Monday, May 31, 2010

European Market Dominance

The overwhelming and dominant factor of the Euro Zone has moved the financial markets for quite sometime now. The economic correlation between the major trading partners and the contagion effect will not easily be set aside even with the economic reports generated in the United States. However, with the Memorial Day holiday will somehow shorten the immediate reaction of the prices with the ISM figures and the Non-Farm payrolls due the end of this week's trading.
Although, the irony of the matter is the end of the months prices for the currencies may well be a correction from their low levels and the opening prices will also be well bid since the beginning of the month's trading is within the week's opening levels. confusing some traders and the continued reluctance of investors to hold and build positions on extensions of prices for the Euro against the USD in particular.
In certain trading cases such as this, what would be the most advisable criteria to focus on should be the USD Index that may provide some direction for the major currency. Although, the Chinese Reminbi or Yuan should be considered to be included in the basket as a dominant trading partner for the US which also carry a high degree of US Treasuries that finances the majority of the trade deficit with the US. this issue has not been brought up but should really be included in the market analysis of trading the foreign exchange market as a whole.
From our most recent YouTube forex video presentation of the USDX remaining strong, we have indicated the possibility that whenever the NFP provide a positive figure for the week's report this may well be the added fuel to accelerate the USDX to its initial target of 88.80. Others may disagree as to where this figure came about. Although, the historical parameters then will show that a certain equilibrium price relative to the rest of the currency figures shows that the US dollar index at this price levels would have indicated the extension of prices for the Euro and the Pound to be in line with their historical figures given a relative 90% accuracy which we have used since we have found and used these figures ever since we have been trading the market. As to when such figures for the USDX to reach this number of 88.80 may also depend on the volumes and open interest which subsequently the June contract month may also be within striking distance of the price before the end of the contract month for June 2010.
In essence, we will focus on this very indicator for now and using our relative one page indicator to show the price relationship and market behavior of the prices as each pair moves with and against the USDX until the end of this month for June.





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Wednesday, May 26, 2010

Weighing Fundamental Vs. Technical

Every trader and analyst gets a kick in anticipating where a pivotal point, trend or price reversal may take place. To a certain point that it is anticipated too early or too late. There are many technical tools that could be use as references to predict such reversal. Although, the most common is from a candlestick formation or a reversal bar, convergence/divergence of a moving average, a breakout from a channel and or a resistance/support prices.
With all these tools; it really depends on the traders choice which is most reliable and dependable where they are most comfortable with. To balance technical analysis and fundamentals may be approached in several ways. However, the current market conditions that the market is experiencing now from several months have weighed more in line with fundamentals rather than the technical. Only the formation after the fact would justify supporting any reports either derived from the economic reports or any politically motivated policies affecting the exchange rate.
The psychological fear factor of long running trend reaching an assumed bottom making the EURUSD just as an example or even the GBPUSD has been a battle for traders and analysts whether to call " nearing a bottom price " or vise verse. Each major pair has their own characteristics and intricacies of behavioral price formations based on historical configurations. Making it a " No one size fits all " as the correlations of exchange rates needs to be considered in the equation. for the time being, trend following strategies are best suited in any trading activity until such time a real occurrence of a reversal could be identified. One of the best guide to follow is the simple rule of reversal pattern which is ; ..." until a new high or bottom has been established it can not be called a reversal is in the making. "
The irony of the matter, is that every one's eagerness to be the first one to call it as " bragging rights " is what makes the difference between a trader and a strategist who has been in the market place for quite sometime. A word of advise : " Do not be an eager beaver in the market place. "
Pls. choose wisely!

