Monday, June 1, 2009
Euro continued to advance sharply against the U.S. dollar today as the U.S. are witnessing their biggest bankruptcy case in history. Economic indicators that came out from the United States today (other than GM bankruptcy) were better than expected. EUR/USD is now trading near 1.4209.
Personal income rose by 0.5% in April after decreasing by 0.2% in March (revised up from -0.3%). Personal spending decreased by 0.1% in April, following 0.3% drop in March (revised down from -0.2%). Forecasts for both indicators showed -0.2%.
Construction spending at seasonally adjusted annual rate rose by 0.8% in April after 0.4% gain in March (revised up from 0.4% growth). Median forecast by the analysts pointed at 0.8% decline.
ISM in manufacturing sector rose from 40.1% to 42.8% in May — almost the same as expected (42%).
I’d like to share 5 interesting chart patterns that I’ve spotted on the market recently and some of them I currently use in my trading. I won’t give any recommendations regarding their usage here, but if you are familiar with pattern trading then you’ll know how to interpret these images. You can click on any image for a much better and clear picture. Use them on your own risk.
Fundamental Outlook for US Dollar: Neutral
- Consumer confidence rises to an eight month high; but is this optimism warranted?
- Durable goods orders jump and housing statistics continue their slow improvement
- Despite a positive revision to first quarter growth, the US economy trudged through its worst six months is 50 years
The statistics on the US dollar are ghastly. Through the month of May, the world’s most actively traded currency plunged 547 pips or 6.5 percent on a traded weighted basis to its lowest level this year. With the momentum building, there was no shortage of reason to sell this currency. The 1Q GDP revisions confirmed the country’s worst six month period of economic activity in 51 years. Policy officials warned that a recovery could be pushed back into 2010. Rising national debt levels intensified speculation that the US sovereign debt rating was in jeopardy. And, once again, international calls to abandon the US dollar as a reserve currency were amplified. All of these are legitimate concerns; but none of them are new or immediate problems. This is what is important to remember heading into the coming week. Risk appetite will no doubt has its influence on the greenback; but a dense list of high-level event risk (from the US docket and abroad) will cast the battered currency in a more objective light as we see where the US really stands in the global scale between economic depression and recovery.
Referring to the dollar’s own calendar, fundamental traders will respond to a wide range of proven market movers. The scope of the list will cover nearly every facet of the US economy and will therefore better qualify speculation as to whether the there are signs of ‘green shoots.’ This is a misleading and perhaps overused term that allude to the beginning signs of growth. Like the rest of the world, the United States if far from growth; and what speculators benchmark now is the deceleration in the pace of contraction. Topping the list for potential impact (as it usually does) is the monthly non-farm payrolls report. The consensus from Bloomberg’s survey economists projects another 521,000 jobs lost through May. It is first interesting to note that the spread on expectations has grown to be relatively tight (forecasts range between a 450,000 and 600,000 drop). More important though is the pace of job losses. If this figure prints as expected, it would mark the second month that the rate of payroll reductions slowed and it would be an overall, significant improvement on January’s record breaking 741,000. As the leading indicator for economic health, a steady improvement of this caliber could single-handedly convert a bulk of the market to believers that the world’s largest economy is on track to recovery ahead of its major trade partners.
Nothing to scoff at itself, the rest of the data crossing the wires over the coming week will cover the health of the individual sectors in a little more detail. Consumers – whose spending accounts for 70 percent of the economy – will evaluated through personal income, spending and credit figures. If we are to expect a genuine economic recovery before the end of the year, we should see a turn in these figures relatively soon. From the business side of things, the ISM manufacturing and services sector surveys are due on Monday and Wednesday respectively. The outlook for factory activity has been negative for 15 months now and services seven – though the reversal since the end of 2008 has been relatively aggressive. Finally, the pending home sales figure will be a lagging indicator for the housing market, but consistent improvements from data in this group will eventually pan out to a true revival.
Alone, the round of US data will gauge how the American economy is performing compared to last month, last quarter and last year. However, for currency traders, the Forex market is a relative game in which the pace of US growth and returns must be set against its global counterparts to gauge the strength of the dollar. In this capacity, we must set the dollar against the backdrop of the major releases from other economies next week. The list of notables includes: the RBA, BoC, ECB and BoE rate decisions; Canadian 1Q GDP; Australia 1Q GDP; Swiss 1Q GDP; Canadian employment; and 1Q Japanese capital spending among others.
