Trading Forex - what is next for Australian Dollar.
by Mike P. Kulej
This is a follow up to an article "Australian Dollar top" from late May this year. That article pointed to a major top forming on longer term charts and a strong possibility of a meaningful correction to 0.8600-0.8500 area in the AUD-USD pair. This target has been achieved in a very short time indeed.
At the time previous article was published, AUD was still a high flying currency. Most other ones had already slipped off of their highs against the US Dollar. New Zealand Dollar, Canadian Dollar, Swiss Franc and British pound had weakened a few weeks, or even months, before. By contrast, Australian Dollar was still making new higher highs. Ultimately, AUD also fell and did it by loosing 1200 pips in about five weeks. That's some move.
What is important to mention is that Aussie didn't simply join other currencies and weakened just against the USD. It was sold off broadly in all its crosses. Some of these losses were very large. EUR-AUD ran up over 1000 pips, AUD-JPY fell about 1000 pips as well. Even less moving crosses like AUD-CAD and AUD-CHF dropped 700+ and 500+ pips respectively. Perhaps most telling of all is the slide in AUD-NZD- over 800 pips!
All this despite interest rates of 7.25%, which gives AUD a positive rate differential in comparison with most other major currencies. As we have noticed, however, this hasn't been a strong factor in Forex trends this year. This is true for most other currency pairs, not just Australian Dollar crosses. One undeniable reasons behind AUD fall are softening prices for physical commodities. Oil, grains, gold and other metals have all retreated from their highs. Aussie, being a "commodities currency" was certainly influenced by these developments.
What can we expect next? From a fundamental point of view, this currency should continue its downward momentum. General consensus is that prices for raw materials should soften even more. Most major countries are reporting slowing down of their economies. This will put even more pressure on prices of commodities, leading to a cool down of Australian markets and farther weakness of AUD.
Fundamental analysis are very helpful in identifying broad trends, but of not much use to place actual trades. In order to decide on a potential trade parameters, like entry price, stop level and target, one has to use technical analysis. More precisely- charts. At the very least, fundamental outlook should be employed in conjuncture with charts, not as a stand alone tool.
As of this writing AUD-USD is just above 0.8600 level. This pretty much completes the first leg of the of the down move. Weekly and daily charts indicate sideways movement, with a correction of perhaps to as high as 0.9000 area, before the bear market resumes. Once that happens, second leg of the down move should resume with prices ultimately heading as low as 0.7800-0.7700 level. Projected time frame for this move is 4-6 months.
If the price progresses as expected, situation should be reevaluated once that level is reached. In the meantime there may be plenty opportunities to trade both sides of the market. As long as one remembers that longer term bias is to the down side. When that move comes it might just be as fast and steep as the last one. Stop loss is a must for any buy trades.
แสดงบทความที่มีป้ายกำกับ Trading Forex แสดงบทความทั้งหมด
แสดงบทความที่มีป้ายกำกับ Trading Forex แสดงบทความทั้งหมด
วันจันทร์ที่ 25 สิงหาคม พ.ศ. 2551
วันจันทร์ที่ 16 มิถุนายน พ.ศ. 2551
Trading Forex- dollar and inflation.
Trading Forex- dollar and inflation.
by Mike P. Kulej
For a number of years US economy has enjoyed a relatively low inflation rate. According to official statements, annualized inflation over last decade or so has been in very low single digits. Depending on the source and method of calculation, the rate has been about 2. That is despite massive infusion of funds into the economy in the form of very low interest rates.
That course of action has been long supported by US financial authorities, the FED. For years the central bank has been concerned with growth, doing everything it could to fight economic slow down and stagnation. It was done in the form of cutting interest rates and seemingly endless liquidity increase. Let's not forget about lending hand in order to bail out large financial institutions from the masses their questionable practises created. In fact, month after month we have been treated to speeches that inflation is under control and not a threat. Until now.
Published inflation figures pertain to the so called "core inflation", compilation of prices on consumer goods, which excludes food and energy. Runaway cost increases in oil/gas and main food commodities are finally being reflected in the number, as their effects trickle down to other areas of consumer goods. Some of the newly released figures are stunning-soaring energy costs pushed inflation up in May at the fastest pace in six months, according to data released Friday by the U.S. Labor Department. Food prices had the biggest one-month leap in 18 years in April. That's something.
