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.
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Friday, October 19, 2012
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.
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