Forex Blog

December 27, 2011

Short-Term Trading Tactic- British Pound (GBP)

Filed under: Forex News — Tags: , , , , , , , — admin @ 7:47 am

As forex traders, we are constantly looking for any edge we can get in the marketplace.  Using the charts is one way that traders look for predictive behavior in the price action of any currency pair.  But sometimes, there are more simplistic tactics that can provide equal results.

Case in point, today’s action on GBP/USD.  This is one of the most simplistic “plays” in the market and can sometimes provide low-risk opportunities.  Today’s market action is called “No news is good news”.  This was one of the first tactics I learned when I made the transition to forex and it can be used over and over again.

Earlier this morning, the British pound rose some 80 pips from yesterday’s low volume session.  One might think that there was some “good news” driving the Pound higher, or perhaps there was some bad news about the other currency in the pair. Since the US market hadn’t opened yet, one might naturally conclude that there was good news in the UK then.

Not only was there not good news, there was NO news at all as the UK markets are closed today.  But the forex market trades 24-hours around the clock.  Without the possibility of bad news, the market saw the opportunity as good news and therefore pushed the Pound higher.  In other words, with the threat of negativity removed, you could have had an easier move higher!

Sometimes we see this type of action with the changing of the trading sessions.  Have you ever noticed, especially lately, that the markets seem to drift higher once the European market closes?  This happens because the risk coming from Europe is great right now so if we make it through a European session without negative news, the market sees it as a positive!

Of course it is still import to use support and resistance levels, and in the Pound earlier today that support level was at 1.56 providing a low-risk, high return short-term trade.  So trade the path to least resistance and you may see moves similar to this one today!

Forex Market Outlook 12/27/11

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:01 am

Welcome back from the holiday weekend!  The markets are looking to get back on track this morning but have started rather slowly but there is little event risk on the docket by way of fundamental data reports.  This is set up to be a light volume week, which sometimes can mean volatility.

So I’m going to touch on the highlights for the week but I am not expecting a major break out of the recent ranges we have been seeing and there is nothing on the economic calendar that would suggest there could be some type of major move.  Many in the market are looking to put 2011 in the rearview mirror and start fresh in 2012.

The big news today is actually due out later this morning in the US as we are waiting for consumer confidence figures and the Case/Shiller home price index.  By and large, home prices have been declining at a lower rate so it looks like the market is in a bottoming out process—for now.  One of the biggest threats to home prices is rising interest rates, but we are not seeing rising rates, the Fed appears to be ready to leave rates low for an extended period of time, and recent data showed that demand for US debt is near all-time highs despite the ridiculously low interest rate we offer.

Consumer confidence has been riding high of late and the spending over the holidays was some 5% higher than recent years, which indicates that perhaps the US consumer is beginning to get healthy again.  As confidence rises, more economic participation takes place which helps grease the skids for the economy to get moving again.  While there are many headwinds that should affect the consumer like high unemployment, uncertain tax policies, and dysfunction in government, if confidence returns it could actually be stronger than most realize.

The only other real news out of the US this week is on Thursday with initial jobless claims and pending home sales figures.  The initial jobless claims figures have been moving in the right direction and are now firmly out of the 400Ks and in the high 300Ks.  This is good news for employment and next week’s Non-Farm Payrolls report should give us a god idea of whether this is because the job market is really improving.

Other news out this week is coming tomorrow in Japan, with the release of CPI data, the jobless rate, retail trade, and industrial production figures.  While Japanese data typically doesn’t move the market in a material way unless the number are totally divergent from the expectation, there is a wild-card in the mix and that is the BOJ.  As we approach year-end, the Yen was one of the top-performing major currencies this year and is currently up some 4% vs. USD despite all of the threats of intervention from the Central bank.  This comes in addition to two actual interventions at which time the BOJ sold Yen to weaken the currency.  Where do you think the Yen would be without he interventions?  Exactly, probably a lot higher.  So it will be interesting to see what the BOJ does going forward and tomorrow’s data points could be indicative of further action.