Higher energy and commodity prices also fuel inflation pressures in other parts of the world. They are being acutely felt in Asia in particular, as the region continues to function as a commodity importer/manufactured goods exporter. One way countries can offset such inflationary pressures is to allow their currencies to appreciate more rapidly. All of a sudden, within a couple of weeks, the once neglected subject of inflation has catapulted itself onto front pages.
As of this writing in mid June, finance ministers of the of the Group of Eight industrialized countries (G-8) are holding a meeting in Osaka, Japan. Main subject have been inflation causing soaring oil and food prices, which are emerging as serious threats to global economic growth. The ministers are vowing to work together to address the problem. They urged oil-producing nations to increase production to help stabilize the spike in oil prices, and called for aid to address a looming food crisis in developing nations.
In response, Saudi Arabia pledged to increase its daily output by additional 500,000 barrels a day. This is surely to stretch their capacity to an absolute maximum, but in opinions of many this decision should calm energy markets, which, by the way, do not have a shortage of supplies. The recent run up of crude oil price to new high of about $140, is likely to be the extent of the rally for some time.
Where does it leave the dollar? There is no one certain answer, but her is one very possible scenario. Inflationary pressures are likely to cause FED to halt its rate cutting policy, maybe even to start gradual rate increases. That is always appealing to Forex traders. Falling oil prices should also benefit the dollar, as record energy costs have been vilified as the single biggest force behind USD weakness (rightly or not). And one more thing, Treasury Secretary Paulson warned earlier this week that he isn't ruling out intervening in currency markets to stabilize the currency.
So, what is the relationship between US Dollar and inflation? Under current market conditions and in light of most recent fundamental and technical development USD might just get a much needed bust from the much dreaded inflation. This relationship is, however, fluid and unstable. Unchecked, inflationary forces can do just the opposite some time down the road- start another Dollar slide.
by Mike P. Kulej
For a number of years US economy has enjoyed a relatively low inflation rate. According to official statements, annualized inflation over last decade or so has been in very low single digits. Depending on the source and method of calculation, the rate has been about 2. That is despite massive infusion of funds into the economy in the form of very low interest rates.
That course of action has been long supported by US financial authorities, the FED. For years the central bank has been concerned with growth, doing everything it could to fight economic slow down and stagnation. It was done in the form of cutting interest rates and seemingly endless liquidity increase. Let's not forget about lending hand in order to bail out large financial institutions from the masses their questionable practises created. In fact, month after month we have been treated to speeches that inflation is under control and not a threat. Until now.
Published inflation figures pertain to the so called "core inflation", compilation of prices on consumer goods, which excludes food and energy. Runaway cost increases in oil/gas and main food commodities are finally being reflected in the number, as their effects trickle down to other areas of consumer goods. Some of the newly released figures are stunning-soaring energy costs pushed inflation up in May at the fastest pace in six months, according to data released Friday by the U.S. Labor Department. Food prices had the biggest one-month leap in 18 years in April. That's something.
Higher energy and commodity prices also fuel inflation pressures in other parts of the world. They are being acutely felt in Asia in particular, as the region continues to function as a commodity importer/manufactured goods exporter. One way countries can offset such inflationary pressures is to allow their currencies to appreciate more rapidly. All of a sudden, within a couple of weeks, the once neglected subject of inflation has catapulted itself onto front pages.
As of this writing in mid June, finance ministers of the of the Group of Eight industrialized countries (G-8) are holding a meeting in Osaka, Japan. Main subject have been inflation causing soaring oil and food prices, which are emerging as serious threats to global economic growth. The ministers are vowing to work together to address the problem. They urged oil-producing nations to increase production to help stabilize the spike in oil prices, and called for aid to address a looming food crisis in developing nations.
In response, Saudi Arabia pledged to increase its daily output by additional 500,000 barrels a day. This is surely to stretch their capacity to an absolute maximum, but in opinions of many this decision should calm energy markets, which, by the way, do not have a shortage of supplies. The recent run up of crude oil price to new high of about $140, is likely to be the extent of the rally for some time.
