Market Update
As Hurricane Sandy makes media headlines around the world, the NYSE opened today for trading after being closed on Monday and Tuesday. However, just because the U.S. stock market is open does not mean that it's business as usual. Traders on the floor of the NYSE are having issues with cell phone service as it keeps cutting in and out. Trading volume and liquidity in the FX market seems rather light, as a lot of financial firms with physical locations in the New York City area are experiencing electricity outages, missing personnel, or both.
I'm taking caution and not putting on any decent sized positions as I wait for market conditions to stabilize. Also, it's extremely unlikely that any major trend causing events will occur before the presidential election, so I would probably be sitting on my hands anyway. There are some important U.S. economic data releases coming out on Thursday and Friday, but I don't know how much credibility I can give the resulting moves as they are occurring before the election. The whole aspect of how either candidate being elected would effect expectations about QE is still not clear. My speculation is that a Romney win may result in expectations of future hawkish monetary policy thus resulting in the market selling off. I'm guessing an Obama win would not cause the markets to go much higher - just prevent an immediate sell-off.
Events to note: once the presidential election is out of the way. The troika report that was purposely delayed at the request of Washington can come out (Yes, the U.S. is a member of the troika.) The latest on the release of the report suggests Nov. 11th or 12th. This report is what "everyone has been waiting for" and may have dire implications for Greece's future in the Eurozone. Also, there are (more) strikes planned in Greece on Nov. 6th & 7th. - I would put them on your market calendar because they have the potential to sour market sentiment very quickly.
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Wednesday, October 31, 2012
Friday, October 26, 2012
Forex Trading Update: USD/JPY
Last night at 7:30 PM EST the Japanese CPI numbers came in better than expected.
Tokyo Core CPI y/y Actual: -0.4%, Expected: -0.5%, Previous: -0.4%
National Core CPI y/y Actual: -0.1%, Expected: -0.2%, Previous: -0.3%
Check out a chart of Japan's inflation rate here.
As we know, the Bank of Japan has been struggling with deflation and these better CPI numbers came as good news to the BOJ. Since the news came out, the Yen immediately appreciated against the dollar and has been trending down since then. It fell from 80.33 at the time of the announcement to 79.50 at 10:00 AM EST.
To understand why the Yen was appreciating today, we first need to look at why it has depreciating over the last 2 weeks. USD/JPY has been ripping up since Oct. 11th when the Bank of Japan began jawboning about injecting more stimulus into the economy. The BOJ then began dropping hints that the actual size of this latest round of QE would be substantially larger then what market participants had been expecting (10 trillion yen to 80 trillion yen.)
The Bank of Japan is engaging in quantitative easing for two reasons: The first, to devalue their currency to aid their exporters. A weaker Yen makes exports from Japanese manufacturers cheaper for foreign buyers. This is critical for Japan's manufacturing base as the country is an export based economy. In addition, there has also been an immense amount of political pressure on the Bank of Japan to help exporters. (I like to think of this in terms of big oil companies sending lobbyists to Washington.)
The second reason is to try and increase inflation. Inflation of 2.0% - 3.0% is typically considered normal for a healthy developed economy. If inflation were to increase, that would in turn lower the real rate of return on Japanese Government Bonds (JGBs) and cause the demand for these bonds to decrease. What happens when the real rate of return on these bonds decrease? There will be decreased demand for these bonds during periods of risk aversion as investors move their money into safe havens. (Safe havens = US 10YR, 10YR JGB, Swiss banks, etc.) - The decrease in the real rate of return on the JGBs will cause a significant amount of money to flow into other safe havens that would normally flow into JGBs.
So how do we trade this? I think we need to wait for guidance from the BOJ on Tuesday. They will be issuing a statement on monetary policy, making a decision on the overnight call rate (you can check for this here), and holding a press conference. The important thing to realize at this point is that the rules of the game may be changing. In the near future, it's very possible that the Yen does not appreciate against the dollar (USD/JPY down) during periods of risk aversion. We've been seeing evidence of this since last week.
BeamFX is a Guaranteed Introducing Broker for Institutional Liquidity (ILQ). Open a free demo account today!
Tokyo Core CPI y/y Actual: -0.4%, Expected: -0.5%, Previous: -0.4%
National Core CPI y/y Actual: -0.1%, Expected: -0.2%, Previous: -0.3%
Check out a chart of Japan's inflation rate here.
As we know, the Bank of Japan has been struggling with deflation and these better CPI numbers came as good news to the BOJ. Since the news came out, the Yen immediately appreciated against the dollar and has been trending down since then. It fell from 80.33 at the time of the announcement to 79.50 at 10:00 AM EST.
To understand why the Yen was appreciating today, we first need to look at why it has depreciating over the last 2 weeks. USD/JPY has been ripping up since Oct. 11th when the Bank of Japan began jawboning about injecting more stimulus into the economy. The BOJ then began dropping hints that the actual size of this latest round of QE would be substantially larger then what market participants had been expecting (10 trillion yen to 80 trillion yen.)
The Bank of Japan is engaging in quantitative easing for two reasons: The first, to devalue their currency to aid their exporters. A weaker Yen makes exports from Japanese manufacturers cheaper for foreign buyers. This is critical for Japan's manufacturing base as the country is an export based economy. In addition, there has also been an immense amount of political pressure on the Bank of Japan to help exporters. (I like to think of this in terms of big oil companies sending lobbyists to Washington.)
The second reason is to try and increase inflation. Inflation of 2.0% - 3.0% is typically considered normal for a healthy developed economy. If inflation were to increase, that would in turn lower the real rate of return on Japanese Government Bonds (JGBs) and cause the demand for these bonds to decrease. What happens when the real rate of return on these bonds decrease? There will be decreased demand for these bonds during periods of risk aversion as investors move their money into safe havens. (Safe havens = US 10YR, 10YR JGB, Swiss banks, etc.) - The decrease in the real rate of return on the JGBs will cause a significant amount of money to flow into other safe havens that would normally flow into JGBs.
So how do we trade this? I think we need to wait for guidance from the BOJ on Tuesday. They will be issuing a statement on monetary policy, making a decision on the overnight call rate (you can check for this here), and holding a press conference. The important thing to realize at this point is that the rules of the game may be changing. In the near future, it's very possible that the Yen does not appreciate against the dollar (USD/JPY down) during periods of risk aversion. We've been seeing evidence of this since last week.
BeamFX is a Guaranteed Introducing Broker for Institutional Liquidity (ILQ). Open a free demo account today!
Wednesday, October 24, 2012
Forex Trading Update: AUD/USD
As many of you know, I recently tweeted about what I believe to be a large automated seller(s) that sold the AUD/USD repeatedly as it popped above 1.0315 over an 8 hour period. (9PM-5AM EST 10/23-10/24). I was trading the GBP/AUD on 10/16 when I noticed very similar price action (8AM-3PM EST). At that point, GBP/AUD was putting in a swing high at 1.5700 and promptly fell 250 pips over the next 2 days.
Now, I can reasonably conclude that if a seller is using an automated system for a series of orders that has a large impact on price action they won't be playing for 10 pips and they are fairly confident in the direction of their position. As to their stop loss, I somehow doubt that a large seller that has taken 8 hours to accumulate a position will be exiting because it has risen by 50 pips. It could rise 200 pips and they could still stay in the trade. I'm guessing that their target is well below parity. For some reason, whatever reason, their models and algorithms told them the place to sell was 1.0315. I definitely want to be on the same side as what I believe to be a very large player; but I'll wait for this move up to wane, consolidate, and start to fall before I get short.
Why is the Aussie currently so strong? There are 3 main factors that influence the Aussie:
1. Australian Economic data: (CPI, unemployment, housing, etc.)
2. The economic situation in China: this affects expectations about demand for Australian exports which are mainly used as inputs in manufacturing and industrial production in China.
