U.S. Unemployment Claims on Tap

The Dollar began a strong rally during yesterday's session, which dropped the EUR/USD pair as low as the 1.3900 level. Today, The U.S Unemployment Claims appears to be capable of shifting the momentum into the opposite directions as analysts forecast negative figures.



USD - Dollar Optimism High Following Fed Statements

The USD has begun a rather strong rally during yesterday's early morning trading hours after the Federal Open Market Committee (FOMC) stated that it may not buy-up further Treasury securities. After climbing to as high as 1.4139 against the EUR the pair now sits near the 1.3950 price level, and seems to have leveled-off. Against the British Pound traders witnessed similar behavior to that of the EUR/USD with a steady climb towards 1.6600 followed by a steady decline back towards 1.6400.

This behavior was likely brought on by a low level of confidence going into the FOMC meeting yesterday which caused a sell-off for the USD. However, with an unexpected show of confidence in the future recovery of the US economy, and statements describing a slowing of the economic contraction, traders viewed the greenback as a solid investment for this turbulent period. As such, the value of the Dollar has been on the rise against almost all the major currencies.

On the other hand, today's economic calendar is filled with events capable of shifting the momentum into the opposite direction. If the unemployment claims report shows that jobs are still being lost in substantial numbers, and if the Final GDP figures come out worse than expected, this market optimism could suffer a devastating setback. Federal Reserve Board Chairman Ben Bernanke is also due to testify on the acquisition of Merrill Lynch by Bank of America to Congress at 14:00 GMT which will no doubt cause a stir in the forex market directly after his opening statements.

EUR - Euro-Zone Weakens on Poor Data, EUR sees Mixed Results

The EUR began today's trading session with mixed results against its major currency rivals. Losing ground to the greenback as the US Federal Open Market Committee (FOMC) announced it would not purchase additional Treasury securities, which aroused a surge in the value of the Dollar, the EUR/USD fell this morning towards 1.3950. Contrary to this, however, the EUR witnessed a sharp spike against the Swiss Franc as the Swiss National Bank (SNB) decided to de-value the CHF out of fear of deflation. The pair now trades above 1.5300, up from 1.5000 yesterday.

This week has proven to be a painful trading week for the European currencies as financial data has shown a deepening contraction of the economies in the region. European Central Bank (ECB) President Jean-Claude Trichet warned about budget deficits on Monday while the World Bank declared that the global economic contraction may be worse than conventional forecasts. Tuesday was fraught with a series of poor manufacturing and production reports from Germany and France, and yesterday's Current Account report only validated Trichet's earlier estimation that budget deficits were becoming a more looming problem.

From the above information comes a panel of valuations for the EUR which may appear confusing. Against other European currencies, the EUR was largely flat, except for the CHF which was intentionally de-valued. And against the JPY, the EUR has climbed, as the island currency loses strength across the board. Today's trading will no doubt be dominated by the US Dollar considering its recent surge may come to an end if today's data proves disappointing. If this is indeed the case, the EUR may find itself on the rebound. Whatever the outcome, today will be a great day for short-term traders as the volatility is certain to be intense.

JPY - Yen Pares Gains as Traders Turn Westward from Europe

After climbing towards important psychological barriers against a number of currencies, the JPY apparently failed to breach on all fronts and is now positioned to lose strength against all of its currency counterparts. Hitting the 95.00 price level against the USD, the pair has now entered an uptrend as the Yen loses out to the Dollar's recent surge. Against the EUR and GBP traders can see very similar behavior to that of the USD/JPY with a strong uptrend for the JPY followed now by a small, corrective down-tick.

With little news affecting the island currency today, there is a chance that this turn of events was brought on by the relative safety of other assets. With confidence declining across Europe, but gaining strength in the US, measurements of risk aversion and risk appetite appear muted and confused. The aversion to risk throughout the Euro-Zone may have pushed investors into safe-havens, but the strength of the greenback pulled most investors westward to the States instead of Japan. With a number of important manufacturing and inflationary figures being released at the end of Thursday's session, we may yet see a growth in volatility for the JPY.

Crude Oil - USD's Surge puts Rising Price of Oil on Hold

The price of Crude Oil was expecting further support yesterday as the USD was being sold off by most investors. The build-up towards the FOMC statement yesterday had many investors anticipating an increase to the purchase of US Treasury securities. When this was not forthcoming, a surge in confidence for the Dollar put Crude Oil's rebound on hold. The price leveled off around $68.50 a barrel and appears to be standing firm.

The Organization of Petroleum Exporting Countries (OPEC) and the European Union (EU) have recently called for further regulation of the energy market to prevent another bubble from forming in the price of Crude Oil. While stating that recent oil prices are not yet a threat to global economic recovery, the fear of a speculation bubble still looms large in the minds of producers and consumers alike.

