by Korman Tam
The dollar sold off sharply at the start of the week, plunging from 1.3349 to 1.3702 against the euro – its lowest level in two months and falling just shy of the 1.54-handle versus the sterling. US economic data released earlier in the session were largely in line with consensus estimates. The December NY Fed manufacturing survey was slightly better than expected at -25.76 from -25.43 a month earlier. Industrial production posted a 0.6% decline in November, compared with a 1.3% increase a month earlier and capacity utilization was unchanged at 75.4%. Meanwhile, the NAHB housing market index for December held steady at 9.
The FOMC kicks off its two-day monetary policy meeting and will announce the results on Tuesday at 2:15 PM. We look for the Fed to cut its benchmark lending by 75-basis points to 0.25%. The key highlight will be the accompanying Fed policy statement, in which it is likely to acknowledge the current recessionary landscape. Moreover, markets will look for guidance on whether interest rates may be lowered to zero. The greenback could benefit if the Fed signals a reluctance to ease its benchmark lending rate to zero.
Tuesday, December 16, 2008
Monday, December 15, 2008
Ahead of the week - Key Technical levels
EURUSD – This pair broke its 6 weeks trading range to the upside, and has now clearly closed above that range.
If the fundamentals will continue to support the upside, it might head to test 1.3690 in the next week or two. However the next resistance area is around 1.3500, any trouble advancing above this area might bring the current up move to a temporary halt, or even reverse direction. We can declare the current up move officially dead if EURUSD will mange to trade well under 1.3 in the next week or two.
USDJPY– still recovering from a sudden drop to a 13-year low at 88.15.
The question remains- was this drop just a panic reaction of the market to the rejection of the US Automaker bailout plan? Or is there more then just panic to that move.
We can find out how serious this pair is about dropping further if the market will manage to make another run to the 90 psychological support level, otherwise we will probably be back to trade between 92 and above as we move further into the week.
GBPUSD- unlike EURUSD, this pair did not break its trading range last week. The only thing it managed to do was to move merely 60 pips higher from its open on Dec 7.
This had a lot to do with the strengthening of the EURGBP last week, which is trading in record highs right now. However it is possible to see this pair well above 1.5 if only EURUSD will be able to maintain its power to the upside.
If the fundamentals will continue to support the upside, it might head to test 1.3690 in the next week or two. However the next resistance area is around 1.3500, any trouble advancing above this area might bring the current up move to a temporary halt, or even reverse direction. We can declare the current up move officially dead if EURUSD will mange to trade well under 1.3 in the next week or two.
USDJPY– still recovering from a sudden drop to a 13-year low at 88.15.
The question remains- was this drop just a panic reaction of the market to the rejection of the US Automaker bailout plan? Or is there more then just panic to that move.
We can find out how serious this pair is about dropping further if the market will manage to make another run to the 90 psychological support level, otherwise we will probably be back to trade between 92 and above as we move further into the week.
GBPUSD- unlike EURUSD, this pair did not break its trading range last week. The only thing it managed to do was to move merely 60 pips higher from its open on Dec 7.
This had a lot to do with the strengthening of the EURGBP last week, which is trading in record highs right now. However it is possible to see this pair well above 1.5 if only EURUSD will be able to maintain its power to the upside.
Saturday, December 13, 2008
USD Plunges on Data
by Korman Tam
The dollar plunged in Thursday trading, falling to its lowest level in nearly 2-months against the euro at 1.3405 and yen at 91.15. Prompting the steep sell-off in the greenback was a set of dismal US economic reports – which included weekly jobless claims and the trade balance figure. The weekly jobless claims report unexpectedly surged to its highest level in 26-years at 573k, worst than the 525k forecasted and sharply higher from the previous week at 509k. Meanwhile, the October trade deficit ballooned to $57.19 billion versus calls for an improvement to $53.5 billion from $56.47 billion in September.
Safe haven flows jumped into spot gold, pushing it to a two-month high at $833 per barrel. Meanwhile, US equities struggled across the board with the Dow Jones slumping by 2.24%, the Nasdaq sliding 3.68% and the S&P 500 losing 2.85%.
The US economic calendar on Friday will be closely scrutinized with traders looking at November retail sales, PPI and the December University of Michigan consumer confidence survey. The headline November retail sales is expected to improve to -1.9% from -2.8% from October, while the excluding autos figure is seen improving to -1.7% from -2.2% a month earlier. The November PPI is expected to decline by 2.0%, compared with a 2.8% decline a month earlier. The University of Michigan consumer confidence index is seen drifting slightly lower in December to 55.0 from 55.3 a month earlier.
The dollar plunged in Thursday trading, falling to its lowest level in nearly 2-months against the euro at 1.3405 and yen at 91.15. Prompting the steep sell-off in the greenback was a set of dismal US economic reports – which included weekly jobless claims and the trade balance figure. The weekly jobless claims report unexpectedly surged to its highest level in 26-years at 573k, worst than the 525k forecasted and sharply higher from the previous week at 509k. Meanwhile, the October trade deficit ballooned to $57.19 billion versus calls for an improvement to $53.5 billion from $56.47 billion in September.
Safe haven flows jumped into spot gold, pushing it to a two-month high at $833 per barrel. Meanwhile, US equities struggled across the board with the Dow Jones slumping by 2.24%, the Nasdaq sliding 3.68% and the S&P 500 losing 2.85%.
The US economic calendar on Friday will be closely scrutinized with traders looking at November retail sales, PPI and the December University of Michigan consumer confidence survey. The headline November retail sales is expected to improve to -1.9% from -2.8% from October, while the excluding autos figure is seen improving to -1.7% from -2.2% a month earlier. The November PPI is expected to decline by 2.0%, compared with a 2.8% decline a month earlier. The University of Michigan consumer confidence index is seen drifting slightly lower in December to 55.0 from 55.3 a month earlier.
Friday, December 12, 2008
Dollar Declines to Six-Week Low on Reduced Demand for Funding
Dec. 11 (Bloomberg) -- The dollar fell to a six-week low against the euro and yen as the cost of borrowing in the U.S. currency tumbled, indicating less demand for year-end funding.
The greenback also dropped as the U.S. trade deficit unexpectedly widened and European Central Bank Executive Board member Juergen Stark signaled policy makers are reluctant to keep cutting interest rates aggressively. The Swiss franc slid against the euro and the yen after the central bank reduced its main interest rate to a four-year low of 0.5 percent.
“The decline in absolute panic since October has pushed investors to unwind some dollar longs,” said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “We could see a trend lower for the dollar for three months.” The firm recommended yesterday that investors erase bets that the dollar will appreciate.
The dollar fell 1.6 percent to $1.3238 per euro at 10:48 a.m. in New York, from $1.3023 yesterday. It touched $1.3278, the weakest since Oct. 30. The U.S. currency dropped 1.2 percent to 91.63 yen from 92.76 and touched 91.17, the lowest since Oct. 24. The euro rose 0.4 percent to 121.29 yen from 120.78.
Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after depleting reserves in defense of the exchange rate. Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The ruble dropped 1.6 percent to 36.84 per euro and traded at 27.78 versus the dollar.
Falling Libor
The cost of borrowing in dollars for three months in London fell to the lowest level in more than four years. The London interbank offered rate, or Libor, that banks say they charge each other for such loans slid 0.1 percentage point to 2 percent, the lowest level since September 2004, British Bankers’ Association data showed.
“There’s a case for avoiding the dollar,” said Adrian Schmidt, a London-based senior foreign-exchange strategist at the Royal Bank of Scotland Plc, the fourth-biggest currency trader. “For the moment, the dollar’s on the back foot.”
The Swiss franc decreased 0.9 percent to 1.5754 per euro and 0.4 percent to 77.09 yen. The Swiss National Bank reduced the three-month Libor target by a half-percentage point to 0.5 percent.
ECB Rates
The ECB reduced the main refinancing rate last week by 0.75 percentage point to 2.5 percent, the most in its history. More cuts may be “small” as the room to lower rates is “very limited,” Stark said today in a speech in Tuebingen, Germany.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.2 percent at 84.449. The gauge dropped below the 55-day moving average as traders took advantage of low liquidity to test how far the index may fall, said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi Ltd. in London. The dollar may rise to $1.3450 per euro this year, he said.
The U.S. trade deficit expanded 1.1 percent to $57.2 billion in October from a revised $56.6 billion in September, the Commerce Department said today in Washington. The gap was projected to narrow to $53.5 billion from an initially reported $56.5 billion in September, according to the median forecast in a Bloomberg News survey of 70 economists.
“If we correct credit excess without correcting the trade balance, then we need a weaker dollar to facilitate that process of correcting the global imbalance,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “The trade deficit has been a dead weight on the dollar for 25 years.”
The dollar has gained 11 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to seek funding in the greenback.
The yen gained versus all 178 currencies tracked by Bloomberg this year as the global recession and plunging equities encouraged Japanese investors to repatriate funds. Japan’s currency jumped 21 percent versus the dollar, 34 percent against the euro and 66 percent against Brazil’s real.
South Korea’s won rose as much as 3.2 percent to 1,331 per dollar, the strongest level in a month. The Bank of Korea lowered its benchmark rate less than forecast to 3 percent. The won declined 31 percent against the dollar this year, the worst performance among Asian currencies.
The greenback also dropped as the U.S. trade deficit unexpectedly widened and European Central Bank Executive Board member Juergen Stark signaled policy makers are reluctant to keep cutting interest rates aggressively. The Swiss franc slid against the euro and the yen after the central bank reduced its main interest rate to a four-year low of 0.5 percent.
“The decline in absolute panic since October has pushed investors to unwind some dollar longs,” said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “We could see a trend lower for the dollar for three months.” The firm recommended yesterday that investors erase bets that the dollar will appreciate.
The dollar fell 1.6 percent to $1.3238 per euro at 10:48 a.m. in New York, from $1.3023 yesterday. It touched $1.3278, the weakest since Oct. 30. The U.S. currency dropped 1.2 percent to 91.63 yen from 92.76 and touched 91.17, the lowest since Oct. 24. The euro rose 0.4 percent to 121.29 yen from 120.78.
Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after depleting reserves in defense of the exchange rate. Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The ruble dropped 1.6 percent to 36.84 per euro and traded at 27.78 versus the dollar.
Falling Libor
The cost of borrowing in dollars for three months in London fell to the lowest level in more than four years. The London interbank offered rate, or Libor, that banks say they charge each other for such loans slid 0.1 percentage point to 2 percent, the lowest level since September 2004, British Bankers’ Association data showed.
“There’s a case for avoiding the dollar,” said Adrian Schmidt, a London-based senior foreign-exchange strategist at the Royal Bank of Scotland Plc, the fourth-biggest currency trader. “For the moment, the dollar’s on the back foot.”
The Swiss franc decreased 0.9 percent to 1.5754 per euro and 0.4 percent to 77.09 yen. The Swiss National Bank reduced the three-month Libor target by a half-percentage point to 0.5 percent.
ECB Rates
The ECB reduced the main refinancing rate last week by 0.75 percentage point to 2.5 percent, the most in its history. More cuts may be “small” as the room to lower rates is “very limited,” Stark said today in a speech in Tuebingen, Germany.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.2 percent at 84.449. The gauge dropped below the 55-day moving average as traders took advantage of low liquidity to test how far the index may fall, said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi Ltd. in London. The dollar may rise to $1.3450 per euro this year, he said.
The U.S. trade deficit expanded 1.1 percent to $57.2 billion in October from a revised $56.6 billion in September, the Commerce Department said today in Washington. The gap was projected to narrow to $53.5 billion from an initially reported $56.5 billion in September, according to the median forecast in a Bloomberg News survey of 70 economists.
“If we correct credit excess without correcting the trade balance, then we need a weaker dollar to facilitate that process of correcting the global imbalance,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “The trade deficit has been a dead weight on the dollar for 25 years.”
The dollar has gained 11 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to seek funding in the greenback.
The yen gained versus all 178 currencies tracked by Bloomberg this year as the global recession and plunging equities encouraged Japanese investors to repatriate funds. Japan’s currency jumped 21 percent versus the dollar, 34 percent against the euro and 66 percent against Brazil’s real.
South Korea’s won rose as much as 3.2 percent to 1,331 per dollar, the strongest level in a month. The Bank of Korea lowered its benchmark rate less than forecast to 3 percent. The won declined 31 percent against the dollar this year, the worst performance among Asian currencies.
