Author Bio

In the last 6 months would you have rather have been a trader or a traditional investor? By traditional I mean being long-only securities. That answer should be easy, as trading would have provided far more opportunities and been far more interesting than the fear that gripped the long-only community.

Let’s quickly look back at how this year started. The 2nd half of 2009 saw risk being rewarded as stocks rebounded from their panic lows. EUR/USD hit a low of 1.24 in March of 2009 and wound up trading above 1.50 late in the year. That optimism carried through as 2010 was underway, providing for more gains in stocks with the Dow Jones trading above 11,200 in April. The currency markets were starting to show some strains in that optimism as EUR/USD would be back trading in the 1.30s in April. This is what I refer to as a gap in the risk correlation. Meaning that EUR/USD was headed one way and stocks another. To me this is a signal; others will say that the correlation is weak. Whether or not this is a signal is for you and ultimately the markets to decide.

The optimism really started to show strains late last year when Dubai had their own debt crisis, but in hindsight that fear was almost laughable as to what was going to happen in Europe. Still, it wasn’t until a seven day span in April that saw both the BP Gulf disaster and Greece debt debacle take center stage. The rest is well-known, as neither hole has been plugged yet.

Fast forward to today and that optimism has been swept to the wayside. There are still a few bulls out there, but their correlation to managing long-only portfolios is usually very high. From Obama’s inability or even lack of interest in creating jobs, to China’s negative economic news post the G-20, to the fiscal austerity measures in Europe, the reasons to be negative right now are rising.

This begs the question, though, is all the negative news already priced in? If you are a contrarian, you have to sense that opportunities are ahead. Usually when everyone is on the same side of the market, the probability of a squeeze rises. Still, if Obama is already in November campaign mode as he continues to blame the prior administration for everything, and Europe and China are no help, then being a contrarian at this point might prove to be a pricy proposition.

Let’s just look at the last 3 years to see what opportunities were in the EUR/USD market. Below is a table showing some typical prices from each month.

The table shows that from 2007 to 2009, there were equal or more opportunities in the 2nd half of the year than there were in the first – and the first half of the year was no laggard for traders!

History does repeat itself (Dow Jones 10k is one example). History has proven that opportunities lie ahead and my guess is that the second half of the year will prove to be just as opportunistic for currency traders as the first half of 2010 was.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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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

This past Monday a financial channel was discussing the currency markets. They were running a bearish story on the euro and highlighted how one particular fund manager was expecting EUR/USD to start heading towards parity. One manager alone doesn’t stand out in the largest market in the world, but the thrust of the report was focused on the challenges that the Euro Zone was going to face and had to be considered bearish.

On Tuesday, that same financial channel ran another story on the currency markets. This time they catered to the euro bulls, stating that most currency traders were expecting the US dollar to stem its gains and start to reverse course. Did this financial channel bother listening to their report on Monday? One of their reports has to be right, right?

This is no way to enter a trading day. Certainly markets will zigzag throughout a trading day, leading to counter-trend trades but understanding the underlying market trend should prove to be helpful as you enter each day. Conflicting information will often times lead to poor decision making.

Let’s return back to Tuesday morning: there was a story on the wires that the Confidence Board revised lowered their April economic reading for China. This is no small deal; in fact, didn’t China just come back from the G-20 meetings touting their strong growth strategies? The Shanghai Composite lost 4.3% on Tuesday and global equities all followed lower. It seems as if Tuesday had turned into thought-reversal day.

Wait though, because there was yet more to come on Tuesday. A meeting with the boss should be no big deal. A meeting with the boss who proclaims afterwards that things are OK is a worrying sign. Apparently President Obama receives a daily update from Ben Bernanke on the state of the US economy. But on Tuesday, after the meeting President Obama, found it necessary to state that things are OK in front of the microphones. Just making sure that we all heard him in case you missed the FOMC or G-20 meetings last week, where both individuals were telling us how good things are right now.

This also happened to be approximately 72 hours before the US NFP report is to be released. Expectations are still for a loss of 110k jobs. The last time the president spoke ahead of a NFP report, he stated how “strong” it would be and then we were all left with crumbs – the creation of forty one thousand private sector jobs to be precise. If I can read between the lines here, it seems as if the president received the jobs number on Tuesday (the BLS takes the surveys in the week of the 12th each month and tabulates the figures in the days that follow) and it was not good.

