FOREX TRADING

Forex Exponential MA- Weighted MA strategy

What do you need:

1. one hour or 30 minutes timeframe
2. 18-period EMA and 29-period EMA (draw them using red)
3. 5-period WMA and 12-period WMA (draw them using yellow)

18 and 29-period EMA are two red lines which form a tunnel, (more…)

Just open the 4 hourly chart and choose whatever currency you want.
Put the Bollinger Band (20) indicator and be sure that its center line is appearing.
Describe 2 valid lower points OR 2 valid higher points in the Bollinger Band and drop a line from the first to the second line; it will be our break line.

Now as a candle closes above (more…)

In the same vein as Monday’s and Tuesday’s posts (covering the New Zealand Dollar and Australian Dollar, respectively), I’d like to use today’s post to look at another commodity currency – the Canadian Dollar. The Loonie, it turns out, has also benefited from the a recovery in risk appetite and concomitant boom in commodity prices; it has appreciated by 7% against the USD in the last month alone, en route to a ten-month high. “All in all, with almost everything going its way these days (besides the crummy weather and the impact on tourism), a return trip to parity – last visited nearly one year ago – doesn’t seem far fetched,” chimes one optimistic analyst.

Like Australia and New Zealand, (more…)

The price of Crude Oil experienced a sharp decline in prices yesterday after a U.S. inventories report highlighted a sudden surge in energy supplies. While these reports may carry mixed messages about demand, supply, and growth expectations, the message yesterday was quite clear: demand is plummeting. Many analysts were expecting a draw-back in prices after last week’s surge, but the inventory report only demonstrated how unwanted this commodity has become, which only put additional weight on the downward pressure this commodity was already expecting.

USD – Dollar Extends Profits against the Majors

The Dollar continues to strengthen against all the major currencies. During yesterday’s session the greenback was traded near a two-week high versus the EUR. The Dollar also marked a significant uptrend against the Pound and Yen.

It seems that the main reason for the USD’s appreciation yesterday came as a result of the positive Core Durable Goods Orders monthly report, as well as a statement by China that it will maintain a more loose monetary policy. Whilst the Durable Goods figures reported a drop of 2.5% in June, mainly as a result of the weak demand for new civilian aircraft and defense equipment, it seems that investors were more impressed by the 1.1% rise in the Core Orders during June.

The difference between the two reports is that the Core report measures the change in the total value of new purchases orders placed with manufacturers for durable goods, excluding transportation items. Orders for aircraft are known to be very volatile, and thus have the potential to distort the underlying trend. This is why investors tend to attribute more importance to the Core report. The positive figure marked the third consecutive month in which this report delivered signs of positive growth, driving investors to believe that the global recession is reaching its end.

As for today, the main publication from the U.S economy looks to be the weekly Unemployment Claims report at 12:30 GMT. Currently, while all the major indicators of the U.S economy are showing signs of improvement, it is only the job sector which continues to deliver negative figures. Analysts forecast that 578K individuals have filed for unemployment insurance for the first time during the past week. If the actual result will be similar, this could be the harshest unemployment figures in the last month. Such a result may help drive the demand for the safety of the USD and drive its recent bullishness even higher.

EUR – German CPI Marks First Annual Decline in 22 Years

The EUR dropped yesterday against most of the major currencies. The EUR is currently traded near a two weeks low against the Dollar, as the pair fell to the 1.40 level. The EUR also saw a sharp drop against the Pound during yesterday’s session.

The EUR’s slide came as a result of the unexpected negative German Preliminary Consumer Price Index (CPI) report. This indicator measures the change in the price of goods and services purchased by consumers in Germany. Considering the fact the Germany currently holds the strongest and relatively healthiest economy in the Euro-Zone, the inflation indicators from this nation have a large impact on the EUR. The indicator showed a drop of 0.1% in July.

More severely, this report has marked the first annual decline in consumer prices in Germany in more than 22 years! It appears to be the drop in energy and food costs, which took place as a result of the global recession, which created the poor annual decline in German CPI. It now seems quite certain that for any negative indicators from the German economy such as this one have the potential to weaken the EUR in the near future.

Looking ahead to today, another significant report is scheduled from the German economy. The German Unemployment Change, which measures the change in the number of unemployed people during the previous month, is expected at 07:55 GMT. Analysts have forecasted that unemployment in Germany increased by 44K in June. If the results are indeed close to this figure, the EUR might continue to depreciate against the major currencies.

