Best Thread FXCM/DailyFX Signals and Strategies

[Jason Rogers]

All Eyes on EU Summit this Thursday and Friday

Hi Everyone,

All eyes remain on Europe as a key summit will be held in Brussels on Thursday and Friday. Early trading this week shows that the markets are selling into the meeting as the Euro and stocks have fallen.

The euro fell broadly on Monday as concerns about stuttering global growth and low expectations of progress in tackling the debt crisis at a European summit later in the week weighed on demand for riskier currencies. - Reuters

World stocks fell Monday amid concern that a critical European summit later this week will not yield a deal that might restore confidence in the future of the 17-country euro currency. – AP

For contrarian traders, this could present an opportunity if the EU Summit goes better than expected. SSI for the Euro flipped from positive to negative last Friday, which means that more FXCM traders were short the Euro than long going into the weekend.

Joel Kruger, Technical Strategist at DailyFX.com has provided some key prices to watch this week:

EUR/USD: While our overall outlook remains grossly bearish, from here we still see room for short-term upside before a fresh lower top is sought out. Despite the latest pullback, the market still looks constructive in the short-term while above 1.2440. A closer look at the weekly chart still shows the pair putting in yet another weekly higher high and higher low. Nevertheless, a break back above 1.2750 will now be required to accelerate gains. Below 1.2440 negates. – Click here to read the complete technical analysis at DailyFX.com

Jason

 

[Jason Rogers]

European Summit May Yield Unexpected Boost to Risk-Driven Currencies

Major Currencies vs. US Dollar (% change week-to-date)

Talking Points

- EU Leaders Summit Unlikely to Yield Major Progress on Fiscal Reform Efforts
- Delivering Results on Boosting EU Growth More Likely, Lifting Stocks-Linked FX
- Japanese Yen Tracking US Treasuries, Hinting Pro-Growth EU Stance May Weigh
- Euro to Underperform as ECB Rate Cut Bets, Structural Instability Remain Intact

Most major currencies remain closely anchored to risk sentiment trends, reflected in close correlations with the MSCI World Stock Index. That puts the spotlighton the two-day EU leaders’ summit beginning on Thursday. Global leaders put heavy pressure on their European counterparts to step effortsto contain the debt crisis and boost regional growth at last week’s G20 sit-down and traders will be keen to get a glimpse of how policymakers intend to respond.

Speculation ahead of the summit has focused on dealing with lingering sovereign instability and bank undercapitalization plaguing the Eurozone. In particular, much has been made of possible plans to lay the foundation for shared debt liability regional bloc. This would allow sickly periphery countries to “import” investors’ confidence in the likes of Germany, bringing down borrowing costs and deflating funding concerns.

With Berlin rejecting outright the creation of jointly issued debt (so-called “Eurobonds”), markets hope that an intermediate step such as a region-wide bank deposit insurance scheme will have better chances. Allowing the EFSF and ESM bailout funds – which are able raise funds by issuing debt effectively underwritten by the Eurozone’s healthiest members – to directly recapitalize banks without funneling the funds through sovereigns (thereby compounding their debt burden) is another hopeful idea.

The markets appear skeptical, questioning whether something concrete and actionable on debt crisis management can indeed emerge. That seems reasonable. A report released yesterday by European Council President Herman Van Rompuy outlined in vague terms the “building blocks” for deeper Eurozone fiscal integration and argued that a detailed plan on this basis can be completed by December, with a preliminary draft version possibly to emerge in October. That’s hardly the kind of speedy action that would mollify financial markets.

While that seems to set the stage for disappointment, that need not be the case considering the bar for a successful outcome has been set relatively low. Indeed, the lack of meaningful progress on fiscal reform is unlikely to shock the financial markets. Meanwhile, growth-boosting initiatives are a far less controversial topic, suggesting significant progress on this front may be easier to come by. Indeed, markets have already learned of a new €125 billion initiative after a meeting of French, German, Italian and Spanish heads of state last Friday (although details are murky).

A recession in the Eurozone and its consequences for performance in other economies (notably China, and by extension Asia in general) represents the most significant headwind facing global economic growth this year. Consequently, a convincing set of pro-growth measures – like easing of austerity requirements in bailout countries and boosting funding to the EIB for infrastructure projects – that helps soften the downturn ought to prove supportive for risk appetite.

Such an outcome points the way higher for sentiment-linked currencies, with the consistently stocks-linked Australian, Canadian and New Zealand Dollars poised to outperform. The British Pound has likewise rebuilt its correlation with share prices and so is likewise poised to capitalize if investors’ disposition improves. The Japanese Yen continues to track US Treasuries, so a risk-supportive outcome is likely to drive USDJPY higher as haven-seeking inflows dry up and bond prices decline while yields advance.