Thursday, December 11, 2008
Euro to a 6-week high against dollar
The EURUSD is back to trade above the important psychological level 1.3.
This is a clear breach of its long range trading since October 21.
The pair is now on its way to test the resistance at 1.3290. This level is the final boundary of the current trading rage.
Two main reasons for the Euro’s strength against the dollar.
First, European Central Bank Executive Board member Juergen Stark said late on Wednesday the bank did not have a lot of room for maneuver on rates after its cut last week. This came as a sign the ECB might restrict its cutting rate policy in the future - creating some demand for the European currency.
The second reason is technical, since the pair has reached a bottom on October 27 (1.2301) after a very sharp drop, the market is still lacking an appropriate correction for this move.
An appropriate correction at this stage (if indeed will take place) should be at least 1.3500.
As a note to my past post named EURUSD long term technical overview - this pair needs to confirm its strength by first closing the week above 1.3, only then a long could be considered, since there is still a high risk the pair will be soon back inside its recent range.
This is a clear breach of its long range trading since October 21.
The pair is now on its way to test the resistance at 1.3290. This level is the final boundary of the current trading rage.
Two main reasons for the Euro’s strength against the dollar.
First, European Central Bank Executive Board member Juergen Stark said late on Wednesday the bank did not have a lot of room for maneuver on rates after its cut last week. This came as a sign the ECB might restrict its cutting rate policy in the future - creating some demand for the European currency.
The second reason is technical, since the pair has reached a bottom on October 27 (1.2301) after a very sharp drop, the market is still lacking an appropriate correction for this move.
An appropriate correction at this stage (if indeed will take place) should be at least 1.3500.
As a note to my past post named EURUSD long term technical overview - this pair needs to confirm its strength by first closing the week above 1.3, only then a long could be considered, since there is still a high risk the pair will be soon back inside its recent range.
Wednesday, December 10, 2008
Canada cutes rates by 0.75%
The Central Bank of Canada cut the interest rate on the Canadian dollar by 0.75% to a 50-year low
(from 2.25% to 1.5%). The bank acted more aggressively than anticipated, most of the market participants
where expecting a 0.5% cut.
This is just another aggressive action in a recent chain of aggressive actions by central banks (the ECB and the BOE last week). All in hope a strong stand could put an end to the global economic deterioration.
The Forex market reacted to the news as expected, and any good fundamental trader could have enjoyed selling the Canadian dollar today.
The USDCAD was up from 1.2580 to 1.2740 as the news came out at 14:00 GMT. If you are still trading long on this pair, pay close attention to the daily resistance area at 1.2980.
EURCAD as also gaining after the news, moving from 1.6200 to 1.6370.
CADJPY was maybe the safest sell today in light of the recent global strength of the Yen. This pair headed down to 72.5 after the interest cut.
If it continues to drop in the coming days, we should pay attention to the major support level around 70.8.
UK industrial output falls sharply
By Norma Cohen
Published: December 9 2008 10:27 | Last updated: December 9 2008 11:56
Fresh concerns about the speed of the downturn in the UK economy were raised on Tuesday after figures showed industrial output fell at its fastest rate for nearly six years.
Industrial output fell by 1.8 per cent in the three months to the end of October compared with the previous three months, with manufacturing registering a 1.4 per cent drop between September and October.
Howard Archer, economist at IHS Global Insight, said the data suggested that the contraction in gross domestic product could be particularly severe in the fourth quarter of 2008.
“Given the recent stream of bad news on the UK economy, it is hard to be shocked by a data release, but the October industrial producer data manage this feat,” Mr Archer said. “Even allowing for the fact that the industrial sector only accounts for 18 per cent of the total economy, this increases the likelihood that there will be an extremely sharp contraction in GDP in the fourth quarter.”
Mr Archer said that revisions to earlier industrial production data made it likely that the 0.5 per cent contraction already reported for third-quarter GDP would be revised upward to a 0.6 per cent drop in national income.
Separate figures from the Office for National Statistics showed the UK’s trade deficit widened in October. Recent interest rate cuts failed to boost exports, and the deficit in goods and services widened by £3.5bn in the most recent month’s data.
The trade deficit in goods with other European Union states widened in October to a provisionally estimated £37.8bn from £7.4bn in September. Total exports of goods fell by 3.5 per cent to £21.2bn and total imports of goods fell by a more modest 1 per cent to £38.9bn, providing further evidence that UK consumer spending is slowing.
The figures add to a recent run of poor data. The latest report from the British Retail Consortium showed a total drop in sales of 0.4 per cent in November compared with October, providing further evidence that the historic rate cuts from the Bank of England have yet to reach the high street.
The back-to-back fall marked the first time that sales had fallen in consecutive months since the group first began compiling its index in January 1994.
Separately, the Royal Institution of Chartered Surveyors said the average number of housing transactions hit a record low in November.
Estate agents sold just 10.6 properties each on average last month – the lowest in the series’ 30-year history – down from 10.9 in October, which agents largely attributed to the increasing caution with which lenders were dispensing mortgages.
The raft of weak data weighed on the pound, which has fallen 18 per cent against the currencies of Britain’s main trading partners so far this year.
The pound sank 1.1 per cent to an intraday low of $1.4738 against the dollar, heading towards last week’s 6½ year low of $1.4467.
Against the yen, the pound dropped 0.9 per cent to Y137.03, while losing 0.5 per cent against the euro at £0.8725.
Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the pound] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long-term decline.”
The weakness in the industrial output figures was widespread with not one manufacturing category recording a significant increase in the three-month period to the end of October.
The most significant falls were a 4.6 per cent drop in the transport equipment industries – a category which includes the UK’s hard-pressed autos sector – as well as a 3.4 per cent decline in the paper, printing and publishing sectors and a 2.6 per cent drop in basic metals and metal products.
In the mining and quarrying sector, output in the three months to October fell by 0.7 per cent and stood 6.6 per cent below the level of the same period in 2007. Between September and October, mining and quarrying output dropped by 7.3 per cent with falls in oil and gas production due to unscheduled maintenance work.
Among market sectors, output of consumer durable goods fell by 3.6 per cent in the three months through to the end of October and was 8.1 per cent below that in the same period of 2007.
Consumer non-durable goods production showed a more modest decline on 0.7 per cent for the three months through October and stood 1.7 below the levels of 2007 for the same three-month period.
Copyright The Financial Times Limited 2008
Published: December 9 2008 10:27 | Last updated: December 9 2008 11:56
Fresh concerns about the speed of the downturn in the UK economy were raised on Tuesday after figures showed industrial output fell at its fastest rate for nearly six years.
Industrial output fell by 1.8 per cent in the three months to the end of October compared with the previous three months, with manufacturing registering a 1.4 per cent drop between September and October.
Howard Archer, economist at IHS Global Insight, said the data suggested that the contraction in gross domestic product could be particularly severe in the fourth quarter of 2008.
“Given the recent stream of bad news on the UK economy, it is hard to be shocked by a data release, but the October industrial producer data manage this feat,” Mr Archer said. “Even allowing for the fact that the industrial sector only accounts for 18 per cent of the total economy, this increases the likelihood that there will be an extremely sharp contraction in GDP in the fourth quarter.”
Mr Archer said that revisions to earlier industrial production data made it likely that the 0.5 per cent contraction already reported for third-quarter GDP would be revised upward to a 0.6 per cent drop in national income.
Separate figures from the Office for National Statistics showed the UK’s trade deficit widened in October. Recent interest rate cuts failed to boost exports, and the deficit in goods and services widened by £3.5bn in the most recent month’s data.
The trade deficit in goods with other European Union states widened in October to a provisionally estimated £37.8bn from £7.4bn in September. Total exports of goods fell by 3.5 per cent to £21.2bn and total imports of goods fell by a more modest 1 per cent to £38.9bn, providing further evidence that UK consumer spending is slowing.
The figures add to a recent run of poor data. The latest report from the British Retail Consortium showed a total drop in sales of 0.4 per cent in November compared with October, providing further evidence that the historic rate cuts from the Bank of England have yet to reach the high street.
The back-to-back fall marked the first time that sales had fallen in consecutive months since the group first began compiling its index in January 1994.
Separately, the Royal Institution of Chartered Surveyors said the average number of housing transactions hit a record low in November.
Estate agents sold just 10.6 properties each on average last month – the lowest in the series’ 30-year history – down from 10.9 in October, which agents largely attributed to the increasing caution with which lenders were dispensing mortgages.
The raft of weak data weighed on the pound, which has fallen 18 per cent against the currencies of Britain’s main trading partners so far this year.
The pound sank 1.1 per cent to an intraday low of $1.4738 against the dollar, heading towards last week’s 6½ year low of $1.4467.
Against the yen, the pound dropped 0.9 per cent to Y137.03, while losing 0.5 per cent against the euro at £0.8725.
Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the pound] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long-term decline.”
The weakness in the industrial output figures was widespread with not one manufacturing category recording a significant increase in the three-month period to the end of October.
The most significant falls were a 4.6 per cent drop in the transport equipment industries – a category which includes the UK’s hard-pressed autos sector – as well as a 3.4 per cent decline in the paper, printing and publishing sectors and a 2.6 per cent drop in basic metals and metal products.
In the mining and quarrying sector, output in the three months to October fell by 0.7 per cent and stood 6.6 per cent below the level of the same period in 2007. Between September and October, mining and quarrying output dropped by 7.3 per cent with falls in oil and gas production due to unscheduled maintenance work.
Among market sectors, output of consumer durable goods fell by 3.6 per cent in the three months through to the end of October and was 8.1 per cent below that in the same period of 2007.
Consumer non-durable goods production showed a more modest decline on 0.7 per cent for the three months through October and stood 1.7 below the levels of 2007 for the same three-month period.
Copyright The Financial Times Limited 2008
Tuesday, December 9, 2008
Sterling punished as UK recession deepens
By Esther Bintliff
Published: December 9 2008 11:50 | Last updated: December 9 2008 15:10
Sterling slumped against the dollar and the yen on Tuesday, punished by a fresh onslaught of grim economic data that further exposed the depth and severity of the UK recession.
October industrial output data revealed that UK production dived by a far worse-than-expected 1.7 per cent month-on-month, increasing the likelihood of further interest rate cuts in January. Disappointing retail figures intensified the general gloom, with total retail sales declining year-on-year in November for a second consecutive month.
Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the currency] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long term decline.”
Against the yen, the pound dropped 1.7 per cent to Y136, while sliding 0.4 per cent against the euro at £0.8727.
But the euro was also under pressure following the previous session’s gains, falling 0.8 per cent against the dollar at $1.2847, despite an unexpected improvement in German investor confidence.
Germany’s ZEW institute said its “economic sentiment” indicator rose by 9.5 points to minus 46.1 in December, from minus 53.5 in November. But the index was still far below its historical average of 27.1 points.
Jennifer McKeown, at Capital Economics said: “December’s surprise increase in German ZEW investor sentiment brings very limited comfort. The fact that the index is still deeply in negative territory shows that many more investors expect the economy to deteriorate further over the next six months than think that conditions will improve, which is saying something given the weak starting point.”
The Canadian dollar extended early losses against its US counterpart, after the Bank of Canada surprised the markets by slashing interest rates to a 50-year low of 1.5 per cent. The central bank’s rate cut of 75 basis points beat the consensus forecast for a 50bp reduction and was accompanied by a bearish statement announcing that the Canadian economy had entered recession. Following the news, the loonie tumbled 1.7 per cent against the US dollar to C$1.2730, from C$1.2640 just before.
Overall, the slight easing of risk aversion in currency markets seen in the previous session was all but reversed, with investors retreating to the relative safe-havens of the US dollar and the Japanese yen. The dollar strengthened against most major currencies except for the yen, against which it slipped 0.4 per cent to Y92.50.
Against the euro, the yen added 1.2 per cent to Y118.78, while climbing 2.3 per cent against the high-yielding Australian dollar to Y60.29 and 1.7 per cent against the New Zealand dollar to Y49.97.
Copyright The Financial Times Limited 2008
Published: December 9 2008 11:50 | Last updated: December 9 2008 15:10
Sterling slumped against the dollar and the yen on Tuesday, punished by a fresh onslaught of grim economic data that further exposed the depth and severity of the UK recession.
October industrial output data revealed that UK production dived by a far worse-than-expected 1.7 per cent month-on-month, increasing the likelihood of further interest rate cuts in January. Disappointing retail figures intensified the general gloom, with total retail sales declining year-on-year in November for a second consecutive month.
Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the currency] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long term decline.”