JPY – Yen Slides on Poor Retail Sales Release

The Yen underwent a bearish session against most of the major currencies yesterday. The JPY dropped over 100 pips versus the Dollar, and over 200 pips against the Pound.

The Yen dropped yesterday on poor Retails Sales data. The report showed that the total value of sales at the retail level dropped by 3.0% in June, failing to reach expectations for a 2.5% drop. Furthermore, Japan’s retails sales fell for a 10th month in June, making the longest losing streak since 2003. It seems that even though the Japanese economy is showing signs of recovering, mainly due to the positive export figures, the Japanese citizens are reluctant to resume last year’s consumption levels, an indication that optimism may be lacking in Japan.

As for today, a batch of data is expected from the Japanese economy. Traders are advised to follow the Tokyo Core Consumer Price Index report. This report is a leading inflationary indicator for Japan, and thus tends to have a large impact on the JPY’s value. If current expectations for a 1.7% drop will be similar to the real result, the Yen might continue to weaken against the major currencies in late-trading today.

Crude Oil – Will Crude Oil Drop Below $60 a Barrel?

Crude Oil prices continued to slide yesterday. Yesterday morning, a barrel of oil was valued near $66, but the current price is trading for less than $63. The main reason for the sharp cut in crude oil prices yesterday was the Crude Oil Inventories report. The report shows an unexpected surge in U.S. energy stockpiles. While analysts expected a drop of 1.1M barrels, the actual result showed that stockpiles surged by 5.1M barrels!

Most analysts had anticipated a pull-back in prices since Oil was seemingly over-bought technically and fundamentally, but the high inventories report simply put added weight to this expected downward pressure. In addition, the USD continued to strengthen yesterday. Crude Oil is valued in Dollars, and as such, tends to fall under the weight of a strong Dollar.

Looking ahead to today, traders are advised to follow the Natural Gas Storage report, scheduled at 14:30 GMT. This is more energy data that has the potential to influence oil prices by showing a continued trend of high stockpiles, indicating low demand. Traders should also consider the Dollar’s movements in today’s trading, as it has a large effect on commodity values.

Article Source – Crude Oil Price Crashes after Unusually High Inventory Data

The Euro may extend recent losses in European trading hours as Germany’s unemployment rate rises to 8.4% in July, the highest since November 2007, as the Euro Zone’s largest economy sheds 43,000 jobs. Euro Zone Economic Confidence is also on tap.

Key Overnight Developments

• Japan’s Industrial Production Grows Most Since 1953 in Q3
• Euro, British Pound Flat Ahead of the Opening Bell in Europe

Critical Levels

The Euro is effectively unchanged going into the European trading session having oscillated in a narrow 0.4% range around 1.4050 in overnight trading. Likewise, the British Pound fluctuated in a 0.4% band around 1.6380, yielding a flat result ahead of the opening bell in London.

Asia Session Highlights

Japanese Industrial Production grew at the weakest pace in three months in June, adding 2.4% from the previous month. In annual terms, the pace of decline moderated to -23.4%, the slowest rate of contraction since December of last year. On a quarterly basis, output gained 8.3% in the three months through June, the most since 1953. Much of the resurgence can be chalked up to companies replenishing inventories having sharply cut back on orders and production as the global economic crisis reached a boiling point in 2008. More of the same is likely in the coming months as restocking continues. In fact, minutes from the last meeting of the Bank of Japan revealed policymakers expect manufacturing and exports will continue to recover “mainly due to progress in adjustments in [inventories]”. That said, any sustainable rebound will have to come with growth in underlying demand, which is arguably destined to remain sluggish for some time. Indeed, the International Monetary Fund (IMF) said its latest world economic outlook that global trade volumes are likely to rebound just 1% having shed a whopping -12.2% in 2009.

Euro Session: What to Expect

Germany’s Unemployment Rate is set to rise to 8.4% in July, the highest since November 2007, as the Euro Zone’s largest economy sheds 43,000 jobs. Mounting layoffs will hinder Germany’s ability to mount a robust recovery from the current downturn, weighing on disposable incomes and discouraging consumption, the largest component of overall economic growth. Indeed, the IMF recently forecast that Germany as well as the Euro area as a whole will stand apart from other industrialized economies in seeing GDP continue to shrink in 2010. Further, the ailing labor market is likely to become a more visible drag on risk appetite as the government’s fiscal package is used up and firms run out of room to cut capacity and produce upside earnings surprises, yielding to sluggish revenue growth and driving stock valuations lower. This bodes ill for the Euro, particularly against the US Dollar, with interest rates likely to remain low and risky assets on the defensive.

