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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Daily Technical Analysis

EURUSD Outlook

The EURUSD had a bearish momentum yesterday, bottomed at 1.4042 and closed at 1.4071. On h4 chart below we have two bearish channel indicating a strong bearish phase. The bias is bearish in nearest term but note that we have a good support around 1.4000/30 area. We need a clear break below that area to continue the bearish scenario targeting 1.3750. Immediate resistance at 1.4120 area. Break above that area should trigger further bullish correction towards 1.4200 – 1.4250 but I still prefer a bearish scenario with sell on rallies strategy

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USD Pares Gains as Consumer Confidence Rises

• USD: Higher, spike in risk aversion as China’s tightens monetary policy, consumer confidence rises
• JPY: Higher, China to hike reserve ratios on two major banks, BOJ policy unchanged, cuts deflation forecast
• EUR: Lower, above forecast German IFO fails to boost demand
• GBP: Lower, UK GDP disappoints, UK crawls out of recession, Pimco’s Gross says avoid UK debt
• CAD and AUD: AUD & CAD lower, China’s reserve ratio hike discourages demand for high yield currencies

Overview

USD traded higher Tuesday supported by a spike in risk aversion as equity markets decline in reaction to report that China hiked reserve ratios on some of its banks. Tightening of monetary policy in China generates concern about the global recovery. GBP was pressured by a report of weaker than expected UK Q4 GDP.EUR traded lower despite report that German IFO came in above forecast. GBP and EUR were pressured by selling in cross trade to the JPY with JPY supported by safe haven flows as equity markets decline. JPY traded higher despite S&P lowering of Japans bond outlook to negative from stable. S&P placed Japan on negative watch due to concern about Japan’s rising debt load and lack of flexibility to deal with reducing the debt. Commodity currencies traded lower tracking the spike in risk aversion and weaker commodities with crude oil prices falling below $74 a barrel. There was limited reaction to report that Fed officials are considering adopting a new benchmark interest rate to replace the one used for the last two decades (Fed funds). According to a Bloomberg report Fed officials are considering interest on reserves as the new benchmark rate. Today’s US economic data was mixed with case Shiller home price index down and consumer confidence rising. USD came off its high after the consumer confidence report. Focus turns to Wednesday’s FOMC meeting and President Obama’s State of the Union address. (more…)

Daily Technical Analysis

EURUSD Outlook

The EURUSD was indecisive yesterday, formed a Doji on daily chart. We have nothing significant technically so we need to be patient and do not rush jump into the market. The bias remains neutral in nearest term we are in no trading zone. I prefer to do nothing and wait for further development. However, as long as price stay below 1.4250, the bearish scenario should remains intact. Expected range at 1.4250 – 1.4000/30.

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USD Pares Losses, Existing Home Sales Fall by 16.7%

• USD: Mixed, Bernanke expected to be confirmed for second term, US existing home sales fall sharply
• JPY: Lower, BOJ may be prepared to increase purchases of government debt and ease monetary policy
• EUR: Higher, Nowotny says ECB will use steady hand approach to withdraw liquidity
• CHF: Higher, Hildebrand says SNB to prevent excessive CHF appreciation
• GBP: Higher, BOE to keep its emergency asset purchase plan under review
• CAD and AUD: AUD & CAD higher, China pledge’s to maintain loose monetary policy

