Tag: Forex

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Forex Market Analysis

Daily F.X. Analysis, June 19 – Top Trade Setups In Forex – E.U. Economic Summit Ahead! 

A day before, the U.S. dollar was also supported by the Philly Fed Manufacturing Index, which surged to 27.5 from the expected -23.0. The C.B. Leading Index for May also supported dollar when came in as 2.8% against the .4%. Today, the eyes will remain on the Canadian economic events and E.U. economic summit. Overall, the price action will be driven by the technical levels today.

A day before, the U.S. dollar was also supported by the Philly Fed Manufacturing Index, which surged to 27.5 from the expected -23.0. The C.B. Leading Index for May also supported dollar when came in as 2.8% against the .4%. Today, the eyes will remain on the Canadian economic events and E.U. economic summit. Overall, the price action will be driven by the technical levels today.

A day before, the U.S. dollar was also supported by the Philly Fed Manufacturing Index, which surged to 27.5 from the expected -23.0. The C.B. Leading Index for May also supported dollar when came in as 2.8% against the .4%. Today, the eyes will remain on the Canadian economic events and E.U. economic summit. Overall, the price action will be driven by the technical levels today.

Economic Events to Watch Today

 

  

EUR/USD – Daily Analysis

The EUR/USD pair was closed at 1.12045 after placing a high of 1.12611 and a low of 1.11854. Overall the movement of the EUR/USD pair remained bearish throughout the day. The EUR/USD pair followed its previous day’s trend and posted losses for 3rd consecutive day on Thursday amid risk-off market sentiment and bleak economic data. The pair extended its losses and dropped to its lowest level near 1.11800 since June 3.

The bearish trend of EUR/USD was supported by the increased demand for the U.S. dollar, which made it strong across the board. U.S. dollar was higher on Thursday amid its safe-haven status, which was buoyed by the multiple factors. The safe-haven market sentiment was supported by the increased fears of coronavirus second wave after the U.S. & China reported an increased number of infection cases from some parts of their country.

The U.S. dollar was also supported by the Philly Fed Manufacturing Index, which surged to 27.5 from the expected -23.0. The C.B. Leading Index for May also supported dollar when came in as 2.8% against the .4%.

However, the losses of EUR/USD were limited after the release of Unemployment Claims from the U.S. that surged to 1.508M against the 1.3M forecasts.

From the Eurozone side, at 13:03 GMT, the Italian Trade Balance in April showed a deficit of 1.16B against the expected surplus of 4.88B. Poor than expected Trade Balance from Italy weighed heavily on the single currency Euro as the difference between expected and actual value was very large.

Despite poor than expected jobless claims, the U.S. dollar index, which measures the U.S. value against a basket of six currencies, rose to 97.4 level. Increased dollar stressed the demand for EUR/USD, and hence, pair fell for 3rd consecutive day.

Furthermore, the European Central Bank issued another trillion million euros to strengthen the economies from the coronavirus pandemic. The offer made by the Central Bank to commercial banks of its ultra-cheap three years loan was taken up by 742 banks on Thursday. Bloomberg reported that a total of 1.31 trillion euros of offers were taken by the banks, which were in line with the predicted range of 1.2T – 1.5T euros.

These loans were carrying below zero interest rates, which means ECB was paying the lenders to lend to households and business people to bolster the economic recovery from the pandemic and cushion the losses.

Daily Support and Resistance

  • R3 1.1462
  • R2 1.1408
  • R1 1.1336

Pivot Point 1.1282

  • S1 1.1211
  • S2 1.1156
  • S3 1.1085

EUR/USD– Trading Tip

On Friday, the EUR/USD pair is trading with a bearish bias, holding below the descending triangle pattern, which can lead EUR/USD prices towards 1.1164 level. On the higher side, the pair may find resistance at 1.1219 level, which is extended by the downward trendline that can be seen on the hourly timeframe. Besides, the leading indicators are mixed; for example, the RSI is suggesting a selling bias, while the MACD is indicating a bullish bias. However, the 50 EMA is in support of selling. Therefore, we can look for selling trade below 1.1219 level today. 

GBP/USD – Daily Analysis

The GBP/USD pair was closed at 1.2407 after placing a high of 1.25667 and a low of 1.24014. Overall the movement of GBP/USD pair remained bearish throughout the day. The GBP/USD pair dropped on Thursday and extended its losses for 3rd consecutive day on the back of dovish commentary from BoE and Brexit uncertainties.

On Thursday, the BOE held its monetary policy meeting in which it left the rates unchanged at 0.10% but increased the Quantitative Easing package by100 Billion Pounds. Bank of England dropped its expectations for the U.K.’s economic contraction for Q1 and Q2. In its previous meeting, the Bank of England anticipated that the economy would shrink by 27% in Q1 and Q2. But in the latest meeting on Thursday, BoE issued its expectation for GDP to contract by 20% in the first half of 2020.

The Governor of BoE, Andrew Bailey, said on Thursday that Britain’s economy was recovering a bit faster than Bank thought in the previous month. It could be due to decreased lockdown measures; however, the labor market was mostly providing negative data.

Bailey told reporters that BoE announced an increase of 100 billion pounds around $124 billion in its bond-buying program, but it also slowed the pace of purchases. He added that BoE had plans to stretch its 745 billion pounds bond-buying program. Bailey repeated his previous comments on negative interest rates that they were an option for the Bank as the issue was complex, but given the situation, when banks could afford bond-buying and another stimulus, taking borrowing cost below zero was not going to happen.

The Bank of England also said that it would take further necessary actions to support the economy and boost inflation towards its 2% target.

On Brexit front, the European Union’s Chief executive, Ursula von der Leyen, said on late Wednesday that there would be no post-Brexit trade deal without a level playing field, including everything from state aid to labor to environmental interests. She said that the Bloc would do everything to secure a deal by the end of 2020, but it will not compromise its core values.

Daily Support and Resistance

  • R3 1.2695
  • R2 1.2632
  • R1 1.2529

Pivot Point 1.2465

  • S1 1.2362
  • S2 1.2298
  • S3 1.2195

GBP/USD– Trading Tip

On Friday, the GBP/USD is trading at a level of 1.2430, holding right below support to become a resistance level of 1.2480. The pair is in the oversold zone now, and we may see a slight bullish correction until 1.2465 and 1.2485. But below this, the odds of selling will remain high, and it can lead Sterling lower towards the next support area of 1.2350 level. The RSI and 50 periods of EMA are suggesting a selling bias today. Let’s consider taking selling trades below 1.2450 today.  

USD/JPY – Daily Analysis

The USD/JPY pair was closed at 106.969 after placing a high of 107.127 and a low of 106.655. Overall the movement of USD/JPY pair remained flat but slight bearish throughout the day. The USD/JPY painted a fresh three day low at 106.65 after a short-lived rise toward 107.1 in the beginning session. Japanese Ye was amongst the best performer currencies on Thursday on the back of lower U.S. yields and mixed sentiment.

The U.S. dollar data showed mixed results as jobless claims exceeded the expectations and weighed on the U.S. dollar, but the Philly Fed Manufacturing Index jumped and supported the U.S. dollar.

At 17:30 GMT, the Philly Fed Manufacturing Index for June reported as 27.5 against -23.0. The Unemployment Claims for last week were reported as 1.508M against the expected 1.3M. At 19:00 GMT, the C.B. Leading Index for May surged to 2.8% against the expected 2.4% and supported the U.S. dollar. The U.S. Dollar Index (DXY) surged above 97.44 level and posted weekly high. While U.S. stocks posted losses where Dow Jones was down by 0.15%, and S&P 500 was down by 0.27%.

An FOMC member Loretta Mester gave a speech on Thursday where she said that Fed and Fed longer than expected the road to economic recovery would have to provide additional and continuous support by being very easy on the monetary policy till 2023. The dovish comments exerted downside pressure on the U.S. dollar and ultimately to USD/JPY pair on Thursday.

Some reports suggested Beijing has succeeded in containing the virus after the renewed cases emerged due to ease of lockdown restrictions. Apart from Beijing, many states of America and other countries also send reports about rebuilt virus cases.

The hopes for V shape recovery for the global economy also faded away as the development of the vaccine was needed for that which only can increase the confidence of people against the virus spread.

However, the increased tensions between China & India and North & South Korea on their disputed borders also kept the USD/JPY pair under pressure.

Daily Support and Resistance    

  • R3 108
  • R2 107.82
  • R1 107.57

Pivot Point 107.39

  • S1 107.14
  • S2 106.96
  • S3 106.71

USD/JPY – Trading Tips

The USD/JPY is trading at 106.914 level as it continues trading sideways in a wide trading range of 107.620 – 106.630. It failed to break above an immediate resistance level of 107.580. This level is working as resistance for USD/JPY, and the 50 periods EMA is also prolonging strong resistance at 107.580 zones while immediate support lingers nearby 106.600. The USDJPY bearish trend can trigger a sell-off unto the next support level of the 106.017 level today. Let’s wait for the USD/JPY to test the 107.650 level before entering a sell in the USD/JPY. 

Good luck! 

Categories
Forex Price Action

Chart Combination Trading: Even an Inside Bar Has a Lot to Offer

An Inside Bar is considered the weakest reversal candle as far as candlestick trading is concerned. However, in today’s article, we find out the significance of a daily Inside Bar in the daily-H4 chart combination trading. Let us get started.

An Inside Bar is considered the weakest reversal candle as far as candlestick trading is concerned. However, in today’s article, we find out the significance of a daily Inside Bar in the daily-H4 chart combination trading. Let us get started.

An Inside Bar is considered the weakest reversal candle as far as candlestick trading is concerned. However, in today’s article, we find out the significance of a daily Inside Bar in the daily-H4 chart combination trading. Let us get started.

This is the daily chart. The chart shows that the last candle comes out as a bearish Inside Bar. The daily chart traders may still think that the chart is bullish biased. However, the daily-H4 chart combination traders are to flip over to the H4 chart and look for short entries since it is a bearish reversal candle after all.

The H4 chart looks to be tailor-made for the sellers. The chart produces a double top, and the price breaches the neckline. The last candle comes out as a doji candle. The price may consolidate now.

The chart produces another bearish candle closing within the same resistance. Then, it creates a bullish engulfing candle. Let us draw two lines here. The level of support looks very evident. However, the level of resistance still has a lot to prove.

The level of resistance produces a bearish reversal candle. To be precise, it creates a bearish engulfing candle, closing below the level of resistance. The sellers may trigger entry right after the last candle closes by setting stop-loss above the level of resistance and by setting take profit with 1R.

The price heads towards the South in the next candle as well. It seems that the sellers may not have to wait too long to achieve their target. Let us proceed to the following chart to find out how it goes.

As expected, the next candle comes out as another bearish candle. This time it has even a longer body. Look at the last candle. The candle comes out as a bullish inside bar. Technically, the chart is still bearish biased. Do not forget that for the H4-H1 chart combination trading, they may have to flip over to the H1 chart to go long in the pair. This is what we have just demonstrated in the daily-H4 chart combination trading.

To sum up the lesson, an Inside Bar may not be a strong reversal signal in the chart. For the chart combination traders, it is a bit different. As long as it is a reversal candle does not matter how weak it is. The combination traders may flip over to the counterpart and wait for consolidation and a signal candle to trigger entry.

Categories
Forex Options

FX Options Market Combined Volume Expiries for 19th June 2020

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

……………………………………………………………………………………………………………………..

FX option expiries for June 19 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

EUR/USD: EUR amounts

  • 1.1200 1.1bn
  • 1.1235 515m
  • 1.1260 664m

EURUSD is in a bear channel and is in a pullback from a dip below the key 1.1200 line and is now overbought. Price action is hovering above the key 1.1200 level but pressure remains to the downside. The economic calendar is light during the European session. The key 1.12 maturity remains in play.

– GBP/USD: GBP amounts        

  • 1.2400 525m
  • 1.2415 299m
  • 1.2500 501m

GBPUSD is in a consolidation phase after a bear move yesterday. The pair is overbought on the one our chart. The maturities at 1.2400 and 1.2415 are both in play.

– USD/JPY: USD amounts         

  • 106.45 386m
  • 106.50 470m
  • 107.50 435m
  • 107.70 440m

USDJPY price action is muted. We have a sloping wedge formation brewing. Watch for the breakout. But the options look out of play.

– AUD/USD: AUD amounts       

  • 0.6800 836m
  • 0.6900 826m

AUDUSD price action is muted on the one hour chart with a tight bull range. 0.6900 option is within range but this key level may prove more of a barrier than a magnet.

– EUR/GBP: EUR amounts

  • 0.8930 545m

EURGBP found a strong bid tone yesterday to lift it back above the 0.90 exchange rate. The option maturity looks to be well out of play.

………………………………………………………………………………………………………………………..

As you can see on the charts we have also plotted the expiration levels at the various exchange rate maturities and we have also labelled in red, orange and blue. Therefore, if you see option expiry exchange rates labelled in red these should be considered in-play, because we believe there is a greater chance of the expiry maturing at these levels based on technical analysis at the time of writing. There is still a lesser possibility of a strike if they are in orange and so these are ‘in-play’ too. However, if we have labelled them in blue, they should be considered ‘not in-play’ and therefore price action would be unlikely to reach these levels, which are often referred to as Strikes, at the time of the 10 AM New York cut.

Our technical analysis is based on exchange rates which may be several hours earlier in the day and may not reflect price action at the time of the maturities. Also, we have not factored in economic data releases or keynote speeches by policymakers, or potential market volatility leading up to the cut.

Although we have added some technical analysis we suggest you take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage. Remember the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.

If you want to learn how forex option expiries affect price action in the spot FX market see our educational article by clicking here: https://bit.ly/2VR2Nji

DISCLAIMER: Please note that this information is for educational purposes. Also, the maturities will look more or less likely to become a strike at 10 AM NY time due to exchange rate fluctuations resulting in a different perspective with regard to technical analysis, and also due to upcoming economic data releases for the associated pairs.

Categories
Forex Basic Strategies

Restrict Your Losses To Only 10-Pips a Day With This Strategy

Introduction

Introduction

Introduction

Every trader loves the idea of winning on each trade they take. After all, winning is the sole purpose of trading. Various strategies in the market promise to offer profits every day, but none of them are good enough to make you win every single trade you take. In the end, almost all of the traders wish for a method that could reap them good profit every day. But as we all know, trading is less about making money and more about saving your capital. For this same purpose, we have created the 10 Pip Loss Strategy.

The strategy suggests that we must take two to three trades a day by placing only ten pips stop-loss and go for bigger targets. For instance, let’s consider that we took three trades in a single day. If we lose two trades and end up winning one, we will be losing only 20 pips, but the gains that are earned on the third trade can be more. By following this strategy, our primary focus should be on taking three potential trades in a day.

The Strategy – Pairing Double Moving Average & Stochastic Indicator

It is highly advisable to use this strategy in a strong trending market.

To Go Long (Buy Trades)

  • Firstly, identify an uptrend in any currency pair.
  • Apply the double moving average indicator to the price chart. Go with 9 and 14 periods.
  • Wait for the pullback to happen, and the price action must hold below the double moving average.
  • Look if the Stochastic is reversing at the oversold area.
  • Go long if all the above rules are met.
  • Place the stop-loss just ten pips below the entry. Take profit placement depends on the market state. If the buyer movement is strong, expect a brand new higher high; if the momentum is a slow, exit at the most recent higher high.

The image below represents our losing trade in the AUD/CHF forex pair. As you can see, both the indicators gave us a trading signal at around 08:45 AM. We activated our trade when the price of the asset is 0.6129. It went a bit up and suddenly dropped down to hit our stop loss. As a result, we ended up losing the trade.

The best thing is that we lost only ten pips. Hence, these smaller losses won’t influence our decision-making abilities.

The image below represents our winning trade in the AUD/NZD Forex pair. We took this trade on 22nd April at around 08:45 AM. When the moving average went below the price, the Stochastic gave a reversal at the oversold area, indicating us to go long in this pair. Right after we went long, the price action blasted to the north and printed a brand new higher high. We end up making 90 pips in this trade.

Overall, we lost ten pips till now, and hence we stand at 80 pips profit.

The below price chart represents our third trade on 22nd April. We took this trade at around 6:45 PM. Following our strategy, we made entry, and the price action has printed a brand new higher high. This trade gave us a profit of 80 pips.

To sum it up, we took three trades out of which we made 170+ pips profit and a loss of only ten pips. By following this strategy, we can make profits on every single trading day. Note: Use this strategy only when you see the potential of having at least three trades in a single day. Otherwise, there is no point in using this strategy.

To Go Short (Sell Trades)

  1. Firstly, identify a downtrend in any currency pair.
  2. Apply the double moving average indicator to the price chart. Go with 9 and 14 periods.
  3. Wait for the pullback to happen, and the price action must hold above the double moving average.
  4. Look if the Stochastic is reversing at the overbought area.
  5. Go short if all the above rules are met.
  6. Place the stop-loss just ten pips above the entry. Take profit placement depends on the market state. If the seller movement is strong, expect a brand new lower low; if the momentum is a slow, exit at the most recent lower low.

The image below represents a sell signal in the CHF/JPY Forex pair. This is the first trade we activated on 13th April at around 08:45 AM. Overall, the market was in a strong downtrend, and when it pulled back, both the indicators gave us a sell signal. After we went short, the price sharply goes down and prints a brand new lower low. This trade gave us 60+ pip profit.

We took the second trade relatively at the same time in the USD/JPY Forex pair. Overall, this pair was also in a strong downtrend, and we activated the trade when both the indicators gave us a sell signal. In this pair, the seller momentum was strong enough, and we ended up making 82+ pips. 

This is the third trade we took in the EUR/JPY Forex pair. When price action pulled back to the moving average, the Stochastic also gave us a reversal at the overbought area, indicating us to go short. By the time we have exited, we booked 64+ pips of profit.

In total, we took three trades, and all of them hit our take-profit. If you observe, even if we would have lost two trades and won only one, we would still have ended up on the winning side. In a strong trending market, it is easy to win all the trades we take. All you need to do is to follow the rules of the strategy very well. To sum it up, with minimum risk, we gained a profit of 206 pips from the market.

We hope you understood the strategy well. Please try and trade this strategy in a demo account before applying it to the live market. Cheers!

Categories
Forex Signals

Gold Sideways Trading Continues – Watchout Quick Trade Setup!

The safe-haven asset failed to break its previous session’s confined trading range near below $1,730 level but erased its some losses from an intraday low mainly due to the risk-off market sentiment triggered by the fresh US-China tension. The second wave of coronavirus (COVID-19) also fueled the risk-off market tone, which eventually provided some support to the gold prices. At the moment, the yellow-metal press is currently trading at 1,724.06 and consolidating in the range between 1,717 and 1,730.07.

The safe-haven asset failed to break its previous session’s confined trading range near below $1,730 level but erased its some losses from an intraday low mainly due to the risk-off market sentiment triggered by the fresh US-China tension. The second wave of coronavirus (COVID-19) also fueled the risk-off market tone, which eventually provided some support to the gold prices. At the moment, the yellow-metal press is currently trading at 1,724.06 and consolidating in the range between 1,717 and 1,730.07.

The safe-haven asset failed to break its previous session’s confined trading range near below $1,730 level but erased its some losses from an intraday low mainly due to the risk-off market sentiment triggered by the fresh US-China tension. The second wave of coronavirus (COVID-19) also fueled the risk-off market tone, which eventually provided some support to the gold prices. At the moment, the yellow-metal press is currently trading at 1,724.06 and consolidating in the range between 1,717 and 1,730.07.

At the US-China front, the top diplomat Jiechi warned U.S. Secretary State Mike Pompeo that China strongly opposed the U.S. interfering in Hong Kong, G7 statement on Hong Kong initially exerted some downside pressure on the risk-tone and contributed to the modest gold gains. In the meantime, the Dragon Nation showed a demanding attitude while saying that the U.S. should handle Taiwan related issues carefully and properly. Apart from this, China also said that the U.S. should respect China’s counter-terrorism efforts in Xinxiang.

Moreover, the reason for the risk-off market sentiment could also be attributed to the intensifying second wave of coronavirus. It should be noted that the U.K.’s second vaccine trials seemed failed to provide any notable result to stop the deadly disease from spreading as Texas showed a record high jump in the hospitalization; likewise, Florida, Arizona, and Oklahoma also showed further cases. Apart from this, Japan’s virus figures rose to the highest since May 30. 

It’s worth recalling that the Dragon Nation recently impose strict measures on air travel as well as used all the possible ways, including renewed lockdown restriction to stop the deadly disease from spreading. 

Moreover, the risk-off market sentiment was further bolstered by the geopolitical tensions between North and South Korea, as well as between India and China, which also had some positive impact on the gold prices. In the meantime, the Asian Development Bank (ADB) trimmed its 2020 growth forecast for Asia from 2.2% to 0.1% also, weighed on the market’s trading sentiment.

As in result, the U.S. 10-year Treasury yields still reported losses around 0.70% while the Asian stocks reported moderate losses by the press time. At the USD front, the broad-based U.S. dollar maintained its earlier gains and stayed above 97 levels mainly due to the growing concern over the spike in COVID-19 cases in China and the U.S. which eventually turned out to be one of the key factors that kept a lid on any additional gains in the gold. Whereas, the U.S. Dollar Index that tracks the greenback against a basket of other currencies moved 0.12% to 97.028 by 11:40 PM ET (4:40 AMGMT).

Looking forward, the traders will keep their eyes on the qualitative catalysts for near-term direction. In the meantime, the virus headlines and geopolitical headlines will be the key to watch.


Daily Support and Resistance    

S1 1689.13

S2 1706.35

S3 1716.85

Pivot Point 1723.57

R1 1734.07

R2 1740.79

R3 1758.01

The yellow metal gold is currently trading with a mixed bias, holding below a substantial resistance area of 1,731. Beneath this, bearish bias can be seen until the next support region of 1,717 and 1,714. While the closing of candle or violation of 1,731 will extend buying until the next target level of 1,744. Good luck! 

Categories
Forex Course

128. Interpreting Regular Divergence

What is Regular Divergence?

What is Regular Divergence?

What is Regular Divergence?

Markets move in trend, channels, and ranges. For any market to undergo a change in the direction, it must happen as a transition. For example, a market that has to transit from an uptrend to a downtrend, it has to go from an uptrend to a channel, to a range, and then begin the downtrend. That is, at one point in time, the market does not hold at support & resistance, and stops making higher highs. And this market reversal is indicated by the regular divergence.

Types of Regular Divergence

There are two types of regular divergence:

  • Regular Bullish Divergence
  • Regular Bearish Divergence

Let’s understand each of them with the help of live charts

Regular Bullish Divergence

This type of divergence is used to give a bullish signal in the market. When the market is in a downtrend, making lower lows and lower highs, the oscillator follows the same path. At one point, the price chat makes a lower low, but the oscillator makes a lower high. The oscillator does the opposite of what the price did. And this referred to as bullish divergence. Here is an example of the same.

In the above chart of EUR/AUD, reading the market from the left, we see that it was in a downtrend. As the prices were making lower lows, the indicator followed the same. But later, when it made another lower low, the MACD made a higher low, indicating divergence in the market. When it left higher low, we see that the price did not make any lower low from the S&R level. And finally, the market reversed and began to move north.

Regular Bearish Divergence

Regular bearish divergence is used to forecast bearishness in the market. In an uptrend, the market makes higher highs and higher lows. The oscillator indicators follow the same trajectory as well. But, if the price makes a higher high and oscillator does the opposite (lower high), then it is referred to as a bearish divergence. It is an indication that something is not right with the uptrend, and there are possibilities of a trend reversal.

In the above chart of AUD/CAD, we see that the market made a higher high, and the MACD indicator made a higher high as well, indicating that the uptrend is still intact. But the second time when the market made a higher high, the indicator put a lower high—indicating that there is something wrong with the uptrend and could be a possible reversal. In hindsight, we infer that the market failed to make higher highs and then reversed.

Note that divergence provides an indication that there could be a possible reversal in the market. It does not give a signal to buy or sell. The reversal must be solely based on your strategy. Divergence is only used to confirm the strategy and increase odds in your favor.

[wp_quiz id=”77668″]
Categories
Forex Assets

Asset Analytics – Trading The CHF/HKD Foreign Exchange Pair

Introduction

Introduction

Introduction

CHF/HKD is the abbreviation for the Swiss Franc against the Hong Kong Dollar. It is categorized as an exotic currency pair that usually has high volatility and low trading volume. Here, the CHF (on the left) is the base currency, and the HKD (on the right) is the quote currency.

Understanding CHF/HKD

The market price of CHF/HKD represents the value of HKD that are obliged to purchase to one CHF. It is quoted as 1 CHF per X HKD. If at all the market price of this pair is 8.1718, then this amount of HKD is required to buy one CHF.  

 

Spread

The difference between the bid-ask price is described as the spread. Its value differs from the ECN account model and STP account model. The approximate value for the two is specified below:

ECN: 35 pips | STP: 40 pips

Fees

A fee is a price that one pays to the broker for executing a trade. There is no fee charged on STP accounts, but a few pips are charged on ECN accounts.

Slippage

The difference between price called for by the client and price that was offered by the broker is described as the slippage. Its value varies on the volatility of the market and the broker’s execution.

Trading Range in CHF/HKD

The trading range is that the tabular representation of the pip movement of a currency pair in several timeframes. These values are useful in determining the profit, which will be generated from trade in advance. To seek out the worth, you need to multiply the below volatility value with the pip value of this pair.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CHFHKD Cost as a Percent of the Trading Range

By implementing the total cost to the mentioned table, we can ascertain the cost differences in a trade. The values are attained by finding a proportion between total cost and volatility value and are indicated as a percentage.

ECN Model Account

Spread = 35 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 35 + 8 = 48 

STP Model Account 

Spread = 40 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 40 + 0 = 45

The Ideal way to trade the CHF/HKD

Comprehending the above tables is important. The ratio to the total cost of trade is directly proportional to the value. It is seen that the rates are nearly high on the min section (less volatility) and the other way around. Now, the perfect chance to enter the market would be the point at which the volatility of CHF/HKD is somewhere between the average pip movement. Trading this pair during such minutes will guarantee low trading costs just as lower liquidity.

You can reduce the trading costs by placing orders using limit/pending orders instead of market orders. This will considerably reduce the total cost with slippage being zero. I hope this article will assist you in trading this pair in a much efficient way. Cheers!

Categories
Forex Fundamental Analysis

Why Understanding ‘Corruption Index’ Is Crucial In Determining Economy’s Health?

Introduction To Corruption Index

Introduction To Corruption Index

Introduction To Corruption Index

The corruption index is a score that is given to the government of a country, which indicates the degree of corruption in the country. The value is assigned from 0 to 100, with 0 indicating high levels of corruption and 100 indicating low levels. The score is given by Transparency International, an organization that tries to stop bribery and other forms of corruption activities in the country. Transparency international started ranking in 1995, and today it scores more than 176 countries and territories.

The Corruption Index focusses on the public sector and evaluates the degree of corruption among public officials and politicians. In highly corrupt countries, the judiciary’s quality and independence are usually low, and official statistics try to underestimate the level of corruption to hide the bitter truth. The international agencies are a valuable alternative source of information to report the extent of illegal practices being done by civil servants and politicians in a given country.