Separately, Euro Zone Economic Confidence is expected to rise to 75.0 in July, marking the fourth consecutive month of improvement since the metric hit a record low in March. The reading is a composite of five sub-sector sentiment reports: Industrial Confidence (40%), Service Confidence (30%), Consumer Confidence (20%), Construction Confidence (5%), and the Retail Trade Confidence Indicator (5%). The metric may continue to gain for a bit longer as the combined impact of fiscal stimulus measures across the region and higher stock prices boost confidence, but seems likely to reverse course in the medium term as lackluster domestic and overseas demand creep back into the forefront.

Written by Ilya Spivak, Currency Analyst
Article Source – Euro May Extend Losses as German Jobless Rate Hits Highest in Nearly 2 Years (Euro Open)

Developed by Ralph Nelson Elliott in the 1930s, the Elliott wave principle is a very popular technical analysis tool that allow traders to forecast trends in the foreign exchange market or any other financial market such as the stock market.

The Elliott Wave Theory was developed due to the fact that financial markets are traded in five distinct waves going in the direction of the main trend followed by three distinct waves going against the main trend that can be forecasted with an understanding of crowd psychology.

Understanding Elliott Waves

According to Ralph Elliott, currency pair prices move in waves, five impulsive waves and three corrective waves (a “5-3″ move). Impulsive waves move in the main direction of the trend and corrective waves move against the main up-or down trend.

Let’s take a look at the following Elliott Wave pattern for better understanding:


Impulsive and Corrective Waves
To fully understand the Elliot Wave Theory, it is important to understand the psychological rationale for each of these waves since the zigzag movement of prices represents the ebb and flow of investor optimism and pessimism. Given an uptrending market:
Wave 1 (Impulsive): Minor Upwave In Major Bull Move – In Wave 1, prices rise as a relatively small number of market participants buy a currency pair for either fundamental or technical reasons, pushing prices higher.
Wave 2 (Corrective): Minor Downwave In Major Bear Move – After a significant run-up, investors may get fundamental or technical signals indicating that the currency is overbought. At such time, Wave 2 develops when original buyers decide to take profits while newcomers initiate short positions. Price action reverses, but generally does not retrace beyond its initial low that attracted buyers at Wave 1.
Wave 3 (Impulsive): Minor Upwave In Major Bull Move – Often the longest wave of the five, Wave 3 represents a sustained rally, as a larger number of investors use the Wave 2 dip as a buying opportunity. With a broader range of
buyers, the security enjoys a stronger push higher, with prices extending beyond the top formed at Wave 1.
Wave 4 (Corrective): Minor Downwave In Major Bear Move – By Wave 4, buyers begin to become exhausted and again take profits in reaction to overbought signals. Generally, there is still a fair amount of buyers, so the retracement here is relatively shallow.
Wave 5 (Impulsive): Minor Upwave In Major Bull Move - Wave 5 represents the final move up in the sequence. At this point, buyers as a whole are motivated more by greed than any fundamental justifications to buy, and bid prices higher irrationally. Prices make a high for the move before a correction or reversal ensues. The high in Wave 5 often coincides with a divergence in the relative strength index (RSI).

This is a view including the correction wave that follows the basic Elliott Wave:

A-B-C Corrective Waves*

Wave A: Correction To Rally – Initially Wave A may appear to be a correction to the normal rally. However, if it breaks down into five subwaves, it indicates that a new market trend may have developed.
Wave B: Bear Market Correction – Wave B tends to give bears an opportunity to sell as others take profit on their short trades or exit their long positions.
Wave C: Confirms End Of Rally – Wave C is the last wave of the cycle. At this point, Wave 3 typically breaks key support zones and most technical studies confirm that the rally has ended.

Minimize Forecasting Errors With Elliott Wave*
Since many different waves can exist during the same time frame, increasing the risk of forecasting error, traders should follow certain rules to minimize risk. The most important of which is to follow the principle that the “the trend is your friend.”

This means that it is more prudent to only look for opportunities sell into minor waves when the major wave is a downtrend and to buy when the major wave is an uptrend. More rules can be used though to determine levels for placing stop-loss orders or to exit the trade.

