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There is a sense of déjà vu with regard to Payroll this month as exactly the same arguments that I posted last month are true again this. Both the ISM Manufacturing and Non Manufacturing employment numbers were extremely strong, posting even larger gains that the previous all time best levels since 2004 and 2008. Yet, once again this failed to feed through into the Payroll data. This time the widely touted excuse is the poor weather, especially in the North East. For me, this seems a weak argument as I thought only the British economy came to a standstill whenever half an inch of the “wrong type” of snow fell, and having been in New York in February, it seemed as busy as ever. Certainly the weather had a limited impact to my eyes. My other concern is the strength of some of the retail sales numbers for individual stores such as Macy and Dillard’s, which were much stronger than analyst’s predictions, with headlines stating how the snow did not have an effect. Well, if shoppers ignored the snow, why didn’t employers? Certainly for Payroll they can be no excuses next month and they must be much stronger, with further upward revisions on previous months. The impact of census hiring should begin to take effect as well.

In the last month only the Pound has displayed any real weakness and Canada strength as other major’s moves against the Dollar have largely been muted. This means from a technical prospective that the Dollar Index remains well bid as it sits at the top of the current trend. However, it needs to reassert itself now and restart its trend. Moves below 0.7930 would be negative and would likely coincide with breaks above 1.3840 on the Euro/dollar.

A quick mention on the Pound, which is seeing values last seen against the Canadian Dollar back in 1985, when Cable was almost 1 to 1 with the U.S. Dollar. Technically on the Pound Cross Rates I am getting major signals of an oversold situation on daily data, which suggests that for now, the major part of the downtrend has occurred. This opens up the possibility of a period of sideways, with the risk of short lived vicious short covering bounces as the situation is unwound. Certainly, any new lows need to be treated with caution in the short term and played with tight trailing stops.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

Today has seen a collapse in the value of Sterling as the chilling reality of something even worse than a hung Parliament looms after the weekend’s polls. Whilst it is clear that the financial world shivers in dread at such a thought, it is worth using today’s falls as an instruction into how the misuse of certain indicators can lead to traders forgetting that the trend is your friend, and lead to the move not only being missed, but the damaging realisation that trading against the trend at such times as it perceived to be “Oversold” creates big losses. The chief culprits and most commonly abused are the Slow Stochastic and RSI. There inherent flaw is obvious when you think about it, as they both have limits of scale between 0 and 100, whereas the price that it is being calculated on can go anywhere. When this happens, the indicators show extreme readings, and it only takes a relatively minor reversal (especially in the Stochastic that looks at the relationship between the close and the high and low), to say that the market should reverse.

Today, the low timeframe charts entered oversold territory just when the trend was beginning at 1.5150 and in the Stochastic’s case it made its absolute low value when price was at 1.5050. Price then collapsed 270 points as the indicator actually edged up in value.

So what is the answer? Firstly to realise that the relationship between price and the study is flawed. Armed with that knowledge there are two solutions. Use oscillators that have no limits of scale, or more usefully, track trend via a Moving Linear Regression Average. This will track trend however shallow or steep, but also maintain sensitivity without lag. When the line changes direction the move is over. Alternatively I look for true measure of support and resistance based on points of time and no time. As my weekend report notes, due to the swift rally in Cable last Year in May, what rallied quickly could also fall quickly. This meant that once price broke 1.5176, there was no support until 1.4760. Price stopped just short of this point this morning.

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Be sure to read the full risk disclosure before trading Forex.  Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

A momentous week for Forex as the market was shocked by the Fed’s move to raise rates in the Discount window. This is the rate with which funds can be traded with the Fed, and it was the first time I can remember that this rate was shifted and the Fed Funds rate did not move at the same time. This caused the Dollar to surge and that is not surprising. History tells us that once a change in trend in interest rates begins it is a long time before it shifts back the other way. America now joins Australia in a tightening bias and for the former this has some important underlying dynamics.

For some time now the Dollar has been the primary beneficiary of what is called the Carry trade. This involves borrowing money cheaply here and using it to buy assets elsewhere. This is fine as long as the currency borrowed does not significantly appreciate. We now have the situation where the outlook for cheap borrowing can shift and provides two arguments for further Dollar strength. Firstly, if the carry continues it is more likely that traders will look to hedge the risk of Dollar appreciation by buying Dollars on the forward market, thus creating a powerful underlying bid. Secondly, any further strength opens up the possibility that existing carries can be unwound, or further hedging is needed in order to continue to hold the position. It is also worth noting that the Dollar has been rallying in spite of other news that showed that China was a net seller of U.S Treasuries in November. Whilst this is some way back in history it will become very instructive to the size of the Dollar bid if this trend continued in December and January and is something I will watch closely.

