Forex Trading Strategies 20/11/2009

Stocks and Currencies at Crossroad

* The dollar and yen advanced as risk aversion increased on Thursday. The overbought stock and commodity markets fell as investors unwound some carry trades. The Conference Board US leading economic indicators index rose less than expected; still, indicating a robust economic recovery. US initial jobless claims remained unchanged from the prior week while continuing claims declined. Increasing demand for dollar liquidity sent 2- year yields to a yearly low. Dollar crosses and stock markets are at important technical levels and the resolutions of these technical levels will likely determine the directions of equities and currencies in the intermediate run. At important resistance, the S&P 500 dropped 14.90 to 1,094.90, pressured by a downgrade of semiconductor stocks. The EUR/USD, between resistance in the 1.50 area and support in the 1.48, fell to 1.4919. Sterling was pressured by lower-than-expected UK retail sales and worries about the UK banking sector. The Australian and Canadian dollars fell for a third consecutive day as commodity prices declined.

* The dollar index rose today, having been testing the 75-area for nearly a month. If this support is broken, the dollar index may fall to the 71-area support which is the low set last year. There are resistances at the 76 handle and in the 77-78 area. If these levels are broken, the technical outlook will improve.




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Forex Trading Strategies 4/11/2009

FX Jumpy Ahead of Central Bank Meetings

* The dollar rose against most key currencies on Tuesday as investors worried about the health of the global banking sector and the sustainability of the equity rally. UBS, a huge Swiss bank, reported a wider-thanestimated loss. In the UK, Royal Bank of Scotland said it was taking more public funding, and Lloyds announced a rights issue. Meanwhile, US factory orders rose for a fifth month in six. The greenback pared earlier gains as the US stock market closed mixed. The S&P 500 was up 2.53 to 1,045.41. Investors are cautious ahead of three major central banks’ meetings. The Federal Reserve, Bank of England and European Central Bank are expected to keep their key interest rates unchanged; investors will look for signs of the central banks’ exit strategies. The yen declined modestly. Japan was closed for a holiday. Sterling recovered earlier losses and traded little changed in late afternoon trading. The Canadian dollar rose modestly as crude prices increased and gold prices hit a new all-time high. The Australian dollar declined modestly after the Reserve Bank of Australia raised its key rate 25 basis points to 3.50%, as expected, but downplayed further rate increases.

* The EUR/USD fell on Tuesday after the European Commission warned about further bank losses and that credit growth will be weak until banks repair their balance sheets. In addition, the EC sees slow economic growth in 2010-11. The EUR/USD tested the diagonal support from the long-run uptrend the last few days. If the 1.47 handle is broken, the pair will turn bearish. This is more likely to happen if the stock market correction continues. The S&P 500 is likely to test the support in the 980 area. Our long EUR/USD position was stopped out today with a small profit.



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Forex Trading Strategies 3/11/2009

Aussie Higher ahead of RBA Meeting

* The dollar fell versus most key currencies on Monday. Risk sentiment improved after better-than-expected economic data across the globe. PMI figures rose more than expected in China, Europe and the US, indicating the global economy is recovering. Still, stocks pared earlier strong gains after Jon Greenlee, associate director of the Fed’s Division of Banking Supervision and Regulation, said “the condition of the banking system is far from robust.” The S&P 500 rose 6.69 to 1,042.88. The yen was pressured by better risk appetite. The euro was up but unable to stay above the 1.48 handle. Sterling was little changed. The strong UK manufacturing PMI supported the pound, but worries about the UK banking sector and speculation the Bank of England will expand its quantitative easing program when it meets on Thursday weighted on the currency. The Canadian dollar rose modestly as commodity and crude prices increased.

* The AUD/USD rose ahead of Tuesday’s Reserve Bank of Australia rate decision meeting. The central bank is expected to raise its key rate 25 basis points to 3.50%, but the risk could be that the hawkish RBA may hike 50 basis points. Yesterday the government upgraded its fiscal and economic forecasts. The Australian dollar is also supported by strong commodity prices and Chinese strong economic growth. The pair has reduced its overbought condition and remained in a strong uptrend. As long as the uptrend is not broken, we stay with the pair.