3. Risk appetite: the degree to which institutional traders and investors are willing to take risk. In a "risk on" scenerio, traders are will to accept a higher degree of risk in return for higher yields. High yielding bonds, stocks, and currencies are the primary beneficiaries. (i.e. low grade corporate bonds, the S&P 500 index, Aussie & Kiwi dollar, etc.)
Since the beats on Aussie CPI numbers last night (Actual 1.4%, Expected 0.9%, Previous 0.5%) and the Chinese HSBC Flash Manufacturing PMI (Actual 49.1, Previous 47.9) the Aussie has rallied from the 1.0250 area. Its closes were held above the .618 fib (daily chart, low on 10/8 to high on 10/18.) The Aussie is currently trading at 1.0350, but despite this rally we really have to see an increase in risk appetite to support an Aussie uptrend. It can happen, but I prefer playing this pair to the downside after a period of consolidation.
Note: I consider the FOMC minutes due out later today to be a wild card which could cause a large move in either direction.
BeamFX is a Guaranteed Introducing Broker for Institutional Liquidity (ILQ). Open a free demo account today!
Now, I can reasonably conclude that if a seller is using an automated system for a series of orders that has a large impact on price action they won't be playing for 10 pips and they are fairly confident in the direction of their position. As to their stop loss, I somehow doubt that a large seller that has taken 8 hours to accumulate a position will be exiting because it has risen by 50 pips. It could rise 200 pips and they could still stay in the trade. I'm guessing that their target is well below parity. For some reason, whatever reason, their models and algorithms told them the place to sell was 1.0315. I definitely want to be on the same side as what I believe to be a very large player; but I'll wait for this move up to wane, consolidate, and start to fall before I get short.
Why is the Aussie currently so strong? There are 3 main factors that influence the Aussie:
1. Australian Economic data: (CPI, unemployment, housing, etc.)
2. The economic situation in China: this affects expectations about demand for Australian exports which are mainly used as inputs in manufacturing and industrial production in China.
3. Risk appetite: the degree to which institutional traders and investors are willing to take risk. In a "risk on" scenerio, traders are will to accept a higher degree of risk in return for higher yields. High yielding bonds, stocks, and currencies are the primary beneficiaries. (i.e. low grade corporate bonds, the S&P 500 index, Aussie & Kiwi dollar, etc.)
Since the beats on Aussie CPI numbers last night (Actual 1.4%, Expected 0.9%, Previous 0.5%) and the Chinese HSBC Flash Manufacturing PMI (Actual 49.1, Previous 47.9) the Aussie has rallied from the 1.0250 area. Its closes were held above the .618 fib (daily chart, low on 10/8 to high on 10/18.) The Aussie is currently trading at 1.0350, but despite this rally we really have to see an increase in risk appetite to support an Aussie uptrend. It can happen, but I prefer playing this pair to the downside after a period of consolidation.
Note: I consider the FOMC minutes due out later today to be a wild card which could cause a large move in either direction.
BeamFX is a Guaranteed Introducing Broker for Institutional Liquidity (ILQ). Open a free demo account today!
Tuesday, October 23, 2012
Forex Trading Update: USD/JPY
USD/JPY
Before today's close on the daily chart, the USD/JPY had gone up 8 consecutive days in a row. That's impressive considering the last time it happened was in March/April of 2011. The extended move up has mostly been driven by jawboning by Bank of Japan officials, with market participants beginning to price in another round of stimulus.
In my opinion, the most important thing to watch is how USD/JPY behaves in relation to the 10 Year US treasury note when market sentiment is negative. Typically, during a "risk off" phase, the yield on 10 year US treasury notes decrease. At the same time, the USD/JPY usually goes down as well, as there is a higher real rate of return on 10 year Japanese Government Bonds then there is on 10 year US treasury notes. Now, following this logic you'll realize that if the the 10 year JGB's real rate of return were to decrease and the 10 year US Bond's real rate of return were to be held constant, then there would be less demand for 10 year JGBs relative to its US counterpart during a "risk off" phase.
I believe what we have been seeing over the last 8 days is a slow continuous change in the expectations of the real rate of return on 10 year Japanese government bonds. Why? Look at the 10 year U.S. Treasury note. It closed with a negative yield change of .0562 today (a 3.10% decrease) and the USD/JPY only dropped 10 pips today! (open to close.) There has been a strong inverse correlation between USD/JPY and a 10YR US Treasury note over the last year; but we may continue to see that correlation weaken in the near future.
Here are the three reasons which I believe have been causing the Yen to depreciate. First, expectations about the Bank of Japan conducting another round of stimulus causes a change in inflation expectations (a lower real rate of return.) Keep in mind, that the BOJ is TRYING to cause inflation as they have been struggling against deflationary pressures.Second, Japan's economy has been slowing down, driven not only by the slowing growth in Europe, the US, and China, but by their recent disagreement with China over a small group of islands. This dispute has fueled nationalistic anger in both countries and has led to Chinese consumers buying substantially less Japanese products. Third, there is a political firestorm brewing in Japan. The government will run out of money in November unless they reach an agreement. Politics over how to refinance there debt has reached critical importance as their Debt to GDP ratio in Japan is now 211%!! As we have seen very clearly in the United States, political disagreements over fiscal and monetary issues can have a big impact on equity markets (i.e. the fiscal cliff)
Let me be clear, I'm not advocating going long USD/JPY right here at the 80.00 level. I'm laying out what I consider to be the fundamental drivers of the Japanese Yen so that you can better understand how future developments may impact the currency.
BeamFX is a Guaranteed Introducing Broker for Institutional Liquidity (ILQ). Open a free demo account today!
Before today's close on the daily chart, the USD/JPY had gone up 8 consecutive days in a row. That's impressive considering the last time it happened was in March/April of 2011. The extended move up has mostly been driven by jawboning by Bank of Japan officials, with market participants beginning to price in another round of stimulus.
In my opinion, the most important thing to watch is how USD/JPY behaves in relation to the 10 Year US treasury note when market sentiment is negative. Typically, during a "risk off" phase, the yield on 10 year US treasury notes decrease. At the same time, the USD/JPY usually goes down as well, as there is a higher real rate of return on 10 year Japanese Government Bonds then there is on 10 year US treasury notes. Now, following this logic you'll realize that if the the 10 year JGB's real rate of return were to decrease and the 10 year US Bond's real rate of return were to be held constant, then there would be less demand for 10 year JGBs relative to its US counterpart during a "risk off" phase.
I believe what we have been seeing over the last 8 days is a slow continuous change in the expectations of the real rate of return on 10 year Japanese government bonds. Why? Look at the 10 year U.S. Treasury note. It closed with a negative yield change of .0562 today (a 3.10% decrease) and the USD/JPY only dropped 10 pips today! (open to close.) There has been a strong inverse correlation between USD/JPY and a 10YR US Treasury note over the last year; but we may continue to see that correlation weaken in the near future.
Here are the three reasons which I believe have been causing the Yen to depreciate. First, expectations about the Bank of Japan conducting another round of stimulus causes a change in inflation expectations (a lower real rate of return.) Keep in mind, that the BOJ is TRYING to cause inflation as they have been struggling against deflationary pressures.Second, Japan's economy has been slowing down, driven not only by the slowing growth in Europe, the US, and China, but by their recent disagreement with China over a small group of islands. This dispute has fueled nationalistic anger in both countries and has led to Chinese consumers buying substantially less Japanese products. Third, there is a political firestorm brewing in Japan. The government will run out of money in November unless they reach an agreement. Politics over how to refinance there debt has reached critical importance as their Debt to GDP ratio in Japan is now 211%!! As we have seen very clearly in the United States, political disagreements over fiscal and monetary issues can have a big impact on equity markets (i.e. the fiscal cliff)
Let me be clear, I'm not advocating going long USD/JPY right here at the 80.00 level. I'm laying out what I consider to be the fundamental drivers of the Japanese Yen so that you can better understand how future developments may impact the currency.