Where does it leave the dollar? There is no one certain answer, but her is one very possible scenario. Inflationary pressures are likely to cause FED to halt its rate cutting policy, maybe even to start gradual rate increases. That is always appealing to Forex traders. Falling oil prices should also benefit the dollar, as record energy costs have been vilified as the single biggest force behind USD weakness (rightly or not). And one more thing, Treasury Secretary Paulson warned earlier this week that he isn't ruling out intervening in currency markets to stabilize the currency.
So, what is the relationship between US Dollar and inflation? Under current market conditions and in light of most recent fundamental and technical development USD might just get a much needed bust from the much dreaded inflation. This relationship is, however, fluid and unstable. Unchecked, inflationary forces can do just the opposite some time down the road- start another Dollar slide.
วันอังคารที่ 3 มิถุนายน พ.ศ. 2551
Trading Forex- European Central Bank.
Trading Forex- European Central Bank.
by Mike P. Kulej
Very quietly and almost unnoticed by financial media in US , the European Central Bank has reached an important milestone - 10 year anniversary. The ECB came into being June 1, 1998, as 11 European countries drew closer to merging their currencies. The Euro was launched on Jan. 1, 1999 on financial markets, and Euro notes and coins were introduced on January 1, 2002. The bank now controls monetary policy for 15 Euro countries.
Bank's creation followed Maastricht Treaty, which paved the way for the single Euro currency .The treaty mandates fighting inflation as the ECB's main priority, and so far members of the rate-setting governing council have stayed firmly with that message. This stance has been been somewhat criticized lately. There are claims that this policy has pushed the Euro to high, potentially hurting European exporters.
Just how steadfast has ECB been in fulfilling its primary objective? The bank has kept its key rate at 4 percent since June 2007 to fight inflation that hit a record high of 3.6 percent in March and again in May, well above its stated goal of around 2 percent. Bank's actions are not in line with other central banks, namely Bank of England, and U.S. Federal Reserve, which have been cutting their respective benchmarks.
This 10 year anniversary is certainly a success story, but not without some difficulties. European Central Bank has seen the Euro plunged from initial EUR-USD valuation of about 1.2000 to 0.8200 in 2000. Since then, however, the currency has enjoyed a steady rise to a recent high of 1.6000. Almost double from the bottom. Truly a rare feat in among major currencies.
Today it may seem strange, but Euro and ECB success was not a forgone conclusion at the beginning. There were many voices both within Europe and outside which not only questioned a wisdom of single currency, but predicted that the monetary union wouldn't last five years, much less ten. Europe's Central Bank has managed to clear away the doubts that surrounded the Euro at the beginning 10 years ago. Also, officials state that common currency and Bank's policies have added 15 million new jobs in the last six years by making trade and travel easier.
What is next? Well, as it looks right, ECB is sure to be around for at least 10 more years. It is almost certain that additional countries will join Euro zone. Slovakia, Hungary, Check Republic, Poland and others, pending outcome of national referendums and meeting inclusion requirements. Poland will likely have the biggest impact, as it is home to 40 million people and fast growing economy.
Following latest officials remarks, there is general belief that ECB will join the ranks of other central banks and start slushing interest rates. That is expected to strengthen the dollar , which is "uncomfortably weak", and bring down costs of commodities, mainly oil, the biggest single cause for inflation in Euro zone. Once again in line with Bank's main role.
We are sure to be influenced by European Central Bank decisions for many years to come. Happy birthday!
by Mike P. Kulej
Very quietly and almost unnoticed by financial media in US , the European Central Bank has reached an important milestone - 10 year anniversary. The ECB came into being June 1, 1998, as 11 European countries drew closer to merging their currencies. The Euro was launched on Jan. 1, 1999 on financial markets, and Euro notes and coins were introduced on January 1, 2002. The bank now controls monetary policy for 15 Euro countries.
Bank's creation followed Maastricht Treaty, which paved the way for the single Euro currency .The treaty mandates fighting inflation as the ECB's main priority, and so far members of the rate-setting governing council have stayed firmly with that message. This stance has been been somewhat criticized lately. There are claims that this policy has pushed the Euro to high, potentially hurting European exporters.
Just how steadfast has ECB been in fulfilling its primary objective? The bank has kept its key rate at 4 percent since June 2007 to fight inflation that hit a record high of 3.6 percent in March and again in May, well above its stated goal of around 2 percent. Bank's actions are not in line with other central banks, namely Bank of England, and U.S. Federal Reserve, which have been cutting their respective benchmarks.
