FOREX Daily Outlook

Stock markets Around the World Extending Gains

U.S. Dollar Trading (USD) was on the back foot in the risk on environment with the market selling before the FOMC statement but buying back after. Strong November Retail Sales at 0.8% vs. 0.6% helped to push US stocks to fresh year highs. In US stocks, DJIA +47 points closing at 11476, S&P +1 points closing at 1241 and NASDAQ +2 points closing at 2627. Looking ahead, November CPI is forecast at 0.2% vs. 0.2% previously.

The Euro (EUR) tested 1.3500 in the European session but failed at the key resistance and pulled back into the US FOMC statement and extended the pullback afterwards when the Dollar rallied. German ZEW survey improved at 4.3 vs. 1.8 previously. EUR/USD traded with a low of 1.3354 and a high of 1.3500 before closing at 1.3370.

The Japanese Yen (JPY) tested below Y83 before stronger US Retail Sales helped the pair begin to rally when US bond yields increased after the FOMC. The US and Japan have similar Interest Rates at near 0% so any move higher in US interest rate expectations has a major effect. Overall the USDJPY traded with a low of 82.82 and a high of 83.86 before closing the day around 83.60 in the New York session. UPDATE Q4 Tankan Manufacturing Index at 5 vs. 8 previously.

The Sterling (GBP) Strong CPI at 0.4% m/m in November pushed yearly figures to 3.3% and supported Cable as it tested 1.5900 in Early Europe. The mood changed dramatically however as EUR/GBP began to rally and USD found strength with market falling sharply back below 1.5800. Overall the GBP/USD traded with a low of 1.5737 and a high of 1.5914 before closing the day at 1.5760 in the New York session. Looking ahead, November Claimant Count is forecast at -3k vs. -3.7k previously.

The Australian Dollar (AUD) did well in the risk on trading breaking above 1.0000 and overcoming much of the USD strength to close just under parity. AUD/JPY push in the Y83 level comfortably and AUD/NZD is remaining near Year highs on NZD underperformance. Overall the AUD/USD traded with a low of 0.9941 and a high of 1.0031 before closing the US session at 0.9980.

Oil & Gold (XAU) Gold pushed above $1400 but reversed sharply above the level to finish unchanged. Overall trading with a low of USD$1391 and high of USD $1408 before ending the New York session at USD$1395 an ounce. Failed twice at $89 and pulled back to lower $88 supports. WTI Oil Closed -$0.46 at $88.15 a barrel.

TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.3183	1.3303	1.3355	1.3626	1.3634
USD/JPY	81.66	82.34	83.85	84.41	85.40
GBP/USD	1.5581	1.5712	1.5760	1.5911	1.5965
AUD/USD	0.9833	0.9943	0.9955	1.0031	1.0091
XAU/USD	1380.00	1392	1396	1431	1438
OIL/USD	87.00	88.00	88.10	89.50	90.00

Euro – 1.3355                    

Initial support at 1.3303 (61.8% retrace of 1.3183-1.3499) followed by 1.3183 (Dec 13 low). Initial resistance is now located at 1.3626 (50% retrace of 1.4282-1.2969) followed by 1.3634 (Nov 23 high)

Yen – 83.85

Initial support is located at 82.34 (Dec 7 high) followed by 81.66 (Nov 12 low). Initial resistance is now at 84.41 (Nov 29 high) followed by 85.40 (Sept 24 high).

Pound – 1.5760

Initial support at 1.5712 (Dec 9 Low) followed by 1.5581 (Dec 3 low). Initial resistance is now at 1.5911 (Dec 14 high) followed by 1.5965 (Nov 23 high).

Australian Dollar – 0.9955

Initial support at 0.9943 (Dec 14 low) followed by the 0.9833 (Dec 13 low). Initial resistance is now at 1.0031 (76.4% retrace of 1.0183-0.9537) followed by 1.0091 (Nov 11 high).

Gold – 1396

Initial support at 1392 (Dec 14 low) followed by 1380 (Dec 13 low). Initial resistance is now at 1431 (Dec 7 high) followed by 1438 (1329.70 plus 1315.45-1424.60).