And of course we can’t forget Europe and we’re waiting to see the results of Italy’s bond auctions that are set to take place over the next two days. Italy is looking to issue some 20 billion euros and yields are back up over 7% as of this morning. On Friday, German CPI data and retail sales figures will show how Europe’s strongest economy is faring and as long as Germany continues to thrive, their politicians may be more apt to be agreeable.

So this week is likely to continue to be sideways activity so forex traders should use their short-term and range-bound trading techniques. If you are not familiar with how to trades these types of markets, contact us immediately to find out what you should do in these markets.  Trading is easy when everything goes up or down, but the true professionals are the ones who can thrive in any environment.

December 23, 2011

Using Support And Resistance To Find Trades!

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 7:51 am

Most of the time the chart of the day is a discussion of a particular currency or pair and gives a longer-term outlook for where prices may be going.  Today I am throwing a bone to the short-term traders by including this “teachable moment”.  Not to mention that today is a range-bound, low volume day ahead of the holidays so no longer term trends are emerging.

So here is a quick way you can find trades, especially on range-bound trading days, though this technique can also be used on longer-term trades.  Essentially the idea is a simple one:  that areas that were previously support now become resistance once they break down.  The opposite can also hold true, that previous resistance can become support.

However, in this chart we can see that USD/CAD has been moving lower (see last week’s prediction and longer-term trade that nearly top-ticked this pair!) and a retracement brought the price today back up to levels that had previously acted as support at 1.02.

As you can see, that resistance held and made for a low risk opportunity to get short ahead of the resistance and in line with the intermediate term trend.  This allows short-term traders to get in and out quickly with a low degree of risk.  Now of course, should the price close above the 1.02 resistance, then it could become support!

These types of short-term trades are a pip-collectors dream, as they can do this all day long!  So consider this my gift to you!  Happy Holidays to All!

US Durable Goods Orders Jump 3.8%

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 7:17 am

The U.S. Commerce Department announced that orders for durable goods increased by 3.8 percent for the month of November. This greatly exceeded expectations of a 2 percent increase.

“This was a positive surprise, and the prior month’s number was also revised upwards,” said Chris Orndorff, senior portfolio manager at Western Asset Management.

“A good sign, but the rolling average of the last three months is still far below the high durable goods levels of Q1 2011.

“And the 2011 levels are below the 2010 levels, so by this measure the economy is still muddling along. However, at least it is in positive territory.”

Forex Market Outlook 12/23/11

Filed under: Forex News — Tags: , , , , , , , , , — admin @ 6:47 am

Happy Holidays to all as the markets are preparing for a break from the action so volume is likely to be weak today.  Japanese markets are actually closed today, with US markets closed on Monday.  There is still some news that has hit the wire abroad, and we are waiting on some data here in the US.

Markets today are generally drifting higher, though without conviction.  It is likely that today will hold the range regardless of the data released as investors look forward to trying to push this “mini Santa Claus rally” higher next week.  And next week represents the last four trading days of the year so we could see a push higher if we can avoid any major economic disasters.  The fact that politicians are done for the holidays removes one such potential fly in the ointment.

Stocks are higher to start the morning in both Europe and in the US, and oil looks pegged just under $100, with gold holding above $1600.

Overnight in Europe, French PPI data came in higher than expected, though French GDP came in slightly lower than expected.  Europe is currently having the inflation/deflation debate and no one is quite sure what they are experiencing.  Talk from the ECB today revealed that policy makers believe that quantitative easing (QE) should not be a dirty word, especially if Europe starts to see deflation.

Yet oil is higher, money seems to be flowing and I think it is going to be hard to avoid inflation.  I saw a report today that stated that historically, gas prices move $.93 higher on average from the December holidays to the following year’s peak.  This sounds completely negative to me, which means there is less money to be spent on other areas of the economy.  2012 could be a massive economic roller-coaster ride.

In the UK, there really is no debate about inflation—they have it—yet they are still concerned about weakening economic data.  Well the BOE finally got some in the form of a lower index of services figure released earlier this morning.  The monthly figure showed a decline of .7% vs. an expectation of a decline of .1%.  This is significant because services make up some 70% of the UK economy.  So the Pound is slightly lower this morning, but again, currencies are trading in a tight range this morning so not a big deal at this point.