As for the Euro itself, correlation studies point to the primacy of rates over sentiment trends as the leading driver of price action. Efforts to boost Eurozone growth are likely to dull recession fears but not dismiss them, meaning ECB rate cut expectations still have scope to build. Needless to say, structural sovereign risk concerns would remain as well. That suggests the single currency is likely to underperform.

EURO

Source: Bloomberg


BRITISH POUND

Source: Bloomberg

JAPANESE YEN

Source: Bloomberg

CANADIAN DOLLAR

Source: Bloomberg

AUSTRALIAN DOLLAR

Source: Bloomberg

NEW ZEALAND DOLLAR

Source: Bloomberg

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

 

[Jason Rogers]

US Dollar Targets Fresh Highs versus Euro Through End of June, July

Retail forex trading crowds have aggressively sold into US Dollar (ticker: USDOLLAR) strength, and our proprietary sentiment-based strategies have bought the USD against the Euro, British Pound, and Australian Dollar—calling for further Greenback gains.

The US Dollar initially looked as though it could continue to consolidate and correct lower against the Euro (EURUSD higher) through the end of June. Yet current event risk remains critical on the European summit and developments in Euro Zone fiscal crises. We see scope for further EURUSD declines.

Limited forex options market volatility expectations dampens optimism for explosive US Dollar breakouts, but the Greenback looks as though it could continue to trade quietly higher through the end of June. It will be critical to watch moves in the Dow Jones FXCM Dollar Index at important support, but a hold of significant lows would clearly bolster our calls for further Dollar strength.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

 

[Jason Rogers]

Today's gains in Euro present opportunity to establish short positions

The low expectations in place the past few days surrounding the Euro-zone Summit were tossed aside with ease on Friday, as new measures proposed prompted a massive short-covering rally in the Euro. The AUDUSD and EURUSD have had their two best days all year as a result.

Taking a step back from the charts for a second, we should take into consideration the parameters of the measures disclosed at the Summit in order to determine whether or not today’s near-2 percent move in the Australian Dollar and the Euro are going to be long-lasting, or whether or not we’re seeing some additional volatility due to the end of the month and the quarter.

There are four glaring holes in the Summit’s announcements... You can read the complete article at DailyFX.com

EURUSD: Small New Short Position Triggered

Prices appeared to complete an upward correction with a break of rising channel support on June 21 and have now rebounded to improve risk/reward parameters for re-entry. We will try a small new short position here, initially targeting 1.2442. A stop-loss will be activated on a daily close above 1.2746... You can read the complete strategy at DailyFX.com

 

[Jason Rogers]

EURUSD Bearish Objective is 1.2150

Written by Jamie Saettele of DailyFX.com

Today’s price action is confirming the wave iii of 5 interpretation in EURUSD. Focus is lower towards the June low of 12287 and the June 2010 low at 12150 (161.8% extension of decline from June high is at 12141 as well). To be sure, a relief rally may materialize from nearby levels, which is defined by a short term channel (downward sloping) and 100% extension of the decline from the June high (12350). 12420/50 is now resistance. Risk on shorts can be moved down to 12500 (from 12630).

 

[Jason Rogers]

Australian Dollar Speculators Flip to Net Long

Latest CFTC Release dated July 3, 2012:

The COT Index is the difference between net speculative positioning and net commercial positioning measured. A light blue colored bar indicates that the difference in positioning is the greatest it has been in 52 weeks (bullish) with speculators selling and commercials buying. A light red colored bar indicates that the difference in positioning is the greatest it has been in 52 weeks (bearish) with speculators buying and commercials selling. Crosses above and below 0 are in bold. Non commercials tend to be on the wrong side at the turn and commercials the correct side.

Chart Key
Non Commercials (speculators) – Red
Commercials – Blue
Small Speculators – Black
COTDiff – Black
Volume on bottom

Australian Dollar

Chart prepared by Jamie Saettele, CMT

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

 

[Jason Rogers]

AUDUSD Poised for Employment Data

One of the most awaited events on the economic calendar this week is the release of the unemployment numbers in Australia. While the event is not traditionally as volatile as NFP, these numbers are significant, and can give a trader insight into the strength of the Australian economy. As well, policy makers at the Reserve Bank of Australia (RBA) will be using this information to make future policy decisions.

Below you will see a chart displaying the historic unemployment rate out of Australia. This month, expectations are set for the creation of no net new jobs with the economy displaying an unemployment rate of 5.2%.

Below we can see another chart, this time graphing Australia’s benchmark interest rates. This rate is set by the central monetary authority and can be used to heat up or slow down the Aussie economy. Through 2012 the RBA has taken expansionary measures lowering this rate down to its current levels at 3.50%. If unemployment increases more than expected, this may signal another potential round of rate decreases through the RBA.

