Economic Data Rattled the Markets
Since the holiday season has brought about low market volume, economic data had a major impact on the U.S stock indices yesterday, sending them into lower territory. During pre-market hours, data showed that the retail sector had contracted even further during the month of March, while inflation data also showed a worse than expected figure, coming out at -1.2%.
The start of the U.S session was characterized by an intraday drop, as traders cashed-in on recent profits. The indices managed to regain some of their losses throughout the session, but failed to hold on to them, closing near their lows of the day.
The S&P500 closed down by -2.01%, while the Nasdaq closed the session with a loss of -1.67%.
Obama approached the public during yesterday’s session shedding some light regarding the state of the economy. Even though he was optimistic regarding his recently used methods to combat the deteriorating economy, ones that involved quantitative easing, he continued to mention that 2009 will be a struggling year. The President mentioned during his speech that even though the stock markets are taking the current slump in a positive way, the economy should expect further lay-offs and foreclosures. He also stated that even though banks are starting to ease up on their credit condition, there is still a long way to go before the financial system fully recuperates.
Bernanke also came out with some positive words yesterday, stating that the rate at which the U.S economy is contracting, is starting to slow down- something that could hint to a possible economic turnaround.
Two major pairs that have caught trader’s eyes over the last couple of session are the AUD/USD and the NZD/USD. Both the pairs are now trading lower today, after hitting major resistance. Over the last couple of weeks these two pairs have traded in correlation with the U.S markets, therefore yesterday’s negative session in the U.S, increased the short positions on the FX markets. As shown on the two charts below, these commodity currencies are now trading at critical levels, whereas further bullish strength could lead to a break.
On the Asian front, stocks followed the U.S’s momentum, starting the session in red. The Nikkei is currently trading down by over 1%, while the Hang Seng has managed to regain some its losses and is now trading in positive territory.
AUD/USD and NZD/USD at critical levels
On the Forex market, the Dollar index continued to trade around critical levels. Even though the U.S markets dropped by approximately 2% yesterday, the Dollar failed to show the same type of momentum, closing the session barely unchanged.
The Yen increased significantly against the U.S Dollar on speculation that the U.S recession is worsening. After dropping to a low of ¥98.15 the Dollar is now climbing higher and could find support above the ¥98.80 level.
Market Data to Watch Out For
The markets should stay relatively calm up until the U.S pre-market hours. Economic data from the U.S will take center stage today as inflation and production data is scheduled to be released. Consumer prices are expected to show a drop of -0.1% compared to last month’s 0.2% while the core result is also expected to show a decrease. In addition, the famous Beige book is scheduled to be released and will show the economic condition of 12 states.
Daily Market
Under the wings of the Asian dragon
In the last month or so we have seen the market starting to peak up the AUD causing the AUD to gain around 7% against the greenback rising from around 0.65 USD to 0.7 USD. Although this move had a strong back wind from the latest anti Dollar rally it seems the real drive for this AUD strength is commodities, and more specifically commodities sold to china. Commodities exports to China pose Australia’s largest export and main engine of growth. China’s declaration of a 585 Billion dollar stimulus which is aimed mainly at infrastructure expenditure is expected to boost commodities demand and therefore be in favor of their provider, Australia.
But maybe the AUD current level is already pricing in that demand? Before the crisis full erupted the AUD/USD was aiming the 1.00 target, however then commodities demand soared now they are at a rock bottom. Eventually china alone can not lift itself alone to pre-crisis levels without world demand increasing and when china’s growth prospect are limited so is demand for commodities and evidently the AUD .When the growth years are back to the world, the AUD will be well placed to rally to the 1.00 level and beyond but until then any AUD rally has limited prospects.
*Please acknowledge that this is my opinion alone and is not an investment or a trade advisory in any sort or way.
Australian dollar higher on unexpected rate decision
As we approach another cycle of risk aversion, with the dollar staring as the head master of risk aversion haven, (taking the lead out of the Japanese Yen which clearly lost it’s allure lately) we start today’s London trading session with a strong performance of the Australian dollar verses major pairs.