Against the yen, the pound dropped 1.7 per cent to Y136, while sliding 0.4 per cent against the euro at £0.8727.
But the euro was also under pressure following the previous session’s gains, falling 0.8 per cent against the dollar at $1.2847, despite an unexpected improvement in German investor confidence.
Germany’s ZEW institute said its “economic sentiment” indicator rose by 9.5 points to minus 46.1 in December, from minus 53.5 in November. But the index was still far below its historical average of 27.1 points.
Jennifer McKeown, at Capital Economics said: “December’s surprise increase in German ZEW investor sentiment brings very limited comfort. The fact that the index is still deeply in negative territory shows that many more investors expect the economy to deteriorate further over the next six months than think that conditions will improve, which is saying something given the weak starting point.”
The Canadian dollar extended early losses against its US counterpart, after the Bank of Canada surprised the markets by slashing interest rates to a 50-year low of 1.5 per cent. The central bank’s rate cut of 75 basis points beat the consensus forecast for a 50bp reduction and was accompanied by a bearish statement announcing that the Canadian economy had entered recession. Following the news, the loonie tumbled 1.7 per cent against the US dollar to C$1.2730, from C$1.2640 just before.
Overall, the slight easing of risk aversion in currency markets seen in the previous session was all but reversed, with investors retreating to the relative safe-havens of the US dollar and the Japanese yen. The dollar strengthened against most major currencies except for the yen, against which it slipped 0.4 per cent to Y92.50.
Against the euro, the yen added 1.2 per cent to Y118.78, while climbing 2.3 per cent against the high-yielding Australian dollar to Y60.29 and 1.7 per cent against the New Zealand dollar to Y49.97.
Copyright The Financial Times Limited 2008
EUR/USD Long Term Technical Overview
EURUSD- currently is trading in a range since October 21.
Global recession, panic and fears have pushed this pair from 1.6 to 1.23 in 14 weeks. A 3700 pips move straight down.
However the market is refusing to push it further or allow EURUSD to give us an appropriate correction to the upside so far. Instead we are lucked in a range for the last 6 week, starching mainly from 1.2400 to 1.3
Interestingly, this is the exact same price range the EURUSD was trading in during 2006.
In that year the EURUSD was lucked in between 1.2450 to 1.2970 from May until November. When it finally broke the range on November 24 with some heavy volume, it didn’t bother to look back before reaching the top of 1.6036 in 2008, and there and then completing a major uptrend.
Of course this took almost a year and a half to achieve (75 weeks to be exact).
When we look at the big picture- : First, EUR/USD traded the current range already back in 2006, then the market broke this range, advanced to top at 1.6036 in 75 weeks time, then a major economic crisis drops the price back to the same trading range in 14 weeks, 5 times faster than it took the pair to climb to the top.
If history repeats it self, as technical analysis assumes, when the market will clearly break the range this time, it should lead us a long way in the direction of the break.
When I say a clear break, I mean at least one large weekly candle closing clearly above or below the current price range.
If the break will take place to the up side, it might quickly lead us up to 1.3350 and maybe even as far as 1.3650.
If it will break the range to the down side, we might get to meet 1.1890 – a major support level which proved itself worthy in 2004, 2005 and in 2006.
I’ll come back and update you on this when EUR/USD will start making some serious progress.
Global recession, panic and fears have pushed this pair from 1.6 to 1.23 in 14 weeks. A 3700 pips move straight down.
However the market is refusing to push it further or allow EURUSD to give us an appropriate correction to the upside so far. Instead we are lucked in a range for the last 6 week, starching mainly from 1.2400 to 1.3
Interestingly, this is the exact same price range the EURUSD was trading in during 2006.
In that year the EURUSD was lucked in between 1.2450 to 1.2970 from May until November. When it finally broke the range on November 24 with some heavy volume, it didn’t bother to look back before reaching the top of 1.6036 in 2008, and there and then completing a major uptrend.
Of course this took almost a year and a half to achieve (75 weeks to be exact).
When we look at the big picture- : First, EUR/USD traded the current range already back in 2006, then the market broke this range, advanced to top at 1.6036 in 75 weeks time, then a major economic crisis drops the price back to the same trading range in 14 weeks, 5 times faster than it took the pair to climb to the top.
If history repeats it self, as technical analysis assumes, when the market will clearly break the range this time, it should lead us a long way in the direction of the break.
When I say a clear break, I mean at least one large weekly candle closing clearly above or below the current price range.
If the break will take place to the up side, it might quickly lead us up to 1.3350 and maybe even as far as 1.3650.
If it will break the range to the down side, we might get to meet 1.1890 – a major support level which proved itself worthy in 2004, 2005 and in 2006.
I’ll come back and update you on this when EUR/USD will start making some serious progress.
Sunday, December 7, 2008
Japanese Yen Threatened by Year-End Capital Flows
Written by Ilya Spivak, Currency Analyst
Fundamental Outlook for Japanese Yen: Bearish
- USD/JPY, Dow Jones Correlation Near 20-Year High
- Japanese Vehicle Sales Lowest Since at Least 1980
- Yen to Retrace Recent Gains against the Euro
The Japanese Yen could reverse recent gains next week as seasonal capital flows create the perception of a boost to risk appetite. Last week, we suggested that stock markets may rise in December as traders prepare for the end of calendar year.Investors often intentionally close some positions at a loss in December to offset the capital gains tax burden. This then pushes shares higher through January as positions are re-established (a phenomenon called the “January effect”). Considering the massive drop in share prices this year, the only traders with any meaningful gains to be taxed were positioned short. Closing out some of this exposure will mean buying back shorted stock and thereby pushing markets higher. Considering the Yen remains 96% inversely correlated with the Dow Jones Industrial Average and 95% inversely correlated with the broader MSCI World Stock Index, the currency will suffer loses should this materialize. Initial signs that stocks are being buoyed by seasonal factors have slowly started to emerge: shares closed Friday’s New York session with a gain of 3% despite news that the economy lost 533k jobs in November, the worst reading in 34 years, sending the Yen lower against nearly every other major currency.
While the economic calendar features several prominent releases, these are unlikely to usurp the dominance of stock performance in setting the Yen’s trajectory. The Current Account surplus is expected to continue to narrow in October as an expensive currency and dwindling global demand punish exporters. The Eco Watchers survey is likely to see merchant sentiment continue to make new lows as acute deterioration in employment crushes consumers’ willingness to spend. October’s Leading Index and November’s Corporate Goods Prices metrics are also unlikely to cause much volatility as their decline is merely a reflection of a recession in the world’s second-largest economy that has long been priced into the markets. To that effect, the final revision of third-quarter GDP figures are likely to have less impact still.
Fundamental Outlook for Japanese Yen: Bearish
- USD/JPY, Dow Jones Correlation Near 20-Year High
- Japanese Vehicle Sales Lowest Since at Least 1980
- Yen to Retrace Recent Gains against the Euro
The Japanese Yen could reverse recent gains next week as seasonal capital flows create the perception of a boost to risk appetite. Last week, we suggested that stock markets may rise in December as traders prepare for the end of calendar year.Investors often intentionally close some positions at a loss in December to offset the capital gains tax burden. This then pushes shares higher through January as positions are re-established (a phenomenon called the “January effect”). Considering the massive drop in share prices this year, the only traders with any meaningful gains to be taxed were positioned short. Closing out some of this exposure will mean buying back shorted stock and thereby pushing markets higher. Considering the Yen remains 96% inversely correlated with the Dow Jones Industrial Average and 95% inversely correlated with the broader MSCI World Stock Index, the currency will suffer loses should this materialize. Initial signs that stocks are being buoyed by seasonal factors have slowly started to emerge: shares closed Friday’s New York session with a gain of 3% despite news that the economy lost 533k jobs in November, the worst reading in 34 years, sending the Yen lower against nearly every other major currency.
While the economic calendar features several prominent releases, these are unlikely to usurp the dominance of stock performance in setting the Yen’s trajectory. The Current Account surplus is expected to continue to narrow in October as an expensive currency and dwindling global demand punish exporters. The Eco Watchers survey is likely to see merchant sentiment continue to make new lows as acute deterioration in employment crushes consumers’ willingness to spend. October’s Leading Index and November’s Corporate Goods Prices metrics are also unlikely to cause much volatility as their decline is merely a reflection of a recession in the world’s second-largest economy that has long been priced into the markets. To that effect, the final revision of third-quarter GDP figures are likely to have less impact still.
US Recession Deepening, How Long Can Dollar Strength Hold Up?
Written by John Kicklighter, Currency Strategist
Fundamental Outlook for US Dollar: Bullish
- US marks the biggest drop in payrolls since 1974
- NBER confirms the domestic economy has been in a recession since December 2007
- Record lows for manufacturing and service sector activity last month point to a deepening recession
It’s difficult to assign the US dollar a bullish fundamental bias considering the acceleration of the economy’s recession and the fact that American markets are the epicenter to a global financial crisis; but regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk. When yield income – valued through assets in a specific country – drops relative to its international equals, that currency depreciates against its counterparts. This sums up capital flows, carry interest and fundamental speculation in interest rates. However, the setting for the markets is clearly far from normal – just look at the advance in the US dollar last week immediately following the report of a 533,000-person drop in national payrolls. Normal market theory has been thrown out the window as investors are no longer concerned about the potential for return. With volatility holding at levels many times greater than what it was just a year or two ago and global economies sliding into a grim recession, large investors and fund managers are merely looking for a place that their accounts won’t shrink. With time we have seen that that place is US Treasuries. Surely, the market must be desperate for a safe haven with three-month T-bills yielding little more than one basis point and two-year T-notes are paying out 0.9 percent per year. In fact, the entire yield curve is at record lows.
How long can a market go against such a basic law of market theory? That depends on speculators. As long risk sentiment holds as the dominant trend across all asset classes and all markets, caution will keep capital flowing towards safe havens. However, that is not to say that the US will always be the currency that panicked traders will turn to. Massive bailout efforts, rate cuts and stimulus packages have offered a sense of stability for the world’s largest economy; but this combined endeavor cannot prevent a recession or even a natural bear market. And, when financial conditions worsen and the economy continues its slide, policy makers will find they have few options left to curb the pain on a national level. Since US officials have been the most aggressive in their efforts, they could reach their limit first; and then the sanctity of US government debt will come into question. There are other countries that are less liquid but are experiencing better stability. As the global recession and financial crisis deepen, these alternatives will grow more and more appealing.
Characteristic of a primary fundamental theme, a shift in this market driver will not change over night - but will happen gradually. The calendar for the week ahead will help steer the bigger trend. Dollar traders have no doubt already priced in a recession; but how severe and lengthy of a contraction have they accounted for? A few growth-related indicators will test this. Pending home sales will gauge the ongoing housing market recession while the trade balance will reveal how effective a cheaper dollar is at drawing less international demand. The consumer will be the more important focus with retail sales for November accounting for the build up in spending trends into the holiday season while consumer sentiment will guide speculation for it going forward. Also thematic is inflation. Though factory and import-level price gauges are usually second tier readings, an expected plunge in annual readings would spell deflation which the Fed has little to no chance at fighting. This will be important considering the FOMC will decide rates on the following Tuesday. - JK
Visit our recently updated EUR/USD Currency Room for more resources dedicated to the US Dollar
Fundamental Outlook for US Dollar: Bullish
- US marks the biggest drop in payrolls since 1974
- NBER confirms the domestic economy has been in a recession since December 2007
- Record lows for manufacturing and service sector activity last month point to a deepening recession
It’s difficult to assign the US dollar a bullish fundamental bias considering the acceleration of the economy’s recession and the fact that American markets are the epicenter to a global financial crisis; but regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk. When yield income – valued through assets in a specific country – drops relative to its international equals, that currency depreciates against its counterparts. This sums up capital flows, carry interest and fundamental speculation in interest rates. However, the setting for the markets is clearly far from normal – just look at the advance in the US dollar last week immediately following the report of a 533,000-person drop in national payrolls. Normal market theory has been thrown out the window as investors are no longer concerned about the potential for return. With volatility holding at levels many times greater than what it was just a year or two ago and global economies sliding into a grim recession, large investors and fund managers are merely looking for a place that their accounts won’t shrink. With time we have seen that that place is US Treasuries. Surely, the market must be desperate for a safe haven with three-month T-bills yielding little more than one basis point and two-year T-notes are paying out 0.9 percent per year. In fact, the entire yield curve is at record lows.
