Currency Trading Commentary: 14 May

Friday night’s action saw risk currencies lose ground, as equities and commodities put in a mixed performance.

The Aussie dollar slipped lower, with the AUDUSD giving up 0.6% to settle at 1.0031 at this morning’s NY close, and the AUDJPY letting go of 0.6% to settle 80.17.

During today’s Asian session the Aussie dollar slipped below parity against the greenback for the first time in approximately six months, with the pair reaching down to 0.9996 before bouncing a touch to presently be trading back above the 1.0000 handle.

Back to Friday night’s action, the euro fell to its lowest level in more than three months as European officials begin to weigh the prospect of Greece withdrawing from the currency union.

The EURUSD let go of 0.2% to settle at 1.2923, whilst the EURJPY shed 0.2% to 103.28.

The British pound has become currency traders’ favourite refuge from the resurgent European debt crisis, threatening efforts by U.K. Prime Minister David Cameron to lift the economy out of its second recession in three years.

Whilst sterling was weaker against the euro and greenback on Friday night, the pound has climbed 3.4% this year, the most among 10 developed-market peers, data compiled by Bloomberg show.

Canada’s dollar rose against all of its 16 most-traded peers except the yen and the US dollar after employment climbed, fuelling bets the central bank will be the first in the Group of Seven nations to raise interest rates.

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Currency Trading Commentary 14 May is a post from: Australian Stock Report Forex Trading News

Currency Trading Commentary: Euro Woe Continues

The bias for the EURUSD is bearish.

The shorter-term EMAs have crossed lower and are diverging, and the price action has extended away from the longer-term EMA filter, which is negative.

The price action is also on the verge of breaking down below a key horizontal level which, if breached, could induce further selling.

Traders can consider on stop sell orders at 1.2955, looking to catch the breakdown on the way through.

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Currency Trading Commentary: Euro Woe Continues is a post from: Australian Stock Report Forex Trading News

Currency Trading Commentary: Buy The Breakout

The bias for the NZDJPY is becoming increasingly bullish.

The price action has recently bounced aggressively off 65.50, a support point which has held firm on multiple occasions in recent months.

The shorter-term EMAs are turning higher and the price action is approaching a downtrend resistance line which, if breached, will create a buy signal.

Traders can set on stop buy orders at 67.20, looking to catch the breakout above this downtrend resistance.

If longs are considered, stops would be placed below 65.50 for protection

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Currency Trading Commentary: Buy The Breakout is a post from: Australian Stock Report Forex Trading News

Currency Trading Commentary: March 8 GBPEUR Pairs

The bias for the GBPEUR is bearish.

We note a downtrend channel on the chart above which has been funnelling prices lower over the past two months.

The price action has recently tested the upper boundary of this channel and has begun to rollover once more.

Traders can be sellers on stop at 1.1945, with stops at 1.2025 and targets set towards the lower side of the channel.

Currency Trading Commentary: March 8 GBPEUR Pairs is a post from: Australian Stock Report Forex Trading News

Currency Trading Commentary: Breaking Down

The bias for USDCAD is bearish.

The shorter-term EMAs are crossed lower and diverging and the price action is below the longer-term EMA filter, which is negative.

We note a series of lower peaks, highlighted by the downtrend resistance line we have drawn on the chart.

Resistance is now noted at 1.0050 and the price action should not make it back above 1.0150 if the pressure is to remain bearish in the near-term.

Below the current market price, targets region are noted at 0.9760 initially, followed by 0.9450.

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Currency Trading Commentary: Breaking Down is a post from: Australian Stock Report Forex Trading News

Currency Trading Commentary: Currency Remains Strong

The bias for the AUDUSD remains bullish.

The rally over the previous few sessions should mean the completion of the recent pullback and support building phase.

The pair is now in a position to retest the previous major high from last July, at 1.1080.

Below the current market price, support is noted at 1.0790 and we should not see the pair trade at 1.0720 if the near-term pressure remains bullish.

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Currency Trading Commentary: Currency Remains Strong is a post from: Australian Stock Report Forex Trading News

Currency Trading Commentary: February 29

Amid stronger equity markets and mild risk-on sentiment, the Aussie dollar pushed higher overnight.