Technically the Dollar slumped alarmingly late on Friday and highlights another market dynamic I look at closely. Moves right at the end of the week are always treated with suspicion due to thin conditions and day traders being forced to exit. This means that Monday’s price action will be very instructive in whether the move was true or false. Compounding the importance is the fact that the EUR/USD settled directly at the point of most time in its downtrend that began is January. When price ends the week at the ultimate point of fair value, it dictates that the market is at a pivotal time and must make a decision on its next trend. It means watching 1.3840 on the upside and 1.3559 on the downside.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

Looking at the employment data in more detail highlights a conflict between what economic indicators such as the ISM Employment and the Payroll said today. The manufacturing ISM reached its highest level since April 2004, whilst the Non manufacturing posted its best number since August 2008. However, these positives are simply not feeding through into either the Claims or Non farm data. With GDP growth at 5.7% in the last quarter and still no discernible rise in employment, it is clear that this remains a jobless recovery. For the economy, this is a concern and suggests that the consumer will stay under pressure moving forward. The likelihood is that the stock market will feel that pressure as well as the momentum from the 9 month rally dissipates rapidly and threatens a new bear market.

What does this mean for the Dollar? It was noted in a previous update that both the Euro and the Pound were threatening to begin a new phase of there downtrends. The closes below 1.3840 on the former and 1.5820 on the latter now mean from a technical standpoint that this is now the case. Both have support that is distant which highlights how swift the fall could be. The currency markets find themselves in a perfect scenario to trend as the Euro’s woes from peripheral Government debt problems continue, whilst the U.K. continues to struggle to emerge from recession. There are also three basic Dollar bullish arguments. The first is the potential for further flight to quality buying if stocks continue to slide. The S&P will remain under pressure until it can close above 1071, whilst it has no support until 1017. It would take a close beyond 1104 to make the market bullish once again. The second argument is the huge carry trade that is in the Dollar. This implies a potential binge of short covering if this unwinds and creates a constant underlying bid if the carry continues, if that carry is hedged via the forward rates. Finally and most significantly is the potential for further liquidity issues in the Global banking system. It is somewhat complex to explain, but the crux is the fact that the system is in effect short Dollars. This link from Zero hedge puts some flesh around the concept. http://www.zerohedge.com/article/imminent-round-2-foreign-bank-dollar-funding-crisis-or-eurodollar-squeeze-redux

The Dollar index also is at a pivotal point. In my analysis of Time based support and resistance, 0.8020 is at the point of most time in the previous long standing Dollar downtrend. The current uptrend is now at that point. Closes beyond here and then 0.8140 leave the potential for a swift rally to at least 0.8352.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

Last week’s comment circled around the outlook for the Dollar and saw how various macro events were negative for Canada, Australia and the Euro, whilst being positive for the Dollar and Yen.  Pretty much all of this has panned out so far, but what was the key point last week and what is the focus for the coming week? For me, the highlight was the minutes from the FOMC (Federal Open Market Committee) meeting, where inexplicably all reference to the woes of the housing market were completely removed. This, in a week when the stats from Case Shiller Home Price Index continued to drift lower and the 4 week average of mortgage applications made fresh lows since the downturn began. The key to any economic recovery is personal spending and consumption, and with a jobless recovery combining with falling wage growth, it is difficult to see how recovery can accelerate. The huge stimulus can be likened to pushing on a piece of string, and any hint of removal can lead to an overreaction in negative sentiment. It seems that the Fed’s statement was more of a political than an economic one, and was duly punished with equity weakness once the statement had been digested the following day. Whilst the GDP numbers appeared strong, a large percentage of that increase was due to a rise in inventories, which simply don’t correlate to the business inventories for October and November (December still has be released). The rise shown in the 4th quarter inventories implies a complete reversal of the previous 4 quarters’ decline, which seems unlikely.

After sharp falls, equity markets find themselves at a critical juncture with support weak and distant across many indices, meaning that the new month needs to see a swift recovery that overcomes the huge blocks of time that are above.

For currencies it has been a relatively subdued week with the trends hinted at last week slowly continuing. In fact, the lack of volatility has been surprising with Cable the notable exception. It has been pushed up and down by weak GDP numbers one day, a BOE member saying they were not a true reflection on the U.K’s economic outlook the following day, whilst it was rumoured that much of the strength was due to the conclusion of the Kraft takeover of Cadbury’s, which injected 7 Billion into the market.

For the week ahead, the early focus will be on the Aussie Dollar as there is employment data and an interest rate decision. Regardless of how the market interprets the data, the currency technically remains weak with support distant at 0.8742. Falls could be swift, especially if equities resume their slide. 0.9038 needs to cap any bounce to maintain the negativity.  From there focus will inevitably shift to Non-Farm Payrolls once again, but ahead of that the major support in the Eurodollar at 1.3830 to 10 should cause at least a temporary bounce, such is its power.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

A fairly momentous week all round as a series of macro economic and political news hit the wires and created turmoil in Equity markets. Basically there were three stories.