Fibonacci ratios are one of the most useful ways of identifying possible peak or
bottoms of wave cycles. A popular relationship that exists is that Wave 2 retraces 38% of Wave 1. 50% and 61.8% retracements are also frequently seen.

Below is an example of a five-wave move up in GBP/USD:

The picture below shows the most volatile active traded currency pairs sorted by their average daily trading range. Average currency pair trading ranges are calculated from the start of the year 2008 to April 2009.

As you can see in the picutre above, the most volatile currency pairs are GBP/AUD, EUR/NZD and the GBP/JPY while the less volatile pairs are the EUR/GBP, NZD/USD and the EUR/CHF.

The U.S dollar drifted sideways against a basket of currencies on Wednesday, hovering not far from the lowest level of the year, as investors continue to assess the real economy by looking at economic data in the U.S. Nonetheless, the U.S. dollar had found modest support against the EUR and trimmed a loss against the Japanese yen after some positive news about the U.S. economy. With signs that the U.S. housing market may be stabilizing, traders will also be examining U.S. consumption and employment conditions in coming data.

USD – Weak Consumer Confidence Boosts the U.S Dollar

The Dollar rose from the lowest level this year against most of its major currency counterparts on revived demand for the safety of the world’s main reserve currency.

The resurgence in risk aversion came after the Conference Board’s U.S. Consumer Confidence Index dropped to 46.6 from 49.3 in June; a worse result than the expected 49, reinforcing concerns that higher unemployment will hurt consumer sentiment. Contributing further to the demand for the safety of the American currency were the declines in stock markets.

The market also awaits more U.S. Treasury auctions this week and the effect on yield moves. A record $42 billion two-year Treasury auction on Tuesday had little impact on the currency market, although details of the outcome were not encouraging for the dollar.

Looking ahead to today, traders should follow the release of the Core Durable Goods Orders due at 12:30 GMT. After the disappointing results of the Consumer Confidence Index and the recent weak second quarter earning results, any worse than expected result will further dampen risk appetite and likely push the Dollar further up.

EUR – EUR fails to Breach the $1.43 Level

The EUR rose above $1.43 Tuesday morning, its highest level in about 8 weeks. However, by early afternoon Tuesday it was at $1.4155, down from $1.424 late Monday. The EUR also fell 1.1% against the Yen to 134.04 from 135.48 Monday. The decline came as equities dropped and investors turned to the safety of the Japanese and American currencies.

While mostly appreciating, the EUR is having difficulties pushing past important resistance levels, failing to stay above the significant $1.43 level. This is do to milder gains on the European Stock markets combined with investor’s caution ahead of the release of the U.S second quarter GDP this coming Friday and the Non Farm Employment report due next Friday.

Along with movements in equities, the release of the German Prelim CPI throughout the day is also expected to cause market volatility, possibly pushing the EUR back to the $1.43 level.

JPY – Yen Gains on Return of Risk Aversion

The Yen rose yesterday against most of its 16 major counterparts advancing versus the EUR for the first time in 4 days as a bigger than forecasted drop in U.S. Consumer Confidence this month discouraged investors from buying higher-yielding assets.

Furthermore, as the Yen is highly correlated with movements in equities, yesterday’s disappointing second quarter earnings and the consequent drop in global stock markets further assisted the Yen’s rise. With no major news releases from Japan, risk sentiment will likely continue being the driving force behind the JPY’s movements.

Crude Oil – Crude Prices Tumble after an 11 Day Rally

Crude oil for September delivery fell $1.15, or 1.7%, to $67.23 a barrel Tuesday; hitting an intraday low of $66.60. Crude Oil tumbled as U.S Consumer Confidence fell, boosting concerns over recovery in demand. Lower than estimated second quarter earning also put pressure on Oil Prices. With a negative Oil forecast from British Petroleum (BP) and a continuing climb in U.S Oil inventories, the sentiment turned bearish on Oil prices.

Movements in equities as well as Dollar sentiment will likely be the driving force behind Oil trading today, as a strong Dollar tends to put downward pressure on Oil prices. Furthermore, traders should follow the release of the U.S Crude Oil Inventories at 14:30 GMT today as this release tends to create great volatility in Oil Prices.