Americans do not agree that the US economy is OK right now. This was evident in the June Consumer Confidence reading that came out on Tuesday. The Present Index fell to a miserable 25.5 reading. Not good.

Nobody said that currency trading would be easy, especially when you hear flip-flopping information on economies of China and the US, not to mention that the financial channels delivering the news are anything but consistent as well. Understanding the underlying trend will help you become a more consistent currency trader. After all, we need someone to be consistent around here.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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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 I concentrated on the fact that Mr. Obama had far more to worry about than BP – namely poor fiscal policy and the impending debacle in housing. Last week’s shocking stats were a brutal reminder of what’s in store, and no one should be soothed by those who point to the small year on year rise in the median house prices. Both new home sales prices and the 4-week average of mortgage applications dropped sharply. It was also alluded to that Mr. Obama would continue to believe that fiscal stimulus was the answer, and this week he has politely castigated his European counterparts for doing the opposite. He forgets one key difference – the fact that the dollar remains the reserve currency of the world, which allows a buffer against the plague of worries that have hit Europe.

I have long been bullish on the pound, especially once the election was out of the way. It is clear to me that those countries which have both political will and mandate from the population to do what is necessary to cut deficits will benefit. The question now is whether the markets will finally shift their focus further to those that propose no intention to. This last week, during which I have been away on business, I took a step back from the day-to-day hurly burly, and it is clear now that in this last week’s price action – for the first time in many months – equity weakness has not equaled dollar strength. I find FX the hardest asset class to trade, as I am a directional trader and every FX trade is a spread. It is about working out where the relative movement will come. However, what is clear is that the risk is that focus will turn on America’s huge deficits and begin to exact a toll on the dollar. Carry trades can quickly unravel and any further equity weakness and a lack of positive dollar reaction to it, or equity strength, which should see the risk currencies over perform. These highlight how a shift in the dollar’s dynamic over the coming months could just be beginning.

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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

As we enter the 2nd half of the trading year, expectations in the G7 economies are low, very low.  I’m not just talking about the World Cup either, but expectations for job creation and economic growth in the world’s largest industrialized countries.  The G-20 meeting this weekend, if it did anything, reinforced those expectations. Europe and the US could not fully agree on how to stimulate their economies, while China went home knowing that they outwitted their Western peers.

It’s not just me stating this; it’s the markets’ interpretation as well.  On Friday the US 2-year yield closed at 0.65%.  The US 10-year yield happened to close above 3%, but it has been knocking on that 3% door for some time now and one has to wonder if a poor NFP report this Friday will be the catalyst for a move below 3%.  If you consider a general rule that yields should reflect economic growth and inflation, then there is little to rejoice about ahead.  Interestingly enough, AAA-rated 10-year municipal bonds have an average yield of 3.13%, only slightly higher than the 3.11% Treasury yield. The worries over municipalities have been spelled out quite clearly ever since Warren Buffet’s testimony on Capitol Hill a few weeks back.

Click on the chart below of the US 2-year yield, courtesy of the Wall Street Journal: 

The time frame covers the last year and you can see that the current yield is matching the lows that it set in late November of last year.  By the way, the MACD did a nice job of calling that bottom – as it did again this past March – although it failed in late May a few weeks ago.

I am not suggesting that you start trading the 2-yead bond, nor am I trying to offer investment advice.  As a currency trader I am pointing out the amount of volatility that remains ahead.  How would you characterize the month of June so far in Forex – choppy?  I just pointed out that the MACD in the 2-year failed for the past month. Any coincidence?

How about Forex trade this past April and May, when EUR/USD traded down from 1.35 to 1.22, which was an optimal market for trend followers.  Back to the chart above, the MACD also shows a trending market as the MACD line crosses the signal line. Thus the correlation between the two markets was high.

Although you may not trade other markets, you should be aware of developments that will impact the currency markets.  Of course it would be best to pay attention to interest rate differentials and not just the change in nominal yields, but this is one place to start. 