Impact of corruption on the economy  

Most economists view corruption as a key obstacle to economic growth. It is seen as one of the reasons for low income and plays a critical role in generating poverty traps. It prevents economic and legal systems from functioning properly. Other effects are a misallocation of talent or human development, reduction in the incentive to accumulate “capital.”

Corruption hampers development by allowing agents to interfere in the usual functioning of the government. Economists believe that corruption is like a competitive auction; those who want a service, use the power of money to get it, and the result is an inefficient allocation of resources. The resources get used by people who do not deserve or are not meant to use it.

Contrary to this idea, some people argue that corruption ‘greases’ the wheels of development and that foster growth. The main idea is that corruption facilitates beneficial trades that otherwise would not have taken place. In this way, it promotes productivity by allowing individuals in the private sector to correct or avoid government failures of various sorts.

Limitations of Corruption Index

The index has been criticized lately based on its methodology used for ranking countries. Political scientists find some flaws in the way the corruption index is calculated. These flaws include:

  • Corruption data is too complex to be captured by a single source. For example, the type of corruption in rural Michigan will be different from that in the city administration of Chicago, yet the index measures them in the same way.
  • It is seen that the corruption index is influenced by perception about it. It means it is not measured by considering its real value, where the index may be reinforcing existing stereotypes and clichés.
  • The index only measures public sector corruption and ignores the private sector. This means the well-publicized scandals such as the Libor scandal, or the VW emissions scandal were not included in the corrupt segment.

 Analyzing the data

Corruption index is an important economic indicator that most economists and money managers look at before making investments. In recent times, it is making a huge impact on the economic development of a country. Thus, we need to understand how the data is analyzed. By comparing the two countries’ rankings, one can determine which of the two economies is stronger and enjoying investor confidence.

While analyzing the data, it important to keep in mind that economies of the same stature should be compared. We cannot compare the ranking of a developed country with that of a developing country. This is because corruption has a much greater impact on the growth rates of developing countries.

Impact on currency

Public corruption in emerging countries, especially, contributes to currency crises and put a major dent in the development of the country. Corruption acts repel stable forms of foreign investment and leave countries dependent on foreign bank loans to finance growth. Foreign investors refuse to put their money in developing countries where, for example, local bureaucrats accept bribes, and the government has been known to fall prey to businesspersons and builders.

A corrupt government may be undesirable for foreign direct investment (FDI), but it may not be equally disadvantageous when it comes to obtaining loans from international creditors. This is because governments of most countries offer considerably more insurance and protections to lenders than to direct investors. The result is a country with high debts and no foreign investment. Such an imbalance leaves an economy much more vulnerable to currency crises.

Sources of information on Corruption Index

The Corruption Index is published annually by Transparency International since 1995, which ranks countries by their perceived levels of corruption in the public sector. Transparency International is the official agency that keeps track of the corruption activities and wrongdoing of the government, which is reflected in the rankings. However, other economic websites measure corruption based on their parameters and factors. They also provide a statistical comparison of different countries with a clear graphical representation.

GBP (Sterling) – https://tradingeconomics.com/united-kingdom/corruption-index

AUD – https://tradingeconomics.com/australia/corruption-index

USD – https://tradingeconomics.com/united-states/corruption-index

CAD – https://tradingeconomics.com/canada/corruption-index

NZD – https://tradingeconomics.com/new-zealand/corruption-index

JPY – https://tradingeconomics.com/japan/corruption-index

The corruption index is gaining a lot of attention and importance around the world. Corruption decreases the amount of wealth in a country and lowers the standard of living. The economic impact of corruption is measured in two ways, first, the direct impact on the GDP growth rate and, secondly, an indirect impact on human development and capital inflow. The new methodology used by Transparency International uses four basic steps, including the selection of data, rescaling source data, aggregating the rescaled data, and a statistical measure indicating the level of certainty. The data collection and calculations are done by two in-house researchers and academicians.

Impact of Corruption Index’s news release on the Forex market 

The Corruption Perception Index (CPI) scores countries on how corrupt a country’s public sector is perceived to be by experts and business executives. It is a composite index, which is a combination of 13 surveys and assessments. The data is collected and compiled by a variety of reputed institutions.

The CPI is the widely used indicator of corruption all over the world. The corruption index is closely watched by investors who take investment decisions based on the ranking. However, it has a long-term impact on the currency, and the effect may not be seen immediately after the official news release.

In this section of the article, we will observe the impact of the CPI announcement on different currency pairs and witness the change in volatility due to the news release. For that purpose, we have collected the CPI ranking of Japan, where the below image shows Japan’s corruption score and rank in 2019. A score above 50 indicates low corruption levels and that the country’s government is clean.

USD/JPY | Before the announcement

Let us start our analysis with the USD/JPY currency pair and analyze the reaction of the market. The above image shows the daily time frame chart of the forex pair before the news announcement, where we see that the market is moving in a ‘range’ with the price at the top of the range. We will look to take a ‘short’ trade once we get confirmation from the market.

USD/JPY | After the announcement

After the news announcement, volatility increases to the downside, and the price falls drastically. The market reacted positively to the news data, where we see that the Japanese Yen gains strength after the news release. As the corruption index score was positive, traders strengthened the currency, as indicated by the large bearish ‘news candle.

GBP/JPY | Before the announcement

GBP/JPY | After the announcement

The above images represent the GBP/JPY currency pair, where we see that before the announcement, the market is in a strong uptrend, and recently the market has shown signs of reversal. We should be looking to sell the currency pair if the market is not able to move higher. However, we should wait for the news release to get a clear idea of the direction of the market.

After the news announcement, the market reacts similarly as in the previous currency pair, where the price moves lower and volatility expands to the downside. As the CPI data came out to be positive, traders sold British Pound and bought Japanese Yen, thereby strengthening the currency. At this moment, one can take risk-free ‘short’ trade with a stop loss above the ‘news candle.’

AUD/JPY | Before the announcement

AUD/JPY | After the announcement

Lastly, we will find out the impact on the AUD/JPY currency pair. The first image shows the characteristic of the chart before the news announcement, where it appears that the price is moving in a channel. One needs to be cautious before taking a ‘short’ trade as the price is at the bottom of the channel.

After the news announcement, the market gets a little volatile where we see that the price moves in both directions and finally closes near the opening. The overall reaction was bullish for the currency due to the healthy CPI data. The ‘news candle’ is not enough to confirm that the market is going lower as it has lower wick on the bottom, indicating buying pressure.

We hope you understood what ‘Corruption Index’ is and the impact on the Forex market after its news announcement. Cheers!

Categories
Crypto Videos

Forex Expiry Options Review 12-06- 2020! Making Forex Easy!

https://youtu.be/_8fby-JH1bI

https://youtu.be/_8fby-JH1bI

 

FX Options Market Combined Volume Expiries. A weekly retrospective review for the financial week ending: 12, 06, 2020

Hello everybody, and thank you for joining us for the daily FX Options Market Combined Volume Expiries review for the trading week ending on Friday, 12th June 2020. Each week we will bring you a video taking a look back at the previous week’s FX option expiries and how they may have attributed to price action leading up to the maturities which happen at 10 AM Eastern Time, USA.

If it is your first time with us, the FX currency options market runs in tandem with the spot FX market, but where traders typically place Call and Put trades on the future value of a currency exchange rate and these futures contracts typically run from 1 day to weeks, or even months.

Each morning, from the FA website, our analyst, Kevin O’Sullivan, will bring you details of the notable FX Options Market Combined Volume Expiries, where they have an accumulative value of a minimum of $100M + and where quite often these institutional size expiries can act as a magnet for price action in the Spot FX arena leading up to the New York 10 AM cut, as the big institutional players hedge their positions accordingly.

Kevin also plots the expiration levels on to the relevant charts at the various expiry exchange rates and colour codes them in red, which would have a high degree of being reached, or orange which is still possible and where these are said to be in-play. He also labels other maturities in blue and where he deems it unlikely price action will be reached by 10 AM New York, and thus they should be considered ‘out of play.’ Kevin also adds some technical analysis to try and establish the likelihood of the option maturities being reached that day. These are known as strikes.
Please bear in mind that Kevin will not have factored in upcoming economic data releases, or policymaker speeches and that technical analysis may change in the hours leading up to the cut.
So let’s look at a few of last weeks option maturities to see if they affected price action.
Firstly, there were no notable options for Monday, 8th June.

So here is the early morning analysis for Tuesday as provided by Kevin on the USDJPY pair where there was an option maturing at 107.85 in 390M US Dollars.
I’ll quote you the text as provided by Kevin: USDJPY has found support at the level of the option maturity. However, the bear move was strong. Expect more downward pressure. The option expiry remains in-play.

 

Now, let’s roll on a few hours and to the candle, which closed at the 10 AM cut. The exchange rate at this time was 107.71. Just 14 pips below the strike. So we saw that the support held out, but the bears finally got their way and pushed through the support area. Prior to this, the 107.85 maturity had been acting as a magnet for price action.

Here is the analysis for the Euro USD pair, also on Tuesday, with a large maturity at 1.1300 for €802 M. Kevin mentioned that price action was in a sideways action and that at the time of writing it was fading and retesting the downside, but that it was oversold on the one hour chart and that there were important data out in the Eurozone area.


Now let’s fast forward a few hours. We can see an arrow above the candle, which took us up to 10 AM in New York cut. Subsequent to this price action pushed to a low of 1.1240, which was suggested by Kevin before rebounding. Price action was around the 1.1300 maturity one hour before the cut. However, momentum simply carried the pair up to the high of 1.1362. Traders who purchased a premium option for a Put would have been in the money as the price was above the maturity at the time of the cut.


On Wednesday we had two expiries on the Euro Usd pair, and Kevin’s analysis was based on the sideways price action of the pair on the one hour chart and also the fact that it needed to break above the resistance line and form a candle above it for a continuation up to the 1.1390 cut to be possible.


A few hours later, and this was the picture. Price did form a candle above the resistance line and moved to within two pips of the maturity, before falling lower.

Here, we can see that the price action at the maturity was 1.1366, just 24 pips away.


Let’s move forward to Thursday. Here we have the EURGBP pair, which was trading at 0.8959 at the time of the analysis where Kevin reposted the bull run was strong.

The pair continued to rally during the European session and hit 0.8990at the 10 AM Cut, just five pips away from the maturity.

 


On Friday the 12th, We had three option expiries for the EURO Usd pair.

 


The exchange rate at 10 AM New York was 1.1302, just eight pips below the 1.1310 option
expiration Kevin labeled in Red.


in fact price action remained elevated until the cut at which time the pair softened to a low of 1.1332


Lets now take a look at USD Japanese Yen; We have an option expiration at 107.35
Kevin suggested a dip in price action before a retracement to the maturity in his analysis.


There was indeed a slight pullback and then a continuation higher.


and here, we can see the exchange rate at maturity was 107.35, which was an official strike.

Please remember, Kevin’s technical analysis is based on exchange rates, which may be several hours earlier in the day and may not reflect price action at the time of the maturities.
We suggest you get into the habit of visiting the FA website each morning just after 8 AM BST and take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage.
Remember, the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.
For a detailed explanation of FX options and how they affect price action in the spot forex market, please follow the link to our educational video.

Categories
Forex Options

FX Options Market Combined Volume Expiries for 18th June 2020

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

……………………………………………………………………………………………………………………..

FX option expiries for June 18 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

– EUR/USD: EUR amounts

  • 1.1100 536m
  • 1.1245 640m
  • 1.1260 711m

EURUSD is overbought on the one hour chart. And the size of the candlesticks over the Asian session indicates that volume is thin. Potential for price action to retest the 1.1200 key level, however, the 1.1250 must be breached first. Key US data out later,

– USD/JPY: USD amounts         

  • 106.00 483m
  • 107.45 356m
  • 108.00 432m

USDJPY finally broke out of its tight consolidation range to the downside and is currently giving back some of that bear run. The options for today all remain out of play. Look out for the US data including Initial Claims later today as the impetus for the next move.

– AUD/USD: AUD amounts       

  •  0.6925 530m

AUDUSD is overbought on the one hour chart. The momentum for a retest of 0.70 to the upside has long run out of steam. A push lower seems likely leaving today’s option expiry out of play.

………………………………………………………………………………………………………………………..

As you can see on the charts we have also plotted the expiration levels at the various exchange rate maturities and we have also labelled in red, orange and blue. Therefore, if you see option expiry exchange rates labelled in red these should be considered in-play, because we believe there is a greater chance of the expiry maturing at these levels based on technical analysis at the time of writing. There is still a lesser possibility of a strike if they are in orange and so these are ‘in-play’ too. However, if we have labelled them in blue, they should be considered ‘not in-play’ and therefore price action would be unlikely to reach these levels, which are often referred to as Strikes, at the time of the 10 AM New York cut.

Our technical analysis is based on exchange rates which may be several hours earlier in the day and may not reflect price action at the time of the maturities. Also, we have not factored in economic data releases or keynote speeches by policymakers, or potential market volatility leading up to the cut.

Although we have added some technical analysis we suggest you take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage. Remember the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.

If you want to learn how forex option expiries affect price action in the spot FX market see our educational article by clicking here: https://bit.ly/2VR2Nji

DISCLAIMER: Please note that this information is for educational purposes. Also, the maturities will look more or less likely to become a strike at 10 AM NY time due to exchange rate fluctuations resulting in a different perspective with regard to technical analysis, and also due to upcoming economic data releases for the associated pairs.

Categories
Forex Market Analysis

Daily F.X. Analysis, June 18 – Top Trade Setups In Forex – BOE Rate Decision In Focus!

Let’s keep an eye on the U.K. Monitory Policy meeting, especially on the MPC members voting for the Asset Purchase facility. Overall, the bank isn’t expected to change it’s interest rate today. Besides, the U.S. Jobless Claims and Manufacturing Index will remain in focus.

Let’s keep an eye on the U.K. Monitory Policy meeting, especially on the MPC members voting for the Asset Purchase facility. Overall, the bank isn’t expected to change it’s interest rate today. Besides, the U.S. Jobless Claims and Manufacturing Index will remain in focus.

Let’s keep an eye on the U.K. Monitory Policy meeting, especially on the MPC members voting for the Asset Purchase facility. Overall, the bank isn’t expected to change it’s interest rate today. Besides, the U.S. Jobless Claims and Manufacturing Index will remain in focus.

Economic Events to Watch Today

 

 

EUR/USD – Daily Analysis

The EUR/USD prices were closed at 1.12425 after placing a high of 1.12938 and a low of 1.12068. Overall the movement of the EUR/USD pair remained bearish throughout the day. The EUR/USD pair extended its losses for the second consecutive day on Wednesday on the back of the risk-off market sentiment.

The escalating geopolitical tensions in the disputed border between India & China and North Korea and South Kore weighed on the risk-on market sentiment on Wednesday. The risk-off market sentiment was then bolstered by the fears of a fresh second wave of coronavirus after an increased number of infection cases from Beijing and some states of the United States.

To stop the virus from further spread and second wave to emerge, China ordered to impose strict restrictions in 29 communities of Beijing on Wednesday, and hence, risk sentiment dropped. Riskier currency Euro suffered and moved in a downward direction.

Meanwhile, the European Commission presented a “European Strategy” to accelerate the development, manufacturing, and deployment of vaccines against COVID-19. According to the European Commission, the pandemic’s permanent solution was an effective and safe vaccine development.

The announced European Strategy proposed a joint E.U. approach and was built on the mandate received from E.U. health ministers. The latest strategy gave some support to the falling Euro currency and kept a lid on any additional losses.

On the other hand, the chief of Eurogroup meeting, Mario Centeno on Wednesday, said that his decision to step down from his post had no specific political reason but was simply the end of the cycle. He claimed that his tenure was due to the period, and he just did not apply for a second chance. E.U. leaders are due to meet later this week to discuss the trillion-euro fund that will finance the European coronavirus recovery plan.

On the data front, the Consumer price index (CPI) for the year remained in line with the expectations of 0.1%, and the Final Core CPI from the Eurozone also came as expected 0.9% and had a null effect on Euro currency.

On the U.S. front, the Building permits remained flat with the expectations of 1.22M however, the Housing Starts in May were recorded as 0.97 M against the expected 1.1M and weighed on the U.S. dollar.

In his second testimony of Federal Reserve Chairman Jerome Powell, he stressed that Fed would use all of its tools to curb the damage caused by coronavirus pandemic. He also showed that no hike in interest rate was any near in the future. This decision helped the U.S. dollar to find demand in the market, and hence, the EUR/USD pair suffered more on the day.

Daily Support and Resistance

  • R3 1.1462
  • R2 1.1408
  • R1 1.1336

Pivot Point 1.1282

  • S1 1.1211
  • S2 1.1156
  • S3 1.1085

EUR/USD– Trading Tip

The EUR/USD pair is testing the double bottom support level at 1.1210 level in the 4-hour timeframe, and now it’s bouncing off towards 1.12730 level. Continuation of a bullish trend can extend bullish bias until the next resistance level of 1.1340. Elsewhere, a bearish breakout of 1.1210 can trigger selling until 1.1170. Let’s look for selling below 1.1298 and buying above the same level today. 

GBP/USD – Daily Analysis

The GBP/USD pair was closed at1.25548 after placing a high of 1.25885 and a low of 1.25106. Overall the movement of GBP/USD remained bearish throughout the day. The pair GBP/USD posted losses for the second consecutive day on Wednesday amid the sudden pick up in the U.S. dollar demand.

The greenback’s relative safe-haven status was continuously benefitted by the growing fears of the second wave of coronavirus and geopolitical tensions in Asia. However, the bearish trend for the GBP/USD pair remained under stress due to the latest optimism related to the Brexit progress.

The market expectations of no-deal Brexit have faded away after the U.K. & E.U. agreed to intensify post –Brexit talks. Besides, UK PM Boris Johnson said that the end of July could reach an outline of a deal. This helped to limit the additional losses in the GBP/USD pair.

Investors are keenly awaiting the update from Bank of England, which will hold its monetary policy meeting on Thursday. Although the moves from BoE in upcoming monetary policy meeting are highly anticipated, market participants still await the monetary policy update.

On the data front, the CPI from the U.K. at 11:00 GMT was released, which showed that during May, CPI remained as expected to be 0.5%. The Core CPI from the U.K. dropped to 1.2% from the expected 1.3% and weighed n GBP.

The P.I. Input for May also dropped to 0.3% against the expected 4.1% and weighed on British Pound. The PPI Output for May reached -0.3% from the anticipated 0.0% and weighed on British Pound. At 11:02 GMT, the RPI for the year in May decreased to 1.0%from the forecasted 1.2% and weighed on GBP. Poor than expected economic data dragged the pair near 1.2500 level on Wednesday. In the meantime, risk-off market sentiment also weighed on GBP/USD risky currency pair.

Daily Support and Resistance

  • R3 1.2794
  • R2 1.2741
  • R1 1.2659

Pivot Point 1.2606

  • S1 1.2524
  • S2 1.2471
  • S3 1.2388

GBP/USD– Trading Tip

On Thursday, the GBP/USD is trading at a level of 1.2580, holding right above a next support level of 1.2550. Continuation of a bullish trend requires the cable to break above 1.2585 level first. The 50 periods EMA is weighting on Sterlin gat 1.2585 level while the RSI and MACD are holding in the bearish zone. Although they are very close to crossover into the bullish zone, so we should wait for a bullish breakout before taking a buy trades. By the way, a bullish breakout of 1.2585 level can extend to buying until the next target level of the level of 1.2685, while bearish breakout of 1.2545 level can lead Sterling to be lower towards 1.2475. 

USD/JPY – Daily Analysis

The USD/JPY pair was closed at 107.004 after placing a high of 107.439 and a low of 106.950. Overall the movement of the USD/JPY pair remained bearish throughout the day. After moving in a consolidation phase for the previous two days, the USD/JPY pair finally found a trend to follow on Wednesday and dropped below 107.06 level. The bearish trend of USD/JPY was because of the risk-off market sentiment.

At 4:50 GMT, the Trade Balance of Japan for May showed a deficit of 0.6T against the expected 0.68T and supported the Japanese Yen. The strength of the Japanese Yen dragged the pair USD/JPY lower on Wednesday.

The downward trend was then supported by the U.S. economic docket, which released negative or flat results. At 17:30 GMT, the Building permits for May from the U.S. came flat with the expectations of 1.22M. The Housing Starts in May dropped to 0.97Mfrom the expected 1.10M and weighed on the U.S. dollar.

The decreased housing starts weighed on the U.S. dollar and dragged the USD/JPY prices further. In his second round of testimony to Congress, the Fed Chair, Jerome Powell, told the lawmakers that the U.S. economy was beginning to recover from the worst of coronavirus crisis. He added that to provide support to 25M jobless Americans with ongoing pandemic will need more help.

He said that with interest rates remain near zero for an extended period, the U.S. central bank would have to continue to buy bonds to make the longer-term borrowing cost lower. Powell also said for Congress to extend in some form the extra $600 weekly payments to the unemployed people that were the part of the relief package which was passed in March and will expire in July.

Congress has already allocated 3T USD for coronavirus related economic aid, and the U.S. central bank has also pumped trillions of dollars of credit into the economy to support the economy through the pandemic crisis.

On the other hand, the rising geopolitical tensions in Asia between India and China over their disputed border. The site left 20 Indian soldiers dead in a fistfight and an unspecific number of Chinese casualties.

Meanwhile, the tensions between North Kore and South Korea also escalated after North Korea blew up the de facto embassy of South Korea near both nation’s highly armed border on Tuesday and threatened to send troops. These geopolitical tensions faded away from the market’s risk sentiment, which weighed on USD/JPY, and the pair posted losses on Wednesday.

The risk-off market sentiment was further bolstered by the recent lockdown measures imposed in 29 communities of Beijing to control the increasing number of virus cases. Meanwhile, the Fed Chairman Jerome Powell presented a gloomy outlook for a road to recovery of the U.S. economy and faded away from the optimism of V-shaped global economic recovery, which also weighed on USD/JPY pair.

Daily Support and Resistance    

  • R3 108
  • R2 107.82
  • R1 107.57

Pivot Point 107.39

  • S1 107.14
  • S2 106.96
  • S3 106.71

USD/JPY – Trading Tips

The USD/JPY pair is trading at 106.914 level as it continues trading sideways in a wide trading range of 107.620 – 106.630. It failed to break above an immediate resistance level of 107.580. This level is working as resistance for USD/JPY, and the 50 periods EMA is also prolonging strong resistance at 107.580 zones while immediate support lingers nearby 106.600. The USDJPY bearish trend can trigger a sell-off unto the next support level of the 106.017 level today. Let’s wait for the USD/JPY to test the 107.650 level before entering a sell in the USD/JPY. 

Good luck! 

Categories
Forex Course

127. Getting started with ‘Divergence Trading’

Introduction

Introduction

Introduction

There are several types of technical traders in the forex industry. Some trade based on price action while some trade using indicators. Price action traders typically do not use any indicator, but the Divergence is an exception to it. Divergence is an indicator concept that can yield immense risk to reward if used correctly. It is a powerful tool that helps traders catch the absolute peak and trough of the market.

What is Divergence?

Generally, the meaning of Divergence is to move apart. And the meaning of trading is no different. In forex, Divergence is a scenario when the price charts do not agree with the movement of the indicator. In a sense, if the price moves in one direction, the indicator moves in the other direction.

Formation of Divergence

Divergence can be found by comparing the price action on the charts with an oscillator indicator. Typically, Divergence is formed in trending markets. That is, they occur in markets that move making higher highs and or lower lows.

Consider a market a market making higher highs and higher lows. The job of an oscillator indicator is to follow the price action. Thus, the indicator should also follow an upward trajectory. But, if the charts make higher highs and the indicator makes an equal or higher low, then we conclude that there is a divergence in the market.

Significance of Divergence

Divergence is used to signify that there is something not right in the market and the uptrend. In an uptrend, for instance, the market breaks above the recent resistance (high), makes a new high, retraces to the Support & Resistance level, and continues the same cycle. But when the market makes a higher high with Divergence, there is a high possibility that the market might not hold at the S&R level. The market could reverse or might drop slightly below the S&R and then continue the uptrend.

Indicators used to Identify Divergence

Divergences can be identified using oscillator indicators. An oscillator, going by the name, moves between two levels – overbought and oversold. Typically, a level above 70-80 is considered overbought, and a level below 20-30 indicates an oversold market.

Following are the most commonly used indicators to identify Divergence

  1. Relative Strength Index (RSI)
  2. Stochastic Indicator
  3. Moving Average Convergence Divergence (MACD)

Types of Divergence

Based on the direction of the market, there are two types of Divergence:

Regular Divergence

This is the most used type of Divergence and very easy to spot. They are found at the top or bottom of a trend and are used to give a reversal signal. Regular Divergence can again be split into two types: Bullish Divergence | Bearish Divergence.

Hidden Divergence

Hidden divergences are relatively trickier to spot. Converse to regular Divergence, hidden Divergence is used for a trend continuation indication. They are typically found in the middle of a trend. Hidden divergences, too, can be divided into two types: Hidden Bullish divergence | Hidden Bearish Divergence.

That’s about the introduction to divergences. In the next lesson, we shall elaborate on each of the divergence types.

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Categories
Forex Daily Topic Forex Trading Strategies

Principles of Trading Strategies

Introduction

Introduction

Introduction

A trading strategy is a systematic methodology of investment that can be applied in any financial market, for example, bonds, stocks, futures, commodities, forex, and so on. In this context, a profitable trading strategy is more than a system that provides an entry signal on the long or short side with a stop-loss and a profit target.

Big traders make money to take their investment decisions systematically, reducing their risk with the diversification of the assets that make up their portfolio.

In this educational article, we’ll present a set of elements that can be part of a trading strategy.

The Elements of a Trading Strategy

A systematic trading strategy should be tested and validated with historical data, and its execution in the real-market should be done with the same accuracy as when using paper money.

The strategy should provide a setups series that allow us to recognize where to locate the market entry and in which direction. Finally, the trading strategy should allow market positioning in the long and short sides. This positioning should require identifiable stop-loss and profit target levels.

In particular, in this article, we’ll present the use of Fibonacci, candlesticks formations, chart patterns, trend lines, and trend channels.

Fibonacci Analysis

Likely, Fibonacci retracements and extensions are the most used tools in the world of retail and institutional trading. The Fibonacci series has its origin from the mathematical problem of the rabbits’ population solved by Leonardo da Pisa “Fibonacci” in his work “Liber Abaci” published in 1202.

The sequence discovered by Fibonacci not only can be applied in the rabbits’ population growth, but this series also solves other growth problems in nature and also on the financial markets.

Fibonacci and Corrections

One application of the Fibonacci tools in financial markets is the measurement of a retracement size that an impulsive wave may experience in its corrective move.

The rationale of this strategy considers that when the initial impulsive movement ends and following the subsequent corrective move, the market will develop a second impulsive move in the same direction of the first move.

The selection of the asset is linked to the timeframe under analysis; for example, the structure developed in a weekly chart will require more time than an hourly chart formation.

The following figure illustrates two potential entry setups using the Fibonacci retracement tool. The first scenario considers a retracement of 38.2% of the first move. The second scenario will occur when the price experiences a retracement of 61.8% from the top of the first impulse. 

