US Dollar Forecast Holds Key to Strategy Bias

Forex options market volatility expectations have once again dropped considerably to start the week’s trade, giving mixed outlook for trading strategy biases in the week ahead. Our 1-week volatility index trades at its lowest levels in nearly 14 months. Yet volatility expectations on key US Dollar pairs remain quite elevated—making forecasts very much unclear. Given such indecision, we will essentially keep a wait-and-see approach to broader trading strategies. The first several days of the week should give indication on whether we can expect big price moves and strong trends in the following days.

US Dollar’s Future in the Hands of Speculators

The dollar was able to manage its most aggressive rally against its chief counterpart (the euro) in months this past week; but the move would not last. Without a scheduled or unscheduled event to dramatically alter the dollar’s status in the well-worn carry trade, risk appetite would ensure the currency would remain shackled to its eight-month old bearish trend channel. Looking out over the week to come, the most pressing question for any trader is determining if and when the greenback will finally catalyze its next trend. Some may argue that direction is the primary concern; but without momentum and follow through, the result is fundamental chop that leaves the market open to volatility while slowly building up the pressure behind the eventual breakout. So, is there potential for a clear, dollar trend in the week ahead?

Euro Remains Below 1.5050 - Is It a Double Top?

The euro ended the past week marginally higher against the US dollar, but down significantly versus the commodity dollars as Credit Suisse Overnight Index Swap (OIS) rates shifted to price in fewer rate increases. Following the European Central Bank’s last policy decisions, OIS rates had been pricing in 98.5 basis points worth of hikes over the next 12 months, but eased back to pricing in 83.1 basis points worth of increases as of Friday’s close. From a technical perspective, EURUSD remains within an uptrend, but 1.5050 is a very clear barrier and a failure to break above in the near-term may signal a double top for the pair.

Japanese Yen Likely to Range Trade Against the US Dollar

Continued S&P 500 rallies made the safe-haven Japanese Yen the second-worst performing G10 currency to finish the week’s trade, finishing higher only against the similarly-downtrodden US Dollar. All major world equity indices finished anywhere from 2-3 percent above their weekly open except for the Japanese Nikkei 225—raising serious doubts on investor demand for Japanese financial asset classes and reflecting poorly on the domestic currency. Indeed, the fundamental arguments for Japanese Yen strengths are becoming increasingly scarce—especially through times of healthy financial market risk appetite.

British Pound Forecast Bullish Versus Euro but watch for BoE Surprises

The British Pound survived a week of fairly lackluster fundamental developments to trade marginally higher against the US Dollar, but a busy week of economic event risk may pose further challenges for the UK currency in the week ahead. Early-week news that Fitch Ratings took a “cautious” view on its outlook for the UK Government Bond’s AAA sovereign rating rattled markets and sent the Sterling instantly lower. The following Bank of England Quarterly Inflation report expressed a similarly cautious outlook for economic growth, and it seemed like the GBP was headed for a break of key support against the US dollar. Yet traders clearly had other things in mind, and the GBPUSD held key technical levels through the week’s close. Whether or not the pair can sustain its defense will likely depend on key event risk in the days ahead, setting the stage for another eventful week of British Pound price action.

How far can the dollar go down?

Theoretically, the US Dollar can go to zero. While unlikely, it should be remembered that nearly every currency that has ever existed throughout history, eventually has a crash that destroys 90% of absolute value, or more.

Won't foreign Central Banks support the dollar?

Why should they? If you are hungry, and your 600 lb. neighbor (who is now so fat he can't even walk anymore he needs to use one of those little carts) missed a few meals, which happen to be 5x expensive as yours, would you finance his dessert? Of course not. You are thinking many things, but supporting his habit of overeating isn't one of them. The US consumes over 25% of the world's resources but produces less than 10%. Economists may not care for such a crude analogy, but the situation with the US Dollar is very, very simple, and should not be overcomplicated. The USD has been a reserve currency for the post WW2 world, but since Nixon abandon gold standard, the USD is backed by only the belief and faith in US Government. We are seeing a commodity boom, not because of a bubble in commodity asset prices, but because of a decline in the USD, the world's reserve currency in which many commodities (especially Oil and Gold) are priced. In any event, it's not likely that foreign central banks will bail out the dollar, because that would in effect make them eat a realized loss in their current account. Moderately wealthy nations cannot afford to take the loss of the US, the largest and wealthiest economy in the world. The US has been a financial big brother who have bailed out other failing economies  but the US has no big brother to lean on, except maybe Russia, although that wouldn't go over too well in Washington. So if the US Defaults, who can come to the rescue?