How long can a market go against such a basic law of market theory? That depends on speculators. As long risk sentiment holds as the dominant trend across all asset classes and all markets, caution will keep capital flowing towards safe havens. However, that is not to say that the US will always be the currency that panicked traders will turn to. Massive bailout efforts, rate cuts and stimulus packages have offered a sense of stability for the world’s largest economy; but this combined endeavor cannot prevent a recession or even a natural bear market. And, when financial conditions worsen and the economy continues its slide, policy makers will find they have few options left to curb the pain on a national level. Since US officials have been the most aggressive in their efforts, they could reach their limit first; and then the sanctity of US government debt will come into question. There are other countries that are less liquid but are experiencing better stability. As the global recession and financial crisis deepen, these alternatives will grow more and more appealing.
Characteristic of a primary fundamental theme, a shift in this market driver will not change over night - but will happen gradually. The calendar for the week ahead will help steer the bigger trend. Dollar traders have no doubt already priced in a recession; but how severe and lengthy of a contraction have they accounted for? A few growth-related indicators will test this. Pending home sales will gauge the ongoing housing market recession while the trade balance will reveal how effective a cheaper dollar is at drawing less international demand. The consumer will be the more important focus with retail sales for November accounting for the build up in spending trends into the holiday season while consumer sentiment will guide speculation for it going forward. Also thematic is inflation. Though factory and import-level price gauges are usually second tier readings, an expected plunge in annual readings would spell deflation which the Fed has little to no chance at fighting. This will be important considering the FOMC will decide rates on the following Tuesday. - JK
Visit our recently updated EUR/USD Currency Room for more resources dedicated to the US Dollar
Gates wants action on ‘today’s wars’
By Demetri Sevastopulo
Published: December 5 2008 17:43 | Last updated: December 5 2008 17:43
Robert Gates, the US defence secretary, wants the Pentagon to put more emphasis on preparing for counter-insurgency and stability operations rather than its traditional preoccupation with large wars and expensive weapons systems.
In an essay to be published in the Foreign Affairs journal, Mr Gates, who will remain as defence secretary in the Obama administration, said the Pentagon cannot afford to be “preoccupied” with preparing for conventional and strategic conflicts.
In a sign that he may pay more attention to acquisitions in the Obama administration than he has done under George W. Bush, Mr Gates warned that the Pentagon needed to focus more on the kinds of capabilities and equipment needed for the counter-insurgency operations and local conflicts facing the US today.
“Support for conventional modernisation programmes is deeply embedded in the defence department’s budget, in its bureaucracy, in the defence industry and in Congress,” wrote Mr Gates. “My fundamental concern is that there is not commensurate institutional support, including in the Pentagon, for the capabilities needed to win today’s wars and some of their likely successors.”
Mr Gates has been unusual, for a defence secretary, in arguing that Congress should give the state department more money to help boost US soft power round the world.
Critics of the imbalance between the defence budget and relatively paltry funding for the state department, often point out that the Pentagon has more people in military bands than the US has diplomats.
Mr Gates said in the article: “Where possible . . .kinetic operations should be subordinated to measures aimed at promoting better governance, economic programmes that spur development and efforts to address the grievances among the discontented, from whom the terrorists recruit”.
Mr Gates added that while the US was “unlikely to repeat another Iraq or Afghanistan . . . forced regime change followed by nation-building under fire”, it would face similar challenges and needed to place more emphasis on building the capabilities of partner governments and their military forces.
The US military has undergone a shift towards counter-insurgency since the September 11 attacks.
However, Mr Gates has sometimes expressed frustration at the insistence by some senior officers on procuring big-ticket weapons, particularly the air force’s preoccupation with F-22 fighter jets, justified on the basis of future conflicts.
While Mr Gates acknowledged that the US needed to ensure its military dominance over countries such as Russia and China, he said it was necessary to “keep some perspective”.
“As much as the US Navy has shrunk since the end of the cold war . . . its battle fleet is still larger than the next 13 navies combined and 11 of those 13 navies are US allies or partners,” said Mr Gates.
Mr Gates added that while Moscow was building its armed forces, it was not aiming for the kind of world dominance the US and the USSR battled over during the cold war.
“Before the US begins rearming for another Cold War, it must remember that what is driving Russia is a desire to exorcise past humiliation and dominate its ‘near abroad’ – not an ideologically driven campaign to dominate the globe.”
He conceded that the constraints on the US meant its military would be “hard-pressed” to fight another major conventional ground war “on short notice”.
“But as I have asked before, where on earth would we do that?” he asked.
Mr Gates stressed that his own focus on improving counter-insurgency operations was not aimed at lessening the importance of preparing for conventional wars. He pointed out that the Pentagon and defence industrial complex already lobbied hard to ensure the Pentagon had convention capabilities, but said advocates of counter-insurgency operations had traditionally not had a strong supporter.
“Apart from the Special Forces community and some dissident colonels, however, for decades there has been no strong, deeply rooted constituency inside the Pentagon or elsewhere for institutionalizing the capabilities necessary to wage asymmetric or irregular conflict -- and to quickly meet the ever-changing needs of forces engaged in these conflicts.”
Copyright The Financial Times Limited 2008
Published: December 5 2008 17:43 | Last updated: December 5 2008 17:43
Robert Gates, the US defence secretary, wants the Pentagon to put more emphasis on preparing for counter-insurgency and stability operations rather than its traditional preoccupation with large wars and expensive weapons systems.
In an essay to be published in the Foreign Affairs journal, Mr Gates, who will remain as defence secretary in the Obama administration, said the Pentagon cannot afford to be “preoccupied” with preparing for conventional and strategic conflicts.
In a sign that he may pay more attention to acquisitions in the Obama administration than he has done under George W. Bush, Mr Gates warned that the Pentagon needed to focus more on the kinds of capabilities and equipment needed for the counter-insurgency operations and local conflicts facing the US today.
“Support for conventional modernisation programmes is deeply embedded in the defence department’s budget, in its bureaucracy, in the defence industry and in Congress,” wrote Mr Gates. “My fundamental concern is that there is not commensurate institutional support, including in the Pentagon, for the capabilities needed to win today’s wars and some of their likely successors.”
Mr Gates has been unusual, for a defence secretary, in arguing that Congress should give the state department more money to help boost US soft power round the world.
Critics of the imbalance between the defence budget and relatively paltry funding for the state department, often point out that the Pentagon has more people in military bands than the US has diplomats.
Mr Gates said in the article: “Where possible . . .kinetic operations should be subordinated to measures aimed at promoting better governance, economic programmes that spur development and efforts to address the grievances among the discontented, from whom the terrorists recruit”.
Mr Gates added that while the US was “unlikely to repeat another Iraq or Afghanistan . . . forced regime change followed by nation-building under fire”, it would face similar challenges and needed to place more emphasis on building the capabilities of partner governments and their military forces.
The US military has undergone a shift towards counter-insurgency since the September 11 attacks.
However, Mr Gates has sometimes expressed frustration at the insistence by some senior officers on procuring big-ticket weapons, particularly the air force’s preoccupation with F-22 fighter jets, justified on the basis of future conflicts.
While Mr Gates acknowledged that the US needed to ensure its military dominance over countries such as Russia and China, he said it was necessary to “keep some perspective”.
“As much as the US Navy has shrunk since the end of the cold war . . . its battle fleet is still larger than the next 13 navies combined and 11 of those 13 navies are US allies or partners,” said Mr Gates.
Mr Gates added that while Moscow was building its armed forces, it was not aiming for the kind of world dominance the US and the USSR battled over during the cold war.
“Before the US begins rearming for another Cold War, it must remember that what is driving Russia is a desire to exorcise past humiliation and dominate its ‘near abroad’ – not an ideologically driven campaign to dominate the globe.”
He conceded that the constraints on the US meant its military would be “hard-pressed” to fight another major conventional ground war “on short notice”.
“But as I have asked before, where on earth would we do that?” he asked.
Mr Gates stressed that his own focus on improving counter-insurgency operations was not aimed at lessening the importance of preparing for conventional wars. He pointed out that the Pentagon and defence industrial complex already lobbied hard to ensure the Pentagon had convention capabilities, but said advocates of counter-insurgency operations had traditionally not had a strong supporter.
“Apart from the Special Forces community and some dissident colonels, however, for decades there has been no strong, deeply rooted constituency inside the Pentagon or elsewhere for institutionalizing the capabilities necessary to wage asymmetric or irregular conflict -- and to quickly meet the ever-changing needs of forces engaged in these conflicts.”
Copyright The Financial Times Limited 2008
German manufacturing orders collapse
BERLIN, Dec 5 - German manufacturing orders plunged in October after a record decline the previous month, pointing to a deepening recession in Europe’s biggest economy.
Orders fell 6.1 per cent in October, led by a sharp downturn in demand from Germany’s euro zone trading partners, preliminary economy ministry data showed on Friday. Economists had forecast a rise of 0.4 per cent in a Reuters poll.
Compounding the bad news, which helped to send the euro to a session low against the dollar, was a downwards revision to the September result to show a decline of 8.3 per cent.
”German industry seems to be drowning in the financial crisis,” said Carsten Brzeski, an economist at ING Financial Markets. ”What started off as a relatively normal correction from very high levels has developed into serious collapse.”
Domestic orders fell 6.1 per cent, with foreign orders down 6.2 per cent, led by a drop in demand from the euro area.
”Industrial production will decline further in coming months due to the persistent weakness in orders,” the ministry said.
German business sentiment is near its lowest level in 16 years, and a survey of manufacturing firms showed the outlook for new orders got worse in November.
Further highlighting the economy’s woes, premium carmaker BMW said global sales plunged by a quarter in November as even wealthy consumers cut their spending.
A survey by the Ifo economic think tank showed a growing number of German firms are finding banks’ lending conditions restrictive, particularly larger ones.
The German economy is already in recession and fears are mounting the country could be facing its biggest economic downturn next year since the second world war.
Deutsche Bank chief economist Norbert Walter told a newspaper that German gross domestic product could contract by up to 4 percent in 2009.
This would be four times as bad as its previous worst one-year performance since West Germany’s creation in 1949.
The ministry data showed orders for capital goods fell 8.2 per cent in October, with those for intermediate goods down 4.5 per cent. Consumer goods orders fell by 1.6 percent.
Central Banks slash rates aggressively
The European Central Bank, the Bank of England, the Bank of Sweden and the Bank Of New Zealand have all aggressively slashed their borrowing cost, as an attempt to support the global economy
The ECB has slashed interest rates by 0.75% today ,more than the 0.5% which was expected by most market participants.
However, the EURUSD did not react as expected, and is actually maintaining strength during the first hours of the New-York session.
The Bank of England has slashed rates by 1% on the pound ( from 3%) , as a result the sterling sank to a new low of 1.4467 against the Dollar this morning, However this pair has also recovered losses since then, and is now well above 1.4600.
Maybe the reaction of the market to the events today can be regarded as a sign that all these rate cuts where already priced in the market prior to the their actual release. This would explain why the EURUSD is trading around 1.27 up from 1.2550 this morning despite the fact the ECB’s 0.75%. cut.
If this is truly the case, the Euro might be able to keep it’s head above the water for the time being.
The ECB has slashed interest rates by 0.75% today ,more than the 0.5% which was expected by most market participants.
However, the EURUSD did not react as expected, and is actually maintaining strength during the first hours of the New-York session.
The Bank of England has slashed rates by 1% on the pound ( from 3%) , as a result the sterling sank to a new low of 1.4467 against the Dollar this morning, However this pair has also recovered losses since then, and is now well above 1.4600.
Maybe the reaction of the market to the events today can be regarded as a sign that all these rate cuts where already priced in the market prior to the their actual release. This would explain why the EURUSD is trading around 1.27 up from 1.2550 this morning despite the fact the ECB’s 0.75%. cut.
If this is truly the case, the Euro might be able to keep it’s head above the water for the time being.
Major economic releases today include US Nonfarm Payrolls and the US Unemployment Rate
Fri, Dec 5 2008, 12:55 GMT
by Wachovia Research Team
Wachovia
Traders' reluctance to take large positions ahead of a major US employment report resulted in the dollar remaining relatively unchanged yesterday against a basket of major currencies. The euro strengthened against the US dollar as investors bought the currency following the European Central Bank's (ECB) rate cut. Investors praised the ECB for its proactive efforts to avoid a deep recession in the Euro Zone. The British pound, however, did not strengthen like the euro, even though the Bank of England cut rates to their lowest level since 1951. The pound ended the day marginally lower as investors remained concerned about the health of the British economy. Lower oil, metal, and other commodity prices weighed heavily on the Canadian dollar yesterday, causing it to depreciate materially.