Now for the volatility ahead, do you think that the 2-year yield will remain at 0.65% for long?  Expectations are low for Friday’s NFP report. In fact, at the time of writing the consensus is calling for a loss of 110k jobs.  Given the standard error in NFP forecasts, look for fireworks to return to currency trading in the not too distant future.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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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 first internship was working for Bear Stearns long ago.  I was cold-calling potential clients for stockbrokers trying to spread the news on the attractive offerings that we had to offer.  One day, when I was tired of pitching Paramount as takeover target, I was perusing the Wall Street Journal and stumbled on to some interesting story.  I don’t remember the company that the WSJ was mentioning but I do remember what my respective stockbroker said that day when I showed him the article: “It’s yesterday’s news, kid. Who cares. Find me the company that will be making headlines tomorrow”.

I didn’t take any offense to what he said as he is right because when you are trading equities you should not be trading ‘yesterday’s news’.  Equities gap, and they gap quite sizably from day to day.  When a story comes out, the market-maker will adjust the price accordingly.  Thus, if you are trying to buy or sell a security that just had news, you will not be receiving yesterday’s closing price.  Not even close.

Luckily in the currency markets there are no individual market-makers that control the spot prices.  Just imagine if you were a trader this week and wanted to buy EUR/JPY after the China central bank announcement regarding the CNY.  If you had to go through a market-maker you’d probably pay an additional 30-50 pips as the market initially saw this as a reflection of confidence on the global economy.    Of course in the end the announcement from China was considered not such a big deal and EUR/JPY would eventually collapse.  Luckily you probably figured this out and would have gotten out of your trade close to even.  If you had paid the market-maker the additional 30-50 pips then it would have been similar to buying a house in the US in 2007 and trying to sell today. Ouch. Similar to the real estate market trading equities is far from always being a liquid and transparent market.  If they could offer liquid equity markets throughout the day then don’t you think they would do so?

I harp on another instance where all markets were caught by surprise which is on February 18^th of this year.  This is when the Fed raised the discount rate by 25 bps to 0.75%.  They did this action 30 minutes after US equities closed their normal trading session.  So as an equity trader if you wanted to be involved you had to stray outside your favored market as your market was closed!  Hopefully you didn’t buy or sell too many futures contracts as those become very expensive in a hurry.  Currency traders could have just clicked “Mine” or “Yours” and if you felt your trade had gone to its limits you could have closed it out at any time.

There is nothing like trading the markets profitably when the market-makers have all gone home or are stuck on a subway and may be oblivious to current market events!

If you want to trade a market on a short-term basis there is only one market to trade which also happens to be the world’s largest market, the foreign exchange market.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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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 the unprecedented stimulus post the Lehman’s collapse, the recent economic data is beginning to expose the cracks in the error in providing such a stimulus without lowering long term interest rates, and therefore stabilising the housing market. Whilst the housing statistics have tended to be given less prominence than other indicators, the decline and problems will resurface as asset prices fall and personal and bank losses mount.  For me, the most telling statistic is the fact that whilst stimulus has had some benefits in the bounce in a variety of areas, the housing stimulus has largely failed, and the recent curtailment is showing the inherent weakness in this crucial sector of the economy.

Mortgage applications have posted fresh lows on a four week average and the bounce from the tax credit was insipid at beast. With single family homes also turning down, this suggests a fresh down leg in house prices is beginning.  The more recent statistics elsewhere highlight sudden weakness with continuing claims remaining elevated and suggesting another poor payroll number for May. Retail sales for May were disappointing, and now we have a weak Philly Fed for June.

With most of the rest of the western world being forced to accept the reality of excessive debt, a key question will be whether any refusal (which appears probable) for America to accept that there unique place in the world as a reserve currency has acted as a buffer, and it cannot live beyond its means forever. This weekend’s announcement from China looks like a clever move to deflect problems at the G20 meet and deflate the possibility of further pressure being placed by America. It was light on details and suggests that any revaluation will be small and slow. It was clear in their statement in how it would help in there need to offset the Euro’s weakness, rather than any appeasement to America. Mr. Obama hopefully knows that China already holds all the trump cards and their reluctance to buy Treasuries in recent months is significant. Any suggestion of outright sells would see long term rates rise significantly and place yet more pressure on an already beleaguered housing market. BP is not the only thing Mr. Obama needs to worry about.

