Best Thread FXCM/DailyFX Signals and Strategies

[Jason Rogers]

British Pound Looks to Weaken vs USD

Written by David Song and Christopher Vecchio of DailyFX.com

GBPUSD – Retail traders continue to add to their long-Cable positions over the past few days despite choppy price action which sent the GBPUSD pair towards its lowest exchange rate since the last week of May. The ratio of long to short positions in the GBPUSD stands at 3.03 as nearly 75% of traders are long. Yesterday, the ratio was at 2.91 as 74% of open positions were long. In detail, long positions are 9.1% higher than yesterday and 62.6% stronger since last week. Short positions are 4.6% higher than yesterday and 15.1% weaker since last week. Open interest is 7.9% stronger than yesterday and 143.1% above its monthly average. The SSI is a contrarian indicator and signals more GBPUSD losses.

 

[Jason Rogers]

Central Bank Interest Rate Outlook

Written by Sonu Sadarangani of DailyFX.com

Federal Reserve
In a statement released on April 27, 2011, the Federal Open Market Committee announced its decision to maintain its target interest rate between 0.00 and 0.25 percent, a level held unchanged since December 2008. The discount rate, at 0.75 percent, remains at a level below the 1 percent historical spread from the Fed Funds rate. According to information received from the Committee’s most recent meeting, the “economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.” The consumer price index rose 0.2 percent in May compared to a 0.4 percent increase in April, indicating a slowdown in inflation, a signal that traditionally spurs consumer spending. Although retail sales in May fell by 0.2 percent, the decline was lower than the 0.4 percent drop forecasted by economists, further providing signs of a gradually expanding economy. The Federal Reserve’s QE2 program to buy government bonds ends on June 30, 2011. Even though signals from the Fed do not indicate an extension of the program, officials have publicly announced that policy rates will be left unchanged in the event of no extension.

With interest rates expected to remain close to zero at least until the end of the year and the government bond buying program not likely to be extended, the Federal Reserve is left with very few monetary tools to stimulate the economy and growth. One option creating internal debate at the Fed is whether to raise the discount rate to 1.25 percent in order to maintain the historical one percentage point spread over the Fed Funds rate. Sentiment remains mixed over whether this action will create a stimulus. However, an increase in the discount rate will almost certainly be followed by an increase in the Fed Funds rate. The next rate decision meeting will be held on June 21, 2011 and “the Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.”

European Central Bank
At its meeting on June 9, 2011, the Governing Council of the European Central Bank (ECB) decided to keep key ECB rates unchanged for the second month in a row, at 1.25 percent. In his introductory statement following the meeting, ECB President Trichet elaborated on the bank’s action to maintain the key rate level stating “the underlying pace of monetary policy expansion is gradually recovering. Monetary liquidity remains ample, with the potential to accommodate price pressures in the euro area. Overall, our monetary policy stance remains accommodative, lending support to economic activity.” The recent rise in energy and commodity prices have contributed to rising prices in the euro area, reflected in the 2.7 percent annual HICP inflation figure. With the ECB’s objective of keeping inflation below, but close to 2 percent in the medium term, Trichet addressed these inflationary concerns stating “strong vigilance is warranted. We will do all that is needed to prevent recent price developments giving rise to broad-based inflationary pressures.” This is largely indicative of an interest rate hike at the next meeting in July. Trichet continued further on the ECB’s objective saying that “this [objective] is a prerequisite for monetary policy to make an ongoing contribution towards supporting growth and job creation in the euro area.”

Economic and monetary analyses were the underlying determinants of maintaining the rate at 1.25 percent. Data revealed real GDP growth of 0.8 percent in the first quarter of 2011, quarter over quarter, a marked increase over the 0.3 percent growth in the final quarter of 2010. “Recent statistical releases and survey-based indicators point towards a continued expansion of economic activity in the euro area in the second quarter of this year, albeit at a slower pace.” Although expansion of the global economy should help the euro area, the Governing Council’s assessment of risks to the economic outlook states “activity is expected to continue to be dampened somewhat by the process of balance sheet adjustments in various sectors.” The June 2011 Eurosystem staff predicts an annual real GDP range of 1.5 percent to 2.3 percent for 2011 and a range of 0.6 percent to 2.8 percent for 2012.

