FOREX TIPS: October 2010

Saturday, October 30, 2010

FOREXYARD: Forex News Blog

Link to Forex Trading Education : Forex Trading Blog by FOREXYARD

Can we Expect Another Rally for Gold prices?
AUD/USD – Trading on News Events
USD/CHF Reversal Signal
Bullish Correction Expected for the AUD
Forex News: US Advance GDP on Tap Today

Can we Expect Another Rally for Gold prices?

Posted: 29 Oct 2010 03:08 AM PDT

After reaching a record high of $1,376.70 an ounce on Oct. 14th, Gold prices have been falling steadily ever since, stabilizing around the $1335 level. Can we expect another rally for Gold prices? The answer may come after next week's FOMC meeting minutes on Nov. 3rd.

Gold has been gaining from the start of the recession. Investors often turn to the metal as an alternative investment in times of financial instability and more recently as a hedge against inflation. This became the main fear as central Banks around the world embarked on the path of quantitative easing, pumping money in to the ailing economy in order to spark growth. However, such extreme measures can often lead to an oversupply of currency in the market and therefore, inflation. With the U.S economic recovery struggling to take hold, the Federal Reserve is again facing the decision of whether or not to expand quantitative easing. News of such deliberations propelled Gold prices to record highs during October.

Prices have since dropped 4% on profit taking, accelerated by reports from the WSJ this week that the second round of quantitative easing would happen at a moderate pace. Originally investors were expecting a much larger amount to be pumped into the economy. This anticipation weakened the USD, making commodities such as Gold cheaper.

The value of the USD will again be behind Gold's levels heading to next week and beyond. Investors are predicting that monetary easing will lead to a sharp devaluation of the Dollar, which combined with inflationary fears will likely boost Gold prices. However, this scenario is based on the assumption the Federal Reserve indeed undertakes further quantitative easing measures at sufficient levels.

The recent slew of positive economic data from the U.S puts some doubt to these expectations. Gold will likely see a sharp drop if the Federal Reserve decides to take small steps or no steps at all combating the stagnating growth. In such a case we may see gold prices recede back to around $1200 throughout November. Another major indicator to affect Gold prices next week will be the Non-Farm Payroll Data which will be released Friday, Nov. 5th. As unemployment remains the main concern for the Federal Reserve, the data will likely affect their assessment of the U.S economic recovery as well as provide expectations for their next meeting. While it is unlikely Gold prices will reach Oct. 15th levels as the hysteria over monetary easing subsided and investors believe Gold has become overbought, any negative data from the U.S will likely push Gold prices higher, possibly to levels around $1350 – $1360.

AUD/USD – Trading on News Events

Posted: 29 Oct 2010 02:27 AM PDT

For traders interested in a "news trading" strategy, here is your guide. Looking at the AUD/USD over the past month, I noticed something interesting: this pair has actually been fluctuating sharply, and almost exclusively due to news events.

Look at the chart below. I've noted the dates of each sharp movement to help make this a bit easier. Here is the timeline:

Oct. 5: Australia's retail sales figures came out worse than forecasts; ANZ posted smaller growth in job advertisements; and the RBA held rates steady at 4.50% due to market pessimism.

Result: AUD/USD dropped a whopping 104 pips over the span of a few hours, but rebounded once the US market opened following built-in short positions for the USD from an Oct. 4th announcement by Bernanke that the economy was in need of more easing.

Oct. 7: At 00:30 GMT, Australia posted better-than-forecast employment change data. At 12:30 GMT, US posted better-than-forecast Unemployment Claims.

Result: AUD/USD uptrend strengthened rapidly, peaking at 0.9916, followed (at 12:30 GMT) by a sharp correction due to American data.

Oct. 8: At 12:30 GMT, US published worse-than-forecast Non-Farm Payroll data.

Result: AUD/USD spiked upward 148 pips.

Oct. 14: The entire week was filled with practically no relevant data for either currency. But on Oct. 14th, the US published worse-than-expected Trade Balance and Unemployment Claims figures.

Result: AUD/USD almost reached parity, with a high price of 0.9996 on Oct. 15th.

Oct. 18-19: By now the prospects of a quantitative easing move by the Fed had grown stronger, but traders were going long on the dollar due to a higher than expected TIC Long-Term Purchases report. The pair’s downward move came to a halt, however, when the US published a negative Building Permits report on the 19th.

Oct. 25: At 00:30 GMT, Australia published stronger PPI figures than were expected. However, at 14:00 GMT, the US published much stronger housing data.

Result: The AUD/USD spiked towards 0.9975 in early trading hours, but collapsed back downward after the US housing data was published. Positive US data published on Oct. 26th continued to strengthen this downward momentum all the way through to the 27th.

Oct. 27: Aussie data came out worse than expected, driving the pair to its lowest point since Oct. 5, with a price of 0.9651.

Oct. 28: Australia's RBA announces that more data established another decision to maintain rates where they are. Pessimism grew.