Article Source – Greenback Rebounds from Earlier Lows

If you are new to forex trading, do you know which types of technical indicators are for what kinds of usage? And if you are already an experienced forex trader, are you using the correct combinations of technical indicators to help you profit consistently in the forex market If w:you are still not sure, we’ll discuss the following 4 different types of forex technical indicators below
1. Trend Indicators – Also known as Directional Indicators. I have always reminded my students, ‘Trend is your best friend and always trade in the direction of a trend’. A forex trend may be quite subjective to different traders as they may have different views on trendiness. So those trend indicators out there in the forex market can help traders detect the starting and ending of a trend. Some of the more popular trend following indicators includes MACD (Moving Average Convergence Divergence), MA (Moving Average), Parabolic SAR. Depending just on trend indicators is not enough, you may need Momentum Indicator(s) to enter and/or exit a trade.
2. Momentum indicator – Also known as Strength Indicators. It is described as the speed of a move in price over a period of time. They are oscillators which are able to indicate whether the forex market is in the overbought or oversold regions. If they have risen to the overbought zone, there is high possibility that the price will be going down, and if they have fallen to oversold zone, there is high possibility price will be going up. Some of the more popular oscillating indicators in forex trading include Stochastic, Momentum, RSI (Relative Strength Index), CCI (Commodity Channel Index).

3. Volatility indicators – Also known as Bands Indicators. Often, a change in volatility will lead to a change in price. Therefore, we can see how active the forex market is just by looking at the price ranges. You may want to trade when there is a dramatic change in price movements, which suggests that the market is actively trading forex
. Some of the more popular Volatility Indicator includes BB (Bollinger Bands, ATR (Average True Range), Price Envelopes

4. Volume indicator – They are used to show the volume of forex trading and are useful to confirm the direction of a trend, a reversal or a breakout. Price movements increase when the volume increases, low volume may warn of a reversal in a forex trade. If a currency pair trades from a narrow range and then breaks out on high volume, this is a strong signal and may suggest a breakout. Some of the more widely used Volume Indicator includes DemandIndex, Chaikin Money Flow, Money Flow Index, Ease Of Movement, OBV (On Balance Volume).
I’m sure that after the above discussions, you should have a better idea of the different types of forex technical indicators. While they can greatly help you in technical analysis and make trading decisions, I want to stress that NO forex indicators is holy grail. The
indicators are just a confirmation of history and a guide for the future. Most importantly, you need to know the right combination of the forex technical indicators to get you profitable consistently in the long haul. You can find a forex trading system which has a very good combination of indicators in my forex ebook which I give for FREE. Good trading to all.

The critical difference between who will win and who will lose in the business of Forex market trading is learning how to manage your money. For example, if 100 Forex traders begin trading by using a system with 60% of winning odds, only about 5 of those traders would see a profit by the end of the year. Despite those 60% winning odds, only 95% of those Forex traders will lose because of poor money management skills. When entering a trading system one must have great money management skills in order to succeed. Traders enter the Forex system to make a profit, after all, not to lose money.

The amount of money you will put on a trade and the risks you are willing to accept for that trade is money management. It is very important to understand the concept of managing money and to understand the difference between managing money and trading decisions, in order to diversify your Forex trading strategies. There are a number of different strategies that can be employed that will aspire to preserve your balance from any high-risk liabilities.

To begin with an understanding of the “core equity” is a necessity. Basically the core equity illustrates the starting balance of the account and what amounts are in the open positions. Your money management will greatly depend on this equity so it’s very important to understand the meaning of core equity. For instance, if you have an open account with a balance of $5,000 and you enter a trade with $1,000 your core equity will be $4,000. If you enter another trade for another $1,000 then your core equity would be $3,000.

From the outset, it’s best to diversify trades by using several different currencies. By only trading one currency pair, you will generate very few entry signals. For example, if you have an account balance of $100,000 and have an open position for $10,000 then that makes your core equity $90,000. If you choose to enter on a second position, then calculate the 1% risk from your core equity, but not your starting account balance. This would mean that the second trade would not exceed $900. Then if you decide to enter a third position, with a core equity of $80,000 then the risk from that trade should not surpass $800. The key is to diversify the lots between all currencies that have a low correlation.

For example, if you want to trade EUR/USD and GBP/USD with a $10,000 (1% risk) standard position size in money management, then it would be safe to trade $5,000 in each EUR/USD and GBP/USD. This way, you will only be risking 0.5% on each position.