The US dollar has been slightly lower as the correlative effects of higher stocks and mild risk appetite is keeping markets above water so far this morning, but that could change with the release of data here in the US.  We are waiting on personal income and Spending figures, durable goods orders, and new home sales.

North of the border in Canada, GDP figures are expected to post a .1% monthly gain which is lower than last month’s .2%, bringing the YoY number down to 2.7%.  This seems like a low hurdle to clear so we could see a surprise to the upside.

** Just in** US durable goods orders were up 3.8% vs. an expectation of 2%, but the ex transportation figures came in slightly lower than expected at .3% vs. .4%.  However personal spending and personal income figures came in worse than expected, both showing gains of .1%.   Incomes were expected to have risen .4% and spending was expected to have risen .3%.

This is a net negative and stock futures have given back some early gains but are still positive.  I would not be surprised to see markets close unchanged today.

In Canada, monthly GDP came in unchanged vs. an expectation of a gain of .1%.  The YoY number of 2.7% hit the nail on the head.  Perhaps the bar was a little higher than I had previously suspected.

Nevertheless, these figures have had little impact on the forex market, which are likely to remain in a tight range.  I will not be trading today as today is a churn and burn kind of day.

Happy Holidays to all and I’ll be back next Tuesday!

December 22, 2011

PIMCO Downgrades Global Outlook

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 12:30 pm

Pacific Investment Management Company – or simply, “PIMCO” – issued a statement today warning that global growth in 2012 will be constrained by the ongoing Eurozone debt crisis and a slowing Chinese economy. Saumil Parikh, a PIMCO Managing Director, revised downwards the 2012 forecast for the global economy from 2011’s 2.5 percent expansion to a considerably weaker 1 – 1.5 percent growth for 2012.

Getting a handle on Eurozone sovereign debt will require several European governments to cut spending in a version of “forced austerity” that in itself, will lead to slower growth. This, combined with debt haircuts and potential defaults will, according to Parikh, lead to a contraction for 2012.

“The euro zone economy cannot bear a concomitant deleveraging in sovereign and banking system balance sheets, given an already weak growth outlook,” Parikh said.

This leaves no other choice but for the European Central Bank to assume the role of “lender of last resort” to Eurozone countries. This is the only way says Parikh to prevent a wide-spread sell-off of assets and a further devaluation of assets as investors scramble to cover their debts.

In addition, Parikh presented an updated assessment for China which could also have a far-reaching impact on the global economy. PIMCO downgraded the outlook for China saying that 7 percent growth for 2012 is more likely than the 8 percent predicted earlier in the year.

As a result of the revised outlook PIMCO now feels U.S. growth could slow to between 0 and 1 percent for 2012. This is a sharp decrease from the previous assessment topping out at 1.75 percent growth.

Euro/Pound (EUR/GBP) About To Rebound?

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 8:14 am

Most of the time the pairs that I look at are US dollar-related as they give both an indication of general risk themes in the market and the specific strength or weakness in a currency.  However today I am looking at EUR/GBP as the chart looks too juicy to pass up.

As we can see from this chart, the overall trend for the Euro vs. the Pound as the debt crisis in Europe has sent money flows seeking the relative safety of the Pound.  The economic data has been coming in better than expected in the UK and the Euro debt crisis has sucked the life out of the Euro.

But for how much longer will this continue?  There has been some speculation that the BOE is oing to increase their asset purchase program which would weaken the Pound, while at the same time the Euro could strengthen as the impact of the ECB lending program could be less than expected.

So I’m looking at a low risk trade here to buy EUR/GBP ahead of .83 as a possible double-bottom formation has occurred, putting a stop just below .83 with the hope that this pair will retrace to .84.

Sometimes as traders we need to buck conventional wisdom to find the best trades!

