Forex Signals

Trap Got the Euro Bears!

admin — Sun, 05 Sep 2010 03:16:27 +0000

Hiyo my avid forex fans! In my previous article about the euro, I mentioned that its recent rally after breaking down from what appears to be a head and shoulders formation could be over soon. However, a full blown breakdown and a reversal did not really pan out as the euro bulls were able to out-muscle the bears to place them back on top. As you can see from the EURUSD’s 4-hour chart, the bears were forced to cover their short positions when the price of the euro went back above the neckline of the head and shoulders. The pair actually found support at the 50% Fibonacci retracement level which interestingly lies almost in line with the psychological 1.2600 marker. For awhile, it met some resistance at the neckline and it even fell below the support of the rising wedge (please see my previous post here). But like I said, the euro was able to turn the tide to its favor.

Yesterday, the fiber of the EURUSD broke out from a bullish pennant pattern. Though, it would more likely range for awhile before making a move north. The stochastics, being in the overbought region, also suggests a temporary pause in its ascent. If its able to move past the resistance at 1.2900 then its next stop would be at 1.3000. A move past 1.3000 could propel it higher all the way to the peak of the head of the former formation.

The better-than-expected US employment report pushed the anti-dollar currencies like the EUR back into the spotlight. US firms only slashed 54,000 jobs as compared to the 101,000 estimate. The job cuts in the previous month were also revised downwards to 54,000 from 131,000. Still, the US’s unemployment rate rose slightly to 9.6% from 9.5%. Nonetheless, the encouraging jobs numbers (compared to the market’s consensus) lifted the investors risk appetite during the session.

No high impact economic reports are due this week in the euro zone. The euro, however, could take its cue from the developments in the other nations particularly in Australia, Canada, and the UK. Australia, the UK, and Canada will have their monetary policy decision this week. Australia and the UK are expected to keep their rates unchanged while Canada is anticipated to hike. Any hikes and/or hawkish statements could favor the non-dollar currencies including the euro.

GBPUSD remains in downtrend from 1.5997

admin — Sun, 05 Sep 2010 03:14:05 +0000

GBPUSD remains in downtrend from 1.5997 and the fall extended to as low as 1.5326. Resistance is at 1.5597, as long as this level holds, downward move is expected to continue and next target would be at 1.5200 area. However, a break above 1.5597 will indicate that a cycle bottom has been formed on daily chart and the fall from 1.5997 has completed at 1.5326 already, then the following upward movement could bring price back to 1.5700-1.5800 area.

For long term analysis, GBPUSD is in uptrend from 1.4230. Rise to 1.8000 area to reach next cycle top on weekly chart is expected in next several weeks.

Weekly Forex Analysis

Daily analysis and trading strategies 9-2-10

admin — Sun, 05 Sep 2010 03:08:01 +0000

Quote of the day: A deception that elevates us is dearer than a host of low truths. — Marina Tsvetaeva EURUSD Trading strategy: small long at 1.2740, stop at 1.2680 (0.5% risk), objective at 1.2900 The euro recovered some losses, breaking above the 1.2750 resistance region, following the risk pairs which rallied yesterday. … [please click the title above [...]

The famous “Hodgepodge” …

admin — Sun, 05 Sep 2010 02:31:32 +0000

Quotable

“This is a market for surfers and not for the faint-hearted.”

Roberto Mialich, UniCredit MIB

FX Trading – The famous “Hodgepodge” …

After yesterday’s risk-taking rocket ride the obvious reaction is to sit and watch for a reaction. Will traders take the opportunity to sell after yesterday’s strength? And if so is it profit-taking or simply an opportunity to get short?

Or is yesterday’s strength a sign that traders and investors are done pricing in double-dip recession potential?

While risk assets are mostly flat as we get going here in the US, the New Zealand dollar is the standout thanks to what seems to be a signal from stronger dairy prices that demand is picking up. Australia’s GDP and PMI numbers out yesterday are likely helping, as well. The Australian dollar, however, is stuck at around yesterday’s highs after trade data showed a surprisingly smaller surplus than expected.

Turning to crude oil, up nicely yesterday with the risk-on mood, daily support at about $71 per barrel seems to be holding so far … after the tone in August was dominated by double-dip talk.

Crude Oil Futures Daily:

Dairy prices may be an indicator for New Zealanders, but crude holding above support is
an indicator we can all understand.