Most currencies are largely unchanged overnight and this morning as traders await US economic data. The euro and New Zealand dollar are down slightly from yesterday's close, while the pound and Australian dollar remain at the same levels. Meanwhile, the Canadian dollar continued to depreciate after poor economic data showed that Canadian employment fell the most since 1982.
Major economic releases today include US Nonfarm Payrolls and the US Unemployment Rate.
Download Full Daily Market Report
by Wachovia Research Team
Wachovia
Traders' reluctance to take large positions ahead of a major US employment report resulted in the dollar remaining relatively unchanged yesterday against a basket of major currencies. The euro strengthened against the US dollar as investors bought the currency following the European Central Bank's (ECB) rate cut. Investors praised the ECB for its proactive efforts to avoid a deep recession in the Euro Zone. The British pound, however, did not strengthen like the euro, even though the Bank of England cut rates to their lowest level since 1951. The pound ended the day marginally lower as investors remained concerned about the health of the British economy. Lower oil, metal, and other commodity prices weighed heavily on the Canadian dollar yesterday, causing it to depreciate materially.
Most currencies are largely unchanged overnight and this morning as traders await US economic data. The euro and New Zealand dollar are down slightly from yesterday's close, while the pound and Australian dollar remain at the same levels. Meanwhile, the Canadian dollar continued to depreciate after poor economic data showed that Canadian employment fell the most since 1982.
Major economic releases today include US Nonfarm Payrolls and the US Unemployment Rate.
Friday Note: Let's talk about US deflation
Fri, Dec 5 2008, 15:39 GMT
by HVB Group Global Markets Research
HVB Group
● Concern. The US recession has only just been officially confirmed, but the next poltergeist is already stalking media & markets – deflation! Investors’ inflation expectations have, at any rate, plummeted, and are currently hovering around the zero line (cf. chart below).
● Facts. Our analysis reveals, however, that the fundamentals do not (yet) support the deflation fear. For that to happen, the US recession would have to be deeper than we are projecting, and the unemployment rate would have to rise to more than 9% (pages 4-6).
● Counter-measures. That is exactly what economic policy is attempting to prevent with all the means at its disposal. The hundreds of billions in fiscal programs are unprecedented in the post-war era, and the Fed has already lowered its target rate a whopping 425 basis points. The week after next, it will ease another 50 basis points. We even won't exclude a zero target rate soon.
● Fed. Moreover, the central bank has already begun to combine its traditional monetary policy with quantitative measures – i.e. even before it has depleted its interest rate ammunition (pages 7-8). The objective here is to avoid Japanese conditions. The Fed has, in a matter of weeks, already pumped more liquidity into the system than Japan did in three years. Nevertheless, US deflation risks continue to rise.
● Further topics:
Weekly Comment: Actions speak louder than words (page 2).
EMU: Worst recession since 1992/93 (page 9).
Data outlook: European industry sinks ever deeper into recession; US retail sales continue to plummet (page 11).
Market outlook: Govies and USD to remain in demand (page 18).
Download full Friday Notes with charts
by HVB Group Global Markets Research
HVB Group
● Concern. The US recession has only just been officially confirmed, but the next poltergeist is already stalking media & markets – deflation! Investors’ inflation expectations have, at any rate, plummeted, and are currently hovering around the zero line (cf. chart below).
● Facts. Our analysis reveals, however, that the fundamentals do not (yet) support the deflation fear. For that to happen, the US recession would have to be deeper than we are projecting, and the unemployment rate would have to rise to more than 9% (pages 4-6).
● Counter-measures. That is exactly what economic policy is attempting to prevent with all the means at its disposal. The hundreds of billions in fiscal programs are unprecedented in the post-war era, and the Fed has already lowered its target rate a whopping 425 basis points. The week after next, it will ease another 50 basis points. We even won't exclude a zero target rate soon.
● Fed. Moreover, the central bank has already begun to combine its traditional monetary policy with quantitative measures – i.e. even before it has depleted its interest rate ammunition (pages 7-8). The objective here is to avoid Japanese conditions. The Fed has, in a matter of weeks, already pumped more liquidity into the system than Japan did in three years. Nevertheless, US deflation risks continue to rise.
● Further topics:
Weekly Comment: Actions speak louder than words (page 2).
EMU: Worst recession since 1992/93 (page 9).
Data outlook: European industry sinks ever deeper into recession; US retail sales continue to plummet (page 11).
Market outlook: Govies and USD to remain in demand (page 18).
Sunday, November 30, 2008
The Best Time to Day Trade the Forex Market
By: Cynthia Macy
The three major forex trading 'sessions' are as follows (all in Eastern Standard Time):
1. New York open 7:00 AM to 4:00 PM
2. Japanese/Australian open 7:00 PM to 3:00 AM
3. London open 3:00 AM to 11:00 AM
** Often, the best times to trade is at the beginning 3-5 hours of the above mentioned opening times, because the major currency pairs tend to move the most in a particular direction. Especially when there are economic news releases.
THE ABSOLUTE BEST TIME TO TRADE IS FROM 3 AM TO 11 AM EST.
The New York and London trading sessions overlap between 7 and 11 am EST. The volatility is much higher and trading opportunities are much more frequent with bigger moves, especially in these four hours.
The currency pair that moves the most during these hours are the Usd/Chf (#1), then the Gbp/Usd, then the Eur/Usd, then the Usd/Jpy.
This is when you can make 30-100 pips trading in just a few minutes or hours, using any of our strategies in any time frame, especially around news releases.
If you need help in converting EST time zone to your time zone, please use this world time zone converter:
http://www.worldtimezone.com OR
http://timeanddate.com/worldclock
DAILY FORECAST WEBSITES
First thing in the morning, I go to http://www.fxstreet.com to check out some forecasts and news release times for the day. I always check before I start trading and I write down the support/resistance, trend, trading range, target highs & lows, news release times, etc. on my Daily Trading Sheet, which is provided in the Day Trade Forex Advanced course.
This is an interesting forecast site that I also like:
http://www.fxstreet.com/nou/content/107780/content.asp?menu=technicalanalysis
Another place to find out when the world economic news releases are: http://www.forexnews.com and scroll down to the bottom of the website for the list of the current week news releases that impact the Forex markets.
Most often, the economic news release is scheduled for 8:30 AM EST. If you are in a trade at this time, make sure you have your stop loss at a place you are happy with.
The volatility is scary and fast, but if you aren't already in a trade, you can jump in once you see the major trend, usually after the first 5-15 minutes. Look at a 30 min chart to see the major trend.
IMPORTANT NOTE: Most of the forex brokerages have now stopped guaranteeing their stops during fundamental news release times, as the volatility is so extreme, that the price can often move faster than their servers can keep up with. Thus, please be very aware that getting into and out of a trade when you want, can sometimes be next to impossible. You can possibly encounter several things during news release times: whipsaw of the price, slippage, freezing of the platform, disconnects, re-quotes of price, loss of money, etc. Don't bother calling up any dealing desk to complain, as they are all now distancing themselves from this problem, and they all have a disclaimer on their websites. It is a buyer-beware type of situation. If you choose to play the news, you have to be aware of it's risks. The rewards can be very great in just a few minutes, or it can go against you. Make sure that you immediately put in your stop.
The three major forex trading 'sessions' are as follows (all in Eastern Standard Time):
1. New York open 7:00 AM to 4:00 PM
2. Japanese/Australian open 7:00 PM to 3:00 AM
3. London open 3:00 AM to 11:00 AM
** Often, the best times to trade is at the beginning 3-5 hours of the above mentioned opening times, because the major currency pairs tend to move the most in a particular direction. Especially when there are economic news releases.
THE ABSOLUTE BEST TIME TO TRADE IS FROM 3 AM TO 11 AM EST.
The New York and London trading sessions overlap between 7 and 11 am EST. The volatility is much higher and trading opportunities are much more frequent with bigger moves, especially in these four hours.
The currency pair that moves the most during these hours are the Usd/Chf (#1), then the Gbp/Usd, then the Eur/Usd, then the Usd/Jpy.
This is when you can make 30-100 pips trading in just a few minutes or hours, using any of our strategies in any time frame, especially around news releases.
If you need help in converting EST time zone to your time zone, please use this world time zone converter:
http://www.worldtimezone.com OR
http://timeanddate.com/worldclock
DAILY FORECAST WEBSITES
First thing in the morning, I go to http://www.fxstreet.com to check out some forecasts and news release times for the day. I always check before I start trading and I write down the support/resistance, trend, trading range, target highs & lows, news release times, etc. on my Daily Trading Sheet, which is provided in the Day Trade Forex Advanced course.
This is an interesting forecast site that I also like:
http://www.fxstreet.com/nou/content/107780/content.asp?menu=technicalanalysis
Another place to find out when the world economic news releases are: http://www.forexnews.com and scroll down to the bottom of the website for the list of the current week news releases that impact the Forex markets.
Most often, the economic news release is scheduled for 8:30 AM EST. If you are in a trade at this time, make sure you have your stop loss at a place you are happy with.
The volatility is scary and fast, but if you aren't already in a trade, you can jump in once you see the major trend, usually after the first 5-15 minutes. Look at a 30 min chart to see the major trend.
IMPORTANT NOTE: Most of the forex brokerages have now stopped guaranteeing their stops during fundamental news release times, as the volatility is so extreme, that the price can often move faster than their servers can keep up with. Thus, please be very aware that getting into and out of a trade when you want, can sometimes be next to impossible. You can possibly encounter several things during news release times: whipsaw of the price, slippage, freezing of the platform, disconnects, re-quotes of price, loss of money, etc. Don't bother calling up any dealing desk to complain, as they are all now distancing themselves from this problem, and they all have a disclaimer on their websites. It is a buyer-beware type of situation. If you choose to play the news, you have to be aware of it's risks. The rewards can be very great in just a few minutes, or it can go against you. Make sure that you immediately put in your stop.
Saturday, November 29, 2008
EU Stimulus No Help to Euro
The European Union has unveiled an economic stimulus package to match the US, as the two economies continue to mirror each other's strategies for fighting the credit crisis. Given the evident lack of effectiveness of the US plan, it is no surprise that analysts reacted pessimistically to the policy proposal. At this point, investors and consumers alike appear resigned to the inevitability of economic recession in both economies. In other words, there isn't much that government can achieve, as their respective efforts will certainly be undermined by increased saving. Besides, investors (including currency traders) remain focused on the financial aspects of the credit crisis, rather than the economic aspects. Accordingly, the theme of risk aversion continues to dominate, as part of a trend that favors the Dollar. Reuters reports:
Analysts said that the plan marked a step in the right direction, but uncertainty about its efficacy, and general concerns about a deep slowdown in the global economy were keeping investors in the mood to sell risky assets.
Read More: EU stimulus package raises concerns
Analysts said that the plan marked a step in the right direction, but uncertainty about its efficacy, and general concerns about a deep slowdown in the global economy were keeping investors in the mood to sell risky assets.
Read More: EU stimulus package raises concerns
US Bailout Highly Inflationary
The Treasury Department's most recent attempt to stabilize credit markets involves an injection of $800 Billion into the banking sector. According to one estimate, the total amount of Federal money committed so far (in the form of investments, guarantees, and loans) now exceeds $7 Trillion, and shows no signs of abating. In theory, the possibility exists that such investments could prove profitable, in which case the bailout wouldn't end up costing taxpayers a cent. In all likelihood however, a significant portion of these investments will have to be written off, causing a net increase of trillions of dollars to the money supply. In the long-term, this is certain to be highly inflationary. It seems currency traders have finally begun to take note of this inevitability, and the Dollar rally has stalled accordingly. The New York Times reports:
The Federal Reserve and the Treasury... [are] sending a message that they would print as much money as needed to revive the nation’s crippled banking system.
Read More: U.S. Details $800 Billion Loan Plans
The Federal Reserve and the Treasury... [are] sending a message that they would print as much money as needed to revive the nation’s crippled banking system.