Euro Outlook to Depend on ECB Rate Decision, S&P 500 Performance
Fundamental Outlook for Euro This Week: Neutral
- Euro Zone inflation registers at 0.0 percent ahead of ECB Rate Decision
- Euro Zone Consumer Confidence bounces, has sentiment truly turned?
- EURUSD defies technical forecasts, where’s the next turning point?
The Euro surged to fresh year-to-date highs against the US dollar, but sharp Greenback declines overshadowed the Euro’s relative underperformance versus the British Pound and other key counterparts. The EUR/GBP exchange rate languished near year-to-date lows despite the surge in the EUR/USD, and the Euro was actually the third-worst performing currency of the G10. Unimpressive European fundamental data certainly did little to bolster the domestic currency’s cause. Negative surprises in German Gross Domestic Product figures and Euro Zone Consumer Price Index data hardly proved constructive ahead of the coming week’s European Central Bank rate decision. Market attention now turns to the flurry of central bank rate announcements in the days ahead. The ECB is widely forecast to leave rates unchanged, but FX traders will pay especially close attention to any noteworthy shifts in rhetoric from the regional central bank.
Market prices and economist forecasts overwhelmingly point to unchanged European interest rates through the coming meeting, but financial markets will listen closely for details on the ECB’s announced €60 billion in covered bond purchases. As central banks around the world have enacted fairly aggressive unconventional measures to boost money supply, many have criticized the ECB as being slow to react to deflationary financial conditions across the Euro area. The €60 billion in bond purchases pales in comparison to the US Federal Reserve’s massive Term Asset-Backed Securities Loan Facility (TALF) program, but it’s at least a start. All the same, the Euro may have actually benefited from the domestic central bank’s relatively muted response to the global financial crisis. Fears of overly-aggressive monetary and fiscal expansion have played a fairly significant part in ongoing US Dollar weakness. If the ECB were to announce similarly aggressive monetary measures (highly unlikely), the Euro could likewise fall against global counterparts.
Euro Zone economic event risk remains otherwise limited, and it will be far more important to watch developments in other economies. Interest rate announcements out of the Bank of England, Reserve Bank of Australia, Bank of Canada, and US Federal Reserve will make for an interesting week in FX Trading markets. Though it is especially difficult to predict what effect these likely varied announcements will have on global economic sentiment, any signs of a turnaround in the recent global equity market rally could have especially noteworthy effects on the US Dollar. The traditionally safe-haven USD has fallen substantially on vast improvements in global risk sentiment, and Friday’s rally in the US S&P 500 left the dollar at the very bottom of its trading range. It will be critical to watch whether such risk-taking trends can be sustained in the face of massive global economic headwinds.
Japanese Yen Loses on Carry Demand, Data to Highlight Economic Downsides
Fundamental Outlook for Japanese Yen: Neutral
- The Bank of Japan upgraded their economic outlook for the first time since 2006
- Japan’s trade deficit shrank in April to 52.2 billion yen from -97.1 billion yen
- Japan’s all-industry index fell yet again in March by 2.4%, following a 2.3 percent drop in February
Unlike the week prior, there weren’t many major economic releases for Japan, and we ultimately saw the Japanese yen fall 0.6 percent against the US dollar, more than 2 percent against the British pound and Swiss franc, roughly 3 percent against the Australian dollar and Canadian dollar, and a whopping 3.9 percent against the New Zealand dollar. The moves were in line with a 3.6 percent drop in the S&P 500, suggesting that risk trends are still dominating Japanese yen price action, for the most part.
That said, there was a bit of optimism stoked about the Japanese economy after the Bank of Japan’s Monthly Report was released, as they upgraded their outlook for the first time since 2006. The report said that “economic conditions have been deteriorating, but exports and production are beginning to level out.” It is clear, though, that the BOJ sees foreign demand as being the only chance for recovery in Japan, as “private demand is likely to continue weakening with corporate profits and firms' funding conditions remaining severe and a worsening employment and income situation.”
This point may be highlighted over the next week, as labor cash earnings are forecasted to contract for the eleventh straight month and by the most in almost seven year during April as the index may post at -4.2 percent. Furthermore, capital spending is projected to have plummeted 27.1 percent in Q1, suggesting that businesses do not expect growth to resume any time soon and adding to evidence that job losses could continue to climb.
That said, traders should keep an eye on major equity indexes like the S&P 500, as a rally above its May 8 high of 930 would suggest that risk appetite may be high enough to lead FX carry trades higher. On the other hand, reversals in risk assets could set the stage for a sharp pullback in the Japanese yen crosses.
