultimately self-correct?!). In addition, to say that Canadian export sector is heavily reliant on the US would be an understatement: “The U.S. bought 70 percent of Canada’s exports in October, down from 75 percent in June, and a record of about 85 percent in 2001.” It’s no wonder that Canadian economic officials have defended the Fed’s QE2 monetary easing program; they know that Canada’s economic health is contingent on a strong US economy.

As for how fluctuations in risk affect the Loonie, it’s not clear. On two separate occasions, the WSJ reported first that “With investors more willing to take on riskier assets than they were the day before, the Canadian dollar was able to move sharply higher,” and then that “Canada’s relatively strong fiscal and economic fundamentals attract safe-haven flows when investors are fleeing from risk.” What a blatant contradiction if there ever was one! Personally, I think that Canada’s economic structure and relatively high debt levels disqualify the Loonie from consideration as a safe-haven currency. That being said, it has notched some impressive gains against other non-safe haven currencies.

If not for its low interest rates, nobody would even mention it in the same breath as the US Dollar or Japanese Yen. Speaking of low rates, the Bank of Canada voted last week to keep its benchmark interest rate on hold at 1% and indicated that it won’t consider raising them for quite some time. Said Central Bank Governor Mark Carney, “There are limits to the divergence that there can be between Canada and the United States.” In other words, the BOC probably won’t hike rates until the Fed does, at which point there will be very little basis for buying the Loonie over the US Dollar.

Analysts tend to agree with this assessment: “The loonie will trade at parity by the end of March and weaken to C$1.01 per dollar through the end of third-quarter 2011, according to…a Bloomberg survey: ‘We still think the Canadian dollar will continue to hover around here and test parity; we don’t think the Canadian dollar is going to back up against the U.S. dollar until the new year.’ Interestingly enough, Canadian investment advisers echo this sentiment: “We’re saying to clients that the Canadian dollar is strong right now, so buying U.S. assets is cheaper than it would be if the dollar were weak.”

It’s a bad sign for the Loonie when even Canadians think it’s overvalued.
Source: http://www.forexblog.com/

Offshore Trading in Yuan Takes Off .

China's currency, pent up inside the country's borders for decades, is emerging as a hot property in global foreign-exchange markets, just months after Beijing allowed the yuan to be bought and sold outside the mainland for the first time.

Daily trading in the yuan has grown from zero to $400 million in the past few months, as the currency of the world's second-biggest economy begins to flow around the globe. Global trading in yuan allows businesses to buy and sell the currency to finance trade, investment and borrowing. It's an important step for the yuan to play a role in global financial markets.

The yuan makes up a sliver of the $4 trillion daily trading in currency markets and is dwarfed by trading in the dollar, yen and euro. But traders are surprised at how quickly it is gaining critical mass.
.The value of the yuan remains tightly controlled by China, so its value won't rise and fall to the same extent as the dollar or euro, in spite of the new trading. Even so, foreign-exchange traders who are embracing the currency see demand for yuan rising sharply. Bankers in New York, London and Tokyo are rushing to set up new trading systems and back offices to trade in yuan.

"This is the beginning of a new era," said Norman Chan, head of Hong Kong's central bank. "This is a step moving to full convertibility of the yuan, and is a major change of the international financial landscape."

The yuan makes up a sliver of the $4 trillion daily trading in currency markets and is dwarfed by trading in the dollar, yen and euro. But traders are surprised at how quickly it is gaining critical mass. Chinese companies are placing yuan into accounts in Hong Kong, where the offshore trading is allowed, and could have as much as 300 billion yuan ($45 billion) there by the end of the year.

The yuan, which closed official trading Monday at 6.6670 per dollar, down slightly on the day, has risen 2.4% against the greenback since mid-June, when China loosened the currency's peg against the dollar and allowed the yuan greater flexibility to rise or fall in value.

The continued growth in yuan trading isn't a foregone conclusion. China could reverse itself and slow the growth of the market. China's leaders fear that if too much currency builds up too quickly overseas, they could lose control of inflation and interest rates, said Xiang Songzuo, deputy director of the Center for International Monetary Research at Remin University of China.

Nevertheless, the establishment of offshore trading in yuan is "game changing," said David Mann, head of research in the Americas for Standard Chartered Bank. "It's arrived much faster than anyone expected."

In July, Chinese regulators opened the door by letting banks and individuals freely trade yuan outside of mainland China for the first time. Creating that infrastructure is a necessary step in allowing the yuan to float freely, and have markets set its value. For now, China will keep its tight rein on the value of the yuan even with the parallel market in Hong Kong.

.On Dec. 6, Chinese regulators broadened the scope of the program, increasing the number of exporters that can use yuan to trade their goods from a few hundred to nearly 70,000.

Some predict it will only be a few years before 20% to 30% of China's $2.3 trillion of imports could be conducted in yuan rather than U.S. dollars. Today less than 1% is done in yuan, according to Standard Chartered.

Mr. Mann says trading in yuan could match that of the Japanese yen before long as the third most-actively traded currency behind the dollar and the euro.

Until now, investors who wanted to speculate on the yuan, or companies that needed to hedge against its fluctuations, could only do so indirectly, through contracts that tracked the currency's moves. Those contracts were useless for businesses that needed actual yuan to buy or sell goods.

To buy and sell yuan offshore, traders need an account in Hong Kong. Chinese companies can move money to offshore yuan accounts only for business purposes, such as exports or imports. And restrictions remain on repatriating that money.

But as long as that money is in an offshore yuan account, the holder is free to trade with it in any way.

Already, banks such as Citigroup Inc. and HSBC are offering investors yuan-priced options and interest-rate derivatives. Mutual funds dedicated to yuan-priced investments have already been created.

The move has opened the doors to wider issuance of yuan-denominated bonds and other investments. McDonald's Corp. and Caterpillar Inc. recently became the first U.S. non-financial corporations to sell debt priced in yuan, in what is being nicknamed the "Dim Sum" bond market.

A big driver of the increase in yuan holdings offshore is emerging economies, major trading destinations for China. HSBC forecasts that at least half, or nearly $2 trillion worth, of China's cross-border trade with emerging markets could be settled in yuan annually within three to five years.

For example, countries rich in natural resources that export commodities to China could get paid in yuan and then use the yuan to buy finished goods and services from China—cutting out the cost and hassle of converting to dollars.

The moves come against a broader background of growing Chinese concern over the country's reliance on the dollar.

Long term, the offshore yuan market could decrease demand for the dollar and lower its value. That's in part because Chinese companies doing business with counterparts in other countries wouldn't need U.S. dollars to conduct that business as they do today.

In Hong Kong, where speculation is an obsession, individual investors quickly piled in to yuan, even though they are limited to converting only 20,000 yuan a day. On display by bank teller windows are interest rates for Hong Kong, U.S and now Chinese deposits.

For the yuan to become fully convertible, China would have to allow it to be exchangeable for other currencies at any time, something that's not possible under the new regulations.

The keen level of interest in the offshore yuan trading was evident last week in midtown Manhattan at the headquarters of HSBC. Some 80 traders from 20 banks came to hear a presentation organized by ICAP PLC on offshore yuan trading featuring Esmond Lee, an official from the Hong Kong Monetary Authority. Previous sessions in Hong Kong and London had been similarly packed.

"What makes it exciting is that this is a move by China in a direction that many have been waiting for," said Edward Brown, an executive vice president at ICAP, the world's largest broker of currency trades among banks.

Source: http://www.wsj.com/