Read More: U.S. Details $800 Billion Loan Plans
Currency Pegs back in Style
Having endured years of abuse from free-market advocates and the International Monetary Fund, fixed exchange rate regimes are officially back in vogue. This is because the sole currencies not to have been affected by the recent surge in forex volatility are those that are pegged to the US Dollar, namely the Chinese Yuan and Hong Kong Dollar. Both countries have stood by calmly as other emerging market economies have witnessed speculators lay waste to their currencies, driving them down by 5% or more per day. Fortunately, both HK and China have significant stockpiles of foreign exchange reserves, which virtually eliminates any possibility of a speculative attack. Iceland, meanwhile, was forced to abandon a half-hearted attempt at a currency peg when it ran out of cash to defend it. Of course, a fixed currency can also be a disadvantage, as exports may become expensive relative to competitors that experience declines in their currencies. Given the current economic climate, however, it seems HK is happy to give up this potential upside in favor of stability. The Wall Street Journal reports:
Like Japan, Hong Kong was a source of funds for the carry-trade. Turbulent markets have taken that strategy apart, and investors who borrowed in Hong Kong are pulling money back into the territory at a rapid clip.
Read More: Hong Kong Loves Its Currency Peg
Like Japan, Hong Kong was a source of funds for the carry-trade. Turbulent markets have taken that strategy apart, and investors who borrowed in Hong Kong are pulling money back into the territory at a rapid clip.
Read More: Hong Kong Loves Its Currency Peg
Thursday, November 27, 2008
Free Online Forex Trading Courses
by: Ricky Lim
Over recent years online Forex trading has now become big business and certainly in the financial sector this is the biggest market of all in the world. The reason why this market has grown compared to the many other financial markets is because of the rise in the number of traders working online rather than using the more traditional method of trading by using the phone. Because of this increase there are a number of sites which are now offering to people the chance of learning about this through taking free online Forex trading courses.
However as with a lot of things in life today sometimes the best things in life are not for free and certainly the same could be said for many of these courses. When you are considering taking an online forex trading course, there are a number of things that you will need to take into consideration.
1. Who is offering this course?
2. Just why is it they are offering to provide you with a book to learn about Forex trading for free?
3. Are they actually offering this course because they are promoting a particular trading site and then want you to enroll on it?
4. Once you begin to read the book do you find that they are being extremely pushy when it comes to actually getting you to use a particular website to invest your money in?
The answers that you provide to the above questions will help to show you just how honest the information being provided to you for free is.
One way of discovering if the free online forex trading course that you are looking at is of the highest standard is by looking at how much of the information contained within it is replicated elsewhere. You will soon learn that a lot of the information you find in some of the free online forex trading course books can easily be found when you search the net.
So rather than using these books or courses to teach you how to trade on the Forex market instead use the advice and articles about the subject that are being offered on other sites. Plus why not join one of the many forums that have been set up and discuss your issues with some of the people here. They are people who have been trading on the Forex market for some time and will often offer you the best advice when it comes to finding a suitable course for learning about Forex trading.
Certainly the better free online Forex trading courses are those that do not limit themselves to telling you about how one company trades. Rather it should be providing you with views of all the sites that are available and which are run by established companies. Any such courses should be prepared to provide you with everything that you need to know about the world of Forex trading and not restrict you to using the services of just one or the abilities of one company.
Over recent years online Forex trading has now become big business and certainly in the financial sector this is the biggest market of all in the world. The reason why this market has grown compared to the many other financial markets is because of the rise in the number of traders working online rather than using the more traditional method of trading by using the phone. Because of this increase there are a number of sites which are now offering to people the chance of learning about this through taking free online Forex trading courses.
However as with a lot of things in life today sometimes the best things in life are not for free and certainly the same could be said for many of these courses. When you are considering taking an online forex trading course, there are a number of things that you will need to take into consideration.
1. Who is offering this course?
2. Just why is it they are offering to provide you with a book to learn about Forex trading for free?
3. Are they actually offering this course because they are promoting a particular trading site and then want you to enroll on it?
4. Once you begin to read the book do you find that they are being extremely pushy when it comes to actually getting you to use a particular website to invest your money in?
The answers that you provide to the above questions will help to show you just how honest the information being provided to you for free is.
One way of discovering if the free online forex trading course that you are looking at is of the highest standard is by looking at how much of the information contained within it is replicated elsewhere. You will soon learn that a lot of the information you find in some of the free online forex trading course books can easily be found when you search the net.
So rather than using these books or courses to teach you how to trade on the Forex market instead use the advice and articles about the subject that are being offered on other sites. Plus why not join one of the many forums that have been set up and discuss your issues with some of the people here. They are people who have been trading on the Forex market for some time and will often offer you the best advice when it comes to finding a suitable course for learning about Forex trading.
Certainly the better free online Forex trading courses are those that do not limit themselves to telling you about how one company trades. Rather it should be providing you with views of all the sites that are available and which are run by established companies. Any such courses should be prepared to provide you with everything that you need to know about the world of Forex trading and not restrict you to using the services of just one or the abilities of one company.
Wednesday, November 26, 2008
Six Forex Trading Tips for Newbies
by: Gerald Njuguna
You have decided to be a trader in the forex market, and you have no idea on how to begin. Let's first start by defining what the forex market is and what it does.
The term "forex", also known as the foreign exchange is a market for the sale and purchase of all kinds of currencies. It originated in the early 1970's when floating currencies and free exchange rates were first introduced. At this time, the forex market traders were the ones who set the value of one type of currency against another.
Nowadays, the market forces determine the value of a currency against another. One unique aspect of the Forex market is that very little trading qualifications are required of anyone intending to trade therein.
Independence from external control ensures that only the market forces influence the currency prices. As the largest financial market, with trades reaching up to 1.5 trillion U.S. dollars, or USD, the money moves so fast, it’s impossible for a single investor to substantially affect the price of any major foreign currency.
In addition, unlike any stock that is rarely traded, forex traders are able to open and close any positions within seconds, because there are always a number of willing buyers and sellers.
1. The first thing you need to do is open a forex account. You will have to fill an application form which includes a margin agreement stating if the broker will be allowed to intervene with any trade when it appears too risky. Since most trades are done using the broker's money, it is only logical that he protect his interests. However, once you have established an account, you can fund it and begin trading in the forex market.
2. Adopt a trading strategy, that has proven to be successful for you. Remember that strategies will work differently for different traders, so don't try to adopt a strategy that works well for another trader. It might backfire on you. The two available approaches are either technical analysis or fundamental analysis. A combination of the two is a more preferred choice for experienced traders.
3.Understand that prices move by trends. Forex has a popular saying, “The trend is your friend.” There are certain movements that have been studied over many years in order to identify a pattern in the trend. These trends need to be understood in order to understand a good trading strategy. For small accounts that are $25,000 and under, trading with a trend may help improving your odds when compared to bi-directional trading. Most newbie’s will look to trade in any direction, when they should be trading with a trend.
4. Ensure you know which are the top five currencies pairs in the foreign exchange. These are USD/Yen, Swiss franc/USD, Euro/Yen, Euro/USD and Pound/USD.
5. For newbies, it is advisable to maintain two accounts to ensure you learn to play the trading game. Keep one real account, one that you will actually use to trade real money; and the second account should be a demo, one that you can use to test alternative moves in the trading game. You can easily use your demo account to shadow the trades in your real account so you can widen your stops to see if you are being too conservative or not.
6. Always examine the one hour, four hour and daily charts that concern your trades. Although you can trade at 15 and 30 minute time intervals, doing so requires a handful of dexterity.
You have decided to be a trader in the forex market, and you have no idea on how to begin. Let's first start by defining what the forex market is and what it does.
The term "forex", also known as the foreign exchange is a market for the sale and purchase of all kinds of currencies. It originated in the early 1970's when floating currencies and free exchange rates were first introduced. At this time, the forex market traders were the ones who set the value of one type of currency against another.
Nowadays, the market forces determine the value of a currency against another. One unique aspect of the Forex market is that very little trading qualifications are required of anyone intending to trade therein.
Independence from external control ensures that only the market forces influence the currency prices. As the largest financial market, with trades reaching up to 1.5 trillion U.S. dollars, or USD, the money moves so fast, it’s impossible for a single investor to substantially affect the price of any major foreign currency.
In addition, unlike any stock that is rarely traded, forex traders are able to open and close any positions within seconds, because there are always a number of willing buyers and sellers.
1. The first thing you need to do is open a forex account. You will have to fill an application form which includes a margin agreement stating if the broker will be allowed to intervene with any trade when it appears too risky. Since most trades are done using the broker's money, it is only logical that he protect his interests. However, once you have established an account, you can fund it and begin trading in the forex market.
2. Adopt a trading strategy, that has proven to be successful for you. Remember that strategies will work differently for different traders, so don't try to adopt a strategy that works well for another trader. It might backfire on you. The two available approaches are either technical analysis or fundamental analysis. A combination of the two is a more preferred choice for experienced traders.
3.Understand that prices move by trends. Forex has a popular saying, “The trend is your friend.” There are certain movements that have been studied over many years in order to identify a pattern in the trend. These trends need to be understood in order to understand a good trading strategy. For small accounts that are $25,000 and under, trading with a trend may help improving your odds when compared to bi-directional trading. Most newbie’s will look to trade in any direction, when they should be trading with a trend.
4. Ensure you know which are the top five currencies pairs in the foreign exchange. These are USD/Yen, Swiss franc/USD, Euro/Yen, Euro/USD and Pound/USD.
5. For newbies, it is advisable to maintain two accounts to ensure you learn to play the trading game. Keep one real account, one that you will actually use to trade real money; and the second account should be a demo, one that you can use to test alternative moves in the trading game. You can easily use your demo account to shadow the trades in your real account so you can widen your stops to see if you are being too conservative or not.
6. Always examine the one hour, four hour and daily charts that concern your trades. Although you can trade at 15 and 30 minute time intervals, doing so requires a handful of dexterity.
How To Choose a Forex Trading System That Works and Suits You
by: Bret Freak
There are so many different trading systems you could use to trade the forex market, some better suited to certain people than others. For example some people may find it easier to comprehend and take into account fundamental factors as opposed to looking at a screen covered in technical indicators, and vice-versa.
The first logical step in determining what type of trading system would best suit you is actually being aware and understand the widely known methods of analysis used in trading the currency market. Once you are aware of the tools that are available, you can generally tell what type of analysis suits you. For example some of the main technical analysis methods which are popular include:
Pivot points
Chart patterns
Fibonacci retracements
Candlestick patterns
And some fundamental factors which are widely used include analyzing:
Interest rates
Trade balances
Unemployment rates
Gross domestic product (GDP)
You may now actually be able to develop your own system by combining certain methods of analysis together, giving you a method which you are comfortable with. On the other hand you may decide that you would like to trade someone else’s system, either way, that brings us to the next step which is determining the profitability of a trading system.
Determining Profitability
Most people would think that back testing is the best way to determine a systems profitability. However back testing doesn’t always give you a true idea of how profitable a system is. The reason for this is because when you’re back testing your system on historical charts, you are only seeing the obvious setups which have occurred, and not always seeing the ones that are less obvious. These less obvious ones sometimes can produce losses, which is why back testing isn’t always the best method to implement.
A better method of determining profitability is by trading your system in real-time with a demo account. This would give you a true understanding of what your system is capable of. This would also allow you to familiarize yourself with your trading platform at the same time. When determining profitability you must look at it in terms of expectancy and opportunity.
Expectancy & Opportunity
These two factors together will be able to tell you what you could expect to make over a period of time. Expectancy is calculated with the following formula:
(Probability of winning × average win) – (Probability of losing × average loss)
This will give you a figure which is the average amount you can expect to make per trade. This shouldn’t be a negative amount, if it is you should look at some other method of trading since you cannot make money on a system that produces a negative expectancy. Obviously the higher this figure is the better. Now to the opportunity factor.
The opportunity factor is how often you are able to trade using your system. By multiplying your expectancy figure with your opportunity factor it will tell you how much you could expect to make over a period of time. The more opportunity you have to trade, the more money you should expect to make. This now brings us to the last component of a trading system, money management.
Money Management
Without proper money management you will end up as a statistic. In other words one of those 90%+ of traders who loose their money. Money management tells you how much of your account balance to risk per trade. The whole point of money management is to ensure your survival over the long term, and to preserve your capital.
The most common form of money management is the percent risk model which tells you not to risk more than x percent of your account balance on any one trade. A range between 1-3% is generally an accepted amount which has been a reliable percentage to use in order to make money in the long term.
Conclusion
By taking into consideration the above factors you will be able to determine if a trading system best suits you, and with some simple mathematical calculations you will be able to determine its profitability.