BeamFX is a Guaranteed Introducing Broker for Institutional Liquidity (ILQ). Open a free demo account today!
Monday, October 22, 2012
Where Should You Open Your Forex Account?
There are three main reasons traders cite as to
why they would prefer to open a forex account outside of the United
States. Outside of the United States: 200:1 or more leverage is
available, hedging is permitted, and FIFO accounting rules are not
required. Let’s address these one at a time:
1. Our argument against the use of excessive leverage is clear: profitable traders don’t need more than 50:1 leverage. Traders using more than 50:1 leverage are susceptible to wild swings in their account balance and will most likely blow up their account.
2. Under our solution, the customer's trading experience in terms of hedging does not change. In order to abide by the CFTC no hedging rule, the counter party offsets the positions as they receive the orders. When orders are placed on the MT 4 platform, the hedging feature remains available. For example, if you buy and sell a contract on the MT4 software, you will notice your positions are hedged on the interface, however, the orders that have been sent to the counter party have been offset with each other. Your net position remains the same on the MT4 and the back office. When you close your hedge positions on the MT4 software, the new buy and sell orders placed will be offset with each other by the counter party and again your net positions on the MT4 and the back office remain the same.
3. In order to abide by the CFTC FIFO rule, the counter party offsets the positions on a First In First Out basis. On the MetaTrader 4 platform you have the ability to close the positions as you see fit. For example, if you buy a contract and buy another contract at a later time and you decide to close your most recent buy position, you can simply close this position on the MT4 interface, however, the order that is sent to the counter party will be offset with the FIFO rule in place. Your net position remains the same on the MT4 and the back office.
Now, considering that the three cited reasons can be easily addressed, let’s talk about the one main reason in favor of opening your forex account in the United States. This single reason for opening a forex account in the United States overwhelming trumps any reason(s) for not doing so.
Where you deposit your money is incredibly important. You need to know that it’s safe and that the brokers holding it are the most regulated and under the heaviest scrutiny in the forex industry. Trading is hard enough as it is, why expose your funds to unnecessary risk?
The United States is the most heavily regulated Forex industry in the world. All brokers must register with the Commodity Futures Trading Commission and are members of the National Futures Association.
Brokers have daily, monthly, and quarterly operational reporting requirements, detailing customer funds on deposit, # of retail and ECP forex customers that are active, whether they are US or foreign domiciled, and the percentage of non discretionary accounts that were profitable vs non-profitable - among other things. Unaudited financial statements are filed monthly and audited financial statements are filed annually. Failure to comply with these NFA requirements can result in severe disciplinary actions as well as substantial fines and penalties.
The complete regulatory history of all NFA brokers as well as key personnel is available online at http://www.nfa.futures.org/basicnet. Simply search by name or NFA ID# if you know it.
How much do you know about your broker?
1. Our argument against the use of excessive leverage is clear: profitable traders don’t need more than 50:1 leverage. Traders using more than 50:1 leverage are susceptible to wild swings in their account balance and will most likely blow up their account.
2. Under our solution, the customer's trading experience in terms of hedging does not change. In order to abide by the CFTC no hedging rule, the counter party offsets the positions as they receive the orders. When orders are placed on the MT 4 platform, the hedging feature remains available. For example, if you buy and sell a contract on the MT4 software, you will notice your positions are hedged on the interface, however, the orders that have been sent to the counter party have been offset with each other. Your net position remains the same on the MT4 and the back office. When you close your hedge positions on the MT4 software, the new buy and sell orders placed will be offset with each other by the counter party and again your net positions on the MT4 and the back office remain the same.
3. In order to abide by the CFTC FIFO rule, the counter party offsets the positions on a First In First Out basis. On the MetaTrader 4 platform you have the ability to close the positions as you see fit. For example, if you buy a contract and buy another contract at a later time and you decide to close your most recent buy position, you can simply close this position on the MT4 interface, however, the order that is sent to the counter party will be offset with the FIFO rule in place. Your net position remains the same on the MT4 and the back office.
Now, considering that the three cited reasons can be easily addressed, let’s talk about the one main reason in favor of opening your forex account in the United States. This single reason for opening a forex account in the United States overwhelming trumps any reason(s) for not doing so.
Where you deposit your money is incredibly important. You need to know that it’s safe and that the brokers holding it are the most regulated and under the heaviest scrutiny in the forex industry. Trading is hard enough as it is, why expose your funds to unnecessary risk?
The United States is the most heavily regulated Forex industry in the world. All brokers must register with the Commodity Futures Trading Commission and are members of the National Futures Association.
Brokers have daily, monthly, and quarterly operational reporting requirements, detailing customer funds on deposit, # of retail and ECP forex customers that are active, whether they are US or foreign domiciled, and the percentage of non discretionary accounts that were profitable vs non-profitable - among other things. Unaudited financial statements are filed monthly and audited financial statements are filed annually. Failure to comply with these NFA requirements can result in severe disciplinary actions as well as substantial fines and penalties.
The complete regulatory history of all NFA brokers as well as key personnel is available online at http://www.nfa.futures.org/basicnet. Simply search by name or NFA ID# if you know it.
How much do you know about your broker?
BeamFX is an guaranteed introducing broker of ILQ. Join us in our free live trade room Monday - Friday.
Friday, October 19, 2012
Romney Win = Death of QEternity?
As we noted in our previous post there is a possibility that a Romney victory in the U.S. presidential election could cause the stock market to capitulate. All it takes is for the rumor to pick up a little momentum and we could see the dollar strengthen substantially. Keep in mind, if the rumor starts to make the rounds before the election, then a change in the polls in favor of Romney would equate to a greater chance that the rumor could become reality, leading to a stronger dollar.
The name of the game is "Expectations"
For your convenience, I've assembled some current poll results of who is leading the race with links to check up on them. Keep in mind, media news outlets are typically biased and polls typically have a small margin of error.
CNN: Romney 48%, Obama 47%
Real Clear Politics: Romney 47.0%, Obama 47.1%
Gallup: Romney 48%, Obama 47%
WashingtonPost/ABC's Poll: Romney 46% Obama 49%
The name of the game is "Expectations"
For your convenience, I've assembled some current poll results of who is leading the race with links to check up on them. Keep in mind, media news outlets are typically biased and polls typically have a small margin of error.
CNN: Romney 48%, Obama 47%
Real Clear Politics: Romney 47.0%, Obama 47.1%
Gallup: Romney 48%, Obama 47%
WashingtonPost/ABC's Poll: Romney 46% Obama 49%
Forex Trading - Market Update
Risk appetite has weakened on the 25th year anniversary of Black Monday. The biggest downside surprise yesterday was Google's earnings. Their earnings were accidentally reported early and the stock sold off 8.0%. Google's poor earnings highlight investor's growing concerns with Q3 earnings, as other bellweather companies are missing estimates as well, such as IBM and Intel. The moves down in the currency market yesterday were mostly fueled by
Google's earning miss.
However, sentiment seemed a lot more negative then the actual
movement in equity prices. DJIA closed -0.06%, S&P500 closed -0.24%,
and NASDAQ closed at -1.01%. Equities closed negative, but clearly
didn't sell off.