Gold is cheap

Adjusted for inflation, Gold should be above 1500  without considering any boom. Many are wondering if commodities can continue to increase, without considering how depressed commodity prices were in the late 90's. An economy can live without services, or money, but people cannot decide not to eat or use Oil. Gold is money, the high price in Gold is reflective of investors concern about the value of money  any money. The US Dollar is a reserve currency so when USD goes down, so do many other currencies. The majority of USD holders are foreigners, but that is changing (in the past 10 years foreign USD holders have decreased from 77% to 62%).

What to do?

An argument of this nature should end in a that's next or that you should do. Unfortunately, this is a complex situation with no magic bullet solution. On a basic personal finances level, one should sell your mortgage at any price and become debt free with low cost of living. Don't bet on any economic upturn that will save your finances, things will only get worse. Second, do what you do well  no matter what the value of the dollar or the state of the economy, there will always be demand for goods and services (unless you happen to be in real-estate business, in which case you could start looking into farms.) The good news is that in any time of chaos, uncertainty, and reorganization, there are always massive opportunities. Taking advantage of them may not require huge amounts of capital. Knowledge of the situation can cause one to be in the right place at the right time or at least not in the wrong place at the wrong time for example it would not be smart to be in south Florida amidst economic suffering which could lead to crime, rioting, overall fraud, and a depressed local economy.

Property surrounding small country towns has been doubling in 1 year! Farmland has increased by as much as 500% in some areas over the last few years. There are plentiful opportunities in this market, but they may not be the traditional opportunities that investors are accustomed to.

It's 2008

There is a new market thinking, accept it or not. We don't live in the 1970's, it's not 1970 it's 2008. In 1970 Russia was communist, now there are more billionaires in Moscow than in New York. In 1970 Oil had not yet peaked, there was no Internet, financial markets were not deregulated to the extent that they are now, there were no derivatives, no climate change, and no Oil hungry China. In 1970 Europe was scarcely organized, only 25 years of reconstruction post ww2, and there was no Euro.

Thinking Different

Therefore, the only way to survive in the New Investment Paradigm is to be nimble and stay ahead of the information curve. In any field, applied intelligence can earn a solid position and even great profits. Safe havens are no longer safe as they were, the bond market is getting destroyed by inflation, TIPS (inflation protected bonds) are trading negative for the first time ever, meaning you are betting inflation will be worse than the small loss you will take on the bonds.

A trader named Paulson made a record Wall Street profit on single trade, shorting SubPrime loans. Gold investors are happily sitting on 300%+ returns since 2002. Those holding US Dollar short positions have doubled their money in several years. CTA programs have achieved 70% - 150% in 2007, trading currencies, commodities, and futures. Anyone long Oil or Gasoline futures in the past months would have been very profitable.

Clearly, there are hundreds of opportunities but no clear magic bullet solution that could be recommended, compared to 5 years ago when a US Dollar short or Long Gold portfolio could have been safely recommended. It is for this reason Elite E Services is launching a Global Opportunities Hedge Fund, which should be ready by late spring. If you are trading for yourself, take quick profits and don't hold any positions for the long term, and seek new opportunities. Keep in mind the opportunities may be biased toward the Short side than the long side, as DOW and NASDAQ components will be hit by a sinking dollar, sinking US Economy, and credit problems.

Trade Forex Online: Factors to consider

Factors That Influence Forex Trading

The value of a country's currency is influenced by a number of factors: The economics of the country, its trade deficit, political and social environment.