This 10 year anniversary is certainly a success story, but not without some difficulties. European Central Bank has seen the Euro plunged from initial EUR-USD valuation of about 1.2000 to 0.8200 in 2000. Since then, however, the currency has enjoyed a steady rise to a recent high of 1.6000. Almost double from the bottom. Truly a rare feat in among major currencies.
Today it may seem strange, but Euro and ECB success was not a forgone conclusion at the beginning. There were many voices both within Europe and outside which not only questioned a wisdom of single currency, but predicted that the monetary union wouldn't last five years, much less ten. Europe's Central Bank has managed to clear away the doubts that surrounded the Euro at the beginning 10 years ago. Also, officials state that common currency and Bank's policies have added 15 million new jobs in the last six years by making trade and travel easier.
What is next? Well, as it looks right, ECB is sure to be around for at least 10 more years. It is almost certain that additional countries will join Euro zone. Slovakia, Hungary, Check Republic, Poland and others, pending outcome of national referendums and meeting inclusion requirements. Poland will likely have the biggest impact, as it is home to 40 million people and fast growing economy.
Following latest officials remarks, there is general belief that ECB will join the ranks of other central banks and start slushing interest rates. That is expected to strengthen the dollar , which is "uncomfortably weak", and bring down costs of commodities, mainly oil, the biggest single cause for inflation in Euro zone. Once again in line with Bank's main role.
We are sure to be influenced by European Central Bank decisions for many years to come. Happy birthday!
วันพฤหัสบดีที่ 13 ธันวาคม พ.ศ. 2550
Trading Forex- What's next for the Yen?
Trading Forex- What's next for the Yen?
by Mike P. Kulej
For the last couple of years or so, the buzz word in Forex circles has been the "carry trade". In fact, it has become popular enough, that even CNBC gave it a mention on number of occasions.
What is a "carry trade"? In a nutshell, it's a trade involving two currencies with a large interest rates differential. The premise is, that a trader sells short, or borrows, currency with a low interest rates and buys, or goes long, a currency with higher interest rates. In the process, trader pockets the difference, which, in most cases, is paid daily.
For example, having a position in USD-JPY would earn a difference between USD rates, 5.25%, and JPY rates ,0.5%, for a profit of 4.75%. In reality it would be a little less ,since brokers charge small part of this gain for their services.
While all this doesn't sound very impressive, don't forget the power of leverage, commonly employed in Forex trading. This very same trade at 2:1 leverage would earn 9.5%, at 5:1 leverage, about 24%. Of course, the leverage could be much higher. Now we can see why the "carry trade" has been so popular, and very profitable, over last couple of years.
JPY, especially, has become a target for the "carry trade". Combined with Bank of Japan (BOJ) official policy of weak Yen, it has been increasingly sold against just about every currency of any importance. High interest bearing currencies, like NZD, AUD and GBP have reached levels not seen in decades. EUR-JPY is at an all time high. Even USD, in a massive slump of it's own, has experienced sizable appreciation against JPY over last 2 years. It has become one of the easiest ways to make good money trading. Simply go short JPY, collect healthy interest rate and, on top of that, pocket very good asset appreciation. What could be simpler?
Unfortunately, everything that's too good to be true must come to an end. What could be described as a first crack in the "carry trade", came in February. BOJ officials expressed "concern with Yen being used to fund speculative interests". Just about that time JPY experienced a serious run up putting a lot of speculators out of action. It didn't last very long but was a poignant example of how fast and to what extent things can swing while trading currencies.
Recently, BOJ once again issued a statement, this time being "concerned with a continued capital outflow", meaning Yen being converted to other currencies in search of better returns. What can be even more worrisome, is an article in a conservative and respected Japanese newspaper, Nihon Keizai Shimbun, which states "weak Yen policy is no longer desirable". If true, that would signal a major shift in Japanese Monetary Authority priorities. Increasingly we can see dark cloud over "carry trade" involving JPY.