EUR/USD's upward momentum has at least temporarily faltered as it broke below the 1.3100 level and bounced off of a daily close at 1.3056 and consolidated around a previous swing high at 1.3073. There's market talk of a $1 billion option expiry at 1.3050, so that number should be well defended. A close below it could lead to an extended move to the downside.
The Aussie in particular seemed to remain well bid as expectations about the economic situation in China improved. Expectations are a little more negative about China this morning due to the FDI print missing the estimate (-3.8% actual, -3.4% previous.) Additionally, Google's earnings miss put pressure on Asian equity markets which in turn put more pressure on the Aussie. Equity markets in Europe are currently down slightly, but it's the U.S. markets that should really set the tone for the next move in the Aussie.
EUR/USD's upward momentum has at least temporarily faltered as it broke below the 1.3100 level and bounced off of a daily close at 1.3056 and consolidated around a previous swing high at 1.3073. There's market talk of a $1 billion option expiry at 1.3050, so that number should be well defended. A close below it could lead to an extended move to the downside.
The Aussie in particular seemed to remain well bid as expectations about the economic situation in China improved. Expectations are a little more negative about China this morning due to the FDI print missing the estimate (-3.8% actual, -3.4% previous.) Additionally, Google's earnings miss put pressure on Asian equity markets which in turn put more pressure on the Aussie. Equity markets in Europe are currently down slightly, but it's the U.S. markets that should really set the tone for the next move in the Aussie.
Wednesday, October 17, 2012
Forex Trading - Market Update
RISK ON
After Moodys refused to downgrade Spain's credit rating to junk yesterday, risk appetite has steadily increased across the board. The WSJ dollar index was down 0.50% at one point, and the commodity currencies (AUD, NZD, CAD) were the strong performers. The Euro and Pound rose against the dollar, but retraced some of yesterday's gains against the commodity currencies. GBP/AUD dropped 100 pips and EUR/AUD dropped 50 pips respectively.
USD/CAD
The Canadian Dollar, otherwise known as the Loonie, gained a lot of strength stemming from the better than expected data prints on US Building Permits and Housing Starts. Why? Canada does the majority of its exporting and importing with the US. In particular, Canada exports a lot of raw materials to the US that are used in industrial and manufacturing production. Thus, when there is an increase in expected production which requires a lot of the raw materials that Canada exports, the Loonie appreciates. This is a substantial turnaround from yesterday when "less-hawkish" comments that Bank of Canada's Carney made (on Monday) caught up with the Loonie and caused it to depreciate.
AUD/USD
This currency pair ripped up 180 pips without a retracement since bouncing off the 1.0200 level. It previously got as low as 1.0150, conveniently knocking out stops below the recent swing low. The three main commodity currencies have been strong today, but the Aussie seems unusually well bid. The only reason I can find for the strength is that many market participants are expecting the Chinese GDP number to come in at or better then expectations. (Previous 7.6%, Expected 7.4%). I think this may be a "buy the rumor sell the fact" scenario. I think we'll need to see a really good number (7.8% or higher) for this current rally in the Aussie to be sustained. If the GDP numbers comes in at or below expectations, the Aussie could fall.
EUR/USD
I've been saying for a while that when it comes to trading the Euro, it's the perception of stability that matters in the short term. The fundamentals continue to deteriorate, while the Euro continues to gain against most other currencies. Spanish, Italian, and Greek bond yields are all now significantly lower from their peaks. I don't see how European equity prices and the Euro can remain at these levels without political leaders fixing at least some of the economic and political problems; but I don't see the point in shorting until we see weakness. There's nothing I find more annoying than having a completely "irrational" move run up in my face. Better to wait for weakness and then pounce.
After Moodys refused to downgrade Spain's credit rating to junk yesterday, risk appetite has steadily increased across the board. The WSJ dollar index was down 0.50% at one point, and the commodity currencies (AUD, NZD, CAD) were the strong performers. The Euro and Pound rose against the dollar, but retraced some of yesterday's gains against the commodity currencies. GBP/AUD dropped 100 pips and EUR/AUD dropped 50 pips respectively.
USD/CAD
The Canadian Dollar, otherwise known as the Loonie, gained a lot of strength stemming from the better than expected data prints on US Building Permits and Housing Starts. Why? Canada does the majority of its exporting and importing with the US. In particular, Canada exports a lot of raw materials to the US that are used in industrial and manufacturing production. Thus, when there is an increase in expected production which requires a lot of the raw materials that Canada exports, the Loonie appreciates. This is a substantial turnaround from yesterday when "less-hawkish" comments that Bank of Canada's Carney made (on Monday) caught up with the Loonie and caused it to depreciate.
AUD/USD
This currency pair ripped up 180 pips without a retracement since bouncing off the 1.0200 level. It previously got as low as 1.0150, conveniently knocking out stops below the recent swing low. The three main commodity currencies have been strong today, but the Aussie seems unusually well bid. The only reason I can find for the strength is that many market participants are expecting the Chinese GDP number to come in at or better then expectations. (Previous 7.6%, Expected 7.4%). I think this may be a "buy the rumor sell the fact" scenario. I think we'll need to see a really good number (7.8% or higher) for this current rally in the Aussie to be sustained. If the GDP numbers comes in at or below expectations, the Aussie could fall.
EUR/USD
I've been saying for a while that when it comes to trading the Euro, it's the perception of stability that matters in the short term. The fundamentals continue to deteriorate, while the Euro continues to gain against most other currencies. Spanish, Italian, and Greek bond yields are all now significantly lower from their peaks. I don't see how European equity prices and the Euro can remain at these levels without political leaders fixing at least some of the economic and political problems; but I don't see the point in shorting until we see weakness. There's nothing I find more annoying than having a completely "irrational" move run up in my face. Better to wait for weakness and then pounce.
Tuesday, October 16, 2012
Forex Trading - Market Update
A little after 5:00 P.M. EST, Moody's released the announcement that they would not be cutting Spain's credit rating to junk. The Euro and risk appetite ripped higher on the news with EUR/USD hitting 1.3100 within 13 minutes of starting the ascent. I think it's important to realize that this latest move up in the Euro has been largely driven by rumors. The fundamentals remain the same, and more importantly, the issues that the speculation is surrounding have not been resolved. Spain has not asked for a bailout, Germany has not agreed to joint debt liability, and political leaders haven't made any new agreements. On top of that, Spain will most likely try and hold off on asking for a bailout as long as it can refinance its debt at a reasonable price. If we don't see Spanish bond yields climbing, they will most likely drag their feet and try and get by until the market eventually forces them to ask for a bailout.
Monday, October 15, 2012
Forex Trading - EUR/USD Update
The EUR/USD has been a graveyard in recent weeks as short term traders and scalpers have been whipsawed back and forth. My philosophy for trading the Euro is simple. I ask myself, "what direction does the Euro have to move in for the most traders to get hurt?" I don't believe it's any coincidence that the Euro has been climbing since the COT data came out and revealed that an unusually large percentage of traders who had EUR/USD positions were net short.
Lets talk about price action. I know that EUR/USD has been really choppy, so I've just been counting on the choppiness. Price tends to bounce off of levels of psychological significance levels like "big figures," the 200 day SMA, Fib levels, and previous daily closes. I count on it reversing at a key level after a significant move, simply because I know a move in the opposite direction will hurt a lot of traders. It sounds simple in theory, but in practice, it's difficult to wait for that oversold or overbought condition when it has just run up a hundred points and I can get a great entry. Patience is crucial.