If the current government's deficit increases, its currency's value will fall. As the government decreases its deficit, the currency can begin to recover value and the exchange rate will become more favorable. The same relationship holds true with a country's trade deficit. If the country imports more goods and services than it exports it will have a negative influence on the currency.

Inflation lessens the ability of a unit of currency to buy less and less, so the currency loses value. If the inflation becomes rampant the currency is valued less because it's also viewed as unstable. As the rate of inflation begins to decline the currency begins to increase in value.

Politics and social changes can play havoc with the currency exchange rates. Changes in the regime that are viewed negatively can lower the value of the country's currency in the short term and continue into the long term. If the present government makes decisions that are looked at negatively it can decrease the currency value as well. The opposite can happen. Current government officials can make policy changes that are viewed positively by the rest of the world and that can increase the value of the currency.

For the United States, interest rates and the price of oil can have a major impact on the value of the US dollar.

Interest rates effect how much it's going to cost to borrow money and how much can be earned on investments. Historically if the US raises its interest rates it attracts foreign investors. Those investors have to sell their own currency in order to buy U.S. dollars to purchase treasury bonds. If the interest begins to drop, or the perception is that the rates won't rise any more, investors may purchase Euros as an alternative investment which lowers the value of the US dollar.

The United States is dependent on foreign oil production. Many US industries are dependent on oil and an increase in the price of oil means an increase in their expenses and a drop in profits. In a similar way, a country's dependency on oil influences how the country's currency is valued and will be impacted by changes in oil prices. The US's dependency on oil makes the dollar more sensitive to oil prices than countries who aren't so dependent. As the price of oil increases the value of the dollar drops.

Dealing With Online Forex Brokers

Online forex brokers can turn out to be your competitive advantage in the line of foreign currency trading. They are deemed as a valuable asset especially if you wanted to enter into a high stakes game of currency trading. Because of these, forex brokers are highly esteemed in the market and there are some misconceptions that have also been formed around them. With the industry booming, it's about time that some of those misconceptions be straightened out once and for all.

The Truth behind Trading with Brokers

Most of the time, we feel way too assured for our own good when we get the services of online forex brokers. We tend to feel that we are in the hands of experts so all we have to do is sit back and relax as they do all the needed work for us. So when things don't turn out quite the way we expect them to, we tend to put all the blame on the brokers. Sometimes we even feel cheated that we are paying for nothing. But the truth is that we are also to blame for the losses we incur.

All forex brokers know that in the trading arena, losses amounting to 95% are but a common thing. This is why most of them choose to abide by the rules of day trading. Exchanging currencies are very dynamic and at the end of the day, all your broker ever really does is to provide you with leads. The hand that still makes all the vital decisions is yours and not your broker.

Brokers and Offered Leverage

One of the selling points used by most forex brokers is the leverage they offer. Leverage is the profits that you can be promised by relying on just one forex broker alone. Some even go as far as giving 300:1 and unfortunately some people take the bait. In truth, 20:1 is the maximum that brokers can handle and assure you with. It's easy to believe that they can do it with a spectrum of trading methods but at the end of the day, keep in mind that these brokers are human too. They can only do so much to cover that much and also consider the fact that you may not be their only client.

Listening to Your Forex Broker

One of the great offers that a forex broker can perhaps give you as an extra benefit is their word of advice. You would especially appreciate this if you are new in the game. But the thing is, you should not swallow every piece of advice that your forex broker will give you. Online forex brokers are hired to help you find opportunities but they should never be the ones made to handle the course of your business. At the end of the day, you should still listen to your own gut feel and instincts.

Also, you should never buy most of the things that your forex broker tells you out of the context of work. As much as possible, keep your relationship at a professional level.

Euro Pullback May Turn into Reversal Should Dollar Recover

There is a reason that EURUSD is the world’s most liquid currency pair. While the European regional and US economies are large trade partners; the real basis for this active is that the US dollar and euro account for the highest and second highest level of reserves in the world’s central banks. The dollar has held the title of top reserve currency (and in turn being used to value commodities, acting as a benchmark or pegged currencies, etc) for decades; but it has been the talk of academic, political and speculative circles for months that the greenback is slowly losing its clout. Who will step in to replace the dollar?

