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15/03/16 Market notes

Investors Expecting Bank Of Japan’s Policy

Investors Expecting Bank Of Japan’s Policy

What would BOJ do following the easing and negative interest rate policy earlier this year? BOJ might not implement any significant policy two months in a row. At the moment, witnessing the impact of the implemented policy has become a priority as investors being eager to see BOJ’s view on its own policy.

By now, Japanese Yen is being traded on 113.75 per USD. Market’s reaction is quite similar to what happened during the ECB’s interest rate cut. Without any new policy coming, does it mean that Japanese Yen is strengthening? Technically speaking, this currency is in saturated condition in terms of selling on weekly period basis as the widening Bollinger Bands indicator signifying that the accumulation phase is about to take place. The weakening target of Japanese Yen on US Dollars is to around 116.271, where the 50% retracement level of Fibonacci lies.

a

In daily period, the Japanese Yen is in an accumulation phase and a major movement is about to happen. This movement would not occur until the very best moment, which is this week. Fundamentally, the currency could continue its uptrend as it becomes one of the most wanted currencies when the global economy is being challenged by the decreasing of global demand, China’s growth slowdown, and low energy price.

How do we place an open position safely in USDJPY? At the moment, sell position has a higher reward ratio than buy position. With 2.29 reward ratio, we could sell USDJPY on the current price (113.347) along with a stop loss of around 100 pips on breakout level of 114.405 and taking profit on 111.019 (around 235 pips). If the stop loss price is hit, a buy order should be placed on the exact same price with 116.271 as the profit target.

b

Therefore, short position is generally considered as a safe position in spite of a possibility in which the pair would hike after the consolidation phase. We might not be able to predetermine where the price would move to but surely we could create scenarios for all movement possibilities.

P.S : In the education section, basic to intermediate level of information regarding  how to make a technical analysis will be discussed further.

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14/03/16 Market notes

US Stocks Keep On Rising

US Stocks Keep On Rising

Last Friday, DJIA was closed on 17213.31 level. In other words, it had 1.3% of rise. On the other hand, S&P 500 rose to 1.6% or 2022.19. The closings of both indices were recorded to be on the highest level since last 2015.

The rise of S&P 500 was pushed by the energy sector as it advanced to 2.2%. Not only by it alone, but it was also supported by the increase of oil price that reached the highest level of last three months.

Chevron became the stock with the highest rise after advancing to 7.6% on last week trade. Meanwhile, safe haven assets, such as gold and risk-free asset, had a correction. Gold futures fell 1% into 1258.70 per ounce.

The US stocks rise was followed by other major indices, such as Russell 2000 (2.22%), Global Dow (1.89%), Nikkei 225 (0.51%), and Stoxx Europe 600 (2.62%). Stoxx Europe 600 had the highest increase that was caused by ECB’s action last Thursday in which the interest rate was cut.

In such condition, stock investors are advised to anticipate the interest rate hike rumor. It is so to mitigate the risk of leaving the portfolio of risky assets for portfolio of fixed-income assets. At the moment, regarding the attempt to achieve the desired level of inflation rate, The Fed is still concerned about the labor payroll. However, a number of investors are certain that the hike would eventually take place in mid-year.

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11/03/16 Market notes

Why was Euro Currency Appreciated With ECB’s Stimulus Policy?

Why was Euro Currency Appreciated With ECB’s Stimulus Policy?

ECB’s ambition to hit the target of 2% inflation rate was put into business more seriously last night. Mario Draghi, the President of European Central Bank, ensured that ECB will give its utmost best to get to that level. ECB has decided to continue the stimulus by acquiring €80 Billion worth of assets, adding the previous same amount of assets. This particular program also includes corporate bonds in its portfolio so that ECB will not run out of instruments to buy.

ECB also cut the deposit rate to -0.4% from -0.3%. This policy will encourage European banks to lend their money to businesses. However, there is still a worry that the non-performing loan will grow as Europe’s export to China is dipping down in number.