The stop-loss will be placed at the origin of the previous impulsive movement.

Setting Targets with Fibonacci Extensions

Prices extensions are movements that resume the progress of a previous trend. Generally, the extensions occur in the third wave, and the correction corresponding to the second wave does not move beyond the origin of the first impulsive movement. The next figure exposes the extension of a regular three-wave pattern. Consider that the wave identification does not correspond to an Elliott wave labeling.

The analytic process follows the next steps:

  1. After an impulsive move, the price action must develop a minimum retracement of the first move.
  2. The size of the swing must be multiplied by the Fibonacci ratio of 1.618.
  3. The resulting level will correspond to the price target of the third wave.

The analysis in a five-wave pattern is similar to the three-wave case. The difference in this pattern is the seek the length of an additional impulsive move.

The five-wave pattern includes three impulsive movements and two corrective moves. The following figure illustrates the Fibonacci measures of this formation.

The Phi-Ellipse

The Phi-Ellipse is a countertrend trading method based on the oscillation of price with time. Its goal is to reduce the noise of falses breakouts and increase the stability of the investment strategy. The drawing process of a Phi-Ellipse requires to identify three points, as shown in the next figure.

After identifying the points A, B, and C, in a regular three-wave pattern, there should place the Phi-Ellipse in these points. We should expect a new impulsive move as the first impulse. There are three ways to trade against the trend at the end of the Phi-Ellipse, which are:

  1. Enter in a position when the price breaks outside the perimeter of the Phi-Ellipse.
  2. Entry based on a chart pattern at the end of the Phi-Ellipse.
  3. Place an order when the price action when the price moves outside a parallel line to the median line of the Phi-Ellipse.
  4. A buy position is recommended at the end of the Phi-Ellipse when it has a descending slope, and a sell position is recommended when the Phi-Ellipse has an upward slope.

Conclusions

In this educational article, we discussed the elements that should contain a trading strategy. The application of a systematic trading strategy or a combination with a strategy across time in a diversified portfolio could help the investor reduce the risk in its investment decisions.

On the other hand, the strategy’s analysis methodology should provide entry-setups for both long and short-side positions. In this context, in this article, we presented the use of Fibonacci retracements and extensions to offer entry setups inlcuding its stop loss and profit target level. Finally, we introduced the Phi-Ellipse method, which allows the investor to reduce the risk of falses breakouts in its investment portfolio.

In the next educational article, we will review the use of candlesticks formations, chart patterns, trend lines, and trend channels.

Suggested Readings

– Fischer, R., Fischer J.; Candlesticks, Fibonacci, and Chart Patterns Trading Tools; John Wiley & Sons; 1st Edition (2003).

Categories
Forex Course

126. Trading Harmonic Patterns – Detailed Summary

Introduction 

Introduction 

Introduction 

We have discussed all the major Harmonic trading patterns in our previous course lessons. The purpose of this article is to provide a comprehensive summary so that it will easy to navigate for you. Although you have a fair idea on how to trade these patterns, it is essential to practice them over and again to master them. From our personal experience, we can say that Harmonic patterns are THE most difficult patters to trade, and there are many reasons for it.

One of the critical reasons why it is so difficult to trade these patterns is because of its lack of appearance on the price charts. That is, we hardly be able to see these Harmonic patterns forming in any of the currency pairs. Having said that, once we identify and trade them correctly, we can easily make a massive sum of profits when compared to trading other Forex patterns. Hence, as a technical Forex market analyst, you must be able to identify and trade these patterns with the utmost accuracy.

In our previous course lessons, we have mentioned detailed ways to identify these patterns on the price charts using Fibonacci levels. Each of the pattern legs needs to respect specific Fibonacci extensions and retracement levels in order to confirm their formation. So make sure to take the help of these Fib ratios for easy identification. As always, keep practicing the trading of these patterns in a demo account until you master them.

Below are the links for the course lessons related to the Harmonic Patterns.

Introduction To Harmonic Pattern – Link

Trading The AB=CD Pattern – Link | Extended Trading Strategy – Link

Trading The Crab Pattern – Link | Extended Trading Strategy – Link

Trading The Butterfly Pattern – Link | Extended Trading Strategy – Link

Trading The Bat Pattern – Link | Extended Trading Strategy – Link

Trading The Gartley Pattern – Link | Extended Trading Strategy – Link

The only thing that is crucial while trading or identifying these patterns is to be patient. As you all are aware by now, it takes a lot of time for a Harmonic pattern to form. There will be many cases where three legs of the pattern will be formed accurately, but the final leg rules won’t be met, and as a result, the entire pattern gets invalidated. Don’t be disappointed or impatient at that point. After all, trading is a game of skill and patience; the more patient you are, the better results you will see. All the best!

Categories
Forex Fundamental Analysis

Ease of Doing Business – Comprehending This Macro-Economic Indicator

What is the ‘Ease of Doing Business Index?’

What is the ‘Ease of Doing Business Index?’

What is the ‘Ease of Doing Business Index?’

The ease of doing business index was created jointly by two leading economists, namely Simeon Djankov and Gerhard Pohl from the Central and Eastern sector of the World Bank Group. It is an aggregate number that includes different parameters that define the ease of doing business in a country. The ease of doing business (EODB) measures the country’s position in offering the best regulatory practices. Though the World Bank started publishing the reports in 2003, the ranking only started only in 2006.

The EODB study captures the experience of small and medium-sized companies in a country with their regulators and the relationship with their customers, by measuring time, costs, and red tape they deal with. The goal of the World Bank is to provide an objective basis for understanding and to improve the regulatory environment for businesses worldwide.

Methodology

The survey consists of a questionnaire made by a team of experts with the assistance of academic advisors. The questionnaire consists of feedback on business cases that cover topics such as business location, size, and nature of its operations. This survey’s motive is to collect information that is affecting their business and not to measure conditions such as the nation’s proximity to large markets, quality of infrastructure, interest rates, and inflation.

The next step of the data-gathering process involves over 12,500 expert contributors such as lawyers and accountants from 190 countries in the survey to interact with the Doing Business team in conference calls, written reviews, and visits by the global team. Respondents fill out the surveys and provide information relevant to laws, regulations, and different fees charged.

A nation’s ranking is decided after assessing the following factors:

  • Starting a business – idea, time, procedure, and capital required to open a new business
  • Construction permits – permissions, land, and cost to build a warehouse
  • Electricity access – procedure, time and cost needed to obtain an electricity connection from the electricity board
  • Property registration- procedure, time, and cost required to register the warehouse with the local government body
  • Getting credit and loan – the process involved in getting credit from banks, and depth of credit information index
  • Investor protection – the extent of disclosure, liability, and ease of shareholder suits
  • Payment of taxes – tax filing process, preparation of tax filing and number of taxes paid
  • Cross border trading – number of documents required, and cost for import and export
  • Enforcing contracts – procedure, time, and cost to impose debt contract
  • Insolvency process – time, cost and recovery rate under a bankruptcy proceeding

Based on the score obtained in the above sub-indices, a country is assigned a rank in the ease of doing business index. The ease of doing business report is a complete assessment of competitiveness or the business environment. Still, rather it should be considered as a proxy of the regulatory framework faced by the private sector before starting a new business.

The Economic Reports

The ease of doing business reports is an annual report published by a team led by Djankov in 2003. The report is then elaborated by the World Bank Group that basically measures the costs firm is incurring for business operations. The World Bank report is, in fact, an important knowledgeable product in the field of private sector development. It has also motivated the design of various regulatory reforms in developing countries. The study presents a detailed study of costs, time, and procedures that a private firm is subject to before opening the company. This then creates rankings for a country.

Impact on Currency

The Doing Business report is used by policymakers, politicians and development experts, journalists, and, most importantly, the fund managers to understand the easiness of starting a business in the country. More companies mean more jobs, and more jobs mean faster development. Growth in the economy is directly related to the companies’ performance and the opening of new businesses. Therefore, when regulations are eased for starting a business, it contributes to the GDP of the country longer and increases the value of the currency in the international market.

Sources of information on Ease of Doing Business 

The ease of doing business report is one of the most sought reports in the finance industry, so many financial institutions and economic websites give mention ranking of a country after collecting the data from official sources. However, the data published by the World Bank is the most reliable and factual.

Sources

GBP (Sterling) – https://tradingeconomics.com/united-kingdom/ease-of-doing-business

AUD – https://tradingeconomics.com/australia/ease-of-doing-business

USD – https://tradingeconomics.com/united-states/ease-of-doing-business

CAD – https://tradingeconomics.com/canada/ease-of-doing-business

CHF – https://tradingeconomics.com/switzerland/ease-of-doing-business

JPY – https://tradingeconomics.com/japan/ease-of-doing-business

NZD – https://tradingeconomics.com/new-zealand/ease-of-doing-business

Ease of Doing Business report is one of the most discussed issues around the world. The report that is issued by the World Bank gets a lot of attention from the government around the world. For country authorities, it sheds light on regulatory aspects of their business climate. For business representatives, it helps initiate debates and dialogue about reform.

The private sector creates pressure on the respective government to ensure required reforms to indirectly improve the country’s rank in the EODB index. Investors take the decision of investment in a country based on the ranking of that country in the ease of doing business report. From the World Bank’s point of view, it demonstrates an unconditional ability to provide knowledge and resource information. This exercise by the World Bank generates information that is useful and relevant.

Impact due to news release

In the previous section of the article, we understood the definition of ‘Ease of Doing Business’ and the methodology used for ranking a country. Now we will extend our discussion in identifying the impact of the news announcement on the value of a currency. Many case studies tell correlation exists between ease of doing business and FDI flows.

One study finds that judicial independence and labor market flexibility are significantly associated with FDI flows. The number of procedures required to start a business and strength of the arbitration regime both have a significant and robust effect on FDI. Due to these reasons, foreign investors always invest in an economy where business activities can be carried out without any obstructions.

In today’s lesson, we will analyze the impact of ‘Ease of Doing Business’ on different currencies and analyze the change in volatility due to its news release. The below image is a graphical representation of Switzerland’s rank in 2018 and 2019. We see that the country had shown improvement in it’s ranking by two places. Let us find out the reaction of the market to this announcement.

USD/CHF | Before the announcement

Let us start with the USD/CHF currency pair to analyze the impact of the ‘Ease of Doing Business’ announcement. The above image is the daily time frame chart of the currency pair, where we can see that the pair is moving within a ‘range.’ Presently, the price is at a resistance area, which means sellers can push the price lower anytime soon. Therefore, we should be cautious before taking a ‘buy’ trade in this pair.

USD/CHF | After the announcement

After the news announcement, a slight amount of volatility is witnessed, which takes the price higher that results in the formation of a bullish ‘news candle.’ Since the Swiss Franc is on the left-hand side of the pair, a bullish candle indicates bearishness for the currency, and that is becoming weak. We can say that the news announcement a slight negative on the currency.

CAD/CHF | Before the announcement

CAD/CHF | After the announcement

The above images represent the CAD/CHF currency pair, where it appears that the market is moving in a channel before the news announcement. We should be looking to sell the currency pair as the price is at the top of the channel. However, the news announcement shall give us a clear direction of the market. We will not be taking any position before the news release as the news release has a moderate to high impact on the currency pair.

After the news announcement, the price moves a little higher and closes with some amount of bullishness. As the ‘ease of doing business’ was not so encouraging for the economy, traders went ‘short’ in Swiss Franc right after the news release. However, the effect does not last long, and the market collapses a couple of days later.

CHF/JPY | Before the announcement

CHF/JPY | After the announcement

The above images are that of the CHF/JPY currency pair, where we see a strong move to the upside before the news announcement, and currently, the price is at the resistance turned support area. There is a high chance of buyers becoming active at this point; hence, sell trades should be avoided.

After the news announcement, we witness some volatility in the market that takes the price lower but not by a lot. The impact was not great on this currency pair as the country slipped below by two places in the ‘ease of doing business’ ranking. When the impact of news settles down, one should start analyzing the pair technically and take the position accordingly.

That’s about the ‘Ease of Doing Business’ as an economic indicator and its relative impact on the Foreign Exchange market. Cheers!

Categories
Forex Signals

Gold: Moving South Below the 50-Period SMA

XAUUSD had a bounce off its lows that began on Jun 15 at 13:00 the bounce re3ached the $1730 level and began to move sideways, making lower lows. The last interaction made an evening star with a large bearish candlestick. We think this is a good short setup to scalp with a target at the current 200-hour SMA for a nice and fast reward. The R/r factor is just 1 but the odds of the pair going south are very high, which makes the trade appealing. We see also that the Stochastics made a crossover to near the middle of the range, suggesting an increased bearish momentum.

XAUUSD had a bounce off its lows that began on Jun 15 at 13:00 the bounce re3ached the $1730 level and began to move sideways, making lower lows. The last interaction made an evening star with a large bearish candlestick. We think this is a good short setup to scalp with a target at the current 200-hour SMA for a nice and fast reward. The R/r factor is just 1 but the odds of the pair going south are very high, which makes the trade appealing. We see also that the Stochastics made a crossover to near the middle of the range, suggesting an increased bearish momentum.

XAUUSD had a bounce off its lows that began on Jun 15 at 13:00 the bounce re3ached the $1730 level and began to move sideways, making lower lows. The last interaction made an evening star with a large bearish candlestick. We think this is a good short setup to scalp with a target at the current 200-hour SMA for a nice and fast reward. The R/r factor is just 1 but the odds of the pair going south are very high, which makes the trade appealing. We see also that the Stochastics made a crossover to near the middle of the range, suggesting an increased bearish momentum.

Trade Setup:

Entry: 1,724.64

Stop-loss: 1,734.64

Take profit: 1,714.64

Reward/Risk: 1

Risk: 100 pips which is $1000 per XAUUSD Lot, or $10 on a micro-lot. The reward is identical as the R/r =1

 

 

 

 

Categories
Forex Market Analysis

Daily F.X. Analysis, June 17 – Top Trade Setups In Forex – FED Chair Testimony In Focus! 

On the news side, the CPI figures from the U.K. and Canada will be in focus. These may impact the GBP and Canadian related pairs today. Besides, a major focus will remain on the Fed Chair Powell Testimony, while he isn’t expected to do any change with an interest rate, but the recent series of positive data can make dollar bullish.

On the news side, the CPI figures from the U.K. and Canada will be in focus. These may impact the GBP and Canadian related pairs today. Besides, a major focus will remain on the Fed Chair Powell Testimony, while he isn’t expected to do any change with an interest rate, but the recent series of positive data can make dollar bullish.

On the news side, the CPI figures from the U.K. and Canada will be in focus. These may impact the GBP and Canadian related pairs today. Besides, a major focus will remain on the Fed Chair Powell Testimony, while he isn’t expected to do any change with an interest rate, but the recent series of positive data can make dollar bullish.

Economic Events to Watch Today

 

   

EUR/USD – Daily Analysis

The EUR/USD closed at 1.12637 after placing a high of 1.13532 and a low of 1.12276. Overall the movement of the EUR/USD remained bearish throughout the day. After touching a daily high of 1.1353 during the European trading hours, the EUR/USD pair reversed its run in the second half of the day and ended its day with losses. The pair moved into a consolidation phase after dropping 100 pips on Tuesday and posted a daily low below 1.1228.

Furthermore, the rising Treasury bond yields during the American session gave strength to the U.S. dollar after the release of U.S. economic data. The Dollar Index also rose along with the Wall Street Journal. The main indexes if WSJ opened a sharp higher and made the market move higher.

From the European side, at 10:59 GMT, the German Wholesale Price Index (WPI) showed a decline of 0.6%against the expected decline of 1.0% and supported Euro. At 11:00 GMT, the German Final CPI came in line with the expectations of -0.1% in May.

At 14:00 GMT, the ZEW Economic Sentiment index also rose to 58.6 from the expected 53.4 and supported Euro. The German ZEW Economic Sentiment also surged to 63.4 from the expected 60.0. During European trading hours, EUR/USD surged above 1.1353 level due to better than expected macroeconomic data release.

Meanwhile, the U.S. economic docket released the U.S. Retail Sales data for May on Tuesday, showing that the Retail Sales in May increased by 17.7% against the expected 5.5% and supported the U.S. dollar. The stronger U.S. dollar dragged the pair EUR/USD towards its daily lows. The U.S. Dollar Index rose by 0.4% on the day near 97.01, and the 10-year U.S. Treasury bond earned around 3.7% near 0.75%.

After the release of U.S. economic data, the EUR/USD pair started to follow and then remained depressive throughout the day. Jerome Powell, the Chairman of Federal Reserve, commented on the data and said that the Sales figure showed an increase in demand. However, Powell stressed that full economic recovery was uncertain until the public had confidence that the COVID-19 pandemic had controlled.

On Wednesday, European traders will look forward to the release of the Consumer Price Index from Europe, and later in the day, Powell’s testimony will continue for the second day of the semi-annual monetary policy report.

Daily Support and Resistance

  • R3 1.1462
  • R2 1.1408
  • R1 1.1336

Pivot Point 1.1282

  • S1 1.1211
  • S2 1.1156
  • S3 1.1085

EUR/USD– Trading Tip

The EUR/USD is trading at 1.1340, having violated the double top resistance level of 1.1280 level. The extension of a bullish trend can lead the EUR/USD prices further higher until the next target level of 1.1330 level. The MACD and RSI are suggesting bullish bias in the pair, and this bullish bias can help traders to capture a quick buy trade over 1.1270 level today until the next target level of 1.1380, only if 1.1330 gets violated. While support stays at 1.1280 and below this, the next support will stay around 1.1267. 

GBP/USD – Daily Analysis

The GBP/USD closed at 1.25722 after placing a high of 1.26873 and a low of 1.25524. Overall the movement of GBP/USD pair remained bearish. The pair in its earlier trading hours on Tuesday moved higher and followed the previous day’s trend and surged to 1.26800 level on the fresh hopes about Brexit negotiations. However, the gains were changed into losses after the concerns related to the second wave of coronavirus infections rose and strengthened the safe-haven U.S. dollar against its main rivals like GBP.

The pair rose on Monday and earlier Tuesday after the optimism surrounding Brexit talks emerged. The U.K. & E.U. committed to approaching the next meeting with new energy and aimed to avoid an unorderly exit from the bloc in December. The Unemployment Rate from the U.K. supported the surge in GBP on Tuesday. The unemployment rate in the U.K. during April decreased from 4.7%of expectations to 3.9% and supported Pound.

However, the pair GBP/USD started to move in the opposite direction after the release of Claimant Count Change that was closely watched by the investors on Tuesday. In May, 528.9K jobless benefits claims made in Great Britain against the expected 405.3K that depressed the GBP and dragged the pair GB/USD with itself.

The U.S. dollar also remained stronger across the board due to multiple factors. One included the better than expected U.S. economic data release included Retail Sales. The Retail Sales in May increased to 17.7% from the expected 5.5% and supported the U.S. dollar.

The strength of the U.S. dollar further dragged the currency pair. The GBP/USD down that day. The fresh concerns about the second wave of coronavirus in China led towards the renewed emergency lockdown after the increasing number of coronavirus cases in Beijing was another reason behind the strength of the safe-haven U.S. dollar on Tuesday was 

The downfall of the GBP/USD pair could also be attributed to the political front where no news came out of the recent round of talks between PM Boris Johnson and E.U. commission.

Later in the week, the Bank of England rate decision will also release in which another massive increase in quantitative easing is expected. There are chances of some talks about negative interest rates by Governor Bailey, given the upside-down condition of the market.

Daily Support and Resistance

  • R3 1.2794
  • R2 1.2741
  • R1 1.2659

Pivot Point 1.2606

  • S1 1.2524
  • S2 1.2471
  • S3 1.2388

GBP/USD– Trading Tip

The GBP/USD is trading at a level of 1.2580, holding right above a next support level of 1.2550. Continuation of a bullish trend requires the cable to break above 1.2585 level first. The 50 periods EMA is weighting on Sterlin gat 1.2585 level while the RSI and MACD are holding in the bearish zone. Although they are very close to crossover into the bullish zone, so we should wait for a bullish breakout before taking a buy trades. By the way, a bullish breakout of 1.2585 level can extend to buying until the next target level of the level of 1.2685, while bearish breakout of 1.2545 level can lead Sterling to be lower towards 1.2475. 

USD/JPY – Daily Analysis

The USD/JPY pair was closed at 107.314 after placing a high of 107.639 and a low of 107.210. Overall the movement of the USD/JPY pair remained flat throughout the day. The USD/JPY pair remained range bound and did not give any specific movement on Tuesday as the market mood was mixed due to mixed fundamentals.

The Bank of Japan kept its monetary policy steady on Tuesday and signaled that it had taken enough steps in support of economic growth. BoJ has stuck with its view that the economy will gradually recover from the pandemic. BoJ, in its monetary policy meeting, increased the nominal size of its lending packages for cash strapped firms to $1 trillion from about $700 billion announced last month.

The increased lending program from Japan added strength to the Japanese Yen and dragged the pair USD/JPY on Tuesday. While the Chairman of Federal Reserve Jerome Powell warned on Tuesday that the U.S. economy was facing a deep downturn with significant uncertainty about the time and strength of a recovery. He was worried that the longer the recession would last, the worse the damage would be on the job market and businesses.

Powell, in his testimony to Congress, stresses that the Fed was committed to using its all financial tools to lessen the economic damage from the coronavirus crisis. But he was concerned and said that until the public was satisfied that the virus has been contained, the chances for a full recovery were unlikely. He also warned that a downturn for a longer period could impose severe damage, especially to low-income workers who already have been hit hardest.

Daily Support and Resistance    

  • R3 108
  • R2 107.82
  • R1 107.57

Pivot Point 107.39

  • S1 107.14
  • S2 106.96
  • S3 106.71

USD/JPY – Trading Tips

On Wednesday, the USD/JPY continues to follow previously discussed technical levels. The Japanese pair is trading sideways as it failed to break above an immediate resistance level of 107.580. This level is working as resistance for USD/JPY, and the 50 periods EMA is also prolonging strong resistance at 107.580 zones while immediate support lingers nearby 106.600. The bearish trend in the USD/JPY pair can trigger a sell-off unto the next support level of the 106.017 level today. Let’s wait for the USD/JPY to test the 107.650 level before entering a sell in the USD/JPY. 

Good luck! 

Categories
Forex Price Action

Mark Significant Levels and Watch out Price Action around Them

In today’s lesson, we are going to demonstrate an example of the H4-H1 chart combination trading where the breakout takes place, but the traders have to be sensible to spot out the breakout. Let us get started.

In today’s lesson, we are going to demonstrate an example of the H4-H1 chart combination trading where the breakout takes place, but the traders have to be sensible to spot out the breakout. Let us get started.

In today’s lesson, we are going to demonstrate an example of the H4-H1 chart combination trading where the breakout takes place, but the traders have to be sensible to spot out the breakout. Let us get started.

This is an H4 chart. The chart shows that the price heads towards the North upon having its second bounce at the level of support. Look at the last candle. The candle comes out as a bullish engulfing candle since it closes well above the body of the last candle. Can you spot something out here?

The candle closes well above the level where the price had a rejection earlier. The price reacted around the same level before producing the last candle. If we draw a level by using the significant level, which has been working as the level of resistance, we see that the last candle breaches the level. This means the piercing may be considered a breakout. Let us now flip over to the H1 chart.

This is how the H1 chart looks. The chart shows that the last candle comes out as a Spinning Top. The H4-H1 buyers are to wait for the price to consolidate and to get a bullish reversal candle to go long in the pair. Let us wait and see what the price does.

The chart produces a bearish engulfing candle closing within the breakout level. Look at the last candle. The last candle came out as a long bullish engulfing candle. The buyers may get huge confidence about the earlier H4 breakout and trigger a long entry right after the last candle closes. Let us now find out how the entry goes.

The price heads towards the North with good bullish momentum. The last candle comes out as a bearish Inside Bar. This action suggests that the Bull may continue its run. It is a bearish reversal candle (the weakest one). Thus, the buyers may consider closing their entry. In the end, this comes out as an excellent trade setup.

If we concentrate on the breakout, it is to be found out by the traders. Without drawing the horizontal line, it would be difficult to found that out. Thus, mark the points that are significant and keep looking at our charts. It would help you find out breakout and make the trading decision easily. Some breakouts may not seem like a breakout without drawing lines on the chart. Thus, pick your drawing tool to mark significant levels with horizontal lines/trend lines/channels on your trading chart and watch out how the price reacts around them.

Categories
Forex Options

FX Options Market Combined Volume Expiries for 17th June 2020

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

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FX option expiries for June 17 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

– EUR/USD: EUR amounts

  • 1.1300 825m
  • 1.1325 862m

EURUSD is stuck in a range between 1.1220 and 1.1400 during June. Overnight saw the pair consolidate in a tight range at section A, and it is currently breaking out of that range and moving higher, although overbought n the one hour chart. Both option maturities are in play. Watch out for Eurozone and US data before the cut.

– USD/JPY: USD amounts         

  • 107.25 1.1bn
  • 107.50 363m

USDJPY pair is in a consolidation phase which has spilled over from yesterday. Both options remain in play with a small bias towards the 107.50 maturity. US data out later may help the pair find impetus for a break from the tight range.

– USD/CAD: USD amounts

  • 1.3500 780m

USDCAD has flirted with the key 1.3500 exchange rate but not punched through for over a week. Currently in a descending wedge formation. The squeeze could well push is lower than the support level. The 1.3500 maturity remains in play.

– EUR/GBP: EUR amounts

  • 0.8925 483m

The EURGBP has resisted a move above the key 0.90 level and found strong resistance there. Currently flagging bull run arrears to be running out of steam and the pair is overbought on the one-hour time frame. There is potential for a second attempt at the support line we have highlighted at around 0.8915 which would leave our maturity in play.

………………………………………………………………………………………………………………………..

As you can see on the charts we have also plotted the expiration levels at the various exchange rate maturities and we have also labelled in red, orange and blue. Therefore, if you see option expiry exchange rates labelled in red these should be considered in-play, because we believe there is a greater chance of the expiry maturing at these levels based on technical analysis at the time of writing. There is still a lesser possibility of a strike if they are in orange and so these are ‘in-play’ too. However, if we have labelled them in blue, they should be considered ‘not in-play’ and therefore price action would be unlikely to reach these levels, which are often referred to as Strikes, at the time of the 10 AM New York cut.

Our technical analysis is based on exchange rates which may be several hours earlier in the day and may not reflect price action at the time of the maturities. Also, we have not factored in economic data releases or keynote speeches by policymakers, or potential market volatility leading up to the cut.

Although we have added some technical analysis we suggest you take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage. Remember the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.

If you want to learn how forex option expiries affect price action in the spot FX market see our educational article by clicking here: https://bit.ly/2VR2Nji

DISCLAIMER: Please note that this information is for educational purposes. Also, the maturities will look more or less likely to become a strike at 10 AM NY time due to exchange rate fluctuations resulting in a different perspective with regard to technical analysis, and also due to upcoming economic data releases for the associated pairs.

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Forex Videos

Fundamental Analysis For Novices – Fed Interest Rate Decision

https://youtu.be/pQGT_S-s4Jg

https://youtu.be/pQGT_S-s4Jg

FOMCFundamental Analysis For Novices – Fed Interest Rate Decision

Thank you for joining the fundamental analysis for novices educational video. In this session, we are going to be talking about the federal reserve interest rate decision.

