Monthly Archives: September 2011

Daily Recap – Euro erases gains

The Dow broke a 3-day winning streak today as investors and traders sold stock in an effort to decrease risk. The flight to safety caused the price of US treasuries and in turn the USD to rise. This pushed the EURUSD to erase all of its intra day gains and a good portion of yesterdays gains as well.

USDJPY put on a little end of day rally as the close of the US equity markets inched closer and appeared to be headed for 77 until it sold off on profit taking and fell back down to 76.50. However it definitely has some bullish momentum right now and should be interesting to watch over the next couple of sessions.

USDCHF which has been struggling to break 90 all day has just finally climbed above the resistance and is now trading at .9004.

Following the sell off in commodities the AUDUSD which has taken a huge hit due to the gold sell off continued to struggle today as it fell 100 pips in the last 24 hours giving back all of Tuesdays gains.

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Stop Loss Choices

When trading the financial markets, all traders must bear in mind what is called risk management. Financial market traders can get their accounts wiped out and lose their equity fast if they don’t adhere to the rules. Risk management rules include stop loss and take profit prices, as well as other capital preservation methods. Today we will focus on one of the most important, which is the stop loss.

Stop loss orders vary and can be based on different factors, not necessarily just the price. Stop loss orders are placed to protect accounts and open positions in case the market reverses against the trader and the positions incur a huge loss. So how to determine the best stop loss level for any specific trade? To place a stop loss traders must bear in mind several factors and then make a decision as to which stop loss is the most appropriate for this specific trade. These factors include technical levels, volatility, support and resistance levels, time frame, as well as the characteristics of the currency pair traded itself. Some different types of stop losses are:

1- Equity Stop
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One of the ways to determine a stop loss price is the equity stop where a trader would decide to risk a certain amount of money or a percentage of his/her account on a specific trade. If the trade loses and the account falls below the specified level then the trade is closed and the loss is realized.

2 – Technical Stop
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This is one of the most commonly used stop loss levels. Traders analyze the market technically and give a thorough look to support and resistance levels previously created in the market, whether caused by consolidation or a Fibonacci level, then place their stop loss orders around this level, bearing in mind the volatility of the traded pair.

3 – Volatility stop
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Traders keep an eye also on the Volatility Index (VIX) to determine if the market conditions require an exit strategy to protect the account, such as on days when there is fear in the market, and thus violent price action.

4 – Event Stop loss
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If a trader has a plan that is based on a certain scenario an unexpected event could take place which could have an influence on the trade. In this scenario, traders would decide the stop loss based on the specific event circumstance.

Stop losses are a method to protect traders’ accounts and almost always, it’s better to be stopped out from a trade rather than losing the entire account equity and fighting the market. As goes the famous trading golden rule, it’s better to stay alive and live to fight another day.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Dollar Strength Doesn’t Hold

Moving into this trading week the USD looked stronger than most of its counter parts, but that façade of strength didn’t last too long going through the European and US sessions. On the European front, monetary policy officials began their discussions on what other steps can be taken to help the debt crisis and to finalize the European Financial Stability Funds (EFSF) later this week. Equity markets in Europe and the US rallied on this news and shrugged off the New Home Sales number that came in at a 9 month low, 295k in August vs. the 302k we saw in July.

The EUR/USD ranged from 1.3361 to 1.3549 for the day. Gold was a commodity traders were watching as its downward sell-off continued to slide for another day, settling at $1,622.20 down -1.07% for Monday’s trade. The Dow Jones Industrial Average and S&P 500 closed higher to +272.38 (+2.53%) and +26.52 (+2.33%) respectively.

This week’s outlook: On the European front, anymore news about the EFSF and Germany’s decision to participate in such plan. On the US front, Tuesday we have Consumer Confidence data at 10:00am (EST) where hopefully it isn’t a steep drop like it was in August of 14.7 points to 44.5, the lowest level since April 2009. Then on Wednesday, Durable Goods Orders at 8:30am (EST) which is a good indication of the pulse of the economy in any healthy economic growth in the manufacturing sector. On Thursday we have a busy day, as GDP data and Jobless Claims come out at 8:30am (EST). Later that day is Pending Homes Sales index number at 10:00am (EST) to see any activity in the housing front. Lastly, Personal Income and Outlays at 8:30am (EST) where last month we saw a healthy rise but there may be some adjustments due to a sluggish motor vehicle sales carry over.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Operation Twist

At today’s FOMC meeting, Operation Twist was introduced and implemented. Operation Twist is a US Government strategy with the intention of lowering long term interest rates by selling short term bonds and using the funds to purchase the same amount of long term bonds. It is a way for the Fed to increase its stimulus policy without any additional spending – technically.  The announcement of “Twist” sent the USD soaring against almost all currencies, most notably the AUD/USD and EUR/USD. Both moved approximately 200 pips.

 

The JPY fell versus the USD but held its own and even rose against some of its European rivals. The Sterling hit its lowest level since January as the Greenback continued to gain on the Pound, boosted by the FOMC unveiling of Operation Twist.