Tuesday, May 25, 2010

Volatility Remains 3

With the upcoming news report on the Durable Goods (MoM) expectations of 1.4, Gross Domestic Product 3.30 from the previous 3.20, with Jobless claims lower outlook at 455k from the previous 471k and the final Michigan Consumer Sentiments this friday of 73.70 may well trigger another volatile sessions for the week ending the 28th of May.
As the rhythm of the USDX is still solid to move higher currently working at the 87.57 basis point high for the June futures contract; while the spot working at the 86.53 would now attempt to retry its original target objective of 88.80 as we have mentioned from our last market view analysis. any combined good report better than expected figures from these week's reports would be the catalyst for the USD to move higher and considering the sustaining volumes and positive sentiments that has been fuelling the trend on a reinforced basis. As the consumer confidence has again supported the continued rise on the USD.
This has prompted the EURUSD and the GBPUSD to move lower and is back down to the 1.2247 as of this writing and the GBPUSD at the 1.4330 slight recovery from their low price levels. No changes has been influential in spite of the technical conditions making the recovery very insignificant. These short-live corrections on both majors are simply price adjustments from the oversold areas.
The technical key market price for the USDX is our main focus as this has always been our core value in analyzing where a pivotal point may occur even on a temporary basis. Although, the actual core market sentiments is still extremely bearish. No fresh incentives are in the market except the possibility of the USD to correct slightly on a daily basis as what has happened during the closing of the last week on the 21th of May trading sessions. This week's reports would be some fresh news other than the spillover sentiments on the Euro Zone market as most investors and traders are fixed on the downward price levels of the Euro and the Pound.
The obvious ripple effect of the Aussie and the New Zealand Dollar as well as the USDJPY being one of the favored pairs to be cross traded as the directional trend for these currency pairs are also defined. The most concerned criteria to watch is the total trading range from their hi/lo prices that would snap back in both directions before the end of this month of May. For now the inital support for the Aussie is at 0.8010 where a probable corrective move would be expected as this could occur due to relative divergence on a daily basis at the 0.8065 mid-price.
Having said that the tendency now is to carefully be prepared for these action in the market as the rapid price swings may be a violent up and down swings.
The USDJPY may find some reaction on the 88.20 price levels which is within its striking distance together with the USDCHF next target at the 1.1880 extension on the extreme high whenever the USDX may reach it 88.80 objective. As most major players and participants from these institutions are capable of playing these extreme price range.
Only the best for your trades and just be cautious as the rapid price swings will always be present.

Monday, May 17, 2010

Market Psychology & Analysis

Behind the Market Sentiments
The focus of most traders are not in the economic reports concerning the US economy but rather the market reactions to the continued downward movement of the Euro and the Pound vs the USD. The overwhelming negative sentiments have spillover on the very start of the Asian session and through out the American trading hours. As Bloomberg has asked a few renowned market analyst and traders from the top firms as to where they would call the market at this point. One has called a parity by the 1st quarter of 2011 or sooner. And the contrary sentiments from BNP Paribas stating otherwise and now should be the time to consider buying the Euro vs. the USD. Where would you stand?
It is quite obvious that the major players and banks have already started to ramp up their position trades in the forex market in relation to the amount of exposure each bank would have already been in the market even before the 1Trillion Dollar package. These would not be identified in the commercial and financial news since interbank trading may well be able to monitor the individual trades in packages made by these banks which also include the central banks through certain back door trading with other major institutions. With the recent continued increase on the London Interbank Offered Rates (Libor) in Europe; it basically means that swap transactions and forward rates are heavily traded in line with the continued decline of the two major currencies dominating the market in Europe. These has added more liquidity and magnifying volumes that may and may not be a signal that a close price reversal and pivotal price point can be accelerated if the market gets spooked somewhere along the time before the end of this month. But what may trigger this?
On the technical stand point, whenever markets dramatically moves ahead of the weeks trading activities; most analyst and traders find it difficult as to what would be the best criteria to use to measure and provide an educated analysis. And not simply based on hindsight of the debt crisis and the package bailout scenario. However, no amount of technical outlook at this current time may influence a much reinforced market trend fueled by traders and investors betting against the Euro and the Pound. The Upward trend has been well established since the USDX showed its reversal signal last December 22, 2009 and continued to the 1st quarter and the first two months of the 2nd quarter as an extension of its high and is now targeting the major resistance price of 88.80 basis points. The leading June contract month for the USDX is within striking distance as it has touched it 86.74 initial objective as a primary attempt.
As for the USDCHF's 1st objective of 1.1380 has also been attained with an extension of 1.1445 and the GBPUSD to the low levels of 1.4250 respectively. Taking a gutsy move to take a long position on these extensions are only viable for larger account holders with no existing positions but also has a minimal risk factor. Although, market timing an entry may well prove to be more manageable specially when a possible price reversal may be anticipated whenever such movements like these times are in the making from the Asian session. A reasonable recovery for the two major pairs are more likely to happen as position adjustments are made by the central banks as the time grows nearer for the package to be implemented.
This goes the same with the Aussie and the Kiwi as both pairs again moved back down to the 0.8723 and 0.6986 respectively and would still move lower. the irony of the matter is that The Aussie loosing steam was cold a week earlier of this movement.
Gold prices and the USDX are still in sync to move higher as a decoupling factor vs. the Euro weakness is much more than that of the US dollar weakness. Both commodity currencies are now a flight to quality investments and a safe haven process for most sophisticated investors.