So what is it, and how can you trade it?


Professional Traders keep a careful eye on their economic calendars, and you should do the same, paying particular attention to the daily activity of economic release information, especially as you plan your day or week ahead, with regard to trading.

The critical information is the time of release, the name of the event, the impact that it is likely to have upon release into the marketplace, the previous data release, and the consensus of professional economists and analysts as to what the figure is likely to be.


The US fed interest rate decision, as seen here, is released to the market at 7 PM BST, and is subject to an embargo. The impact of status is a full red bar on this particular calendar, and in fact, this economic release is one of the most important data releases, and especially at this time during the coronavirus pandemic.
The Federal Open Market Committee or FOMC is the branch of the Federal Reserve Board that has the power to set monetary policy and alter interest rates for the United States.
The FOMC comprises of the board of governors and includes seven members and five federal reserve bank presidents.
The board of governors of the Federal Reserve, which is also known as the Central Bank for the United States, meet at intervals of 5 to 8-weeks, and this is where they decide to set their interest rates, where this will have effects on loans and advances to commercial banks in the United States, especially if they are changed.


The interest rate decision is simultaneously released with the FOMC’s economic projections, monthly budget statement, and, more importantly, the fed’s monetary policy statement.


Thirty minutes later, there is an FOMC press conference to explain the rationale behind the decisions for any changes interest rate changes, or not, as the case may be, and also to explain the monthly monetary policy.
The conference lasts for around an hour and includes a prepared statement, and then the floor is opened to press questions that are unscripted and often leads to market volatility as traders and analysts try to decipher future policy decisions and directions.

How to trade fed interest rate decisions?

Firstly, pay particular attention to the consensus. Deviations from the consensus can cause market volatility.

As a rule of thumb, When the Fed increases interest rates, it typically tends to attract investors to buy dollars because they get a better yield from the higher interest rate. This is typically better for the economy.
On the other hand, a rate cut is seen as a sign of a poor economy with inflationary headaches for the FOMC, and in turn, investors tend to move out of Dollars, and this weakens the local currency.
Always trade this economic data released with extreme caution because it will typically cause extreme volatility, and sometimes this may not occur until the FOMC press conference and especially when the board member is answering questions from the press. Wait for a trend to develop and pick an opportunity to join it.

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Forex Videos

Forex! We Are In The Eye Of The Financial Storm!

https://youtu.be/Imk4bfIAGpc

https://youtu.be/Imk4bfIAGpc

 

Are we in the eye of a financial storm?

 

Are We are in the midst of the most turbulent market conditions we have seen since the financial market crash of 2008.
Although the world is nervously tiptoeing out of the clutches of the coronavirus pandemic, there is still no known cure for the disease and as governments around the world ease the lock-down which has become the norm for many of us since March this year the virus Is still rife amongst us in our communities.


But on the 5th of June, when the non-farm payrolls were released at 1:30 British Summer Time, and where the market was expecting an unemployment figure in the USA of 20%, as warned by the Federal Reserve bank committee, and in fact, the number was better than expected at just above 13%, the Dow Jones industrial index rose 1000 points, almost instantly. One of the sharpest increases in the shortest amount of time that it has ever seen.


If we go back to the 23rd of March, just a few short weeks ago, when the Dow Jones index crashed to just above 18,000, where 3.3 million people filed for unemployment under the lock-down measures. At the time, 31,000 Americans had been diagnosed with Covid-19, and 400 had died.
Now fast forward to where there are almost 2 million confirmed cases of Covid-19 with more than 111,000 deaths, and vastly more unemployment and yet the Dow Jones’ rise to current levels in which case the rise in US equities has been quite staggering when you take into consideration that the American industrial machine has been ground to a halt since all this time, with mass lay-offs in unemployment – 5% GDP, many people still not able to return to work, companies such as hertz filing for bankruptcy, with the Airlines in the United States in a quagmire situation, how on earth can we be seeing one of the biggest bull runs in history United States stock markets and indeed others around the world?

Many financial analysts and economists all over the world are asking the same question. In a recent survey of 150 chief financial officers from major companies across the United States, the majority said they had no confidence in the so-called v-shaped recovery for the United States economy, which has been predicted by many from the Federal Reserve.
Insert D. So, what exactly is driving stock markets higher?

On a typical bull run such as we are seen with the Dow Jones, you would typically expect strong fundamental information to be driving the market such as high rate of employment, strong gross domestic product, stable inflation, strong GDP across the globe which is essential for all countries to grow, other fertile conditions including strong leadership and stable domestic issues. In fact, in January, the United States had all of this in abundance It had just signed phase 1 of a massive trade deal with China, it had the best employment records in history, strong gross domestic product, and a thriving economy. All of these conditions helped the Dow Jones to rise above 29,000, its highest point in history.
And yet here we are, with massive unemployment, a huge dent in the gross domestic product, companies filing for bankruptcy, weak leadership, rioting on the streets because of racially aggravated police brutality, relations between the United States and China at an all-time low, and with the United States

threatening contingency action against China because of the damage that the virus has caused the US economy and where this is laid blame by the US directly at China’s door.
And so where fundamentals have gone out of the window, and where earnings to share price ratios are vastly overinflated, the American stock markets can only be driven by fear of missing out by huge hedge funds and financial institutions, and where they believe there will indeed be a sharp v-shaped recovery and that the United States will quickly return to financial health which enjoyed just a few short months ago. Indeed most of them have simply jumped on the bull run bandwagon for no other reason than to milk it for all it’s worth.

But back in the real world, many analysts believe that a bubble is looming and that we are, in fact, in the eye of a financial storm the likes of which will be far greater than the 2008 financial crash.
And here is the reason why, unlike the 2008 crash, people cannot just return to work as if nothing happened, well nit without repercussions, the virus is still as virulent as ever and has only been contained due to social distancing, and where that social distancing is relaxed, and in fact has to be relaxed if people are to return to work in factories, aviation, entertainment industry including restaurants bars and clubs, banks and financial institutions, and almost every walk of life, in which case there is a danger that a second wave will occur.
This is a huge cloud over the United States economy, coupled with the fact that there will be a huge debt burden for the government and companies and even the normal person on the street to face in the months and years to come. The mighty industrial machine that is America, where there is no cure for this virus at the moment, cannot simply shrug its shoulders and say everything is ok and back to normal we go. Expect shocks ahead, because this situation is not over yet, as much as we all want it to be.

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Forex Course

125. Trading The ‘Crab’ Pattern Like A Pro

Introduction

Introduction

Introduction

Crab is the last pattern that we are going to discuss in the harmonic group. Just like other patterns, the Carb is also identified and traded using the Fibonacci levels in order to determine the precise turning points. The Crab is a reversal pattern and is composed of four legs – XA, AB, BC, and C-D. Let’s understand them in detail below.

The Four Legs Of Crab Pattern

XA – In its bullish version, the first leg forms when the price action rises sharply from the point X to point A.

AB – The AB move goes against the actual market direction and retraces between 38.2% to 61.8% of the distance covered by the XA leg.

BC – In the BC leg, the price action resumes its original direction and retraces between 38.2% to 88.6% of the distance covered by the AB leg.

CD – The CD is the final leg that confirms the formation of the Crab pattern. Place the sell order when the CD leg reaches the 161.8% Fibs extension of the AB leg.

Trading The Crab Pattern

Bullish Crab Pattern

In the below GBP/USD Forex pair, we have identified the formation of the Crab pattern. The first movement XA can be considered any random bullish move. The second leg AB was a counter-trend, and it reached the 61.8% Fib leg of the XA leg. For the third move, price action goes up, and it retraces 38.2% of the XA leg. The last leg was the CD move, which 161.8% of the AB leg. The fourth leg confirms the pattern formation on the price chart.

We activated our trade at point D with stops below point D and taking profit at point A.

Bearish Crab Pattern

The price chart below represents the formation of a bearish crab pattern on the price chart. The first leg XA was the random move, and second leg AB goes up, and it retraces at 38.2% of the XA leg. The next third leg was the BC move, and it retraces 88.6% of the AB move. The last leg CD was the decision-making move, and it closes at 161.8% of the AB leg.

The trade activation was at point D, and the stop was a bit above the trade, and to book profits, we opted out for the most recent lower low.

Conclusion

The Crab pattern rarely appears on the price chart, but when it does, it provides excellent risk to reward ratio trades. If you are new to harmonic trading, practice trading this pattern on a demo account first and only then trade on the live account. Always remember to trade the Bearish Crab pattern in an uptrend, and Bullish Crab patterns in a downtrend only. Cheers!

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Forex Assets

Asset Analysis – Analyzing The XAG/USD Asset Class

Introduction

Introduction

Introduction

Silver is a precious metal standing after Gold. It is a vital asset to understand and forecast the potential movements in the commodity market. This is because buyers and sellers trade the silver market based on global macro trends. Moreover, Silver highly correlates with the Gold Spot prices. XAG/USD is the ticker for Silver against the US Dollar. XAG can be traded against other fiat currencies as well.

Understanding XAG/USD

Silver is a commodity that is traded in troy ounces (Oz), just like any other precious metal. The market price of XAG/USD represents the value of the US Dollar for 1 ounce (Oz) of Silver. It is quoted as 1 XAG per X USD. For example, if the market price of XAG/USD is 17.432, it signifies that each ounce of Gold is worth $17.432.

XAG/USD Specification

Spread

Spread is essentially the difference between the buying price and the selling price. The spread varies on the based account-model used.

ECN: 15 | STP: 21

Fee

A fee is basically the commission on the trade. It applies only to ECN accounts, not STP accounts.

Slippage

The arithmetic difference between the price asked by the trader and the price given by the Broker is referred to as slippage. It occurs due to two reasons: High market volatility & Broker’s execution speed

Trading Range in XAG/USD

The minimum, average, and maximum pip movement in different time frames is represented in the following table. It can be used to assess your risk on the trade.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

XAG/USD Cost as a Percent of the Trading Range

Cost a percent of the trading range is the representation of the variation in fees on the trade-in different time frames for varying volatility.

ECN Model Account

Spread = 15 | Slippage = 5 | Trading fee = 5

Total fee = Spread + Slippage + Trading fee

Total fee = 15 + 5 + 5 = 25 (pips)

STP Model Account

Spread = 21 | Slippage = 5 | Trading fee = 0

Total fee = Spread + Slippage + Trading fee

Total fee = 21 + 5 + 0 = 26 (pips)

Trading the XAG/USD

Silver Spot is extensively traded in the commodity market, after Gold Spot. It offers enough volatility and liquidity for traders to participate in the market. Silver highly correlates to Gold. Traders can use it as a proxy to place their bets on Silver prices. The technical analysis can be used on Silver as applied to any other market. Even though there is enough volatility in this pair, it is not ideal for entering any time into the market. The reason for it can be accounted for through the cost percentage table.

The cost percentage table represents how expensive a trade is going to be based on the time frame and volatility. Note that, the absolute total cost will remain the same irrespective of the two factors but will vary relatively. For instance, a 1H trader must pay the same fee a 4H trader pays for their trade. But, there a catch; the 4H trader generates more P/L than a 1H trader.

Thus, to have a balance between the P/L and fee on the trade, one must trade when the market volatility at or above the average values. Trading in low volatility markets will cause hurdles in the market to reach your target. Hence, we will have to pay the same costs, even for a small P/L.

Categories
Forex Daily Topic Forex Fundamental Analysis

Understanding The Importance Of ‘Terms Of Trade’ As A Macro Economic Indicator

Introduction

Introduction

Introduction

Terms of Trade is a direct and useful measure of an economy’s International Trade health and gives us a good measure of how fast capital is moving in or out of the country. Terms of Trade make analyzing Balance Of Payments and, more specifically, Current Account Balance easier. Understanding of Terms of Trade can help us better analyze the current liquidity of the economy and its changes in a more crude way.

What are Terms Of Trade Indices?

Terms of Trade is the ratio of its Export Prices and Import Prices. It is the ratio of money received on exports to money spent on imports. If there is an individual’s analogy to be made, then it would be the ratio of an individual’s monthly income to his monthly expenses. Mathematically, it would be the number of export goods that can be purchased per unit of import.

Terms of Trade ratio expressed in percentages, and hence the ratio is multiplied by a hundred. A TOT figure above100 indicates that the country is receiving more on its exports than on its income and vice-versa.

When a country has a TOT figure of more than 100, it means that it is receiving more capital on exports compared to sending capital out on imports. Hence, on an overall basis, capital is flowing into the country. Higher the ratio, the faster the rate at which capital flows into the country. It ultimately translates to the pace at which a country is becoming wealthy and liquid.

When a country has a TOT figure less than 100, it means capital is flowing out of the economy, and its import expenses exceed that of its export revenue generated. Continued periods of TOT figures less than 100 will drive the economy to a vicious debt cycle from which recovery may be difficult. The ratio will tell us how fast the capital is depleting from the economy and is nearing a financial crisis. Countries prefer to have a ratio above 100.

The ratio tells us the rate at which the economy is accumulating capital. On the global market place and International Trade, the ratio will determine what portion of the world’s wealth goes to each country. In other words, based on the demand and supply on the international markets, the ratio will tell us how profits from international trade will be distributed amongst the participating countries.

How can the Terms Of Trade numbers be used for analysis?

Since TOT is a ratio change in TOT, figures can imply multiple things. An improvement in TOT figure could mean:

  1. Export prices have increased in contrast to Import prices being stagnant or dropped.
  2. Export prices would have dropped but not as sharply as import prices. Both dropped but not to the same degree.
  3. Export prices would have stayed the same while Import prices would have dropped.

All the above scenarios can lead to an improvement in the TOT figure. Hence, simple changes in TOT figures cannot be directly used to draw economic conclusions. It is crucial to understand the factors that have resulted in a change in TOT numbers. It is crucial to know whether the change is a consequence of a short-term shock or development or a consistent long-term trend that will persist throughout the coming periods.

TOT is susceptible to multiple economic factors, some of which are:

Exchange rate: A decrease in exchange rate adversely affects imports and benefits exports and vice versa. Imports become costly, and exports become cheap, adversely affecting TOT.

Inflation: The inflation rate across different economies and different sectors affect different economies having different export and import portfolios. For example, a sharp increase in Iron Ore prices can greatly benefit Australia, whose chief exports are Iron Ore, while it can affect importing countries like China and Japan adversely. So inflation across sectors have different impacts across economies and within the country amongst different sectors.

Demand and Supply: Increase in demand, coupled with the availability of those resources also affects TOT as exports and imports are a function of demand and supply. Scarcity increases prices and oversupply decreases the same.

Quality of Produce: Size and quality affect the pricing of products. A high-quality product is likely to cost more and benefit the exporter more. Hence, the portfolio of the country’s exports and imports determines the TOT fluctuations of different product grades.

Trade Tariffs: Protectionist strategies from Governments lead to putting trade barriers on imports. The political and trade ties between countries can also affect the long term trend of TOT figures for a given economy.

Portfolio of Exports and Imports: What types of Goods and Services a country exports and imports also matter. Countries that export goods and services that are more of primary importance (ex: food and energy) tend to always have high demand and TOT ratio more than 100 both within the economy and on the global economy.

Impact on Currency

When the TOT figure is above a hundred, it implies domestic currency is flowing into the country and creating a deficiency in the global market. Hence, higher TOT figures will increase its currency demand and thereby leading to currency appreciation. On the other hand, a continued TOT less than 100 indicates the world is being supplied with domestic currency and therefore leads to currency depreciation.

It is a coincident indicator and is more useful as a long-term trend indicator rather than short-term changes. The indicators affecting TOT would have been identified through Trade agreements or other media sources in general and hence, is a mild-impact indicator.

Economic Reports 

The Bureau of Economic Analysis publishes its TOT figures in the National Income and Product Accounts every quarter of the year on its official website. Below is a figure for an illustration of the same:

We can also find the aggregated TOT reports for the OECD countries on the official website. The World Bank also aggregates and maintains TOT data for most countries on its official website.

Sources of Terms Of Trade

For the US, we can find the Terms of Trade in their National Income and Product Accounts here:

BEA – National Income and Product Accounts

OECD – Terms Of Trade

World Bank – TOT

We can also find Terms of Trade Index for many countries categorized here.

Impact of the ‘Capacity Utilization’ news release on the price charts

In the previous section of the article, we learned the Terms of Trade economic indicator and understood its significance in an economy. The ToT Index measures the ratio of an export to the price of an import, per commodity. A country that heavily relies heavily on exports, this number gives an important hint of the nation’s growth. Even though the Terms of Trade is useful in determining the balance of trade in a country, it does not have a major influence on the GDP of the economy. Therefore, investors don’t give much importance to the data during the fundamental analysis of a currency.

Today, we will be analyzing the impact on Terms of Trade on different pairs and witness the change in volatility due to the news release. The below image shows the latest Terms of Trade data of New Zealand that indicates an increase in the value compared to the previous quarter. A higher than expected reading is considered to be positive for the currency while a lower than expected reading is considered as negative. Let’s see how the market reacted to this data.

NZD/USD | Before the announcement:

We shall start with the NZD/USD currency pair to examine the impact of Terms of Trade on the New Zealand dollar. In the above price chart, we see that the market is in a strong downtrend before the news announcement with increased volatility. Currently, the price is at a key technical area, which is known as the ‘demand’ area, and hence we can expect buyers to come in the market at any moment. Thus, once needs to be cautious before taking a ‘short’ trade.

NZD/USD | After the announcement:

After the news announcement, the market moves lower and volatility increases to the downside. The Terms of Trade data showed an increase in the total percentage, but this was not good enough for the market players who apparently took the price down and weakened the New Zealand dollar. Although the ‘News Candle’ closes in red at the time of release, it gets immediately taken over by a bullish candle, as this was a ‘demand’ area.

NZD/JPY | Before the announcement:

NZD/JPY | After the announcement:

The above images represent the NZD/JPY currency pair, where we see that the characteristics of the chart are similar to that of the above-discussed pair. Before the news announcement, here too, the market is in a strong downtrend, and the volatility appears to be high on the downside. One thing that is different in this pair is that the price is presently at its lowest point and seems to have made a ‘lower low.’ This means New Zealand is weaker in this pair.

After the news announcement, market crashes and the price drops sharply. The Terms of Trade has a similar impact on the pair, where we see a further increase in volatility to the downside. Again. the weakness does not sustain, and the price shows a large bullish candle after the ‘news candle.’

NZD/CAD  | Before the announcement:

 

NZD/CAD  | After the announcement:

Lastly, we shall discuss the impact on the NZD/CAD currency pair and observe the change in volatility. Here, we see that the market is continuously moving lower before the news announcement indicating a great amount of weakness in the New Zealand dollar. Just before the news release, the price seems to be approaching the ‘demand’ area, which can possibly change the trend for a while by initiating some bullishness in the pair.

The Terms of Trade news announcement gets lukewarm from the reaction where the price initially moves higher little and finally closes forming a ‘Doji’ candlestick pattern. The news release leads to further weakening of the currency where the volatility expands on the downside.

That’s about ‘Terms Of Trade’ and its impact on the Forex market after its news release. If you have any questions, please let us know in the comments below. Good luck!

Categories
Forex Market Analysis

Daily F.X. Analysis, June 16 – Top Trade Setups In Forex – Eyes on U.S. Retail Sales! 

On the news front, the eyes will remain on the U.K. Jobless Claims and U.S. Retail sales data. Both of the events are expected to perform better than before, but traders are highly doubtful due to lockdown, the numbers can get worse and drive selling trends in the GBP during the European session and USD during the New York session. The yield on U.S. 10 year Treasuries jumped as traders favored risk to the safety of bonds. Furthermore, on Tuesday, Fed Chair Jerome Powell will testify before the virtual hearing of the Senate Banking Committee, and traders will look forward to it for fresh impetus.

On the news front, the eyes will remain on the U.K. Jobless Claims and U.S. Retail sales data. Both of the events are expected to perform better than before, but traders are highly doubtful due to lockdown, the numbers can get worse and drive selling trends in the GBP during the European session and USD during the New York session. The yield on U.S. 10 year Treasuries jumped as traders favored risk to the safety of bonds. Furthermore, on Tuesday, Fed Chair Jerome Powell will testify before the virtual hearing of the Senate Banking Committee, and traders will look forward to it for fresh impetus.

On the news front, the eyes will remain on the U.K. Jobless Claims and U.S. Retail sales data. Both of the events are expected to perform better than before, but traders are highly doubtful due to lockdown, the numbers can get worse and drive selling trends in the GBP during the European session and USD during the New York session. The yield on U.S. 10 year Treasuries jumped as traders favored risk to the safety of bonds. Furthermore, on Tuesday, Fed Chair Jerome Powell will testify before the virtual hearing of the Senate Banking Committee, and traders will look forward to it for fresh impetus.

Economic Events to Watch Today

 

  

EUR/USD – Daily Analysis

The EUR/USD pair closed at 1.13255 after placing a high of 1.13323and a low of 1.12263. Overall the price action of the EUR/USD remained bullish throughout the trading day, although the EUR/USD pushed lower at the end of last week. After the risk sentiment increased on Monday, the pair EUR/USD reversed its movement and started posting gains. 

In earlier sessions’ the U.S. dollar was strong, which kept a lid on EUR/USD pair’s upward movement, but in the late session, the U.S. dollar lost its pace, and the currency pair EUR/USD started to move higher. The U.S. Dollar Index, which gauges the value of the U.S. dollar against the basket of six currencies, spent most of its day in positive territory above 97.00 level but it turned negative in the second half of the day and helped EUR/USD to start posting gains.

On the data front, at 14:00 GMT, the Trade Balance from Eurozone showed a surplus of only 1.2B against the expected 20.3 B in April and weighed on Euro. From the American side, the only data from the U.S. was New York’s Empire State Manufacturing Index, which rose to -0.2 from the expected -30.0 and supported the U.S. dollar.

In the Late session on Monday, Federal Reserve announced that it would begin broad buying of corporate bonds and debts, which boosted the risk appetite in the market and perceived EUR. The air EUR/USD recovered almost all of its previous day’s losses on the back of U.S. dollar weakness after the Fed’s announcement.

According to the Fed, it would start purchasing investment-grade U.S. corporate bonds in a view to secure companies and ensure credit market liquidity due to coronavirus crisis. After this news, risk sentiment was back in the economy, and the EUR/USD pair moved higher. After the Fed announcement, the yield on U.S. 10 year Treasuries jumped as traders favored risk to the safety of bonds. Furthermore, on Tuesday, Fed Chair Jerome Powell will testify before the virtual hearing of the Senate Banking Committee, and traders will look forward to it for fresh impetus.

Daily Support and Resistance

  • R3 1.1293
  • R2 1.1275
  • R1 1.1263

Pivot Point 1.1245

  • S1 1.1233
  • S2 1.1215
  • S3 1.1203

EUR/USD– Trading Tip

The EUR/USD pair is trading at 1.1340, having violated the double top resistance level of 1.1328 level. The continuation of a bullish trend can lead the EUR/USD prices further higher until the next target level of 1.1380 level. The MACD and RSI are suggesting bullish bias in the pair, and this bullish bias can help traders to capture a quick buy trade over 1.1328 level today until the next target level of 1.1380. While support stays at 1.1328 and below this, the next support will stay around 1.1267. 

GBP/USD – Daily Analysis

The GBP/USD pair was closed at 1.26059 after placing a high of 1.26063 and a low of 1.24539. Overall the movement of GBP/USD pair remained bullish throughout the day. The Pound jumped from session lows against the dollar on Monday as the U.K. & Brussels agreed to boost up post-Brexit talks. PM Boris Johnson gave hope that the end of next month could reach an outline of a deal.

The lack of progress in negotiations following the latest round of talks between the U.K. & European Union, PM Boris Johnson said that he would personally work with the E.U. to find common ground to break the deadlock. Britain left the European Union in January, but it is still under transition period until 2020 when it should strike a deal over its future trade, travel, security, and financial relations with Europe. Many rounds of trade talks between trade representatives from both parties failed to secure a deal, and then PM Boris Johnson decided to do it himself.

On Monday, PM Boris Johnson held talks with Brussels chief Ursula von der Leyen, and Charles Michael as the European Union finally acknowledged the rejection of the U.K. overextension of the transition period. Both parties have agreed that new momentum in the countdown period to secure a deal was required. Brussels formally accepted that the U.K. would not seek an extension to the transition period, and both parties agreed on work to conclude an agreement by the end of the year. It means both parties are hopeful that an agreement could be reached before the year-end.

The PM Boris Johnson added on Monday after his video conference with E.U. members that there was no reason not to agree to the Brexit deal’s outline by the end of July. E.U. has suggested October 31 as the latest date for a deal to reach. In the time from October to the end of the transition period in December, member states will back and ratify the deal.

The optimism about the Brexit deal gave a push to British Pound, and the pair GBP/USD surged and recovered its previous day’s losses on Monday.

On the other hand, after the announcement of the Federal Reserve to start buying corporate bonds in the secondary market to overcome the losses U.S. economy faced in the coronavirus crisis, the U.S. dollar turned weak and added in the currency pair’s gains.

Daily Support and Resistance

  • R3 1.2593
  • R2 1.2568
  • R1 1.2538

Pivot Point 1.2512

  • S1 1.2482
  • S2 1.2456
  • S3 1.2426

GBP/USD– Trading Tip

On Tuesday, the GBP/USD pair is trading with a bullish bias around 1.2650, but the recent candles seem to peak out of the upward regression channel, which may drive selling in the market. The pair is most likely to find resistance around 1.2707 level, and continuation of a selling trend below this level can lead the pair lower towards 1.2595 and 1.2550 Conversely, a bullish breakout of 1.2707 level can extend buying trend until 1.2805 level in upcoming days. 

USD/JPY – Daily Analysis

The USD/JPY was closed at 107.353 after placing a high of 107.552 and a low of 106.583. Overall the movement of USD/JPY remained bullish throughout the day. The USD/JPY gained strength after posting losses for the previous four consecutive days. The stronger U.S. dollar and negative macroeconomic data release from Japan might have added in the strength of this pair USD/JPY.

At 9:30 GMT, the Revised Industrial Production from Japan in April was declined by 9.8% against the forecasted 9.1% and weighed on Japanese Yen and moved the pair USD/JPY in the upward direction on Friday.

The brighter market sentiment due to come back of risk appetite in the market after the possibility of renewed lockdowns increased due to increased fears over the second wave of coronavirus outbreak.

The fears of the renewed spread of virus grew after the U.S. reported more than 2 million coronavirus cases as of June 12, and the infection cases were reported from the most populous states of America. The high level of new infections was reported from California, Texas, and Florida, which raised the possibility of a new wave of COVID-19 and prompted risk aversion.

Risk appetite increased the demand for the U.S. dollar across the board as the bar for renewed restrictions of lockdown raised. Federal Reserve has already announced that the road to economic recovery will be longer than expected, which indicated more need for stimulus packaged from governments.

However, the U.S. Dollar Index was up to 97 levels on Friday, and the strength of the U.S. dollar pushed the USD/JPY pair above 107.5 level.

