FX Trading

The US Dollar and the Japanese Yen fell against most major currencies as stocks advanced for the first in three session in Asian trade after the Fed’s Ben Bernanke reassured markets on US economic growth.

Markets have generally held up quite well over the past 24 hours, with currencies, global equities, and commodity prices all stabilizing and deferring to some form of consolidation.

Oil prices are caught in a narrow trading range as traders weigh the latest economic fears against Gulf of Mexico supply concerns. Prices are poised to move significantly once a direction is established.

• Dollar Within Reach of Four-Year Highs as Hungary Backs Off Default Talk
• Euro May Have Suffered Permanent Damage from Hungary’s Panic-Inducing Comments
• British Pound Holds Strong Despite Prime Minister’s Warning that Conditions Worst than Expected
• Swiss Franc Rallies to New Record High against Euro as Traders Seek Safety
• Australian Dollar Slips Alongside Confidence, Yield Expectations

Risk appetite and confidence in the performance of the global economy remained depressed through Monday’s session despite efforts to revive investor sentiment. For crude – which relies on forecasts for consumption trends as well as speculative interests – the deflated state would keep the active nearby contract on the NYMEX near an eight-month range low while the market’s volatility reading hovered just below an 11-month high 49 percent set just two weeks ago.

The Australian Dollar is poised to move lower a the interest rate tightening cycle stalls, while a host of longer-term fundamental factors conspire to undermine the currency in the coming months.

Substantial Euro declines and US Dollar advances leave forex options market volatility expectations at very elevated levels, pointing to strong currency moves in the week ahead. We have favored and will continue to favor volatility-friendly FX Breakout trading strategies in anticipation that the EUR, USD, and other key pairs will continue to see big moves. Given that financial market volatility tends to cluster, sharp price action most often begets further volatility until markets start to calm.

Student’s Question:

  Hi. Could you show me some practical strategies to do that 'let profits run and well as limit losses'.  

Speculative USD longs continue to decline and have been at 13 week lows for 3 weeks now. The risk of consolidation / pullback has increased.

As market participants speculate the New Zealand central bank to withdraw its support for the economy in the second-half of the year, a rate hike is likely to drive the exchange rate higher as investors weigh the prospects for future policy.

A battered Euro has lost over 500 pips to the pound in the past three weeks which adds to the case for a reversal. However, I often preach that picking tops and bottoms is a difficult task but I have more confidence in our set-up considering the solid trend line that the pair has run up against.

One of the important points we teach in the DailyFX Trading Course is to trade in the direction of the trend on the daily chart.

The Australian dollar has started to regain its footing after being sunk by the disappointing U.S. labor report. Markets started to pin their hopes for global growth on an improving U.S. economy with Europe expected to struggle and emerging markets starting to take steps to rein in growth. A strong German factory order report generated some hope that the region could benefit from a weak Euro and that demand was sustaining which brightened the outlook for broader growth.

The EURUSD break below its May and June lows is significant in that the decline from 12675 may be a 3rd of a 3rd wave. The next level of interest on the downside is 11638, the 2005 low.