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Risk Appetite Surges on Strong GDP

* The dollar and yen fell as risk appetite increased after the US economy grew faster than expected. US GDP rose a stronger-than-expected 3.5% in Q3 2009 as personal consumption contributed the most to GDP gains since Q4 2006. Inventory gains were modest and will likely rise strongly next quarter, which should ensure strong Q4 GDP growth. Meanwhile, the price deflator was well contained, reducing the risk of premature interest-rate hikes. Commodity prices and bond yields rose on the good news and the S&P 500 index surged 23.48 to 1,066.11. The euro rose above the 1.48 handle, EMU sentiment improved and German unemployment unexpectedly declined. Sterling gained for a fourth consecutive day on optimism of the UK banking sector and the rise in UK mortgage approvals to the highest level in 18 months. The Australian and Canadian dollars reversed yesterday’s losses as risk appetite and commodity prices rose.

* The USD/JPY advanced as risk sentiment improved. Japan’s industrial production rose for a seven consecutive month in September. After making a double bottom in the 88 area, the USD/JPY may be forming the right shoulder in an inverted head-and-shoulder. The pair has support in the 90 area and resistance in the 92.



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Forex Trading Strategies 19/10/2009

Dollar May Gain on Stock Correction

* The dollar rose against most major currencies on Friday as risk appetite moderated and stocks fell. US industrial production rose strongly, but consumer sentiment declined modestly. The S&P 500 index fell 8.88 points to 1,087.68 on disappointing earnings announcements from Bank of America and GE. The yen fell for a second day. The euro declined for the first time this week; eurozone exports dropped the most in seven months and EU officials expressed concerns over the euro’s strength and the dollar’s weakness. Sterling gained for a second day against the dollar and in cross trades, supported by speculation the Bank of England may pause its quantitative easing policy. The overbought Australian and Canadian dollars fell despite higher commodity prices.

* After falling to a 14-month low and breaking the important 76-area support earlier in the week, the dollar index rose for the first time today. Negatively correlated with the equity market, the dollar is oversold and the stock market overbought. If the stock market consolidates gains next week, the dollar may get some support from risk aversion. A close above 78 would significantly improve the technical outlook for the dollar.



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Morning Wakeup Call 16/10/2009

Pound Surges on Possible Pause to Asset-Purchase Program


EUR/USD – Greenback Retraces 38.2% of Recent Rally

EUR/USDThe Euro-Dollar pair fell overnight after testing the 1.4965 area prior to the European session’s open. European stocks went on to open lower, which increased risk aversion and prodded traders to retrace the recent three session upswing in the pair from 1.4650 to the before mentioned high. The correction touched the 1.4850 level, which was a 38.2% retracement of the recent 300 pip upswing. Following better news from the US, the pair recovered its previous losses and was trading near its high as of noon NY time.



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Forex Trading Strategies 15/10/2009

Dollar Drops as Dow Tops 10,000

* The dollar fell versus its rivals on Wednesday as better-than-estimated corporate earnings and economic data lifted investor risk appetite. The Dow Jones 30 index closed above 10,000 for the first time in over a year and the S&P 500 index rose 18.83 points to 1092.02. The dollar index dropped to the lowest level since August 2008, breaking the 76-area support. Some Federal Reserve policy makers said expanding the Fed’s $1.25 trillion mortgage-backed securities purchase program may help revive the economy, according to minutes of the Federal Open Market Committee’s September 22-23 meeting released today. Better-than-expected Chinese trade data, relatively upbeat US retail sales, rising eurozone industrial production, and improving UK labor-market conditions signaled the global economy is on the mend. The Bank of Japan maintained its key interest rate at 0.10%, as forecast. The BOJ said “Japan's economy has started to pick up” but warned that “the outlook is attended by a significant level of uncertainty stemming mainly from developments in overseas economies and global financial markets.”

* The USD/CAD fell for the eight days out of nine as crude oil, Canada’s largest export, rose above $75. The pair’s direction continues to be inversely related with equity and commodity prices. The Bank of Canada may worry about its inflation target and Canada’s economic recovery as the loonie appreciates; thus, making a BOC intervention to support the pair possible but not likely. The USD/CAD is oversold. There are strong supports in the 1.02 and 1.00 areas and strong resistances in the 1.05-1.06.



