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Friday, March 21, 2008

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Any broad-based economic conditions can cause a sudden and dramatic currency price swing if such conditions are seen to be changing. This is a key concept because what drives the currency market in many cases is the anticipation of an economic condition rather than the condition itself.

currency exchange rates

If economy and history are to be heeded, the oil prices can't continue to rise indefinitely. Eventually, consumers will bite the bullet and start cutting their demand for oil and gas. When that happens, the price of oil will either stabilize, or start heading back down toward the $40 a gallon that experts predicted it would never hit.

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Most of these Forex trading systems are reactive (not proactive!!) by design. Like, if a stock or a commodity acts in a certain way, the system assumes that the stock or a commodity will continue to act that way. It generates this conclusion based on the formulas programmed into the system some �Black Boxes" also compute a large array of indicators in an attempt to increase confidence of an action recommendation. Most mechanical trading systems buy or sell breakouts. The stock market calls these traders momentum players. Their formulas assume a continuation of that movement. Should that movement fail to continue, the system will generate a loss, plus the commission cost.

All The Latest News From The Forex World

European Mid Morning Update 19th March 2008

Wed, 19 Mar 2008 03:07:58 -0500
The Easter Bunny steps in to trigger a pause in the Dollar’s downtrend

News from Europe:

There have been no releases so far this morning but a couple of snippets to note.

The German HWWI group has downgraded Germany’s forecast growth for 2008 to “under 1.5%.” This comes very soon following the last downgrade 3 months ago from 2.3% to 1.7%. The macroeconomic division head commented that the downgrade was in response to higher oil prices, the weakness of the U.S. economy and the strength of the Euro.

Watch out for the next downgrade in 3 months time…

Out of interest it is interesting that prior to the long Easter weekend the market has turned to rumors to try and get the market moving. Apparently someone has noted the cancellations of visits by BOE and ECB officials. This obviously generated enough excitement to get traders speculating that there is an emergency central bank meeting.

First was the suggestion that they are planning concerted intervention and this was quickly followed by suggestions that a non-U.S. bank was undergoing problems.

It is probably more a matter of too much excitement, hangovers or hormones.

The following economic releases are due today:

January
Italian Industrial Orders (MoM) +1.3%
Italian Industrial Orders (YoY) +5.0%
Italian Industrial Sales (MoM) +1.1%
Italian Industrial Sales (YoY) +4.5%
Euro-zone Trade Balance EUR - 7.0bn
Euro-zone Construction Output (MoM)
Euro-zone Construction Output (YoY)

February
U.K. Claimant Count Rate +2.5%
U.K. Jobless Claims Change - 5.0K
U.K. ILO Unemployment Rate 5.2%

March
U.S. MBA Mortgage Applications
U.K. CBI Industrial Trends

The recover in the Dollar following the better than feared quarterly results from Goldmans and Lehmans stalled at Asian open as the market takes advantage of higher Dollar levels to sell into.

It is one element taken out of the manic fear that the market holds but there are few who consider that the 75bp cut by the Fed will have any impact on the general air of doom and gloom that surrounds the world’s largest economy.

The housing numbers this week haven’t been that bad but the sector remains stagnant at the very best description and the slowest pace of building permits in 17 years is hardly an indication of any bottoming in the housing market.

Paulson is hanging his hat on the fiscal stimulus package and the mortgage relief program. However, 7 months after the horse has bolted is a little late to effectively cause any great impact. Tax refund checks don’t get sent until May so it will be the 3rd quarter before any glimpse of economic spring buds begin to show.

Currently the very best that can be hoped for the Dollar is a temporary pause as the market adjusts its positions ahead of the long weekend but even if it manages a further recovery today the upside is definitely limited.

Note important support and resistance areas:

USDJPY EURUSD USDCHF GBPUSD
Res: 100.95-23 1.5791-31 1.0132-60 2.0192-18
Res: 100.10-43 1.5727-57 1.0018-52 2.0149-74

Spt: 98.32-63 1.5612-50 0.9900-26 2.0042-72
Spt: 97.51-81 1.5495-31 0.9780-00 1.9941-77

Today's Forex News

Our Featured Global Forex Writer

Forex Fundamental Analysis

The two primary approaches of analyzing Forex markets are technical analysis and fundamental analysis. Fundamental analysis comprises the examination of economic indicators, asset markets and political considerations when evaluating a nation�s currency in terms of another. The focus of fundamental analysis lies on the economic, social and political forces that drive supply and demand. There is no single set of beliefs that guide forex fundamental analysis, yet most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment.

Here we look at some of the major Forex fundamental factors that play a role in the movement of a currency:

Economic Indicators

Economic indicators are reports released by the government or a private organization that detail a country�s economic performance. These economic indicators can be released on a weekly basis, but the more common report is monthly. Indicators are based around a number of economical situations, of which the two primary factors are that of International trade and Interest. Subsidiary factors also include Consumer Price Index (CPI), Purchasing Managers Index (PMI), Durable goods orders, retail sales and Producer Price Index (PPI).

Currency�s Interest Rates

One of the major indicator factors, Interest rates, are a key economic function of any nation. Generally, when a country raises its interest rates, the country�s currency will strengthen in relation to other currencies as assets are shifted to gain a higher return. Interest rates hikes, however, are usually not good news for stock markets. This is due to the fact that many investors will withdraw money from a country�s stock market when there is a hike of interest rates.

International Trade

The trade balance portrays the net difference (over a period of time) between the imports and exports of a nation. A trade deficit can be an economic disaster for a government and a currency. A deficit may appear when a country is importing more than it is exporting, meaning that more money is leaving and less is coming in. In some ways, however, a trade deficit in and of itself is not necessarily a bad thing. A deficit is only negative if the deficit is greater than market expectations and therefore will trigger a negative price movement.

From http://www.forex-articles.net

More Thoughts On Forex

forex chart

FAIR VALUE
The concept of fair value in any currency is largely that of CBers and economists and not much about trading. Almost always currencies overshoot from the fair value areas some 20-30% in their medium-term trend and what makes all hard currencies range in reasonable areas overtime since we had this floating regime in 1971 must the ability of relevant CBs to control the currency ranges and their real economy's weakness or strength to support those ranges. ECB folks were not joking when they said Eur/usd was some 25% undervalued from the fair value when Eur/Usd was below parity levels two years ago. Same goes for BOJ when they were saying Yen was some 10-20% overvalued when it was trading around 100 some three years ago too. That is how these folks view the markets and try to guide the market. Of course, when US Treasury folks say "Dollar is still strong" when it is falling, they are begging the market to sell more dollars
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Global Forex News

Euro is holding at support

Wed, 18 Oct 2006 06:53:00 GMT
Daily Currency report for Wednesday October 18 2006

This is only a guide.

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