2.Know what moves currency markets. Like any asset class, there are a number of factors that drive currency performance. A country’s macroeconomic situation can have a major influence – economic data releases, policy decisions and political events can change an economist’s outlook on the country, and therefore the currency. There are also technical factors such as interest rates, equity markets and international trade which may have an impact. Spend time getting to know these. (more…)

However, West Texas crude for August delivery recently retraced the bulk of its gains and was ahead by 17 cents at $136.91 a barrel. Brent crude was 55 cents higher at $136.46 a barrel.

Reformulated gasoline was fractionally higher at $3.46 a gallon, and heating oil was up 3 cents at $3.82 a gallon. Near-term natural gas was down 14 cents at $13.06 per million British thermal units. (more…)

Rising oil prices mixed with fading growth prospects pressed on the US dollar, and led the currency to weaken against all of its major counterparts. In the fray, the commodity currencies picked up minor gains against the greenback though oil prices rose above $136/bbl. The low yielding Swiss franc soaked in the biggest gains against the greenback, while the Japanese yen rebounded from a three-month low to trade around 106.8. Against the European currencies, the dollar tumbled against the euro to 1.56, while the British pound inched higher to trade at 1.96 against the greenback.

Today’s fundamental winds were driven by interesting Fed commentary. At the Boston Fed Conference, Fed Vice Chairman Donald Kohn stated that rampant energy prices have driven up inflation expectations, and that anchoring long-term inflation expectations will be ‘critical’ to the success of the Fed’s monetary policy. This more or less confirms Chairman Bernanke’s suggestions that monetary policy will be based on inflation trends going forward. The same sentiment was found in the Fed’s Beige book. Though the report noted ‘generally weak’ economic conditions through April and May – with particular concern surrounding a ‘widespread’ fall in domestic demand – it had also confirmed upside inflation risks. From the docket, only the MBA index was noteworthy. The indicator reported a 10.9 percent rebound in filings from a six-year low, suggesting lower prices are slowly encouraging buyers back to the market even as mortgage rates rise. (more…)

About trading forex options

Forex options are available from certain forex dealers in over-the-counter versions, just like spot forex contracts. If you are interested in setting up a demo account with a dealer that offers forex options, click here. Forex options are also available as exchange-traded securities, which means you will need an options broker to trade them.

You can buy and sell forex options. When you buy, or go long, a forex option, your risk is limited to the amount you paid for the option. When you sell, or go short, an option, your risk is unlimited, just like going long or short a currency pair. In this section we will talk about using options as a long trade. In later sections, we will talk about how you can use options on the short side. (more…)

USDCHF price action is now showing a Flag pattern indicative of continuation for the fledgling bullish trend. With the pair trading just below resistance just days before the markets expect to see May Non Farm Payrolls shrink -52k, there is a substantial possibility that the pair will retrace lower before a topside breakout is to materialize.

Hedging Strategy

Currency Pair: USDCHF

Long Term Bias: Bullish
Long Term Position: Holding Long

Short Term Bias: Bearish
Short Term Position: Short below 1.0490, Target 1.0290, Stop-Loss at 1.0540

Traders looking to protect their existing long USDCHF position or enter long at a favorable price may consider a hedge short USDCHF below 1.0490 with a target at 1.0290. Once the profit target is hit, we expect the bullish trend to resume. We will maintain a stop-loss on our hedge position should USDCHF break out to the upside prior to the limit being hit. We will set the stop-loss near 1.0540.

KBC Bank

On Thursday, EUR/USD extended its correction lower. This was mostly technically driven. The intra-day (inverse) correction between de dollar and oil prices was far less obvious than on Wednesday, even if it is often mentioned as the explanation for the move. Both the European data (M3, en EC business confidence indicators, among others) and US data (Claims and GDP revision) had a limited impact on trading. Aside for technical considerations (EUR/USD dropped below the 1.56 neckline double bottom) we also assume that markets considers the change in the European interest climate as mostly priced in. Investors now apparently tend to give more attention to the recent warnings of the Fed that interest rates might be raised rather soon in order to contain inflationary pressures. Whatever the reason, EUR/USD closed the day again lower (fro the third day in a row) at 1.5530 compared to 1.5639 on Wednesday.

Today, the European calendar contains the EMU CPI and unemployment data. In the US the Michigan confidence and the Chicago PMI will be published. There are also speeches of ECB hawks Weber and Stark on the agenda. (more…)

British Pound (BPM8):

The BP opened higher at 1.9805 against a weaker Dollar, higher oil prices and inflation concerns that should keep rates ‘unchanged’ at the June 4-5 MPC meeting. A less than expected decline in Retail Sales helped prices bounce to 1.9820, before a DX bounce on the better than expected Jobless Claims sent the BP lower. Prices slid to a morning Lo of 1.9748, before bouncing into the afternoon session. As the DX rose, the BP retraced to a daily Lo of 1.9744, before closing the session at 1.9749, up 100 tics. The s/t trend remains ‘positive’ w/ firm momentum indicators. Traders will key off the DX reaction to Existing Home Sales, before leaving for the Holiday weekend. Longs should tighten ’stops’ or buy ‘puts’ to reduce exposure. A higher open should find Resistance at 1.9828 and 1.9908, while an open below 1.9739 may find Support at 1.9659 and 1.9570.