There are so many different trading systems you could use to trade the forex market, some better suited to certain people than others. For example some people may find it easier to comprehend and take into account fundamental factors as opposed to looking at a screen covered in technical indicators, and vice-versa.
The first logical step in determining what type of trading system would best suit you is actually being aware and understand the widely known methods of analysis used in trading the currency market. Once you are aware of the tools that are available, you can generally tell what type of analysis suits you. For example some of the main technical analysis methods which are popular include:
Pivot points
Chart patterns
Fibonacci retracements
Candlestick patterns
And some fundamental factors which are widely used include analyzing:
Interest rates
Trade balances
Unemployment rates
Gross domestic product (GDP)
You may now actually be able to develop your own system by combining certain methods of analysis together, giving you a method which you are comfortable with. On the other hand you may decide that you would like to trade someone else’s system, either way, that brings us to the next step which is determining the profitability of a trading system.
Determining Profitability
Most people would think that back testing is the best way to determine a systems profitability. However back testing doesn’t always give you a true idea of how profitable a system is. The reason for this is because when you’re back testing your system on historical charts, you are only seeing the obvious setups which have occurred, and not always seeing the ones that are less obvious. These less obvious ones sometimes can produce losses, which is why back testing isn’t always the best method to implement.
A better method of determining profitability is by trading your system in real-time with a demo account. This would give you a true understanding of what your system is capable of. This would also allow you to familiarize yourself with your trading platform at the same time. When determining profitability you must look at it in terms of expectancy and opportunity.
Expectancy & Opportunity
These two factors together will be able to tell you what you could expect to make over a period of time. Expectancy is calculated with the following formula:
(Probability of winning × average win) – (Probability of losing × average loss)
This will give you a figure which is the average amount you can expect to make per trade. This shouldn’t be a negative amount, if it is you should look at some other method of trading since you cannot make money on a system that produces a negative expectancy. Obviously the higher this figure is the better. Now to the opportunity factor.
The opportunity factor is how often you are able to trade using your system. By multiplying your expectancy figure with your opportunity factor it will tell you how much you could expect to make over a period of time. The more opportunity you have to trade, the more money you should expect to make. This now brings us to the last component of a trading system, money management.
Money Management
Without proper money management you will end up as a statistic. In other words one of those 90%+ of traders who loose their money. Money management tells you how much of your account balance to risk per trade. The whole point of money management is to ensure your survival over the long term, and to preserve your capital.
The most common form of money management is the percent risk model which tells you not to risk more than x percent of your account balance on any one trade. A range between 1-3% is generally an accepted amount which has been a reliable percentage to use in order to make money in the long term.
Conclusion
By taking into consideration the above factors you will be able to determine if a trading system best suits you, and with some simple mathematical calculations you will be able to determine its profitability.
Currency Exchange Terms Every Forex Trader Should Know
by: Andrew Daigle
Before jumping into the forex market, you need to arm yourself with some terminology that will be used in any course or software on this subject. The following set of terms were put together with the idea of providing the novice forex trader with the fundamental concepts of the forex trading business. While they sound technical, most are easy to understand and apply.
Let us begin with the instruments that are traded in the forex markets. Currencies are traded in pairs so the instrument will always be in this double denomination. The reason for this is simple; the basis of forex currency trading is to exchange one currency for another. So if the pair is the Euro and the US Dollar, and the forex trader is taking a long position or buying the Euro in hopes that it will appreciate, effectively the trader is also selling US Dollars to buy the Euros. The most widely traded pairs are the Great Britain Pound and the US Dollar (indicated as GBP/USD), the Euro and the US Dollar (the EUR/USD pair), the Aussie Dollar and the US Dollar (AUD/USD pair), the USD and the Japanese Yen (USD/JPY pair), and the Canadian Dollar and the USD (USD/CAD pair). These pairs account for well over 80% of the total volume of the trading in the forex market. The advantage to trading in these currency pairs is that they are highly liquid and allow the investor to convert their portfolio to cash very quickly to realize a profit.
In every pair, the first currency is called the base currency, over which the second one is countered to imply the price of the pair, or commonly referred to as the "cross currency". The second is therefore called the quote currency and the pair price is recorded in terms of the units of the quote currency required to buy one unit of the base currency. Thus, assuming the price of the GBP/USD pair is 1.5, this implies that 1.5 USD will buy 1 GBP.
Every pair is quoted in terms of a bid ask spread. The bid price is the rate at which your forex broker bids to buy the currency at, while the ask price is the rate the forex broker is asking to sell the currency to the forex trader. The bid price will always be less than the ask price and the forex trader will buy at the ask price and sell at the bid price. The bid ask price will be quoted as: GBP/USD 1.532/5, meaning the bid price is 1.532 and the ask price is 1.535.
A pip price interest point), as it is commonly called, is the smallest incremental change a currency pair will experience, for instance, a change in the GBP/USD price from 1.532 to 1.542 is a change of 10 pips. A trading margin is a deposit which is a minimum amount or a small percentage of your traded amount that you have to put up. The remaining amount is supplied by your broker. This amount can vary from 1% to 0.25%, also referred to as 100:1 and 400:1. Most often, forex brokers will offer 100:1 or 200:1 to most clients. This is risky but enables the trader to leverage a large amount that he or she would not otherwise have access to.
Finally, a margin call can happen when the forex trader allows the balance in the trading account to go below the margin deposit percentage agreed upon with the forex broker. The broker will automatically sell your long positions or buy your short positions and clear the entire trading account, returning the margin amount to the trader to protect the trader from losing more money than they have.
Before jumping into the forex market, you need to arm yourself with some terminology that will be used in any course or software on this subject. The following set of terms were put together with the idea of providing the novice forex trader with the fundamental concepts of the forex trading business. While they sound technical, most are easy to understand and apply.
Let us begin with the instruments that are traded in the forex markets. Currencies are traded in pairs so the instrument will always be in this double denomination. The reason for this is simple; the basis of forex currency trading is to exchange one currency for another. So if the pair is the Euro and the US Dollar, and the forex trader is taking a long position or buying the Euro in hopes that it will appreciate, effectively the trader is also selling US Dollars to buy the Euros. The most widely traded pairs are the Great Britain Pound and the US Dollar (indicated as GBP/USD), the Euro and the US Dollar (the EUR/USD pair), the Aussie Dollar and the US Dollar (AUD/USD pair), the USD and the Japanese Yen (USD/JPY pair), and the Canadian Dollar and the USD (USD/CAD pair). These pairs account for well over 80% of the total volume of the trading in the forex market. The advantage to trading in these currency pairs is that they are highly liquid and allow the investor to convert their portfolio to cash very quickly to realize a profit.
In every pair, the first currency is called the base currency, over which the second one is countered to imply the price of the pair, or commonly referred to as the "cross currency". The second is therefore called the quote currency and the pair price is recorded in terms of the units of the quote currency required to buy one unit of the base currency. Thus, assuming the price of the GBP/USD pair is 1.5, this implies that 1.5 USD will buy 1 GBP.
Every pair is quoted in terms of a bid ask spread. The bid price is the rate at which your forex broker bids to buy the currency at, while the ask price is the rate the forex broker is asking to sell the currency to the forex trader. The bid price will always be less than the ask price and the forex trader will buy at the ask price and sell at the bid price. The bid ask price will be quoted as: GBP/USD 1.532/5, meaning the bid price is 1.532 and the ask price is 1.535.
A pip price interest point), as it is commonly called, is the smallest incremental change a currency pair will experience, for instance, a change in the GBP/USD price from 1.532 to 1.542 is a change of 10 pips. A trading margin is a deposit which is a minimum amount or a small percentage of your traded amount that you have to put up. The remaining amount is supplied by your broker. This amount can vary from 1% to 0.25%, also referred to as 100:1 and 400:1. Most often, forex brokers will offer 100:1 or 200:1 to most clients. This is risky but enables the trader to leverage a large amount that he or she would not otherwise have access to.
Finally, a margin call can happen when the forex trader allows the balance in the trading account to go below the margin deposit percentage agreed upon with the forex broker. The broker will automatically sell your long positions or buy your short positions and clear the entire trading account, returning the margin amount to the trader to protect the trader from losing more money than they have.
Forex Trading: Learn How To Read A Forex Quote
by: Gregory DeVictor
Forex is an abbreviated name for "foreign exchange." The Forex market is a non-stop cash market where the currencies of nations are bought and sold, typically via brokers. For example, you buy Euros, paying with U.S. Dollars, or you sell Euros for Japanese Yen.
The value of your Forex investment increases or decreases because of changes in the currency exchange rate or Forex rate. These changes often result from economic and political factors, such as the price of oil or political unrest. To better understand how the exchange rate can affect the value of your Forex investment, this article shows you how to read a Forex quote.
Forex quotes are always expressed in pairs. In the following example, your "pair" of currencies are the U.S. Dollar (USD) and the Euro (EUR). The Forex quote, USD/EUR = 265.50, means that one U.S. dollar is equal to 265.50 Euros. The currency to the left of the / (USD in this case) is referred to as base currency and its value is always 1. The currency to the right of the / (EUR in this case) is referred to as the counter currency. In this example, one USD can buy 265.50 EUR, since it is the stronger of the two currencies.
Because the U.S. dollar is regarded as the central currency of the Forex market, it is always treated as the base currency in any Forex quote where it is one of the pairs. Incidentally, the U.S. Dollar is involved in nearly 90% of all Forex transactions.
In this example, your "pair" of currencies are the Japanese Yen (JPY) and the Euro (EUR). The Forex quote, JPY/EUR= 175.10, means that one Japanese Yen is equal to 175.10 Euros. The currency to the left of the / (JPY in this case) is referred to as base currency and its value is 1. The currency to the right of the / (EUR in this case) is referred to as the counter currency. In this example, one JPY can buy 175.10 EUR, since it is the stronger of the two currencies.
The goal of any Forex trading system is to profit from foreign currency movements. This requires adequate training in basic Forex principles, such as performing a Technical Analysis, using Forex charts and Stop/Loss tools, and keeping up-to-date with economic and political events. In a sense, Forex training never ends.
Forex is an abbreviated name for "foreign exchange." The Forex market is a non-stop cash market where the currencies of nations are bought and sold, typically via brokers. For example, you buy Euros, paying with U.S. Dollars, or you sell Euros for Japanese Yen.
The value of your Forex investment increases or decreases because of changes in the currency exchange rate or Forex rate. These changes often result from economic and political factors, such as the price of oil or political unrest. To better understand how the exchange rate can affect the value of your Forex investment, this article shows you how to read a Forex quote.
Forex quotes are always expressed in pairs. In the following example, your "pair" of currencies are the U.S. Dollar (USD) and the Euro (EUR). The Forex quote, USD/EUR = 265.50, means that one U.S. dollar is equal to 265.50 Euros. The currency to the left of the / (USD in this case) is referred to as base currency and its value is always 1. The currency to the right of the / (EUR in this case) is referred to as the counter currency. In this example, one USD can buy 265.50 EUR, since it is the stronger of the two currencies.
Because the U.S. dollar is regarded as the central currency of the Forex market, it is always treated as the base currency in any Forex quote where it is one of the pairs. Incidentally, the U.S. Dollar is involved in nearly 90% of all Forex transactions.
In this example, your "pair" of currencies are the Japanese Yen (JPY) and the Euro (EUR). The Forex quote, JPY/EUR= 175.10, means that one Japanese Yen is equal to 175.10 Euros. The currency to the left of the / (JPY in this case) is referred to as base currency and its value is 1. The currency to the right of the / (EUR in this case) is referred to as the counter currency. In this example, one JPY can buy 175.10 EUR, since it is the stronger of the two currencies.
The goal of any Forex trading system is to profit from foreign currency movements. This requires adequate training in basic Forex principles, such as performing a Technical Analysis, using Forex charts and Stop/Loss tools, and keeping up-to-date with economic and political events. In a sense, Forex training never ends.
Forex Currency Trading Systems
by: Andrew Daigle
While the market is swamped with websites and books offering advice on the ‘best' and ‘newest' forex currency trading systems, it is important to do a thorough check of the system to ensure that it really works. There are a large number of such forex trading systems that are completely fraudulent or simply do not work, and have been created with the sole intention of making a quick buck. But despite this, there are plenty of forex currency trading systems out there that do work and can be quite reliable if used in a disciplined and consistent manner.