A recent survey done by Trim Tabs reveals that Hedge Fund managers are becoming
increasingly bearish. “Only 17% of the 104 managers we surveyed in the past two weeks
are bullish on the S&P 500, sharply lower than 34% in our previous survey.” They also
note that US equity mutual funds have posted outflows for 18 straight weeks.

Considering this relatively extreme bearish outlook, perhaps we have to ask again: Is
yesterday’s strength a sign that traders and investors are done pricing in double-dip
recession potential?

Some recent data out of the Eurozone might bolster such a move toward optimism, or
at least a step in that direction. Eurozone Q2 year-over-year GDP numbers were revised
higher; corporate spending across the zone rose for the first time in nine quarters;
producer prices are up while exports are surging at levels (4.4%) not seen since data began being kept in 1995.

The euro’s plumbing of the $1.20 level may have helped spark foreign demand for
relatively cheaper goods within the zone. If the euro finds reason to run higher from
here—relative growth and yield differential compared to the US dollar may be two of
them—it may lead to a softening of next quarters’ export numbers. That doesn’t even
reflect the impact austerity measures will have on the economy in coming quarters.

Expecting much more “gangbuster growth” out of the Eurozone in H2, similar to what I
mentioned above, seems a little crazy. Ireland hit the austerity button and was met with
a downgrade on their debt from S&P. Greece, well … they’re supposedly getting
austere. And Germany just tapped on the brakes. From The Economic Times …

“The German cabinet has approved drastic spending cuts to rein in the national budget despite a stronger than expected turnaround in the economy.

“The centre-right coalition government of Chancellor Angela Merkel plans to save more than 80 billion euros over the next four years to comply with the new “debt brake” in the constitution and to meet the euro zone stability criteria.”

Jean Claude Trichet has said that it will be tough for the zone to remain as “buoyant” in the second half of this year. That’s not exactly saying the same as calling euro bulls crazy, but it’s somewhere along those lines.

EURUSD Daily: the slide that bottomed out in August marked a 50% retracement of the June/July rally. It also broke uptrend support. A test from underneath would take EURUSD to about a 50% retracement of that slide. Maybe a jump to $1.30 is in the cards. But this stuff keeps morphing fast…stay tuned.

Currently 3/5
1
2
3
4
5

Rating: 3/5 (2 votes cast)

The Stock Market Slide Is Over

admin — Sun, 05 Sep 2010 00:00:06 +0000

So much for the double-dip recession and a new bear market. With upside surprises Wednesday in the Institute for Supply Management’s manufacturing survey and Friday morning’s August jobs report, it’s safe to say the correction in stocks is over.

I knew this was going to be a good week in the markets when I looked in my inbox Monday morning. There was one particular email from a regular reader of this column, who was politely but firmly skeptical of my rather bullish take last Friday, which was based on the fact that consensus forward corporate earnings continue to move higher.

This reader pointed me to an article in Monday’s Wall Street Journal, which stated that growth estimates are moving lower. He suggested those estimates undermined my bullishness. In fact, that is no contradiction at all. Growth estimates and earnings estimates are very different. Growth is the difference between past earnings and future earnings. Future earnings are expected to rise, as I said. However, past earnings are rising too. So the difference (growth) is narrowing. I explained this phenomenonin in a column a month ago, when I talked about how the huge operating leverage at companies, which was temporarily impaired by the recession, would lead to big earnings growth even in a slow economy.

But none of that wonkish stuff was the real point of the Journal article, and it’s not what’s gotten me so inspired. The article was called “The Decline of the P/E Ratio,” a double entendre based on the fact that P/E ratios have fallen to very low levels in this year’s stock market correction and the author’s contention that P/E ratios have declined in importance as an indicator of value.

Does this all sound somewhat familiar? Somewhat laughably familiar? How many articles like this came out in 1999 and 2000 at the peak of the dot-com bubble, when P/E ratios had risen to stratospheric heights that, by all previous experience, indicated that stocks were massively overpriced? The articles then said the same thing as this one did on Monday — that it’s a new world in which P/E ratios don’t matter any more.

Back then, many of the hottest companies didn’t have any earnings at all, so their P/E ratios were “infinity.” But no matter. Get your position in that pet-food delivery web site, no matter what! As we all know, the old-fashioned wisdom about P/E ratios turned out to be absolutely correct. They were too high. The NASDAQ crashed from 5,000 to 1,000 over two years. The companies that survived had more realistic P/E ratios at the end of that horrific experience.