 

Gold fell today and the US equity markets tanked towards the end of the day as traders and investors cashed out of stocks.

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Market Forces: Supply and Demand

The currency market is the most liquid market in the world, with around 4.5 trillion dollars traded every day, which is more than the whole world’s GDP for one month. If we look at this market from a distance we see how difficult it can be to try and work out what market forces drive price movements and what causes a specific currency pair to move from one price level to another, only to see a few hours later the price go back to where it was as if nothing has happened.

We can say that the main factor influencing the price of a specific currency pair is the supply and demand. Every second of the day there is an entity or an individual changing currency somewhere in the world and different currency pairs continually change hands based on the supply and demand for the currency. The currency market players are central banks, financial institutions, banks, corporate hedgers and business involved in international trade. An example of a business changing currency on a regular basis would be companies involved in international trading whether, its export or import. Think Toyota paying attention to the relative value of the dollar versus the yen when they sell huge amounts of cars in America. This type of company would change currencies regularly, and in some cases might not wait for a good price if they have to convert the currency at a certain time for business purposes which cannot wait till the exchange rate is more favorable to them. Another example would be travel agencies paying one another invoices across the globe. On an even smaller scale, this about travelers and tourists who are always changing currencies for daily expenses. Also, we should never forget ourselves, the currency speculators – who buy or sell based on our expectations of future price.

All market participants play a collective role everyday in price determination for different currency pairs. The main factor that is derived from all these daily transactions is supply and demand. Sometimes bad economic news or economic data released from a certain country can arise and a temporary move in the market price could take place caused by speculators. If the bad news leads to expectations of price decrease, the market will be flooded with excess supply from speculators selling, and increased supply leads to decreased price. Once the news effect is over market forces of supply and demand would rule the currency market again and the price movements will be influenced by that.

For an example of a news release that affects the market and then fades away, we can look at the EUR/USD chart of yesterday, September 19th, 2011. Around 6PM EST news was released that Standard and Poor’s had downgraded Italy by a notch and kept its outlook as negative. Immediately the EUR/USD pair slipped around 70 points. Several hours later, during the following trading session, the pair made up for the losses incurred on the previous day and market forces prevailed. Supply and demand at its simplest.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Short Term Euro Strength

Today’s trading session started with the euro noticeably stronger, the aftermath of a phone call between the Chancellor and PMs of Germany, France, and Greece.  The public outcome of this call was a joint statement from Merkel and Sarkozy, that Greece’s standing within the EU is solid, that there is no risk of them being removed or leaving the Union, and that they are confident Greece will see through on its austerity pledges.  The market liked this statement, and the shared currency rallied.

 

It is worth noting however that nothing material has changed regarding the ominous European crisis, and there is no reason for any sunnier of a disposition towards the currency.  If we look specifically at the EUR/USD pair, we see an almost 150 pip swing to the upside today, as the amount of dollars needed to buy 1 euro increased markedly.  In addition to the sentiment following yesterday’s EU conference call, the euro strengthened relative to the dollar partly as a result of negative news from the U.S. as well.  Unemployment claims unexpectedly jumped to 428K, significantly higher than the 417K we saw last month, and higher still than the 410K which economists forecast to see today.

 

Later in the day, the Philly Fed Manufacturing Index also came in noticeably weaker than expected, reading -17.5, well below the forecast of -14.7.  The barrage of bad news hurt the dollar across the board.

 

The last thing we will note today was the nice technical setup on the EUR/JPY.  As “good” news for the euro pushed the number of yen needed to buy one euro higher, the 105.60 level that represented the top band of an ascending triangle was broken.  The pattern, which has been in formation since the start of this week was broken.  The EUR/JPY quickly shot through the top of the triangle and reached a high of 106.97.  A potentially significant retracement on the long term move that took the EUR/JPY from a high of 123.26 in mid April to a low of 103.88 just a couple of days ago should be paid close attention to, with the first significant long term retracement level at 108.45, still a considerable distance away.

 

The VT Trader charts below shows a 1 hour chart where the broken triangle is clear to see, and a longer term daily chart, where the potential bottom and corresponding retracement is also clear.

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Euro Bond Talk Lifts the Currency

Talk about the EU launching Euro Bonds to raise capital in the wake of Europe’s sovereign debt crisis helped lift European stocks today and the uptrend continued in the currency markets as the EUR/USD hit session highs after the France/Germany conference call.

 

The USD sold off across the board today as European nations vowed to stand by Greece throughout the debt crisis. Of course, if Greece reneges on its promises then all deals are off.

 

The USD/CHF and the USD/JPY both were under selling pressure, however one bright spot for the greenback was the AUD/USD. The dollar continued its recent run versus the commodity currency as the Aussie hit fresh recent lows.