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Forex Trading Strategies 14/10/2009

GBP/USD Support Held

* The dollar fell versus most major currencies on Tuesday. The dollar index was at a 14-month low and below the 76-handle despite the S&P 500 index declining 3.00 points to 1,073.19. Intel reported strong results after the stock market was closed. The yen rose modestly ahead of the Bank of Japan’s interest rate decision. The BOJ is expected to maintain its key rate at 0.10%. Investors are anxious to see whether the BOJ is considering changing its bond purchasing plan. The euro rose despite a modest decline in European investor sentiment. The Australian and Canadian dollars advanced, adding to recent strong gains as commodity prices climbed.

* The GBP/USD rose on generally better-than-expected UK economic data. Retail sales and housing figures supported the pair, while declining inflation rates limited gains as investors speculated that the Bank of England’s quantitative easing may continue longer than expected to avoid consumer prices falling below the BOE’s inflation target. The GBP/USD is at critical support in the 1.57-1.58 area. If this is broken, the pair may fall dramatically.



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Forex Trading Strategies 12/10/2009

Dollar Rises Despite Stock Gains

* The dollar rose on Friday, supported by Federal Reserve Chairman Ben Bernanke’s comment last night that the Fed will tighten monetary policy “when the economic outlook improves sufficiently.” This is not a big surprise to the financial markets; however, in conjunction with White House economic adviser Larry Summers’ support for the dollar, it helped the US currency today. Summers said “any idea that nations can devalue their way to prosperity is one that economic experience very much belies.” US stocks rose. The S&P 500 was up 6.01 points to 1,071.49. The euro was pressured by weak German exports. Sterling fell for the week. The Australian dollar consolidated strong weekly gains. The Canadian dollar added to weekly gains as Canada’s employment rose for a second consecutive month and the unemployment rate unexpectedly declined.

* The USD/JPY surged on Friday, reversing most of the week’s earlier losses. The pair is still in a clearly defined downtrend. Strong supports exist at 88 and 87 and there may be a renewed test of those levels. However, we believe the pair is forming a double bottom and we are long the USD/JPY. If the downtrend is broken, the USD/JPY will rally.



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Forex Trading Strategies 8/10/2009

USD/JPY Bottoming?

* At cycle lows against most major currencies, the dollar found support on Wednesday. The dollar index rose to 76.42 after testing the 76-handle support. The S&P 500 index was up 2.56 points to 1,057.58. The euro fell for the first day in four ahead of Thursday’s European Central Bank’s interest-rate decision meeting, while the pound rose modestly ahead of the Bank of England’s meeting. The BOE is expected to keep its key interest rate at 0.50% while the ECB will likely maintain its benchmark rate at 1.00%. The USD/CAD climbed above the 1.06-handle. The AUD/USD, little changed, reached the highest level since August 2008. The Swiss franc fell as Swiss unemployment rose to an 11-year high.

* The USD/JPY declined after Finance Minister Hirohisa Fujii stated that “now is the time to calmly watch the currency markets” but there may be some action if movements become abnormal. The USD/JPY recouped most of its losses after testing the 88-handle support. The pair is in a clearly defined downtrend. However, there are strong supports at 88 and 87. The USD/JPY is extremely oversold; thus, we buy it with stop at 86.50.

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Forex Trading Strategies 7/10/2009

Dollar at Critical Support


* The dollar fell on Tuesday, pressured by a report that oil producing nations along with Japan, France and China were discussing replacing the USD with a basket of currencies and gold to price oil transactions. The report, although denied by the parties, pressured the greenback in this dollar skeptical environment. The USD was further pressured by Australia’s unexpected interest-rate hike, which increased risk appetite and rallied stocks and commodities. The dollar index, approaching a cycle low, is testing the 76-handle support. Gold rose to an all-time high. The S&P 500 index was up 14.26 points to 1,054.72. The yen advanced, supported by a statement by Finance Minister Hirohisa Fujii that countries should not engage in competitive devaluation. The euro gained against the greenback and pound. An unexpected decline in UK industrial production pressured sterling. The Australian dollar rallied to a 13-month high on the RBA rate hike and commodity rally.