US GDP Growth Lower Than Expected

Filed under: OANDA News — Tags: , , , , , , , — admin @ 7:27 am

Third quarter growth for the U.S. economy as measured by Gross Domestic Product was less than expected during the third quarter. Gross domestic product climbed at a 1.8 percent annual rate from July through September, down from the 2 percent estimated last month, revised Commerce Department figures showed today in Washington.

“The fourth quarter should be the strongest of all this year,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. “We are avoiding a recession and the persistent calls for a double dip are wrong.”

Source: Bloomberg

Weekly Jobless Claims Lowest in More Than 3 Years

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 7:24 am

Last week’s new claims for unemployment benefits touched a 3 1/2 year low with a seasonally-adjusted 364,000 claims. The claims data, which covered the survey period for nonfarm payrolls, helped to take the sting out of a separate report from the Commerce Department showing that gross domestic product grew at a 1.8 percent annual rate in the third quarter.

“The employment situation continues to show strong signs of a recovery and goes against the grain of what people felt four months ago,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.

Source: Reuters

Forex Market Outlook 12/22/11

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 6:54 am

As we near the upcoming holidays and the abbreviated market schedule, the forex market is falling back to its predictable ranges.  Yesterday’s news of the ECB bank lending program is still being digested and while the overall impact is still largely unknown, I can’t imagine that banks in Europe were better off without the program so by default this was a positive development.

Yet the market gurus continue to pour over the “what if” scenarios and fear of the unknown has created uncertainty, which the market hates worse than bad news.  So yesterday’s sell-off that started in the Euro session abated in the US market and allowed the Asian session to follow through and rally to the upside last night.

Markets have since given back some of those gains as there has been little news out of the Euro zone this morning, though Italy is holding a confidence vote in their Senate about the austerity measures, and a joint speech will be given by Draghi and King after a meeting of the European Systemic Risk Board in Frankfurt today.

There was slightly better than expected news out of the UK as the final GDP revision showed at quarterly gain of .6% vs. an expected .5%, though the YoY number came in as expected at .5%.  While yesterday’s release of the rate policy meeting minutes showed the possibility for continued bond purchases, an increase does not appear to be need on the immediate horizon.  The data in the UK has been largely better than expected and the resiliency of the UK economy is starting to emerge.

Yesterday in New Zealand, the GDP was not as positive as in the UK as the quarterly figure came in better than expected at.8% vs. .6%, but the YoY figure missed the 2.2% expectation coming in at 1.9%.  The temporary economic gains were attributed to the hosting of the Rugby World Cup so this accounts for the discrepancy between the quarterly and year-over-year numbers.  The Kiwi traded lower but has since rebounded with risk appetite.

And we are seeing risk appetite this morning before the start of the US session as we have an action-packed morning of data as the holiday shortened trading sessions into the end of the year have squeezed the releases into fewer days.

Later this morning we will get: GDP figures, initial jobless claims, personal consumption, Michigan consumer confidence, and leading indicators.   While the data has been largely positive over the past month, keep an eye on the initial jobless claims figures, which came in much better than expected last week at 366K.  This was a big jump from the usual 400K we had been seeing for what seemed like forever, so it will be interesting to see if this is the start of a new trend of if that number was a “one-off”.  The expectation for this morning is for 378K.

Yesterday’s retail sales figures in Canada came in much better than expected and combined with higher oil prices have helped the Loonie to rally vs. USD to near 1.02.  Check out my chart of the day from last week for a technical discussion of the Loonie.

**Just in** US GDP figures came in worse than expected at 1.8% vs. an expected 2%, but initial jobless claims came in better than expected printing 364K vs. the 378K expectation.  Personal consumption came in lower than expected at 1.7% vs. an expectation of 2.3%.

This news is mostly a wash to slightly negative, with futures giving back some early market gains.  It will be interesting to see if US markets can stay positive today or if early risk aversion ahead of the holiday break takes place.

My guess is that we continue to hold and trade the range so my trading will be short-term as it has been of late.  There is nothing out there at this point that would cause me to think anything different from any other recent day.  The markets are likely in cruise control mode until the end of the year, though don’t count out end of the year window dressing to give the markets an upward bias.

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