The stimulus policy and rate cut were responded counter-wisely by the market. EUR was appreciated to $1.12 level. One of the reasons was the market considers that Europe is almost out of ammo to shoot the target. The indication could be that “the interest rate probably will not fall any deeper”.

The situation in Europe is not in the most supportive state to achieve the target right now. The inflation rate projection is targeted to be at 0.1% this year. Draghi is an ambitious man who will find lots of ways to accomplish his mission. It is not impossible that this policy will be accompanied by other policy along the road to ensure that the Euro currency will be depreciated to the ECB target.

Thus, Euro currency appreciation is an impact of market reaction to Draghi’s statement. Even so, does it suit the EUR in long term? It is hardly believed so as most will find it unwise to hold EUR for the longest time in such stimulus condition. In long term, the EUR/USD is still bearish.

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10/03/16 Market notes

Is Japan’s Negative Interest Rate Policy Effective?

Is Japan’s Negative Interest Rate Policy Effective?

Credit growth in Japan slowed down last February. Bank of Japan’s data quoted that it only rose to 2.2% from the previous year. That number is lower than January’s 2.3%. On the other hand, the deposit rate rose to 3.1% on February, higher than January’s 2.9%.

The deceleration did not occur until the central bank implemented the negative interest rate policy. In contrast to what was planned, the policy was set in order to stimulate the credit. The board of directors of BOJ, led by Haruhiko Kuroda, set the interest rate on -0.1% level. In the voting process, the ratio of those who agreed the negative interest rate policy and those who did not was 5:4.

The inflation rate target is considered hardly achievable as the world crude oil price is low and the salary growth is decelerating. The raise of the oil price lately could not afford to optimize several countries’ inflation rate target.

The negative rate policy implementation contributed to the strengthen of Japanese Yen last February. In such condition, it is possible that the Japanese would respond further by implementing a stimulus policy.

Recently, USD/JPY is on 112-113 level and repeatedly trying to penetrate this level. The Japanese Yen currency is too strong in such rate policy condition. Thus, regarding the trade of USD/JPY currency, long position is considered as a quite safe position. Commitment of Trader data has also shown a decrease of short position, which is 5.197% along with a 1.694% increase of long position.

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10/03/16 Forex education

Trading Session? What Exactly Is It?

Trading Session? What Exactly Is It?

Trading Sessions

Forex market is open for 24 hours 5 days a week. This is a really long period of time as it is a sleepless market. For traders, it is really exciting, for they have the opportunity to multiply their profits anytime they desire.

However, just like a traditional market, it’s not always crowded. There are times when it’s so full of traders and there are also times when you can count them with just one hand. That’s how the knowledge of market hours and timing becomes important as you can adjust your trading strategy better so that it suits the market hours and timing, therefore brings you maximum profit.

Market Hour

First of all, we need to know that in forex trading, the market hour is divided into several main trading sessions, which are Sydney Session (Australia), Tokyo Session (Asia), London Session (Europe), and New York Session (America). As we all know, there is a pretty big time difference between Australia and America (+16 hours), resulting the forex market opens all the time as at least one of the markets is still open when the others are closed.

session

Tokyo Trading Session

Widely known as Asia Market, since Tokyo is the Asian trading center, this session has approximately 21% of the trade share a day with Japanese Yen as its favorite currency traded. Not only Japan, but other strong economy powers, such as Hongkong, Singapore, Australia, and South Korea, are also actively involved in transactions. Similar to China, Japan is an exporting country, leading to Bank of Japan not becoming the sole foreign exchange trader, since China and commercial companies also actively trade.

At certain times, liquidity could be considerably low which could be seen when the price movement is slightly low (price does not change for a fairly long period). Such condition could lead to the forming of breakout level from the previous trend occurs in American Market which results to a consolidation phase of a pair. Most of major movements occurs earlier in the session as it is generally the time where fundamental economy news is being released.  Tokyo Market is likely to have an impact on the next markets session, since traders in Europe and America would observe what was happening in Tokyo Session.

