FOREX TRADING

By Jonathan Ingram

There are many folks in the world who would like to learn day trading and start being super full-time traders. These adults would perhaps love day trading for a job if possible, as one with a trading account can trade futures, commodities, the currency exchange, etc. I am positive any person would savor index futures day trading for a the bread and butter day trading from the cheer of the traders own SOHO office.

To become a successful trader, learn trading or online trading, and make a living from trading, an individual must be ready to put in the complicated work, effort and time needed to succeed as a trader. A trader has to defeat all the capabilities required to be successful. The most vital talent to be mastered is in the shape of feelings and it is maybe the hardest of all to come and master. An instructor is always the preferred route compared to just reading some books on trading or buying a black box system. One should have a good system. The training received from an instructor can be pricey but helpful at the same time. One must always glance at the background of the trading mentor before choosing one.

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The USD continued to strengthen this week, especially against the EUR, which has been declining broadly as well. There was still an air of risk aversion so the JPY started the week strong but did not have a significant push. The GBP/JPY for example showed ranging action, and the USD/JPY is already showing a possible reversal rally although there may be some short-term resistance. Let’s take a look at the week’s action, and outlook for the weeks ahead.

EUR/USD: Elliott Wave Count – Big Picture

Daily and 4H: The GBP is showing less weakness than the EUR, but by the Friday session continues to decline. The 4H time-frame shows a break from this week’s consolidation/ranging action. Unlike the EUR/USD is approaching a major support that was established through a long-term range between 1.57 to 1.70.

The short-term swing projection is the 1.59 level.

It will be important to monitor price action in this major support zone between 1.57 and 1.59. A break below spells further decline to the 1.53 area (50% retracement and swing projection).

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Highlights

• Risk is off the cliff and the unwind has just begun
• 4Q earnings better, not good enough
• US GDP in perspective
• Fundamentals still bearish for oil
• Cable, the path of least resistance
• Key data and events to watch next week

Risk is off the cliff and the unwind has just begun

Last week we expressed caution that the risk sell-off that has characterized the month of January was at a tipping point. That point has been broken to the downside and we are now expecting a further unwinding of long risk positions, which should see stocks, commodities and the JPY-crosses (EUR/JPY, AUD/JPY, etc) extend recent declines more aggressively. The USD is likely to be the primary beneficiary of a further risk sell-off, gaining ground on both better US data and on safe haven appeal as risk aversion increases.

The fundamental backdrop remains the same as over the past few weeks–China enacting measures to slow its economy, undermining global growth outlooks; reduced expectations over the strength of the global rebound; and heightened credit/fiscal concerns in Europe (Greece-more below), the UK, and elsewhere–but we think long-risk positioning is now likely to exert a stronger influence. Long positions in gold, oil and other commodities continue to dominate, and we have seen only small reductions in the face of recent weakness, suggesting the exodus is yet to come. Numerous stock market analysts are pointing to January as a bearish reversal month after a nine-month uptrend, and we would note that the S&P 500 closed just barely below its daily Ichimoku cloud at 1074.82. Gold prices managed to hang on above the weekly Kijun line at 1078.45, but the daily picture looks more ominous, with a downside crossover of the Tenkan below the Kijun with price below the cloud, constituting a strong sell signal. We prefer to sell bounces in the commodity space, rather than chasing this move lower.

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USD Higher, Q4 GDP Expanded By 5.7%, Best In Six Years

• USD: Higher, US Q4 GDP confirms faster growth, bond yields rise, consumer sentiment beats expectations
• JPY: Lower, Japan’s deflation accelerates, pressure on BOJ to ease, threat of intervention
• EUR: Lower, concern Greek fiscal troubles may spread, EU unemployment and CPI rise
• GBP: Lower, S&P says UK banking system less stable, UK house prices rise
• CAD and AUD: AUD lower & CAD mixed, India hikes its reserve ratio 75 bps

Overview

USD traded mixed ahead of today’s release of Q4 GDP. JPY was pressured by report of accelerating deflation in Japan and comments from the BOJ governor which suggests that the BOJ is ready to act against potential market turmoil. European currencies were mixed initially pressured by fresh concern about sovereign debt risk in non-core European countries with the GBP pressured by an S&P report which says UK banks are less stable. EUR downside was limited by report that the EU may be preparing a bailout for Greece. GDP downside was limited by report of rising UK house price. CHF rallied in reaction to report of better than expected KOF leading indicators. Commodity currencies traded higher rebounding from initial pressure sparked by weaker Asian equity market trade with support from statement from Chinese officials that they will keep monetary policy loose despite rising price pressures and better than expected GDP reports in the US and Canada. AUD gains were limited by speculation the RBA may be nearing a pause in its tightening cycle.