When trying to diversify your Forex trading strategies, it’s very important to understand the strategies of the Martingale and the Anti-Martingale. The Martingale rule means: increasing your risks when you’re losing. Gamblers worldwide who claim that one should increase the size of a trade even when one is losing have adopted this strategy. Basically, gamblers use the rule in the following way: bet $20, if you lose bet $40, if you loose bet $80, if you lose bet $160, if you lose bet $320, etc.

The strategy is to assume that if you lose more than four times, then the chances to win become bigger and as you add more money, you will be able to recover from your loss. Although there are many people who choose to use this strategy, the truth is, the odds are still the same 50/50 regardless of the previous losses. Even if you lose five times in a row, the odds for your sixth bet, and even for those there after, are still 50/50. This is a common mistake made by those who are new to the trading business.

For instance, if a trader started with a $10,000 balance and lost four trades of $1,000 a piece for a total of $4,000 then the traders remaining balance would be $6,000. If the trader thinks there is a higher chance of winning the fifth trade and increases the size of the position four times, enough to recover from the loss, then if the fifth trade loses the trader will be down to $2,000. A loss like this can never be recovered back to the $10,000 starting balance. No experienced trader would use such a risky gambling tactic as the result is negative – losing all the money in a short period of time.

The U.S dollar remained weak against its major currencies in range-bound trade on Monday as U.S. equity markets remained in negative territory, indicating waning desire among investors for riskier assets. Also Monday, U.S. and Chinese officials began meeting for two days of economic talks, though many analysts questioned whether anything substantial would emerge. Nevertheless, traders will be on alert for any commentary regarding the U.S. dollar’s status as a reserve currency. China is the biggest foreign investor in U.S. government debt, and any decline in demand could push up borrowing costs.

USD – Dollar Goes Volatile on Optimistic Homes Sales Data

The U.S. Dollar experienced an extremely volatile trading day on Monday, as the New Home Sales data was released from the U.S. economy. The result was a better-than-forecast 384,000 homes versus the previous release of 346,000 homes. This is a whopping 11% increase, the biggest monthly increase since December 2000. This led to many analysts stating that this is the end of the U.S. housing slump. The result led to volatile USD trading. Moreover, the Dollar closed lower against some of its main currency pairs, due to optimistic data from regions such as the Euro-Zone.

At one point in trading the USD actually reached a 7-week low vs. the EUR at 1.4299. This was following the extremely optimistic German consumer confidence figures. However, the pair finally closed 33 pips higher at the 1.4246 level. The USD recorded its second daily loss in a row of 30 pips against the British Pound, as the GBP/USD finished trading at the 1.6484 level. This comes about as optimistic data from Britain continues to drive up the British currency. The USD/JPY pair finished higher, to close at the 95.17 rate. This comes about as the Yen falls from higher risk appetite.

Looking ahead to today, forex traders can expect plenty of news coming out of the U.S. The most important of this being the CB Consumer Confidence figures at 14:00 GMT, the speech by Federal Reserve Chairman Ben Bernanke at 22:00 GMT, and the speech by Treasury Secretary Timothy Geithner from 23:00 GMT. These 3 events are set to determine the level of the Dollar as Tuesday’s trading takes off. The big 3 pairs to watch today are the EUR/USD, GBP/USD, and USD/JPY, as traders anticipate a weaker U.S. currency as the U.S. economy continues to recover.

EUR – EUR Boosted by German Consumer Confidence Figures

The EUR hit a 7-week high versus the USD in Monday’s trading, following the Gfk German Consumer Climate figures. The result showed a 14 month high 3.5, significantly higher than the forecasted 2.9. This helped the EUR strengthen throughout Monday’s trading. The reason why this data is so significant is due to Germany being the largest economy in the Euro-Zone. The EUR also was helped as U.S. New Home Sales jumped 11%. The EUR is likely to continue benefiting from the optimistic economic news.

The EUR/USD cross hit 1.4299, before closing 33 pips higher at the 1.4246 level. However, the European currency fell by 15 pips vs. the British Pound to 0.8635. This may be due to investors buying-up Pounds as risk appetite increases with more and more signs of global economic recovery. The EUR/JPY pair climbed by over 35 pips to the 1.3532 level, as traders continued to ditch the JPY due to preferring riskier assets, such as the EUR and GBP. Therefore, overall, the EUR did make some reasonable gains in Monday’s trading.