Pairs that are quite interesting to trade in this session would be Japanese Yen and Australian Dollars. Considering that China has grown into new economy power, those pairs would likely to receive a significant impact by the time China releases important news.

Europe/London Trading Session

Europe Market has the biggest trade share with approximately 36% of all transactions. Europe Trading Session is where the transaction highly occurs as thousands of “big bosses” throughout the world put themselves in.

This session has some characteristic. Firstly, as it overlaps other markets, it makes this session exceptionally crowded. It also leads to a high liquidity and volatility and low pips spreads. Secondly, trend that occurs during this session mostly would keep its track until the beginning of New York Trading Session. Thirdly, the volatility would be low at noon during the lunch time, waiting for the New York Trading Session to open. Some important news in Europe would also affect the price movement.

During this session, all pair would usually become interesting because of the number of traders involved. However, the tightest pairs would still be the major pairs, such as EUR/USD, GBP/USD, USD/JPY, and USD/CHF.

timetable

Market Hour (GMT)

New York Trading Session

This market takes around 19% of the trade share. New York is the center of trade and business in America. This city is also widely known as “The City That Never Sleeps”. We also know that US Dollars is the world currency as it is involved in nearly 90% of the world trade.

This session also has certain characteristics. Firstly, it has high liquidity because of its overlapping on London Trading Session. Secondly, when the US government release important news, prices in the market would be significantly affected, since most of the world trade involves US Dollars in it. Thirdly, after the London Trading Session is closed, the liquidity and volatility would tend to lower (during mid day in America). Fourthly, on Friday, transactions would reduce as Asian and European traders are no longer active on the weekend. Finally, trend reversals could possibly occur after the afternoon session in America. It is caused by traders unwilling to keep an open position to avoid unwanted events triggered by releases of news during weekend. Just like in Europe, every pair would be good to trade in this session but a full attention should be given because when important news is about to be released, price of US Dollars would usually move wildly.

General characteristics of each session have been discussed. Now let us proceed to pair’s characteristics on certain day so that a full picture would be gotten and timing of transaction could be well decided.

Below is pips movement of each pair on each day:

pips

It can be seen that Wednesday, Thursday, and Friday are the busiest days. So, the best time for forex trading would be in London Trading Session on Wednesday, Thursday, and Friday because it is the busiest time and the overlapping period would provide high liquidity and volatility and higher chances to gain profit in shortest time possible.

When is the worst time to trade?

For aggresive traders, Asian Market would not give the best satisfaction due to its low volatility and liquidity. Saturday is also not recommended because it is time when the market is closing (after afternoon session in America). Finally, when world major events are happening, such as FIFA World Cup, the market would tend to be quiet as traders’ attention would be distracted.

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09/03/16 Market notes

Rally in gold, stock, and oil price. Which one would hike?

Rally in gold, stock, and oil price. Which one would hike?

Europe GDP (YoY) has shown a 1.6% raise. This number is slightly higher than the forecasts of analysts which mentioned  that it would only reach 1.5%. However, this is not the only condition that it takes to stimulate the strengthening of Euro currency against the USD as other data would be needed such as inflation rate.

In the previous trade, S&P reached psychological level of 2002. This raise was supported by the simultaneous hike of WTI Crude Oil price these five days. However, profit taking and long term trend reversal should be anticipated for sure.

What would turn the US Stock Market trend around? Firstly, US stocks have risen considerably high since the Quantitative Easing was implemented and they also have taken the bubble burst risk high up there along with them. Secondly, interest rates hike rumor has also been spreaded lately which could lead to investors being not so eager to put their assets in the capital market. In such condition, they would tend to hold safe haven instruments, such as gold.

In January-March 2016, gold price has risen around 20%. This raise, however high it could be considered, still brings much more safety regarding asset placement than other instruments, such as stocks. It is also logical to hold it until The Fed provides certainty over this year’s rate hike.