Monday, May 10, 2010

Risk and Volatility Increases in the FX Market

Fundamental:
The concerted efforts by the central banks of providing close to a Trillion dollars have given the market a boost not only for the stock market pushing higher even before the opening bell of the US sessions. This news not only gave a relief for a plunging Dow Jones since Black Thursday but also has provided a cooler atmosphere for investors on the Euro, except the traders are now as confused as ever and may result to some reluctance as they watch for all these promises turn into real actions.
The difficulty of changing sentiments is that every single trader and investor would want to see how the market would really react. Although, it is quite expected that this will be more positive for the markets reaction and would spillover to the main currency in focus which happens to be the Euro and prompted to receive some recovery from the lows. The European Central banks including the Federal Reserve and even the Bank of Japan would like be part of this global effort were everyone would be in the position to support the single EU currency at this time. As the Euro is basically being used in 16 countries of the EU community.
However, when it comes to volatility in the market place it will definitely remain in place for some time until a clearer view would be seen in actual and timely release of the rescue funds. the more important thing is that with the involvement of these banks " expect the very active bank and institutional players would be in the market making major trades between the majors and specially the cross rates. The trade plays would be for some cross trading between interbank and institutions among each other were, swaps and rate differential would be in focus other than the Government Bonds.
Meanwhile, just be extra careful with the foreign currency flow of US dollars to the European community by the Federal Bank, the bank of Japan and the European Central Bank ( ECB). As we indeed have expected some more volatility that may take place even before the end of this month would take place.
Technical:
The recent report have also given justification for the weekly buying technical divergence for the Euro and the British Pound, but can be more identified with the GBPUSD even before the end of last week's trading. The current price adjustments would still hold however, the reaction from the closing and the present price have already made some positive reactions due to the fundamental news of the huge bailout amount of 1Trillion Dollars for Europe. Remember, there still lies the debt problems of Spain, Portugal and Italy that may also ripple to the rest of the EU countries. With the GBPUSD touching a high, as of this writing at 1.5040 and the EURUSD 1.3094 initially during the American session.
Although, the EURUSD may have limited up movements as the EURGBP may drag the Euro still slightly lower even before the end of the sessions in all three markets in the next few trading days. Working at the 0.8620 -50 range; its weakness will drag the Euro if and when the volumes of interbank traders may start building up position trades with some swaps for the expected central bank contributions to the package of 1Trillion. How much exactly will be exposed to this package by each central bank needs to be dissected and how much of this exposure would be hedged in the future. looking forward is what we need to analyze and draw an educated conclusion as to how this would affect the current market other than the relief recovery that we would be expecting for the week.
With the corrective mode on the USDX at the 83.57 low initially after touching our projected resistance price of 85.05-10, although it made some extended highs at 85.27. Not too bad at all ! However, this also made a corrective move for the Gold prices but rallied to $1213.80 high which we also projected within the $1220.00/oz. the major trend is still intact but because of the extreme volatility of the market, we would be cautioning traders and retail investors to be extra careful as the price swings will be wider than normal markets.
Also the NZDUSD maybe in a better position to have some realistic profit potential compared with the Aussie Dollar as it moved from 0.7080 to it current price of 0.7254. there is a strong possibility that this could be treated as an isolated case away from what is happening with the Euro.