* The USD/CAD fell on higher commodity prices and bearish greenback sentiment. The pair’s direction is continuing to be inversely related with equity and commodity prices. After failing to penetrate the diagonal resistance last week, the USD/CAD is now testing support in the 1.05-1.06 area. The Bank of Canada may be tempted to intervene to support the pair if the USD/CAD decline continues. Our long position stopped out today.




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UK Final GDP Unlikely To Be Sterling's Salvation

Market Brief

It was a quiet day in the FX space yesterday, with German CPI releases forming the entirety of the data releases during our session. The overall reading came in at -0.4% M/M (vs. +0.2% expected) but came as little surprise to the market, as regional figures released earlier all posted lower than forecast changes on the month. More influential were comments from ECB's Trichet in the afternoon who stated that a strong USD is 'extremely important'. The 30bp dip lower in EURUSD failed to gain much traction as improved risk appetite gradually ground back the advantage, EURUSD was confined to a 100bp range for most of the day (currently 1.4630). Most focus was instead turned to EURCHF which continues to hover around the 1.5100 level. We are looking to add to longs below the figure, and hope to exploit SNB intervention to weaken the CHF around these levels.

After equities in Europe and the US ended strongly higher yesterday, overnight Asian indices rebounded across the board from Monday's sell-off. The DXY has remained stable (76.85) despite the slight improvement in risk appetite, and commodities are largely flat or very modestly higher (gold $992, silver $16.25). Japanese CPI data highlighted national inflation is -2.2% Y/Y, but the figures were in line with forecasts and, as is common with Japanese data releases, had very little FX impact.

Today the spotlight is on the UK as we await the final Q2 GDP reading along with mortgage approvals, consumer credit, and M4 money supply. GDP is expected to be revised upwards (Q/Q -0.6% exp, -0.7% prior), and whilst improvements in the UK data may force a squeeze higher in GBPUSD, rallies should be capped under 1.6110 (currently 1.5905), and our bias is that downside surprises form the greater risk to GBP going forward as other major economies exit the recession and look to pull away from accommodative monetary policy.

Elsewhere, expect Eurozone Retail PMI (47.1 prior), Eurozone Consumer Confidence (-21 exp, -22 prior), and US Consumer Confidence - expected to post a small improvement in Sep to 57.0 from 54.1 last month.

Forex Trading Strategies 29/9/2009

Greenback Gains Despite Stock Market Rally

* The dollar traded mostly higher on Monday despite a US equity market rally. Stocks rose for the first day in five. The S&P 500 climbed 18.60 points to 1,062.98. The USD/JPY recovered overnight losses after Japan’s Finance Minister Hirohisa Fujii, who opposes intervening in the currency markets, stated that he is carefully monitoring the strengthening yen and stable currency moves are desirable. The euro declined after European Central Bank President Jean-Claude Trichet said the solidity of the dollar is important. Sterling fell for a fourth day despite increasing UK home prices. The Australian dollar rose on Reserve Bank of Australia Governor Glenn Stevens’ hawkish comment that adjustments to interest rates shall be “timely and ahead of a build-up of imbalances that would occur if interest rates were kept low for too long.” The Canadian dollar gained as energy prices advanced.

* The dollar index rose, supported by ECB President Trichet’s assertion that a strong dollar is extremely important for the world economy and it is too early for the ECB to unwind emergency stimulus measures. Interestingly, the dollar index gained despite higher equity prices. This could be a new development. We are closely monitoring this week’s employment report. Better-than-expected employment figures may lead to speculation that US interest rates could rise faster than international ones, which in turn could be the end of risk aversion trades and the beginning of a period when the greenback can rally on good news. The dollar index is between important support at the 76 handle and resistance from its downtrend in the 77.50 area. A break of either direction will signal the future USD outlook.