A decline in EUR/USD could possibly occur as the resistance is being tested on 1.1080 level. As mentioned above, rate hike rumor could drive the EUR/USD to decline further.

 

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09/03/16 Market notes

US stocks sinks as Oil drops 4% after session, Micron is the worst performer.

US stocks sinks as Oil drops 4% after session, Micron is the worst performer.

US Stock markets almost erased gains in Tuesday as Oil rally turned into abrupt retracement, dragging down commodity and oil firms. The drop could be also attributed to the downbeat data from China, renewing concerns over world economy slowdown. Futures on US benchmark, WTI, plunged more than 4% after official session close, posting the biggest decline since 11 February. 

According to the views of Goldman Sachs, recent Oil upturn didn’t have reasonable grounds under it as Oil prices should stay depressed for a longer period to bring market into balance later this year. The shares of biggest Oil producers Exxon and Chevron, appearing in Dow index, tumbled more than 2 percents. S&P energy sector plunged 4,1 percents.

Trade data from China which came out yesterday disappointed investors as it showed Chinese industrial sector contracts faster that it was expected. Exports decline in February was the worst for six years, while drop in imports for consecutive 16 week drove shares of raw material companies into red, with 2 percent loss average. 

Dow Jones dipped 0,64% to 16.964,1 points, S&P 500 sunk 1,12% to 1.979,26, Nasdaq Composite lost 1,26% with 4.648,83 point at Tuesday close. Chipmaker Micron was the worst performer, which shares lose 7.9%, dropping to $10,66.

Oil prices managed to rebound in Wednesday session, WTI advanced 0.36% to $36.62, Brent gained 0.48% to $39.85, consolidating before an attempt to occupy $40 level. Gold fell 0.33% to 1,258.60 as investors drop safe heavens to catch the wave of equity upturn.

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08/03/16 Market notes

Oil retreats after yesterday surge, Japanese indices sink.

Oil retreats after yesterday surge, Japanese indices sink.

Oil prices are trimming down gains today after substantial growth in Monday session. Brent prices met resistance at $40.48/bbl. level while WTI retreated hitting resistance at $37.56. Both benchmarks depreciated around 1percent.

The commodity is under pressure today after release of gloomy economic news from China. Foreign trade data for February came out worse-than-expected: exports fell by whopping 25.4% comparing to the same period of last year, while imports dropped 13.8% posting 16-months consecutive decline. The drop appeared to be the worst from post-crisis 2009 year.

Brent soared 6% breaking through the level of $41/bbl. in the evening session yesterday. The rally of crude prices is associated with continuing cutback of shale drilling in US (more and more rigs are idled). Crude output in US fell to the lowest level since November 2014.  Further signs of decline in US oil production and forthcoming Oil freeze talks  may trigger the wave of calls on Crude but more corrections are expected before WTI firmly occupy $40 level.

The meeting on output cap will be held on 20 March. Positive expectations serve as a decent boost factor to Oil prices. Russia and majority of OPEC and Non-OPEC countries express their willingness to team up in efforts to return market into balance, but participation of Iran is essential to set the plan into motion.USD/RUB followed the course of Oil retreating from 80 peaks to 71.40 level. Further strengthening is tightly bound to the prices on Oil.

Japanese indices suffer from moderate selloff today as automotive manufacturing, gas and water companies, banks post negative performance. Toshiba Corp are the worst performer with 7.01% decline today. 

USD Index showling the value of USD against the basket of six overseas peers slid 0.03% today to 97.09 points.

USD/JPY declined as Yen strengthens on Oil decline and worrisome equity markets, -0.37% today, GBP/USD drops 0.22% ahead of BoE Carney speech on UK EU membership, AUD/USD extend drop as Australian currency gains bullish momentum on Global commodity upturn. EUR/USD remains near yesterday session close at 1.1020.

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07/03/16 Market notes

Oil prices extend rally on output cap expectations, Oil rig count drops in US.