Oil – 88.10

Initial support at 88.00 (Intraday Support) followed by 87.00 (Intraday Support). Initial resistance is now at 89.50 (Intraday Resistance) followed by 90.00 (Intraday Resistance).

Some Words and Some Knowledge Regarding the Foreign Exchange Market

Whether you call it Forex or Fx, you are talking about the Foreign Exchange market. This is where the trading of currencies, one against the other, is done. To have an idea just how big the action is, add all the stock exchanges in the world together and the Foreign Exchange will still be bigger!When you consider that various speculators, hedge funds, governments as well as companies, plus countless private investors who take part, it is hardly surprising that this market is so strong and that the estimated daily average turnover of the foreign exchange market is over 3 trillion US Dollars.THE SPOT RATE is by far the most asked for. This transaction has to be settled within two business days.With London, New York, Tokyo, Frankfurt and Sydney as the chief trading centres, the action hardly ever closes.BID refers to the price at which the buyer is repared to buy the currency.It is like when you are at an auction and you are puttong your hand up to say you are willing to purchase something at that price.OFFER means the price at which an amount of currency the seller is ready to sell.LIMIT ORDER is when you give instructions the buy or sell a currency at a predetermined exchange rate.INTER BANK RATES means the bid and exchange rates when international banks buy and sell between themselves. SPREAD is the difference between the bid and ask price of a currency.STOP LOSS is when an order is given to purchase or sell a currency at a price level set by the client on a particular trade which if reached, will close out the particular position at the stated price. TRANSACTION DATE is the date on which a foreign exchange trade is being done.SETTLEMENT DATE is the date which foreign exchange contracts settle.Every currency has a three letter code such as for the Euro (EUR), for the British Pound (GBP), for the US Dollar (USD), for the Japanese Yen (JPY), for the Australian Dollar (AUD), for the Swiss Franc (CHF), for the Canadian Dollar (CAD). Actually, these are the major trading currencies and all commonly traded currencies are called the majors.CABLE is a name given to the US Dollar/British Pound rate in the foreign exchange market.EFT is the Electronic Fund Transfer which is the transfer of money between banks.When there is a quote in currency pairs, remember that the first currency is called the base currency. The second currency is called the counter currency. As an example when you get a quote GBP/USD at 1.96 it means that for one GBP you will get 1.96 USD. So for ten thousand pounds you will get nineteen thousand six hundred US Dollars.The many foreign currency exchange companies which you can find on the internet will gladly give you a quote, and by phoning around you can find the best currency rates. They will be better than a high street bank is likely to offer and they will give you a very fast service. Furthermore, most of them will not charge you any commission or the cost of the electronic bank transfer.

Forex Trading Rules

1. Emotional control is at the heart of good trading.2. Cut losses with the most strict discipline3. Make good decisions and winning will take care of itself.4. When you lose, don't lose the lesson!5. When in doubt, get out.6. Keep your risk/reward profile in check.7. Avoid scheduled news.8. Consider your account size for appropriate trading.9. Get a charting program that allows you to build watch lists, sort stocks, and draw trendlines.10. Scale out of winning positions as they work for you.11. Don't dig yourself into a hole early in the day or in your career.12. Trade with a blend of anticipation and confirmation.13. Evaluate your results at least monthly.14. Finally (perhaps most important), always be patient.15. Invest on the side that is winning16. The objective of what we are after is not to buy low and to sell high, but to buy high and to sell higher, or to sell short low and to buy lower.17. Capital is in two varieties: Mental and Real, and, of the two, the mental capital is the most important.18. Markets can remain illogical far longer than you or I can remain solvent.19. To trade/invest successfully, think like a fundamentalist; trade like a technician.20. Grow Slowly But Strongly "Pip-Machine