1. China cooling down it economy by instructing banks to shut down lending.

2. Governments declaring pay back time on banks with a variety of policy suggestions.

3. Widening of Credit Default Swaps.

All three combined throughout the week to hit various sectors of the equity markets and cause a sharp selloff. Analysis of the S&P shows that only small further falls will see the whole of the rally from November taken out. 80% of it has gone in just 2 days. Equity markets hate uncertainty and there appears to be little to soothe those worries in the coming week.

For the more inexperienced trader it can become problematic in understanding, not only what all these things mean, but also how it affects the markets they trade.

So to point 1. China cooling down primarily affects commodities and therefore mining stocks and the Australian Dollar. On a broader front, China’s huge boom last year must clearly slow down as its current rate of growth, the economy would double in just 7 years. This slow down affects would economic growth.

Point 2. From Obama’s crackdown on proprietary trading, raising reserves, and a desire to make banks smaller, to Europe’s re-ignition of the Tobin tax, all point to the political need to persecute banks. They have not helped themselves by awarding large bonuses or having an arrogant attitude at the American hearings last week. My own view is the market has overreacted, but the war will continue between the two sides and continue to worry equities. The real problem would be if the plans were forced through (unlikely at present) and cause different parts of money market participants to engage in de-leveraging and leveraging at the same time. This is exactly the sort of problem that got us into the mess of 2008 in the first place.

Point 3. Regulatory and equity uncertainty are fuelling what is already an increasingly dislocated Credit Default Swap market. Greece has hit new highs, Spain reached its highest level since July last year, and America saw a move to a six month high.

So what does this mean for the Dollar and currencies in general? Normally equity weakness equals Dollar strength, but its performance on Thursday and Friday was relatively poor in view of the falls in stocks. However, the general trend remains up, which is negative for commodities, and a slow down in world growth (if it pressure equities severely), is also Dollar positive. It is Yen positive as well. When taken against the problem in Europe which equals Euro weakness, it is clear that last weeks breakdown can continue its trend. Poor statistics from Canada, the desire of the central bank to restrict Canadian Dollar strength, and further equity falls also point to Dollar Canada having further room to rise. The mooting of a fresh mining tax on Australian producers, plus its susceptibility to correlate with stocks, means this currency can also come under pressure. All three currencies against the Dollar broke down last week and changed there major trends on the technical measurements I use. Therefore, my strategy (the trend is your friend) is to use the times when economic statistics are released to take advantage of any Dollar weakness that moves to my support points. For now the macro political arena should overwhelm the normal economic statistical one.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

My last blog post noted the spurious nature of what set off the downtrend, but since then there has been no denying that it has accelerated. So what next? Often when a trend is swift there is a temptation to close the entire position, when in fact the momentum is so strong, that the reality is that some portion of the position should remain and until that trend changes, day trade opportunities must be used to re-enter on any corrective move. These methods will be covered in future blogs and visual detail provided in a future webinar, but for now, what are the future drivers of the trend?

Firstly, while commonly used indicators such as the RSI and Stochastic are oversold, the inherent flaw in using such indicators means that bottom pickers will be active, and if price breaks down again, will simply add to the wave of selling. So what is flawed? It’s obvious when you think about it, but somehow an established mantra becomes law and few players actually question it. Markets are non-linear and the indicators are linear. In other words, while price can go anywhere on the upside and zero on the downside, the indicators are limited between zero and one hundred. Therefore any strong trend that see simply a one or two day correction can cause theses indicators to move disproportionally and encourage players to trade against the trend. If divergence is evident (as nearly all trends with these indicators show) this will simply encourage them further. Today’s positioning at the close of London in Currensee highlights this fact as it is 77% long.

One of my mantras of trading is this…if a runaway truck is hurtling downhill towards you, don’t stand in its way. Far better to wait for it to prove it has some brakes. At the moment for the Eurodollar, the break of 1.4140 and the close below the standardized limit of range at 1.4170 (a close below my 3rd Range Deviation Pivot from chapter 1 of my book Trading Time), is highly bearish. Greece has been at the forefront of the negativity, but I think the next thing to look out for is the fact that Spain’s credit default swap is also widening sharply. It hit its highest level since July last year today, and with Spain being a far bigger economy than Greece, further widening of the spread will begin to exert huge strains on the Euro’s credibility.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

Last week it was noted that the Eurodollar currency was trapped, but it was required to stay above 1.4515 to confirm that a new higher trend could develop. It managed to do this for almost the entire week, (although without any much needed acceleration), before the overnight session on Friday saw the original break out point at 1.4440 give way. On waking up Friday morning it was clear that only this currency had shown any real weakness, so it was necessary to look for clues as to what it was. After scouring the wires the conclusion was that a rumour that Angela Merkel would resign was the reason. However, a government spokesman said: ‘Rumours about Angela Merkel’s resignation are just pulled out of thin air.’ The origin of the rumours was unclear. The break actually occurred at 1 a.m. U.K. time when the market is at one of its thinnest moments, when a critical support point was breached.