Another factor aiding in the U.S. dollar’s strength was better than expected macroeconomic data from the USA. At 19:00 GMT, the Prelim Consumer Sentiment from the University of Michigan (UoM) surged to 78.9 in June from the expected 75.0 and supported the U.S. dollar. The Import Prices in May also increased by 1.0% from 0.6% of forecast and supported the U.S. dollar. The Prelim UoM Inflation expectation in June was reported as 3.0%.

Daily Support and Resistance    

  • R3 107.93
  • R2 107.75
  • R1 107.54

Pivot Point 107.36

  • S1 107.15
  • S2 106.97
  • S3 106.75

USD/JPY – Trading Tips

The USD/JPY pair is trading sideways as it failed to break above an immediate resistance level of 107.500. This level is working as resistance for USD/JPY, and the 50 periods EMA is also prolonging strong resistance at 107.650 zones while immediate support lingers nearby 106.600. The bearish trend in the USD/JPY pair can trigger a sell-off unto the next support level of the 106.017 level today. Let’s wait for the USD/JPY to test the 107.650 level before entering a sell in the USD/JPY today. 

Good luck! 

Categories
Forex Fibonacci

It is Not Always the Level, It is about the Zone

In today’s lesson, we are going to demonstrate an example of a chart where the price makes a strong move from the 61.8% Fibonacci level. However, in this example, things are slightly different. We know the world is not perfect; neither is the Forex market. Today’s lesson is going to show that. Let us get started.

In today’s lesson, we are going to demonstrate an example of a chart where the price makes a strong move from the 61.8% Fibonacci level. However, in this example, things are slightly different. We know the world is not perfect; neither is the Forex market. Today’s lesson is going to show that. Let us get started.

In today’s lesson, we are going to demonstrate an example of a chart where the price makes a strong move from the 61.8% Fibonacci level. However, in this example, things are slightly different. We know the world is not perfect; neither is the Forex market. Today’s lesson is going to show that. Let us get started.

The chart shows that the price makes a strong bearish move. After that, the price may have found its support. The last candle comes out as a bearish candle with a long lower shadow. The price may make a bullish correction and, then, a bearish breakout at the lowest low of the wave to offer a short entry.

The price makes its bullish correction. Upon producing a doji candle followed by a bearish Marubozu candle, it heads towards the South. The last candle closes within the level of support, where the price gets a rejection earlier. The sellers are going to eagerly wait for a bearish breakout.

The price makes a breakout at the lowest low of the wave, consolidates, and produces a bearish reversal candle. The sellers may trigger a short entry right after the last candle closes by setting Stop Loss above consolidation resistance. We talk about Take-profit in a minute. Let us find out how the entry goes.

The price heads towards the South with extreme pressure. It seems like the Bear is in a real hurry to hit the target. It produces only one bullish candle before the last one. The last candle comes out as a bullish inside bar. Typically, it suggests that the chart is still bearish biased. We find that out whether it really is or is it time for the sellers to come out with their profit. Let us draw Fibonacci levels.

Here it is. Despite producing an inside bar, the price heads towards the North for a bullish correction. It may change the trend as well. The reason for this is the price hits 161.8%. Typically, the price makes a reversal once it hits 161.8% of an existing trend when the trend starts from 61.8%. The question is whether the price really trends from 61.8% or not? If you closely look at the chart, the price does not hit 61.8%, but it trends from well below. Nevertheless, it trends from the zone of 61.8% to 78.6%. As long as the price trends from that zone, the Fibonacci traders consider that it trends from 61.8%. This is what makes the price behave as if it trends right from the  Fibonacci level of 61.8%. When it trends from there, we know where to set our Take Profit. Yes, it is to be set at 161.8%.

Categories
Forex Options

FX Options Market Combined Volume Expiries for 16th June 2020

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

……………………………………………………………………………………………………………………..

FX option expiries for June 16 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

– EUR/USD: EUR amounts

  • 1.1250 968m
  • 1.1300 681m

EURUSD pair rejected a move below 1.1225 and is in a bull channel. Therefore the current range is 1.1400 to 1.1225. Watch out for ZEW during the European session and US data out before the 10 AM cut. Both can cause volatility for the pair.

– USD/JPY: USD amounts         

  • 106.60 950m
  • 107.30 431m

USDJPY pair is in consolidation mode on the one hour chart with price action in a tight range and currently pushing lower and where the Stochastic is showing divergence. 107.30 remains in play for the New York cut. Watch out for US retail sales before then.

………………………………………………………………………………………………………………………..

As you can see on the charts we have also plotted the expiration levels at the various exchange rate maturities and we have also labelled in red, orange and blue. Therefore, if you see option expiry exchange rates labelled in red these should be considered in-play, because we believe there is a greater chance of the expiry maturing at these levels based on technical analysis at the time of writing. There is still a lesser possibility of a strike if they are in orange and so these are ‘in-play’ too. However, if we have labelled them in blue, they should be considered ‘not in-play’ and therefore price action would be unlikely to reach these levels, which are often referred to as Strikes, at the time of the 10 AM New York cut.

Our technical analysis is based on exchange rates which may be several hours earlier in the day and may not reflect price action at the time of the maturities. Also, we have not factored in economic data releases or keynote speeches by policymakers, or potential market volatility leading up to the cut.

Although we have added some technical analysis we suggest you take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage. Remember the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.

If you want to learn how forex option expiries affect price action in the spot FX market see our educational article by clicking here: https://bit.ly/2VR2Nji

DISCLAIMER: Please note that this information is for educational purposes. Also, the maturities will look more or less likely to become a strike at 10 AM NY time due to exchange rate fluctuations resulting in a different perspective with regard to technical analysis, and also due to upcoming economic data releases for the associated pairs.

Categories
Forex Videos

Forex Options Market review 05-06-2020 – Making Consistent Profits

https://youtu.be/FB5MR5rOlLM

https://youtu.be/FB5MR5rOlLM

 

FX Options Market Combined Volume Expiries. A weekly retrospective review for the financial week ending: 05, 06, 2020

Hello everybody and thank you for joining us for the daily FX Options Market Combined
Volume Expiries review for the trading week ending on Friday 05th June 2020. Each week we will bring you a video taking a look back at the previous week’s FX option expiries and how they may have attributed to price action leading up to the maturities which happen at 10 AM Eastern Time, USA.

If it is your first time with us, the FX currency options market runs in tandem with the spot FX market, but where traders typically place Call and Put trades on the future value of a currency exchange rate and these futures contracts typically run from 1 day to weeks, or even months.


From the FA website, our analyst, Kevin O’Sullivan, will bring you details of the notable FX Options Market Combined Volume Expiries, where they have an accumulative value of a minimum of $100M + and where quite often these institutional size expiries can act as a magnet for price action in the Spot FX arena leading up to the New York 10 AM cut, as the big institutional players hedge their positions accordingly.
Kevin also plots the expiration levels on to the relevant charts at the various expiry exchange rates and colour codes them in red, which would have a high degree of being reached, or orange which is still possible and where these are said to be in-play. He also labels other maturities in blue and where he deems it unlikely price action will be reached by 10 AM New York, and thus they should be considered ‘out of play.’ Kevin also adds some technical analysis to try and establish the likelihood of the option maturities being reached that day. These are known as strikes.
Please bear in mind that Kevin will not have factored in upcoming economic data releases, or policymaker speeches and that technical analysis may change in the hours leading up to the cut.
So let’s look at a few of last week’s option maturities to see if they affected price action.


On Monday, the 1st June Kevin’s early morning analysis suggested the euro USD pair was overbought and had the potential for a pullback to the 1.1100 maturity at the 10 AM new york cut.


In this picture, we can see the same pair where the exchange rate was 1.1127 at the cut. You will, however, note that the price action had previously gravitated to 1.1100 before moving higher by just 27 pips at the maturity.
Tuesday was light on the options maturity calendar, and so let’s move straight into Wednesday.


We have the US dollar Japanese yen pair with Kevin’s early analysis suggesting price would

move higher to the resistance line before falling lower to one of the two maturities at 108.70 or 108.50.


Here we can see a later slide of the pair which ran exactly as predicted and where the exchange rate was ranging between the two red maturities.

Here we can see that the price hit 108.66 at the 10 AM cut. Just a few pips in-between the two.

Still, on Wednesday, we had a slew of options between 1.1175 and 1.1220, and price action remained concentrated around these levels.


Price hit 1.1215 at the 10 AM cut, which was an official strike.

 


Again on Wednesday, we had a maturity at 1.2560 for cable. Kevin’s early technical analysis here where he suggested the price was capped and due for a pullback.


As you can see here, price action a few hours later confirmed the analysis with the exchange rate hitting 1.2566 at the cut. Just six pips away from the maturity.


On Thursday, Kevin’s early analysis of the EUR-USD pair was that it was oversold on the one hour chart and that there could be a great deal of volatility after the Eurozone interest rate decision and US jobs data.


Indeed we see that volatility was born out in this chart at just before the time of the maturity.


Price hit 1.1268 at the time of the cut, where the exchange rate hit 1.1268, just 23 pips above the 1.1245 maturity. This might suggest option maturities play a part in even the most volatile trading sessions. Because the EUR-USD pair was at multi-month highs, we can estimate that most of the options were calls, where all traders would have been in the money at the cut.

 

On Friday, we have the Euro us dollar pair in focus again with Kevin’s analysis suggesting the pair was overbought, and in fact, the pair did pull back in volatile trading.

 

Price action for the pair hit 1.1297 at the cut. Just three pips below the option at 1.1300, which Kevin had labeled in red.
All in all, this was a very successful week where our analysis and option maturities levels have helped traders make profitable trades in this very difficult market.

Please remember, Kevin’s technical analysis is based on exchange rates, which may be several hours earlier in the day and may not reflect price action at the time of the maturities.
We suggest you get into the habit of visiting the FA website each morning just after 8 AM BST and take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage.
Remember, the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.

For a detailed explanation of FX options and how they affect price action in the spot forex market, please follow the link to our educational video.

Categories
Forex Videos

Forex Fundamental Analysis For Novices Exports & Trade Balance

https://youtu.be/pNxKvYHL1JY

https://youtu.be/pNxKvYHL1JY

Fundamental Analysis For Novices Exports & Trade Balance

Thank you for joining our educational video on fundamental analysis for novices. In this presentation, we will be looking at exports and trade balance. Today we will be looking at a snapshot of this data as it is due on an economic calendar and pertaining to the country of Germany.


The best way to approach trading is to plan your day and week in advance, and one of the best tools that you can utilise here is the economic calendar, which is provided by most brokers.

 


Always check that you are looking at the correct day’s economic releases.


Always keep a careful eye out for the level of impact for any data release pertaining to the financial asset which you want to trade. The more importance attached to the impact, the greater amount of volatility which could occur after it’s release.


In this example, we will be looking for a couple of days ahead to Tuesday, June 9th, and paying particular interest to German imports and exports and trade balance.
As we can see here, we are expecting for economic data releases for German exports, month on month for April, where the impact is low and where we have a previous month of March coming in at – 11.8 with a consensus of – 5% expected for the release at 7:AM CEST.
The trade balance for April has more significance associated to it, where we can see a 12.8 billion euros surplus for the month of March and where this is anticipated to rise to 18.9 billion Euros by economists and analysts.

So what do all these mean for the German economy and also for the Euro currency?
Firstly the information is collected and released by Statistisches Bundesamt Germany and is subject to an embargo.
The first segment exports, which is expected to come in at – 5% for April, provides details of All goods and services which were exported i.e., sold outside of the country of Germany.
Countries’ exports are extremely important to their economy because it influences the level of economic growth and provides a picture of employment. The bigger the export figure, the healthier an economy is likely to be.
In the post-war period, lower transportation costs have made it much cheaper to export to other countries around the globe. This globalization, as it is known, has an effect of making international trade far easier.

The second element is the trade balance, and this is more important, and this has a greater impact significance because now we are looking at the difference between what a country exports and what it imports.
Germany is the biggest economy within the Eurozone. Typically it exports more than it imports.

Therefore traders and economists will be looking for a positive figure on release because this shows that there is a trade surplus. A negative value would show a trade deficit.
The next segment is the current account, which measures the difference in value between exported and imported goods, services, and cross border interest payments. It also includes payments to overseas investors and other payments, such as foreign aid.
Again we are looking for a surplus or a deficit, which will show whether the country is a net exporter, which is good for their economy, and thus the Euro, or if it is a net importer of goods and services, which is bad for their economy and thus the Euro currency exchange rate.
The last segment is imports month on month for April. This provides a percentage plus or minus for the value of imports of goods and services from countries outside of Germany for the previous month.

How to trade Exports and trade data releases. Remember, a negative value on the trade balance shows more goods are being imported than exported; this is bad for an economy and affects growth. As a result, the Euro might depreciate against other currencies. Conversely, if there is a trade surplus, the opposite should apply.

The economic data release is similar for all countries, and the methodology to trading its release applies to all. Look out for data that is out of sync with the general consensus, as this might cause shock waves in terms of market volatility.

Economies do better when they export more than they import, and this is the basic premise to trading this type of data.

Categories
Forex Course

124. Trading The Bullish & Bearish Butterfly Pattern

Introduction

Introduction

Introduction

Bryce Gilmore and Larry Pesavento are the ones to first discovered the Butterfly pattern. It is a harmonic reversal pattern, and it is composed of four legs. The trading of this pattern is similar to the trading of Gartley and Bat patterns that we have learned in previous lessons. The Butterfly pattern helps us in identifying the end of the current move so that we can take the trade. There are both bullish and bearish Butterfly patterns, and we must be going long if we find a bullish butterfly and vice-versa.

Four legs of the Butterfly Pattern

XA – In its bearish version, the first leg of the pattern forms when the price action drops from the point X to A.

AB – The AB leg reverses its direction and retraces to 78.6% Fib level of the distance covered by XA.

BC – In the BC leg, the price action changes its direction and moves back down. It then retraces between 38.2% and 88.6% Fib levels of the distance covered by AB.

CD – This is the final leg of the pattern, and if this leg goes wrong, we can consider the pattern formed till now as invalid. The CD leg must reach between 127% and 161.8% Fib extension of the AB leg. Take the sell trade at point D.

How To Trade The Butterfly Pattern?

Bullish Butterfly Pattern

We have identified the formation of the Butterfly pattern in the USD/JPY Forex pair. The first push ‘XA’ was a random leg on the price chart. The second leg is a countertrend move, and it retraces to the 78.6% Fib level of the XA leg. For the third leg, price action goes up, and the BC leg reaches 88.6% of the AB move. Finally, the CD leg enabled the price to the 161.8% level of BC move.

Since all the legs are formed according to the instructions, we can consider this a Bullish butterfly pattern. When price action completed the last leg, we activated our buy trade in this pair. The stops are placed below the trade, and the take profit was placed at point A.

Bearish Butterfly Pattern

The chart below represents the formation of a bearish butterfly in a downtrend. The first XA bearish leg was any random move in the market. The AB leg goes countertrend, and it retraces 78.6% of the XA leg. The BC move was bearish again, and it retraces to 38.2% of the AB move. Now that the three legs are completed, all we need is to confirm the last leg to ho short in this pair. For printing the last leg, price action again goes back up, and it reached the 161.8% of the BC move.

After all these legs, price action prints a bearish butterfly pattern, and the trade activation was at point D. The first take-profit was at point C, and the second take profit was at point A. We have placed the stop-loss order below the point D. The reason for shallow stops is that if the price goes above point D, the pattern itself becomes invalid.

Conclusion

Placing stop-loss and take-profit order is subjective. If you are an aggressive trader, place your take-profit at point C and for conservative targets place the take profit at point A. For your information, trading the Butterfly is almost as same as trading the Bat pattern. The only difference is the final CD leg. It makes a 127% Fib extension of the initial XA leg in this pattern, rather than the retracement of it. Cheers!
[wp_quiz id=”77249″]
Categories
Forex Assets

Analyzing The ‘XAU/USD’ Financial Instrument & Determining The Trading Costs Involved

Introduction

Introduction

Introduction

Gold is a precious metal and one of the most valuable assets in the market. It is considered to be a safe haven instrument and a popular asset class for hedging positions during market uncertainty. XAU/USD is the abbreviation for the pair Gold Spot against the US Dollar. XAU is the ticker for Gold Spot. It can be traded against other fiat currencies like EUR and GBP as well.

Understanding XAU/USD

Gold Spot is an asset that is traded in troy ounces (Oz). The XAU/USD market price represents the value of the US Dollar for 1 ounce (Oz) of Gold. It is quoted as 1 XAU per X USD. For example, if the current market price of XAU/USD is 1730.50, it signifies that each ounce of Gold is worth the US $1730.5.

XAU/USD Specification

Spread

Spread is the difference between the bid price and the ask price. The spread usually varies based on the account type used for execution. The approximate spread on the gold spot on ECN account and STP account is as follows:

ECN: 100 | STP: 130

Fee

Typically, brokers do not charge any type of fee. But, on ECN accounts, there is some commission you must pay the broker for opening and closing a position. However, the fee is not significantly high.

Slippage

Due to the high market liquidity and slower broker’s execution speed, slippage occurs. It is the difference between the trader’s demanded price and the price at which the broker executed the trade. Slippage can occur both in favor and against the trader.

Trading Range in XAU/USD

The trading range is a tabular representation of the volatility in the market for several different time frames. It gives the minimum, average, and maximum volatility in the pair for different time frames.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

XAU/USD Cost as a Percent of the Trading Range

Cost as a percent of the trading range represents variation in the trade cost by considering the market’s time frame and volatility. Mathematically, it is the ratio of the volatility value and the total cost of the trade.

ECN Model Account

Spread = 100 | Slippage = 30 | Trading fee = 20

Total fee = Spread + Slippage + Trading fee

Total fee = 100 + 30 + 20 = 150 (pips)

STP Model Account

Spread = 130 | Slippage = 30 | Trading fee = 0

Total fee = Spread + Slippage + Trading fee

Total fee = 130 + 30 + 0 = 160 (pips)

The Ideal Timeframe to Trade XAU/USD

Gold is one of the oldest asset classes and one of the most reliable instruments as well. It is extensively traded in the market as most forex broker has XAU/USD available for trading. Its volatility and liquidity are no less than major currency pairs.

XAU/USD can be traded like any other foreign exchange pair. It, in fact, correlates with commodity currencies like AUD and NZD. Thus, traders use these two currencies in addition to USD, in order to analyze the pair. The same technical analysis applied to other markets can be used on the gold spot as well. However, the fundamentals do differ a little.

Coming to the costs, it technically remains the same for any time frame you trade. However, it relatively changes based on volatility and time frame. For example, a 1D trader who makes 2000 pips P/L on an average pays the same a 1H trader who makes 500 pips P/L on a trade. This is the reason the percentage values are higher in the 1H time frame than the 1D time frame.

Irrespective of the time frame you trade, you need to make sure that the market’s current volatility is above the average volatility. If you end trading when the volatility is at the minimum values, then you will have to pay the same costs for a trade that could not reach the target in your expected time.

Categories
Forex Fundamental Analysis

What Is ‘Services PMI’? How Important Is It In Assessing A Nation’s Economy?

Introduction

Introduction

Introduction

The Services Purchasing Manager’s Index is an excellent leading or advanced macroeconomic indicator, which is used widely to predict economic expansion or contractions. It has various applications for economists, investors, and traders. This indicator predicts inflation, GDP, and the unemployment rate of an economy. Hence, understanding of Services PMI can be hugely beneficial for a trader’s fundamental analysis. 

What is Services PMI?

The Services Purchasing Manager’s Index, also called the Non-Manufacturing Index (NMI), is a survey of about 400 largest non-manufacturers in the United States of America. The word non-manufacturing here implies that the study is associated with the industries that do not produce physical goods; instead, they provide services. Non-physical goods mean the services provided by the IT and software giants like Microsoft and Google etc. The services PMI has fewer survey questions than the manufacturing PMI as some questions, such as inventories, not being relevant to many service providers.

The Services PMI was born more out of a need to accommodate the changing world due to the technological advancements in the last few decades. For most developed nations like the United States, the Service sector contributes more than the Manufacturing industry due to which it had to be taken into account to predict economic trends more accurately.

Purchasing Managers in a company are the purchasing and supply executives associated with procuring the required goods and services that are necessary for running the company. For example, A software company’s Purchasing Manager would typically be in charge of contacting and getting the best internet service provider for the entire company at the lowest or best prices from the market.

They may also be responsible for tie-ups with fellow software companies to get the required software to run their operations. The purchasing Managers have a decent idea of what a company needs, and during what periods these requirements change.

How is the Services PMI calculated?

The Services PMI hence is a compilation of the survey answers given by the Purchasing Managers of the largest 400 non-manufacturing companies of about 60 sectors in the USA. The questions typically asked in the study are related to month-over-month changes in the Business Activity, New orders, Deliveries, and Inventories with equal weightage, as shown in the table below:

All the four categories, as seen when putting together, form the NMI. These four components are enough to ascertain a growth or contraction in the business activity of that company.

The rating of Services PMI range between 0-100. A score > 50 indicates an expansion of economic activity in the non-manufacturing sector. Likewise, a score < 50 indicates contraction.

How can the Services PMI be Used for Analysis?

The data of ISM NMI Reports on Business goes back to 2008 due to which the levels of confidence in the data set may be lower than that of Manufacturing PMI; nonetheless, it is no less effective in ascertaining economic figures like GDP, inflation and employment, etc.

The Non-Manufacturing sector of the United States makes up 80% of the total GDP, and hence the Services PMI is a significant economic indicator in that regard. The Non-Manufacturing sector primarily drives the macroeconomic numbers like the GDP. Together the NMI and PMI cover more than 90% of the industrial sectors that contribute to GDP; hence Services PMI is a must for fundamental analysis.

The correlation between the ISM NMI Data and real GDP is about 85%, which is pretty good. The main advantage of studying Services PMI is that it is an advanced economic indicator. It predicts the real GDP a year ahead, which is commendable.

Below is a snapshot of Services PMI plotted against the real GDP growth rate historically, and we can see the strong correlation existing between them. This explains the importance of these leading indicators in the fundamental analysis of traders.

Impact on Currency

The impact of Services PMI on the currencies is as same as the impact of Manufacturing PMI. You can find this information here.

Sources of Services PMI Reports

We can monitor the NMI reports on the official website of the ISM official website. We can also go through the NMI of other countries from the IHS Markit official website on a subscription basis.

Impact of the ‘Services PMI’ news release on the price charts

The Flash PMI, like Manufacturing PMI, measures the activity level of purchasing managers but that in the services sector. This report is based on surveys taken by the officials covering 300 business executives in the private sector services companies. Traders keep a close watch on the services PMI data as the decisions of Purchasing managers give early access to data about the company’s overall performance, which in turn acts as an indicator of the economy.

Since the services PMI only gives an insight into the performance of the service sector, it does not directly affect the economy. Therefore, the impact of the data on currency is quite less. But traders, build and liquidate some positions in the market based on the PMI data.

The below image shows the previous and latest Services PMI data of Australia, where we see a decrease in the value of the same for the month of February, and now we will analyze the impact it created on the Australian dollar. A higher reading than forecasted is considered to be bullish for the currency while a reading lower than what is forecasted must be considered negative.

AUD/JPY | Before the announcement:

We begin with the AUD/JPY currency pair, where, in the above image, we see that pair is an uptrend before the news announcement. The volatility is high, and the price is making a new ‘higher high.’ As the impact of the PMI data is less, positive data should take the currency higher, and negative PMI data might result in a short-term downtrend. It is preferable to trade the above pair if we come to encounter the second situation as it could essentially result in a retracement of the uptrend, which can be used to join the trend.

AUD/JPY | After the announcement:

After the PMI data is released, owing to a decrease in the PMI number and this immediately is followed by some buying pressure. This is where we can understand the impact of the indicator on a currency where initially due to poor PMI data, the price falls, but it could not even go below the moving average. Thus, one can take this opportunity to join the major trend by trading the retracement, which was brought in due to the bad news. Since the uptrend is strong, one can hold on their trades as long as the market shows signs of reversal.

EUR/AUD | Before the announcement:

EUR/AUD | After the announcement:

The above images represent the EUR/AUD currency pair, and the reason why the chart is going down is that the Australian dollar is on the right-hand side. The chart characteristics almost appear to be the same as in the above pair, but the volatility on the downside is more violent and strong, indicating more strength in the Australian dollar. The only way to trade the pair is the market pulls back and gives us an opportunity to enter, which is the typical way of trading a trend.

After the news release, volatility expands on the upside due to weak PMI data, and the market moves higher. This change in volatility can be used as an opportunity to enter for a ‘sell’ expecting a continuation of the downtrend. This is how the impact of the news can be used to our advantage.

AUD/HKD | Before the announcement:

AUD/HKD | After the announcement:

The next currency pair we will be discussing is the AUD/HKD, and since the Australian dollar is on the left-hand side, the market should move up if the currency gets strong. But here the market is more range-bound, and there is no clear trend. Before the news announcement, price is exactly at the ‘resistance’ area, and soon after the outcome, the price could either try to break out or fall from the ‘resistance.’

After the news announcement, we see that volatility increases on the downside, and later it slows down. This low impact could be signing that traders may not sell at the ‘resistance,’ and thus, it can breakout. If you are an aggressive trader, consider going ‘long’ in the market with a tight stop loss below the recent ‘low.’

That’s about ‘Services PMI’ and the relative impact of its news release on the Forex market. Good luck!

Categories
Forex Market Analysis

Daily F.X. Analysis, June 15 – Top Trade Setups In Forex – Stronger Dollar In Play! 

 On Monday, the fears of the renewed spread of virus grew after the U.S. reported more than 2 million coronavirus cases as of June 12, and the infection cases were reported from the most populous states of America. The high level of new infections was reported from California, Texas, and Florida, which raised the possibility of a new wave of COVID-19 and prompted risk aversion.

 On Monday, the fears of the renewed spread of virus grew after the U.S. reported more than 2 million coronavirus cases as of June 12, and the infection cases were reported from the most populous states of America. The high level of new infections was reported from California, Texas, and Florida, which raised the possibility of a new wave of COVID-19 and prompted risk aversion.

 On Monday, the fears of the renewed spread of virus grew after the U.S. reported more than 2 million coronavirus cases as of June 12, and the infection cases were reported from the most populous states of America. The high level of new infections was reported from California, Texas, and Florida, which raised the possibility of a new wave of COVID-19 and prompted risk aversion.

Risk appetite increased the demand for the U.S. dollar across the board as the bar for renewed restrictions of lockdown raised. Federal Reserve has already announced that the road to economic recovery will be longer than expected, which indicated more need for stimulus packaged from governments.

Economic Events to Watch Today

 

  

EUR/USD – Daily Analysis

The EUR/USD pair closed at 1.12563 after placing a high of 1.13403 and a low of 1.12124. Overall the movement of the EUR/USD pair remained bearish throughout the day. At 11:45 GMT, the French Final CPI for May came in as 0.1% against the expected 0.0% and supported Euro. At 13:00 GMT, the Italian Quarterly Unemployment Rate came in as 8.9% against the expected 8.8% and weighed on Euro. At 14:00 GMT, the Industrial Production in April was declined by 17.1% against the forecasted decline of 19.0% and weighed on Euro.

