Monday, July 30, 2012

Gold Upside Breakout

Gold Upside Breakout

Very quietly, prices of gold have risen back above 1600.  We wrote positively about Gold a few weeks ago that it was only a matter of time before the global monetary stimulus being enacted would start to rekindle inflation talk.  In truth, the recent rally probably had more to do with the overall risk rally that took place last week.  But, even before the hike back above 1600, the seeds were being put in place as prices were seeing support at 1570.  Also, after hitting a 2012 low, Gold has been in a steady uptrend (see chart).  The uptrend led to a triangle pattern forming.  

If you missed the first move, there could be more to come as Gold has broken out of its triangle pattern and looks poised to continue with its breakout. In trading this breakout pattern, a long trade would be in place until prices of Gold trade back below the downtrend that they had broken above.

One important item for Gold this week will be Friday’s Non Farm Payrolls.  The US Fed has stated that they prefer to take a “hold and see” attitude even as they admit US employment levels are weak.  Nonetheless, another bad number would ignite political pressure for them to act.  

Friday, July 27, 2012

Forex Trading Update: Will the EURUSD's Gains Hold

Coming Up Together
  • Advanced GDP
  • University of Michigan Consumer Sentiment
After Wednesday’s worse than expected UK GDP sent the GBPUSD lower, Forex traders will be looking towards the US’s Advanced GDP figures today. Currently, the Fed seems content on holding off from applying its third round of quantitative easing even as employment levels continue to be weak. As such, it will be interesting to see what happens if the GDP figures are worse than expected, if it will even have an effect. On the other hand, a better than expected figure could “seal the deal” that quantitative easing is on hold for 2012. Such an event would be expected to be negative to Gold prices while boosting the USDJPY higher.

Wednesday, July 25, 2012


The UK released its 2nd quarter GDP figures a few hours ago at a clip of -0.7 vs expectations of -0.2%.  Needless to say, the GBPUSD fell on the news, dropping nearly 100 pips from its highs to a low of 1.5468. The -0.7% GDP figure was affected by weak manufacturing and construction output.    On the political front, the GDP news is putting Chancellor George Osborne under fire as his austerity policies that he has implemented are cutting the UK’s deficit, but leaving the country exposed to recession.

Back to Forex and the GBPUSD
Even after falling on the news, the GBPUSD looks well bid as its longer term support of 1.5450.  If you take a look at the chart below, the GBPUSD has been in a two month trading range between 1.5450 & 1.5750.  The second chart shows the GBPUSD over the last few days where it had been falling on the overall strength of the dollar, before settling into a trading range just above its longer term support.

Wednesday, July 11, 2012

Euro Falls As ECB Cuts Deposit Rates

With the ECB dropping deposit rates to 0.0% starting today, the question among Forex traders is whether the central bank is purposely trying to weaken the Euro.  The effects were seen in yesterday’s Forex trading as the Euro was lost against all major currencies.  The EURUSD hit another 2012 low as it traded to 1.2225, while the EURGBP fell below 0.7900, its lowest level since 2008.  Also, of significance was the EURAUD which traded below 1.2000 today.  Even though the Aussie would be considered as a risky holding during the current risk selling environment, the positive carry rate for being short the EURAUD has triggered selling pressure to accelerate.

Friday, July 6, 2012

What in the world happened in the markets yesterday?

What in the world happened in the markets yesterday?

While all eyes were on the ECB yesterday, the EU’s central bank needed to share the spotlight with what seemed like every central bank in the world. The ECB cut its Interest rate to 0.75% from 1.00% and its deposit rate to 0.0% from 0.25% in order to offer cheap money for banks and provide potential monetary stimulus options. The ECB wasn’t alone as central banks in China, the UK, Denmark, and even Kenya were slashing rates or adding to their asset purchase programs yesterday. Simultaneously, the US issued better than expected ADP Employment and Initial Claims figures as a prelude to today’s Non Farm Payrolls figures.< p> The big surprise wasn’t the news as much as the market’s reaction. The ECB’s actions and subsequent statements from Chairman Mario Draghi led the Euro much lower with the EURUSD falling over 150 pips to a low of 1.2360. Also, equity prices failed to advance on the news with German, US, and French stock indexes all lower.

So what triggered the fall?

While central bank stimulus in the past could be expected to trigger a risk rally, after seeing these rallies fizzle quickly in the past, Forex traders are beginning to take a more realistic view of the world; IE-“if things weren’t bad, the central banks wouldn’t be getting involved.” The key for the future isn’t how much stimulus is being thrown towards the world but is it working? Therefore, we can expect to see stronger emphasis in on economic numbers in the near future.

Non Farm Payrolls

This all brings us to today’s Non Farm Payrolls figure. Regardless of yesterday’s employment optimism from the ADP Employment and Initial Claims numbers, the Non Farm Payrolls could go either way. Therefore, taking pre-NFP trades would be considered a crapshoot. Even after the figures are out they could be interpreted in two ways. A bad number could trigger an overall risk selloff and lead the dollar higher, or the dollar could tank as Forex traders bet on Fed creating inflationary policies. The opposite scenario could occur for a positive figure.

So what to do? Look for trends

Currently, the EURUSD has been building a base above yesterday’s lows of 1.2360 while finding resistance at 1.2400. As such, a break below 1.2360 could trigger additional selling as buyers at current levels jump ship. Similarly, if the EURUSD manages to trade and hold above 1.2400 it could short covering.
Elsewhere, Forex traders should keep their eyes on some of the outperformers of the week, specifically the Aussie. While falling yesterday, the AUDUSD is finding support above 1.0200 as demand has been building at those levels. As such, if we do see an NFP risk rally take place, the Aussie will be expected to be a leader again.

Tuesday, July 3, 2012

Tuesday’s Forex Trading Setups : EURUSD Ready to Fall?

EURUSD: We are getting to the point where we can officially say that they Euro rally is over.  If there was the official point where we can “stick the fork into it” it will occur if the EURUSD breaks below 1.2550 (see chart).  This level was the EURUSD’s initial post spike support level on Friday morning.  The pair again bounced off this level yesterday.  However, as the EURUSD has been failing to trade to any higher highs since Friday, it will be vulnerable to selling pressure if the 1.2550 figure fails to hold.  The lack of follow through momentum in the Euro contrasts to the GBPUSD and AUDUSD which are both holding their risk rally gains of the last few days.

Monday, July 2, 2012

Forex Trading Week Ahead: Eyes on the ECB

If you thought last week’s was exciting, things are just getting started.  After last week’s EU Economic Summit sent the Euro and global equities flying higher this week will offer three main events; Monetary Policy Meetings from the Bank of England and ECB on Thursday, which will be followed by Friday’s US Non Farm Payrolls report.  Sprinkle those three reports with the RBA’s MPC Meeting on Tuesday, a Spanish Debt Auction on Thursday, and the SNB’s FCR figures on Friday and we have a lot to talk about.