With crude inventories in the US shrinking more than anticipated, there is a chance that prices will continue to rise as demand climbs from market optimism and economic growth, and OPEC has even declared that a price range near $80 a barrel is preferable. These factors point to the notion that Crude Oil's price may stumble across more support in the near future and continue to rise.

Article Source - U.S. Unemployment Claims on Tap

US Dollar Threatened as Asian Stocks, US Index Futures See Rising Risk Appetite (Euro Open)

The US Dollar may see near-term selling pressure ahead as Asian shares surged 2% and US index futures rose 1% ahead of the opening bell in Europe after an unexpected improvement in US Durable Orders, boosting risk appetite.

Key Overnight Developments

• NZ Current Account Deficit Shrinks as Imports Tumble 21.9%
• US Dollar Trades Lower as Stocks Rise on US Durable Goods Data

Critical Levels



The Euro crept higher in the overnight session, adding 0.4% against the US Dollar. The British Pound followed suit, testing as high as 1.6468 against the greenback. The Dollar backed off after gaining substantially in US hours as stocks surged in Asian trading, boosted by an unexpected improvement in US Durable Orders that weighed on demand for safe-haven assets.

Asia Session Highlights



New Zealand’s Current Account deficit shrank in the first quarter, revealing a shortfall of –NZ$1.25 billion versus –NZ$4.06 recorded in the three months to December 2008. However, the improvement in the headline figure is hardly encouraging, owing to a -21.9% decline in imports rather than any rebound in foreign demand. The metric paints a picture of weak domestic demand and seems all the more ominous in the context of a 1.1% currency appreciation during the reporting period which would reasonably be expected to boost New Zealanders’ purchasing power of foreign goods. Private consumption accounts for 62.3% of overall economic growth and continued weakness in domestic spending makes it unlikely that the smaller antipodean nation can mount a meaningful recovery from the current downturn in the near term. Indeed, tomorrow’s GDP report is expected to show that the economy contracted for the fifth consecutive quarter, shrinking -0.7% in the three months to March.

Euro Session: What to Expect



An uneventful economic calendar is likely to yield to risk trends as the primary driver of forex price action in European trading hours. Where these trends will lead the major currencies in the very near term looks uncertain, however, as traders resolve the balance between the impact of an unexpected improvement in US Durable Orders and the dovish FOMC policy announcement. The Asian session seemed to favor the former catalyst, pushing stock prices higher and modestly weighing on the US Dollar. The same looks likely going forward with US equity index futures implying the Dow Jones and S&P 500 will open over 1% higher on Thursday, hinting at a healthy appetite for risk-taking across financial markets. That said, a downward revision in tomorrow’s final update to US first-quarter GDP figures may amplify the Fed’s cautious tone, supporting demand for safe-haven assets and boosting the greenback.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Threatened as Asian Stocks, US Index Futures See Rising Risk Appetite (Euro Open)

Intraday (M15) - 24 June '09

A very sluggish trading day. Saw some rather whippy action at the Daily R1 for Geppy. Was a bit worried when the first 4 trades resulted in 3 losses and 1 break-even, but I kept plugging on and eventually finished Geppy with 4 wins, 5 losses and 4 break-evens. Not an easy pair to trade today.

In total, I made 24 trades today with 12 wins, 6 losses and 6 break-evens for a 50% winning record which I'm quite unhappy about. Nonetheless, it was a winning day with just over USD37k. Just one of those days... sigh.

So, in 3 days this week I've made a total of 71 trades, with 45 wins, 16 losses and 10 break-evens for a 63% winning record. At just over USD148k, this represents an aggregate leveraged return of 9.92% for the week. This in turn roughly equates to approximately 13% unleveraged return per annum which is good.

Be a Remora

It's been a rather 'slow' trading day and I had the opportunity to chat with a couple of newbie traders. Trying to explain the fundamental dynamics of the market, I'm reminded of a little story told to me by an ex-colleague.

An avid scuba diver, he loved drawing upon the ocean for analogies. He'd tell this story to many people and I must've heard it far too many times as it's forever etched in my memory.

"The market is like the big, blue ocean," he'd begin. "It's full of all sorts of wonderful, colourful marine life... much like the market itself. Institutional traders, people like us, we're at the top of the food chain. We're the sharks!"

Truth be told, he's got a point. The "sharks" are institutional traders who work for international banks and other large financial organisations such as hedge funds and even Sovereign Wealth Funds. Since most of the trading volume are transacted between speculators, there's considerable room for "sharks" to roam the "ocean" in search of unsuspecting prey (in most cases, the poor retail trader).