Poor than expected macroeconomic data from Eurozone weighed on shared currency Euro and dragged the pair EUR/USD to one week’s lowest level near 1.1212. On the other hand, the greenback was stronger on Friday, and the U.S. Dollar Index (DXY) jumped to 97.15 level. The strength of the U.S. dollar also added to the downfall of the EUR/USD currency pair at the ending day of the week.

From the American side, at 17:30 GMT, the Import Prices in May were surged by 1.0%, which were previously forecasted to increase by 0.6% and supported the U.S. dollar. At 19:00 GMT, the Prelim UoM Consumer Sentiment increased to 78.9 from the anticipated 75.0 in June and supported the U.S. dollar. The Prelim UoM Inflation Expectations decreased to 3.0% from previous months’ 3.2% in June and supported the U.S. dollar. After better than expected data from the American side, the pair EUR/USD was further dragged down towards its six day’s lowest level.

Furthermore, the Commissioner President of the European Union, Von der Leyen, will meet the Prime Minister of the United Kingdom, Boris Johnson, on Monday to revive the talks related to the post-Brexit deal. So far, there hasn’t been much progress on a free-trade agreement between U.K. & Brussels while there is not much time left to extend the deadline for a deal till end-2020.

However, on Thursday and Friday this week, the E.U. leaders will meet to discuss the proposed recovery fund to overcome the economic damage caused by the pandemic. All members except the Frugal Four I,e Netherland, Austria, Demark, and Sweden, support the recovery fund. All member’s acceptance is needed for the recovery fund to succeed, and any delay will be a major setback for the shared currency Euro.

Daily Support and Resistance

  • R3 1.1293
  • R2 1.1275
  • R1 1.1263

Pivot Point 1.1245

  • S1 1.1233
  • S2 1.1215
  • S3 1.1203

EUR/USD– Trading Tip

The EUR/USD pair is trading at 1.1260 level, having entered into the oversold zone. Today, we can expect bullish correction until 1.1270 and 1.1290 levels, which marks 50% and 61.8% Fibonacci retracement levels. Below these levels, the EUR/USD pair can show selling bias again as the 50 EMA can pressure the pair for selling. On the lower side, support continues to hold around 1.12250 and 1.1208.

GBP/USD – Daily Analysis

The GBP/USD pair was closed at 1.25414 after placing a high of 1.26533 and a low of 1.24735. Overall the movement of GBP/USD pair remained bearish throughout the day. The GBP/USD pair was dropped to its lowest of 8 days on Friday due to mediocre than expected economic data release and U.S. dollar strength. At the ending day of the week, British Pound dropped against the U.S. dollar after the British GDP contracted by a quarter year-on-year in April.

At 11:00 GMT, the Gross Domestic Product (GDP) in April from the United Kingdom was dropped to -20.4% from the expected -18.6% and weighed on GBP. The Manufacturing Production for April also dropped to negative 24.3% from the expectations of -15.0% and weighed on British Pound.

The Industrial Production in April was dropped to -20.3% against the forecasted -15.0% and added in the weight of British Pound. However, at 11:02 GMT, the Goods Trade Balance for April showed a deficit of 7.5B against the forecasted deficit of 11.0B and supported Pound.

At 11:03 GMT, the Construction Output in April was recorder to decline by 40.1% against the forecasted 240% decline and weighed on British Pound. However, the Index of Services was declined by 9.9% against the expected decline of 10.6%.

At 13:30 GMT, the Consumer Inflation Expectations for the United Kingdom were dropped to 2.9% for this quarter from 3.0% of the previous quarter. At 18:08 GMT, the Institute of Economic and Social Research (NIESR) Estimate for GDP in May was -17.6% against the previous months’ -10.3%. At 18:30 GMT, the C.B. Leading Index for April was dropped by 2.9% from the previous month’s 1.2%.

The poor-than-expected macroeconomic data from Great Britain exerted negative pressure on British Pound and dragged the pair to its one week’s lowest level below 1.2500 level.

Apart from negative macroeconomic data, the uncertainty surrounding Brexit also weighed on British Pound on Friday ahead of the PM Boris Johnson’s video conference with European Council President Charles Michel, European Commission President, Ursula von der Leyen and European Parliament President David Sassoli on Monday.

The lack of progress in Brexit talks with Brussels and the calls to review the policy options, including negative interest rates by BoE has also been lagging in the recovery of Pound. Ahead of the BoE meeting, it has already been confirmed on Friday that U.K.’s economy has contracted by 20.4% in April. This means that BoE will likely announce further easing in its policy next week. The current purchase plan of BOE comprises 200 Billion GBP, which is likely to extend further in the next meeting.

Furthermore, the latest round of talks with Brussels failed to deliver any significant progress in the post-Brexit trade deal, which has raised the odds for a no-deal exit from the E.U. As the transition period will expire on January 1, 2021.

On the other hand, from the American Side, the Prelim Consumer Sentiment from the University of Michigan increased in June to 78.9 from the expected 75.0 and supported the U.S. dollar. The U.S. dollar was already strong in the market, and after this release, it exerted even more pressure on the GBP/USD pair.

Daily Support and Resistance

  • R3 1.2593
  • R2 1.2568
  • R1 1.2538

Pivot Point 1.2512

  • S1 1.2482
  • S2 1.2456
  • S3 1.2426

GBP/USD– Trading Tip

The GBP/USD pair is trading with a bearish bias at a depth of 1.2470, following a downward channel extending resistance around the value of 1.2540. On the 4 hour timeframe, the Cable has entered the oversold zone as we can see the RSI and MACD both were holding below 20 and below 0 levels, respectively. On the lower side, the Cable may find initial support at a level of 1.2385 after the violation of 1.2455 level. On the higher side, the GBP/USD prices may find resistance at 1.2543 area today. Let’s consider sell positions below 1.2450 level. 

USD/JPY – Daily Analysis

The USD/JPY was closed at 107.353 after placing a high of 107.552 and a low of 106.583. Overall the movement of USD/JPY remained bullish throughout the day. The USD/JPY gained strength after posting losses for the previous four consecutive days. The stronger U.S. dollar and negative macroeconomic data release from Japan might have added in the strength of this pair USD/JPY.

At 9:30 GMT, the Revised Industrial Production from Japan in April was declined by 9.8% against the forecasted 9.1% and weighed on Japanese Yen and moved the pair USD/JPY in the upward direction on Friday.

The brighter market sentiment due to come back of risk appetite in the market after the possibility of renewed lockdowns increased due to increased fears over the second wave of coronavirus outbreak.

The fears of the renewed spread of virus grew after the U.S. reported more than 2 million coronavirus cases as of June 12, and the infection cases were reported from the most populous states of America. The high level of new infections was reported from California, Texas, and Florida, which raised the possibility of a new wave of COVID-19 and prompted risk aversion.

Risk appetite increased the demand for the U.S. dollar across the board as the bar for renewed restrictions of lockdown raised. Federal Reserve has already announced that the road to economic recovery will be longer than expected, which indicated more need for stimulus packaged from governments.

However, the U.S. Dollar Index was up to 97 levels on Friday, and the strength of the U.S. dollar pushed the USD/JPY pair above 107.5 level.

Another factor aiding in the U.S. dollar’s strength was better than expected macroeconomic data from the USA. At 19:00 GMT, the Prelim Consumer Sentiment from the University of Michigan (UoM) surged to 78.9 in June from the expected 75.0 and supported the U.S. dollar. The Import Prices in May also increased by 1.0% from 0.6% of forecast and supported the U.S. dollar. The Prelim UoM Inflation expectation in June was reported as 3.0%.

Daily Support and Resistance    

  • R3 107.93
  • R2 107.75
  • R1 107.54

Pivot Point 107.36

  • S1 107.15
  • S2 106.97
  • S3 106.75

USD/JPY – Trading Tips

The USD/JPY pair fell sharply after violating the upward channel, which supported the pair around 107.500. For now, this level is working as resistance for USD/JPY. The 50 periods EMA is also extending strong resistance at 107.650 area while immediate support stays around 106.600. The bearish trend in the USD/JPY pair can trigger a sell-off until the next support level of the 106.017 level today. Let’s wait for the market to test the 107.650 level before entering a sell in the USD/JPY today. 

Good luck! 

Categories
Forex Options

FX Options Market Combined Volume Expiries for 15th June 2020

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

……………………………………………………………………………………………………………………..

FX option expiries for June 15 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

– EUR/USD: EUR amounts

  • 1.1260 1.5bn
  • 1.1300 648m

EURUSD pair price action was capped around the 1.1400 key level and is currently in a bear trend lower and likely to find a price squeeze/consolidation before an eventual break to the next trend. The pair is oversold on the one hour chart with the 1.1260 maturity close to current price action.

– USD/JPY: USD amounts         

  • 107.00 405m
  • 107.15 878m
  • 108.00 644m

USDJPY pair is approaching overbought on our one hour chart and the two large strikes at 107.00 and 107.15 are likely to contain price action due to a lack of economic data on the calendar today.

………………………………………………………………………………………………………………………..

As you can see on the charts we have also plotted the expiration levels at the various exchange rate maturities and we have also labelled in red, orange and blue. Therefore, if you see option expiry exchange rates labelled in red these should be considered in-play, because we believe there is a greater chance of the expiry maturing at these levels based on technical analysis at the time of writing. There is still a lesser possibility of a strike if they are in orange and so these are ‘in-play’ too. However, if we have labelled them in blue, they should be considered ‘not in-play’ and therefore price action would be unlikely to reach these levels, which are often referred to as Strikes, at the time of the 10 AM New York cut.

Our technical analysis is based on exchange rates which may be several hours earlier in the day and may not reflect price action at the time of the maturities. Also, we have not factored in economic data releases or keynote speeches by policymakers, or potential market volatility leading up to the cut.

Although we have added some technical analysis we suggest you take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage. Remember the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.

If you want to learn how forex option expiries affect price action in the spot FX market see our educational article by clicking here: https://bit.ly/2VR2Nji

DISCLAIMER: Please note that this information is for educational purposes. Also, the maturities will look more or less likely to become a strike at 10 AM NY time due to exchange rate fluctuations resulting in a different perspective with regard to technical analysis, and also due to upcoming economic data releases for the associated pairs.

Categories
Forex Price Action

The Trend in a Bigger Frame is Traders’ True Friend

There is a saying in financial trading “Trend is traders’ friend.” Without any doubt, this is true. In a chart combination trading, a bigger timeframe’s trend plays an important role and helps traders a lot to go with an entry in its counterpart. Let us have a look through an example of how it works.

There is a saying in financial trading “Trend is traders’ friend.” Without any doubt, this is true. In a chart combination trading, a bigger timeframe’s trend plays an important role and helps traders a lot to go with an entry in its counterpart. Let us have a look through an example of how it works.

There is a saying in financial trading “Trend is traders’ friend.” Without any doubt, this is true. In a chart combination trading, a bigger timeframe’s trend plays an important role and helps traders a lot to go with an entry in its counterpart. Let us have a look through an example of how it works.

This is a daily chart. The chart shows that the price heads towards the North at a moderate pace. The last candle comes out as a bullish candle closing well above consolidation resistance. It means the daily traders may start eyeing to go long in the pair.  The daily-H4 combination traders may flip over to the H4 chart for the price to consolidate and produce a long signal.

This is the flipped H4 chart. The chart shows that the last candle comes out as a bullish candle with an upper shadow. The buyers are to wait for the price to consolidate now.

The price consolidates and produces a bullish candle breaching consolidation resistance. Here is a thing. The consolidation range is shallow. The consolidation range plays a significant role in determining the next move’s length. The length of consolidation here does not suggest that the next move will be a big one. The daily-H4 combination traders may trigger a long entry by setting stop loss below consolidation support and by setting take profit with 1R. Let us proceed to the next chart.

The price hits the target of 1R by the next candle. Concentrate on the last candle. The candle comes out as a bullish Marubozu candle. It suggests that the price may head towards the North further. Let us find out how far it goes.

The price heads towards the North with three more candles. This means it travels almost three times more length than the combination traders have anticipated. Can you guess what may be the reason for this?

The daily chart is in a strong bullish trend. The last daily candle breaches through consolidation resistance and makes a strong statement about its bullishness. That may have attracted the daily buyers to go long in the pair as well. This brings extra liquidity and helps the price head towards the North with extreme pressure. This happens most of the time in combination trading. If the bigger chart makes a breakout and has a solid trend, the price seems to head towards the trend’s direction at a good pace in the minor chart. The combination traders may keep this in their mind and make full use of this.

Categories
Forex Daily Topic Forex Fundamental Analysis

The Importance Of ‘Steel Production’ & Its Impact On The Forex Market

Introduction

Introduction

Introduction

Steel is a commodity of paramount importance in today’s international economy. Steel is a staple for the modern economy, and its wide range of usage from the tiniest needles to the largest bridges and tallest buildings makes it an essential commodity for economic prosperity.

Steel is no less critical than Food and Energy for today’s modern world. The far-reaching utility and demand thereof of Steel makes it a good economic indicator for us to understand its impact on exporting and importing economies.

What is Steel Production?

Iron and alloying elements like carbon, chromium, manganese, nickel, and vanadium are added to produce different types of Steel.  Steel industry began in the late 1850s before which it was an expensive commodity that was exclusively used for armors and cutleries primarily.

After the invention of the Bessemer and open-hearth process, Steel Production became easier. By the 1860-70s, the steel industry started to grow rapidly and continues to do so even today. Steel is the most sought after commodity for its durability and strength. It is used for building heavy machinery in the world, like in cars and engines. The natural abundance of Iron and Carbon makes it an affordable commodity for large scale production and supply.

Today Steel is mainly produced through techniques called basic oxygen steelmaking and Direct Reduced Iron (DRI) in an electric arc furnace. Steel’s unique magnetic properties make it an accessible material to recover from the waste for recycling. Steel retains its properties even after undergoing many recycling processes. Hence, it is reusable and economical.

How can the Steel Production numbers be used for analysis?

On a standalone basis, the steel industry directly contributes about 3.8% to the total global GDP as per 2017 research. The indirect impacts meaning the industries that depend on steel production, contribute 10.7% to the global GDP.

The importance of Steel Production apart from its utility is that the supply chain of Steel is very long. The number of dependent industries way more than any other industry. As per 2017’s research by Oxford Economics for every two jobs added in the steel sector, 13 additional jobs are supported through its worldwide supply chain. About 40 million people work in this supply chain of Steel. Indirectly it supported 259 million jobs worldwide and was worth 8.2 trillion dollars in 2017.

Steel is a critical input in the work of many other industrial sectors that produce items essential for the economy to function like hand tools, complex factory machines, Lorries, trains, railway tracks, and aircraft. It is apart from the countless items from day-to-day life like cutlery, tables, cars, bikes, etc. Hence, the economic activity goes beyond the steel-producing locations to multiple sectors across countries. Some of the primary industries that use Steel are Construction, Electronic, Transportation, Automotive, Mechanical Equipment, Energy Production and Distribution, Food and Water, Tools, and Machinery industries.

As the demand for Steel continues to rise, the exporting countries would be at a more significant advantage in terms of economic growth, as evident by below ongoing historical trend.

(Source – worldsteel.org)

Below are the rankings of major economies ranked in terms of exports and imports

(Source – worldsteel.org)

Hence, countries that are net exporters of Steel would be at a higher economic advantage in terms of its own consumption needs and revenue generation through exports. As economies continue to improve the standard of living of their population, the demand for Steel will continue to increase.

Developing economies like China and India have tapped into this market and increased their Steel production over the last decade to achieve export-led-growth. As evident from the above statistics, the developed economies like the United States and the European Union continue to be a net importer while developing economies China and Japan are the leading exporters of the same.

Significant changes in the Steel Production figures will, therefore, have adverse effects on the exporting and importing economy. Hence, Steel Production directly influences economic performance and, therefore, the currency value of that economy.

Impact on Currency 

Steel production is a proportional indicator. An increase in production is beneficial for the economy and thereby for the currency. Steel is a global commodity produced worldwide. Hence, Steel Production figures are useful in identifying the long term megatrends and newly developing Steel industries that will have long term impact.

The short-term fluctuations within the Steel Industry itself would be recorded through other more extensive indicators like Industrial Production (IP) Index in the United States. It is a low impact indicator and is more useful for making long-term sector-wise investment strategies.

Economic Reports

The World Steel Association represents about 85% of the total steel producers across the world. It aims to find global solutions to the environmental challenge to identify trends and bring together regional and national steel producers.

It publishes monthly and annual reports on steel production figures comparing economies in terms of exports, imports, contributions to global GDP on its official website. The monthly reports are usually published in the last week of a month for the previous month.

Sources of Steel Production

The WSA monthly press releases are available here. Statistical figures of global economies are available here and here. The worldwide statistical figures are also available here. The economic impact of Steel is also reported by the American Iron and Steel Institute here.

Impact of the ‘Steel Production’ news release on the Forex market

We saw how Steel Production plays a vital role in an economy with both economic and social impact. Steel is one of the essential materials for the construction of buildings and the manufacturing of many other materials. It creates opportunities in the innovation sector and in research & development projects around the world. Given such a wide range of applications, it is apparent that it has a fair amount of impact on the economy and on the currency. An in-depth analysis revealed that in 2017, the steel industry sold 2.5 trillion worth of products and created U.S. $500 billion value. The steel industry also supports and facilitates 96 million jobs globally.

In this article, we will be analyzing the impact of U.K. Steel Production on the British Pound and witness the change in volatility during the official news announcement. The below image shows the latest Steel Production data in the U.K. produced in the month of April. A higher than expected reading is taken to be bullish for the currency. Contrarily, a lower than expected reading is considered to be negative.

GBP/USD | Before the announcement:

We shall start with the GBP/USD currency pair for examining the impact on the British Pound. In the above price chart, it is clear that the overall trend of the market is down, but recently the price has pulled back quite deep. This is an indication that the downtrend may be coming to an end, and this could turn into a reversal. We will take a suitable position in the market based on the news release.

GBP/USD | After the announcement:

After the news announcement, volatility increases on the downside in the beginning, but later, the price reverses and closes in the green. The buyers push the price higher owing to positive Steel Production data, and the price forms a ‘hammer’ candlestick pattern. The Steel Production news release produced moderate volatility in the currency pair and, lastly, strengthened the British Pound. We need to be careful before taking a ‘buy’ trade as the major trend is down, and the impact of this news is not long-lasting.

GBP/AUD | Before the announcement:

GBP/AUD | After the announcement:

The above images represent the GBP/AUD currency pair. Before the news announcement, the market is in a strong downtrend, and recently the price has pulled back is very gradual in nature. The price action suggests that the market might continue its downtrend and so we will be looking to sell the currency pair after noticing some trend continuation patterns.

After the news announcement, the price reacts mildly to the news data where it nor sharply moves higher nor crashes below. The Steel Production has a slightly positive impact on the pair and lately the volatility to the upside. One should not forget that traders do not give much importance to this data, so one cannot expect the market to continue moving higher. As long as we don’t see trend reversal patterns in the market, an uptrend is far away.

GBP/CHF | Before the announcement:

GBP/CHF | After the announcement:

The above images are that of the GBP/CHF currency pair, where we see that the market is in a downtrend, and lately, the price is has retraced to the ‘resistance’ area. With this, the market has also shown some trend continuation patterns indicating that the downtrend will continue at any moment. If the news release does not change the structure of the chart, this can be an ideal chart pattern for taking a ‘short’ trade.

After the news announcement, the price initially falls lower, but buyers immediately take the price higher, and the candle closes with a wick on the bottom. Although the volatility is low after the announcement, the market is moving on both the directions and produces a neutral effect on the currency pair.

That’s about ‘Steel Production’ and its impact on the Forex market after its news release. If you have any questions, please let us know in the comments below. Good luck!

Categories
Forex Course

123. Trading The Bullish & Bearish Bat Pattern

Introduction

Introduction

Introduction

The BAT is a harmonic pattern that appears in both up and downtrend. This pattern occurs when the trend temporarily reverses its direction and before continuing on its original course. As soon as this pattern ends, the markets resume it’s original direction, giving us an opportunity to enter the trade.

The Characteristics of the BAT Pattern

X-A – In its bullish version, the first leg forms when the price rises sharply from the point X to point A.

A-B – The AB leg retraces back between the 38.2% and 50% Fibonacci levels to the distance covered by XA leg.

B-C  – For BC leg, price changes its direction again and retrace anything between the 38.2% and 88.6% of the distance covered by the AB leg.

C-D – The CD leg is the final and most important part of the pattern. If this leg goes wrong, then the pattern can be considered invalid. We can go long when the CD leg has achieved 88.6% retracement of the XA leg.

Below is how both Bearish and Bullish Harmonic Bat pattern would look like when Fib levels are applied to it.

Trading the Bullish Bat pattern

The below price chart represents the formation of a Bullish BAT pattern on the USD/CHF forex price chart.

The below image represents our entry and exit while trading the Bullish Bat pattern. At first, we can see the price action printing the XA leg on the chart. Followed by that, the counter-trend AB move has retraced to 38.2% Fib level of the XA move. The BC leg followed the trend and retraced back to 88.6% of the AB leg. The last leg was the CD leg, which reached the 88.6% Fib level of the XA move. The trade activation was at point D, and the stop-loss is placed little below the D point. To place the take-profit order, we chose point A, and we can see how that placement is respected.

Trading the Bearish Bat pattern

The image below represents the formation of a bearish bat pattern on the NZD/USD Forex price chart.

The formation of the pattern starts with the first leg at point X, and it ends at point A. The second leg AB was counter-trend, and it retraced back to 38.2% of the XA leg. The BC leg goes down, and even that retraced 38.2% of the AB leg. The last leg was the CD move, and if this leg doesn’t follow the rules, we shouldn’t consider the pattern valid. The CD leg goes up, and it retraces to 88.6% fib level. Hence, we can consider the pattern formed as valid. We have activated the trade at point D, and the stops were placed above point D. We have placed two take-profit orders – the first one was at point C, and the next one was at point A.

Conclusion

Bat is one of the most credible Harmonic patterns in the market. As the pattern ends at point D, our trade immediately resumes and often provides an excellent risk to reward ratio trades. Once you master trading the bullish pattern, the bearish one can easily be traded. The Bat is also considered one of the most reliable harmonic patterns; So whenever you identify this pattern, it is advisable to go big. Cheers!

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Categories
Forex Videos

Fundamental Analysis For Novices! Redbook Index!

https://youtu.be/CNdb6tgG1ak

https://youtu.be/CNdb6tgG1ak

Fundamental Analysis For Novices: Redbook Index

Welcome to the educational video for novices on fundamental analysis. In this video, we will be looking at the Redbook index.
So what is the Redbook index, and how can it help you trading forex?


Successful traders keep a close eye on their economic calendar. They review it at least once a day. This is a typical calendar which is provided by most brokers.


The information that you are looking for is the type of economic event, the time of its scheduled release, which is usually subject to an embargo, and the impact that it is likely to have upon its release. You will also be able to look at the previous weekly, monthly, quarterly or annual release of this data if applicable, and you will be able to study the consensus value which will have been put together by economists and analysts and whereby this is the figure which is generally expected by the market upon its release.


Here we can see that on Tuesday the 9th of June at 13:55 BST, the red book index year on year and month on month is scheduled for release.
The Johnson’s Redbook index is a sales-weighted proprietary indicator as released by Redbook research incorporated in the United States since 1964. This indicator only applies to the US, where it represents the weekly, monthly, quarterly, and annual sales activity of 9000 stores. The data is released every Tuesday at the same time to its subscribers via a conference call or an email prior to its public release. The data forms 80% of the total data as collated in this sector and is officially released into the market by the US Department of Commerce.
Although it is a private indicator, it is closely watched by traders on Wall Street, including the Forex community, because it identifies trends in the short to medium term relating to the retail sector.

The stock market finds this information useful because it ranks retailers across categories including apparel, books, toys and hobbies, department stores, discount stores, footwear, furniture, drug stores, home Improvements, home furnishers, electronics, jewelry, and sporting goods and miscellaneous.
But all traders recognize that it provides an advance warning of changes in consumer spending that, in turn, affect the business growth in this sector and shows warning signs of inflation fluctuations and interest rates.


So, how to trade the Redbook Index?
Information is provided on a percentage basis, and we can see that the previous figures for year on year and month on month were minus figures, and this is related to the coronavirus epidemic. If the actual numbers are released and as percentage terms are worse than the previous numbers shown here, this would be considered to be bad for the US economy, and therefore bad or bearish for the US Dollar. Conversely, should the numbers come in higher than the previous numbers, this would show a pickup in retail sales and a continuing overall trend in the upturn of the US economy, which is filtering through at the moment, and therefore this would be good or bullish for the US dollar.

Categories
Forex Fundamental Analysis

How Does The ‘Private Sector Credit’ Data Impacts The Foreign Exchange Market?

Introduction

Introduction

Introduction

Changes in Private Sector Credit and the nominal values can be used to assess the recent economic stability and oncoming trend. It is an indicator of economic health and can be used as a broad metric to know the overall economy’s liquidity and rate of economic growth. Hence, Private Sector Credit can be utilized as an economic indicator for our fundamental analysis to double-check our current assessments and forecasts.

What is the Private Sector Credit?

As the name suggests, Private Sector Credit refers to the financial resources provided to the Private Industry in the form of loans, securities, or other forms of capital by the financial institutions like Commercial banks, finance companies, or other financial institutions, etc.

How can the Private Sector Credit numbers be used for analysis?

Private Sector Credit is affected by the following factors:

Interest Rates – Higher interest rates from financial institutions can discourage private business firms from taking credit. As the credit becomes “expensive,” it drives out the small businesses’ chances of obtaining credit. Only the top-tier institutions may be able to borrow the credit. The Interest Rates that are prevalent in the market is influenced by the Central Bank’s interest rates. In the United States, it is called the Fed Funds Rate. Hence, Central Authorities also play a key role in loan affordability for the private sector.

A loose monetary policy, where Central Banks inject money into the market through open market operations (purchasing bonds, securities), increases the liquidity of the banking sector, which slowly passes on to other sectors of the economy. It decreases the overall Bank Lending Rates and encourages people and businesses to avail credit. It is generally called a dovish approach.

In a tight monetary policy, Central Banks withdraw money from the economy by selling bonds, securities to decrease liquidity. It results in Banks increasing their short-term interest rates. It encourages people to deposit and save more than borrow and spend. It is generally called a hawkish approach.

Credit Rating – Every individual and corporation has a credit rating that tells the worthiness of the candidate for credit. It measures the risk associated with defaulting on the credit. A high credit rating indicates the risk of default is very less, and banks would be willing to lend more, and even in some cases, at a lower rate. A bad credit rating, in most cases, prevents banks from lending, while some institutions may prefer to lend less, or at a higher interest rate than the market rate for the risk associated.

The Credit Rating is backward-looking; it looks at the candidate’s credit history. The good performance of the business is possible in a healthy economy and vice-versa. Hence, past economic health also influences current credit scores. Economic health, business performance, and credit ratings are interlinked, in a feedback loop, one affects the other.

Property Prices – Since Credits are mostly backed by collateral in the form of assets like real estate, or houses, an increase in the property prices creates a wealth effect. It gives a positive sentiment for the financial institutions to lend resources to the private sector, be it consumers or business firms.

