Forex Market Update - Forex Strategy Today's

By John Hardy Consultant/FX Strategist Saxo Bank

GBP breaking stronger vs. EUR and CHF after BOE cuts to 1.00%. ECB steady at 2.00% as expected.

JPY crosses zigging and zagging with no real conviction - should JPY longs be cautious here?

MAJOR HEADLINES – PREVIOUS SESSION

* New Zealand Q4 Unemployment Rate rose to 4.6% as expected and vs. 4.2% in Q3

* UK HBOS house Prices rose 1.9% MoM vs. -1.6% expected

* Germany Dec. Factory orders fell -6.9% MoM and -25.1% YoY vs. -2.5%/-24.5% expected

* Bank of England cut interest rates 50 bps to bring the rate to 1.00% as expected.

THEMES TO WATCH – UPCOMING SESSION

Events Today:

* Canada Dec. Building Permits (1330)

* US Q4 Nonfarm Productivity and Unit Labor Costs (1330)

* US Weekly Initial Jobless Claims (1330)

* US Fed's Plosser to Speak (1330)

* Canada Jan. Ivey PMI (1500)

* US Dec. Factory Orders (1500)

* US Jan. ICSC Chain Store Sales (no time given)

* Switzerland SNB's Hilebrand to Speak (1730)

* Us Fed's Bullard to Speak (1800)

* US Fed's Stern to speak (1900)

* Australia Jan. AiG Performance of Construction Index

* Japan Dec. Leading Index (0500)

* Switzerland Jan. Unemployment Rate (0645)

Market Comment:

Equities tried to stage a rally yesterday as the ISM Non-manufacturing number recovered a couple of points rather then sinking further. Still, the number represents a service sector in strong contraction, and services are still the majority of the US economy. Also on a positive note, the ADP number was slightly less bad than expected. But the numbers were not sufficient for the market to really hang its hat on and the rally in risk crosses quickly faded later in the North American session.

GBP followed up stronger versus its European counterparts yesterday and this morning ahead of the Bank of England meeting. The Bank cut 50 basis points as expected, bringing the rate to a new record low of 1.00%. As a small minority were looking for a 100-basis point reduction in rates, the news can be considered marginally GBP-positive, all else being equal. The immediate reaction saw the 0.8800 key support level coming under fire and even falling as this is being written ahead of the ECB press conference. The BoE also released a series of statements indicating its negative view on the situation, but did note that the drop in the pound and existing fiscal policy should help to give a boost to the economy, even if "the transmission mechanism of the monetary policy was impaired" [and if that is the case, then the market starts to ponder the whole quantitative easing line of logic]. All in all, this latter note suggests some degree of applying the brakes to the otherwise dovish trajectory and with GBP pushing through key levels, could be triggering a sustainable uptick in GBP against the other major currencies.

Also GBP supportive was the odd Nationwide housing numbers from December, which suggested that UK home prices ticked up in December even if they were still off over 17% from a year earlier. This could simply be due to a rise in activity due to the lower prices, a bit less panic in the forced sales market, etc...rather than a sign of imminent recovery. Still, the shocking pace of the previous drop may not be repeated any time soon, and the leading RICS indicator suggest that a lower percentage of agents are seeing housing prices falling, so we could be in for a couple of months of relative stability.

The ECB left rates unchanged as expected as today's meeting came only three weeks after the previous one. Watch Trichet for further developments. He is likely going to express a reluctance to move rates much lower, but that the ECB will do what is necessary...etc and yawn...As with last time around for the ECB: is there really any EUR bullish outcome?

JPY crosses are looking less heavy than one would have suspected they would with the marked weakness in equity land late yesterday. In the broader picture, considering the mayhem that this global slowdown is creating for Japan's export-driven economy, we are considering noting some caution for JPY longs here, meaning that we need to see the crosses proving themselves lower before we would consider jumping aboard, as it seems they are having a difficult time working up a head of steam. GBPJPY, one of the most popular trades (on the short side) in the strong JPY cycle, has now rallied almost 10% from its lows on the year below 120.00. AUD and NZD and some of the EM currencies are looking a bit resilient here as well and risk spreads are simply in the doldrums. With the fear levels seeming to fade somewhat, it appears that back and forth sloshing and a treacherous ranging environment with false breaks is as likely as a new big bear trend here in the risk aversion-themed FX crosses....stay tuned and watch the 800 level in S&P500, as this is a big trigger event across markets.

NOK continues to look strong after the bank cut rates 50 bps yesterday, a marked sign of strength in this market as we suspected there was some chance of a consolidation higher yesterday in the wake of the Norges Bank meeting. Could we be hitting a fifth wave already for the decline from the 10+ top? If so, this wave could take us all the way to 8.50, where the 200-day moving average might be in a few days time from its current 8.475 level

More analysis: Saxo Bank Market News & Analysis

Risk Warnings:

Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

Please read our full Analysis Disclosure & Disclaimer at www.saxobank.com/analysis/disclaimer

Forex Trading Ideas

The most effective way to earn earnings in forex trading is to trade in the long-term. It really is quick to get suckered in to short-term or day trading, but the largest profits are observed over weeks and even months. Currency trends depend the trends of big economies, and significant economies don't change easily.