Ultimately with expectations of a rate cut, it would be expected that the Aussie currency would decrease in value. To learn more, let’s take a look at how this policy has affected price for 2012.

Below we can see current price action on an AUDUSD daily chart and can better see the pairs decline. Since the RBA began lowering rates the pair has decreased as much as 1275 pips from its 2012 high residing at 1.0855. Over the past month however price has been rallying, with a line of support being held near 1.0150. Upon a negative outcome of employment numbers, traders should watch this point for a potential breakout. With the formation of lower lows, it is expected that the AUDUSD downtrend may begin again with the potential to challenge previous lows set at .9580 on June 1st.

My preference is to set an entry to sell the AUDUSD under 1.0150. Stops should be placed above resistance near 1.0250. Using a minimum 1:2 Risk/Reward ratio primary limits can be set at .9950 or better.

Alternative scenarios include price bouncing off support to a higher high.

--- Written by Walker England, Trading Instructor at DailyFX.com

 

[Jason Rogers]

US Dollar Breakout is Only the Beginning

• EURUSD – Euro Forecast to Fall Towards $1.1875
• GBPUSD – British Pound Expected to Weaken Further
• USDJPY – Japanese Yen Outlook Remains Bullish
• USDCHF – Swiss Franc Forecast to fall Against USD
• USDCAD – Canadian Dollar Predicted to Weaken
• GBPJPY – British Pound Outlook Bearish versus Japanese Yen

Retail forex trading crowds have aggressively sold into US Dollar (ticker: USDOLLAR) rallies against the Euro and British Pound. Such one-sided sentiment gives contrarian signal that the EURUSD and GBPUSD may fall to fresh lows.

The Dow Jones FXCM Dollar Index now trades at monthly highs as the Euro falls to fresh multi-year lows, and our proprietary retail forex-based Speculative Sentiment Index gives reason to expect further USD strength. Indeed, our technical forecast predicts that the USDOLLAR targets multi-year peaks on the broader Greenback rally.

We use our proprietary SSI data as a contrarian indicator. If crowds are aggressively long, price can and often will head in the opposite direction and trade lower. Our sentiment-based strategies have accordingly bought into USD strength against the Euro, British Pound, Swiss Franc, Australian Dollar, New Zealand Dollar, and Canadian Dollar. We expect the US Dollar may continue to strengthen through near-term trading.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

 

[Jason Rogers]

US Dollar Correlation to S&P 500 VIX Near Record; USD to Track Stocks

The S&P 500 Volatility Index (VIX) reflects volatility expectations on the benchmark US equity index, and high values are most often associated with fear of significant declines. The Dow Jones FXCM Dollar Index is, in our opinion, the best metric for the US Dollar’s value against major currency counterparts. View the methodology behind the USDOLLAR.

The extremely strong link between the Dollar Index and the VIX emphasizes that forecasts for the US currency will depend on moves in broader markets. Correlations show that a higher VIX coincides with a higher Dollar; we may need to wait for the next bout of significant financial market risk aversion to see a significant break higher in the US Dollar.

Forex Correlations Summary

View forex correlations to the SPDR Gold ETF Trust (GLD), United States Oil Fund ETF (USO), SPDR Dow Jones Industrial Average ETF Trust (DIA), UK FTSE 100 Index, and IShares Silver Trust ETF (SLV) prices.

Correlation between Dow Jones FXCM Dollar Index and the S&P 500 Volatility Index

The correlation between the Dow Jones FXCM Dollar Index (ticker: USDOLLAR) and the S&P 500 Volatility Index (VIX) trades at its strongest since late 2012, and the strong link emphasizes that the US currency remains especially sensitive to broader financial market moves.

The S&P 500 VIX serves as an accurate measure for the prices that options traders are willing to pay for bets on/hedges against major stock market moves. In that sense, the so-called “Fear Index” is a good way to gauge the level of risk aversion in broader financial markets.

Forex traders continue to buy the US Dollar during times of broader financial turbulence as the Greenback retains its status as the world’s foremost safe-haven currency. In fact we believe that the USD stands to gain as European troubles continue to haunt international investors.

It will be nonetheless critical to watch the next moves in the S&P 500 VIX. The Index trades near its lowest levels year-to-date and is comfortably below the psychologically significant 20% mark. It may take a substantial jump in the VIX to force a much larger US Dollar breakout. In the meantime, we might see currencies such as the Australian Dollar continue to outperform as the S&P and Dow Jones trade quietly higher.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

 

[Jason Rogers]

Euro Reversal Versus US Dollar Seems Imminent

Retail forex speculators have bought into recent US Dollar (ticker: USDOLLAR) declines against the Euro, British Pound, Japanese Yen, and Canadian Dollar—warning that the USD has further room to fall.