 

The Reserve Bank Of New Zealand (RBNZ) announced today that they are keeping rates unchanged at 2.5 percent. While many traders on the street expected and anticipated this move the Kiwi still experienced a mild sell off to the downside.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Fibonacci Retracement levels

The EUR/USD is the most widely traded pair among all available currency pairs. It represents 50% of all currency trading volume worldwide. Traders focus on the EUR/USD even if they are trading other pairs because it influences the entire market. This pair is also known to follow technical set ups and traders can anticipate the market direction using technical analysis with a higher chance of getting it correct, as opposed to using technical analysis for trading illiquid currency pairs or pairs which are controlled by central banks for the protection of their own currency such as the Yen and the Swiss Franc, and we all saw what happened with the CHF last week when the Swiss National Bank intervened.

We discussed in a previous post how two tops formed on the EUR/USD daily chart and also looked at a descending triangle chart pattern which formed on the same chart about a week later. Both patterns showed bearish direction which took place and materialized on Friday September 9th, 2011.

Now traders are looking at the market and trying to anticipate the market direction for the EUR/USD and based on their anticipation, positions will be established. There will be traders who think that the EUR/USD has made a big move to the downside and expect it to rebound back up, and there will be other traders who will look more closely and consider the debt issue in Europe and think that it is far from over and therefore they will anticipate an even further decline for the pair.

I want to draw your attention to a widely used tool in trading forex, Fibonacci retracement levels. Usually when the market makes a big move in any direction, there is a retracement for this move. This retracement could be interpreted into different outcomes but the most popular explanation is that these levels represent profit taking levels as well as traders on the other side of the trade for whatever reason. As for the technical analysis for Fibonacci’s, simply there are different price levels which the market is expected to retrace to these levels influenced by different conditions. Traders will use the different levels to enter or exit the market based on their expectation. The most difficult part in calculating Fibonacci retracement levels is setting up the levels. Once that is done correctly, you have a much better chance of finding a profitable trade.

On the attached chart we see that the EUR/USD pair has dropped from 1.4550, which is the high of the swing high down to 1.3501. The market the retraced back up to the first Fibonacci price level of 1.3738.

To read more about Fibonacci levels, please follow the link below:

http://www.cmsfx.com/en/forex-education/technical-analysis-articles/volatility-indicators/fibonacci-levels/

To read the article for the tops and descending triangles on the EUR/USD, please follow the link below:

http://www.cmsfx.com/blog/author/mhanna/

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – A Down Day Quickly Reverses on China News

Going into to this trading week, markets where shaky about EU debt and the possibility of a Greek default looking more like something that is coming sooner than later. Throughout the Asian and European sessions equity prices were sent lower as more fears added to a possible downgrade from Greek debt by Moody’s. The USD saw some strength but the market remained sideways. This was adding more fuel to the fire as traders prepared for a bearish day for the US session but in late equity trading, sentiment became bullish on news from China.

The Financial Times reported that China is in talks of purchasing bonds from Italy.

The EUR/USD pair Ranged from 1.3693 to 1.3500. The Dow Jones Industrial average and S&P 500 closed higher as markets rallied back from down over 1% to close at +63.99 and +8.07 respectively. Gold prices lost some of its luster closing lower $39.10 (-2.1%) to settle at $1,820.40 a troy ounce.

Crude oil contracts ended higher up at $1.49 a barrel to settle at $88.73.

This week look out for: On the European front, any more news regarding any steps French and German banks take in relation to Greek debt.

On the US front, on Wednesday Producer Price Index and Retail sales at 8:30am (EST). What we may anticipate is not too much growth in PPI for August though Retail Sales can be higher from effects of Hurricane Irene on the East Coast where many consumers bought supplies. For a busy Thursday, Consumer Price Index data and Jobless Claim numbers at 8:30am(EST) followed by industrial production at 9:15(EST) and Philadelphia Fed Survey data at 10am(EST). CPI was strong in July and expectations are that there will be some growth in August. Jobless Claim data can be at a standstill where we had consecutive weeks of claims falling, but now looks like it’s over the 400k level. Industrial Production has been on the rise for the past couple of months but might be weaker in August. Finally, Philadelphia Fed Survey data might be weaker as July numbers where grim and might be in the same trend for August.

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Calm After the Storm…

A day after some of the most violent spikes, drops and movements many have ever seen in FX trading, today’s price action was minimal.

Yesterday’s historical statements and actions taken by the Swiss National Bank caused the Greenback to move approximately 800 pips versus the Swissy and the Sterling and Single currency both gained 1000+ pips on the Franc, respectively.

 

Traders that rushed to their terminals today in anticipation of another wild day for the CHF found that lightning rarely strikes the same place twice and were bored by the sideways action. A 1 hour chart almost resembles a EKG machine for a patient whose time has passed. Flat line.

 

Yesterday’s dollar strength was replaced today as President Obama’s expected Thursday announcement of a 300-400 billion dollar economic boost package lifted stocks, snapping a 3 day losing streak.  The rush towards risk was a catalyst for the USD to give up some ground to its main rivals the EUR and the GBP. Commodity currencies also faired well vs the Dollar as the Kiwi, Loonie and Aussie traded higher, the latter due to solid GDP numbers coming from down under.

 

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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