Today, we won’t be expecting much economic news coming out of the Euro-Zone. However, Britain and Switzerland are likely to be the key drivers of the European currencies later today. Britain is set to release the CBI Realized Sales figures at 10:00 GMT. Switzerland is scheduled to publish the UBS Consumption Indicator at 06:00 GMT. The results of both of these are set to drive both the GBP and CHF in today’s trading. Additionally, the EUR will go volatile on both of these publications, and on key data coming out of the U.S. throughout today’s trading.

JPY – Yen Falls to 3-Week Low vs. Dollar

The Yen fell to a 3-week low against the Dollar yesterday, in response to the rise in new U.S. home sales. The Yen also weakened on speculation that declines in currency volatility will spur carry trades. In carry trades, investors borrow at a low rate in one country and invest in another country with higher returns. This behavior is likely to continue as the main economies improve, and traders sell-off the safe-haven JPY. Thus the Japanese currency fell over 30 pips against the USD, EUR and GBP.

It is likely that the Yen will continue to decline today, as forex traders continue to take into account the optimistic economic data that was published from the U.S. and the Euro-Zone. The JPY will go very volatile in late trading, as Japanese Retail Sales are published at 23:50 GMT. It would be a wise choice for forex traders to open their JPY positions now in order to have the opportunity to profit from volatile market behavior as Tuesday’s trading commences.

Crude Oil – Crude Oil Hits 3-Week High

Crude Oil hit a 3-week high of $68.94 a barrel on Monday, as the USD declined in response to positive housing data from the U.S. However, weaker earnings figures in some instances pushed Oil down from its peak, as the commodity finished trading at about $68.06 a barrel. Crude was also helped by a weaker Dollar in earlier trading due to positive economic news from Germany. However, it seems that in this instance, risk appetite wasn’t strong enough to hold-up the value of Crude Oil on Monday.

As for today, Crude prices may rise if the USD weakens considerably, and there is increasingly optimistic economic news led by the U.S. Additionally, traders need to feel that there is enough demand to support Crude Oil at its current price level. In order to take advantage of the current trends, it is advisable for forex traders to begin opening their positions in Crude Oil and other commodities prior to volatile market conditions.

Article Source – The Currency Market Keeps on Eye on U.S.-China Dialogue

The Australian Dollar pushed higher to challenge the 0.83 level against its US counterpart in overnight trading after a speech by RBA Governor Glenn Stevens struck a hawkish tone, hinting that the central bank is now actively trying to time a return to higher interest rates.

Key Overnight Developments

• Australian Leading Index Fell for First in Four Months, Says Conference Board
• National Australia Bank Says Business Confidence Rose to 15-Month High in Q2
• Australian Dollar Surges as RBA’s Stevens Talks Up Economy, Hints at Rate Hikes

Critical Levels

The Euro advanced in overnight trading, testing 1.4270 ahead of the opening bell in Europe. The British Pound followed suit, adding 0.2% against the greenback.

Asia Session Highlights

New Zealand’s Trade Balance sank into deficit in June, revealing a monthly shortfall of –NZ$417 million. In annual terms, the deficit widened to –NZ$3.2 billion. The discouraging result came as exports fell 11% from a year before, the largest annualized decline since July 2007. We had forecast the outcome in our New Zealand Dollar Weekly Outlook, noting that outbound shipments were likely to take a beating after the local currency gained nearly 1% in June after jumping 8% in the previous month, making New Zealand’s goods comparatively more expensive for overseas buyers while boosting domestic purchasing power of foreign products. The release may weigh on the currency in the days ahead as it reminds the markets of New Zealand’s credit outlook downgrade by Fitch, which cited the “persistently large current account deficit” as a reason for concern about the country’s medium-term growth outlook.

In Australia, Conference Board’s Leading Index fell for the first in four months in May, dropping -0.1%. April’s reading was also revised downward to 0.3% from the originally reported 0.7% result. The metric tracks a number of leading indicators including rural goods exports, building approvals and stock prices to gauge the short- to medium-term trajectory of the overall economy. Perhaps the most important takeaway from the report is that the sales-to-inventory ratio, the largest component of the index, fell for the sixth consecutive month to reveal companies continue to suffer from lackluster demand. This underscores an increasing disparity between market sentiment and the underlying fundamentals of the economy. Buoyant stock markets and money supply growth had catalyzed the most recent run-up in the index, a dynamic that may be repeated in the forthcoming release considering Australia’s S&P/ASX 200 benchmark equity index added 3.6% in June. However, the equity rally seems hardly sustainable if sales growth remains lifeless, robbing firms of the kind of earnings that will not disappear once cost-cutting invariably reaches its natural limits.