The Dow Jones FXCM Dollar Index has recently broken to fresh July lows, and indeed our technical forecast for the USD calls for further short-term weakness. The USDOLLAR is a measure of the US currency against the Euro, Australian Dollar, British Pound, and Japanese Yen. A technical breakdown warns of EURUSD, AUDUSD, and GBPUSD gains as well as USDJPY weakness.

Technical analysis studies aside, recent shifts in retail trader sentiment warns that the US currency may indeed have further room to fall. Our proprietary Speculative Sentiment Index data shows that there are 1.2 traders long EURUSD for every one long. Yet long positions have fallen 15 percent since last week while shorts are up 19 percent. An SSI flip to net-short EURUSD would give clear contrarian signal that the Euro may have set an important bottom.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

 

[Jason Rogers]

Euro Targets Fresh 2012 Lows Amid The Deepening Recession

By David Song, Currency Analyst at DailyFX.com

Fundamental Forecast for the Euro: Bearish​

The Euro slipped to a fresh yearly low of 1.2143 amid the weakening outlook for the region and the single currency may track lower next week as the economic docket is expected to show a growing risk for a prolonged recession. Although Spain remains on track to tap the EUR 100B bailout package, the government lowered its growth forecast and now sees GDP contracting 0.5% in 2013, and the economic slowdown reinforces our bearish outlook for the EURUSD as we expect the European Central Bank to carry out its easing cycle throughout the remainder of the year.

As manufacturing and service-based activity is expected to contract again in July, the ongoing slack in private sector activity is likely to fuel bets for another rate cut, and the ECB may continue to strike a dovish tone for monetary policy as growth and inflation taper off. According to Credit Suisse overnight index swaps, investors are still pricing an 83% chance for a 25bp rate cut at the August 2 meeting, but we may see the Governing Council lean towards a zero interest rate policy (ZIRP) as the fundamental outlook for the region turns increasingly bleak. At the same time, we saw the International Monetary Fund encourage the ECB to pump more liquidity into the system through its asset purchase program amid ‘a sizable risk,’ and the central bank may have little choice but to implement a range of tools over the coming months as the debt crisis continues to drag on the real economy. As heightening finance costs across the European periphery raises the threat for contagion, we may also see the flight to safety gather pace in the week ahead, and the EURUSD looks primed to extend the decline from earlier this month as the EU maintains a reactionary approach in addressing the debt crisis.

As we’re expecting to see a slew of dismal developments next week, we should see the downward trend from 2011 continue to take shape, and the drop in risk sentiment should produce fresh yearly lows in the EURUSD as European policy makers struggle to restore investor confidence. In turn, we may see the euro-dollar make a run at the 1.2000 figure to test for psychological support, but we will be keeping a close eye on the relative strength index as it approaches oversold territory. - DS

 

[Jason Rogers]

Why Trade Euro Crosses

With so many currency pairs to choose from, it can often be overwhelming for a new trader to decide which currency pair to trade. To decide which pair is optimal for trading we should sort our options by considering both trend and rollover rates. Today we will specifically be comparing the EURJPY and AUDJPY currency pairs to see the advantages of trading Euro crosses in present market conditions

Strength Of Trend

Regardless of your trading strategy, it is important to evaluate the direction of the trend. Above we have daily charts for both the EURJPY and AUDJPY. Looking at the EURJPY we can see the pair is working on creating new lows under 94.46, and declined as much as 1716 pip through present prices. On the other hand the AUDJPY has declined as much as 1417 pips through the same time frame, but has not established a new low in over 6 weeks. Both pairs are trending lower from their 2012 highs in March, that much is clear but we can see that momentum is clearly on the side of the EURJPY.

With the EURJPY making lower lows and having a stronger trend, which pair would you prefer to be trading?

Rollover Rates

Strength of trend is not the only consideration we should take into account when opening a position. Every good trader will always keep their eye specifically on costs that can eat into potential profits. Rollover is one of those factors, and can either work in your favor or against it. As each individual currency has an interest rate associated with it, as set by their central reserve bank, traders have the potential to earn or pay interest based off of these numbers. Ultimately this will be decided if we are holding a currency with a higher or lower overnight interest rate. You can find a list of current overnight and central banking rates listed above, but let’s again shift our attention to compare our EURJPY and AUDJPY pairs.

RollS

Since we are looking to sell both pairs with the trends mentioned above, we need to focus our attention on RollS. RollS is the amount we will either be paying or earning for selling either the EURJPY or AUDJPY currency pair. We can find this number inside of our trading platform and is displayed above in the dealing rates window for both the EURJPY and AUDJPY currency pairs. Notice the highlighted RollS boxes and how we are paying $1.43 in rollover per lot traded on the AUDJPY? This is due to the fact that the Aussie Dollar maintains a much stronger banking rate relative to the Japanese Yen.