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Forex Trading Strategies 24/9/2009

Dollar Holds Support after FOMC Statement

* The greenback declined on the FOMC statement but later rose against most major currencies after US equities reversed gains and had a selloff in late NY trading. The Federal Reserve, as expected, maintained the target range for the federal funds rate at 0 to 0.25% and upgraded its economic assessment for the US economy. The Fed sees economic activity as having “picked up” in today’s FOMC statement versus just “leveling out” in the previous statement. The Fed also sees a slow economic recovery with contained inflation and expects to keep rates at “exceptionally low levels” for “an extended period.” The dollar index rose to 76.36 after trading below the 76 handle. The S&P 500 declined 10.79 points to 1,060.87. The euro, yen, Swiss franc, aussie, and loonie reversed earlier gains as stocks and risk appetite declined.

* The GBP/USD rose on today’s release of the Bank of England September 9-10 minutes, but reversed earlier gains as US stocks fell in late trading. At the September meeting, the BOE Monetary Policy Committee voted unanimously to keep its quantitative easing program at £175 billion and hold interest rates at a record-low 0.50%. The minutes calmed fears over a possible expansion of the BOE’s quantitative easing program. Meanwhile, the Confederation of British Industry sees an end to the UK recession and forecasts 0.3% and 0.4% growth for the final two quarters of 2009. However, the prospects for growth next year will be “feeble” as the economy continues to feel the effects of the financial crisis and tight credit. The GBP/USD has been trading in a sideways pattern since June. The pair broke its uptrend in August and now looks heavy. Therefore, we are selling the GBP/USD with stop at 1.6760. There are supports in the 1.61 and 1.59 areas and resistances in the 1.66 and 1.67.



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Forex Trading Strategies 18/9/2009

Dollar at Critical Support

* The dollar traded mixed on Thursday, having tested important technical levels in the crosses. The dollar index tested its 76.00 support before closing little changed at 76.24. US economic figures were mixed. Housing data was slightly weaker than expected while numbers on initial jobless claims and Philadelphia manufacturing were better than expected. The S&P 500 declined 3.28 points to 1,065.48. The yen fell modestly. The Bank of Japan maintained its key interest rate at 0.10% and upgraded its assessment of the Japanese economy. BOJ Governor Masaaki Shirakawa echoed the new government’s view that a strong yen could be beneficial in the long run. The euro rose for a 10th consecutive day. Sterling fell, testing the 1.64-area support as UK retail sales were flat. The Australian dollar was unable to penetrate the 0.88 resistance, pressured by a report on RBA intervention to slow the appreciation. The Swiss franc rose, even against the euro, despite new promise from the Swiss National Bank to counter any gains against the euro.

* The USD/CAD fell for a third day but did not penetrate the 1.06 support. Canada’s August LEI climbed the most since April 2002. The Bank of Canada has committed to keep its key interest rate at 0.25% until mid 1010. The LEI indicates the recovery should be well under way before then. Today’s Canadian inflation report showed modest inflation pressure, so the inflation targeting BOC may continue its easy monetary policy, which could start to support the USD/CAD. There is also the risk of a direct BOC intervention to support the pair. Still, the direction is going to be inversely related with stocks and commodity prices.




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Forex Trading Strategies 16/9/2009

Sterling Pressured by BOE Governor King

* The dollar traded mostly lower on Tuesday as risk appetite increased and US stock price indexes climbed to fresh yearly highs. Federal Reserve Chairman Ben Bernanke said the US recession is “very likely” over but the economy is still weak. US retail sales and producer prices rose more than expected. The S&P 500 was up 3.29 points to 1,052.63. The yen declined for a second day. The euro gained for an eighth consecutive day. The Australian and Canadian dollars advanced on higher commodity prices.

* The GBP/USD fell as Bank of England Governor Mervyn King signaled that the BOE might reduce the rate it pays on bank deposits held at the central bank. King also said the risk to inflation is still on the downside. A lower rate will induce commercial banks to lend more. After breaking its short-term uptrend, the GBP/USD is between the 1.64-area support and the 1.67-area resistance. If the 1.64 support is broken, the GBP/USD outlook will turn more bearish.



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Forex Trading Strategies 15/9/2009

Yen Is Oversold

* The dollar traded mixed on Monday, higher against the yen and commodity currencies but lower versus the euro. The greenback was supported by increasing risk aversion as a trade dispute between China and the US increased the threat of protectionism. The S&P 500 was up 6.61 points to 1,049.34. The euro rose despite the declines in eurozone industrial production and employment. Sterling was pressured by a report predicting the UK housing slump will resume next year. The Australian dollar fell for a second day and the Canadian dollar declined.