AUDUSD is fighting its way up this morning, closing on the first main resistance level at 0.6415,
I expect it to have some difficulty in clearly breaching above this level today, especially, if the Dollar will continue its global bullish trend.
However, if the pair will manage to build up a base above 0.6415, it is most likely to test 0.6520 in a matter of days.
The move did come as a surprise, after the Australian central bank (RBA) unexpectedly left rates unchanged on tonight’s meeting. The market was counting on a slash of at least 0.25% from 3.25% to 3.00% on overnight borrowing costs.
Consequently, demand for the AUD rose sharply overnight.
On the Downside, first support area for AUDUSD should be around 0.6387.
The 1000$ Question Part 2
Gold is currently trading slightly above the 1,000$ mark raising the 1,000$ question for the third time. Will Gold continue to rally beyond 1000$? Last week Gold took the market by surprise rising strongly and breaking the range of the 930-960 with a strong burst of demand pressure. Of course Gold is known for a good hedge against inflation or radical deflation and as Sovereign debt soars around the world, Gold looks like a safe bet. But that circumstances are known for several months, what then is the driver behind this strong gold demand which suddenly refloated?
Gold and the VIX: The VIX which is also known as the fear indicator is a traded future at CBOE and points on market volatility. Whenever the VIX rises market volatility is high and investors turn to highly liquid assets to avert risk. Gold is one of the most highly liquid assets around and when volatility is high gold tends to look attractive. When Gold spiked from around 950$ to 999$ in two days the VIX was actually in its highest point since July, thus pointing clear relationship between Gold and volatility. Since recovery is expected to be bumpy this factor will continue to play a rule.
the Fed and the US government will start implementing exit strategies to pull stimulus out and move interest rates to higher levels. When examining the fed historic rate hikes in recessions it is evident the fed began hiking rates only after unemployment has peaked hence one might conclude that in a recession unemployment takes the lead as per policy is concerned. Since unemployment continues to expand with no real evident relief exit strategies still seem remote Therefore the combination of high liquidity from stimulus and low rates is expected to continue and pose a friendly environment for Gold prices.
Gold Miners and their hedge: Lately there has been continuing reports on the improvement of credit conditions for Gold miners. The result is that Gold miners are less sensitive to lower Gold prices and actually were able to gradually remove their hedge against a fall in prices, and by that removing much of the counter pressure in gold rallies.
If these important factors will continue to play with strong presence, it is likely Gold buyers will feel more and more conformable to check new highs for the metal.
Gold Review
Gold started a shortened holiday week with little change as the U.S. Dollar fluctuated against majors currencies. Gold futures for August delivery settled down 30 cents at $940.70 an ounce on the Comex division of the New York Mercantile Exchange. Without release of any significant economy data, Monday’s trading session was quiet and range-bound with the market unwilling to make a move on either direction. An unchanged Dollar failed to increase demand for the yellow metal as a safe haven investment.
Bullion’s price has recently moved in a broad range between $915 and $945 an ounce and is expected to continue to move sideways throughout this shortened week. Bullion investors will be looking for signals from the U.S. nonfarm payrolls report on Thursday as well as from consumer sentiment and manufacturing for clearer signs on the direction of the economy. As key interest rates are one of the most important driver of the precious metal the expected data from the US economy this week could help indicate the chances for a rate hike and thus shed some light on gold’s ability to move higher in the near future
A slightly higher Dollar early in the day put some selling pressure on Gold after China’s chief central banker ruled out any sudden change in its policy on foreign exchange reserves. Gold typically moves inversely to the U.S. currency, as investors tend to rely on it as a hedge against inflation.
Chart: Gold Daily
The 1000$ question
In recent days Gold prices have surged to 960$ with looming worries the US will lose its AAA credit rating. The US quantitative easing program alongside a record budget deficit and fears of a US credit downgrade spurred a massive move out of the US Dollar across the board and into alternative currencies and assets. Gold being one of the world’s safest tangible assets and a reserve currency of its own, gained strongly from this move with a rise in prices of over 8%.But what is next for the precious metal?