The EURJPY currency pair is exactly the opposite. We actually get paid $00.03 for selling this currency pair! While getting paid 3 cents a lot in profit is not exactly a windfall, we are not paying for the privilege of selling the currency pair as we are for the AUDJPY. Taking this into account, rollover is an additional advantage of trading a Euro cross over another currency pair.

And the Winner is?

As we can see through the analysis above, it is beneficial to consider different currency pairs prior to executing a trade. With momentum and rollover clearly on the side of Euro crosses they ought to be sought out for future selling opportunities. It should be noted that the EURJPY is not the only Euro cross available for trading. The EURUSD, EURGBP, EURAUD and others can all offer exceptional trading opportunities. What currency pair will you be trading?

--- Written by Walker England, Trading Instructor at DailyFX.com

 

[Jason Rogers]

Latest SSI points to further gains in the Euro

Hi Everyone,

The Euro, the US stock market and other “risk on” trades got a boost today from the economic trifecta of lower jobless claims and higher durable goods orders in the US, and strong statements by ECB President Mario Draghi that the central bank will do whatever it takes to preserve the Euro. The big question is whether the recent rally in the Euro and other major currencies versus the US dollar has legs. According to the latest readings of the Speculative Sentiment Index (SSI)… possibly. Below is an excerpt from today’s report by David Rodriguez, Quantitative Strategist at DailyFX.com:

Forex trading crowds have aggressively bought into US Dollar (ticker: USDOLLAR) declines against the Euro, and our sentiment-based trading strategies are now short USD and call for further EURUSD gains. The Dow Jones FXCM Dollar Index has broken to monthly lows, and a run toward June lows near 10025 points to a EURUSD rally to its peak near $1.2700. Our sentiment-based trading strategies are now long Euros and short US Dollar against the Japanese Yen, Swiss Franc, Australian Dollar, New Zealand Dollar, and Canadian Dollar.

It will be critical to watch whether the USDOLLAR holds significant near-term support, as a USD breakdown targets the psychologically significant 10000 mark and April lows near 9820. Else we could see pairs such as the EURUSD, GBPUSD, AUDUSD, and NZDUSD rally to fresh highs while USDCHF, USDJPY, and USDCAD drop to further lows.

--- Read the full article at DailyFX.com

 

[Jason Rogers]

USD Threatens Major Trend Ahead Of FOMC, NFPs – JPY Reversal On Tap

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.32 percent lower from the open after moving 80 percent of its average true range, and we may see the greenback trade heavy throughout the North American trade as market participants increase their appetite for risk. However, as the 30-minute relative strength index breaks out of the downward trend from earlier this month, we dollar looks poised for a short-term correction, and we may see the reserve currency appreciate going into the FOMC interest rate decision as the central bank moves away from quantitative easing. As the advance 2Q GDP report raises the outlook for growth and inflation, we should see the FOMC continue to soften its dovish tone for monetary policy, and the central bank may strike an improved outlook for the world’s largest economy as the recovery gathers pace.

As the USDOLLAR threatens the ascending channel from earlier this year, we’re keeping a close eye on the upward trend in the relative strength index, and we would need to see the index hold above the 10,000 figure to maintain our bullish outlook for the greenback. Indeed, the FOMC is widely expected to maintain its current policy in August as the committee extends ‘Operation Twist,’ and we may see Fed Chairman Ben Bernanke talk down speculation for another large-scale asset purchase program as the committee anticipates to see a more robust recovery over the coming months. At the same time, the U.S. Non-Farm Payrolls report is expected to show a pickup in job growth as employment is anticipated to increase another 100K in July following the 80K expansion the month prior, and a slew of positive developments may spark a sharp reversal in the index as market participants scale back bets for QE3.

Three of the four components strengthened against the greenback, led by a 0.72 percent rally in the Euro, while the Japanese Yen halted its seven-day rally against its U.S. counterpart amid the rise in risk sentiment. Indeed, the USDJPY looks poised for a sharp correction as the relative strength index turns higher ahead of oversold territory, but the rebound in the dollar-yen may be short-lived as the pair maintains the downward trend from earlier this month. As positive real interest rates in Japan continues to heighten the appeal of the Yen, we may see the USDJPY continue to give back the rebound from June (77.65), but the FOMC interest rate decision could be a game-changer for the pair as the Fed looks to conclude its easing cycle.

--- Written by David Song, Currency Analyst at DailyFX.com

 

[Jason Rogers]

Will Fed and ECB live up to expectations?

Hi Everyone,

Last week ended with a surge in "risk on" trades in global markets including the Euro and US stocks. The Dow blasted through the 13000 mark, a level not seen since May of 2007. The reason for the recent bullishness? Expectations that the Fed and the ECB will provide more stimulus to the markets. This week, we will see if the central banks deliver with the Fed announcement on Wednesday at 18:15 GMT, and the ECB announcement on Thursday at 11:45 GMT.