Looking ahead, there is likely to be an interest rate hike at the next meeting in July as the ECB aims to reduce inflation below 2 percent. Aside from the monetary policy changes, Trichet emphasized the need for effective fiscal policies and structural reforms in the different eurozone economies. “The implementation of ambitious and far-reaching structural reforms is urgently required in the euro area to strengthen substantially its competitiveness, flexibility and longer-term growth potential. In particular, countries which have high fiscal and external deficits or which are suffering from a loss of competitiveness should rapidly carry out comprehensive economic reforms,” Trichet concluded.

 

[Jason Rogers]

Euro to See Volatility, Wide Spreads on Greek Confidence Vote

Written by David Rodriguez and Christopher Vecchio of DailyFX.com

A scheduled “No Confidence” vote in the Greek government threatens substantial volatility and widened spreads for the Euro/US Dollar pair, warning traders to reduce positions and leverage ahead of difficult market conditions.

The vote is scheduled to begin at 21:00 GMT (17:00 New York Time) and last approximately for 30 minutes, coming at the time of worst intraday liquidity and widest spreads for the Euro/US Dollar pair.

Traders should be especially cautious with euro positions ahead of the result, reducing leverage on EURUSD positions on the threat of poor trade execution and being taken out of trades due to exceedingly wide spreads.

Greek members of parliament will vote on whether Prime Minister George Papandreou’s government will stand and whether new elections will decide the makeup of the domestic government. Papandreou’s socialist party has 155 of the 300 seats in parliament, with 151 votes necessary to retain power. Should the government fail to receive these votes, it would put further Greek fiscal aid at clear risk; some policymakers have speculated that a vote of no confidence would guarantee a Greek debt default.

Such a scenario could lead to a mass exodus from European assets as traders shed Greek debt exposure at rock-bottom prices. Given that the European Central Bank holds a significant sum in Greek government debt, it could likewise affect the central functioning of the currency union.

The European Commission, European Central Bank, and International Monetary Fund have made it quite clear that any further Greek fiscal aid will depend on whether the domestic government can push forward further reforms to reduce its debt. The likelihood of a fresh wave of budget cuts drops significantly in the short term if the ruling socialist party fails in the scheduled confidence vote and new elections are called.
The country now holds the world’s lowest credit rating for a sovereign state rated by Standard and Poor’s. The Greek government estimates that its debt burden will reach €350 billion by year’s end, and the next disbursement of IMF aid is necessary to avoid default.

The effects of a vote of no confidence could be far-reaching, as further turmoil threatens contagion to Portugal, Ireland, and even Spain. Some have gone as far to call the unfolding scene “Europe’s Lehman moment,” suggesting that a default would cause credit markets to dry up.

Given all that is at stake, traders should be exceedingly cautious of sharp Euro/US Dollar moves following the scheduled vote. The threat of low liquidity and excessive volatility is higher due to its timing of poorest average liquidity in the trading day. If the vote passes, the Euro could rally sharply against the safe-haven Japanese Yen, Swiss Franc and U.S. Dollar. If it fails, watch for potentially significant euro losses across the board.
Traders are advised to reduce leverage ahead of potentially difficult market conditions.

 

[Jason Rogers]

British Pound Breakdown – Objective in Low 15000s

Written by Jamie Saettele of DailyFX.com

The GBPUSD has definitively broken below its trendline from the 2010 low and confirmed a head and shoulders top. Using the traditional head and shoulders measuring technique yields an objective near 15250 (distance between head and neckline subtracted from point of neckline break), which is near the late 2010 low of 15350. Short term resistance is 16015 and 16070.