As an ex-institutional trader, I can appreciate the considerable advantage that "sharks" have. Not only are "sharks" typically more experienced and better trained, there are a multitude of different factors in their favour, such as the availablity of greater funds to play with, more advanced technology, better acccess to information, etc. All these combined gives "sharks" the capability and capacity to influence price levels (at least in the short-term) and "feed off" the "smaller fish".

So, in the world of "small fishes" how does one prevent from being eaten by the "sharks"? Well, one way is for the small retail trader to act like a Remora. Remoras or suckerfish can be found attached to sharks, amongst others. The shark they attach to gains nothing from the 'relationship' but also loses little. The remora on the other hand, benefits from the 'free' transportation, protection, and has the added benefit of eating food scraps dropped by the shark.

What lessons can we draw then from the remora? Well, in a world where becoming a "shark" is not an option, we need to be a "remora" instead. Therefore, unlike the 90% of retail traders that are merely food for the "sharks" and lose in the market... we need to learn to hitch a free ride from "sharks", gain protection from them in the process and still fill our bellies with pips.

In order to do so, we need to understand the "sharks'" habits and behaviours, e.g. how they go about trading intraday, where and when they like to have a meal. Although there's no hard and fast answers, you'd generally want to trade according to price action like institutional traders, pay attention to areas of support and resistance (pivot levels) and to avoid placing stop-loss orders at obvious support or resistance points. Another tip, the best times to fill your "remora" belly is to trade during periods of high liquidity (London or NY sessions), for where there's a freeding frenzy with lots of other "yummy little fishes" you just tag along and eat what comes your way. Otherwise, in a quiet market... you run the risk of being eaten by your "shark"!

So, remember... be a REMORA! :-D

Quote of the Day

The quote of the day belongs to a trader named "pumba", a self-proclaimed market-timing master, who longed Geppy at 158.00 and proudly said in the chatroom, and I quote, "I'm so sure of GJ I'm not even looking."

1-hour later... Geppy had dropped 86 pips!

To be fair, his view may well be correct as Geppy has since climbed back up to 157.61 as I write this. But still, I found it just too hilarious not to blog about it. :-D

US Federal Funds Rate to Drive the Market Today

The market is expected to be very volatile today, as the U.S. announces the Federal Funds Rate at 18:15 GMT, which specifies U.S. Interest rates. The other factor that which is set to affect both the USD and Crude Oil is the publication of the U.S. Crude Oil Inventories at 14:30 GMT. In order for traders to start making profits today, it is recommended that they open their USD and Crude Oil positions as the trading day gets under way.



USD - USD Under Pressure Ahead of Interest Rate Announcement

The U.S. Dollar went bearish against most major currencies on Tuesday, as uncertainty ahead of today's Federal Funds Rate announcement put the USD under strong selling pressure. The greenback fell the most in 2 weeks against the EUR as European Central Bank (ECB) council member Axel Weber said policy makers have already used up their room to cut borrowing costs, indicating the Euro-Zone's Benchmark Rate will stay higher than the equivalent U.S. rate

The Dollar did rise against the Yen, to finish trading at the 95.54 level. This was despite U.S. data showing sales of previously owned homes in the United States rose less than expected in May. However, the Yen's losses may have been extended in late trading due to mixed data from Japan's economy.

Today, the Federal Open Market Committee (FOMC) is widely expected to leave its fed funds Rate target in a range of 0% to 0.25%. Investors will be watching to see whether the Federal Reserve unveils any changes to its Treasury and mortgage asset-purchase program to further boost liquidity.

The U.S Dollar has come under pressure in recent weeks as more upbeat U.S. economic data fueled hopes that a global economic recovery was on track. The USD may extend its declines after this week's Federal policy meeting, according to analysts.

EUR - EUR Rises to a 2 Week High vs. the USD

The EUR rose 1.6% against the Dollar to $1.4075 in late afternoon trading yesterday, after hitting a session peak of $1.4109. It was the biggest one-day percentage gain since May 8. The EUR also gained 0.9% against the Japanese Yen to finish trading at the 134.61 level.

Investors were also buying the EUR ahead of the European Central Bank's (ECB) first-ever one-year refinancing operation on Wednesday, aimed at encouraging banks to lend again. The European currency also rose against the British Pound to 0.8557 yesterday by the most in almost 3 weeks after Bank of England (BoE) Chief Economist Spencer Dale said a weaker currency was a key channel to spur economic growth.

Markets will be watching for the Federal Reserve's outcome today, as low Interest Rates would hurt the Dollar, and any move to expand the Fed's $300 billion Treasury buying program to keep long rates low could raise inflation concerns, undermining foreign appetite for U.S. assets.

JPY - Yen Falls against the USD on Economic Concerns

The Japanese currency fell sharply on Tuesday, falling against most of its major currency pairs, tumbling from creeping doubts about the sustainability of any economic recovery. The JPY fell 0.3% vs. the greenback to 95.54 Yen. The JPY also slipped against the EUR by over 250 pips to 134.61 Yen, as investors continued to cut bets on low-yielding assets, and sold-off the Yen against other major currencies.

