Author Bio

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.

=====

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.

======

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.

=====

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.