Where will the Euro go from here? Well, if the COT data is any indicator, I think the most amount of traders could be hurt by a continued move to the upside. Most importantly, the main driver of the Euro at this point is the perception of the Eurozone's stability. Being an economist by trade and an avid fan of Zerohedge, I do realize the disconnect between the market fundamentals and the equity and debt markets. However, the support for the Eurozone and Euro is largely a matter of perception. If institutional investors and traders feel that the Eurozone will not collapse and that Draghi and political leaders will be able to maintain stability, then their risk appetite will increase. (Check recent levels on Spanish & Greek bond yields.) An increase of funds being invested in Europe means a greater demand for Euros. The price action in European bonds tells us that the crisis in the Eurozone has stabilized recently. The market fundamentals have deteriorated, but does that really matter? From what I've seen, the perception of stability has been trumping the market fundamentals in the short term.
The Spanish Bailout: sooner or later, Spain will get bailed out by the European Central Bank. The only choice Spain has is exactly when it wants to ask for the bailout. Bad economic news coming out of Spain recently has only helped the Euro to go higher, as it "increases the chances that Spain will ask for a bailout sooner." I think this is complete hogwash especially since I find it unlikely that Spain will request a bailout before the local elections on Oct. 21st. The EU summit is this weekend though, so anything is possible and rumors will probably fly.
On a side note, I find it unlikely that Greece will exit the Eurozone before the U.S. presidential election due to the delayed Troika report. If this is the case, they will most likely get their next tranche of aid later this month and the can will be kicked further down the road.
Lets talk about price action. I know that EUR/USD has been really choppy, so I've just been counting on the choppiness. Price tends to bounce off of levels of psychological significance levels like "big figures," the 200 day SMA, Fib levels, and previous daily closes. I count on it reversing at a key level after a significant move, simply because I know a move in the opposite direction will hurt a lot of traders. It sounds simple in theory, but in practice, it's difficult to wait for that oversold or overbought condition when it has just run up a hundred points and I can get a great entry. Patience is crucial.
Where will the Euro go from here? Well, if the COT data is any indicator, I think the most amount of traders could be hurt by a continued move to the upside. Most importantly, the main driver of the Euro at this point is the perception of the Eurozone's stability. Being an economist by trade and an avid fan of Zerohedge, I do realize the disconnect between the market fundamentals and the equity and debt markets. However, the support for the Eurozone and Euro is largely a matter of perception. If institutional investors and traders feel that the Eurozone will not collapse and that Draghi and political leaders will be able to maintain stability, then their risk appetite will increase. (Check recent levels on Spanish & Greek bond yields.) An increase of funds being invested in Europe means a greater demand for Euros. The price action in European bonds tells us that the crisis in the Eurozone has stabilized recently. The market fundamentals have deteriorated, but does that really matter? From what I've seen, the perception of stability has been trumping the market fundamentals in the short term.
The Spanish Bailout: sooner or later, Spain will get bailed out by the European Central Bank. The only choice Spain has is exactly when it wants to ask for the bailout. Bad economic news coming out of Spain recently has only helped the Euro to go higher, as it "increases the chances that Spain will ask for a bailout sooner." I think this is complete hogwash especially since I find it unlikely that Spain will request a bailout before the local elections on Oct. 21st. The EU summit is this weekend though, so anything is possible and rumors will probably fly.
On a side note, I find it unlikely that Greece will exit the Eurozone before the U.S. presidential election due to the delayed Troika report. If this is the case, they will most likely get their next tranche of aid later this month and the can will be kicked further down the road.
Sunday, October 14, 2012
Compare Your Trading Costs
At BeamFX we realize the importance of providing our clients with low trading costs. For that reason, our primary offering is a spread of 1.4 on EUR/USD during normal market conditions with no commissions.
The second type of trading cost, which we consider to be more important, is slippage. Slippage is the difference between the price at which you bought or sold and the price at which your order actually gets filled.
At BeamFX, one of the reasons that we chose to become a guaranteed introducing broker of ILQ is because of their automated dealing desk system, which provides high quality executions.
To illustrate the importance of getting good fills on your trades, we present the following hypothetical example. If Trader 'A' executes a buy order on EUR/USD at 1.30121 and gets filled at 1.30127, then he was slipped 0.6 pips. If Trader A then executes a sell order at 1.30374 and gets filled at 1.30379, then he was slipped 0.5 pips. The total slippage on entering and exiting the trade would be 1.1 pips! Let's assume that Trader A's broker offered a 0.8 spread on EUR/USD with no commissions. The spread is low, but the total trading cost on that one trade adds up to 1.9 pips. (0.6+0.5+0.8). Often times, slippage on the entrance and exit of a trade adds up to more than what a trader pays in the spread!
It's important to note that no matter what broker you trade with, you will most likely incur slippage costs on a regular basis, even if it's a small amount. We don't claim to offer slippage free trading, we simply invite you to compare the overall trading costs at ILQ (Spread + Slippage) with costs at any other broker.
Free Demo Account Link: http://www.beamfx.com/accounts/ILQdemo.html
The second type of trading cost, which we consider to be more important, is slippage. Slippage is the difference between the price at which you bought or sold and the price at which your order actually gets filled.
At BeamFX, one of the reasons that we chose to become a guaranteed introducing broker of ILQ is because of their automated dealing desk system, which provides high quality executions.
To illustrate the importance of getting good fills on your trades, we present the following hypothetical example. If Trader 'A' executes a buy order on EUR/USD at 1.30121 and gets filled at 1.30127, then he was slipped 0.6 pips. If Trader A then executes a sell order at 1.30374 and gets filled at 1.30379, then he was slipped 0.5 pips. The total slippage on entering and exiting the trade would be 1.1 pips! Let's assume that Trader A's broker offered a 0.8 spread on EUR/USD with no commissions. The spread is low, but the total trading cost on that one trade adds up to 1.9 pips. (0.6+0.5+0.8). Often times, slippage on the entrance and exit of a trade adds up to more than what a trader pays in the spread!
It's important to note that no matter what broker you trade with, you will most likely incur slippage costs on a regular basis, even if it's a small amount. We don't claim to offer slippage free trading, we simply invite you to compare the overall trading costs at ILQ (Spread + Slippage) with costs at any other broker.
Free Demo Account Link: http://www.beamfx.com/accounts/ILQdemo.html
Should You Trade a Demo or Live Account?
There are several distinct differences between trading a demo account and trading a live account. Most people test the waters with a demo account. They typically believe that when they open a live account their results will be the same. Of course, the results are almost never the same.
First off, demo accounts are very useful for certain purposes. If you are brand new to FX trading, it’s my opinion that you should not be trading a live account. Demo accounts are great for learning how the trading process works, (spreads, slippage, overall execution) learning how different brokers operate, and gaining general market knowledge. Demo accounts are also great if you want to test strategies, practice scalping, etc. Also, if you are trading a real money account, and get into a slump, it may be beneficial to temporarily switch back to a demo account.
That being said, there are certain things you can only learn by trading a live account. When you begin trading live I recommend only trading with a small amount of capital. If you are trading very small positions, you will not be able to seriously damage your total trading equity - but you will start learning the mistakes commonly made when trading real money. Even though you’re not risking a lot of capital, our brains just functions differently then when trading a demo account.
The emotions involved with trading real money are significantly stronger than trading with a demo. With real money you will be tempted to commit a number of trading sins: moving stop losses, exiting a position prematurely, and entering a trade simply to win back money after a loss. Trading real money also opens the door to: fear of losing money, greed, and dealing with our need to win (validates our sense of superiority) However, the experience of trading with real money is very unique, and you can’t learn to control the emotions associated with trading real money by trading a demo account.
When you begin trading with real money it is critical to note the mistakes you make that you weren’t making while trading on the demo account. Write the mistakes down. Don’t skip this important step‼ It's typical of bad traders to either be too lazy, or to think that they are smart enough to remember them. Writing your mistakes down is a great habit to get into - and a big part of trading is getting rid of your bad habits and adopting good ones. After you have figured out your mistakes and written them down, find a solution and write that down. This process helps you develop trading rules that will help you become more disciplined and protect you from your emotions.