By the time the main market woke up, the lack of any real reason for the break (for those who don’t believe in Technical’s), led to a somewhat spurious excuse that feeds on itself to explain the move. This type of justification after the price move is a classic example. Another common one is that one major block of players such as funds are coming into a market. Again, in a world far removed from past decades when FX was traded on the phone and by human market makers, and therefore there was a degree of visibility, in the current trading environment, large players go to great lengths to hide there activity via sophisticated automatic trade engines. This has led to such terms as “Dark Pools”, which is a term for hidden liquidity. The question for traders, who are not in the professional market, is whether they are at a disadvantage. This is where Currensee’s social indicators and views of the communities positioning can provide some visibility that is relevant and up to date. It is easy, if discipline is not strict, to feel that the market is conspiring against you and can cause great damage to the ability to trade. Your position is wrong; the reason why seems nonsensical, and hope can easily enter your trading plan. This is nearly always ruinous.

So what is the solution? It may seem obvious, but there are two basic rules. The first is simply to day trade in your time zone, so there is no overnight event risk. Tomorrow is always a new day and opportunity. The second is the placement of stops. Whilst it is true that volume is thin in Asia compared to the other time zones, the FX market remains the area of deepest liquidity among all the asset classes. It is far better to have been taken out of a trade, in order to be able to reassess your analysis when not actively involved. One of my key mental tasks, if a current position is causing me uncertainty, is to go back to my days as a market maker, when often you were forced to have positions you didn’t want.

My question is. If I didn’t have a position, would I get long or short? Again, it seems somewhat simplistic, but in cold analysis, it is often easy to eliminate one side of the market, as it is obvious that it does not coincide with your trading plan and template. If it doesn’t do this, then the answer is that you shouldn’t have a position at all.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

After last months shock on this data which was wildly better than even the most optimistic estimations, once again this month’s number should command pivotal importance.  It’s worth noting what its impact was for the Dollar last time, as it initially weakened as it was seen Stock positive, before making a sweeping reversal as traders realised that this could bring forward interest rate hikes, and have impact on the carry trade.

Now we look ahead to what the impact of this month’s number could be. The ADP report on Wednesday showed that job losses were still occurring, albeit at a reduced pace that dated back to March 2008 when a similar rate occurred. However, this survey is often a poor short term indicator of the main report and normally only reflects the general trend. This can be due to many unknown factors but what is clear is the fact that ADP is the private sector and the main Non Farm includes government hiring and firing. One background point to note is the one off period of Government recruitment requirements will be to find people to conduct the 2010 census.

Currently the consensus for the report is a slight loss of 10,000 with a range of plus and minus 60,000. For me, whilst the immediate number will be of interest, more importantly, the surprise of last months number will mean I will watch very carefully for any revisions of previous results. This could well be the catalyst for the true reaction on the Dollar. It also sets up what often occurs in FX on this number in that the first reaction is the wrong one.

From a Technical perspective the Eurodollar finds itself caught between the weight of time created by the previous uptrend above 1.4515 that lasted from last September to Xmas, and the short term trend which has gone sideways and has support at 1.4222 . From a strategic point of view it requires closes beyond this range to dictate the next major trend.  The continued failure in the 1.4440 to 71 area this week, and the acceptance of lower value this year, means that the bias is that the break will be down and as a consequence I remain short. The downtrend should be swift as any break leaves good support distant at 1.3995 to 55, where a reaction will occur on the first visit.

On Currensee I will also be looking at the positioning of Traders coming into the report to gauge general sentiment and looking at the poll of who is bullish/bearish.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

Author Bio

I have had a few questions about what the strategy should be based on the statement on Wednesday. Some wondered whether the more positive tone would lead to higher rates and therefore continue the process of the carry trade unwinding and be Dollar positive. Whilst that is a distinct possibility it is not due to higher rate expectations as both the T Bond market and the short end of the curve rallied strongly on Thursday. It appears that the market perceives that the recovery is still too slow.

In fact, in contrast to the unemployment report which was so surprising it caused a news event to overwhelm the Dollars outlook, the recent strength I think is purely technical in nature. This has two basic facets. The first is the corporate repatriation of Dollars from overseas as we approach year end.