The Aussie reached a one-week high against the greenback ahead of the ECB beginning its longer-term refinancing operation tonight to help shore up the region’s banks.

The AUDUSD added 0.2% to settle at 1.0771 at this morning’s NY close, whilst the AUDJPY firmed 0.1% to settle at 86.68.

During today’s session the AUDUSD popped higher on the back of solid retail sales data.

Sales rose 0.3% in January following a 0.1% drop in December. The result was in line with expectations but traders have interpreted as lessening the pressure on the RBA to cut rates.

Back to last night’s action, the euro strengthened against the US dollar and yen on speculation a European Central Bank allotment of three-year loans to banks will bolster investor appetite for the region’s assets.

The EURUSD firmed 0.5% to settle at 1.3463 whilst the EURJPY added 0.4% to settle at 108.35.

UK 10-year gilts rose for a sixth consecutive session after  S&P cut Greece’s credit rating to selective default, supporting demand for the perceived safety of British debt.

Benchmark gilt yields fell to the lowest in three weeks after a US report showed durable goods orders dropped in January, fuelling speculation the world’s biggest economy is slowing.

The pound subsequently rose toward a three-week high against the US dollar, also helped by climbing retails sales in February. The GBPUSD added 0.5% to settle at 1.3463.

Elsewhere, the Canadian loonie advanced for a second consecutive session, touching the strongest level in a week against the greenback.

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Currency Trading Commentary: February 29 is a post from: Australian Stock Report Forex Trading News

This week’s FX Trading lesson focuses on the use of ‘bullish confirming price bars’ to give traders reliable signals to buy into trending FX pairs.

While there are a plethora of bullish reversal bars patterns, with various uses and definitions, this article will focus primarily on one of our favourite price bar reversals – the ‘Pinocchio Nose Candle.’

Some argue that a simple daily price chart, say a bar chart, is all a trader needs to be successful in the markets.

A price chart is like the market’s own personal diary.

It holds all the secrets and clues to what the market is thinking. In a nutshell, price bars are the market’s heartbeat and, like a human, they often behave in predictable and repeatable patterns.

We as traders must use the statistical probability of profitable price patterns to make money in our trading. This article will describe one logical and workable strategy that exists in FX markets in particular.

What does it look like?

The ‘key reversal day’ or ‘Pinocchio Nose Candle’ has a lower shadow (tail), where prices moved lower within the trading session but quickly rejected these lower levels and moved higher to close near or above the opening price.

This trading action forms a candle that looks something like the fictional character Pinocchio’s long nose.

How to trade a key reversal?

Whilst there are going to be many areas on a chart where these signals just appear, we usually see key reversals at important technical points on a chart.

Often it is the case that a signal to trade will work better at these reference points.

Some important technical points where we often see reversal patterns are;

1. At an obvious support/resistance point.
2. At a Fibonacci retracement level.
3. At an important moving average.

We will for this article, refer to the moving average as our technical reference point.

The rules for entry are simple. After a signal has occurred, traders buy on the very close of the signal day or on the next day’s open.

The trader would then place stops under the lows of the signal bar.

Reliability of the signal depends on several things, with the most important being the underlying trend. Signals have a greater degree of success if they occur in the same direction as the prevailing trend.

The longer the trend has been in place, the greater the probability of success of the signal. If at the very least, the mid-term trend confirms the signal, it then has a higher degree of paying off.

As we stated above, if the signal occurs near a moving average, on either the daily or weekly chart, its chances of success are also improved.

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FX Trading Lesson: Pin-bars & Pinocchio’s Nose is a post from: Australian Stock Report Forex Trading News

This week, we thought we’d provide you with an overview of four of the most commonly used technical indicators.

Please note that the most used – and many would say the most effective indicator, the moving average – will be excluded.

The indicators we’ll look at today were really the indicators that developed throughout the 1970s and 1980s as computers became more prevalent in trading.

It is worth noting also that whilst these indicators might be sophisticated, they can’t predict the future.

Remember, all that these calculations can do is to tell you what’s happened in the past and provide with the ability to make an informed judgment call about what might happen in the future.

We’re not going to discuss these indicators in any detail – this is just an overview.

Relative strength index (RSI): The RSI measures the strength (or upward momentum) on positive days against the weakness (or downward momentum) on negative days.