With Gold prices close to the 1000$ mark, weak demand for jewelry around the globe and the IMF intention to sell 400 Tones of the precious metal, can Gold prices continue to surge? To tackle this question we must point out the force behind this Gold price rise and its future relevance. The price of Gold has been increasing mainly due to record government spending and an even larger scale of spending predicted in the future. The record deficits of governments around the globe as well as worldwide aggressive monetary expansions increase the monetary base worldwide.
The move which might stimulate the world economy has its downside which is the devaluation of currencies. The fiscal indiscipline and monetary loosening has created a void which brings much unrest to the already unsettled currency market and propels investors and governments alike to look for alternatives reserve allocations. Gold is already a reserve asset and is a natural candidate to step up and fill this empty void. Even China which is the world’s biggest US Treasuries holder is shifting some of its reserves to Gold and is currently aiming to be one of the world’s biggest Gold holders relatively to its size in the world economy.
Since china is ranked around eighth in the world in reference to global Gold reserves, the Chinese are expected to continue to steadily increase their holdings of the metal. Although the intention of the IMF to sell large quantities of gold is expected to place some pressure on Gold prices, the effect will be limited as most of the IMF gold sales are expected to take place under extreme secrecy and undisclosed contracts. Eventually, we must remember that the drive behind gold prices is the weak fundamentals of the currency market caused by fiscal and monetary instability. Since both factors are expected to continue disrupting the stability of the world currency markets for some time to come, the demand for gold will eventually surpass supply and gold prices will be driven to the 1,000$ mark and beyond. The question is not whether gold will reach 1,000$, but when?
Please acknowledge this is strictly the writer opinion and does not pose an investment or a trade advice in any sort or way.
Gold Overview
The gold market started the week climbing for the first time in three sessions. Gold futures for June delivery jumped $14, or 1.6 percent, to $902.20 an ounce showing the biggest gain since April 23. weaker dollar fueled demand for a store of value as an alternative investment as investors prepared for the release later this week of U.S. bank stress tests. Today Gold climbed for a second day, climbing $2.10, or 0.2 percent, to $904.30 an ounce. Earlier, the metal reached $916.70, the highest since April 27, but struggled to hold onto the gains, as early strength in the market was chipped away throughout the session by the solid recovery in the Dollar. The gold market was initially supported by a push lower in the Dollar and some flight to safety buying but as the Dollar strengthened and the Euro lost ground ahead of the ECB’s rate decision this week, gold also gave up gains and was eventually pushed lower on the session.
This week’s ECB interest-rate decision and U.S. bank stress tests results will dominate the action in the gold price. The tests may signal whether 19 top financial firms need more capital to withstand economic disruptions. The Federal Reserve plans to make the data public on May 7, the same day as a possible interest-rate move by the European Central Bank. The ECB is expected to lower its main refinancing rate by a quarter of a percentage point, or 25 basis points, to 1 percent. As markets enjoyed a massive bullish rally in the last few weeks the market is expecting a substantial evidence of recovery to back the positive sentiment and refuel the bullish trend. Thus unexpected negative data could shake the positive sentiment and consequently spark the lurking profit taking Dollar strength and gold weakness.
In Gold We Trust
After topping out at the 1000$ at the month of February, gold has failed to regain momentum and move up to the 1000$ target and beyond. Gold has found a solid base at the 890$ area and is currently trading at around the 920$ price. But what is next for the precious metal? Many investors had now and then expressed their disappointment from the gold latest performance as the commodity failed to trade above the 1000 dollar price.Thus the inevitable questions were raised: is gold a good trade? Can we afford to trade gold when other commodities look so much cheaper? To answer those questions we must go back and review gold function and performance in recent months and recent years as the world’s hedge.
Gold’s performance when equities are falling-To test gold effectiveness against falling equities we don’t have to go back far. The S&P 500 index which represents the 500 largest companies in the US by market capital fell about 40% in 2008.Gold on the other hand was up for the year, in fact not only it was up for the year but it was up for the eighth consecutive year. When bear Stearns collapsed gold spiked, when the Fannie and Freddie bailout accrued gold spiked. And the list just gets longer and longer as the crisis unfolds.