Some of the best traits you can develop as a trader are strong senses of self awareness and self evaluation.
BeamFX is an Guaranteed Introducing Broker of ILQ. Join us in our free live trade room Monday - Friday at 9:00 A.M. EST
Thursday, October 11, 2012
Romney Win = Bad for Stocks?
There seems to be a general consensus among market participants that it would be good for the stock market if Mitt Romney were to be elected president. There was an article on CNBC that suggested that a group of stocks in particular would do well if Romney were to be elected. Most people don't realize that a Romney win will most likely result in a broad sell-off in the U.S. stock market. Why would this happen? We believe that Romney being elected will most likely result in an end to QEternity. (A stop to the current endless monetary stimulus spewing from the Federal Reserve.) Current market prices are very much still based on expectations of the Fed continuing to support the markets. Expectations about Quantitative Easing from the Fed in particular, have a very strong effect on the dollar. As the U.S. stock market is "hooked" on this easing, the end of this easing will likely result in a dramatic drop in the stock market.
Apparently other people are coming to the same conclusion as well. I found an article on Business Insider which states that Jim Bianco thinks that Romney doing better in the polls is the reason the equity markets have been correcting in the last week. I think that's far fetched, but this theory is definitely something you should definitely be aware of. Even in the pre-election period that we are currently in, this theory may play into expectations if Romney pulls ahead in the polls.
Wednesday, October 10, 2012
Forex Trading - EUR/USD Update
While making the normal rounds through my sources of news, part of an article written by Kathy Lien at BK Asset Management stood out to me.
""Meanwhile 2 key developments for the FX market have been lost in the shuffle. First the U.S. dollar has returned to its pre-QE3 levels against the euro. This is important as it helps to explain why currencies are beginning to consolidate after falling sharply last week – QE3 is providing a base for currencies. As we have seen in the first and second round of Quantitative Easing, flooding the markets with more dollars has not always been negative for the greenbak. This is especially true when larger forces are at play and right now, that is the market’s concern about how the situation in Spain will play out. Lost in the shuffle has been a deal for Greece. Based on the comments made by French President Hollande this morning and German Chancellor Merkel on Tuesday, Greece is getting very close to receiving its next aid payment. They are still in negotiations with the Troika but everyone is committed to unlocking the funds before the country runs out of money next month. Merkel took a special trip to Athens yesterday to show her sign of support for the nation and her commitment to keeping the country in the euro. Hollande echoed these comments this morning and spoke for Spain as well when he said both nations have a shared vision for the EU in the coming weeks that include keeping Greece in the euro. They expect to make a decision on unlocking Greek aid at the EU Summit next week. With Germany and France now behind Greece, there’s a good chance a deal will happen soon, which would remove a key uncertainty for Europe and help the EUR/USD recover.""
http://www.bkassetmanagement.com/featured/eurusd-whats-been-lost-in-the-shuffle_2858/
I think this is a possible Euro rally in the making that could occur before the Spanish bailout rumors start flying. (They are due out sometime around the October 21st elections.)
""Meanwhile 2 key developments for the FX market have been lost in the shuffle. First the U.S. dollar has returned to its pre-QE3 levels against the euro. This is important as it helps to explain why currencies are beginning to consolidate after falling sharply last week – QE3 is providing a base for currencies. As we have seen in the first and second round of Quantitative Easing, flooding the markets with more dollars has not always been negative for the greenbak. This is especially true when larger forces are at play and right now, that is the market’s concern about how the situation in Spain will play out. Lost in the shuffle has been a deal for Greece. Based on the comments made by French President Hollande this morning and German Chancellor Merkel on Tuesday, Greece is getting very close to receiving its next aid payment. They are still in negotiations with the Troika but everyone is committed to unlocking the funds before the country runs out of money next month. Merkel took a special trip to Athens yesterday to show her sign of support for the nation and her commitment to keeping the country in the euro. Hollande echoed these comments this morning and spoke for Spain as well when he said both nations have a shared vision for the EU in the coming weeks that include keeping Greece in the euro. They expect to make a decision on unlocking Greek aid at the EU Summit next week. With Germany and France now behind Greece, there’s a good chance a deal will happen soon, which would remove a key uncertainty for Europe and help the EUR/USD recover.""
http://www.bkassetmanagement.com/featured/eurusd-whats-been-lost-in-the-shuffle_2858/
I think this is a possible Euro rally in the making that could occur before the Spanish bailout rumors start flying. (They are due out sometime around the October 21st elections.)
Market Update
As we correctly predicted in our last post equity markets in Asia closed in the red: Nikkei: -1.98%, Topix: -1.49%, and Hang Sang: -0.08%. EUR/USD, GBP/USD, and AUD/USD moved sideways in the Asia session and picked up momentum in the European session. We are now flat and waiting for another opportunity.
I have a bearish outlook for the rest of the week due to U.S. earnings, the debt crisis in Europe, the slowdown in China, and the Chinese/Japanese conflict over a group of small desolate islands. In terms of the U.S. earnings, companies have been underestimating their earnings so that they can outperform. This may seem smart, but the market has caught on, and now companies' results are being examined much more carefully. In terms of the debt crisis in Europe, negative developments within the Eurozone should cause the Euro to fall as there is nothing for market participants to look forward to in the short term. (Think Spanish bailout, additional stimulus from the ECB, etc.) The Chinese/Japanese conflict does not look like it will be resolved soon, as the PBOC governor recently canceled a trip to Japanese. The Chinese economy continues to slow and PBOC continues to stimulate via reverse repos. If we see an increase in risk appetite, I think it will most likely come via rumors of Chinese stimulus.
I have a bearish outlook for the rest of the week due to U.S. earnings, the debt crisis in Europe, the slowdown in China, and the Chinese/Japanese conflict over a group of small desolate islands. In terms of the U.S. earnings, companies have been underestimating their earnings so that they can outperform. This may seem smart, but the market has caught on, and now companies' results are being examined much more carefully. In terms of the debt crisis in Europe, negative developments within the Eurozone should cause the Euro to fall as there is nothing for market participants to look forward to in the short term. (Think Spanish bailout, additional stimulus from the ECB, etc.) The Chinese/Japanese conflict does not look like it will be resolved soon, as the PBOC governor recently canceled a trip to Japanese. The Chinese economy continues to slow and PBOC continues to stimulate via reverse repos. If we see an increase in risk appetite, I think it will most likely come via rumors of Chinese stimulus.
Tuesday, October 9, 2012
Forex Trading - Market Update
Market Update
As we predicted, the social unrest in Greece was splashed across media headlines today and appeared to be the main driver behind the fall in equity markets and the Euro weakness observed. I think the Asian equity indices will close in the red as the negative sentiment from today's U.S. and Europe sessions spills over into the Asia session. However, that does not necessarily mean that currencies will sell off against the dollar. (Sideways price action in EUR/USD & GBP/USD is a good possibility.)
Looking Forward
I'm currently long EUR/USD at 1.2890, GBP/USD at 1.5990, and AUD/USD at 1.0205
I initiated these positions because I consider the Euro and Pound to be oversold at these levels and expect them to bounce. Also, the kickoff to earnings season appears to be positive. The Aussie has been propped up since Monday's Asia session - in part due to rumors of more Chinese stimulus.
Note: These are short term trades and I will reevaluate when I get back to my desk before the Europe session begins. I'm aiming for 50 pips; but I'll have to see how price action develops.
I'm still bearish on USD/JPY for now as I think the U.S. 10 year treasury note yield change will continue to slide (risk off) prior to the Spanish bailout rumors due out shortly before the October 21st Spanish elections.You can track bond yields at Bloomberg's website.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room 9:00 A.M. Monday - Friday.