Result: The minor upward correction seen prior then turned bearish.

Oct. 29 (today): Anticipation of a positive reading from the US Advance GDP today is driving the pair lower as traders price-in a bullish USD. If the data disappoints, this pair will likely turn upward sharply like it has in the recent past.

AUD/USD – 4-Hour Chart
AUDUSD 4-Hour

Conclusion: Basically, trading on news events over the past few years has been tricky due to the strange nature of the markets (See the final section of my In-Depth Analysis on “The Greek Crisis” for a better description of this bizarre behavior). However, the AUD/USD pair has recently returned to normal trading behavior, with news events having clear indications for direction.

Forex traders would be wise to notice this and start designing trading strategies, with Entry Orders and pre-programmed Stops/Limits, to start capturing these 100-150 pip swings.

Check the economic calendar for the next week's events from the US and Australia and start planning your strategy now.

USD/CHF Reversal Signal

Posted: 29 Oct 2010 02:15 AM PDT

Heading into the monthly close, the USD/CHF is showing a bullish reversal signal in the long term downtrend.

Following last month's breach below the bearish pennant pattern on the monthly chart, the dollar has rallied creating a bullish hammer. This candlestick pattern is identified by a long lower shadow with a small real body at the top. The candlestick is found at the bottom of a downtrend and the appearance of the hammer signals a potential bullish reversal in the downtrend trend. The candlestick pattern is similar to its bearish counterpart the hanging man.

Traders will need to wait for a close of the month to confirm the reversal signal.

Initial resistance is found at this week's high at 0.9930. A potential target for any further appreciation in the pair may be found at the lower boundary of the pennant pattern at 1.0080. Traders should be aware that just as a support level turns into a resistance level; previously broken trend lines can serve as new resistance levels.

USDCHF Monthly

Bullish Correction Expected for the AUD

Posted: 28 Oct 2010 11:41 PM PDT

Following a sharp decline over the past few days, the AUD seems to be headed for a bullish correction. Forex traders are advised to take advantage of this knowledge by going long on AUD/NZD now, and at a great entry price!

Below is a 8 hour chart of AUD/NZD. The technical indicators are the RSI, Slow Stochastic and Williams Percent Range.

- A breach of the lower Bollinger Band is evident on the chart (1), indicating an imminent upward correction may be expected.

- A bullish cross is evident on the Slow Stochastic (2), signaling the next move may be an upward correction.

- The RSI (3) signals that the price of this pair currently floats in the over-sold territory, suggesting upward pressure.

- Williams Percent Range (4) further supports the upward direction.

aud

Forex News: US Advance GDP on Tap Today

Posted: 28 Oct 2010 10:33 PM PDT

The EUR strengthened against most of its major currencies yesterday as gains in stocks and commodities prompted investors to wade into riskier currency trades. The EUR made significant gains against many of its most traded currency pairs, such as the USD and CHF.

Another developing trend is the recovery of Crude Oil. Since the Dollar began dropping against the EUR, oil has risen further and further. Currently trading around $82 a barrel, if the dollar will continue to drop, crude oil could reach $83 a barrel by the end of the day.

Here is a round-up of today's major events:

12:30 GMT- Advance GDP

• It measures the change in the inflation adjusted value of all goods and services produced by the economy.
• It is the leading inflation data, and as such tends to have large impact on the market.
• A survey with a result greater than the forecasted value of 2.1% could send the EUR/USD below the 1.3850 mark.

13:55 GMT- Revised UoM Consumer Sentiment

• It measures the level of a composite index based on surveyed consumers.
• The release of the survey typically creates a volatile trading environment.
• If the end result will be similar as expectation, the USD isn’t likely to be largely affected by it.

Friday, October 29, 2010

FOREXYARD: Forex News Blog

U.S Advanced GDP Report
Dollar Eases Heading into Fed Meeting
Is CAD/CHF Bullishness Coming to An End?
USD May Fall After Unemployment Claims Today

U.S Advanced GDP Report

Posted: 28 Oct 2010 08:26 AM PDT

Tomorrow the advanced version of the U.S 3rd quarter GDP is expected to be released at 12:30 GMT. The GDP is the annualized change in the inflation-adjusted value of all goods and services produced by the economy. The GDP estimate is the first of three for the quarter, with the other releases scheduled in November and December when more information becomes available. Being the earliest, the Advance release tends to provide the most market volatility for the USD and its crosses.

The GDP data will be the most watched economic report of the week. The expectation is for a slight recovery from the previous quarter, with an expectation of 2.1% growth, an improvement from the 1.7% of the previous quarter. The rise in growth for this quarter is largely attributed to higher consumer spending. The GDP data will likely join the slew of various economic indicators released this past week that showed improvement in the U.S economy. However, the release is still unlikely to brighten the gloomy long term outlook for the economy, marred by the persistently high unemployment rate.

