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| Hope everybody had great holiday, unless you happened to be invested in Dubai real estate market. What an unusual Thanksgiving that turned out to be! Normally it is a quiet, subdued trading period, except when surprising, big time fundamental news emerge. And did they ever! As soon as "Happy Thanksgiving" post was released, it seemed that bottom dropped under USD, which plunged to new lows against most currencies, including moving under parity with Swiss Franc and multi year low against Yen. Dollar reversed a little later. This set the tone for next day, as elevated volatility takes time to dissipate. That alone would have been enough to make Thanksgiving trading different this year. But the real news came Yesterday from Dubai. Turns out that the Persian Gulf state might not be able to service all the loans it took to finance its real estate during last few years. Large chunk of the debt portfolio comes for refinancing and it seems that not many large financial institutions are willing to assume the risk. Dubai World, a government investment company with around $60 Billion worth of debt, has asked creditors if it can postpone forthcoming payments until May. All kind of things happened after that. In moves reminiscent of last year's panic, many markets sold off and currencies were no different. Yen, and to a lesser degree the Dollar, were beneficiaries. Especially JPY staged serious moves. I looked at the computer few times during the day and was very impressed with what Yen was doing, but didn't have time to get really active. And, frankly, I didn't have to, since orders to buy Yen and/or sell commodity currencies had already been in place. Best example is a sell in NZD-JPY, something I have been waiting for and discussed on these pages few times before.
Party in Dubai gets spoiled. | | |
| Currencies had a surge of activity today. Both Asian and European sessions were relatively robust, with decent size moves during both and direction change after London open for most currency pairs. With one notable exception- US Dollar continued its plunge to ever lower levels until about couple of hours ago. It is recovering slightly, but any moves from now on are likely to get less and less dynamic, as is typical for day before Thanksgiving. USD reached parity with Swiss Franc, level not seen in a year and a half and only for the second time ever. I might devote entire post to USD-CHF in near future, given my history with this pair. Minutes of most recent FED policy meeting were released today. They contradict with recent statements from officials. For example, recently chairman Bernanke expressed concern with falling Dollar. After all, he also “supports strong Dollar”. According to minutes, however, dollar decline is seen as “orderly” and nothing to worry about. Fed policymakers pledged to hold rates at such depressed levels for an “extended period”, maybe another year or longer. Minutes revealed that record-low interest rates “could lead to excessive risk-taking in financial markets”, otherwise creating new “bubbles”. Something FED has publicly denied. Can anybody make sense of it?
Happy Thanksgiving!
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| About a month ago the Commerce Department announced that the economy had a 3.5% growth rate for the July-September period, or third quarter. A lot of people claimed that the number was strong enough to call it an official end of recession, or ”jobless recovery”, very peculiar name indeed. Today these numbers were revised, and not in an optimistic way. The GDP, which measures the value of all goods and services produced in the United States, grew 2.8% in the 3rd quarter. Also, much of that growth reflected federal support for spending on homes and cars, through multiple stimulus packages, something that is not sustainable for a long period of time. For the current quarter modest growth is expected, probably to be once again revised (down) after the fact. Interestingly enough, little or no growth is expected for early in next year. Not a pretty picture, guaranteed to make all financial markets jittery for the foreseeable future. Currencies had strong Monday, mostly weaker Dollar and Yen only to reverse today. Some crosses are virtually at the same point where they had been before markets opened on Sunday. This includes most of AUD and NZD pairs, like NZD-JPY. At this time no update is really necessary, since I used daily chart when discussing that cross. However, Sunday opening and early trading created many good opportunities. Some of them were of the type previously described here, like this buy set up in GBP-JPY right before London open.
Revised recovery.
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| Thanksgiving week is typically different than other times when it comes to trading. Even though Thanksgiving is an American Holiday, it effects financial markets world wide. It comes on Thursday, with many people taking it easy on both Wednesday and Friday as well. Most of the week can be slow when it comes to trading. Historically first couple of days are the only real opportunities for sizable moves to develop, with maybe a possibility for a directional move during European session on Friday. I’ll cover that later on. Last year at this time financial markets were very volatile. Most of the currency crosses had been approaching what later became bottoms/tops and daily moves were still very impressive. Currently trading ranges are nowhere near as wide, but started to increase lately. Commodity currencies are showing signs of possible reversal on important, longer term charts. I first suggested it about three weeks ago and posted a chart on NZD-JPY, as a representative of all these pairs. Here it is as posted at the time.
Before Thanksgiving. | | |
| When talking about trading financial markets, including currencies, “system” is almost always taking central stage. By “system” I mean set of rules that dictate when trader gets into the market, irrespective whether it is short or long position. A lot of energy is devoted to finding perfect strategy, in most cases focusing on entry rules. Unfortunately, no trading method consists only of getting into the market. There are other elements that must be carefully incorporated into a system, such as money management, stop/loss and target, objective, setting rules. It is really amazing how many people overlook one or more of these variables, creating incomplete trading plans. Everybody knows why stop/losses are important, even though a lot of us ignore this “obvious” knowledge in real life trading. But why targets, why are they important, if not instrumental to trading success? Well, we can’t be profitable unless we actually bank profits on our trades. This means we have to close them at price better that we got in( short or long). Since markets are in constant movement, we should know how far we expect them to move our way and try to take profit at predetermined point. Not that it will always happen the way we want, but we must have a plan in place, rather than getting into position and hoping to close the trade sometime in the future. How exactly do we go about setting targets for our trades? There is no one simple answer, since many methods of choosing objectives are in existence, but in almost all cases exit strategies are directly dependent on entry systems. Among them:
- fixed number of pips, always trying to get same number of pips, like 20, 50, 100 or so;
- time based exits, closing trades at predetermined time, like end of a session, end of day, week or some variation;
- using previous resistance/support as targets;
- staying in trades for as long as trailing stops keep positions active. One such technique was described in Price action Forex trading. Using technical tool like Parabolic Stop and Reverse also suits this purpose;
- employing technical indicators to determine oversold/overbought levels at which to close trades;
- when using crossover strategies for trading, such as Moving Averages, or MACD, waiting for next one to happen. In cases like these backtesting provides some evidence of what can be expected;
Setting targets for currency trades. | | |
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