British Pound Remains Overbought After Rally Above 1.61
Fundamental Outlook for British Pound: Bearish
- UK mortgage approvals jumped during April, according to British Bankers Association
- A CBI survey showed the UK retail sales tumbled in May
- UK house prices rose by the most since 2006 in May, according to Nationwide Building Society
GBP/USD broke clear above resistance at the 38.2 percent fib of 2.0160-1.3503 at 1.6049 on Friday, as the greenback fell sharply across the majors. However, GBP/USD remains very overbought according to daily RSI, and while extremes can hold for days and weeks, the moves suggest the pair could turn lower at any time, making it dangerous to buy into the trend.
There will be a variety of growth-related indicators released next week, as the Purchasing Managers’ Index (PMI) for the UK manufacturing, construction, and services sectors are due out. All of the indexes are projected to improve, but the big question is if they can breach the 50 mark, which would indicate an expansion in business activity. Services PMI was the closest to this level at 48.7 during April, and thus, a better-than-expected result could boost speculation that the UK economy is in for a consumer-led recovery.
On Thursday, the Bank of England is expected to leave rates unchanged for the third straight month at an all-time low of 0.50 percent. Based on the BOE’s last policy statement and the minutes from the meeting, we know that the central bank expanded their quantitative easing (QE) program by 50 billion pounds to 125 billion pounds (which happened to be by a unanimous vote), that the drop in Q1 GDP of -1.9 percent was worse than expected, and that CPI will likely will be below the BOE’s 2 percent inflation target in the medium term. The minutes also revealed that some members thought that “a case could be made for a larger stimulus,” but the high uncertainty of QE led them to believe that there was “no pressing need for the larger extension” at that point. Ultimately, how the British pound responds will likely depend on the BOE’s QE stance. Signs that the BOE may increase their gilt purchases could weigh heavily on the British pound, especially against the euro, while the opposite (steady rates, no QE expansion) could provide a boost to the UK’s currency, though the markets are just as likely to show no reaction in this case.
Written by John Kicklighter, David Rodriguez, Terri Belkas, John Rivera and David Song, Currency Analysts
Article Source - Forex Trading Weekly Forecast 06.01.2009
SocialTwist Tell-a-Friend US Dollar Sees Selling Pressure as Chinese Data Boosts Risk Appetite (Euro Open)
Key Overnight Developments
• Australian Manufacturing Shrinks at Slower Pace, Retail Sales Rise
• Risky Assets See Boost as Chinese Manufacturing Expands for Third Month
The Euro was confined to a familiar range in overnight trading, oscillating in a 60-pip band above the 1.41 level. The British Pound trended gently upward, testing as high as 1.6245 before retreating back to the 1.62 mark. The US Dollar saw heavy selling pressure overnight as China’s manufacturing sector expanded for the third consecutive month in May, boosting stock markets on hopes that the Asian giant would reignite global demand, but prices retraced ahead of the European trading open.
Asia Session Highlights
Australia’s AiG Performance of Manufacturing Index rose to 37.5 in May, the highest in seven months, rebounding from a record low at 30.1 registered in the preceding month. The reading remains below the 50 “boom-bust” level, suggesting that manufacturing continued to shrink but at a slower pace. Looking at the details of the report, the Production and New Orders components of the metric saw the most improvement while Inventories and Input Prices fell. This is cautiously encouraging news for the sector that employs over 21% of Australia’s labor force: rising orders and depleting inventories suggest firms are seeing a bit of a pick-up in demand, feeding hopes of eventual stabilization in employment and consumption.
Australian Retail Sales continued to trend broadly higher: although receipts added a bit less than expected on a month-to-month basis (0.3% vs. 0.5% forecast), annualized sales grew 6.8% in the year to April, the most since January 2008. Retail activity is likely being supported by fiscal stimulus: the government has provided every Australian with A$950 in cash handouts since March. Sales of household goods outperformed, rising 3.9%. Although consumers’ willingness to commit to bigger-ticket purchases is heartening, it remains to be seen if momentum can be maintained after the fiscal boost is exhausted. Indeed, continued weakness in discretionary spending suggests Australians view the handouts as temporary relief and reflect expectations of lower spending power in the future.