Online Currency Trading Requires Patience

When the going gets tough, the tough get going. This adage often brings back the memories of my past days when I was trading initially in the currency exchange market. Indeed, there's nothing more hurtful than losing your invested money in the FX market. But, online currency trading is like life where you're got to learn from your wrong moves and keep moving on. Learning the basic skills of online forex trading could be easy but, practically, one needs to acquire the advanced skills to play safe through thick and thin of FX trading.I have traded in forex for many years and, if you count on me, I must tell you that the secret of successful trading lies largely on the hunch and intuition of an trader. Technically expressed, you should have the accurate forex alerts and forex signals to be able to make the right moves in the currency market. However, this is easier said than done as the skills of the Currency Trading Signal takes a long time to master. This is why while a few people are able to boost their forex pips in a short span of time, the others take a long time to achieve the same or maybe, some of them get frustrated and just give it up! The reality is that not many people are ready to be entirely devoted to the perilous process of online forex trading.Having said this, I still wonder why some people choose to be a dare-devil and risk their money instead of simply following an established and renowned Account Forex Online Trading. I began trading in 1997 and there is one important thing I have learnt in my trading career so far, i.e., you have to got to be patient to learn the tricks of making right moves at the right times and profit from your trading.Since I have led quite a successful career in forex trading, I have been sharing the tips and tricks of online currency trading with many traders around the world through my G7 Forex Trading System which as you know has remained pretty successful for many traders so far. My G7 Forex Trading System is an easy-to-follow, step-by-step trading manual offering in-depth online forex trading review.If you visit my site (www.forex-science.com) you will find many of my existing customers are pretty satisfied with the performance of their investments and in fact, most of them have been able to increase their forex pips drastically. You would be surprised to know quite a few of them haven't traded for a long time! Now, this is what we call success in the forex trading, eh?

Knowing Some Words Used in Electronic Money Transfer

Electronic money transfers are not only used in connection with foreign currency exchange payments, but in a host of other payments especially when larger amounts are involved such as property, cars, boats, in fact anything.Nowadays, EUROPEAN CROSS BORDER PAYMENTS are made easier for the parties to send, thanks to the use of IBAN which means International Bank Account Number for short.IBAN is a bank code which identifies the account number and additional characters,thus avoiding possible mistakes..It must be noted however, that its validation is no guarantee that the account number or bank code is correct or that it exists.It is the responsibility of the account owner to notify their IBAN to the party they wish to deal with.The IBAN is given for the account by the bank serving that account, and should only be taken from that bank. It prevents getting possible incorrect IBAN details, as this can cause delay in receiving payment. Nobody wants any delays when making foreign currency exchange payments.Companies dealing with international money transfers are very exact and are eager to change one currency against the other as fast as they possibly can, to complete the deal and show their clients how smoothly and quickly they perform.The bank identification code BIC is another abbreviation, which you will come across.BIC is a way of being able to identify financial institutions so that the process of telecommunication in financial institutions/banks is facilitated.In order to make a payment, it is required to quote the IBAN and BIC. The use of IBAN became compulsory since July 2003.Most people have heard of the abbreviation SWIFT, which stands for Society for Worldwide Interbank Financial TelecommunicationSWIFT is a global provider of secure financial messaging service. It is this service that foreign currency exchange companies use to move the money bank to bank. It is also the same service constantly used to move millions of pounds and other currencies by countless other financial institutions. It is fast and safe.CHAPS or in short The Clearing House Automated Payment System is an electronic same day value payment in sterling, and within the United Kingdom.It is to be remembered that banks make a charge for the electronic payment transfers.In contrast, almost all foreign currency exchange companies do not make a charge for outward electronic payment transfers.When making foreign exchange currency transfers you will simply need to fill in a form, which the company you select to do the business with will provide. The few above mentioned details, serve only to inform those, who wish to know what certain abbreviations actually stand for, plus a little explanation here and there.