Dollar Index (DXM8):

The DX opened higher at 72.10 and slid to 72.05, before a decline in Jobless Claims sent prices up to our Pivot level of 72.22. Traders will key on energy prices and Friday’s Existing Home Sales ahead of a Holiday weekend. Prices rose to a mid-day Hi of 72.37, before trailing lower into the afternoon session. Prices bounced to a Daily Hi of 72.41, before closing at 72.40, up 32 tics. The s/t trend remains ‘negative’ w/ weak momentum indicators. The close above the 61.8% Fib level may attract technicians, but a negative Existing Home Sales report could weigh on prices. Shorts may take profit-risk off the table ahead of the long Holiday weekend. A higher open should find Resistance at 72.56 and 72.72, while an open below 72.25 may find Support at 72.08 and 71.76.

Canadian Dollar (CDM8):

The CD opened higher at 1.0160, but retraced on a weaker Retail Sales report to a 1.0121 and a bounce in the DX. Prices rebounded to our opening level, before profit-taking in the energ/metals and the rising DX sent prices back to our Pivot level of 1.0134 as we begin afternoon trading. Prices continued to trade on either side of our Pivot level of 1.0134, before closing at 1.0142, down 9 tics. The s/t trend remains ‘positive’ w/ expensive momentum indicators. Direction of oil/metals should dictate s/t direction. Longs need to tighten ’stops’ or buy ‘puts’ to reduce exposure. A lower open may find Support at 1.0118 and 1.0094, while an open above 1.0145 should find Resistance at 1.0169 and 1.0196.

Euro Currency (ECM8):

The EC opened lower at 1.5738 after a weaker than expected New Industrial Orders report and slid to 1.5708 against a stronger BP and firmer DX. Prices bounced to a morning Hi of 1.5743, before retracing to a morning Lo of 1.5680 against the firmer DX. The firmer DX continued to press the EC lower into the close of 1.5681, down 78 tics. The s/t trend remains ‘positive’ w/ expensive momentum indicators. Hawkish tones continue to support the possibility of a rate hike, which could see traders buying the ‘dips’. Longs should still tighten ’stops’ or buy ‘puts’ to reduce exposure ahead of the Holiday weekend. A lower open may find Support at 1.5639 and 1.5596, while an open above 1.5717 should find Resistance at 1.5760 and 1.5838.

Japanese Yen (JYM8):

The JY opened lower at .9701 and retraced to .9647 against a stronger BP and firmer DX. Pressure from a stronger DX sent the JY to a morning Lo of .9617 and traded in a thin range as we begin the afternoon session. Traders took profit/risk off the table towards the close, sending prices to a daily LO of .9589 and closing at .9592, dow 119 tics. The close below the 9-day MA changes the s/t trend to ‘negative’ w/ neutral momentum indicators. Traders will key off the DX and the Home Sales report. A lower open may find Support at .9539 and .9487, while an open above .9642 should find Resistance at .9694 and .9797.

FX Engines

The “well-chosen example” of the perfect trade as shown on a chart is too often the basis for system building. When that system inevitably breaks down, the trader returns to the charts desperately searching for a picture that tells a compelling story. Instead of repeating this damaging cycle, traders must realize that system building is a methodical process with clear steps, most of which occur without the distortion created by charts.

Content

ANALYSIS

• Understand why chart-based systems fail.
• Learn the steps essential to system building.

ACTION

• Use charts as an aid, not the foundation, of system building.
• Create a wide array of systems and observe their performance.
• Use multiplied historical tests to find hidden enhancements for existing systems. (more…)
  ]]> http://www.forexyellowpages.com/2008/05/21/system-building/feed/ http://www.forexyellowpages.com/2008/05/16/dollar-firm-on-weakening-inflation-lower-oil/ http://www.forexyellowpages.com/2008/05/16/dollar-firm-on-weakening-inflation-lower-oil/#comments Fri, 16 May 2008 10:00:22 +0000 paul http://www.forexyellowpages.com/2008/05/16/dollar-firm-on-weakening-inflation-lower-oil/

  Dollar Index (DXM8):

  The DX opened higher at 73.58 and rose to a morning Hi of 73.66 ahead of the CPI report. A lower than expected drop in the ‘core’ rate to +0.1% m/m, and +2.3% y/y suggested that inflation may be easing and rate increases may not have to be implemented as soon as origninally thought. Prices slid to a morning Lo of 73.39 and bounced into the afternoon session and climbing towards the close of 73.565, up 13 tics. The s/t trend remains ‘positive’ w/ firm momentum indicators. Will slowing inflation take the need of a rate increase off the table? Odds of keeping rates ‘unchanged’ at 2.00% at the June 25th FOMC meeting increased to 90%. Higher equity prices in Japan may entice carry-traders to seek higher yields, which could weigh on the DX ahead of a number of economic reports, most notable would be Jobless Claims. A lower open may find Support at 73.30 and 73.04, while an open above 73.65 should find Resistance at 73.91 and 74.25.

  Canadian Dollar (CDM8):

  The CD opened higher at 1.0022 and rose to a morning Hi of 1.0033, (more…)

  ]]> http://www.forexyellowpages.com/2008/05/16/dollar-firm-on-weakening-inflation-lower-oil/feed/