 

[Jason Rogers]

British Pound Bearish on Rallies – Resistance at 16080

Written by Jamie Saettele of DailyFX.com

The GBPUSD has definitively broken below its trendline from the 2010 low and confirmed a head and shoulders top. Using the traditional head and shoulders measuring technique yields an objective near 15250 (distance between head and neckline subtracted from point of neckline break), which is near the late 2010 low of 15350. Short term resistance is 16080, 16150 and short term channel resistance. I like establishing shorts at those levels against 16262.

Prepared by Jamie Saettele, CMT​

 

[Jason Rogers]

EURCAD Breaks Below 2011 Trendline Support

Written by Jamie Saettele of DailyFX.com

The EURCAD has broken below the line that extends off of the 2011 lows and focus is now on the June low at 13633. A drop below there would complete a double top with the May and June highs and possibly result in a freefall towards the low 13000s. Former supports should now serve as resistance at 13861, 13897, and 13938.

 

[Jason Rogers]

Crude Oil Gains on ADP Jobs Report

Written by Ilya Spivak of DailyFX.com

Positioning is little changed from yesterday, with the WTI contract treading water after prices cleared the $96.00 figure. A steep run-up in Euro Zone periphery CDS rates – which points to increasing debt crisis fears – seems to be roundly ignored as S&P 500 stock index futures climb ahead of the opening bell on Wall Street.

Optimism follows a much better than expected ADP Employment report, a preliminary reading ahead of Friday’s official figures (157k vs. 70k expected). Last month, the ADP reading was a fairly good gauge of the direction of the closer-monitored Nonfarm Payrolls reading, so it seems reasonable that traders are paying attention. Official DOE weekly inventory figures are also on tap.

 

[Jason Rogers]

Euro Weakness Extends – Next Objective at 13750

Written by Jamie Saettele of DailyFX.com

The EURUSD dropped to its lowest level since March before rebounding sharply overnight. This is a fast market but strength should be sold and resistance is at 14060. A new low would target a former pivot low in March at 13750. This level intersects with the 2010-2011 trendline over the next several days. A freefall would reach the parallel channel support line in short order, at 13610 today.

Daily Bars

 

[Jason Rogers]

U.S. Dollar Plummets as Bernanke Suggests Further Easing on Horizon

Written by Christopher Vecchio of DailyFX.com

THE TAKEAWAY: Federal Reserve Chairman Bernanke’s Semiannual Monetary Policy Report to the Congress > Dovish Commentary Suggests Further Easing > U.S. Dollar Bearish

The U.S. Dollar plummeted against a basket of currencies at 14:00 GMT as Federal Reserve Chairman Ben Bernanke began his testimony at the Semiannual Monetary Policy Report to the Congress, in which it was evidently clear that the Federal Reserve was ready to continue its loose monetary policy – and thus further devalue the U.S. Dollar – in order to boost growth prospects for the U.S. economy.

In his discussion of current economic conditions, Chairman Bernanke noted that the pace of expansion so far this year has “been modest” in the United States, with real gross domestic product having risen at “about a 2 percent rate in the first quarter of this year, and incoming data suggest that the pace of recovery remained soft in the spring.” Similarly, the unemployment rate, which had been “on a downward trajectory at the turn of the year, has moved back above 9 percent.”

Indeed, Chairman Bernanke noted, that “[T]he most recent data attest to the continuing weakness of the labor market: The unemployment rate increased to 9.2 percent in June, and gains in nonfarm payroll employment were below expectations for a second month.” Furthermore, he stated that long-term unemployment is a potentially severe problem for the country, as it leads to “an erosion of skills of those without work,” while simultaneously reducing “the productive potential of our economy as a whole.”