* The USD/JPY rose for the first time in five days, supported by intervention threats. Japan’s Finance Minister Yasutake Tango said officials are paying close attention to the yen. In addition, Goldman Sachs said it does not see a prolonged USD/JPY weakness. The trend is certainly negative, but the pair is oversold measured by the RSI and also near the important 90-area support. Therefore, we expect the USD/JPY to move sideways or higher this week.



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Forex Trading Strategies 14/9/2009

Will Dollar Find Support?

* The dollar was mixed on Friday, sharply lower versus the yen but modestly higher against the commodity currencies. US consumer confidence rose more than expected, boosted by the recent rally on Wall Street. Wholesale inventories fell for a record eleventh straight month while wholesale sales gained, indicating a US economic recovery in on track. The S&P 500 fell 1.41 points to 1,042.73, the first decline in six days. The USD/JPY plunged following the penetration of the 91.50 support. The euro was flat. Sterling rose modestly, supported by higher UK producer-price inflation. The Australian and Canadian dollars declined as commodity prices fell despite China’s better-than-expected industrial production.

* The dollar index fell for a sixth consecutive day, the longest loosing streak since the beginning of the stock market rally in March. Despite weakness in US stock market prices, the dollar index declined 0.13 points to 76.69 today, approaching the 76-area support. Stocks are overbought and usually weak in September/October, and the dollar usually appreciates during the same time. We believe there is a good chance that the dollar may find support despite strong downward momentum and solidly negative sentiment.



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Forex Trading Strategies 31/8/09

USD at Crossroad

* The dollar rose on Friday as US stocks fell. US personal income was flat while spending increased a modest 0.2%. Data on US and European consumer sentiment were better than expected. The S&P 500 fell 2.05 points to 1,028.93. The USD/JPY, just above support, rose modestly on Friday but fell for the week. The EUR/USD declined after failing to penetrate the important 1.44-area resistance. The GBP/USD reversed earlier gains, moving near the 1.62 support. The AUD/USD pared gains, unable to break the 0.85-area resistance. The USD/CAD fell despite a small increase in crude oil prices.

* The dollar index rose today on declining US stocks. Highly correlated with risk aversion and equity markets, the index has failed to break resistance from the downtrend. The dollar peaked when equities bottomed in March. US equities are at important resistance and quite overbought. In addition, September and October are usually difficult times for stocks; thus, arguing for a stock market correction. On the other hand, the economic outlook is favorable and monetary policy is likely to remain easy, which could support stocks. The dollar index is between significant support and resistance. A penetration of either support or resistance will likely lead to a big move and possibly determine the intermediate-term direction. If the stock market continues its ascent next week, the dollar index will likely test the 76-handle support.



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Forex Trading Strategies 27/8/09

Will Dollar Gain on Good News?

* The dollar rose in NY trading Wednesday, supported by risk aversion following reports that China’s government may take steps to curb excess capacity and overinvestment in certain sectors. Since the beginning of the financial crisis, good news had pressured the dollar while bad news had supported it. However, today’s reports on gains in both durable goods orders and new-home sales did not seem to pressure the dollar. The dollar index was up 0.5%, again testing the resistance from the 6-month old downtrend. A penetration of this downtrend will change the dollar’s near-term outlook. US stocks were little changed; the S&P 500 was up 0.12 points to 1,028.12. The yen was little changed versus the greenback. The euro was unable to hold on to gains incurred after German business sentiment rose to the highest level since September 2008. Sterling fell for a sixth day. We took a nice profit on our long GBP/USD that we entered at 1.4845. The Canadian dollar fell on concerns over the commodity-market outlook.

* The AUD/USD fell for a second day after worries about the Chinese economic expansion. The pair is dependent on the Chinese economic outlook as China is a major export destination for Australian goods. The AUD/USD has traded sideway after failing to break the important 0.85 resistance. If the 0.82 support is broken, the pair will turn more bearish and may penetrate the 0.80 support.



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