Author Bio

Back in March I penned the post Gold is not glittering so much these days which made the case that gold was not performing very well and had some significant downside risk. With all of the risk aversion we have seen running through the markets of late, the question has come up as to why gold hasn’t been more of a beneficiary and why money isn’t flowing into that market as it had done before when the markets have gotten really nervous. I think there are two ways to address that.

Not as much fear as in prior times
As much as things have gotten crazy in the markets at different points of late, they haven’t been as bad as you might think. Yes, we’ve seen interest rates moving rapidly, especially in the Treasury markets. That, though, can be at least partly explained by Fed ownership there as I discussed last week.  And yes, other risk markets have taken losses. Things haven’t gotten too bad in the stock market, though. If the markets were really fearful, we’d see stocks being sold aggressively as well.

No money printing by the central banks
The big thing that drove gold in its long uptrend was the money being printed by the central banks such as the Fed and Bank of England while doing their quantitative easing programs. We are not seeing that sort of activity anymore (despite some calling for it). It is important to note that programs like Operation Twist where the Fed buys long-dated Treasury securities and sells short-dated ones does not expand money supply. Gold has basically gone sideways since QE 2 ended last year.

Flagging participation
In my previous gold post I noted that open interest in the front month gold futures contracts had declined, indicating that fewer positions were being held in the market. Also, the volume pattern had changed from surges on up moves to surges on down moves. Both of these patterns have continued in the last few months.

What’s interesting in all this is that gold is clearly sensitive to money supply issues, but hasn’t reacted positively to the talk in the markets recently about central banks doing more policy easing. That suggests two potential conclusions. The first is that the gold market doesn’t really buy the idea that the Fed, BoE, ECB, etc. will be doing big money supply expansions as were done previously. The second is that gold got ahead of itself when it rallied previously, so doesn’t have it at this point to start moving up again. And maybe both factors are part of the story of flat gold.

Looking at the prospects
If anything, I think gold looks worse now than it did when I wrote about it back in March. I said then that the 1500 level was key and that continues to be the case. If the market falls through there we could see a long-term downtrend play out. The interesting thing to watch there is whether the open interest starts rising as the market falls. That might indicate shorts coming in.

In the mean time, the USD Index cup-and-handle pattern I wrote about last month has been broken, creating a strong upside prospect for the greenback. That’s not the sort of thing which tends to be supportive of gold on general principle.

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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. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

Last week’s webinar session featuring Currensee Trade Leader Taylor Growth delivered strong information on a “conservative” trading strategy and its pertinence to these current tempestuous market times. The concepts touched upon and insight provided could be quite useful to anyone involved in Forex, so I thought I would share some of what was revealed.

With a historical success rate in the high 90’s and currently up 1.5% this month, Taylor Growth seems to be doing something right. Tom Dawson, COO at Taylor Growth who spoke on the company’s behalf, attributes this success to a few key concepts: preparation is integral, you must consider multiple sources of influence like technology and the economy, and you need to have rules and systems you believe in.  Not long ago, the world of Forex was something new and uncharted – an environment he compared to the Wild West.

“There was a need for a conservative, careful, and productive company. One that was going to do a good job in producing real results that were accessible to people,” Dawson explained. He went on to say how it’s easy for someone with millions of dollars to achieve world-class results in Forex, but it’s a completely different story when you can only put 10K into the market, and that is why skilled traders are needed to help in attaining these results. Dawson finds solace in knowing that even though it may not seem it, there is in fact consistency in foreign exchange.

“One of the great things about Forex is that every month, companies all over the world have to move their money to do things like pay rent, etc. It’s the daily moving of this $4-5T that acts as a stabilizer bringing things back to equilibrium,” he explained.

By using range trading and understanding that over time, there will be various ebbs and flows in Forex, Dawson sees that no matter where a currency goes, it will usually always return back to its point of origin. This general paradigm of consistency is what inspired Taylor Growth’s goal of being able to achieve the highest risk adjusted return possible while producing smooth results – or, as Dawson put it, “taking the chop out”.