So how perfect. How symmetrical. In 1999, we had to ignore P/E ratios because they were too high. Now in 2010 we have to ignore them again, but because they are too low. That was the upshot of the Journal article.

This is the way markets work. Tops happen when people become irrationally exuberant — they ignore the warning signs telling them there is trouble ahead. Bottoms happen when people become irrationally despondent — again, they ignore the signs telling them the trouble is over.

Published September 3, 2010

Single Page

Dodd-Frank Law Lets SEC Pursue Overseas Credit-Ratings Fraud

admin — Sat, 04 Sep 2010 17:29:08 +0000

According to various sources, the U.S. Securities and Exchange Commission (SEC) plans to use new financial laws to pursue credit-rating fraud initiated overseas. This decision came after SEC dropped a fraud case against Moody’s Corp citing uncertainty over its authority to bring the case in the United States.

The SEC’s investigation found that a Moody’s ratings committee based in Europe refused to lower inflated grades on almost $1 billion of debt in 2007. According to the SEC report, the committee declined to correct errors produced by a flawed ratings model out of concern for the firm’s reputation. The uncertainty regarding a jurisdictional nexus between the U.S. and the relevant ratings conduct led the SEC to drop the probe.

However, that uncertainty was removed by the Dodd-Frank law, enacted in July, which clarifies the SEC’s power to sue for misconduct that has a substantial effect within the U.S.

Ratings companies Moody’s, McGraw-Hill Cos.’ Standard & Poor’s unit and Fitch faced scrutiny from Congress and state regulators after they assigned top marks to U.S. subprime- mortgage bonds before that market collapsed in 2007. According to Bloomberg data, the ensuing credit crisis resulted in $1.8 trillion in writedowns from financial firms worldwide.

U.S. Dollar Under Pressure Prior to Payrolls Report

admin — Sat, 04 Sep 2010 03:16:31 +0000

Source: ForexYard

The euro and high-yielding currencies held firm on Friday after an improvement in U.S. housing and jobless claims data bolstered investor appetite for risk ahead of key U.S. jobs data today at 12:30 GMT.

Economic News

USD – Dollar Slips against the Euro and the Yen

The U.S currency was on the defensive Thursday, retaining most of the losses sustained the previous day when upbeat data helped lure investors away from safe-haven currencies and assets.

Figures released yesterday showed U.S. pending home sales rose unexpectedly in July and new claims for unemployment insurance fell for a second straight week, which, together with upbeat manufacturing data on Wednesday, eased the gloom over the U.S economy. That lifted stocks, commodities and higher-yielding currencies. However, investors hesitated to take fresh positions ahead of Friday’s monthly U.S. jobs report, analyst said.

EUR – EUR Gains for a 2nd Week Before Retail Sales Report

The euro headed for a 2nd consecutive weekly gain versus the U.S dollar before a European report that economists said will show retail sales rose for a 3rd month, spurring demand for the region’s assets. Retail sales in the euro area increased 0.2% in July, matching the previous month’s gain, according to economists’ estimations before today’s report.

Against the British pound the 16-nation currency traded near a 3-week high on speculation European Central Bank President Jean-Claude Trichet will tomorrow reiterate his comments that the region’s recovery is on track.

Market players said that given the fact that the euro zone economy has surprised to the upside, led by a robust recovery in Germany as this higher growth path is priced into the markets, the euro will likely gain further. The next target for the euro is around $1.287, the 38.2% Fibonacci retracement of its fall from its August peak of $1.3334 to its August low of $1.2588. And the target after that would be $1.2923.

JPY – Yen Trades Near 15-year High

The Japanese yen rose yesterday, extending its gains vs. the dollar after U.S. reports showed an unexpected increase in pending home sales, a decline in initial jobless claims and improved retail sales. The pullback in the dollar came even after a Japanese political candidate reiterated his call for direct currency-market intervention to stem the recently strong yen. Japan’s currency stood at 84.35 yen per dollar, up slightly on the day but not far from the 15-year low of 83.58 yen hit late last month.