Dow Jones FXCM Dollar Index 1-minute Chart: July 13, 2011

 

[Jason Rogers]

US Federal Debt Ceiling: Moody’s Downgrade Shows How to Trade It

Written by David Rodriguez of DailyFX.com

The US Debt Ceiling represents a key risk to financial markets, but what does it mean for currencies and how can we trade it?

Legislative deadlock threatens to place the US Treasury in a form of default as a key deadline approaches. The US Treasury has the constitutional right to issue bonds in order to finance government budget deficits. The Treasury is granted effective autonomy with one clear exception: Congress mandates a maximum level of Treasury debt outstanding at any one time.

The Treasury hit its mandated debt limit as of mid-May and has been unable to issue fresh net debt since it hit its maximum. Officials estimate that the Treasury could become insolvent by August 2nd, as there are substantial payments due to entitlement programs on August 3. If August 3rd arrives without the debt limit being raised, we can expect risky high-yield assets, such as Australian Dollar, Norwegian Krone, and stock markets to drop dramatically, while “safer” low yielding assets like the Japanese Yen and Swiss Franc jump. We also expect that market volatility in coming weeks will be high as traders react to any news of progress or failure in debt ceiling negotiations.

US Federal Debt Ceiling, in Trillions of Dollars

Chart source: CNN Money
​

What’s the Risk?
The US maintains the top sovereign credit rating from all major rating agencies, and recent rallies in Treasury bond prices emphasize that global demand for US debt remains strong. Thus the act of raising the debt ceiling should be a mere formality, consistent with the fact that Congress has raised it 11 times in the past 10 years. Yet this time seems different. Political deadlock suggests that Congress could actually let the Treasury’s solvency deadline pass without a deal in place. And though it is impossible to predict how all markets would react to such an event, it’s fairly clear that it could be disastrous for a wide range of assets.

What could happen if the Treasury Defaulted on its Debt?
The effects of a Treasury default would be substantial and far-reaching, leaving few corners of the market untouched. US Treasury Debt has long been recognized as the global risk-free asset. In most financial models, returns in any asset are benchmarked against the equivalent risk-free rate.

The US government bond yield is thus the bare minimum return required for any US Dollar-denominated asset. If the government defaults on its debt, no matter for how short a period of time, Treasury debt prices would fall sharply and yields move quickly higher.

The yield on owning stocks would have to rise, prices fall to account for the higher underlying benchmark risk. This could easily force the broader US S&P 500 lower and force contagion across international financial centers. We could see a global sell-off in financial market ‘risk’.

In fact, we got a preview of what might happen as Moody’s downgraded outlook on the US sovereign credit rating on July 13th. The US Dollar sold off sharply as an immediate reaction, but the bigger moves came from the S&P 500 and the forex carry trade.

S&P 500 Futures Prices Drop Significantly as Moody’s Downgrades US Credit Rating Outlook

Source: DailyFX.com​

The US Dollar reaction was slightly more nuanced, as the Greenback initially sold off sharply only to recover shortly thereafter. We could envision similar reactions from the US Dollar if the Debt Ceiling is not raised ahead of the August 2 deadline.

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) Tumbles on Moody’s US Credit Rating Outlook Downgrade but Subsequently Bounces

 

[Jason Rogers]

EURUSD: Sell Trade Entered Below 1.42

Written by Ilya Spivak of DailyFX.com

Strategy: Short at 1.4188, Targeting 1.3968

EURUSD pulled up to re-test the underside of a Triangle consolidation pattern established from late April, a barrier reinforced by the 50% Fibonacci retracement level, and produced a bearish Shooting Star candlestick to hint that the correction had run out of steam. We will enter short from here, initially targeting the 5/23 low at 1.3968. A stop-loss will be activated on a daily close above 1.4294, the 61.8% Fib.