In the video below John Kicklighter, Senior Currency Strategist at DailyFX.com previews the week ahead for us and highlights what to look for from the two central bank announcements and the employment report on Friday. "One thing is clear, next week will be defined by volatility and speculation."

​

Jason

 

[Jason Rogers]

How to Manage Losing Trades

Hi Everyone,

We have 3 busy days ahead of us with the FOMC announcement on Wednesday, the ECB announcement on Thursday, and Non-Farm Payrolls on Friday. I thought I would use today to address a skill that is absolutely essential to becoming a successful trader: How to Manage Losing Trades. I want to share with you an article written by James Stanley, Trading Instructor at DailyFX.com:

If there is one feeling that traders universally abhor, it would probably be the emotion derived from watching a losing trade turn deeper, and deeper against them. At this specific point in time – you are watching yourself getting poorer; the complete antithesis of why you trade. If the trade is left unchecked, things can get really ugly very fast. An overleveraged position can lead to an outsized loss; and as a position can move against you for an extended amount of time, these losses can irreparably damage futures.

Prevention is the Best Medicine

By prevention, we don’t mean preventing taking trading losses altogether. That would be impossible. Rather, we refer to the fact that traders should do their best to prevent unmanageable trading situations and placing themselves in these precariously unfavorable scenarios.

This is like a trader taking an overleveraged position, without a stop on the position – and after the trade moves against them they have to watch and decide how to react after they’ve already lost money; and are staring at the prospect of losing much more.

We saw the effects of this phenomenon in the DailyFX Traits of Successful Traders series. The Number One Mistake that Forex Traders Make is the fact that they take such large losses and such small wins. The chart below will show the average gain v/s the average loss on some of the most popular currency pairs:

Average gain (in blue) and Average loss (in red)​

So much so that these traders can even have a winning percentage of 60% and STILL be losing money as a whole.

Many may think that this mistake is relegated to new traders. It is not. As a matter of fact, confidence can be a huge contributor to this conundrum.

Confident traders, thinking they could successfully manage trades on the fly – might look to take a large position on what they feel to be an extraordinary opportunity.

This trader has forgotten that nobody can tell the future, but this happens to all of us. We think we have an inside track and we want to take advantage of our opportunity.

But before you know it, hope can turn to despair. And overconfident, experienced traders can suffer from lack of planning just as easily as a new trader.

There is no reason to belabor the past if this has happened, or is happening to you. It’s happened to me, and it’s happened to most traders.

The only way to fix it is to learn… and institute this in your trading plan.

As David Rodriguez stated in The Number One Mistake that Forex Traders Make: 'Always trade with a stop.'

Set your maximum loss on the outset of the trade, before you have any ‘skin in the game,’ so that you don’t have to ask yourself the dreaded questions of ‘when is enough,’ while you’ve already got a losing trade on your hands.


Acceptance

Some traders might not consider losses on open positions as losses until the trade is already closed.

Make no mistake about it – these are still losses. This money is no longer yours as the price that you previously paid is no longer trading in the current market.

A floating loss is still a loss; it just hasn’t been realized yet.

So if you do find yourself in a losing position with the question of ‘when should I stop the bleeding?’ you should first accept the fact that the loss on the position is an actual loss. It just hasn’t yet been realized as a loss, and you still have the chance to lose more.

Set Your Line in the Sand

When looking at the equity on the account – taking into account floating gains and losses – you can then decide how much more you want to commit to this trading idea.

In the DailyFX Trading Course, we advise keeping total risk to less than 5% of an accounts’ equity; so if a trader has equity of $10,000 in their account – they would attempt to keep losses below $500.

Some traders will take this concept a step further, and allow themselves to diversify within this risk amount. So if a trader wants to be able to manage 4 trades at once, and keep total account risk to less than 5%, they can look to risk 1.25% of their account equity on 4 different trade ideas. Using the above trader with a $10,000 account, looking to keep total risk below $500 – they can place 4 different trades, risking $125 each.

You can take your current account equity, and calculate the percentage of that equity that you want to further commit to this idea. Once you have that amount, you can place a stop on the trade so that if price moves that far against you – the bleeding will be stopped.

--- Written by James B. Stanley, Trading Instructor at DailyFX.com

 

[Jason Rogers]

Dollar Sold as Risk Appetite Firms Before FOMC But Reversal Beckons

By Ilya Spivak, Currency Strategist at DailyFX.com

Talking Points

• Haven Currencies Fall as Risk Appetite Firms on FOMC Stimulus Hopes
• US Dollar Likely to Recover as Fed Disappoints Hopes for Additional QE

The safe-haven US Dollar and Japanese Yen pushed lower and S&P 500 stock index futures rose overnight amid hopes the Federal Reserve will announce additional stimulus measures at the monthly meeting of the rate-setting FOMC committee. A disappointment seems likely however, with Ben Bernanke and company opting not to stray from familiar territory. Such an outcome is likely to weigh on risk appetite, boosting the greenback and punishing its stocks-linked counterparts.