Still, the antipodean economy is hardly out of the woods. TD Securities’ inflation estimate revealed that the annual pace of price growth fell to 1.5% in May, the lowest reading on record, while Company Operating Profits fell much more than economists expected in the first quarter, shedding -7.2%. This highlights that while the pace of decline may moderate over the coming months, a meaningful return to vibrant growth and employment is farther out on the horizon. Indeed, the economy is expected to continue to shrink through the end of this year with a modest rebound seen in the first quarter of 2010.
Euro Session: What to Expect
The UK Purchasing Manager Index is set to show that manufacturing contracted at a slower pace in May, rising to 44.0 from 42.9 in the previous month. On balance, only a print above the 50 “boom-bust” level is likely to have any substantial impact on the British Pound with sector weakness having been priced in for some time now. The data is most likely going to take a back seat to risk trends: US equity index futures are trading higher ahead of the opening bell in Europe suggesting risky assets will continue to advance, threatening safety-linked currencies (most notably the US Dollar) with continued selling pressure.
Written by Ilya Spivak, Currency Analyst
USD - Dollar Losses Strength at All Fronts
Last week, the Dollar continued its bearish trend against all the major currencies, and the EUR/USD saw a six month high, as the pair was traded at the 1.4150 level.
Last weeks publications from the U.S economy were characterized with contradicting indications. While some showed that the public has retained its faith in the U.S economy, others have shown that it is still early to say that the crisis is behind us. And it appears that until sharp evident will sign the end of the crisis, the Dollar's bullishness could continue.
The main news from the U.S last week were the Consumer Confidence, which delivered a surprising positive result, providing the best figure in 8 months. However, the weekly Unemployment Claims remained above 600K for the 17 consecutive times. This number is simply overwhelming. In addition, the New Home Sales report, which is considered to be one of the most reliable indicators regarding the housing sector, showed a rather disappointing figure, as only 352K new single-family homes were sold during April.
As for the week ahead, a batch of data is expected from the U.S economy, and this could be a fantastic week for traders to enjoy the heavy volatility of the market in order to enlarge their profits. Special attention should be given to the Non-Farm Employment Change expected on Friday, as this indicator tends to have an immense impact on the leading currencies and on top of them the USD. Currently it seems that if the actual result will be similar to forecasts of 520K, a reverse of trends could take place by the weekend.
EUR - EUR Soars on Positive German Data
Last week, traders who went long on the EUR made some significant profits. The EUR saw rising trends against the USD, the GBP and the JPY, as its most impressive uptrend was against the Dollar.
The two main news events from the Euro-Zone last week came from the German economy. Germany holds the largest and strongest economy in the Euro-Zone, and thus the relevant publications from this economy usually have a hefty impact over the EUR.
On Monday, the German Business Climate report was published, and even though it failed to reach expectations, the result was still the best figure in 6 months, showing that businesses around Germany are starting to feel improvement in their current business conditions. Then on Thursday, the German Unemployment Change indicator showed that merely one thousand individuals have lost their jobs during April. This was the best figure in 6 months as well. The combination of the two surveys seems to be 1 of the main reasons that strengthened the EUR against the major currencies.
Looking ahead to this week, the most notable publication from the Euro-Zone will be the Minimum bid Rate, which is of course the European Interest Rates announcement. Currently, analysts suspect that the European Central Bank (ECB) will leave interest rates at 1.00%, however, in case that the ECB will decide to manipulate rates, this will sure have a high impact on the EUR.
JPY - Mixed Signals from the Japanese Economy
During last week's trading session, the Yen saw mixed result against the leading currencies. Whilst the JPY depreciated against the EUR and the Pound, it saw rising trends against the USD.
The leading indicators which were published from the Japanese economy showed mixed signals that could explain the large volatility of the Yen. The Japanese Trade Balance, which measures the difference in value between imported and exported goods during April, delivered an unexpected negative figure, making it the ninth month in a raw on which Japan sees more importing activity than exporting. These figures are devastating for the Japanese economy, which is built on its export. On the other hand, The Preliminary Industrial Production showed an increase of 5.2% in April as opposed to March. This means that the Japanese consumers feel more secure in their economic condition, and this has the potential of pulling the country out of recession.
Ad for this week, traders should pay special attention to the Capital Spending report, scheduled for Wednesday. This report measures the change in the total value of new capital expenditures made by businesses, and is expected to show a 27.1 decrease in the last quarter. If the real result will be similar, a bearish trend for the JPY could take place.
Oil - Crude Oil Breaches the $67 line.
Crude Oil is traded near six month high as a barrel of Crude Oil is currently valued for over $65.