Separately, National Australia Bank’s measure of Business Confidence printed at -4 in the second quarter, the highest reading since the three months ending March 2008. The forward-looking component of the report points to continued improvement in overall business conditions in the third quarter, albeit at a much slower pace than this time around. Employment and orders are both expected to improve, though firms’ profitability is forecast to decline.

Reserve Bank of Australia Governor Glenn Stevens struck a decidedly hawkish tone at a speech in Sydney, driving home the point that going forward the central bank is now actively trying to time a return to higher interest rates. Stevens said Australia is faring better through the global downturn than other developed economies, noting that “confidence has recovered ground” and boasting that “unemployment is rising slower than expected”. He went on to stress that central banks should not relax their commitment to keep inflation anchored through the recession, a clear hint that global tightening of monetary policy should now be on the table. That said, Stevens conceded that some stimulus needs to remain in place for now and conceded that the timing of unwinding expansionary policy presents a challenge. The market greeted the RBA chief’s comments, with the Australian Dollar surging 50 pips in a mere 30 minutes.

Euro Session: What to Expect

The UK CBI Distributive Trades report will offer insight on short-term trends in the retail and distribution sector. Retail Sales surged in June but the metric have exhibited extraordinary volatility since the beginning of this year so traders will be eager to look for any signs that a discernable trajectory is being established. On balance, cues from the labor market seem to point to subdued retail activity for the time being, with the jobless rate to approach 9% by the end of next year for the first time since 1994, trimming disposable incomes and weighing on spending.

In Switzerland, the UBS Consumption Indicator that aims to forecast the trend in private spending in the coming 3-4 months is likely to fall to a fresh 5-year low in June as the pace of unemployment continues to push higher, ticking up to a seasonally-adjusted rate of 3.8% in the same period for the first time since September 2005.

Written by Ilya Spivak, Currency Analyst
Article Source – Australian Dollar Surges as RBA Chief Talks Up Economy, Hints at Rate Hikes (Euro Open)

Based on the chart below, which plots the Australian Dollar against the New Zealand Dollar over the last two years, one might be tempted to conclude that the two currencies are identical for all intents and purposes. Rather than suffer the inconvenience of separately analyzing the Australian Dollar, why not just read yesterday’s post on the New Zealand Dollar, and leave it at that?

But this chart belies the fact that while the two currencies, have risen and fallen (in near lockstep) in sync with the ebb and flow of risk aversion, this could soon change. While the near-term prospects for the New Zealand economy are dubious, sentiment towards the Australian economy is more consistently optimistic.  “Central bank Governor Glenn Stevens said the nation’s economic downturn may not be ‘one of the more serious’ of the post-World War II era.” In addition, “Stevens said the nation’s economy may rebound faster than the central bank had predicted six months ago on improving confidence among consumers and businesses alike.” The latest projections are for a fall in .5% contraction in GDP in 2009 followed by a 1% rise in 2010.

Meanwhile, government spending is surging: “The Australian government forecast its largest budget deficit on record of A$57.6 billion for fiscal year 2009-10, or 4.9% of GDP.” Combined with the steady recovery in commodity prices and the resumption of residential construction, this could soon trickle down through the Australian economy in the form of inflation. It’s no wonder, then, that the Reserve Bank of Australia (RBA) could begin tightening interest rates as early as December, in order to mitigate against the possibility of inflation in 2011 and 2012.

In fact, Governor Glen Stevens has been raising eyebrows with his unequivocal comments about raising rates. “I’ve never seen written down … I’ve never heard in discussion in the institution, some rule of thumb that says we wait until unemployment’s peaked before we lift the cash rate…I think it depends what else is happening, and also depends how low you went. We eased very aggressively,” he said recently. As a result, traders are betting that rates will be 1.13% higher one year from now than they are today.

This development should be of especial interest to forex traders. Australian interest rates are already the highest in the industrialized world. When you consider “the market’s expectations that the RBA is likely to be the G-10 central bank which is likely to hike first,” it goes a long way towards explaining the 18% rise in the Aussie that has taken place in 2009 alone. Compare a hypothetical 4% RBA benchmark rate to the .1% in Japan and ~0% in the US, and carry traders will start to salivate.