 

[Jason Rogers]

Euro Rallies on EU Summit Prospects as the Dollar Continues to Slide

Written by Michael Boutros of DailyFX.com

The euro was the best performer an hour into US trade, advancing more than 1% against a weaker dollar. Market sentiment continues to improve as EU officials conclude a meeting in Brussels to devise a mechanism to stem the threat of contagion in the region as the debt crisis reaches critical mass for Greece. Early reports cite the possibility for a short-term Greek default as part of an aid package for the debt laden country. The single currency broke above the 100% Fibonacci extension taken from the June 16th and July 12th troughs at 1.4330. Topside targets are eyed at the 1.44-figure, backed by 1.4420 and 1.4450. Interim support rests at 1.4295 with subsequent floors seen at the 76.4% Fib extension at 1.4215 and 1.4170.

 

[Jason Rogers]

Australian Dollar On the Verge of Testing May High

Written by Jamie Saettele of DailyFX.com

“The bullish AUDUSD count in which the decline into 10390 completed a corrective 4th wave remains favored. The implications are for a 5th wave rally that ends above 11011.” The current AUDUSD rally is viewed as wave iii of 5. Interim resistance is at 10890-10923 (5/11 high and 100% extension) but strength above 11011 is favored over the next few weeks. 10800 is expected to provide short term support.

240 Minute Bars

 

[Jason Rogers]

Written by Christopher Vecchio of DailyFX.com

The U.S. Dollar was offered lower across the major currencies in the Asian and European sessions as it remains abundantly clear that neither Democrats nor Republicans are willing to give way from their political ideologies, pushing the world’s largest economy closer to the brink of default. The repercussions would be immense, as President Barack Obama noted last night at a press conference, shortly after the start of Asian trade on Tuesday.

President Obama was particularly stern in his approach to addressing the deadlock, firing shots across the Republican party’s ideological bow, noting that House Republicans “refuse to weigh balanced approach,” creating the threat that a default would spark a “deep economic crisis.” The past few days have yielded some unexpected results in the debt debate, as it was largely assumed that after U.S. lawmakers bantered back and forth in efforts to sway public opinion, a deal would eventually have been struck. In actuality, and on the contrary, the current positions lawmakers on both sides of the aisle are entrenched in appear to be statements of definitive policy, rather than merely political posturing.

The U.S. Dollar was crushed in the overnight on such news, dampening hope that a permanent fix to the debt ceiling – perhaps a mixture of a debt ceiling hike, an increase in revenue via an increase in taxes and a decrease in spending – would be enacted ahead of the tentative August 2 deadline (even though it is now being floated that August 10 is the new deadline, as the U.S. Treasury has collected more payments than expected in recent weeks).

Aussie-Dollar 5-minute Chart: July 26, 2011

 

[Jason Rogers]

USDollar Climbs As EUR/USD Suggests Lower Top Forming

Written by Jonathan Granby of DailyFX.com

After Moody’s warning that the second Greek bailout could set a precedent in the EMU for bailouts which is credit negative as well as mounting concerns that for EMU nations to reach their 3% target growth will be seriously impaired, which will likely see the ECB leave rates well alone. All told yesterday wasn’t a great day for the euro as it carved out a bearish outside day against the buck, suggesting further losses are on tap. This bearish reversal yesterday rather neatly keeps the series of lower tops in tact and puts focus back on the downside in coming sessions and days, assuming the trade doesn’t reverse course again.

As such, the dollar index looks set to now climb away from the early May lows where it found support are failing to close below the key 9340 level. While the index may climb at a slower rate than most expect, due to relative weakness against other major currencies, it should climb back to the relative safety of 9400 and 9450 above. Naturally a break and close back below the aforementioned support level negates this outlook.

Dow Jones FXCM US Dollar Index Basket

 

[Jason Rogers]

Japanese Yen Focus Remains on Measured Levels Below 7500

Written by Jamie Saettele of DailyFX.com

“The USDJPY rebound stalled before the Sunday night high, thus continue to favor the downside. The next measured level is the 161.8% extension of the decline from the July high, at 7472. Understand that a new low would complete 5 waves down from the July high therefore increasing the probability of a sharp countertrend rally.”