Oil prices extend rally on output cap expectations, Oil rig count drops in US.

Oil prices stage a substantial rally in Asian session on Monday fueled by speculations Oil producing nations will soon freeze production on January levels. 

WTI futures with April delivery trading on NYMEX surged 1.92% to $36.61/bbl. Internationally traded benchmark Brent advanced 1.94% to $39.47, meeting resistance on $39.50 level. 

At the annual communist party meeting this time held in Sunday, Chinese government reported about eased goals of economic growth in next five years, downsizing the target to 6.5%. Other plans and targets were announced as well. 

As the crude prices dismissed downbeat data on US crude inventories last week (10M barrels growth, versus 3M estimate) and kept rallying, its hard to say whether the growth on this week will be able to stir bearish sentiments on Oil market.  Though surplus concerns yet weight on prices, they are mostly propelled by expectations of output caps discussed between Russia, Iran and OPEC cartel. Oil prices rose to 3-months high in Friday on these rumors as well as signs shale drilling slows in US. 

Baker Hughes rig count report released in Friday showed the number of working rigs in US dropped from 400 to 392, contracting 11 consecutive week to the lowest level since 2009. Comparing to the October 2014 period with 1609 rigs used, current number of working rigs dropped by around 69%. The cut in rig count is often considered as as bullish signal which bodes well in easing Oil glut. 

Next meeting between Oil-producing nations where output cap will be discussed should be held later in March. 

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01/03/16 Market notes

China Manufacturing PMI disappoints, Oil rebounds after a short dip.

China Manufacturing PMI disappoints, Oil rebounds after a short dip.

Energy prices slightly declined during Asian session in Tuesday as Oil traders are still highly cautious and tend to take profit from short-term rallies. 

WTI futures with April delivery quoting on NYMEX are trading on $33.84 (+0.27%), recoiling from $33.50 support point. Weekly support and resistance levels are $31.07 and $34.69 respectively. 

Brent futures, crude benchmark which is on ICE exchange in London, with may delivery fell half of percent to $36.37 and the difference between WTI and Brent rose to $2.74/bbl.

US Dollar Index showing performance of US currency to its six overseas peers forming a basket dipped 0.12% to $98.16.

On Comex exchange, gold futures with April settlement rose substantially by 0.82% to 1.244.50, reflecting the demand for safe heaven assets will be probably high today. The commodity was as high as 1249.30 today and support level were met on $1212.20 for troy ounce. 

Other precious metal, silver, gained 1.61% advancing closely to $15 level, while Copper futures with march delivery tumbled 1.13% to 2.105 for pound. 

Highly-important indicator for world market today, China manufacturing PMI, dropped to 49.0 points in February comparing to 49.4 reading in January. Analysts estimated the index will shows 49.3 points. Stalling Chinese economy especially manufacturing sector will make it hard for Chinese government to think out measures to extricate the country from Yuan devaluation and intensified stock rout so another spin of selloff on equity markets is expected. 

CSI 300 and ShComp are in temporary rally now with 0.25 and 0.40% gains respectively as of 04:54 GMT. 

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26/02/16 Market notes

WTI takes wait-and-see position climbing on 33 level, markets are waiting for PBOC head speech

WTI takes wait-and-see position climbing on 33 level, markets are waiting for PBOC head speech

After a sharp rally from $31.50 to $33.00 level during late session yesterday WTI managed to hold its own on this level. Currently the commodity floats in a $32.80-33.10 level, waiting for London session which will set Friday trend. Crude prices can be also affected by resolutions made on G-20 summit in Shanghai. Session support has been found on $32.77 level, weekly support is $29,48 level and resistance is $33,53. 

USD index which shows the value of greenback to the basket of other six majors dropped 0.19% to $97.25 indicating US Dollar is weakening against its overseas peers.

Brent futures with April delivery declined 0.63% to $34.94 and spread between two crude benchmarks rose to $2,06 bbl. 