British Pound Assured Volatility as BoE is Forced into a Policy Decision

Though they are inextricably linked, economic health and interest rate policy post two very unique concerns for sterling traders. The extension of the nation’s record-breaking recession a few weeks ago has devalued the currency’s standing amongst peers that have already emerged from the gloom. In turn, this throws interest rate timing and monetary policy in general into question. The Bank of England (BoE) will convene this coming Thursday and the outcome - whether it result in looser, tighter or no change to policy - will almost certainly alter trends and stoke volatility. What traders need to ask themselves is whether any drives will last long enough to break prominent ranges (GBPUSD) and perhaps reestablish the pound’s standing in the constant ebb and flow of risk trends.

US Dollar Forecast Remains Bullish Ahead of Critical Economic Data

The US Dollar finally showed signs of life through the past week of trading, setting a substantial low against the Euro and other key forex counterparts. An early-week tumble in the US S&P 500 and other financial risk sentiment barometers provided the spark for the dollar turnaround. Given extremely one-sided Dollar-bearish sentiment, it was little surprise to see the previously downtrodden currency continue mostly higher through Friday’s close. We have long argued that the Greenback was likely to establish a substantial low on overstretched market positioning. Of course, it is never profitable to be early on calls for major counter-trend moves. Yet the substantive week-long turnaround gives us reason to believe that the US Dollar has set a major low and will likely continue higher through end-of-year trading.

Currency Trading Strategy

The day trader's currency trading strategy is usually made up of a multitude of signals, which trigger buy or sell decisions. A currency trading strategy can use technical analysis, fundamental analysis, or a combination of the two. This depends on the way the market behaves on a given day and on the currency trading strategy that the trader uses. Resist the temptation to make your currency trading strategy too complicated. Cram in too many indicators into your forex trading system, and you will have too many elements to break and it will fail. A far more effective currency trading strategy is to set a reasonable profit target each time (not expecting the home run) and be satisfied with smaller profits--which on a consistent basis will build the equity in the account quickly once the compounding action kicks in. A Currency trading strategy with a high profit percentage rewards you mentally also as it will boost you up for further trade and will make it enjoyable.

When choosing a currency trading strategy , it is important to select one that best suits your needs. A solid currency trading strategy consists of entering a trade at the right place, having a stop that is properly calculated, and setting a reasonable profit target level that works time after time after time. Remember a solid currency trading strategy develops over time.

Using leverage as a currency trading strategy has always been a way to let traders make as much as they can by acting on short-term fluctuations in the forex market. Even though day traders are more interested in a currency trading strategy that focuses on intra-day movements, consulting the daily time frame chart is still very important.

Forex Market Trading

The Forex currency market is open for everyone who wants to learn how to increase their wealth, but it requires not only knowledge that you can obtain with the help of currency Forex market trading guidelines, but also a lot of practice as the practice is the only way to gain the precious experience. The goal of forex market trading is to exchange one currency for another in the expectation that the currency you bought will increase in value compared to the one you sold.

Lots of beginner traders often make the following mistakes: starting their trading without having a strategy and trading lead by emotions. Traders must decide which style and/or combination of analysis works best for them. They often read news, analyst reports, and Web site bulletin boards to get a sense of the general market sentiment and then trade either with or against that sentiment. The forex traders need to be disciplined speaking about a market renowned for its volatility, besides being aware of analysis. Currency traders make decisions by analyzing technical factors and economic fundamentals. Technical traders make their decisions using two primary tools: Charting tools (trend lines, support and resistance levels, etc,) Quantitive Trading Models (mathematical analysis to identify trading opportunities). Fundamental traders analyze key economic data, including news and government reports, to evaluate trading opportunities. The Forex trading world is tough and most newbie traders bail out in the first year. Timing is very important for traders as most securities are volatile and a small change in price can result in big gains or losses.