A sharp drop in dollar/yen, such as 1 to 2% or more in a single day towards the 80 yen level and below, is seen as the most likely scenario that would prompt Japan to intervene and start to buy dollars. Thus many traders expect the market to test the willingness of Japan to intervene, especially if U.S. payrolls data comes in weaker than expected.

OIL – Crude Oil Declines on Forecast for U.S. Jobless Increase

Oil prices declined, headed for a weekly drop, amid forecasts that a U.S. government report will probably show the jobless rate rose in August for the first time in 4 months, signaling a recovery in fuel demand may falter.

Crude gave up some of yesterday’s 1.5 % gain as analysts estimated the August payrolls report from the Labor Department may show the U.S. economy lost 101,000 jobs. Oil prices rose yesterday after an explosion on a platform owned by Mariner Energy Inc. prompted speculation that tighter regulations will cut production.

Technical News

EUR/USD

A symmetrical triangle pattern has formed on the daily chart with the two of the three vertices beginning on August 18th and August 23rd. The chart pattern is characterized by the slope of the price highs and lows that are converging to form the outline of a symmetrical triangle. Technical indicators help to verify the consolidation pattern. The 20-day exponential moving average has flattened out; combined with a tightening of the Bollinger Bands and a lower Average True Range (14) indicate a decrease in volatility. Traders should wait for a breach of the triangle and target the short term resistance at the August high of 1.2930. A stop should be placed inside the triangle to protect against a false breakout.

GBP/USD

The pair has found support in the recent downtrend at the 100-day exponential moving average. A breach below the line could take the pair to the support at 1.5125. Resistance is found at the downward sloping trend line at 1.5470.

USD/JPY

Despite the slowdown in the depreciation of the pair, the downward trend continues. Support is found at the swing low on the daily chart at 83.60, with a long term target the all-time low for the pair at 79.70. Resistance is located at Monday’s high of 85.90.

USD/CHF

Downward pressure continues for the pair as the bearish trend shows signs of strengthening. Long term moving averages such as the 50, 100, and 200 day are downward sloping, indicating the trend is to the downside. Traders should be short with the first support at Wednesday’s low of 1.0065, followed by 1.0030.

The Wild Card

Gold

Gold prices continue their uptick, targeting the commodity’s all-time high at $1,265. The price looks to move higher with the 20-day exponential moving average sloping higher. CFD CFD traders should be long on gold with a protective stop below the support level at $1,231.

Forex Market Analysis provided by ForexYard.

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Do You Understand How Derivatives Work?

admin — Sat, 04 Sep 2010 03:10:12 +0000

By David Adams – I have been a derivatives trader for the majority of my working career. I’ve noticed during that time that the word “derivatives” has garnered some very negative connotations. The fact of the matter is that the term derivative has a variety of meanings and can indicate a wide range of financial instruments. Let’s start out with a basic definition of a derivative.

A derivative is a financial instrument like an option and or futures contract whose value is derived partly from the value of another security, which is the underlying security. I don’t suppose that technical definition shared a tremendous amount of light on the actual meaning of the derivatives. In layman’s terms, a derivative is a bet as to whether the value of the underlying security, which might be a stock, bond, or financial index, will increase or decrease by a specified date. Derivatives are typically used to protect asset prices and things like inventories or potential future purchases. In reality, derivatives are a generic term for a wide class of financial products. Some of these products, like futures contracts and options, are well-defined and enjoy a relatively widespread understanding.

On the other hand, there are classes of derivatives which exist in a murky and poorly understood environment. These derivatives are usually not traded publicly, but are individual contracts between firms to buy and sell products, or insure against loss (as is the case in credit default swaps) or give a firm the right to buy a product in the future a set price. These non-traded derivatives can be classified as exotic in nature. By exotic, I mean they are each unique to a finite situation that exists between two parties. As you have probably heard on the news, many of these exotic derivatives are poorly understood by both the public and the government. Further, there have been questions raised as to the legality of these derivatives. As an aside, the new financial regulation packages proposed by the government include extensive scrutiny and regulation of exotic derivatives.

But getting back to my job, I work only with the “plain Jane” variety of derivatives called futures contracts. Futures contracts are traded on regulated exchanges and there is a high degree of transparency in their daily trading activity. Futures contracts have been around for more than a century, and early derivatives date back to Rice trading in Japan in the 1600s. So the garden-variety derivative, or futures contract, is well understood and heavily traded.