US economic data was positive with advanced Q4 GDP confirming faster US growth at the end of 2009 and Chicago PMI rising more than expected. Despite the acceleration of growth in the fourth quarter economists are concerned that the economic rebound may not be sustainable as fiscal and monetary stimulus is withdrawn and recent economic data shows the recovery in housing and retail demand slowing. Much of the improvement in Q4 GDP was due to increased auto production and rebuilding of inventories. Consumer spending and business investments remain weak. USD traded higher after release of stronger than expected GDP. The GDP report may have some analysts looking for an earlier FOMC rate hike. The GDP deflator however came out below expectations which suggest that inflationary pressures remain tame despite improving growth. Focus turns to central bank policy meetings in Australia Tuesday and Europe Thursday and Fridays US January unemployment report. The RBA is expected to hike rates 25 bps to 4%, the ECB is expected to remain on hold and continue to outline exit strategies and the BOE is expected to remain on hold as well with the possibility of announcing a pause in its asset purchase program. USD headline unemployment is expected to post a 0.1% rise to 10.1% and nonfarm payrolls may turn slightly positive. (more…)

Euro 1.3940

Initial support at 1.3833 (Jul 8 low) followed by 1.3749 (Jun 16 low). Initial resistance is now located at 1.4097 (Jan 25 high) followed by 1.4218 (Dec 22 high)

Yen 89.95

Initial support is located at 89.14 (Jan 27 low) followed by 88.97 (Dec 18 low). Initial resistance is now at 90.56 (Jan 22 high) followed by 91.87 (Jan 21 high).

Pound 1.6145

Initial support at 1.6108 (Jan 27 low) followed by 1.6078 (Jan 11 low). Initial resistance is now at 1.6296 (Jan 26 high) followed by 1.6312 (Jan 21 high).

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USD Higher, Jobs and Durable Goods Data Disappoints

• USD: Higher, jobless claims declined less than expected, durable goods rise less than expected
• JPY: Mixed, pressured by improving risk appetite, retail sales declined more than expected
• EUR: Lower, Greek fiscal concern, rumors of Greek bailout denied, business confidence at a 10 month high
• GBP: Mixed, Chancellor Darling says UK plans to halve its deficit over the next four years
• CAD and AUD: AUD & CAD higher, Australia may speed up spending cuts, hawkish RBNZ

Overview

USD, JPY and EUR traded lower with GBP and commodity currencies trading higher Thursday. The decline in USD and JPY is attributed to improving risk sentiment sparked by President Obama’s proposal in the State of the Union address to reduce taxes on businesses to boost growth and in reaction to the FOMC January statement which says the US economy is in recovery. The FOMC also indicated that it plans to begin withdrawal of extraordinary stimulus measures. EUR was pressured by concern about sovereign debt risk in Greece as the Greek EU ten year bond spread is at its widest level since Greece adopted the EUR in 2001 and China’s central bank says the nation should not buy Greece’s debt. GBP continued to outperform and rallied to a five month high versus the EUR supported by comments from UK Chancellor Darling that the UK has the most aggressive deficit reduction plan amongst the industrialized nations. Commodity currencies traded higher tracking improving risk appetite, firmer equity market trade and in reaction to hawkish comments from the RBNZ. RBNZ governor says that the central bank will begin to withdraw stimulus mid-year. US economic data was mixed. Jobless claims declined by less than expected and durable goods posted a smaller than expected rise. These reports may generate concern about the strength of the US recovery and raise questions about the FOMC’s optimism about the US economic recovery. USD edged higher after the release of these reports as equity markets traded lower. The trade awaits news on Fed Chairman Bernanke’s nomination and focus turns to Friday’s release of US advanced Q4 GDP. (more…)

Fed Upgrades Economic Outlook, A Dissent on “Extended”

Today’s FOMC statement was more optimistic on the economy with emphasis on improvement in business and investment spending. “Subdued” inflation remains. Dissent brings into question the length of easy policy.

Economic Outlook: Upgraded

Economic activity “continued to strengthen” according to the FOMC statement. We would agree. Household spending continues to expand but with the drag of income, wealth and credit constraints. The story here though is the upgraded outlook for business spending in equipment & software. Again we agree, orders and shipments reports have improved in recent months and that is consistent with increased capital spending.

Our outlook for 2010 is for 2.7 percent growth compared to the recession of last year with equipment & software spending up 4-5 percent compared to a drop of more than 15 percent last year. Two interesting aspects appear in this recovery from these trends. First, gains in the economy are associated with no additional labor so far. As a result, we are seeing very strong productivity gains. Second, adding capital equipment without labor suggests a rise in the capital/labor ratio. These two trends suggest increased returns to a smaller workforce but more limited job opportunities to those without the right skills. (more…)

FOMC Meeting Wednesday, No Change Expected

The FOMC will conclude a two-day policy meeting on Wednesday the 27th of January and announce its policy decision at 14:15 PM ET. The FOMC is widely expected to maintain steady rate policy and 0.0 to .25%. At the December FOMC meeting the FOMC concluded that economic conditions warrant maintaining yields a low level for an ‘extended period’ and the economy is strengthening. The FOMC is expected to reaffirm commitment to maintaining low yields for an extended period at Wednesday’s policy meeting. If the Fed were to surprise and drop the extended period language from statement it would be a sign that the Fed is shifting monetary policy and preparing its tightening cycle. This is unlikely at Wednesday’s policy meeting because there has not been a significant change in the US economic outlook since the last policy meeting. In December Fed officials said that the economy is improving and that inflation pressures were likely to remain subdued. Recent US economic data has been mixed with Christmas retail sales weak, improvement in the housing market slowing and December unemployment disappointing.

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