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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

In South Africa they are entering the final week of the group matches.  Around the globe fans are rooting for their home teams and complaining about the officiating.  Even if you are not watching closely you can appreciate the fact that the matches are being decided on the field (or the pitch) and not in some corner office, through a popularity vote or dictated by the media.

As the World Cup begins the round of 16 matches, governmental leaders from around the globe will be meeting to discuss the global economy.  The G-20 meeting this time around takes place in Toronto before heading back to Seoul in November.

Per usual, many countries offer preliminary comments and China was the first to have their say.  They repeated what they had said earlier last week which is they are not interested in hearing complaints from the US or any other country regarding their Yuan policy. The central bank has since stated that they will allow for more flexibility in the CNY but have not offered a timeframe for the change.  It didn’t take long for Obama to form a rebuttal and state that he was looking forward to discussing how to fix the global imbalances (which means more flexibility in the CNY from an American political point of view).

Let’s journey back as to why the G-20 meetings were constructed in the first place.  In 1997 fears grew that Thailand would not be able to repay its debts and months later the Asian crisis was in full swing.  The crisis spread throughout the Pacific Rim region.  China did not contribute to the crisis, in fact in retrospect by not revaluing the CNY China was one of the reasons why the markets would eventually settle.  By 2000 it was evident that the G7/8 was too small to cope with the global economic issues and the G-20 has gained in stature ever since.

Now post the 2001/2 recession, the 2007/8 credit crisis and the 2010 European crisis our political leaders are still pressing China on their currency!  Hmmm, China’s rebuttal should be very easy to form indeed.  For one they could point to growth rates in the old G7 countries.  All of which are being downgraded by the second as discussion on the potential for double-dip recessions increase.  They could also point to inflation levels as from Japan to Germany inflation is not a threat and core levels of inflation are in negative territory in many cases right now.  They could also point to confidence levels as consumers in China are very confident right now while surveys such as the US Consumer Confidence survey or the ZEW survey in Germany point to a lack of confidence at the consumer and business level.  Of course China could also ask the G7 countries what would happen if they stopped investing in our bond markets, where would the next crisis be!

Currency traders also know not to listen to the old G7 leaders but pay more attention to the emerging leaders.  Currensee.com shows that (and I hope that I do not jinx these traders) that currency traders are profitably short USD/HKD, short NZD/JPY and half the positions in USD/MXN have been short for quite a while.

In the World Cup emerging countries have been outplaying the developed nations.  During the G-20 meetings expect the developed nations to have their say in the press but when it comes time to trade the markets listen to what the emerging countries are doing.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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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

Over the last few years we have seen multiple events that have rocked the confidence of investors. A global credit crisis and a debt crisis in Europe have been the biggest headliners. Luckily for us, our governments are responding! In the UK they are getting rid of the Financial Services Authority (FSA) and replacing it with three new bodies that will report to the Bank of England. In the US we await the signing of the Financial Regulatory Reform Bill and the expected return of the Glass-Steagall Act, specifically the language that separates commercial and investment banking. Are these brave new moves that will benefit investors, or is the reshuffling just another excuse to trade the markets as volatility remains high?

In their own words, the FSA is, or was, an “independent body that regulates the financial services industry in the UK,” and has been in place since 2000. Their objective is to promote 1) market confidence, 2) public awareness, 3) financial stability, 4) consumer protection and 5) the reduction of financial crime. Hmm, how would you rate their performance? Not high, I hope.

This all seems to be lost on the FSA, though as their Chairman stated, “The overall future shape of financial regulation is now much clearer, and we are in a strong position to create a future regulatory system which builds on the FSA’s achievements over the last few years of major change.” If volatility has been high during the era of the FSA, what do you expect volatility to be when they are separated into 3 separate organizations and will unlikely communicate to each other at a high level? If I were in the UK, I’d prefer to be a trader over an investor right now.

On this side of the Atlantic, the regulatory results have not been any better. Ben Bernanke has suggested that even if Glass-Steagall had never been removed that it would not have prevented the credit crises. It looks as if the Federal Reserve will be given more responsibilities anyways. It is a bit ironic though that Bernanke, who is the leading authority on the Great Depression, is not acknowledging that Glass-Steagall could replicate the success that it had back in 1933 when it helped fix the banks and help end the Great Depression. Bernanke’s reaction seems to be just the opposite of what investors want to hear; therefore, traders once again may be salivating at the prospects of volatility ahead.