Overview

USD traded lower Monday pressured by speculation that Bernanke will be confirmed for a second term as Fed chairman and in reaction to weak US housing data. The Bernanke news helped to boost risk appetite and reduce safe haven demand for the USD and JPY. JPY was also pressured by BOJ ease speculation as Bloomberg reports that the BOJ may be willing to increase its purchase of bonds in an effort to boost the Japanese economy and contain JPY strength. EUR rallied supported by a statement from the ECB’s Nowotny that the ECB will implement a steady hand approach to withdraw liquidity and in reaction to report of good demand for today’s Greek bond auction. GBP edged higher supported by improving risk sentiment and short covering ahead of Tuesday’s release of UK advanced Q4 GDP. A statement from Chinese officials that monetary policy will remain loose generated demand for commodity currencies. Today’s US economic data was mixed with US existing home sales declining sharply and Dallas Fed manufacturing index posting improvement. The drop in US existing home sales partly reflects uncertainty about the US tax credit for first-time homebuyers. NABE survey says that businesses are expected to boost hiring and capital spending in the first half of the year as the economy posts slow recovery. The USD is expected to consolidate recent gains due to concern about the strength of the US recovery and the impact of new banking regulations proposed by President Barack Obama last week. Focus turns to this week’s BOJ and FOMC policy meetings, the president’s State of the Union address Wednesday and advanced Q4 GDP reports in the UK and US. (more…)

Daily Technical Analysis

EURUSD Outlook

The EURUSD was closed higher at 1.4139 on Friday. I still prefer a bearish scenario but the rejection to move below 1.4030/00 support area could trigger further upside correction testing 1.4200 – 1.4250 at this phase. As you can see on my h4 chart below, we have a minor bearish channel (aqua) indicating that technically we are still in bearish view. A violation to that minor bearish channel and a break above 1.4250 key resistance level should be seen as serious threat to the bearish outlook, testing 1.4450 and the major bearish channel (red). Immediate support at 1.4110 area. Break below that area should trigger further downside pressure testing key support 14030/00 area

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Good morning from cold Hamburg. We hope you have enjoyed your weekend and you were able to relax for a new trading week. Today we will see important data from the US, which could have decisively influence on the FOREX market. Have a nice start in the new week

Markets review

According to a survey the fed officials will do their part to spur the economic growth by keeping interest rates near zero after their two-day meeting this week. Futures trading in Chicago showed on Friday an 18 percent chance that the fed will raise its target lending rate by at least a quarter-percentage point by its June meeting. Today, the US economy will release the data of Existing Home Sales in December. The Monthly data is expected to show a fall of 9.8% while the annual rate may be fallen to 5.9 million from 6.54 million in November. The USD fell against the EUR, JPY and a lot of other major currencies. The EUR/USD climbed for a second day to 1.4168 after rising to a high of 1.4174. The USD/JPY fell for a third day to 90.14 after touching on Friday a low at 89.79, which was the lowest level since December 12th. The falls in the USD may be also caused by the drops in stocks after the Nikkei 225 stock Average fell 0.5 percent and the S&P 500 Index fell 2.2 percent on Friday. The AUD/USD gained also for a second day after it touched its psychological support around 0.90. The NZD/USD has got support around 0.71 and pulled up to a high of 0.7170 before coming back to 0.7158

Technical analysis

EUR/JPY

On a long term view, the EUR/JPY has reached its support level around 127.00. It is the forth touch around this level since the middle of Mai 2009. As you can see, the Auto Regression Bands are signalizing an oversold market. If the market doesn’t make a break trough the strong long term support it may turn back and start a bullish phase (more…)

The JPY fell against most currencies an indication the Federal Reserve Chairman Ben Bernanke will win a second term to pursue policies for economic growth, boosting demand for higher yielding currencies. The yen slid against the euro as a U.S. administration official said President Barack Obama got reassurances from Senators that Bernanke will be re-nominated. ‘Risk aversion is fading away amid talk of Bernanke’s re- appointment,’ said Toshihiko Sakai, head of trading for currencies and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. ‘This is causing selling of the yen.’

Bernanke helped drive the global economy to recovery after the recession in 2008 triggered $1.74 trillion of losses and write-down’s around the globe. President Obama has proposed limits on the size and trading activities of financial institutions as a way to reduce risk taking and prevent another financial crisis. The USD/JPY is currently trading at 90.30 as of 7:13am, GMT, with a bullish trend.

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