A excellent tip for forex trading is to stay clear of selecting tops and bottoms as much as you can since this is a frequent mistake. If you must do this, you ought to wait until the price action confirms a leading or bottom before taking a position. Rather, you must attempt to stick with the trends.

Extra than the stock market, alternatives, or even futures trading, forex is dependent upon economic circumstances. Before you begin trading forex make confident you realize such points as, trade imbalances, current account deficits and interest rates, as nicely as monetary and fiscal policy. Trading without understanding these underlying components is a recipe for disaster.

To succeed in forex trading, only participate in trading with respect to what you absolutely understand. Unsure trading and trading based on rumors and hearsay will shed you money. If you do not comprehend both the positive aspects and the disadvantages of a certain position, you should not act on it.

Do not bother trading on the Forex Market when it is slow and calm. You will be wasting your time. The more active the Forex Market is, the higher volumes and moves currency will be producing. An active market is the finest time to turn a profit.

Look at acquiring email or even mobile alerts from your forex trading account. These alerts can let you know when a potentially rewarding trade is occurring. Some forex brokers even have applications that enable you to trade via your forex account, working with your telephone. This ensures that you never miss an opportunity to profit.

Fit your forex trading schedule to the currencies you are most interested in. Frequently speaking, trading for the duration of business hours is substantially more volatile - and potentially rewarding - than after-hours trading. Commit yourself to following the market throughout the hours that your chosen currencies are trading at their greatest volume. The costs and spreads you see will be significantly higher.

If you want to pursue forex trading, one thing you should really do is to recognize the 3 various varieties of markets. These incorporate up trending, range bound, and down. You need to aim to have different strategies for each and every of these distinct kinds if you strategy on being profitable carrying out forex trading.

Make a trading plan and stick to it. Even if you are only dabbling in the Forex market, you should have a strategy, a business enterprise model and time-tables charting your objectives. If you trade with out these preparations, you leave yourself open to generating aimless, undirected trades. When you trade as the mood strikes you, you will often pile up losses and hardly ever reap satisfactory earnings.

Do not keep pouring funds into an account that keeps losing cash try to make your account grow via earnings from the trades you are generating. Modest but steady gains are a greater lengthy-term recipe for success than risky trading of significant sums. To succeed, you'll will need to know when to be cautious and when to cut your losses and quit trading.

Do not choose a position in forex trading based on the position of yet another trader. Forex traders are only human: they speak about their successes, not their failures. No matter how several successful trades a person has, they can nonetheless be wrong. Follow your signals and your program, not the other traders.

If you just got into a fight with a loved ones member or friend, refrain from trading for a even though. 1 of the worst points that you can do is trade when you have heavy emotions, as these will generally influence your choices. Clear your head and get back to trading in a couple of days.

Employing limit and stop-loss orders when trading on the forex market are critical to generating cash and minimizing losses. In the minute it takes you to spot your order the currencies transform so employing a limit order ensures you get the value you want. Stop-loss limits your risk in the market.

Do not make the mistake of competing with other traders. Just mainly because someone else is producing 20% return does not mean you want to immediately modify your trading method to do better. Every single trader is distinct. Operate with the tools that operate for you. The objective is to make a profit, not to get rich tomorrow.

You may perhaps really feel very frustrated by a forex loss and make revenge investments. This is one of the worst tactics ever. Never trade when you feel swept with emotion. Remain calm one setback is never ever the end. Collect your self, relax, and when you are in your zen moment, resume trading.

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3 ( Three ) Power Strategies in Forex Trading

If you want to catch the serious profit in forex dealing you need to trend watch forex trends which are worse term. here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every superior forex trend and lead you to long-term term currency dealing success.

Most beginner traders don't bother trying to trend following forex lengthier term - instead they try forex scalping or day trading. These methods focus the trader on small moves and they hope to catch small profit however as most short term moves are random, this leads to equity eliminate.

The other alternatives are swing trading and long term forex trend following and this article is all about the latter method. If you look at any forex chart, you will see long-term term trends that last for months or years. These moves can and do yield serious profit - present we will outline a simple method to get them.

Breakouts

By far the best way of catching the serious moves is to use a forex dealing strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It's a fact that most leading moves start from new highs or lows.

While it might appear that you are not buying or selling at the greatest level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The grounds for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don't buy or sell breakouts and that's exactly why it's such a powerful method.

The only point to keep in mind is a support or resistance which is ruined, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the greater the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout keeps and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your dealing signal.

These indicators give you an estimation of the strength and velocity of price and there are many to choose from. We don't have time to discuss them here (simply look up our other articles) but two of the greatest are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop points are easy with breakouts - Simply behind the breakout point.

If you have a serious trend then you need to be careful you can milk it, so don't move your stop to soon and keep it outside of normal volatility. If it is a huge move, trailing stops should be held a long-term way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don't know when the trend is going to end, so don't predict.

It's ok to give a serious back, as that's the nature of trading forex. Keep in mind if you got 50% of all leading trend you would be very rich. When you are long-term term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend watch forex and catch the high odds moves that yield the serious profit. If you are learning forex dealing and want a simple method that is robust and will help you get every major move, then you should base your dealing on the above method.

Now that you have all the winning strategies, you now need to have a winning broker, recently the


Source : www.forexarticlecollection.com

Risks by The Foreign Exchange on Forex Trading

The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.

Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.

Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.

Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:

1. Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced.

2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.

Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.

Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions.


source by ; Tomas Anderson