Gold’s value as a hedge against inflation-Back in the 1970s, when inflation in the US averaged 5% a year a high figure for a developed country , equities at the same period posted an average gain of -0.5% a year and long term treasuries a safe haven by all means posted an average gain of 1.5%. However it was gold posted an amazing 31% gain in the same period, a most respectable gain even in boom years. Gold has remained a good hedge against inflation even in recent days just before the credit claps at the end of 2008 when inflation expectations surged and oil traded above 100$ gold rose sharply. When the crisis erupted and inflation turned to into deflation, it was only gold that was up for the year. In fact of the 17 commodities most commonly monitored gold was the only commodity that was up.
The conclusion we must draw from those concrete examples whether they accrued twenty years ago our just last year is that when ever we fear market stability is at risk wither its inflation, deflation, falling equities or just fear itself, it is gold we trust and the market turns to. For those how ask themselves, if they can afford to trade gold when equities and other commodities trade so low we say:
Can you afford not to trade gold?
Forex overview
What is Forex? Forex is an abbreviation of Foreign Exchange (also referred to as FX) and it is the largest financial market in the world.
The Forex market is the place where currencies are traded (currencies are money that is used as an exchange medium). In other words, it is the place where currencies are being sold and bought. In the Forex market all currencies are traded in real time.
Trading with currencies always means that there are two simultaneous transactions taking place. If a currency is being bought, it is also being sold. To better understand this notion, think of currencies as both the goods you are buying AND the method with which you're paying for the goods.
Since the Forex market is the place where currencies are traded in real time, people may trade one currency for another and make a profit off of this transaction. Profits are made when one is able to determine which currency's value will increase by the end of a pre-determined time period (such time periods may be short or long). The Forex market is open 24 hours a day, five days a week and it is based in four major cities: New York, London, Sydney, and Tokyo. The Forex market is open to individuals over the age of eighteen.
While Forex trading may sound daunting, it really isn’t. It can be easily comprehended and understood without prior experience in finance or economy. It is challenging and exciting, thought provoking and manageable, stimulating and filled with opportunities.
Some Forex Basics:
- The first currency listed in a currency pair is called the "base currency".
- The “base currency” is usually the U.S. Dollar. Traders will generally trade the U.S. Dollar against another currency, which is called the “counter currency”.
- Currencies are quoted in pairs. For example: The pair U.S. Dollar and JPY will be quoted in the following way: USD/JPY equals to 2.5 (This means that 1 U.S. Dollar can buy 2.5 JPY).
- When a quote increases, it means that the “base currency” has risen in value and the “counter currency” has weakened in value. For example: If the USD/JPY quote used to be equal to 2.5 but is now equal to 2.6, then this means that the dollar has strengthened (because 1 U.S. Dollar can now buy 2.6 JPY as opposed to the mere 2.5 JPY it could buy beforehand.)
Forex glossary
Forex
Forex, or FX, stands for Foreign Exchange. Forex is the simultaneous buying of one currency and selling of another. Since you purchase money with money, there are two transactions (buying and selling) happening at the same time.
Fundamental Analysis
This type of analysis focuses on the macroeconomic factors that influence the value of a country’s currency. Traders open positions based on how they think changes in these factors are bound to affect different economies.
The ask price (right quote display) is the price at which traders can buy the base currency. If you think that the EUR value will increase then you can choose to buy it for USD at the price displayed in the ask quote. Base Currency
The base currency is the first currency listed in any currency pair. Its value is determined against the counter currency’s value. For example, if the rate of the EUR/USD pair is 1.3525, then the EUR is the base currency and it is worth 1.3525 USD.
Bear
A Bear market is a pessimistic market with declining prices.
Bid Price
The bid price (left quote display) is the price at which traders can sell the base currency. If you think that the EUR value will decrease then you can choose to sell it for USD at the price displayed in the bid quote.