Economists continue to anticipate Nov. 2nd -3rd FOMC meeting will likely yield expansion of quantitative easing measures as the economic recovery, though showing signs of improvement, continues to be slower than expected. This outlook continues to weigh on the USD. While the greenback recovered this week from its record lows, particularly versus the ERU and JPY, aided by the slew of better than expected economic data released throughout the week, it is unable to maintain its gains and ultimately recedes most of them.

With tomorrow's release the USD is expected to follow this week's trend. If the result of the GDP is as expected or higher the greenback will likely appreciate versus its rivals, possibly moving 50-100 pips. However, traders should be cautious of a possible downward correction as investors will likely be uneasy with a strong Dollar heading to next week's FOMC meeting minutes.

Dollar Eases Heading into Fed Meeting

Posted: 28 Oct 2010 07:06 AM PDT

The dollar has been under pressure during the European trading session. Traders have been questioning the size of the bond purchases that the Federal Reserve may undertake in their meeting next week. Eyes are also on Europe as European leaders debate the next mechanism to rescue a failing EU state. The yen is stronger following the Bank of Japan's decision to hold interest rates steady.

At lunch time during the European trading session, the EUR/USD was trading higher at 1.3850, up on the day from 1.3823. The GBP/USD was up sharply following better than expected CBI Sales. The Cable is trading at 1.5880, following an opening day price of 1.5802. The USD/JPY is down at 81.30. The pair opened the day at 81.53.

The market has largely accepted the concept of renewed quantitative easing by the Fed. But economists and analysts debate whether the bond purchases will be finite or open ended. Questions also remain as to how the market will react to an announcement next Wednesday. Many believe the second round of quantitative easing has already been priced into the dollar given the sharp depreciation the dollar has experienced over the past 4-months.

Traders are also focusing on the EU meeting in Brussels where German Chancellor Angela Merkel will present a new plan for a rescue mechanism in case of another debt crisis from emerging in Europe.

The yen is strengthening following a decision by the Bank of Japan to hold interest rates steady at the their levels close to 0%. The BOJ moved up its next scheduled meeting by 10-days to address the market following the next meeting by the Federal Reserve. The USD/JPY may continue its sharp downtrend to its all-time low at 79.80.

Is CAD/CHF Bullishness Coming to An End?

Posted: 28 Oct 2010 02:13 AM PDT

Over the course of the last week, the Canadian dollar has been making significant gains against the Swiss franc. Analysts attribute the gains to a combination of poor Swiss economic news and positive indicators out of the US and euro-zone that has increased risk taking. As we will demonstrate through a number of technical indicators, the franc may be turning a corner and the CAD/CHF pair could see a downward correction in the near future.

We will be analyzing the daily chart for CAD/CHF provided by Forexyard. The technical indicators being used are the Bollinger Bands, Williams Percent Range and Stochastic Slow.

1. As seen in the chart, the cross is currently trading along the upper Bollinger Band, suggesting that a bearish correction may occur. In addition, the bands appear to be widening, which typically means a shift in direction is likely.

2. The Williams Percent Range is currently around the -15 level. Anything above -20 on this indicator typically means the pair is in overbought territory and a bearish correction is likely to occur.

3. Finally, a bearish cross has formed on the Stochastic Slow, meaning that downward pressure exists for the pair. Traders will want to pay close attention to this pair. Significant profits will likely be made by anyone who takes advantage of the impending correction.

chart 28.10

USD May Fall After Unemployment Claims Today

Posted: 27 Oct 2010 11:25 PM PDT

Forex traders will likely see another volatile trading day today, as a number of significant events are set to shake up the market. Large gains by the UK pound and US dollar in recent days will be tested, as both countries are scheduled to release important data. Trades will want to pay careful attention to the news, as fundamental data will likely shape the direction the markets take today.

10:00 GMT: GBP CBI Realized Sales

Confederation of British Industry (CBI) Realized Sales is a monthly survey of about 160 retail and wholesale companies which asks respondents to rate the relative level of current sales volume. CBI’s index has been positive in the past 3 months, and has risen rapidly. The positive number means higher sales volume for retailers and wholesalers.

Analysts are forecasting a figure of around 40 today, following last month’s result of 49. Should today’s figure come in as predicted, sterling may see a slight drop in afternoon trading against its main currency rivals. At the same time, a higher than forecasted figure is likely to help the pound in the short term.

12:30 GMT: USD Unemployment Claims

Fewer US workers filed new claims for jobless benefits last week, but the net change over the past two weeks was not big enough to suggest any major improvement in the labor market. The U.S. jobs market remains weak even though the economy has been expanding at a steady pace for more than a year.

Analysts are predicting today’s figure to come in at around 453K, slightly higher than last week’s result. Should their predictions prove to be true, the dollar may weaken slightly in the short term. An unexpectedly good unemployment number on the other hand, will likely help the dollar hold onto its recent gains.