What does all that mean? BOJ is well known for it's "statements", which are guarded innuendos and vague threats of intervention. They hope markets will respond to those comments without an actual need to step in. As long as they keep talking about it, the chances of an intervention are not that high. However, if the markets continue to defy their wishes and all of a sudden there is no more comments - watch out. What most people don't realize, BOJ can ask other central banks to step in on their behalf. We know for a fact US Treasury did it at least twice about 3 years ago. With Yen being as low as it is, most central banks would likely be accommodating, should, in fact, BOJ request assistance. Such action would make respective country's products more competitive, correcting trade balance with Japan.
I'm first to admit that the above scenario is highly speculative and unlikely to play itself out as scripted. I'm not a prophet of doom and gloom. It's not in anybody's interest to see the kind moves in JPY that happened in 1998. The chances of Yen appreciation are, however, increasingly more real. Speculators, especially small traders, should take a closer look at the JPY "carry trade", if it is in their portfolio. One can put firm stops on existing positions. Lowering leverage is also an alternative. There is another sensible option. Simply take money of the table and be happy the party lasted as long as it did.
by Mike P. Kulej
For the last couple of years or so, the buzz word in Forex circles has been the "carry trade". In fact, it has become popular enough, that even CNBC gave it a mention on number of occasions.
What is a "carry trade"? In a nutshell, it's a trade involving two currencies with a large interest rates differential. The premise is, that a trader sells short, or borrows, currency with a low interest rates and buys, or goes long, a currency with higher interest rates. In the process, trader pockets the difference, which, in most cases, is paid daily.
For example, having a position in USD-JPY would earn a difference between USD rates, 5.25%, and JPY rates ,0.5%, for a profit of 4.75%. In reality it would be a little less ,since brokers charge small part of this gain for their services.
While all this doesn't sound very impressive, don't forget the power of leverage, commonly employed in Forex trading. This very same trade at 2:1 leverage would earn 9.5%, at 5:1 leverage, about 24%. Of course, the leverage could be much higher. Now we can see why the "carry trade" has been so popular, and very profitable, over last couple of years.
JPY, especially, has become a target for the "carry trade". Combined with Bank of Japan (BOJ) official policy of weak Yen, it has been increasingly sold against just about every currency of any importance. High interest bearing currencies, like NZD, AUD and GBP have reached levels not seen in decades. EUR-JPY is at an all time high. Even USD, in a massive slump of it's own, has experienced sizable appreciation against JPY over last 2 years. It has become one of the easiest ways to make good money trading. Simply go short JPY, collect healthy interest rate and, on top of that, pocket very good asset appreciation. What could be simpler?
Unfortunately, everything that's too good to be true must come to an end. What could be described as a first crack in the "carry trade", came in February. BOJ officials expressed "concern with Yen being used to fund speculative interests". Just about that time JPY experienced a serious run up putting a lot of speculators out of action. It didn't last very long but was a poignant example of how fast and to what extent things can swing while trading currencies.
Recently, BOJ once again issued a statement, this time being "concerned with a continued capital outflow", meaning Yen being converted to other currencies in search of better returns. What can be even more worrisome, is an article in a conservative and respected Japanese newspaper, Nihon Keizai Shimbun, which states "weak Yen policy is no longer desirable". If true, that would signal a major shift in Japanese Monetary Authority priorities. Increasingly we can see dark cloud over "carry trade" involving JPY.
What does all that mean? BOJ is well known for it's "statements", which are guarded innuendos and vague threats of intervention. They hope markets will respond to those comments without an actual need to step in. As long as they keep talking about it, the chances of an intervention are not that high. However, if the markets continue to defy their wishes and all of a sudden there is no more comments - watch out. What most people don't realize, BOJ can ask other central banks to step in on their behalf. We know for a fact US Treasury did it at least twice about 3 years ago. With Yen being as low as it is, most central banks would likely be accommodating, should, in fact, BOJ request assistance. Such action would make respective country's products more competitive, correcting trade balance with Japan.
I'm first to admit that the above scenario is highly speculative and unlikely to play itself out as scripted. I'm not a prophet of doom and gloom. It's not in anybody's interest to see the kind moves in JPY that happened in 1998. The chances of Yen appreciation are, however, increasingly more real. Speculators, especially small traders, should take a closer look at the JPY "carry trade", if it is in their portfolio. One can put firm stops on existing positions. Lowering leverage is also an alternative. There is another sensible option. Simply take money of the table and be happy the party lasted as long as it did.
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