He explained how the use of Pattern Recognition when looking at what’s going on in the marketplace allows this consistency to actually be seen. It becomes apparent that there are repeatable, definitive patterns that occur, such as how the dollar is stronger and weaker at different times of the month. Taylor Growth has seen such a high success rate because they pay close attention to these patterns and base their decisions on them, which is something that’s hard for a computer to do.

Even with Taylor Growth’s scrupulous attention to macroeconomic detail, there will always be some degree of risk. Knowing this, he’s formulated a few ways he believes are the most secure for protecting investors from losses. Setting automated stops is not something Taylor Growth generally practices. Instead, when things start moving against them, they cut the trade themselves as a means of managing risk. By using a balanced combination of betting small, understanding which patterns are in confluence with them, and being comfortable with taking a loss when a trade moves within several hundred pips, Taylor Growth has achieved a historical success rate in the high 90’s. On larger trades, however, they do set hard stops to abstain from risking more than 1%.

One deterrent of automatic stop losses Dawson touched on was the way they can react to a Flash Crash.

“Problems can arise when a market is thinly traded at a particular time and if it moves up or down 200-300 pips, you run the risk of losing the trade because of the stop, even though you were correct. If the stop weren’t on, you would have eventually won the trade,” he explained.

The webinar was concluded with a Q&A session that touched on topics such as stop hunting, among others. Our next webinar will be taking place Wednesday, May 9^th 2012, 12:00pm ET / 6:00pm CET where CEO Dave Lemont will reveal five secrets of investing in the growing Forex market – sign up here.

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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. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

Have you been paying attention to the changing dynamics in the markets of late?

We’re no longer in a world where the dollar moves in the opposite direction from stocks on a consistent basis – the risk-on/risk-off pattern. Of late, in fact, stocks and the buck have moved in the same direction, as we can see in the chart below (USD Index in green, S&P 500 in black). For the last few weeks that direction has been higher.

As we can see from the weekly chart below, things have been pretty muddled all year long. The stock/dollar correlation (based on a 20-period calculation) has been a bit positive since December, though only slightly so. Basically, the two markets have been mainly uncorrelated, taking us back to a time when the financial markets mainly traded on their own factors.

Ahhhh…the gold old days. :-)

Right now the thing that has the two markets moving in unison is something that was actually part of the story even back during the financial crisis. The US markets are benefiting from the view that the US is well into recovery mode while the Europeans (the USD Index being heavily weighted in those currencies) still have a lot of stuff to work through to get themselves on track.

Now, the European problem has been in place for a while now, which is why if we look at the relative performance of the S&P 500 and the German DAX index below we can see that while US stocks have pushed above last year’s highs, German one still have a ways to go.

What’s changed of late where the dollar is concerned is the view on what the Fed will be doing – or more correctly, what it won’t be doing. The better US data has lessened the need for Bernanke & Co. to further loosen monetary policy by piling on new quantitative easing (QE) at some point, and statements out of the central bank have indicated that these figures aren’t being viewed as some kind of anomaly, but rather as part of a developing pattern. This reduces even further the odds of QE3, and as the chances of the Fed pumping more dollars into the system decline, the dollar is at least less pressured, if not outright supported from buying by those who expected QE3, especially in the face of the ECB dumping close to a trillion euros into the system via the LTROs.

So we’ve got improving economic data helping stocks and also helping reduce the chances of Fed action which would be negative for the dollar. That’s what’s causing the two markets to move in tandem of late. Just keep in mind, however, that the dollar tends not to do great when (all things being equal) when the US economy is very strong because of our increasing demand for imports. We’re not exactly in strong economy mode yet, but it’s something that will become a factor as things improve.

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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. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

The ghosts and goblins were out in full sight this week, but thankfully they didn’t scare the currency markets. While we nibbled on Reese’s Peanut Butter Cups, carved Jack-o-Lanterns and even shoveled after a record-breaking snowstorm, we read the world’s top financial headlines.