Why did all these banks get in trouble in the first place? Was it erroneous use of derivatives, excessive leverage, the chase of quarterly growth or off-balance sheet debts that had to finally be paid? Whether it’s the lack of knowledge or a lack of will, our governments don’t seem to have an answer. Thus we bring back old regulations in the US, and diversify the failure of the FSA in the UK. Does this want to make you be an investor or a trader? I’ll take trading, thank you very much. Currency trading offers better liquidity, better transparency and has less failed regulatory bodies watching over it than equity trading.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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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

This week has seen the report from the OBR (U.K.’s Office for Budget Responsibility) and the inflation numbers. The market’s reaction was to construe that inflationary pressures remain elevated, and we saw the perennial hawk from the Boe, Mr. Sentence once again saying much the same thing. However, it is important to breakdown the numbers and judge what effects are temporary and what are more entrenched. This suggests that whilst deflation is not an immediate threat as it is in Europe, the inflation outlook is still relatively subdued.

In the short term it is clear that the Vat increase and the car scrappage scheme have provided one-off hits. The weakness of the pound against the dollar has also meant that energy prices are high in spite of oils recent 10% drop. It is therefore necessary to relate the core number to the more relevant CPI against constant taxes. Here the numbers are far more benign. The CPI fell 0.3% month-on-month on this basis and just 1.4% compared to 3.4% year-on-year on an unadjusted basis. Energy and cars had a huge influence at 6.5% year-to-year. As mentioned in previous posts, my view is that sterling will recover on a strategic basis as both a safe haven for Gilts and the political mandate to institute debt reform. That should influence energy and the end of the scrappage scheme which already seen a large drop in car sales should see the inflation drop considerably in the coming months.

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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

Risk taking has outperformed risk aversion for the past 6 days.  EUR/JPY has traded higher each day and stocks have followed along.  One would have to wonder if that performance would not be even better if it were not for the Monday afternoon late-to-the-party downgrade from Moody’s on Greece. 

This downgrade just happened to come after a few well-regarded advisors over this past weekend said that the 1t Euro lifeline to Greece was not enough and that Greece will eventually be forced to default.  Now we know.  The roadmap for trading and investing successfully is not always very well laid out.  Luckily we have China to thank for their resolve, right? 

Or so I think.  In case you missed it on Tuesday morning, in China the Foreign Ministry spokesman Qin Gang told the US to stop politicizing the Yuan exchange rate and let China decide on the issue of its flexibility!  That is fairly strong stuff from China.  They are probably becoming a bit impatient with the US on the lack of an economic recovery.  The Wall Street Journal even mentioned on Tuesday that Fed members were quietly weighing options on what to do if the economy gets worse.  It looks as if we have gone from removing extraordinary accommodation to maybe even more extraordinary measures.

Still neither the Fed nor Moody’s nor China is the cause for the recent shift in risk-taking of late.  The real reason may be individual currency traders.  Yes, currency traders.  If you live in Japan you have had to endure through a zero interest rate policy (ZIRP) for quite a long time now.  Japan knows this all too well; China knows; Treasury Secretary Geithner knows this and surely doesn’t want it to happen here.  Yet the ZIRP has endured in Japan, forcing investors to seek yield in other countries, meaning selling the Yen and investing elsewhere.

Reports out of Japan show that Japanese investors sold off 10% of their euro holdings in May.  It is always hard to get exact volume figures in foreign exchange because it is primarily an interbank market and not traded via exchanges but locally they believe that retail investors account for 25% to maybe 50% of all Forex trade in Tokyo.  The 10% repatriation was in May but since those figures have been tallied EUR/JPY has risen by 4.5% off its multi-month lows of 108 and risk taking has benefitted globally.

If Japan had 20% interest rates would they be investing so much internationally?  Nope.  But they do not and it looks as if they have some smart currency traders.  Currensee is the place to meet currency traders from around the globe.  Listen to what others have to say, share ideas and follow the flows.  There is no better time to get started than the present.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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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.