Government Backing – When businesses are backed by Government support, lending is also easy. It is more observable in developing economies, where Governments actively support private businesses to boost employment rates, wage growth, and overall economic growth. The government in developing economies may assist in land acquisition for business set up or disburse loans at cheaper rates to the corporate firms.

Increase in Private Sector Credit indicates the financial institutions are confident about the past and current economic conditions and predict that the economic stability shall continue for the near future, at least. When the confidence of financial institutions is deteriorated by inflation fluctuations, unstable markets, banks increase deposit rate interests, to promote saving, thereby increasing their liquidity, and refrain from lending to a significant extent.

Tight lending environments are symptoms of a weak economic growth rate. An increase in the real GDP growth rate has been observed to be followed by increased Private Sector Credit. In turn, this increased credit helps businesses to increase employee staff, improve productivity. It overall increases economic activity and further assists in the GDP growth rate. Hence, both feed-off each other. Slowdowns also feed-off each other, and it accelerates the stagnation or economic downturn. In such cases, the Government or Central Bank intervention is crucial to keep the economy going.

Impact on Currency

In the context of currency markets, Private Sector Credit figures would be a backward-looking indicator (lagging or coincident indicator) as credit is issued if past business performance and current economic conditions are favorable. Hence, Private Sector Credit is a coincident indicator reflective of the current economic conditions.

The Private Sector Credit is not market sensitive, changes in the figures build up over time, and hence, it is a low impact indicator for predicting short-term currency moves within a 1-2 month time horizon. It is useful for assessing a long-term economic trend, though.

Economic Reports

The World Bank maintains the Domestic Credit to Private Sectors in the form of an online database on its official website. Statistics are added once individual countries’ statistics are reported.

For the United States, a weekly report of the Assets and Liabilities of Commercial Banks in the United States is released by the Federal Reserve, from which we can derive the Private Sector Credit information. The report is released every Friday at 4:15 PM.

Sources of Private Sector Credit

For the United States, Private Sector Credit data is maintained by the St. Louis FRED, and that information can be found here. World Bank Private Sector data is available here.

We can find Private Sector Credit statistics for many countries in nominal terms and as percentages of GDP here.

Impact of the ‘Private Sector Credit’ news release on the price charts

Now that we have a clear understanding of the Private Sector Credit economic indicator, we will now watch the impact of the news announcement on various currency pairs and analyze the data. Private loans measure the change in the total value of new loans issued to consumers and businesses in the private sector. To an extent, the allowances will determine the growth of the private sector.

Thus, the higher the government and banks lend to companies, the greater will be the development. The investor considers this data to be an important parameter when making large investment decisions in a currency or in the stock market. However, when it comes to short term movement of the currency, traders don’t pay a lot of attention to the data.

In today’s example, we will be analyzing the Private Sector Credit in the Eurozone and examine the change in volatility in major Euro pairs due to the announcement. A higher than expected reading should be positive for the currency while a lower than expected reading should be negative for the currency.

EUR/USD | Before the announcement:

We shall begin with the EUR/USD currency pair and examine the impact on this pair. In the above image, we see that the pair is in an uptrend, and just before the news announcement, the price has is at its highest point. Depending on the reaction of the market to the Private Sector Credit news, we will be able to take a position in the market.

EUR/USD | After the announcement:

After the news announcement, we witness a lukewarm reaction from the market, and there is hardly any change in volatility. This is because the Private Sector Credit was nearly the same as before with an increase in a mere 0.1%. This cannot be considered as a major boost to the private sector as the government and banks did not increase lending of loans by a vast percentage. As the impact was least, one can trade the pair on the ‘long’ side by joining the uptrend.

EUR/AUD | Before the announcement:

EUR/AUD | After the announcement:

The above images represent the EUR/NZD currency pair, where we see that before the news announcement, the market has displayed reversal patterns, and there is a possibility that the market might turn into a downtrend. If the news announcement does not increase the volatility to the upside and price does not cross above the moving average, one can some ‘short’ positions expecting a further downward move.

After the news announcement, the price moves higher by a tad bit, and the ‘news candle’ displays little volatility. As the price remains below the moving average and impact was not great, one can take a risk-free ‘short’ trade in the market with a stop-loss above the recent ‘high.’

EUR/CHF | Before the announcement:

EUR/CHF | After the announcement:

Finally, we will discuss the impact on the EUR/CHF currency pair. Here, we see that the overall trend of the market is up and recently the price has started moving in a ‘range.’ Before the news announcement, the price is at the bottom of the range, and thus a buying pressure can come back into the market at any moment. As the impact of Private Sector Credit is less, aggressive traders can ‘long’ position in the market as the price is at the lower end of the range.

After the news release, volatility expands on the upside, and the price closes with a huge amount of bullishness. The Private Sector Credit data proved to be very positive for this pair, which resulted in a sharp rise in the price to the higher side. After the close of ‘news candle,’ traders can go ‘long’ with stop loss below the support and a ‘take-profit’ at the resistance of the range. We cannot have a much higher ‘take-profit’ as the impact will not last long.

That’s about ‘Private Sector Credit’ and its impact on the Forex market after its news release. If you have any questions, please let us know in the comments below. Good luck!

Categories
Forex Assets

Trading The ‘LINK/USD’ Crypto Fiat Pair & Analyzing The Costs Involved

Introduction

Introduction

Introduction

Chainlink is a decentralized oracle network whose purpose is to connect smart contracts with the real world. LINK is its native digital currency, which is used to node operators on the Chainlink decentralized oracle network. LINK has a market capitalization of $1.5 billion and stands 14th on CoinMarketCap. LINK can be bought using fiat currency as well as traded against other cryptocurrencies like BTC and ETH.

Understanding LINK/USD

The price of LINK/USD depicts the value of the US Dollar equivalent to one Chainlink. It is quoted as 1 LINK per X USD. For example, if the market price of LINK/USD is 4.36166, then each LINK will be worth so many dollars.

LINK/USD specifications

Spread

Spread is nothing but the arithmetic difference between the buying and selling price of the cryptocurrency. Unlike forex brokers, these prices are decided by the traders and not the exchange. Hence, the spread constantly varies in exchange as well as across exchanges.

Fee

Typically, there are three types of the fee charged by exchanges including

  • Execution fee (Taker or Maker) – twice, for opening and closing the trade
  • 30-day trading volume fee
  • Margin opening fee, if applicable

Example

  • Long 1,000 LINK/USD at $4.45509
  • 30-day volume fee is $0
  • Order is executed as Taker
  • With Leverage

Total cost of the order = 1,000 x $4.45509 = $4455.09

Assuming the taker fee to be 0.26%, the opening fee will be – $4455.09 x 0.26% = $11.58

The margin opening fee of 0.02% is charged for opening the position using leverage – $4455.09 x 0.02% = $0.89

If the order is closed at $4.50000, the total cost of closing will be – 1,000 x $4.50000 = $4500.00. And the fee for closing will turn to be – $4500.00 x 0.26% = $11.70

Thus, the total fee will be the sum of all the fees – $11.58 + $0.89 + $11.70 = $24.17

Trading Range in LINK/USD

Chainlink is traded in cryptocurrency exchanges and not forex brokers. So, there is no concept of pip and pip value. Instead, the value of the crypto is directly taken into account.

A trading range is the tabular representation of the approximate value movement of the pair, which is obtained through the Average True Range (ATR) indicator. In layman terms, the numbers in the table depict the amount of US dollars a trader will gain or lose in a given time frame. The following table shows the value of the price movement for 1,000 quantities LINK/USD.

Note: the above values are for trading 1,000 units of LINK/USD. If X units of the pair are traded, then the ATR values will be,

(ATR value from the table / 1,000) x X units

Procedure to assess ATR values

  1. Add the ATR indicator to your chart.
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator.
  4. Shrink the chart so you can assess an extensive period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

LINK/USD Cost as a Percent of the Trading Range

Below are two tables representing cost variations for different time frames in terms of a percentage for taker execution and maker execution.

Taker Execution Model

Opening = $11.58 | Margin fee = $0.89 | Closing = $11.70 | 30-day volume = $0

Total fee = Opening + Margin fee + Closing + 30-day volume = $11.58 + $0.89 + $11.70 + $0 = $24.17

Maker Execution Model

Opening = $7.12 | Margin fee = $0.89 | Closing = $7.2 | 30-day volume = $0

Total fee = Opening + Margin fee + Closing + 30-day volume = $7.12 + $0.89 + $7.2 + $0 = $15.21

*Assuming maker fee to be 0.16% the trade value.

Interpretation of Cost as a Percent of the Trading Range

Let us directly understand the table with an example.

1H time frame

ATR value = 41.92

Cost percentage = 57.66%

4H time frame

ATR value = 92.32

Cost percentage = 26.18%

Comparing ATR values, we infer that more profit can be generated in the 4H time frame ($92.32) than in the 1H time frame ($41.92). But, a critical point to note is that the cost is the same for both the trades. A fee that is paid to gain $92.32, the equal fee must be paid to gain $41.92. This difference is represented using the cost percentage. Thus, the percentage in the 1H time frame is higher than that in the 4H time frame, indicating that the relative costs are higher.

Trading the LINK/USD

LINK can be traded against USD and few cryptocurrencies as well. However, LINK/USD is seen to have the highest trading volume. Comparing the liquidity with other cryptocurrency pairs like BTC/USD, ETH/USD, and XRP/USD, LINK/USD is less liquid.

From the above comprehension of the cost percentage, we understood that the costs remain the same irrespective of the time frame you trade. Thus, to relatively reduce the costs, we must focus on the columns of the table. The effective way to trade this pair is to enter the market when the volatility is at or above the average values. For example, if you are a day trader who trades the 1H time frame, you must make sure that the volatility is above the average level. In doing so, you will be able to extract more from the market for the same total fee. Cheers!

Categories
Forex Daily Topic Forex Videos

Fundamental Analysis For Novices! Housing Starts!

https://youtu.be/tlt1waCJvqQ

https://youtu.be/tlt1waCJvqQ

Fundamental Analysis For Novices Housing Starts

 

Welcome to the Fundamental analysis video for novices. In this session, we will be looking at housing starts.

So, what are housing starts?

If you are reviewing your Economic Calendar and you come across the term Housing Starts, it refers to this key economic indicator, which is released around the 17th of each month by the US commerce department. The information is subject to an Embargo, and when released, it refers to the number of new residential homes that had begun construction during the month in question. Only housing starts where construction has begun on the foundations of the property are included in the data.

In the United States, housing starts comprise of three sectors of residential homes, which include single-family homes, town homes and condominiums, and multi-family dwellings with more than five units such as apartment blocks.
Analysts and traders compare the monthly data to previous months figures, in order to ascertain if the month or month and annual housing starts are growing in numbers or falling.

So why is Housing Starts so important in fundamental analysis, and why is it considered a key economic indicator?
Housing starts help to give a clear picture of the economic health of a country because when houses are being constructed, it usually means that people are moving home, buying homes or investing in properties such as buy to let or with a long term view to buy, hold, and sell. These types of home buyers are speculators. Sometimes this area of activity is referred to as flipping, especially in the renovation sector.
The important thing is that this activity usually grows in a growing economy and will typically contract during periods of recession.

The 2008 financial crash which started in the United States was due to the subprime mortgage sector failure, where bundles of mortgages were bought and sold in the financial markets, and where many mortgages were packaged as been A-rated but were in fact blended with mortgages that were considered as high risk due to the fact that the mortgages were large in size and those taking on the mortgages could not necessarily afford them.

When the 2008 recession started, and people were unable to pay their mortgages, the knock-on effect was, banks losing money in failed mortgages, which started a knock-on effect and caused the crash. Housing starts can be affected by the weather, and this is generally factored in by economists when the data is released. They will also consider the business sector surrounding this industry, which include banks, mortgage suppliers, mortgage brokers, builders, construction workforce, and suppliers of goods and materials.

How to trade housing starts?
Because of the coronavirus pandemic, which has caused a contraction in the housing market, traders and analysts and economic commentators will be keeping a close eye on Housing, starts data over the next few months. They will use this data to try and ascertain if the crisis is over and that things are gradually getting back to normal with an uptake in house buying.

When the number is released, which usually happens on the closest business day to the 17th of each month, for the US housing starts data, keep a close eye out for the number, if it is as the market expected, we should not see too much volatility in the markets. If the number is much lower than that which is expected this would be bearish and you might see the dollar exchange rate fall in value against his counterparts, and if the number is higher than expected, this should be considered bullish because it is good for the economy and you might, therefore, see dollar exchange rates move higher.

Categories
Forex Fundamental Analysis

Significance Of ‘Wage Growth’ As A Forex Fundamental Driver

Introduction

Introduction

Introduction

Wage Growth is an essential fundamental indicator that influences the GDP of a country, where the income of people of the country has a major say in the GDP calculation. So, even if Wage Growth does not directly affect the economy but shows its importance by affecting other economic indicators. In today’s article, we will understand how Wage Growth is measured and how it impacts the value of a currency indirectly.

What is Wage Growth?

Wage Growth is referred to the rise in wages of employees that is inflation-adjusted and is often expressed in percentage. It is a macroeconomic concept that determines the economic growth of a country in the longer-term, as it reflects the purchasing power of people in the economy and the living standards. A high wage growth implies price inflation in the economy, and low wage growth indicates deflation. A low wage growth scenario requires intervention from government agencies such as the Reserve Bank, which will stimulate the economy through changes in the fiscal policy.

One of the important ways of maximizing wage growth is through the re-skilling process and investing in the development of the skills of employees. When skilled workers are involved in the decision-making process, it leads to the growth of business and industry as a whole. Hence, more financial compensation can be given for skilled workers who not only lift wage growth but also stimulate competitiveness in the economy. This leads to higher productivity and, thus, GDP per worker.

Measuring Wage growth

The key drivers of Wage Growth are productivity and inflation expectations. Wage Growth that is relative to the increase in prices of commodities in the economy—also known as real wage growth—reflects labor productivity growth as well. However, there are several other factors in a business cycle that results in wage growth diverging from production growth.

There are two different ways of measuring real wages. One is from the producer perspective, while the other is from the consumer perspective. Producers fix their labor costs by calculating them relative to the price of their outputs. Consumers measure wage growth by comparing their income with the cost of goods and services they purchase. Thus, most countries examine real wage growth by adjusting it with the rate of inflation. In Australia, for example, real wage growth is determined by considering three parameters, including inflation, hourly wages, and the average number of working hours.

Factors affecting Wage Growth Rate

Today, wage payment is a crucial factor in influencing labor and management relations. Workers are worried about the annual rise in their wages as it affects their standard of living and purchasing power. Managements in some companies are not concerned about higher wages to their employees as they feel the cost of production will go up and their profits will decrease. Let us see some other factors that affect wage growth.

Demand and Supply

The labor market operates on the forces of demand and supply. When demand for a particular type of skilled workers is more, and there is less number of people skilled in that job, the wage growth rate will be high.

Government Regulation

In countries where the wages are very low, the government may pass legislation for fixing the minimum wages of workers. This will also ensure a minimum level of living. This is especially the case in underdeveloped countries where the bargaining power of laborers is weak.

Training and Development Cost

Before handing over the projects to employees, it is necessary to train them enough, so they are capable of doing the job with high skill. This process usually takes time and money, which the company has to bear. Hence this has an effect on the annual growth in wages of employees.

The Economic Reports

The Wage Growth Rate Reports are released annually and on a quarterly basis that covers the review of the data from the previous quarter to the current quarter. All the major economies of the world and some developing countries publish this data on a quarterly and yearly basis that money managers use for evaluating various performance metrics.

Analyzing the DATA

The Economic Data of Wage Growth is a major determiner of the GDP of a country and, thus, the economy. The GDP, as we know, is a key measure in determining the strength of a country’s economy and, thereby, the value of the currency. By comparing the year on year wage growth, we can predict the growth of the economy and improvements in the standard of living. One can also compare the Data of two countries and analyze why the country with higher Wage Growth has been able to achieve it. The monetary committee can note down the differences in the policies.

Impact on Currency

There is an indirect relation between Wage Growth and the value of a currency. When we see a growth in the wages of workers, this is said to increase industrial growth and overall productivity, which in turn improve the GDP of the country. Higher levels of GDP will generate a higher demand for the currency and will increase the economic activity of the country. However, when wages are stagnant and do not show any rise, this will decrease consumer spending and leads to lower living standards. Due to this, the GDP will be affected and will drive the currency lower.

Sources of information Wage Growth

Most countries release Wage Growth data on a quarterly and yearly basis, and countries like the United States and Australia provide a detailed analysis of the same. The reports are published by the respective governments on their ‘Treasury’ website, which includes the International comparison of wage growth rates, Trends in wage growth, and more. 

Links to Wage Growth Information Sources   

AUD- https://tradingeconomics.com/australia/wage-growth

CAD- https://tradingeconomics.com/canada/wage-growth

EUR- https://tradingeconomics.com/euro-area/wage-growth

JPY- https://tradingeconomics.com/japan/wage-growth

CHF- https://tradingeconomics.com/switzerland/wage-growth

GBP- https://tradingeconomics.com/united-kingdom/wage-growth

USD- https://tradingeconomics.com/united-states/wage-growth

The growth in demand for goods and services depends on the spending power and the income that flows to the population, a significant portion of which comes from wages. Companies and government need to understand that growth in wages is not just a cost of production but are also a source of spending and thus of revenue and profit for the business.

Impact of the ‘Wage Growth’ news release on the price charts

After understanding the significance of Wage Growth in an economy, we shall extend our discussion and find out the impact of Wage Growth data on currency pairs. From the below image, we can infer that the Wage Growth may not cause a drastic change in volatility of a forex pair as the level of importance assigned to it is very low. Wage Growth numbers are announced on both a monthly and yearly basis, but to estimate the degree of change in volatility, we will be analyzing the year-on-year numbers of the same. A reference currency that we have chosen for this purpose is the Russian Ruble (RUB).            

Below is an image showing the latest, estimated, and previous Wage Growth data of Russia, where we see that there has been a decrease in Wages by 0.4% from the previous year. A higher reading than before is said to be positive for the currency while a lower than before data can negatively impact the currency. The Wage Growth data is officially released by the ‘Russian Federation Federal State,’ which is responsible for maintaining the fundamental information of Russia. Since the impact of the Wage Growth news announcement is least, let us look at the reaction of the market.

USD/RUB | Before the announcement:

We shall first look at the USD/RUB currency pair and analyze the impact of Wage Growth on this pair. In the above chart, we see that the market is a strong downtrend and recently we see a retracement from the lowest point. Since economists have forecasted a much lower wage growth than before, it is not prudent to take ‘long’ positions in the market as, technically speaking, this would mean we are trading against the trend. Therefore, a risk-free approach would be to wait for the news announcement and then trade based on the change in volatility.

USD/RUB | After the announcement:

The above chart shows the market reaction to the Wage Growth news announcement where the data came was beyond expectations and mildly lower than the previous year’s numbers. Since the data was robust, the price goes down, and the Russian Ruble strengthens. As the difference between the forecasted to actual data was huge, the volatility increases a lot on the downside, and the market seems to continue its downtrend. After the clarification of Wage Growth data and confirmation signs from the market, we can enter the market by ‘shorting’ the currency pair with a stop loss above the ‘news candle.’

EUR/RUB | Before the announcement:

EUR/RUB | After the announcement:

The above images represent the EUR/RUB currency pair, which is similar to that of the USD/RUB pair in terms of price behavior. However, the downtrend here is more resilient and stronger than in the above pair. The pullback, too, has been very little, which shows the strength of the Russian Ruble. Therefore, an above-average Wage Growth data should take the currency much lower while below-average data can result in a rally for a small duration of time, but not a trend reversal.

After the news announcement, we see that the price falls and leaves a wick on the bottom. This wick is due to the reaction at the support area, but this shouldn’t scare us, and we can confidently take ‘short’ positions in the market with a compulsory stop loss.

GBP/RUB | Before the announcement:

GBP/RUB | After the announcement:

The above charts are that of the GBP/RUB currency pair, where we see that the characteristics of this pair are totally opposite to that of the above-discussed pairs. Before the news release, we witness a strong uptrend, and the price is currently at a resistance area. We have two options at this point in time, one, to ‘long’ in the market as Wage Growth data is expected to be very bad and second, to wait for the news announcement, and if the numbers are weak, go ‘short’ in the market.

After the release of Wage Growth data, the price initially goes down as the numbers were better than expectations, but later, the candle closes in green. The volatility increases on both sides, but the numbers were not good enough to strengthen the Russian Ruble. Therefore, the only way to trade this pair is to wait for a breakout above the resistance area and then trade the retracement of it -using the Fibonacci tool.

That’s about ‘Wage Growth’ and its impact on the Forex market after its news release. In case of any queries, let us know in the comments below. Good luck!

Categories
Forex Price Action

When the Same Chart Offers a Better Trade Setup

In today’s lesson, we are going to demonstrate an example of an H4 chart offering two entries. The first one does not create enough bullish momentum right after the breakout, but the second one does. Let us now get started.

In today’s lesson, we are going to demonstrate an example of an H4 chart offering two entries. The first one does not create enough bullish momentum right after the breakout, but the second one does. Let us now get started.

In today’s lesson, we are going to demonstrate an example of an H4 chart offering two entries. The first one does not create enough bullish momentum right after the breakout, but the second one does. Let us now get started.

The chart shows that after being bearish for a long while, the chart produces two bullish candles consecutively. The H4 traders may keep their eyes on the daily chart to get a daily bullish reversal. Then, consolidation followed by an H4 bullish reversal candle would be the signal to go long in the pair.

The price starts having a bearish correction. The buyers are to wait for a bullish reversal candle first to go look for a long opportunity. The price is at a significant level, where it reacted earlier several times. The reversal candle might be around the corner.

Yes, the chart produces a bullish Inside bar. It is not a strong bullish reversal candle, but it is a sign that the price may get bullish soon, considering other factors. Let us proceed to the next chart.

The next candle comes out as a bullish candle with a long bullish body having a tiny upper shadow. The buyers may trigger a long entry right after the candle closes by setting stop loss below consolidation support and by setting take profit with 1R.

The next candle comes out as a bearish inside bar. The buyers usually would love to see the price head towards the trend’s direction after triggering entry. It does not happen here. However, it does not look too bad.

What a surprise! The chart offers one more entry. Look at the last candle, which comes out as a bullish engulfing candle closing well above consolidation resistance. Some buyers may trigger another entry. Yes, it is a debatable issue whether traders should take multiple entries in the same pair. At least, if traders miss the first chance, they may consider taking entry here. Let us find out what the price does next.

The price heads towards the North with good bullish momentum. It hits the buyers’ target with ease. On the second occasion, the bullish engulfing candle forming right at consolidation support makes the pair very bullish. On the first occasion, the price does not get that bullish after the signal candle. On any day, the second signal is better than the first one. Some traders do not like taking multiple entries, which is fair enough. If a trader does not mind taking multiple entries, he may as well consider taking entry if it is a better trade setup than the last one with relatively a smaller lot than his usual trading lot.

 

Categories
Forex Daily Topic Forex Education Forex Psychology

Guidelines for Successful Trading

Introduction

Introduction

Introduction

To achieve a successful trading profession is more than a couple of good trades, and a fancy template in the trading platform, nor a social media trader’s fashioned lifestyle.

In this educational article, we’ll present a set of guidelines to aid in building a successful trading plan.

The Right Trading Mindset

Trading in financial markets must be understood as a decision process, which, when developed systematically, tends to provide consistent results.

Robert and Jens Fischer, in their work “Candlesticks, Fibonacci, and Chart Pattern Trading,” define a list of rules or guidelines that can aid investors in its decision-making process. These guidelines are as follows:

Self-knowledge 

If the investor feels uncomfortable when it is in the market, this could be indicative of an incorrect positioning in terms of position size or market side.

Ego by a winning streak

An increasing ego encouraged by a winning streak, especially in the first trades, could drag the investor toward huge losses.

Hopping when things go wrong 

Many traders tend to let run the losses expecting a market reversal to the trade direction, and they usually close a winning trade too soon, with a small profit (fearing a loss), which is a recipe for disaster. To solve this issue, traders must plan every trade in advance,  with a pre.defined stop-loss and profit target before opening any trade.

Losses are part of the business 

Investors must be aware that it is impossible to have 100% of winning trades. 

Avoid Martingale position sizing

The increasing the size of the position when the market and the trade moves against you is the path to bankruptcy.

Trading systems could fail

There is no trading system that could provide 100% of winner trades. However, losses will increase when the investor jumps from one system to another. Each strategy has its advantages and disadvantages. The profitability of any trading system will depend on the market conditions, and the investor must learn to live with the potential risk of his trading system.

Diversify the risk

Independent of the profitability associated with a trading product, the systematic diversification of risk could give the investor a smoother equity curve growth than when considering only a single trading asset.

Making Money by trading is a long road 

The consistent and profitable trading in financial markets is the result of a systematic work taking months or years where results obtained can confirm the rentability of each trading system.

The importance of a trading plan

Successful trading is not to make money quickly; it is related to the capability to make profits consistently long term, independently of changing market conditions.

A comfortable trading strategy

The trading strategy must provide the investor with similar results in real-time than on paper-money or in the back-test mode. If the approach does not offer the same results in real-time, the methodology must be revised.

The importance of discipline

The most important characteristic of successful traders is discipline because they limit their decisions to their established trading methodology.

The Importance of Number Three

In the financial markets, there exist a vast number of ways to analyze it technically, for example, chartist formations, Elliott wave, or candlesticks patterns. However, those ways to analyze the market have in common, and it is number three.

  • In Elliott wave analysis, when the price moves in a trend, this develops three movements in the primary trend’s direction. 
  • The most popular chartist pattern known as Head and Shoulders has three tops (or valleys) and two valleys (or tops.) When the price reaches its third valley, the price action tends to break below the previous two valleys and continue a downward (or upward) sequence.
  • An ascending triangle corresponds to a continuation pattern, in the bullish case, three valleys, and two tops. When the price action touches by the third time the top, the price surpasses the previous two highs and continues its earlier move and continues its primary trend.

In the following figure, we observe a set of patterns that follows the characteristics of “three.”

 

Conclusions

In this educational article, we presented a set of guidelines to develop a trading mindset that can support a profitable trading methodology along time.
We also exposed a group of chart patterns that correspond to a simplification of three moves, which could support the analysis and generation of trading opportunities in the real market.
In the following article, we will present the basic principles of a trading strategy.

Suggested Readings

– Fischer, R., Fischer J.; Candlesticks, Fibonacci, and Chart Patterns Trading Tools; John Wiley & Sons, Inc. (2003).

Categories
Forex Signals

AUD/USD Bearish Engulfing Signals Selling Bias – Brace for Quick Short Trade!  

The AUD/USD pair was closed at 0.68540 after a high of 0.70039 and a low of 0.68392. Overall the movement of AUD/USD pair remained bearish throughout the day. The risk perceived Aussie posted losses on Thursday in risk-off market sentiment, which was caused by the gloomy outlook of the US economy by Federal Reserve in its monetary policy meeting. The FED in its report said that the impact of coronavirus could last for a more extended period of time than Fed expected, and recovery would also be slower than expected.