Counter Currency
The counter currency is the second currency in any currency pair. Its value is determined against the base currency’s value. For example, in the following currency pair EUR/USD, the counter currency is USD.
Cross Rate
A price quote consisting of any currency quoted against a currency that is not the USD. The quote is made up of the individual exchange rates of the two currencies against the USD.
Aussie
Dealer slang for the AUD/USD currency pair.
Currency Pair
The two currencies that the exchange rate is comprised of. One of the currencies is bought, and the other is sold at the same time.
Day Trading
The practice of opening and closing positions within the same trading day, so that at the end of the day the trader has no open positions.
Fed
The Fed is short for Federal Reserve, which is the central banking system of the United States. The Fed issues announcements regarding U.S. monetary policy which can have significant effect on the Forex market.
Bull
A Bull market is an optimistic market with rising prices.
Cable
Also known as Sterling. Dealer slang for the GPB/USD currency pair.
Hedging
The practice of opening several positions at once where one position minimizes the risk of another position. Click here to learn more about hedging.
Kiwi
Dealer slang for the NZD/USD currency pair.
Leverage
Leverage is a loan from your broker, which enables you to trade with a small amount of capital. It can increase your potential profit, but it can also increase your risk. Click here to learn more about leverage.
Long Position
Going long means opening a position in which the trader buys currency in hopes that this currency’s value will increase (buy low, sell high).
Loonie
Dealer slang for the USD/CAD currency pair.
Lot
The standard unit of trading. One standard lot equals 100,000 units of the base currency, a mini lot equals 10,000 units, and a micro lot equals 1,000 units. eToro’s standard trade volume is the mini lot.
Margin
The minimal cash deposit that you have to put up for the transaction. Trading forex on margin increases your buying power, but it can also increase your losses. Click here to learn more about margin.
Pip
Pip is the smallest price increment in the last digit in the rate – usually the fourth digit after the decimal point (apart from the USD/JPY).
Price Trend
A consistent movement of currency prices in a certain direction. Traders try to spot trends in order to capitalize on their potential. Click here to learn more about trends.
Rate
Rate or quote, is the price of one currency in terms of another.
Risk Capital
The amount of money that a trader can afford to risk, the potential loss of which would not affect their lifestyle.
Short Position
Going short means opening a position in which the trader sells currency in hopes that this currency’s value will decrease (sell high, buy low).
Spread
The spread is the difference between the bid price and the ask price.
Stop Loss
A trade order which automatically closes an open position at a specific price in order to prevent losses in case the market moves against your position. Click here to learn more about Stop Loss orders.
Swissy
Dealer slang for the USD/CHF currency pair.
Take Profit
A trade order which automatically closes an open position at a specific price realizing a specific amount of profit. Use this order to realize your gains. Click here to learn more about Take Profit orders.
Technical Analysis
This type of analysis focuses on chart patterns of currency movements. It assumes that a currency’s future movements can be predicted by looking at past behavior. Click here to learn more about technical analysis.
Forex market hours
The Forex market is open 24 hours, five days a week (not much market activity during weekends) so you can go ahead and trade day or night.
Trading hours during weekends:
Daylight saving time – off: November 4th, 2008 – March 7th, 2009
Trading closes at Friday, 21:00 GMT and re-opens on Sunday, 22:00 GMT
Daylight saving time: March 8th, 2009 - November 1st, 2009
Trading closes at Friday, 20:00 GMT and re-opens on Sunday, 21:00 GMT
Below you will find the Market Hours in Eastern Standard Time (EST) for four of the world’s largest financial centers:
- Tokyo Market Hours: 7:00 pm to 4:00 am EST
- New York Market Hours: 8:00 am to 5:00 pm EST
- London Market Hours: 3:00 am to 12:00 noon EST
- Sydney Market Hours: 5:00 pm to 2:00 am EST
All trades, except those flagged as 'Carry Over the Weekend', will automatically close out in eToro real money mode when market closes at the end of the week. Closing rates will be posted during the weekend in the trading log section in eToro lobby. All real money accounts will be open during the weekend and all traders are welcome to view their trading account info.