More to follow as this is just the beginning of the week.

Saturday, May 8, 2010

Majors on a Wild Ripple Effect

Short re-cap:
As the troubles of Greece debt problems have spearheaded a wider negative sentiments in spite of the 110B bailout plan, the spillover of these came true with the down grading and possible ripple effect that the market saw with Spain, Portugal, Italy and the rest of the EU communities have obviously pinned the market spiraling on the downward direction.
Not to mention the British Hung parliament from the election process have also contributed to the GBP loosing its value down nearly back to its previous low. The contagion effect have reached the US Stocks breaking nearly 1000 points in a short period of time. Computer glitches and a trader's mistakenly placing or typing an error as reported added to the dismay of the market where almost all were amazed of what was happening. Again, the overall view of the economy recovering with a general set of good figures from the reports but a slight correction on the USD after the NFP came out with slight dent that led a corrective move lower on the closing for the week of May 07, 2010
A lot of investors, from retail forex to institutional have been caught flat-footed as the market direction suddenly changed towards the mid-sessions and broke lower where the EUDUSD plunged to its over-extended price levels of 1.2503 as pure negative chaos of what was happening rippled from the stocks to the foreign currencies all at the same time. With all modesty, we did expect market volatility from our May 03 blog and market view analysis not to discount the possibility of the EURUSD to touch 1.2580 and even went for its extensions on the same trading session. Prompting the same case scenario with the USDJPY to 87.95 slightly below last months low of 88.10 from a channel line break at 93.70. Meanwhile the USDCHF held its ground at the 1.1083 corrective price from a high at 1.1246. there would still be enough room for the USDCHF to move higher to its original 1st resistance price of 1.1380 until the chaos started to happen. This has been what we have been trying to emphasize as the contrary directional movement of the two pairs until now. For some who has never experienced getting caught between a crossfire of market movements; I'm certain that these past two days of volatility would have been a good one. Trend following the CHF,JPY & the AUD plus the cross rates would be only to one's advantage and could be used as part of an arsenal of strategies whenever markets like these wild swings occur. The long wick or tail down from the candlestick bar particularly the USDJPY, EURGBP,EURJPY, AUDUSD,the NZDUSD and the GBPCHF mid-range closing with both up and down wick tails would be clear evidence that such trades from both sides of the trade have had to settle or simply investor/traders capitulated from these wide and wild swings.
Avoiding this tragedy can best be solved with some real due diligence and setting up an effective trading plan. As we have explained time and again that knowing and being one step ahead of the market can be to one's advantage whenever executed properly. A more sequential process of trading will be most effective in using leverage positioning to equalize and minimizes the risk of loss. The consistency of applying such methodology through constant practice of spreading an offsetting transaction would simply create this effective cushion to absorb such wild fluctuation and be able to buy enough time ( figure of speech ) deciding which strategies that is available to the traders / investors to use to maximize the markets potential on both sides of the directional trend.
As most of our Forex video presentations clearly focuses on paying ever more closer attention in offsetting transaction, hedging majors with cross rates and hopefully for others to be able to use secondary market instruments to actually do some serious strategies where the real money of trading the Foreign Exchange Market comes from. And these is also where the revenue stream of almost all institutional, banks, hedge funds and sophisticated investors make their money from.
We would like to suggest to please review and pay more attention as to why such strategies were used in trading and how such currency pairs were chosen compared to simply choosing one, as some has always claimed that it is the simplest currency to trade. Boy are they mistaken!
A certain process of deduction and elimination takes place even before a final choice of currency pair would be traded. We also understand that one has to be comfortable with their choices and strategies they use while trading. With all due respect; as long as the trade one applies in the market are delivering the goods then do continue, but if not strategy change and procedure needs to be considered. Therefore, pls. choose widely!