The AUD/USD pair was closed at 0.68540 after a high of 0.70039 and a low of 0.68392. Overall the movement of AUD/USD pair remained bearish throughout the day. The risk perceived Aussie posted losses on Thursday in risk-off market sentiment, which was caused by the gloomy outlook of the US economy by Federal Reserve in its monetary policy meeting. The FED in its report said that the impact of coronavirus could last for a more extended period of time than Fed expected, and recovery would also be slower than expected.

The AUD/USD pair was closed at 0.68540 after a high of 0.70039 and a low of 0.68392. Overall the movement of AUD/USD pair remained bearish throughout the day. The risk perceived Aussie posted losses on Thursday in risk-off market sentiment, which was caused by the gloomy outlook of the US economy by Federal Reserve in its monetary policy meeting. The FED in its report said that the impact of coronavirus could last for a more extended period of time than Fed expected, and recovery would also be slower than expected.

The GDP contraction expectations also increased to 6.5% for this year, along with the unemployment rate expectations towards 9.3%. Risk- appetite disappeared after that announcement from the market, and investors started buying safe-haven currency US dollars. The higher demand for the US dollar exerted pressure on AUD/USD pair, and hence par started to fall on Thursday. On the data front, at 6:00 GMT, the MI Inflation Expectations from Australia were reported as 3.3% in May compared to April’s 3.4%.

On the American front, the jobless claims decreased to 1.542M from 1.550 M of forecast and supported the US dollar. The PPI for May also surged to 0.4% against 0.1% of expectations and added in the strength of the US dollar, which eventually dragged the currency pair AUD/USD on the downward track to post daily losses.

Furthermore, the Australian Prime Minister, Scott Morrison, said that he would not be intimidated by the coercion moves from Beijing. Australia’s export trade to China is huge, with around a third of everything Australia export goes to China. The relationship between China and Australia was disturbed after Morisson called for an international inquiry on the origin of coronavirus, which was first reported in China. In response to what Beijing slapped tariffs on Australian Barley, ad threatens to do more, which ultimately affected Aussie demand in the market.


On the US-China front, the tension remained there with the recent criticism on Federal Reserve’s latest monetary policy decision by China that the massive liquidity stimulus by Fed will increase the debts of the US government and also the world’s debt. In response to this, the US Vice President Mike Pence said that the US would remain tough on a trade deal, which raised fears about a potential trade war between the two biggest economies.

The increased tension between the US & China weighed on Aussie due to its relationship with the second-largest economy. China-Proxy Aussie got some pressure after the increased fears of US-China tussles and moved the pair AUD/USD lower on Thursday.

We are taking a selling trade below a double top resistance area of 0.6900 level; below this, the AUD/USD pair is likely to drop, especially due to bearish engulfing candle, which can be seen in the chart above. The more substantial bearish bias can lead AUD/USD pair lower towards the next support level of 0.6845 level today. 

Entry Price – Sell 0.68796    

Stop Loss – 0.69196    

Take Profit – 0.68396    

Risk to Reward – 1

Profit & Loss Per Standard Lot = -$450/ +$450

Profit & Loss Per Micro Lot = -$45/ +$45

Categories
Forex Options

FX Options Market Combined Volume Expiries for 12th June 2020

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

Thank you for visiting the Forex Academy FX Options market combined volume expiries section. Each day, where available, we will bring you notable maturities in FX Options of amounts of $100 million-plus, and where these large combined maturities at specified currency exchange rates often have a magnetic effect on price action, especially in the hours leading to their maturities, which happens daily at 10.00 AM Eastern time. This is because the big institutional players hedge their positions accordingly. Each option expiry should be considered ‘in-play’ with a good chance of a strike if labelled in red, still in play and a possible strike if labelled in orange and ‘out of play’ and an unlikely strike if labelled in blue, with regard to the likelihood of price action meeting the strike price at maturity.

……………………………………………………………………………………………………………………..

FX option expiries for June 12 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

– EUR/USD: EUR amounts

  • 1.1275 540m
  • 1.1310 608m
  • 1.1430 781m

EURUSD consolidating on the one hour chart having been overbought. Two significant sized maturities are in close proximity to the current price action.

– USD/JPY: USD amounts         

  • 107.35 443m
  • 108.00 851m

USDJPY is overbought on the one hour chart. Expect a pullback and continuation to the red maturity. US data will impact on price action during the US session. Further sell-offs on US equities could promote the Yen to safe haven where we might expect the pair to fall lower.

– USD/CAD: USD amounts

  • 1.3500 541m

The USDCAD pair hit the buffers at 1.3665 and is retracing lower. Currently oversold, but the pair could gain some impetus to reach the maturity at the key 1.35 level later today. Watch for US data later which will be released before the 10 AM cut..

………………………………………………………………………………………………………………………..

As you can see on the charts we have also plotted the expiration levels at the various exchange rate maturities and we have also labelled in red, orange and blue. Therefore, if you see option expiry exchange rates labelled in red these should be considered in-play, because we believe there is a greater chance of the expiry maturing at these levels based on technical analysis at the time of writing. There is still a lesser possibility of a strike if they are in orange and so these are ‘in-play’ too. However, if we have labelled them in blue, they should be considered ‘not in-play’ and therefore price action would be unlikely to reach these levels, which are often referred to as Strikes, at the time of the 10 AM New York cut.

Our technical analysis is based on exchange rates which may be several hours earlier in the day and may not reflect price action at the time of the maturities. Also, we have not factored in economic data releases or keynote speeches by policymakers, or potential market volatility leading up to the cut.

Although we have added some technical analysis we suggest you take the levels and plot them onto your own trading charts and incorporate the information into your own trading methodology in order to use the information to your advantage. Remember the higher the amount, the larger the gravitational pull towards the exchange rate maturity at 10:00 AM Eastern time.

If you want to learn how forex option expiries affect price action in the spot FX market see our educational article by clicking here: https://bit.ly/2VR2Nji

DISCLAIMER: Please note that this information is for educational purposes. Also, the maturities will look more or less likely to become a strike at 10 AM NY time due to exchange rate fluctuations resulting in a different perspective with regard to technical analysis, and also due to upcoming economic data releases for the associated pairs.

Categories
Forex Market Analysis

Daily F.X. Analysis, June 12 – Top Trade Setups In Forex – U.S. Prelim UoM Consumer Sentiment Ahead! 

On the news front, eyes will remain on the UK GDP figures, which are expected to perform worse than the previous month’s data. Alongside the U.S. Prelim UoM Consumer Sentiment figures will be in play to drive price action in gold and dollar related pairs today.

On the news front, eyes will remain on the UK GDP figures, which are expected to perform worse than the previous month’s data. Alongside the U.S. Prelim UoM Consumer Sentiment figures will be in play to drive price action in gold and dollar related pairs today.

On the news front, eyes will remain on the UK GDP figures, which are expected to perform worse than the previous month’s data. Alongside the U.S. Prelim UoM Consumer Sentiment figures will be in play to drive price action in gold and dollar related pairs today.

Economic Events to Watch Today

 

 

EUR/USD – Daily Analysis

The EUR/USD pair was closed at 1.12974 after placing a high of 1.14035 and a low of 1.12886. Overall the movement of the EUR/USD pair remained bearish throughout the day. The EUR/USD pair gained traction in the early session and rose to a daily high of 1.1403 on Thursday. However, the pair EUR/USD lost its traction on the back of the risk-averse market sentiment, which boosted the demand for safe-haven U.S. dollar.

In the early trading session, the EUR/USD pair followed its previous day’s movement and rose above 1.140 level but failed to remain there in the wake of a strong U.S. dollar against Euro. Dollar Index (DXY) stayed relatively calm near 96.00 level in the first half of the day.

After the release of economic data from both sides, the EUR/USD pair started to lose its daily gains and turned the gains into losses.

On the data front, at 10:30 GMT, the French Final Private Payrolls for the quarter came in as -2.5% against the forecasted -2.3%and weighed on Euro. At 13:00 GMT, the Italian Industrial Production in April was dropped by 19.1% against the expected fall of 24.0%.

At 17:30 GMT, the Core PPI from the U.S. for May came as -0.1% the same as expected and PPI as 0.4% against the expectations of 0.1% and supported the U.S. dollar. The jobless claims for the week also dropped to 1.542M against forecasted 1.550M and supported the U.S. dollar.

Furthermore, the Eurogroup meeting was held on Thursday to discuss the distribution of 750 billion euros to member states to deal with the economic shock from the crisis. Five hundred billion euros were planned to disburse as grants and 250 billion as loans.

 Meanwhile, the finance minister of the Eurozone approved the distribution of 748 million to Greece from profits of European Central Bank that purchased Greek sovereign bonds.

Moreover, the 19 finance ministers of the euro area were looking for a new president and at the time when the region was facing tough negotiations over 750 billion euros fiscal plans to help it recover from the coronavirus.

The Eurogroup current president, Mario Centeno, resigned from the Portuguese government served as a finance minister since October 2015. However, the three names for potential candidates are Spain’s finance minister Nadia Calvino, Luxembourg’s finance Chief Pierre Gramegna and from Ireland, Paschal Donohoe.

Daily Support and Resistance

  • R3 1.1522
  • R2 1.1473
  • R1 1.1422

Pivot Point 1.1372

  • S1 1.1321
  • S2 1.1271
  • S3 1.122

EUR/USD– Trading Tip

The EUR/USD pair is trading at 1.1296 level, having entered into the oversold zone. Today, we can expect bullish correction until 1.1309 and 1.1340 levels, which mark 38.2% and 50% Fibonacci retracement levels. Below these levels, the EUR/USD pair can show selling bias again as the 50 EMA can pressure the pair for selling.

GBP/USD – Daily Analysis

The GBP/USD pair was closed at 1.26016 after placing a high of 1.27541 and a low of 1.25863. Overall the movement of GBP/USD pair remained bearish throughout the day. The GBP/USD pair dropped on Thursday after posting gains for ten previous days on the back of strong intraday U.S. dollar buying, which dragged the pair further below towards 1.2500 level.

The risk-off market sentiment emerged after the comments of Federal Reserve on Thursday and the news that some American states were showing some signs of coronavirus cases again.

The Fed Chair Jerome Powell said that the U.S. economy was set to contract by 6.5% this year, and the unemployment rate was expected to reach 9.3%. The U.K. will release its latest GDP growth figures on Friday, which was previously estimated to show a contraction in April by 18%, followed by a 5.8% decline in March.

On Brexit front, the negotiations between the U.K. & E.U. will now intensify with weekly talks throughout July into August and in the hope of a breakthrough. The U.K. is facing a very difficult time from relatively increased COVID-19 cases and negotiations at that time are weighing even more on British Pound. The hopes of any breakthrough for post Brexit deal rely on the talks between UK PM Boris Johnson and E.C. President von der Leyden, which will hold after the E.U. Summit.

Meanwhile, some fresh bearish pressure for GBP/USD came after the Organization for Economic Co-operation and Development warned that U.K.’s economy was set to be the hardest hit amongst the world’s developed countries from coronavirus pandemic.

At the data front, the RICS House Price Balance for May from the U.K. was released at 4:01 GMT, which showed a decline of 32% against the expected decline by 24% and weighed on British Pound and dragged the GBP/USD pair.

From the American side, the Unemployment Claims for last week were reported as 1.542M against the expected 1.550M and supported the U.S. dollar, which ultimately dragged the pair GBP/USD further toward downside on Thursday.

Daily Support and Resistance

  • R3 1.2912
  • R2 1.2863
  • R1 1.2804

Pivot Point 1.2755

  • S1 1.2696
  • S2 1.2647
  • S3 1.2588

GBP/USD– Trading Tip

On Friday, the GBP/USD pair is trading with a bearish bias at 1.2570 level ever since it has violated an upward trendline support level of 1.2650. On the 4 hour timeframe, the Cable has entered the oversold zone as we can see the RSI and MACD both were holding below 20 and below 0 levels, respectively. On the lower side, the Cable may find initial support at a level of 1.2550, and below this, the next support may be found around 1.2503 level today while the bullish breakout of 38.2% Fibonacci resistance level can lead the GBP/USD pair towards 1.2650 level, which marks 61.8% Fibo level today. 

USD/JPY – Daily Analysis

 The USD/JPY was closed at 106.859 after placing a high of 107.232 and a low of 106.569. Overall the movement of the USD/JPY pair remained bearish throughout the day. The USD/JPY currency pair dropped for the 4th consecutive day on Thursday despite strong demand for the U.S. dollar due to the risk-off market sentiment after the Fed’s gloomy outlook on the U.S. economy presented in its latest monetary policy meeting.

The increasing fears of a second wave of coronavirus after the increased number of appearing cases of infected people due to easing of lockdown restrictions added in the risk-off market sentiment and currency pair’s declines on Thursday.

FOMC turned down the odds of negative interest rates and held its rates near zero at 0-0.25% on Wednesday but suggested that the recovery road would be longer for the U.S. economy as the impact of coronavirus crisis was deeper than expectations. Fed said that it would use all its tools to overcome the damage caused by a coronavirus.

The risk-off market sentiment caused the USD/JPY pair to move in a downward direction on Thursday towards the lowest level of 106.569.

On the data front, at 4:50 GMT, the BSI Manufacturing Index dropped by 52.3 against the forecasted decline by 20.5 and weighed on Japanese Yen. At 17:30 GMT, the Core PPI for May came in line with the expectations of -0.1%. The PPI for May increased to 0.4% from the expected 0.1% and supported the U.S. dollar. The Unemployment Claims from last week were reported 1.542M against the expected 1.550M and gave strength to the U.S. dollar. Despite the strength of the U.S. dollar, the USD/JPY pair moved in a downward direction and posted losses for 4th consecutive day on Thursday.

Furthermore, Moderna told Bloomberg on Thursday that the final-stage trial of its vaccine for COVID-19 will start July. Moderna was the first company to start human clinical trials of its vaccine in the U.S.

The last stage of the trial will be completed with the partnership of the U.S. National Institute of Allergy and Infectious Diseases (NIAID). The study will include 30,000 people and will provide definite clinical proof that vaccines actually prevent people from developing COVID-19.

Daily Support and Resistance    

  • R3 108.58
  • R2 108.23
  • R1 107.67

Pivot Point 107.33

  • S1 106.77
  • S2 106.43
  • S3 105.87

USD/JPY – Trading Tips

The USD/JPY pair fell sharply after violating the upward channel, which supported the pair around 107.500. For now, this level is working as resistance for USD/JPY. The 50 periods EMA is also extending strong resistance at 107.650 area while immediate support stays around 106.600. The bearish trend in the USD/JPY pair can trigger a sell-off until the next support level of the 106.017 level today. Let’s wait for the market to test the 107.650 level before entering a sell in the USD/JPY today. 

Good luck! 

Categories
Forex Daily Topic Forex Fundamental Analysis

Importance Of ‘Construction Output’ As An Economic Indicator

Introduction

Introduction

Introduction

Construction activity is the beginning phase of an expected economic growth, which is more vividly evident in the developing economies than developed economies. New infrastructures, buildings, renovations are all part of an expanding economy. Construction is an important economic indicator to assess economic health.

What is Construction Output?

Construction Output is the measure of building and civil engineering work in monetary terms. It is the amount of construction work done measured as the money charged to the customers. It refers to the construction work performed by an enterprise whose principal activity is classified as Construction. Since a measure of the amount of work is proportional to fees charged for the activity, it is measured in the domestic currency of the region where the construction activity was undertaken.

Overall, Construction Output is a measure of the amount charged to customers for construction activity by construction companies in a specific period ( monthly, quarterly, annually). The UK Construction Output is based on a sample survey of 8,000 businesses employing over 100 people or having an annual turn over greater than 60 million sterling pounds. The Construction Output excludes the Value Added Tax (VAT) and payments to subcontractors.

The Construction Output data reporting based on sectors, new or existing renovations, seasonal adjustments, volume, value-based, etc. precisely as illustrated for reference below:

(Picture Credits – Ons.gov)

The Construction Output data is also reported in the index format, where the base index period is 2016, for which the score is 100, and subsequent reports would be scored in comparison to this index period. Typically, it is widely discussed in terms of percentage changes concerning the previous month.

How can the Construction Output numbers be used for analysis?

The Construction Output is a significant economic indicator in the United Kingdom, that is closely watched by both private and public sectors, especially by the Bank of England and HM Treasury. The Construction Output figures assist them in policy reforms and economic-decisions. Growth is a process of emergence of new and better things and discarding old inefficient ones. Construction, in this sense, is just that. Construction involves the erection of new buildings, infrastructures, renovations, expansions of existing infrastructures.

Increased Construction Output implies more people employed, better wages in the construction sector, more demand for raw materials for the Construction, etc. The very act of Construction has a ripple effect on the economy.

Secondly, the Construction of corporate infrastructures or commercial structures implies that these buildings will be used for further economic activities. For example, a company doubling its company size is planning to double its staff and correspondingly the business that it generates. Hence, Construction Output figures improvement is indicative of an improvement in many other sectors.

All these improvements correlated with Construction Output also stimulate consumer confidence and encourages consumer spending, which further stimulates the economy and boosts growth. The importance of Construction Output is also evident from the fact that it is taken into account for the compilation of the GDP monthly estimate.

New Orders in the Construction Industry

It is a quarterly report produced by the administrative data provided by the Barbour ABI. Construction Output data reflects immediate short term health of the economy as it accounts for the construction work that has already taken place. Whereas, the New Orders report from the ONS provides more a forward-looking estimate of the potential construction activity in Great Britain.

New Orders are also crucial in gaining insight into the upcoming economic trends. Hence, it is advisable to use the New Orders report in conjunction with Construction Output report data to assess current and ongoing economic trends more precisely. It is a quarterly report. It is also presented as an index report for which the base index period is 2016, i.e., the New Orders score for 2016 is 100, and all subsequent reports are reported in comparison to this index value.

Impact on Currency

The Construction Output is a coincident indicator in the short-run. Still, it can also be used to gauge upcoming economic trends based on the type of Construction Activities are being undertaken. Also, if we take the New Orders report, both together can act as a leading economic indicator.

Construction Output reflects the current economic conditions by showing the value of the Construction Activity that has already taken place every month.  It is a proportional economic indicator, meaning an increase in Construction Output figures is good for the economy and correspondingly for the currency and vice-versa.

Economic Reports

The Construction Output reports are published approximately six weeks after the reference month by the Office for National Statistics (ONS) on its official website.

Monthly Construction Output reports go back to 2010 for the United Kingdom. A derived data set going back to 1997 can be obtained from monthly GDP data sets. The Construction Output reports are available in seasonally adjusted and unadjusted formats, and at current prices and chained volume measures (excludes effects of inflation).

For the United States, the Bureau of Economic Analysis releases GDP by Industry quarterly and annual estimates, which serves as a close or relatable statistic for the Construction Output of the United Kingdom. As such, there is no Construction Output dedicated nationwide statistics in the United States. Hence, GDP by Sector analysis helps us to analyze the Construction Industry’s performance in the United States.

Sources of Construction Output

We can find the latest Construction Output statistics for the United Kingdom can be found below.

For the United States – Gross Output of Private Industries: Construction

Construction Output reports for various countries are available here.

Impact of the ‘Construction Output’ news release on the price charts

By now, we believe that you have understood the significance of Construction Output in an economy, which essentially includes construction work done by enterprises that are used for measuring the growth of the construction sector. It gives an insight into the supply on the housing and construction market. The Construction industry is one of the first to go into recession when the economy declines but also to recover as conditions improve. The Construction Sector has a marginal influence on the GDP of an economy. Thus, investors do not give a lot of importance to the data when it comes to the fundamental analysis of a currency.

In today’s illustration, we will explore the impact of the Construction Output news announcement on different currency pairs and compare the change in volatility. The below image shows the previous, forecasted, and latest data of the United Kingdom, where we see a reduction in total output in the month of March. Let us look at how the market reacted to this data.

GBP/USD | Before the announcement:

The first pair we will look into is the GBP/USD currency pair, where the above image shows the characteristics of the pair before the news announcement. The market is in a strong uptrend and has started moving in a range with the price at the bottom of the range at the moment. Thus, we can expect buyers to show up any time from this point. As economists are expecting healthier Construction Output data, traders can take a ‘long’ position with a strict stop loss below the ‘support.’

GBP/USD | After the announcement:

After the news announcement, the market drops slightly owing to weak Construction Output data, and the volatility is seen to increase on the downside. But since the impact of this news release is less, the effect will not last long on the currency pair, and we cannot expect the market to break key technical levels. This is why the price reacts strongly from the ‘support’ and bounces off. Traders need to analyze the pair technically and trade accordingly.

GBP/AUD | Before the announcement:

GBP/AUD | After the announcement:

The above images represent the GBP/AUD currency pair, where we see that before the news is announced, the market was in a strong downtrend indicating a great amount of weakness in the British Pound. Currently, we can say that the price in the ‘demand’ area and thus we can expect bullish pressure to come back in the market at any moment. It is not recommended to buy the currency pair as the downtrend is dominant, and there are no signs of reversal.

After the news announcement, the price quickly moves up and closes as a bullish candle. In this pair, the Construction Output data get an opposite reaction from the market where the volatility increases to the upside soon after the announcement. Traders can take a ‘short’ position in the market after a suitable price retracement to a key technical level.

EUR/GBP | Before the announcement:

EUR/GBP | After the announcement:

The above charts belong to the EUR/GBP currency pair, where we see that the market is in an overall downtrend before the announcement, and currently, the price is in a retracement mode. Since the British Pound is on the right-hand side of the pair, a down-trending market means the currency is extremely strong. Looking at the price action, we can say that the downtrend will continue and now we need to find the right place to enter the market.

After the news announcement, the price initially goes lower, but the currency gets immediately bought into, and volatility increases to the upside. This was a result of poor Construction Output data were traders bought the currency pair by selling British Pound. As the impact is least, the up move does not sustain, and the downtrend continues.

That’s about ‘Construction Output’ and the impact on its news release on the Forex price charts. Shoot your questions in the comments below, and we would be happy to answer them. Cheers!

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Forex Videos

Fundamental Analysis For Novices- Building Permits!

https://youtu.be/Ovj5MO_0maA

https://youtu.be/Ovj5MO_0maA

Fundamental Analysis For Novices Building Permits

Welcome to the Fundamental analysis video for novices. In this session, we will be looking at building permits.

So, what are building permits?

Before residential house construction, or business premises can be built, or remodeling projects can commence on such properties, permits have to be granted from an officially approved local government agency to allow contractors to proceed with the work. This allows for standards to be maintained and improved and allows for Governments to keep tabs on what is happening for statistical analysis of their economies.
The actual building permit itself will allow for the structural integrity of the framework, water and sewage lines, fire and gas connectivity, fire protection, zoning, and sanitation.
The granting of building permits varies from country to country because not all home construction and renovation projects require a building permit. However, typically, projects which require major constructional changes and certainly new build projects require building permits.

Building permits within an economy are important indicators of growth or stagnation in particular segments of the economy. An upturn in commercial building permits is a good indication that businesses are expanding. An upturn in home construction is a good indicator that employment is going well and that people are moving homes, buying new homes, and renovating. In other words, there is a need for new homes. These are positive signs that economies are doing well. Conversely, the opposite is true.

There is a knock-on effect with regard to financing, employment, and manufacturing
and supply of associated materials. And so building permits are seen as an important barometer to the financial health of a nation and are carefully observed by economists, analysts and traders.


Each month countries such as New Zealand, in this example, on our economic calendar, releases statistics for their building permits. The information is scheduled for release during the usual business hours of the country in question, and typically in the mornings, and is subject to an embargo.


Let’s take a closer look at the New Zealand permits which are due for release on Monday the 1st of June, we have been inserted red arrows to show you the impact significance of the release, where an updated month on month building permits data for the month of April is due, and where the previous figure for March came in at – 21.3%.

So how to trade using building permits data release?

The larger the economy, the more significant the building permits data release is taken. So let’s take a look at the USA, where the Building Permits report is released by the U.S. Census Bureau on the 18th working day of each month, having conducted a survey of 9,000 permit issuers before publishing their findings into the financial markets. The Census Bureau has been gathering this data since the 1960s.
Typically, a growing number of permits above previous months’ data release is seen to be bullish for an economy, and numbers that are lower than the previous months’ data release are seen to be bearing.


Keep an eye out for the consensus figure which will be updated prior to the release,


And then compare it to the actual number after the release. Markets hate shocks, and therefore if the number is markedly lower than that of the consensus, where professional analysts and economists have been carefully monitoring events in order to draw their conclusions, you might expect a negative effect on the value of that particular country’s currency against other counterparts. But, if the data is higher than expected, then you might see that particular country’s currency gain in strength against other counterparts being traded.

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Forex Videos

Forex Fundamental Analysis For Novices – Factory Orders!

https://youtu.be/Xi-b_m5Q-7Y

https://youtu.be/Xi-b_m5Q-7Y

Fundamental Analysis For Novices Factory Orders

Welcome to the educational video Fundamental Analysis For Novices regarding factory orders
What are factory orders, and what do they tell you as an economic indicator?


Each day when you look at your Economic Calendar, you will see different types of economic events due for release on particular days.
At the top of the economic calendar for Friday the 5th of June, we can see factory orders highlighted for Germany for both year on year and month on month.

Factory orders provide a picture of the financial health of countries that produce durable and non- durable goods. Durable goods are things such as sports equipment, machinery, household appliances, and generally things that are not consumed. Typically they will have a lifespan of a minimum of 3 years. Non-durable goods are produced by consumers and typically have a short shelf life of fewer than three years, Such as toothpaste, laundry detergent, soaps, deodorants, light bulbs, paper plates, and clothing.
Factory orders comprise four sections, new orders, unfulfilled orders, shipments, and Inventories. This data will show whether there is a backlog in production and trends in current sales. All of these taken together will show the strength of the current and future production for an economy.
In America, factory orders are so huge they are reported in the billions of dollars and are released by the Census Bureau of the United States Department of Commerce. All countries report their data as a plus or minus a percentage of previous reports.


The market attaches a certain amount of importance to all economic data releases, and here we can see color bars that depict the impact that the release of this information will have. We can see that the month on month has a higher impact status than the year on year figure.


Hey, we can see that the actual data has been released at 7 AM CET and which was subject to an embargo. And when compared to the consensus, which is what the market was expecting and also the previous release from the month of March, the numbers are badly down at – 36.6 % year on year and -25.8% month on month for April.
These are bad numbers and can be put down to the fall out from the coronavirus pandemic, which has severely affected economic activity around the world.

Germany is the strongest economy in the Eurozone, and analysts and economists, as well as financial traders, keep a particular eye open for this type of underperformance.
Factory orders show an overall direction of an economy. When factory orders increase, it means the economy is expanding, and consumer demand is high for goods. If a country is contracting, it will show up as bad economic data, such as we have just seen for Germany.
INSERT G: How to trade factory orders data release

Look out for the previous factory orders number and compare it to the previous release and, more importantly, the consensus which will have been formulated by economists and analysts. Big differences between the consensus and the actual number can cause market shocks or volatility. Remember, a higher percentage than the previous month and increase year on year indicate that the economy of a country is likely to be improving. This will reflect in higher consumer demand and is good for the exchange rate of a particular currency, which may move higher against its counterparts.
Conversely, if the data release is lower than the previous month and shows a decline this is a sign that the economy of a particular country is stagnating or contracting and therefore there is less consumer demand, and this could have the opposite effect of an exchange rate moving it potentially lower against its counterparts.