New month with old concerns

• Market moving on old stories
• Australia has new PM Gillard but the aussie is not celebrating
• No surprise with RBA or BoJ decisions
• Sterling watching gilt market for directional clues
• UK retail sales survey suggests modest August growth

The main stories in the early part of the week appear to be old ones that have been dusted off, slightly refreshed and sent out once again. The euro’s weakness overnight is owing to reports that the EU bank stress tests did not reveal all of the government debt they are holding (Wall Street Journal). This follows on from reports yesterday that German banks may require more capital. Furthermore, the BIS report of yesterday reminded us that the private sector deleveraging has a long way to go, with implications for both growth and currencies. The main thing is to determine what is old news, what is speculation and what is a change of circumstances, although the trouble is that markets can move on all three, to varying degrees)

Commentary

• Euro weakness in Asia session. The main standout overnight is the weakness of the euro, having moved from 1.2875 to near 1.2800 at the start of the European session. The Wall Street Journal is reporting that European banks have more government debt on their books than was reported in the EU bank stress tests back in July. This follows on from reports yesterday that German banks could need a further ₨ 11,500 (EUR 105)bn fresh capital if higher capital requirements are brought in on the back of BIS proposals. In our view, all old news polished up to look fresh.

• Australia has a (coalition) government. After over two weeks of negotiations, Australia has a new government, with current PM Gillard having secured enough support from independents to keep her labour party in power. The aussie was modestly weaker on the news, moving back towards the 0.91 level vs. the USD into the European open. The key concern going forward is with policy and also the extent to which independents and minorities are going to hold back decision making. Time will tell, but for now the aussie is softer.

• Eyes on the gilt market for sterling. There are around ₨ 1,200 (GBP 9)bn of coupon payments to be made this week in the UK bond market. This was one of the reasons attributed to sterling’s weak performance at the start of the week, the main issue being the extent to which overseas investors re-invest proceeds back into the market. Gilts are trading fairly tight to Bunds at present, the 10yr yield over Germany around 70bp not that far from the narrowest levels for the year to date. It could be that investors are viewing gilts as a little rich right now and are looking to scale back, especially ahead of the October spending round when there is some risk that the government will struggle to credibly deliver the spending decision announce in June. Note that Monday was the fifth consecutive day of sterling weakness vs. the euro, a pattern not seen since the early part of July, with the 0.84 level on EUR/GBP within the market’s sight.

• RBA and BoJ decisions in line. There were never any big risks with either one, especially the BoJ’s after their emergency meeting last week. Australia’s decision to keep key rates at 4.5% did see AUD/USD weaken modestly.

• UK retail sales slightly firmer. The rise in the British Retail Consortium’s like-for-like measure of retail sales is nothing to get too excited about, with the YoY reading rising from 0.5% in July to 1.0% in August. All in all, whilst strong conclusions are difficult, the data does fit the picture of a more subdued third quarter.

• UK car registrations fall further. The 17.5% YoY print in August was not that much of a surprise, given the ending of buyer incentives earlier in the year. Registrations were running 30% down YoY in the early part of the credit crises, so whilst August’s reading was a further fall, the pace of decline is slowing. Low and often negative real-wage growth, alongside tighter financing conditions, looks set to continue to act as a brake on the market for the remainder of the year and most likely into 2010 as well.

• Bad and good news from the BIS. The Bank for International Settlements quarterly report is always a fairly good overview of financial markets’ developments, if not predicting them, then at least putting them into context. Their point on the necessary household deleveraging has been made often before, but more than three years after the start of the credit crunch, it can sometimes be pushed to the back of the picture as investors scrabble to find signs of economic recovery. For example, in the post-war period, US household debt as a proportion of GDP has averaged just over 50% but, apart from a modest fall in 1965-75, has been on a fairly relentless rising trend. There are various ways of measuring it but, from a peak of 98% of GDP in early 2009, it’s falling to around 94% (Q1 2010). The average prevailing over the last cycle was 87% and, given that was a credit boom, it would make sense that the natural level is lower than that (even though knowing what this should be is rather difficult to determine). So, the bad news is that there is a lot more debt to be paid off. The good news is that the BIS says that this is not necessarily bad for growth. Indeed, they say that growth does rebound quickly in a lot of their examples, whilst debt ratios are still falling. In terms of currencies, those economies that can deleverage and rebalance away from consumption more towards investment and net exports should do better, but not all currencies can win that game (of those that need to play it, principally the US and UK), so those pushing the reform path harder should win out in the long-term.

