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9/29 Forex Trading Blog

2009-09-28T22:16:00.001-07:00

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Aussi Leads the Way on Rate Hike Speculation!
September 28, 2009 at 12:26 pm

In a bloomberg report out today, Australian Central Bank Governor Glenn Stevens announced that “government stimulus spending needs to be eased and that interest rates need to be raised” in light of Australian’s expanding economy. This of course is good news for AUD/USD (+.79%) and GBP/AUD (-1.11%) today as the US dollar is now the “carry trade” vehicle of choice and we’ve already discussed British Pound weakness ad nauseum in the blogs articles below.

This means that investors and traders will be selling USD and buying AUD in order to profit from the interest rate differentials. As long as the Australian economy continues to expand, this will be a profitable trade as they are clearly ahead of the US with regard to having a sound economy which will need to “cool off”.

So keep an eye on Aussi strength and both USD and GBP weakness in the days/weeks to come.

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Tags: account, AUD, bank, blog, carry trade, course, currency, dollar, economy, forex, fx, fxedu, gbp, interest, interest rate, interest rates, invest, investor, live, Mike Conlon, mywealth, news, pound, practice, ssi, trader, trading, USD

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9/26 Forex Trading Blog

2009-09-25T22:19:00.001-07:00

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Forex Trading Blog

All About Yen!
September 25, 2009 at 12:10 pm

Another strong day for the yen today, up against all of the currency pairs commonly followed. Its particularly strong against GBP (+2.07), as I’ve noted over the last couple days the problems facing the Sterling. So while GBP and USD get all of the attention with their QE (quantitative easing) programs, the Yen just quietly chugs along.

A few factors helping the yen:

1) Speculation that Japanes companies (exporters) are repatriating their funds (profits). This is a seasonal factor that is supporting the yen right now.

2) From Bloomberg: “Japan's Finance Minister Hirohisa Fujii reiterated his opposition to intervention in foreign-exchange markets to curb the yen's gains yesterday. The yen has added 3 percent versus the dollar this month.” One of the biggest fears of yen traders is BOJ intervention, so this bodes well for the yen… for now.

3) The yen is being replaced in the “carry trade” as traders are now substituting USD as the vehicle of choice.

Overall, Japan hasn’t been affected as badly as the US and UK in the credit crisis, so look for JPY to benefit from the safe harbor trade.

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9/25 Forex Trading Blog

2009-09-24T22:26:00.001-07:00

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Forex Trading Blog

Tough Start for GBP!
September 24, 2009 at 10:21 am

Sometimes in trading you just have to stick with your initial “gut” feeling. Yesterday I wrote in an article below, “Sound As A Pound…. For Now” that I thought the long-term outlook for GBP was negative but that it would probably take a while for the market to catch on before the serious selling would begin.

Apparently not. And I highly doubt its because the market reads this blog, though one never knows! LOL

Anyway, GBP is getting slaughtered this morning, with GBP/JPY (-2.30%), GBP/USD (-1.92%), EUR/GBP (+1.64%), and GBP/CHF (-1.73%).

While I initially thought that GBP would remain positive vs. USD, it appears that they may be playing “catch-up” or “catch down” as it were to USD in the Quantitative easing department.

Any way you slice it, it looks like the GBP selling has begun and it could be a while for it to recover.

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Tags: account, article, blog, CHF, currenc, currency, currency market, dow, EUR, forex, fx, fxedu, gbp, Il, jpy, Mike Conlon, money, pound, practice, practice account, time, trading, USD

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9/24 Forex Trading Blog

2009-09-24T01:29:00.001-07:00

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See What I Mean?
September 23, 2009 at 2:36 pm

It looks like the FED did as was expected and the market was kind enough to follow suit, by selling the dollar and buying up other currencies. But see what I mean about the volatility! Take a look at this 5-minute chart of EUR/USD. (click chart to enlarge) Over 60 pips in less than a few minutes!

Hopefully readers you took my advice and sold USD bought other currencies, or steered clear of the mayhem all together!

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Tags: account, blog, currenc, currencies, currency, dollar, EUR, fed, forex, forex trading, forextrading, fundamental, fx, fxedu, Il, market, Mike Conlon, minutes, mywealth, pip, pips, practice, spot, time, USD

FOMC Rate Decision at 2:15 EST!
September 23, 2009 at 12:58 pm

Just a head’s up for the day-traders out there, whom I’m sure are thoroughly familiar with the price action that occurs right around the rate decision. I usually advise that the less-experienced traders sit this event out as the increased volatility can spook even the most seasoned vets.