Best for your Trades!

Wednesday, May 5, 2010

Market Volatility Confirmed

As of our Market View Analysis dated the 3rd of May, the market volatility as we have expected increased significantly just by the price movement of the EURUSD leading the pace moving to the 1.2880 price prediction that we have mentioned and even with a low extending to 1.2803 and currently correcting back from the registered low at the same price levels. There would be some short corrective moves on both directions on an hourly and daily basis, but do not discount the possibility that the prices may eventually touch the all time psychological price levels of 1.2580 extensions. When this may occur depends on the gravity of the market situations on a fundamental basis which so happens to be quite negative on the traders sentiments.
This has been fueled by the two major factors of the European countries troubles with Spain, Portugal and may lead to a spill over from the rest of the EU communities. this also influenced the stocks and lending a more positive boost for the USDX with a high at 83.48 and the June futures contract at the high of 84.48 basis points. the quick and surprising move coupled with the relative good news for the economic reports added to the strength of the USDX and may find some key resistances at the 85.05-10 levels initially. This will only come true unless the significant volume build up on the futures market continues and with a less momentum price acceleration and volume distribution holds, the possible corrective movement may also be expected. As some profit-taking activities are now taking place with a few market capitulation from earlier buyers of the EURUSD and the AUDUSD respectively. In spite of the policy rate increase by the RBA now at 4.25 the strength of the USD has made the Aussie Dollar to head south of the border at the 0.9019 low and the Kiwi resting just on the support trend line at 0.7175 levels. Although, it may still be difficult to state a market trend reversal for these two pairs; we would rather call a price reversal for the time being. Even though with a significant spike bar formations on the candlestick as a technical outlook for both pairs, the price movement was justified with the help and assistance of the USD getting much stronger.
However, the most important element mentioned that the USDJPY and USDCHF did have a much clearer trend higher while all these things were going on. These analysis was supported with our video presentation way back in February titled " comparative charts part 2 for the USDCHF and a later video for the USDJPY last April 05 inital target of 94.40. Its always easier to call when the facts already happened, however as most of the trend analysis has had a higher percentage of being right, but the difficulty is to be able to continually remind that there is no such thing as a straight up or down in a volatile market such as the Foreign exchange trading.
Percentage trading has been proven successful with an appropriate amount of funds to trade with and properly allocating, spread trading and using the leverage amount to equalize or minimize the risk involve.
Meanwhile, the surprising move for Gold down to the $1155.75 low was in part due to the creative selling divergence that was occurring on a daily basis above the $1180.00/oz price levels other than the obvious strength of the USD. We still maintain our outlook on both the USD and Gold on an overall perspective with a directional trend higher including the position adjustments of major players present in the market as of this writing. Have a watchful eye closely for buyers trap as the market heads lower and presents a wider trading ranges with higher market volatility as we go along for the week and the succeeding weeks ahead.
Good Luck and the best only for your trades!