You might be surprised at the wide range of commodities, metals, financial indexes, and a host of other unusual futures contracts that can be traded. For example, there are futures contracts on energy products, bond prices, meats and a host of other contracts. Generally these contracts are used to lock-in prices for producers of the products listed above, or the investors of the products listed above. Futures allow a producer to lock-in a price so a firm can produce and price their product with the future in mind.

It’s important to understand that well-regulated futures provide a valuable service to industry. On the other hand, exotic derivatives have, at times, resulted in extraordinary losses and the most recent derivative problem caused our country to fall into a recession. The purpose of this article is to differentiate between normal, transparent derivatives contracts and the exotic derivatives contracts that have caused so much trouble for our economy.

About the Author

Would it be convenient to recieve valuable trading tips every night in your email? You can sign up for our free video series by Clicking here These videos contain advanced trading strategies and will enhance your trading knowledge immeasurably. Best of all, they are free!

Daily analysis and trading strategies 9-3-10

admin — Sat, 04 Sep 2010 03:05:57 +0000

EURUSD Trading strategy: small long at 1.2780, stop at 1.2720(0.5% risk), 1st objective at 1.2830, 2nd objective at 1.2900 The euro is relatively quiet since yesterday, trading in a narrow range of 70 points, but holding gains above 1.2800. Upside is slightly favored and a pullback may provide a buying opportunity if … [please click the title above [...]

Betting on black …

admin — Sat, 04 Sep 2010 02:24:32 +0000

Quotable

“Jobs are like a light switch for the market. Upside surprise — all is bright and risk is on. Bad numbers — risk is off and we’re back in the dark.”

Dealer at an Australian Bank

“This particular day will assuredly provide some excess volatility as traders are already enjoying an elongated Labor Day weekend in the Hamptons or Miami. The lack of volume/liquidity is sure to have markets moving sharply if the report varies significantly from consensus.”

Andrew Horowitz

FX Trading – Betting on black …

A member of the Crooks family was recently talking about roulette, specifically how he thought that there must be a strategy that can put the odds of winning in your favor. Perhaps there is, but he wasn’t able to vocalize it and we weren’t buying it. Flipping a coin came to mind.

Then we came across a book where the author thought he figured out such a strategy that would guarantee he made money – bet on black. Bet on black … every time. And if you lose just bet more money than you’ve lost on your next bet … on black. He tried putting this theory to work. Nine minutes, five bets, and $1200 worth of cash and cash advances later he had lost more than double what he makes in a week and has yet to prove his strategy effective.

Betting on the US Nonfarm payrolls report is equally as thrilling, though it’s tough to say which game gives better odds. In the last three releases, payrolls have undershot consensus bets each time (the last two of which resulted in a net loss of payrolls). Again the expectations are for job losses overall, but some job growth in the private sector is expected.

Place your bets …

US Dollar Index (black) vs. S&P 500 Daily (red): the red circles mark the last three Nonfarm Payrolls reports. The June and August releases coincided with turning points in the dollar’s daily trend. With today’s pending release we are not in a similar position to mark an extreme.

The dollar turned lower on a Census-driven improvement in Payrolls in June. Then a Census-driven decline in July kept the pressure on the dollar. A smaller than the previous month’s loss in payrolls reported in August saw the dollar turn higher.

So is there an obvious bet today ahead of the 8:30 Eastern release? It would appear not, even though the first Quotable above equates this report to an obvious risk light switch. While it could be that obvious today, it’s not necessarily going to last.

In fact, considering that the dollar and the S&P are near support and resistance levels, respectively, it would probably make more sense to wait and see what traders do today (in what is expected to be lower volume/higher volatility than normal because of the Labor Day weekend) … to see if these technical levels are respected.

Assuming the consensus estimates are in the ballpark when the actual figures are released, it would seem this jobs report won’t itself be critical to risk appetite; the technical picture is key:

US Dollar Index Daily:

S&P 500 Index Daily:

It may sound like we’re not taking a side, but we’ll be placing our bets on black. We’re leaning towards ultimately a continuation of this week’s risk-on mood despite whether we get 1) a slightly worse-than-expected, 2) an expected, or 3) a better-than-expected reading.

But of course, all bets are off if the payrolls come in somewhere much worse expected!

Good luck.

Currently 5/5
1
2
3
4
5

Rating: 5/5 (1 votes cast)