 

[Jason Rogers]

U.S. Dollar Correction Ahead Of NFP’s, BoJ Intervention Up Next?

Written by David Song of DailyFX.com

The Dow Jones-FXCM U.S. Dollar index surged to a fresh monthly high of 9612.03, but the greenback may consolidate ahead of the highly anticipated Non-Farm Payrolls report as the recent developments coming out of the world’s largest economy highlights a weakened outlook for employment. The USD remains 1.68% higher from the open after moving an impressing 228% of its average true range, and the greenback certainly looks poised for a short-term correction as the 30-minute relative strength index falls back from a high of 78. In turn, we should see price action fall back within the upward trending channel over the next 24-hours of trading, and the index could fall back towards 9500.00 to test for psychological support.

DJ FXCM Dollar Index

 

[Jason Rogers]

Special Webinar:

DailyFX Analyst David Rodriguez hosted a special webinar earlier today discussing potential trading opportunities in the aftermath of the US debt downgrade. Here is the webinar recording:

 

[Jason Rogers]

Swiss Franc Surges, but SNB and Yields Make CHF Longs Dangerous

Written by David Rodriguez of DailyFX.com

The Swiss Franc’s meteoric rise against the Euro and US Dollar has left the Swiss National Bank on the defensive, and the currency’s latest moves make it exceedingly expensive to hold CHF long positions for the forex trader.

On August 3 at approximately 07:00 GMT, the Swiss National Bank announced that it would cut its short-term interest rate to as close to zero as possible—effectively making it far more expensive to hold Swiss Franc positions.

Indeed, overnight interest rates have recently fallen near record lows. At 0.035%, the current overnight yield is effectively at zero and makes the currency a far less attractive long against much higher-yielding counterparts.

Swiss Franc Spot/Next Interest Rate

Source: Bloomberg Professional Service​

European overnight interest rates remain quite elevated and the spread between Swiss and Euro rates trades at its widest since the height of the financial crisis.

Spread between Overnight Euro Rate versus Swiss Franc Spot/Next Rate

Source: Bloomberg Professional Service​

The net result is to make it especially expensive to hold Euro/Swiss Franc short positions, and traders should be careful of large EURCHF charges at daily rollover.

Euro/Swiss Franc Weekly Chart Shows a Seemingly Interminable March Towards Parity

Source: Bloomberg Professional Service​

Given that the EURCHF trades increasingly close to parity, expect the Swiss National Bank to remain especially vocal on the domestic currency. Holding Swiss Franc long positions is not only expensive, but the threat of SNB intervention makes it exceedingly risky through short-term trading.

 

[Jason Rogers]

Written by Christopher Vecchio of DailyFX.com


The Swiss Franc took a nose dive today after Swiss National Bank Vice President Thomas Jordan warned that a “temporary” Franc-Euro peg could be utilized to stem the safe haven currency’s rally amidst increased market uncertainty. The policymaker said that “any temporary measures to influence the exchange rate are permissible under our mandate as long as these are consistent with long-term price stability.” In the aftermath of what has been the harshest rhetoric employed by a central banker to date, the Swiss Franc plummeted across the board, losing more than 4 percent against each of the major currencies.

EUR/CHF 5-minute Chart: August 11, 2011

Although the Franc’s rally in the overnight erased the week’s gains, without any concrete action by the Swiss National Bank, such posturing could diminish the central bank’s credibility, making EUR/CHF parity a distinct possibility. Of course, given broader macroeconomic trends dictating high demand for safety, a currency peg would decrease demand for the Franc while simultaneously also boosting demand for the Japanese Yen and the U.S. Dollar. On increased haven flows into the Yen, any significant action by the Swiss National Bank could trigger a series of actions by other central banks, such as the Bank of Japan, to weaken their currency as well.