As we predicted, the social unrest in Greece was splashed across media headlines today and appeared to be the main driver behind the fall in equity markets and the Euro weakness observed. I think the Asian equity indices will close in the red as the negative sentiment from today's U.S. and Europe sessions spills over into the Asia session. However, that does not necessarily mean that currencies will sell off against the dollar. (Sideways price action in EUR/USD & GBP/USD is a good possibility.)
Looking Forward
I'm currently long EUR/USD at 1.2890, GBP/USD at 1.5990, and AUD/USD at 1.0205
I initiated these positions because I consider the Euro and Pound to be oversold at these levels and expect them to bounce. Also, the kickoff to earnings season appears to be positive. The Aussie has been propped up since Monday's Asia session - in part due to rumors of more Chinese stimulus.
Note: These are short term trades and I will reevaluate when I get back to my desk before the Europe session begins. I'm aiming for 50 pips; but I'll have to see how price action develops.
I'm still bearish on USD/JPY for now as I think the U.S. 10 year treasury note yield change will continue to slide (risk off) prior to the Spanish bailout rumors due out shortly before the October 21st Spanish elections.You can track bond yields at Bloomberg's website.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room 9:00 A.M. Monday - Friday.
Monday, October 8, 2012
Forex Trading - Market Update
Equity Markets
Going into the today's market open, S&P futures indicated a -6 to -7 point opening (it bottomed at roughly -7 points today) and the markets had sold off substantially since the pop higher after the NFPs on Friday. It appeared to me to be a bear trap (it was) and the S&P closed at -5.05 pts today. Mondays have tended to be more negative than positive over the last couple of months. Even when they aren't, they are usually fairly predictable. Now we head into earnings season where things are a bit more unpredictable. Companies tend to underestimate their earnings so they can "beat" their estimates. While I think the earnings aren't going to be good, I'm not sure what the market reaction will be.
EUR/USD
Angela Merkel arrives in Greece tomorrow, so I expect the media to focus on the situation there. Separate from the actual negotiations, there should be a significant amount of social unrest which should attract attention from the media. The social unrest in and of itself may cause the Euro to depreciate and European Equity indices to drop. How much impact the social unrest will have on the markets depends on how much attention it gets from the media. If European equity indices and the Euro are already falling, the media is likely to take those declines and try to find a reason for them (cue heavy coverage of protests and additional declines in equities). Keep in mind that Draghi speaks early in the day (3:30 AM EST) and that he is excellent at jawboning.
- Spanish Bailout: Is this a "buy the rumor sell the news" scenerio? I think so. Though the trick to playing this situation correctly is buying the rumor at the correct point. Rajoy will try and hold out on asking for a bailout until after the Spanish elections on October 21st. Requesting a sovereign bailout from the ECB is not a popular move with the people. So because everyone knows that Rajoy will most likely hold off on requesting a bailout until the 21st, the EUR/USD has plenty of scope to the downside until then. I'll be looking to buy into major weakness 2-3 days before the Spanish elections (as market conditions allow) in anticipation of bailout rumors.
GBP/USD
The Pound has been really weak since the post-NFP sell off. The main driver appears to be weak PMI numbers from last week and rumors of additional monetary easing. In terms of economic data releases this week, there is very little except for tomorrow at 4:30 AM EST. (Manufacturing & industrial production and trade balance) These are fairly important items that will affect expectations about more stimulus. It's important to note that the possibility of these numbers being bad and leading to an increase in stimulus expectations may already be priced in. There's a possibility that bad numbers may cause a spike down followed by a move sideways/up.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room Mon. - Fri. 7:45 - 10:45 AM EST.
Going into the today's market open, S&P futures indicated a -6 to -7 point opening (it bottomed at roughly -7 points today) and the markets had sold off substantially since the pop higher after the NFPs on Friday. It appeared to me to be a bear trap (it was) and the S&P closed at -5.05 pts today. Mondays have tended to be more negative than positive over the last couple of months. Even when they aren't, they are usually fairly predictable. Now we head into earnings season where things are a bit more unpredictable. Companies tend to underestimate their earnings so they can "beat" their estimates. While I think the earnings aren't going to be good, I'm not sure what the market reaction will be.
EUR/USD
Angela Merkel arrives in Greece tomorrow, so I expect the media to focus on the situation there. Separate from the actual negotiations, there should be a significant amount of social unrest which should attract attention from the media. The social unrest in and of itself may cause the Euro to depreciate and European Equity indices to drop. How much impact the social unrest will have on the markets depends on how much attention it gets from the media. If European equity indices and the Euro are already falling, the media is likely to take those declines and try to find a reason for them (cue heavy coverage of protests and additional declines in equities). Keep in mind that Draghi speaks early in the day (3:30 AM EST) and that he is excellent at jawboning.
- Spanish Bailout: Is this a "buy the rumor sell the news" scenerio? I think so. Though the trick to playing this situation correctly is buying the rumor at the correct point. Rajoy will try and hold out on asking for a bailout until after the Spanish elections on October 21st. Requesting a sovereign bailout from the ECB is not a popular move with the people. So because everyone knows that Rajoy will most likely hold off on requesting a bailout until the 21st, the EUR/USD has plenty of scope to the downside until then. I'll be looking to buy into major weakness 2-3 days before the Spanish elections (as market conditions allow) in anticipation of bailout rumors.
GBP/USD
The Pound has been really weak since the post-NFP sell off. The main driver appears to be weak PMI numbers from last week and rumors of additional monetary easing. In terms of economic data releases this week, there is very little except for tomorrow at 4:30 AM EST. (Manufacturing & industrial production and trade balance) These are fairly important items that will affect expectations about more stimulus. It's important to note that the possibility of these numbers being bad and leading to an increase in stimulus expectations may already be priced in. There's a possibility that bad numbers may cause a spike down followed by a move sideways/up.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room Mon. - Fri. 7:45 - 10:45 AM EST.
Thursday, October 4, 2012
Forex Trading - EUR/USD Update
Yesterday I wrote "I'm being especially careful of shorting the Euro, as any comments that Draghi may make at the press conference tomorrow may give the Euro a boost. It has exhibited unusual strength over the past 3 days against the dollar."
If you look back through price action, the Euro usually strengthens substantially the days/sessions prior to Draghi speaking. I hypothesize that these bouts of Euro strength are mostly due to expectations of Draghi speaking, and it tends to play out as a self fulfilling prophecy. It helps that Draghi is an incredibly intelligent person and that he understands the expectations of market participants. He knows what he needs to say in order not to disappoint institutional traders & investors.
That brings me to my next point. When will I feel confident in shorting the Euro again? I've often pondered this question, as I am of the opinion that the current level of optimism regarding the Eurozone is not warranted given the market fundamentals. I believe the best approach is to view the situation in the Eurozone from a medium to long term investor's point of view. It all comes down to the stability of the Eurozone. Is it safe to invest there? Are the policy makers tackling the problems?
For a die-hard bear like myself, I view the debt crisis in the Eurozone with extreme pessimism. However, that pessimism isn't going to make me any money. I need to be able to predict where price is going next. It's healthy to understand the fundamentals and develop a bias, but I need to be able to think objectively and trade the price action in front of me. As much as I despise the level that the Euro is trading at, I think there needs to be real questions about the stability of the Eurozone (from the bulls) in order to see a good sized correction or a reversal of the uptrend starting on July 25th. Just because market fundamentals in the Eurozone continue to deteriorate, it does not necessarily mean that the perceived level of stability will change much. If Spain bond yields climb to 8%, then the Spanish government can simply request a bailout. In addition, I'm fairly certain that Draghi will not hold back from giving the markets more stimulus if he considers it necessary.