Looking Ahead

• Tuesday: JPN: BOJ Meeting (expect no change in overnight target rate, currently 0.1%); UK: BRC Retail Sales Monitor, August; GER: Factory Orders, July (expect 0.6% MoM and 20.8% YoY, previous 3.2% and 24.6%).

• Wednesday: JPN: M3 Money Supply, August (expect 2.6%, previous 2.7%); Machine Orders, July (expect 2.0% MoM, previous 1.6%); Current Account, July (expect ₨1,576 (JPY1.534)trln, previous ₨1,076 (JPY1.047)trln); Trade Balance, July (expect ₨889 (JPY865)bn, previous ₨790 (JPY769)bn); GER: Trade Balance, July (expect ₨1,424 (€13.0)bn, previous ₨1,544 (€14.1)bn); Industrial Production, July (expect 1.0% MoM, previous -0.6%); FR: Trade Balance, July (expect -₨460 (€4.2)bn, previous -₨427 (€3.9)bn); BOF Business Sentiment index, August (expect 101, previous 101); UK: Industrial Production, July (expect 0.4% MoM, previous -0.5%); NIESR GDP estimate, Q3; CAN: BOC meeting (expect rates to remain unchanged); Building Permits, July (expect -6.0% MoM, previous 6.5%); IVEY PMI, August (expect 55.5, previous 54.0); US: MBA Mortgage Applications; Fed Beige Book; Consumer Credit, July (expect -₨465 ($5.4)bn, previous -₨112 ($1.3)bn)

• Thursday: JPN: BSI Large All Industry (previous 4.0); Households Consumer Confidence, August (expect 43.6, previous 43.3); FR: Non-farm Payrolls, Q2 f (expect 0.2% QoQ); GER: CPI, August final (expect 0.0% MoM and 1.0% YoY); EC: September Monthly Report; UK: Trade Balance, July (expect -₨435 (£3.3)bn, previous -₨429 (£3.26)bn), MPC Meeting (expect no change in rates or asset purchases); CAN: Housing Starts, August (expect 184.5K, previous 189.2K); International Merchandise Trade Balance, July (expect –CAD1.0bn, previous –CAD1.1bn); US: Trade Balance, July (expect -₨4,130 ($48.0)bn, previous -₨4,294 ($49.9)bn); Initial Claims (expect 470K, previous 472K).

• Friday: JPN: GDP, Q2 f (expect +0.4% QoQ, previous estimate 0.1%); GDP Deflator, Q2 final (expect -1.8%); FR: Industrial Production, July (expect 0.7% MoM and 5.0% YoY, previous -1.7% and 5.7%); IT: Industrial Production, July (expect 0.3% MoM, previous 0.6%); GDP, Q2 f (expect 0.4% QoQ and 1.1% YoY); UK: PPI Input Prices, August (expect 0.2% MoM and 9.0% YoY, previous -1.0% and 10.8%); PPI Output Prices, August (expect 0.1% MoM and 4.8% YoY, previous 0.1% and 5.0%); CAN: Net Change in Employment, August (expect +17.8K, previous -9.3K); Unemployment Rate, August (expect 8.0%, previous 8.0%).

Source: Bloomberg
Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. FxPro does not take into account your personal investment objectives or financial situation. FxPro makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any employee of FxPro, a third party or otherwise. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of FxPro. This communication must not be reproduced or further distributed without the prior permission of FxPro.
Risk Warning: Forex and CFDs are leveraged products and incur a high level of risk and may not be suitable for all investors. You should not risk more than you are prepared to lose. Before deciding to trade, please ensure you understand the risks involved and take into account your level of experience and seek independent advice if necessary.

Risk aversion in forex

Risk aversion in the forex is a kind of trading behavior exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions. This behavior is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets due to uncertainty.[22]

In the context of the forex market, traders liquidate their positions in various currencies to take up positions in safe haven currencies, such as the US Dollar.[23] Sometimes, the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than one of economic statistics. An example would be the Financial Crisis of 2008. The value of equities across world fell while the US Dollar strengthened (see Fig.1). This happened despite the strong focus of the crisis in the USA.[24]