Foreign Currency Trading

Take a look at NZD/USD, GBP/JPY and EUR/USD pairs in today’s trading as they are presented in this daily technical analysis for the London Forex trading session.

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Here is a very well written article about China’s predicament with the U.S. dollar and explains why they won’t be talking down the dollar anytime soon:

From the Weekly Standard

The Dollar’s New Best Friend
Beijing warms up to the greenback–because it has to.
by Gordon G. Chang

Last Tuesday, Brazil, Russia, India, and China–the so-called BRIC nations–met in Yekaterinburg, Russia, for what was supposed to be an anti-American gabfest. The main agenda item for the first formal meeting of the four largest developing economies was the future of the dollar. In recent months, Beijing and Moscow have led a global charge against the greenback, and Brasilia has been a willing co-conspirator in the effort. The BRIC post-summit communiqué referred to the world’s currency problems but, to the surprise of observers, did not attack the dollar head on.

The Chinese government in the last few weeks seems to have radically changed its tune on this issue. In March, Zhou Xiaochuan, the head of China’s central bank, called for the replacement of the dollar as the world’s reserve currency in a widely reported text released to the public. In May, however, Beijing officials took a different tack, going out of their way to talk about the dollar’s unique status.

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Range trading preview for GBP/USD and NZD/USD before the London Forex trading session is presented in this video.

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Here is the interview I did with CNBC last night talking about the outlook for the EUR/USD and commodity currencies:

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This video preview for the London Forex trading session is built upon the expectations for some kind of breakout from the current support and resistance range.

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German business confidence improved marginally which should have been bullish for the euro, but unfortunately the most actively traded currency pair in the forex market has remained under pressure throughout the European and U.S. trading sessions. So if the EUR/USD is not responding to economic data then what is driving it lower?

Five factors:

1. U.S. Treasury Auction

One of the big focuses of foreign exchange traders this week is the massive Treasury auction. The U.S. government will be issuing a record $104 billion of 2 year, 5 year and 7 year Treasury notes between Tuesday and Thursday. The reason why currency traders are watching these auctions is because of its scale and also because it will shed some light on investor’s willingness to fund the U.S.’ large and growing budget deficit. The auctions will be a big hurdle for the U.S. dollar this week because if demand comes up short, the dollar could get hit but it is not that simple because at the same time, weak demand could drive up yields, which is dollar positive. Either way, over the next couple of days, there will be a lot of focus on the Treasury auctions.

2. First ever 12 month ECB refinancing

The ECB refinancing is the biggest story for the EUR/USD this week because the 12 month offer is seen by bond traders as a quasi quantitative easing effort by the ECB because the operations are most likely going to be collateralized by government bonds which can then be posted as collateral to the ECB for funding. Although ECB President Trichet warned that their monetary policy actions can be easily unwound if needed, he also said that policy makers must remain alert despite signs that the slump is decelerating because “there are still risks of a sudden emergence of unexpected financial turbulence.”

3. Fears that German Debt Could Explode

As for Germany, Deputy Finance Minister Werner Gatzer said that total new debt could exceed EUR100 billion next year, which would be much larger than this year’s record financing needs of EUR80 billion. Looking ahead, we could see further weakness in the EUR/USD if Tuesday’s PMI figures fall short of expectations. Despite the improvement in business confidence, which was driven entirely by the expectations component of the report, current conditions remain weak.

4. Comments from ECB President Trichet

Although ECB President Trichet warned that their monetary policy actions can be easily unwound if needed, he also said that policy makers must remain alert despite signs that the slump is decelerating because “there are still risks of a sudden emergence of unexpected financial turbulence.” These bearish comments came after ECB member Nowotny said this morning that interest rates could remain unchanged into 2010.

5. Tuesday’s PMI numbers

However in the near term, weaker economic data could keep the EUR/USD pressured. German industrial production, factory orders and retail sales have all declined which could prevent a meaningful pickup and possibly even deterioration in manufacturing and service sector PMI.

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There are no U.S. economic reports tomorrow but that does not mean that we wont have some interesting volatility in the financial markets. Quite the contrary as we have Quad or Quadruple Witching on the calendar. Quadruple witching only occurs four times a year - on the third Friday of March, June, September and December.

It is a day when the contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. This usually leads to some erratic price action in the equity markets. Since currencies like to take its cue from equities, we could see some uneven price action in the forex market.

For a more thorough outlook, make sure you read by Daily Currency Focus on FX360.com. Today’s leading topic is EUR/USD: What Triggered the Reversal

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Today most are talking about a new profitable activity called currency trading and the superb opportunity this activity represents for folk prepared to stop working a 9 to 5 world and start home-working or any where else without losing their present lifestyle and even enhancing it. Most seasoned traders consider the best and most profitable of the capital markets is the currency market. For a few years foreign exchange trading was the sole domain of major banks, giant fiscal institutions and nations central banking organizations, as an example the U.S. Fed Bank.

But today, thanks to the Net the market has been opened to everybody prepared to learn the best methods in foreign exchange trading and with the plan of making important profits as the establishments discussed above that yearly and constantly make pretty high profits from trading in the forex market. You have many advantages when trading the foreign exchange markets, as an example, you do not have to fret about costs you’ll have to pay to your broker, there are not one of the common fees to which futures and equity traders are used to pay always, no exchange or clearing charges, no NFA or SEC costs.

The currency market has 5 major currencies : US Dollars, EURO, Japanese Yen, English Pound, EU Dollar and the Swiss Franc. It is due to their great recognition in world’s commerce transactions and its high activity that these 5 currencies account for over seventy pc of northern US trading.

Naturally there are more tradable currencies, they include the Canadian, Australian and New Zealand Bucks .

Together, all this 5 majors and children currencies represent the spine of the foreign exchange market. The postulate of Purchasing in Foreign exchange refers back to the purchase of a selected currency pair to open a trade and Selling short refers to the selling of a selected currency to open a trade, i.e, just the opposite. When you Buy, you prediction the cost of the currency pair to extend with time, i.e, you purchase inexpensive to sell high, which is easy to comprehend. In the case of Selling short, it is rather more difficult. It may appear sort of hard when you’re beginning, but when you are before your trading station it will look much simpler.

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I was on Bloomberg last night talking about the odds of Dollar Reserve diversification and the outlook for the dollar. Click on the image to access the video:

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In this video analysis of the upcoming London Forex session David Pegler researches EUR/USD and GBP/USD currency pairs.

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