Note: Any bad economic news or data prints that cause dollar strength can be counteracted by central banks stimulating the economy, or the threat thereof (causing dollar weakness.)
Wednesday, October 3, 2012
Forex Trading - Market Update
Market Update
GBP/USD came under pressure in yesterday's U.S. session, and is currently down 50 pips against the dollar on the day. I remain short GBP/USD at 1.6163 and am looking to hold the position into the GBP event risk tomorrow. (An asset purchasing decision, bank rate decision, and MPC rate statement.) You can keep tabs on all of tomorrow's event risk at Forex Factory. EUR/USD is currently trading at -15 pips on the day and AUD/USD is trading at -50 pips on the day. (Although the move largely happened in the Asian session). I thought the moves today stemming from the ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI data releases would be larger; but the market appears to be on hold ahead of the major event risk tomorrow.
Although I favor shorting into strength, I'm being extremely careful not to become mentally locked into any position. I'm being especially careful of shorting the Euro, as any comments that Draghi may make at the press conference tomorrow may give the Euro a boost. It has exhibited unusual strength over the past 3 days against the dollar (Currently +50 pips on a 3 day basis) while AUD/USD & GBP/USD have come off of their highs. If there's a rate cut tomorrow at 07:45 EST, the resulting move down has the potential to be quickly retraced at the 08:30 ECB press conference. Again, my bias is to the downside, but I'm being very nimble when it comes to short term trades. Our live trade room will be open tomorrow from 7:45 - 10:45 AM EST. We answer questions and provide live commentary on breaking news & price action.
GBP/USD came under pressure in yesterday's U.S. session, and is currently down 50 pips against the dollar on the day. I remain short GBP/USD at 1.6163 and am looking to hold the position into the GBP event risk tomorrow. (An asset purchasing decision, bank rate decision, and MPC rate statement.) You can keep tabs on all of tomorrow's event risk at Forex Factory. EUR/USD is currently trading at -15 pips on the day and AUD/USD is trading at -50 pips on the day. (Although the move largely happened in the Asian session). I thought the moves today stemming from the ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI data releases would be larger; but the market appears to be on hold ahead of the major event risk tomorrow.
Although I favor shorting into strength, I'm being extremely careful not to become mentally locked into any position. I'm being especially careful of shorting the Euro, as any comments that Draghi may make at the press conference tomorrow may give the Euro a boost. It has exhibited unusual strength over the past 3 days against the dollar (Currently +50 pips on a 3 day basis) while AUD/USD & GBP/USD have come off of their highs. If there's a rate cut tomorrow at 07:45 EST, the resulting move down has the potential to be quickly retraced at the 08:30 ECB press conference. Again, my bias is to the downside, but I'm being very nimble when it comes to short term trades. Our live trade room will be open tomorrow from 7:45 - 10:45 AM EST. We answer questions and provide live commentary on breaking news & price action.
Tuesday, October 2, 2012
Forex Trading - Market Update
Market Update
The Aussie sold off today with the daily candle closing roughly 100 pips lower. The Euro strengthened across the board, and GBP/USD closed almost flat on the day - (Check EUR/GBP.) The S&P 500 and Nasdaq closed slightly up on the day and the DJIA closed slightly lower.
EUR/USD
Rajoy (the prime minister of Spain) announced that Spain would not be seeking a bailout soon. He will ultimately be forced to ask for a bailout from the ECB when Spanish bond yields rise to unsustainable levels. For now, the 10 year Spanish government bond is trading at 5.748% (8.0% is the level considered unsustainable.) It appears that Rajoy is attempting to hold off on requesting a bailout until after the Spanish elections scheduled for Oct. 21st. (Spain being bailed out is not a popular notion among the people.) I think this comment from Rajoy was a mistake as it gives Spanish bond yields scope to the upside and the Euro scope to the downside. It intensifies Euro derived "risk off" moves. Right now, the Euro is trading at 1.2910. I think it's very possible that we could see a sell-off down to 1.2740 this week. (high of June 18th)
AUD/USD
The move lower in the Aussie was mainly triggered by the RBA cutting rates by 25 basis points. As I discussed in the previous post, market participants were pricing in a 25 bps rate cut at about 60%-65%. As consensus estimates by economists was for no rate cut, a significant amount of people were surprised by the rate cut, leading to a bigger sell-off. I think the Aussie has a long way to fall due to a slowdown in China and a future 10% drop in the S&P 500 (I think it's coming soon), but I will be extremely careful about trading it. If the Chinese announce a large stimulus package it could cause the Aussie to rally and provide it with underlying support. Also, the country of Australia is actually in fairly good shape compared to most debt-burdened western countries. You can check out economic statistics of the Australian economy here. (Their Debt to GDP ratio is less than 23%)
Looking Forward
I currently favor shorting AUD/USD, EUR/USD, and GBP/USD on any moves up.Wednesday, Thursday, and Friday are packed full of high level event risk that could spark major moves in either direction. While my bias is to the downside, one of the main things that I'll be watching is the U.S. equity indices. I'll be very skeptical about any significant move down in the currency markets if U.S. equity indices don't follow suit. If the stock market does start to fall, I'll be a lot more willing to let my short positions run.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room Mon. - Fri. 7:45 - 10:45 AM EST.
The Aussie sold off today with the daily candle closing roughly 100 pips lower. The Euro strengthened across the board, and GBP/USD closed almost flat on the day - (Check EUR/GBP.) The S&P 500 and Nasdaq closed slightly up on the day and the DJIA closed slightly lower.
EUR/USD
Rajoy (the prime minister of Spain) announced that Spain would not be seeking a bailout soon. He will ultimately be forced to ask for a bailout from the ECB when Spanish bond yields rise to unsustainable levels. For now, the 10 year Spanish government bond is trading at 5.748% (8.0% is the level considered unsustainable.) It appears that Rajoy is attempting to hold off on requesting a bailout until after the Spanish elections scheduled for Oct. 21st. (Spain being bailed out is not a popular notion among the people.) I think this comment from Rajoy was a mistake as it gives Spanish bond yields scope to the upside and the Euro scope to the downside. It intensifies Euro derived "risk off" moves. Right now, the Euro is trading at 1.2910. I think it's very possible that we could see a sell-off down to 1.2740 this week. (high of June 18th)
AUD/USD
The move lower in the Aussie was mainly triggered by the RBA cutting rates by 25 basis points. As I discussed in the previous post, market participants were pricing in a 25 bps rate cut at about 60%-65%. As consensus estimates by economists was for no rate cut, a significant amount of people were surprised by the rate cut, leading to a bigger sell-off. I think the Aussie has a long way to fall due to a slowdown in China and a future 10% drop in the S&P 500 (I think it's coming soon), but I will be extremely careful about trading it. If the Chinese announce a large stimulus package it could cause the Aussie to rally and provide it with underlying support. Also, the country of Australia is actually in fairly good shape compared to most debt-burdened western countries. You can check out economic statistics of the Australian economy here. (Their Debt to GDP ratio is less than 23%)
Looking Forward
I currently favor shorting AUD/USD, EUR/USD, and GBP/USD on any moves up.Wednesday, Thursday, and Friday are packed full of high level event risk that could spark major moves in either direction. While my bias is to the downside, one of the main things that I'll be watching is the U.S. equity indices. I'll be very skeptical about any significant move down in the currency markets if U.S. equity indices don't follow suit. If the stock market does start to fall, I'll be a lot more willing to let my short positions run.
BeamFX is a guaranteed introducing broker of Institutional Liquidity (ILQ). Join us in our free live trade room Mon. - Fri. 7:45 - 10:45 AM EST.
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