Crude Oil was boosted from the weak Dollar, as many other commodities such as Gold reacted in similar ways to the weakening USD. The one thing that these commodities have in common is that they are all valued in Dollars, and as such, when a dramatic change in the Dollar value itself takes place it usually has an immediate impact on commodities such as Crude Oil as well.
In addition, it seems that the summer is supporting oil's prices as well. As the vacation season begins, more and more air flight companies which were under the risk of filing for bankruptcy, are reporting higher than expected profits, stimulating them to expand their business activity, and therefore dramatically elevate the demand for oil. For as long as demand rises, and the USD depreciated, the prices of Crude Oil could reach higher, maybe even $70 a barrel.
Looking ahead to this week, traders should follow the main news from the U.S economy, as the changes of the Dollar will surely continue to dominant oil's fluctuations. And if the USD will expand its free fall, don't be surprised if a barrel of oil will reach $70.
Heiken Ashi (or Heikin Ashi, Heikin-Ashi) is the method of representing the charts using the Japanese technique of the balanced bars. Compared to the traditional Japanese candlestick charts the Heiken Ashi charts are more easily read, provide clearer picture of the market and allow easy trend spotting. What is good about this method is that it’s included into the standard set of the MetaTrader 4 indicators. You can find it there under the Custom submenu. I won’t explain how to calculate those candlesticks here because MT4 does it all automatically for you and you don’t have to worry about how those candles are drawn. Here I will tell you how to use Heiken Ashi in trading the trends. You can see the example Heiken Ashi chart:
As you see, white bodies are the uptrend candles and the red bodies are the downtrend candles. The upper shadows are usually absent on the downtrends and the lower shadows are absent when the trend is going up. There are 5 Heiken Ashi scenarios for trends:
- Trend is normal. Rising white bodies signal ascending trend and falling red bodies signal descending trend.
- Trend is getting stronger. Rising longer white bodies with no lower shadows for ascending trend; falling longer red bodies with no upper shadows for descending trend.
- Trend is getting weaker. Candle bodies become shorter and for ascending trends lower shadows occur, for descending trends — upper shadows.
- Trend consolidation. Small candle bodies with both upper and lower shadows.
- Trend is changing (not accurate signal). Very small candle body with long upper and lower shadows.
That’s all you have to know to trade on the trends successfully if you are using Heiken Ashi charting method. But I also recommend reading some other article on Heiken Ashi if you want to learn more about using it.
Posted by enivid at 12:33 PM
Although, the success in the Forex trading is largely associated with the trading strategies and systems that can be usually bought for money, those are not the real tools of the Forex trader. They can only be considered as the «shortcuts to the riches». Every professional should employ his own tools of trade and the Forex traders should have them too. Independent on the professionalism level of the trader, these tools help to analyze the markets and to calculate all the necessary numbers for money management and position taking:
MetaTrader 4 platform — perhaps the most important of the tools, a successful Forex trader should have. Even if you don’t trade with MetaTrader broker you should still download this free platform and use it for charts and technical analysis. With MetaTrader you can browse charts and the past history of almost all currency pairs, you can apply dozens of standard indicators and use the custom user-tailored indicators, you can back-test strategies using their strategy tester and forward-test your systems and expert advisors on the free demo servers. MetaTrader is your number one tool if you want to go beyond the beginner’s level in Forex.
Risk and reward calculator — a helpful tool if you prefer to know your reward-to-risk ratio before opening a real money position and manage your risks correctly. This risk-to-reward calculator will only for the chart patterns with the distinctive local peak and bottom. It’s based on the Fibonacci retracements.
Pip value calculator — it’s not a trivial task to calculate the value of a pip if you trade exotic currency pairs and/or have your trading account in some exotic currency. Understanding the value of the pip is important to accurately calculate your profits and losses. The on-line pip value calculator tool will help you to determine the pip value with the minimum efforts from your side.
Pivot points calculator — this tool will be useful to you only if you prefer to trade using technical pivot levels. There are many types of pivot calculators available — floor pivots, Tom Demark’s pivots, Camarilla pivots, Woodie’s pivots, etc. I suggest you using the on-line pivot point calculator, which combines the calculation of all the possible pivot point types.
Fibonacci calculator — if you trade via the MetaTrader platform you don’t need a separate Fibonacci calculator because you can use the standard indicator to build Fibonacci retracement levels. But if you use some web-based or some other inferior platform, you’ll enjoy calculating the Fibo levels with the on-line Fibonacci calculator.
Posted by enivid at 3:26 PM