The biggest treat of the week was the European Union reaching a debt deal. After discussions lasted well into the early hours Oct. 27, eurozone leaders said they had reached an agreement for banks to take voluntary 50 percent losses on Greek bonds. The move is part of a plan aimed at reducing the Greek debt to 120 percent of gross domestic product by 2020 (its GDP is currently at 160 percent). While this is certainly good news for Europe, some financial experts believe leaders have waited too long for this solution as millions of Europeans have been out of work and many countries have been slipping into recession. What could bring a healthy burst of optimism to the world markets is Asia’s stocks. The Asian markets last week flexed their financial muscles with stocks climbing positively. That positivity has leaped the Pacific Ocean to the U.S.: economic forecasts from the government, financial analysts and academics are showing signs that the U.S. economy will be booming by 2020—some good news after recent years of sluggishness. Among the factors for the thrust is housing prices, which will rise sharply. For those who may want to become the next Daddy Warbucks, Forbes has issued some tips that can keep your wallets fat and $1,000 richer in the new year. Instead of surrendering the green stuff for personal expenses left and right as if you’re Hollywood’s elite, pack a lunch instead of buying each day, clip coupons, maximize your credit cards and set—and maintain—budgets.

• The Global Stock Market Rally Continues In Asia, Business Insider, Oct. 28, 2011
• All or nothing in Europe, Forex Crunch, Oct. 28, 2011
• EU Reaches Debt Deal, But Challenges Lie Ahead, NPR, Oct. 27, 2011
• EU talks stutter-step toward an agreement, USA Today, Oct. 26, 2011
• How To Be $1,000 Richer By 2012, Forbes, Oct. 25, 2011
• Why the US economy will be booming by 2020 , MSNBC, Oct. 24, 2011

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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. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

When you think of the foreign currency market, what do you think of? Perhaps world economies exchanging money from one currency to another. Maybe large institutions making decisions that affect millions of stockholders or account owners.

But did you think about you you’re invested in the world currency market even if the scenarios above are not in your control?

The reality is that we’re all invested in the currency market in one way or another. The money in your pocket and your checking account gives you exposure to the value of your domestic currency (dollars, euros, pounds, yen, etc.). Granted, when it comes to money that you are likely to be spending in the short term on goods and services priced in the same currency it’s not really much exposure. But, for your bigger assets and holdings, it can be a different story.

Let’s take something like your retirement savings or pension plan. You will spend that in the future, potentially at a time when the value of the currency is lower. We’re not just talking about inflation here (though that’s a legitimate concern). We’re also talking about the currency’s value in terms of the currencies of its major trade partners.

That value influences the cost of the goods you buy which are imported from abroad, not to mention the cost of those trips around the globe you have in mind for your golden years, and that villa in the south of France you’re hoping to purchase.

The currency market also impacts you in other ways. The earnings of companies in your investment portfolio have exchange rate exposures in many cases. These come in two forms. One is exchange rate conversion of overseas income. The other is the impact exchange rates can have on the attractiveness of the company’s products abroad, and the costs of foreign goods and services it consumes.

For that matter, if you work for a multinational company, or one that does business abroad, your very livelihood could have exposure to the currency market. It’s become an increasingly large part of the world in which we live, work, and invest today.

It’s also one you can take advantage of in your investing plans.

The foreign exchange (Forex) market is a 24-hour per day, five day per week market (and even weekends in some cases) where people come together to swap currencies. If you’ve ever traveled abroad you have participated in the Forex market by exchanging your home currency for that of your destination.

So, is investing in Forex the right investment strategy for you? Consider the following:

-       With $4 trillion in daily trades, it’s the world’s largest market

-       It’s not as risky as they say: the volatility of currency exchange rates is markedly lower than most other markets

-       Analysis and trading is tricky but there are many programs where you can have the transactions made by expert traders in their own accounts automatically duplicated in yours.

Just like investing in any other market or asset class, you should consider educating yourself before you dive in. That’s why we’ve put together a primer called “The Smarties’ Guide to Alternative Investing in the Foreign Exchange Market” which gives you just enough information about the Forex market, how it works and how you can participate as an investor. Smart investors can find it here.  Happy investing.

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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. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.