Everyone is looking for a forex trading system that works and gives them high and continuous profitability over a period of time. One must be realistic in searching for a good system, and keep in mind some essential factors when selecting a forex trading system. Firstly, it is critical to fully understand the logic on which the trading system is based. Only a complete understanding will enable you to use the system effectively over a long period of time. Not only grasping the basic logic, but also agreeing with the forex trading system it is important. The forex trading system of your choice must seem logical and intuitive to you or else you will find it impossible to stick with it.
Secondly, you should embrace a good forex currency trading system for the long term, and put in the appropriate amount of research and trial based on this idea. A solid system will tap in to long term patterns and the potential for sustained success of any system in the short term is negligible. Thirdly, be ready for a hit. Be financially prepared for a downturn and based on the assumption that at some point you will face this event, plan for your staying-afloat strategy. Emotionally and money-wise, be ready for the big one when it comes.
When you commit to a forex currency trading system, ensure that you give the system adequate time to start showing profitability. This may be not be months, but possibly years, since every system experiences a time when it produces losses or lowered returns. Give your selected system a fair trial and try to trade consistently and logically. Additionally, some systems will not offer real trading data, but will be simulations that are based on a particular logic and work with historical data. As long as the logic is solid, there is no reason to reject these systems outright.
The simplest forex trading systems tend to work most effectively in a rapidly shifting market place. Just because a system seems complicated, there is no reason to think that it will perform better. Pick something user friendly and intuitive that appeals to you. Identify the major trends that affect a currency and select a forex trading system that works in tandem with it. Finally, a cardinal rule of the trade: Always use on a trading system that is disciplined and rational. Do not be swayed by emotions. This has spelled the downfall of some of the most influential and successful forex traders, including the pros, and must be avoided at all costs. While it may seem unlikely to you now, once you are in the midst of your forex trading experience, you will find it easy to be moved by your emotions.
The biggest advantage of a forex trading system is that it works completely without emotions and if it can be followed mechanically, it will be the key towards a long term profitable career in forex trading.
While the market is swamped with websites and books offering advice on the ‘best' and ‘newest' forex currency trading systems, it is important to do a thorough check of the system to ensure that it really works. There are a large number of such forex trading systems that are completely fraudulent or simply do not work, and have been created with the sole intention of making a quick buck. But despite this, there are plenty of forex currency trading systems out there that do work and can be quite reliable if used in a disciplined and consistent manner.
Everyone is looking for a forex trading system that works and gives them high and continuous profitability over a period of time. One must be realistic in searching for a good system, and keep in mind some essential factors when selecting a forex trading system. Firstly, it is critical to fully understand the logic on which the trading system is based. Only a complete understanding will enable you to use the system effectively over a long period of time. Not only grasping the basic logic, but also agreeing with the forex trading system it is important. The forex trading system of your choice must seem logical and intuitive to you or else you will find it impossible to stick with it.
Secondly, you should embrace a good forex currency trading system for the long term, and put in the appropriate amount of research and trial based on this idea. A solid system will tap in to long term patterns and the potential for sustained success of any system in the short term is negligible. Thirdly, be ready for a hit. Be financially prepared for a downturn and based on the assumption that at some point you will face this event, plan for your staying-afloat strategy. Emotionally and money-wise, be ready for the big one when it comes.
When you commit to a forex currency trading system, ensure that you give the system adequate time to start showing profitability. This may be not be months, but possibly years, since every system experiences a time when it produces losses or lowered returns. Give your selected system a fair trial and try to trade consistently and logically. Additionally, some systems will not offer real trading data, but will be simulations that are based on a particular logic and work with historical data. As long as the logic is solid, there is no reason to reject these systems outright.
The simplest forex trading systems tend to work most effectively in a rapidly shifting market place. Just because a system seems complicated, there is no reason to think that it will perform better. Pick something user friendly and intuitive that appeals to you. Identify the major trends that affect a currency and select a forex trading system that works in tandem with it. Finally, a cardinal rule of the trade: Always use on a trading system that is disciplined and rational. Do not be swayed by emotions. This has spelled the downfall of some of the most influential and successful forex traders, including the pros, and must be avoided at all costs. While it may seem unlikely to you now, once you are in the midst of your forex trading experience, you will find it easy to be moved by your emotions.
The biggest advantage of a forex trading system is that it works completely without emotions and if it can be followed mechanically, it will be the key towards a long term profitable career in forex trading.
Why Trade the FOREX?
by: Susan Walker
My purpose for writing this article is to demonstrate to you the advantages of trading on the FOREX market. However, there is one myth that I want to dispel before I go further. The myth is that there is a difference between trading and investing. To dispel that myth I quote from Al Thomas, President of Williamsburg Investment Company, who wrote “If It Doesn’t Go Up, Don’t Buy It”. He said “Everyone who invests is a trader, only the time period is different.” It is a lesson that I took seriously after taking a beating in the stock market in 2000.
So now, let’s compare features of currency trading to those of stock and commodity trading.
Liquidity - The FOREX market is the most liquid financial market in the world around 1.9 trillion dollars traded everyday. The commodities market trades around 440 billion dollars a day, and the US stock market trades around 200 billion dollars a day. This ensures better trade execution and prevents market manipulation. It also ensures easily executable trading.
Trading Times – The FOREX market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST), allowing active traders to choose the times they want to trade. Commodities trading hours are all over the board depending on which commodity you are trading. Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.
Leverage – Depending on your FOREX account size, your leverage may be 100:1, although there are FOREX brokers that offer leverage of up to 400:1 (not that I would ever recommend that kind of leverage). Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high. Because the commodity markets are not as liquid as the FOREX market, its leverage is inherently riskier. Although I was never shut out of a commodity trade by the day limit, the fear was always in the back of my mind.
Trading costs – Transaction costs in the FOREX market is the difference between the buy and sell price of each currency pair. There are no brokerage fees. For both the stock and the commodity markets, there are transaction costs and brokerage fees. Even when you use discount brokers, those fees add up.
Minimum investment – You can open a FOREX trading account for as little as $300.00. It took $5,000 for me to open my futures trading account.
Focus – 85% of all trading transactions are made on 7 major currencies. In the US stock market alone there are 40,000 stocks. There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers. As you can see, the fewer number of instruments allows us to study each one more closely.
Trade execution – In the FOREX market, trade execution is almost instantaneous. In both the equity and commodity markets, you count on a broker to execute your trades and their results are sometimes inconsistent.
While all of these features make trading the FOREX market very attractive, it still requires a lot of education, discipline, commitment and patience. All trading can be risky.
My purpose for writing this article is to demonstrate to you the advantages of trading on the FOREX market. However, there is one myth that I want to dispel before I go further. The myth is that there is a difference between trading and investing. To dispel that myth I quote from Al Thomas, President of Williamsburg Investment Company, who wrote “If It Doesn’t Go Up, Don’t Buy It”. He said “Everyone who invests is a trader, only the time period is different.” It is a lesson that I took seriously after taking a beating in the stock market in 2000.
So now, let’s compare features of currency trading to those of stock and commodity trading.
Liquidity - The FOREX market is the most liquid financial market in the world around 1.9 trillion dollars traded everyday. The commodities market trades around 440 billion dollars a day, and the US stock market trades around 200 billion dollars a day. This ensures better trade execution and prevents market manipulation. It also ensures easily executable trading.
Trading Times – The FOREX market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST), allowing active traders to choose the times they want to trade. Commodities trading hours are all over the board depending on which commodity you are trading. Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.
Leverage – Depending on your FOREX account size, your leverage may be 100:1, although there are FOREX brokers that offer leverage of up to 400:1 (not that I would ever recommend that kind of leverage). Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high. Because the commodity markets are not as liquid as the FOREX market, its leverage is inherently riskier. Although I was never shut out of a commodity trade by the day limit, the fear was always in the back of my mind.
Trading costs – Transaction costs in the FOREX market is the difference between the buy and sell price of each currency pair. There are no brokerage fees. For both the stock and the commodity markets, there are transaction costs and brokerage fees. Even when you use discount brokers, those fees add up.
Minimum investment – You can open a FOREX trading account for as little as $300.00. It took $5,000 for me to open my futures trading account.
Focus – 85% of all trading transactions are made on 7 major currencies. In the US stock market alone there are 40,000 stocks. There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers. As you can see, the fewer number of instruments allows us to study each one more closely.
Trade execution – In the FOREX market, trade execution is almost instantaneous. In both the equity and commodity markets, you count on a broker to execute your trades and their results are sometimes inconsistent.
While all of these features make trading the FOREX market very attractive, it still requires a lot of education, discipline, commitment and patience. All trading can be risky.
Forex Currency Trading, A Great Work At Home Opportunity.
by: Adrian Pablo
Everyday more and more people looking for a work at home opportunity and the possibility of braking free from the corporate world without losing their current lifestyle and even improving it, realize that the world of forex currency trading could be the answer to what they have been looking for.
Some of the great reasons why FOREX trading is such a great way of entering the capital markets are; it's easy accessibility thanks to the widespread use of the internet, the fact that currency trading is all commission-free and also the low transaction costs involved. All the best forex brokers will facilitate you a trading account with these characteristics and even Mini Forex traders (i.e., traders starting with accounts having a capital as low as $250), who are just starting in this field, can buy and sell currencies online always commission-free.
When trading the forex markets you don't have to worry everyday about fees you may have to pay your broker; there are also none of the usual fees to which futures and equity traders are used to pay every day the enter a trade; no exchange or clearing fees, no NFA or SEC fees.
You may be asking how forex brokers make money if they don't charge you fees for placing trades. They make money thanks to one characteristic of currency markets, this is, they are over-the-counter markets and trading them involves a bid/ask spread and that's how the brokers make money. Thankfully the currency markets are capable of offering you a round-the-clock liquidity and this way you will receive tight, competitive spreads both in intra-day and night trades, without worrying about having big spreads in prices.
Once you have decided to enter and learn how to trade forex, always remember that practice and more practice makes the master and one of the best ways to get a feel for the market is to paper trade. No one wants to experiment with their own hard earned money; this is why many brokers came up with an innovative idea that would take all the risk from trying out forex trading. This way of trading is called simulation trading or paper trading as mentioned above, and the premise is simple. The program is an exact copy of the broker or trading systems real-time trading program. The main difference is that they allow you to “play” the market just as you would if you were actually investing, but obviously without the persistent worry of losing your money. You can do a simulation trade with a set amount of money, usually around $50,000 dollars. You can practice setting bid and ask prices, and using their various analysis tools provided by the broker software, which is the same you would have in a real account.
From all these facts you can see there are many advantages, and lots of money to be made, if you decide to enter the world of forex currency trading and learn the basics of the markets behavior.
Everyday more and more people looking for a work at home opportunity and the possibility of braking free from the corporate world without losing their current lifestyle and even improving it, realize that the world of forex currency trading could be the answer to what they have been looking for.
Some of the great reasons why FOREX trading is such a great way of entering the capital markets are; it's easy accessibility thanks to the widespread use of the internet, the fact that currency trading is all commission-free and also the low transaction costs involved. All the best forex brokers will facilitate you a trading account with these characteristics and even Mini Forex traders (i.e., traders starting with accounts having a capital as low as $250), who are just starting in this field, can buy and sell currencies online always commission-free.
When trading the forex markets you don't have to worry everyday about fees you may have to pay your broker; there are also none of the usual fees to which futures and equity traders are used to pay every day the enter a trade; no exchange or clearing fees, no NFA or SEC fees.
You may be asking how forex brokers make money if they don't charge you fees for placing trades. They make money thanks to one characteristic of currency markets, this is, they are over-the-counter markets and trading them involves a bid/ask spread and that's how the brokers make money. Thankfully the currency markets are capable of offering you a round-the-clock liquidity and this way you will receive tight, competitive spreads both in intra-day and night trades, without worrying about having big spreads in prices.
Once you have decided to enter and learn how to trade forex, always remember that practice and more practice makes the master and one of the best ways to get a feel for the market is to paper trade. No one wants to experiment with their own hard earned money; this is why many brokers came up with an innovative idea that would take all the risk from trying out forex trading. This way of trading is called simulation trading or paper trading as mentioned above, and the premise is simple. The program is an exact copy of the broker or trading systems real-time trading program. The main difference is that they allow you to “play” the market just as you would if you were actually investing, but obviously without the persistent worry of losing your money. You can do a simulation trade with a set amount of money, usually around $50,000 dollars. You can practice setting bid and ask prices, and using their various analysis tools provided by the broker software, which is the same you would have in a real account.
From all these facts you can see there are many advantages, and lots of money to be made, if you decide to enter the world of forex currency trading and learn the basics of the markets behavior.
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