Tuesday, May 4, 2010

USD & Gold Trend 2

As we reported in our March 1 2010 Market View Analysis of the major trend that the USD has in relationship with Gold prices has not been fully taken advantage of by retail investors in the Forex market due to the contrary relationship of the two. However, institutional investors, hedge fund and portfolio managers managing a substantial amount of investment funds has taken this into account.
Medium to long term investments since August 18, 2009 was the pivotal point where it all started. The negative sentiments then during the financial crisis led almost every trader and analyst to focus on what was current and factual. There is nothing wrong with that! As it is equally important though quite difficult to find a turning point in these markets when the overwhelming sentiments are in one direction. With the USDX at the 74.20 extension levels never looked back from where it is now at the 82.73 high registered the week ending the 30th of April. As we also maintained that as long as the USDX does not fall below the 79.20 - 80.10 support levels the actual trend up is still intact and it goes the same way with gold at the $1000.00/oz support price.
The way the formation of the USDX today in a bigger perspective is quite bullish on a weekly and monthly basis. The daily chart may indicate a probable corrective mode may also be lurking above these levels; as resistances on prices parameters shows a corrective short-term divergence would occur in the near term outlook. Exactly when would depend on the price page indicator and momentum signals that would reflect a slow down.
In comparison while Gold prices registered its high at the $1226.38 the week of Dec. 04, 2009 and made a corrective move back to the $1043.80 the week of Feb 05, 2010 and is currently working at the $1180.00 way above mid-range levels of $1135.50. With this said, the potential of the Gold prices may well be more defined whenever the USDX would be correcting for the time being. Whenever this happens on a day to day basis, the next attempt for Gold to move higher would be back to the $1220.00's level which should not be discounted at this time. Although, the bullish speculative investors may not be as tolerable for any corrective moves when Gold prices may tend to go lower thereafter. But as a simple reminder that with an inflation adjusted gold prices and where the Dow Jones is at now , the Gold prices is still keeping at pace as to where it should be at as we have explained in in our hubpage.com blog and article on " inflation adjusted Gold prices and Gold as the currency of Last resort".
We'll keep you posted as to the significance of these two major instruments where the next potential may occur the least hopefully before they happen. but as of now it is what it is; both Gold and the USD is in tandem and moving in a line higher than most have anticipated. The irony of the matter is most analyst would say " yes, but until when? "
As we know our simplest approach to to speculate based on fundamentals and technical analysis with a combination of risk/reward factored in and not hindsight! As there will always be the inherent risk of loss when trading the Foreign Exchange Market.

Monday, May 3, 2010

Increase Market Volatility

A barrage of news reports from Personal Income, ISM Manufacturing index to Non-Farm Payrolls would make market volatility to be wider as the new month of May comes in for the 2nd quarter of the year. The market holidays in Asia will keep some significant movements in line with last weeks trend for the time being. But would increase as the news comes out towards Friday's NFP numbers.
As the expectations are basically good numbers that may lead a continuation for the USD to be steadier to corrective mode as the issue of the 110B bailout for Greece has dominated the market news as of now. With the EURUSD still looming at the 1.3240 from a 1.3342 high as of this writing still maintains its vulnerability to move lower and may attempt the next major support of 1.2880 registered in April of 2009. Contrary to a steadier GBPUSD however, trailing the Euro directional trend at a slower pace from a 1.5385 high and a low at 1.5120. It is currently working in the mid-range level of 1.5248.
The USDJPY and the USDCHF has more a clearer trend direction upwards but expect some continuation of wider swings. With the USDJPY sideways hourly formation just above the 94.00 levels and the USDCHF at 1.0822 steadier price from a low of 1.0742 corrective mode and may now attempt to the north of the charts. Just extra careful of buyers trap for wider lows along the way up as this may prove to move during this weeks increase volatility.
We shall watch which of the majors would be taking the lead pace for the week other than the steadier AUDUSD keeping its price range between 0.9330 and 0.9150. Although, the stronger bullish sentiments still prevail and the Kiwi has been bullish on its trend currently at the 0.7295 working price from a 0.7110 low. the NZD has some clear legs for another new high specially whenever volume builds up along tha way. Stay with the Asian currencies for a more stable trend direction upwards but watch for corrective movements after the news reports for the week in the US specially Fridays NFP nos.
A quiet Asian session and European players may try to take advantage of a thinly traded market due to the Asian holiday. As these markets may tend to be more susceptible whenever major participants would take this advantage among the smaller fry.

Best of Luck to your trades!