Yields across the maturity spectrum are hovering near record lows having arrived there without new stimulus since QE2 ended in June 2011. It seems unreasonable to suggest that more asset purchases are needed to keep credit costs capped or that marginally cheaper funding will bring a significant number of would-be borrowers off the sidelines. That means the core benefit of a QE3 program would be psychological, marking it as a tool the Fed is likely to reserve to use in the event that the Eurozone debt crisis breeds a 2008-style credit crunch.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

 

[Jason Rogers]

UPDATE: Euro Plummets After ECB Refrains from Bond Buying Program

By Christopher Vecchio, Currency Analyst at DailyFX.com

THE TAKEAWAY: EUR ECB Press Conference > No major bond buying program > EURUSD BEARISH

Although the Euro traded higher following the European Central Bank Rate Decision, in which the main overnight refinancing rate was held at 0.75%, the common currency has plummeted across the board following the European Central Bank’s decision to refrain from a bond buying program.

EURUSD 1-minute Chart: August 2, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio​

The EURUSD has taken it on the proverbial chin, falling from a session and weekly high of 1.2405 to as low as 1.2173 within the hours following the non-news that the European Central Bank did not have a bond buying program in place, as expected following last week’s ultra-dovish commentary from President Mario Draghi. The EURUSD has since rebounded to 1.2186, at the time this report was written, but we view this pause in the decline as a consolidation, rather than a sign of a near-term bottom.

Presented below without commentary are the key highlights from President Draghi’s press conference:

On inflation:

• As we said a month ago, inflation should decline further in the course of 2012 and be below 2% again in 2013.
• Consistent with this picture, the underlying pace of monetary expansion remains subdued.
• Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term.
• On the basis of current futures prices for oil, inflation rates should decline further in the course of 2012 and be below 2% again in 2013.
• Over the policyrelevant horizon, in an environment of modest growth in the euro area and wellanchored long-term inflation expectations, underlying price pressures should remain moderate.

On economic growth:

• Economic growth in the euro area remains weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment.
• A further intensification of financial market tensions has the potential to affect the balance of risks for both growth and inflation on the downside.
• Economic indicators point to weak economic activity in the second quarter of 2012 and at the beginning of the third quarter, in an environment of heightened uncertainty.
• Looking beyond the short term, we expect the euro area economy to recover only very gradually, with growth momentum being further dampened by a number of factors.
• In particular, tensions in some euro area sovereign debt markets and their impact on financing conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to weigh on the underlying growth momentum, which is also affected by the ongoing global slowdown.
• The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy.
• Downside risks also relate to possible renewed increases in energy prices over the medium term.

On monetary conditions:

• The underlying pace of monetary expansion remained subdued.
• The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalization of all funding channels.

On the crisis:

• While significant progress has been achieved with fiscal consolidation over recent years, further decisive and urgent steps need to be taken to improve competitiveness.
• From 2009 to 2011, euro area countries, on average, reduced the deficit-to-GDP ratio by 2.3 percentage points, and the primary deficit improved by about 2½ percentage points. Fiscal adjustment in the euro area is continuing in 2012, and it is indeed crucial that efforts are maintained to restore sound fiscal positions.
• At the same time, structural reforms are as essential as fiscal consolidation efforts and the measures to repair the financial sector. Some progress has also been made in this area.
• Product market reforms to foster competitiveness and the creation of efficient and flexible labour markets are preconditions for the unwinding of existing imbalances and the achievement of robust, sustainable growth.
• It is now crucial that Member States implement their country-specific recommendations with determination.

On commentary from last week, suggesting the ECB would unveil a major bond buying program:

• The European Central Bank “may” buy bonds.
• President Draghi says he didn’t signal breach of mandate in London (in reference to comments last week).
• Says it’s within ECB’s mandate to preserve the Euro.

--- Written by Christopher Vecchio, Currency Analyst at DailyFX.com

 

[Jason Rogers]

USDJPY Soars As US July Nonfarm Payroll Hiring Soars Above Forecasts

THE TAKEAWAY: [U.S. nonfarm payroll hiring surges 163,000 in July, beats forecasts] > [Massive improvement dampens speculation for more Fed easing] > [USDJPY bullish]

Hiring in the U.S. surged in July to its highest pace since February, boosted by a pickup in employment in the auto sector. According to the U.S. Bureau of Labor Statistics (BLS), nonfarm payrolls rose 163,000 in July, which follows a revised 64,000 gain in June that was smaller than the 80,000 rise initially estimated. Last month’s print comes in well above the consensus forecast of 100,000 new hires, according to 89 economists surveyed by Bloomberg News. Private payrolls rose 172,000 in July, up from 73,000 a month earlier, while manufacturing added 25,000 workers in July compared to 10,000 in June.