Traders were also cautious ahead of a U.S. Federal Reserve policy decision on Wednesday, and this week's record $104 billion sale of U.S. debt. This has meant that renewed concerns about the global economy have actually fed through more into a weaker Yen than a weaker Dollar, analysts said.

Crude Oil - Crude Oil Inventories Data to Drive Oil Trading Today

Crude Oil prices rose nearly 4% on Tuesday to $68.59, as the U.S Dollar weakened and disruptions from OPEC member Nigeria stoked supply concerns. Crude prices also rose on expectations that Crude Oil Inventories in the U.S., the world's biggest consumer of Oil have fallen. Oil rose yesterday as the U.S. currency slipped the most in 2 weeks against the EUR on speculation that the Federal Reserve will temper expectations of an Interest Rate increase this year.

Inventories expectations and the weak Dollar are helping Crude Oil, analysts said. Commodities' trading was choppy with all the news ahead, such as inventories and the Federal Reserve's decision later today. Analysts expect the data to show U.S. commercial Crude stocks dropped 1.2 million barrels, according to a survey of analysts. Traders are also awaiting the Federal Reserve's statement at the end of its two-day meeting later today.

Article Source - US Federal Funds Rate to Drive the Market Today

Forex Markets Range-Bound, Looking to FOMC to Guide Risk Sentiment (Euro Open)

Forex markets traded in narrow ranges in the overnight session as traders saw past the immediate data docket, looking for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies. May’s OECD Economic Activity Outlook for the Euro Zone may shake things up ahead if it mirrors the World Bank’s recent pessimism.

Key Overnight Developments

• Japan’s Trade Surplus Swells as Drop in Imports Tops Expectations
• US Dollar Range-Bound as Forex Market Eyes FOMC Announcement

Critical Levels



The Euro kept to a narrow 40-pip range in the overnight session, oscillating below 1.41. The British Pound followed suit, trading in a 50-pip band above 1.6420.

Asia Session Highlights



Japan’s Merchandise Trade Balance grew more than economists expected, printing at 299.8 billion yen in May from 69 billion in the previous month. Forecasters were calling for a 210 billion yen result ahead of the release. Notably, the uptick in the headline figure came courtesy of a steep decline in inbound shipments that outpaced the drop in overseas sales, painting a grim picture of the spending climate in the world’s second largest economy. Imports fell -42.4% in the year to May, printing within a hair of the 22-year record drop of -43% registered in February. Looking ahead, the headline figure may continue to grow as companies acclimate to lower global demand. Minutes from the last Bank of Japan policy meeting saw policymakers note that exports will “level out…mainly due to progress in adjustments in local inventories” while consumption (including that of imported goods) remains weak as the “employment and income situation becomes increasingly severe.”

Euro Session: What to Expect



The Euro Zone Current Account deficit may narrow for the sixth consecutive month in April, but looking beyond the headline figure reveals a picture that is hardly encouraging for the currency bloc’s economic prospects. The trade portion of the metric released last week saw the deficit narrow more than economists expected and the capital side of the equation also seems supportive: Euro Zone countries’ stock exchanges rose 15.4% on average in April while benchmark 10-year bonds from Germany, France and Italy (the bloc’s top three economies) added an average of 2.3%.

That said, the improvement in the Euro area’s trade position came as the fall in imports (-2.7%) outpaced that of exports (-1.3%), an ominous sign that suggests home-grown spending is relatively weaker than overseas demand. Private consumption is the largest component of overall economic growth so the latest trade data may be hinting that the Euro Zone will lag behind its main trading partners in seeing a meaningful recovery from the current downturn.

This is not to say the Current Account deficit will necessarily continue to contract: support from capital flows may prove fleeting if risky assets reverse course as traders see stocks as overvalued relative to future earnings given the increasingly negative global growth outlook, sinking top European exchanges. May’s edition of the OECD Economic Activity Outlook may prove to be a near-term catalyst in this regard if the report mirrors the tone of last week’s World Bank forecast which downgraded their Euro Zone forecast to call for a -4.5% drop in GDP this year, an outlook that is nearly twice as worse as the Bank’s previous call for a -2.7% contraction reported in March. On balance, a survey of economists conducted by Bloomberg forecasts that the current account deficit will slice 1.5% off GDP in 2009, the most in 9 years, and take off another 1.2% in 2010.

Barring significant surprises in the upcoming economic data, near-term price action is likely to remain subdued in European hours as in the Asian session as traders look for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies.

Written by Ilya Spivak, Currency Analyst
Article Source - Forex Markets Range-Bound, Looking to FOMC to Guide Risk Sentiment (Euro Open)