As I wrote on Monday, its not like that Bernanke will change anything with regard to interest rates or language going forward, but that doesn’t mean that the currency market HAS to respond as expected. Stranger things have happened. The dollar is currently positive vs. all currencies except the GBP, but that could change very rapidly if this announcement goes as expected.

This is always a great time to view the market from the safe confines of your practice account. This will give you a great idea of how much money can be made or lost during these events.

Don’t have a real-time practice account? Get one here.

Good trading to all!

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Sound As A Pound….For Now!
September 23, 2009 at 12:44 pm

Yesterday, the Bank of England vote unanimously to leave the size of its asset purchase plan unchanged at 175 billion pounds and voted to leave interest rates unchanged at 0.5%. This is seemingly good news for the Pound in the near-term, as the currency markets are reflecting this morning with the British pound up vs. other currencies. But what is the outlook for GBP going forward?

Back in August at the BOE, there were some who had wanted even more quantitative easing yet were comfortable with following through with the plans laid out in August, as the September minutes show. So while economic conditions have stabilized just enough to warrant a continuation of policy, is a full blown recovery already underway?

Methinks Not!

Let's take a look at a few factors that could "weigh heavily" on the British pound and what this means for other markets as well.

For starters, it is commonly known that the British are more "conservative" than their free-wheeling Yankee neighbors across the pond. This means that they usually take more thought-out measures and need more convincing that a dire situation may persist. Thus it is no surprise that they left policy unchanged. Some would argue though that this makes them more re-active than pro-active, and that by the time increased negative forces come to light, it could be too late. Quite the opposite of Bernanke et al. So in this regard, we can't rule out the possibility of further quantitative easing should conditions deteriorate.

But the British Bankers Association (BBA) just reported that loans for home purchases declined from the previous month and missed expectations, a sign that perhaps their economy is not ticking up or that the QE measures the BOE has taken haven't taken hold yet as tighter credit conditions haven't sparked an uptick in demand. Should housing demand continue to fall, then this could prolong the economic recovery they are hoping for.

So if housing prices decline as a result of falling demand, then the BOE might just have to deal with deflationary pressures rather than the inflation they are hoping for. This could mean more QE which would put further pressure on the British pound.

However, in the near-term, I can't see the GBP falling against the US dollar as Bernanke's path to dollar destruction has been well-established. As I wrote on Monday, nothing is going to change at today's FOMC meeting as Bernanke doesn't want to spook the stock market. And the correlation between the S&P 500 index (SPY) and the British pound (FXB) has been pretty tight. Here's a 3-year chart (Click to enlarge):

So if we are expecting the stock market to advance on Bernanke's non-action at the FOMC meeting, then it follows that the dollar should decline and the pound should advance.

However, should the stock market run out of gas later this year, this could coincide with British pound weakness as a result of sluggish economic growth in the UK. This could be the double-whammy that the stock market Bears have been looking for.

But until that occurs, keep your eyes on the British economy and don't fight the Fed!

To learn more about how currencies and foreign economies can affect your investments, be sure to check out our currency trading course.

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9/23 Forex Trading Blog

2009-09-22T22:18:00.001-07:00

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That Didn't Take Long!
September 22, 2009 at 10:14 am

It looks like the markets now are soooo convinced to not expect anything out of the FOMC and Ben Bernanke that they are not even going to wait for the confirmation. Risk appetite is back today in a major way and the dollar is giving back some of the short-term gains I mentioned in yesterday’s blog post and then some. The US dollar is down across the board, most notably against the commodity currencies; kiwi NZD (-2.07%) and aussi AUD (-1.13%). The US equitites markets are positive and its been good morning for oil (+1.82%) and gold (1.48%) as well.

The only question that remains is whether or not the G-20 meeting at the end of the week will change the course that the US Fed is on. I’m guessing that outside of the usual suspects clamoring for a new world reserve currency, everyone is going to be on board as they realize that the only way to see dollar strength is to watch all other markets collapse.

So pick your poison, hold your nose, and take a big sip!