When calculated, this produces a number between 0 and 100. A number over 80 can show the price is moving too fast, and needs to pause. A reading below 20 can signify the opposite.

Moving average convergence/divergence (MACD): The MACD produces a reading that indicates the distance between moving averages. As these moving averages move closer, this is a signal that the trend is changing.

When moving averages cross, this is often the beginning of a new trend. As such, the MACD can signal the beginning and ending of trends.

Stochastics: This indicator attempts to measure whether prices have closed near highs, which is a positive signal, or near the lows, which is a negative signal.

Like the RSI, this indicator measures on a scale of 0 to 100, and also uses the 20 and 80 levels as key signals for entering or exiting trades.

Directional movement: Finally, the directional movement indicator attempts to identify times at which prices are trending and therefore worth trading, or, whether prices are in a lull and therefore best avoided. This indicator both tells us whether prices are trending and, if so, which direction prices are moving.

As we discussed earlier, there are hundreds of indicators developed and refined over the last 30 or so years.

This is a very brief overview of some of the more commonly used indicators.

Before utilising any of these indicators within a trading strategy, more research should be conducted.

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Forex Lesson: FX Trading Indicators is a post from: Australian Stock Report Forex Trading News

ALWAYS USE STOPS……ALWAYS!!!

Do you want to know why most novice FX traders fail?

It’s because they don’t use stops to manage their risk.

Now, traders may either simply not know that they exist, or choose not to use them. Either is a recipe for disaster.

Other traders try to do the right thing by using stop losses, only to end up with frustrating results. It seems that every time they set a stop loss on a trade, the price make a b-line straight for their stop loss – then simply goes back up again!

Certainly it may feel like this is what is happening but let us assure you that the market does not have a master plan to trigger your stops for fun and out of sheer spite!

After firstly saying – Always use stops…..Always! We also have to mention that there is a definite art to the placement of stops to reduce the chance of the market seemingly unscrupulously hunting down your stops losses.

This lesson seeks to introduce some concepts which traders need to know about setting stop losses.

Always use stops!

Why do we use stops?

Because the most important aim of any trader is to preserve capital.

Stop losses play a key role in helping you to reduce your losses; they also help eliminate the emotional component of trading. Setting the right stop is as simple as saying “I only want to lose this much”, but it is a process that needs to be learnt over time, through experience.

A stop loss is a pre-determined exit price that, once hit, will automatically exit you from the market. Without a stop loss you will be tempted to hang onto a trade in the vain hope that it will reverse the trend and your original assessment will be validated. The market is not the place to exercise your ego – unless you have unlimited funds.

There are a few different methods for setting your stops and we’ll look at three of them today.

Entry price

The most simple stop loss method is your entry price minus a certain percentage. The percentage you chose is entirely up to you but what you are effectively saying is “I can afford to lose this much money on this trade before I walk away.”

The percentage you chose may vary according to the instrument you are trading, the amount of funds you have available, and the type of security you are trading. Typically a straight percentage stop loss will be anywhere between 5% and 20% of the value of your trade.

Most importantly, you SHOULD never risk more than 5% of your total capital. We are more conservative and prefer to only risk 2%.

Technical levels

If you are a technical trader, a stop loss based on key levels is another method for setting stops.

Using the concept of support and resistance as a guide, it would make sense for a trader to put their technical stops just outside of either zone depending on whether you are long or short in the market. If you’re trading an established trend, a break of the trend line is another point to put a stop.

Range

The third method for setting stops is by observing the usual performance of an individual security.

If, for example, an FX pair is prone to moving in 100-pip blocks on a normal day, you may wish to put your stops 200 away from your entry position. This way you can gauge that the price action is really moving in the wrong direction before exiting the trade.

Mix ‘n’ match

Smart traders will use a combination of all three methods but the actual stop will depend on the individual situation.

At Australian Stock Report for example, if the “technical” stop is outside the level of our “comfortable” or trading system stop (simple “entry price” stop), then we will adjust the trade size accordingly so we can use the technical stop, but still risk the same dollar amount.

You should NEVER move your stop loss lower. If you are going to move your stop, it should always be in the direction of your trade to lock in profits.

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FOREX Trading Lesson: Always Use Stops!!! is a post from: Australian Stock Report Forex Trading News