Meanwhile, the jobless rate unexpectedly rose to a five-month high in July, climbing to 8.3 percent from 8.2 percent a month earlier. The rise in unemployment rate was due to a rise in the participation rate, which rose to 64.0 percent from 63.8 percent in June.

Despite the better-than-expected increase in payrolls, recovery of the labor market is likely to remain ‘sluggish’, as a global slowdown and looming U.S. fiscal changes weigh on demand for U.S. goods and business confidence.

USDJPY 1-minute Chart: August 3, 2012

Chart created using Market Scope – Prepared by Tzu-Wen Chen​

The U.S. dollar soared against the yen on the back of the much better-than-expected payroll figures, as the massive improvement in hiring should quell speculation for more monetary easing, or QE3, from the Federal Reserve. At the time this report was written, the USDJPY pair was trading at 78.71 yen, well above the pre-data level of 78.24.

--- Written by Tzu-Wen Chen at DailyFX.com

 

[Jason Rogers]

AUDUSD: Trading the Reserve Bank of Australia Rate Decision

By David Song, Currency Analyst at DailyFX.com

Trading the News: Reserve Bank of Australia Interest Rate Decision

What’s Expected:

Time of release: 08/07/2012 4:30 GMT, 0:30 EDT
Primary Pair Impact: AUDUSD
Expected: 3.50%
Previous: 3.50%
DailyFX Forecast: 3.50%

Why Is This Event Important:
Although the Reserve Bank of Australia is widely anticipated to keep the cash rate at 3.50%, the fresh batch of central bank rhetoric is likely to spark increased volatility in the AUDUSD as market participants weigh the outlook for monetary policy. A Bloomberg News survey shows 26 of the 27 economists polled see the RBA sticking to the sidelines in August, while market participants are pricing a 16% chance for a 25bp rate cut according to Credit Suisse overnight index swaps. In turn, we’re more interested in seeing the central bank’s fundamental assessment for the $1T economy, and we will also be keeping an eye out for comments on China as it remains Australia’s largest trading partner.

Recent Economic Developments

The recent improvement in the housing sector paired with the ongoing rise in private sector consumption may encourage Governor Glenn Stevens to soften his dovish tone for monetary policy, and we may see the central bank head may talk down speculation for further rate cuts as the economy gets on a firmer footing. However, the RBA may keep the door open to lower borrowing costs further amid easing price pressures along with the recent weakness in the labor market, and the central bank may see scope to carry out its easing cycle throughout the remainder of the year in an effort to shield the economy from the slowdown in global growth.

Potential Price Targets For The Rate Decision

As the AUDUSD maintains the upward trending channel from earlier this year, a less-dovish statement from the RBA may trigger move back towards former support around the 1.0630 figure, and the high-yielding currency may continue to retrace the sharp decline from February (1.0855) should the central bank talk down speculation for lower borrowing costs. However, if the RBA shows a greater willingness to expand monetary policy further, bets for further rate cuts may spark a sharp reversal in the exchange rate, and we may see the pair give back the rebound from June (0.9580) as interest rate expectations deteriorate.

How To Trade This Event Risk

Trading the rate decision may not be as clear cut as some of our previous traders as the RBA is widely expected to keep the benchmark interest rate on hold, but a less dovish statement could set the stage for a long Australian dollar trade as market participants scale back bets for more easing. Therefore, if the central bank turns more upbeat towards the $1T economy, we will need to see a green, five-minute candle following the announcement to generate a buy entry on two-lots of AUDUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to protect our profits.

In contrast, the ongoing slack within the real economy paired with the slowdown in global growth may bring about another round of dovish comments from the central bank, and we may see the Australian dollar reverse course should Governor Stevens show a greater willingness to ease monetary policy further. As a result, if the RBA talks up speculation for another rate cut, we will implement the same strategy for a short aussie-dollar trade as the long position mentioned above, just in the opposite direction.

Impact that the RBA Interest Rate Decision has had on AUD during the last meeting

July 2012 Reserve Bank of Australia Interest Rate Decision

Indeed, the Reserve Bank of Australia kept the benchmark interest rate at 3.50% in July following the ‘material easing in monetary policy over the past six months,’ but it seems as though the central bank will continue to carry out its easing cycle in 2012 as the slowdown in China – Australia’s largest trading partner – dampens the outlook for growth and inflation. The dovish tone held by the RBA dragged on the Australian dollar, with the AUDUSD slipping back below the 1.0250 figure, but the high-yielding currency regained its footing during the day to end the session at 1.0278.

--- Written by David Song, Currency Analyst at DailyFX.com