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Tags: AUD, Bernanke, blog, commodity, course, currenc, currencies, currency, dollar, dow, fed, gold, Il, Kiwi, market, meeting, Mike Conlon, nzd, oil, short, ssi

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9/22 Forex Trading Blog

2009-09-21T22:16:00.001-07:00

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Dollar Strength Going Into the FOMC Meeting, G-20
September 21, 2009 at 12:08 pm

All eyes are on Bernanke and the FED this week as investors are seeking a little more clarity over Federal Reserve Policy going forward and what they plan to do with regard to interest rates. Couple that with the G-20 meeting this week and growing concerns over the rising US fiscal deficit and you have a potentially explosive situation.

However, if you've been watching the markets as of late, you would know that the potential for fireworks is highly unlikely. The "Ben Bernanke Show" is in full effect and market contrarians and early participants go through this exercise with every FOMC meeting like clockwork. It basically starts with the US dollar showing signs of early strength, followed by a drop in commodity prices and lower US equity futures. Next, the claim is made that the "fundamentals" are coming back into play and that inflation may be rearing its ugly head. This naturally leads to the conclusion that the Fed may have to start raising interest rates, which send the US dollar higher and all other markets lower—temporarily. I wrote about this earlier as right now there are essentially two trades out there.

Here's what's really going to happen:

There is not a snowball's chance in hell that we're going to hear anything remotely related to rising inflation. In Bernanke's mind, we need to RE-flate before we IN-flate. There is no chance that the FED is going to raise rates in this session and it is highly unlikely that he's going to change the language going forward. Right now the market is still extremely fragile so anything remotely related to the possibility of higher interest rates could send global markets into a death spiral.

Another factor to be considered is that market players are concerned that the FED may signal the end to the stimulus plans. Again, not gonna happen. Bernanke is so concerned with avoiding the Great Depression 2.0 that he will not spook the markets. And even the euro contingent of the G-20 is calling for continued stimulus. It's more probable that he is going to try to bore market players and break the will of those who attempt to fight the Fed then take action that will potentially harm markets.

Lastly, concern about how the FED is going to wind down its quantitative easing and the potential impact it will have on interest rates is causing investors to take some money off of the table. Bernanke just announced that the recession was likely over last week, so it is also highly unlikely that he would do anything this soon to counter that claim. Today's markets are more about perception than reality.

So expect the US dollar to strengthen and equities and commodities to weaken going into the FOMC meeting. Smart traders are lightening the load and taking profits, nothing more. While everyone loves to call a market reversal, dollar strength means trouble for stocks and Bernanke just won't let this happen.

And after the FOMC meeting's conclusion, be prepared to do just the opposite. The trend for the US dollar is clearly down and should continue for some time, and there appears to be room for stocks to move to the upside.

We've all seen this show before.

Tags: blog, commodities, dollar, dow, EUR, Euro, fed, fundamental, fx, interest, interest rate, interest rates, invest, investor, lower, market, Mike Conlon, money, mywealth, pair, recession, ssi, stock, stocks, time, trade, trader, trades, trend

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9/17 Forex Trading Blog

2009-09-16T23:29:00.001-07:00

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Currency Markets Drinking the Bernanke Kool-Aid!
September 16, 2009 at 2:21 pm

It is appears as though the currency markets are believing the economic numbers that are coming out of the US, that inflation is tame at .4% so that there is no chance that Bernanke and the Fed will even consider raising rates anytime soon.

Also, yesterday Bernanke suggested that the recession in the US may have ended. While this “technically” may be correct, I would be a little more cautious before breaking out the pizza and ice cream just yet.

Nevertheless, the currency markets are acting predictably, with the risk trade back on. As a result, NZD and AUD are the big winners so far today, and USD and JPY the losers. NZD/USD (+1.14%) and NZD/JPY (+1.19%) showing good gains for the Kiwi, with Aussie right on its heels AUD/USD (+1.00%) and AUD/JPY (+.98%).

As long as the cheerleading keeps coming and the numbers don’t look too bad, look for these trends to continue. And hope that the party doesn’t end too soon!

Tags: AUD, Aussie, Bernanke, currenc, currency, currency market, economic, fed, Il, jpy, Kiwi, Mike Conlon, nzd, rate, recession, ssi, technical, time, trade, trend, USD

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