Australian Dollar depreciated against Euro and Japanese Yen, EUR/AUD added 0.26% ti 1,5265 level, AUD/JPY dipped 0.05% to 81,73 level. Japan CPI came out in early Asian session showed 0% growth and met expectations, while previous reading was 0.2%. 

GfK report showed UK Consumer Confidence fell to zero points beating estimate of 3 points, while in previous month it showed 4 points.

EUR/USD advanced 0.24% today trading at 1,1040 level with support at 1.10 (key level) and local resistance at 1,1150 level. 

EU CPI which is due later today with 0.1% forecast may pave the way for Euro, while US GDP for 4Q  will bear significant influence on US currency. Baker Hughes rig count for this week will throw the light on drilling activity in US and help WTI traders to price it in the market.

Brokerarena.com

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25/02/16 Market notes

Oil drops in Asian session, Gold advance on risk-averse sentiments.

Oil drops in Asian session, Gold advance on risk-averse sentiments.

Oil futures extend decline from Wednesday after Iran Oil Minister Bijan Zanganeh said OPEC’s plan to freeze output is “ridiculous” and put “unrealistic demand” to the Islamic country. The drop worsened after Saudi Minister of Oil Al-Naimi said his country won’t cut output on any conditions as other countries won’t support this action.
WTI futures with April delivery fell 0.47% to $32.00, Brent prices declined 0.41% to $34,27 as of 5:18 GMT. WTI found support on $29,48 and resistance on $33.53.
US Index which indicate the gauge of US currency to the basket of other major six currencies fell 0.01% and is trading on 97.50.
The odds that Fed will change interest rate to 0.75% in March fell from 19.7 to 8.3% according to CME group data. The change is likely caused by worse-than-expected Consumer Confidence data, important gauge of economic health in US, which show 92.7 points in January instead of 97.3 expected.
XAU/USD rose 0.40% on risk-averse sentiments trading at $1.234,40 on Comex Exchange during Asian session. Resistance were met at $1.250.40 and support at $1.203.00.
Silver futures with march settlement rose 0.24% to $15,260 and copper dropped 0.90% to 2,099 because of slowing China imports.

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17/02/16 Market notes

Crude prices lost support after Qatar talks, US stocks close session with gains.

Crude prices lost support after Qatar talks, US stocks close session with gains.

Crude futures prices staged minor recovery in Wednesday Asian session after tumbling off local highs on news that Saudis and Russia decided to freeze production on January levels. WTI went below $29 at close of Tuesday session but then managed to rebound by 0.62% from session close to $29.22 level. Brent added 1.15% rising to $32.55.
US stocks closed Tuesday with gains indicating that investors still show signs of risk appetite even falling Oil prices couldn’t deny that. Dow Jones added 1.39% rising to 16,196.41,S&P posted gains of 1.65% to 1,895.58, Nasdaq advanced by 2.27% to 4,435.96.
US Dollar index showing the weight of Dollar against the bask of 6 overseas major peers declined by 0.06% and is trading at 96.83 level.
NZD dairy Auction for Milk powder showed decrease of the price by $62, dropping from $1,952 to $1,1890. NZD priced in this change with more than 0.4% decrease, sending NZD/USD as low as 0.6558 level.
Gold futures gained 0.12% rising to 1,210 level, in case of further deterioration in Oil market gold may start heading highs again together with Yen and other safe heaven assets.
Eurozone Zew Survey Sentiment report posted 13.6 points indicating that less analysts expect improvement in economic situation in Europe comparing to the January reading (22.7).
GBP CPI report released numbers that were in line with expectations – 0.3%. After short a short rally GBP turned back to bearish movement, GBP/USD is at 1,4293 (-0.08%).

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15/02/16 Market notes

Yen surges due to stock markets rise and agressive Abe rhetorics, USD falls.

Yen surges due to stock markets rise and agressive Abe rhetorics, USD falls.

Dollar gained against Japanese Yen in Asian session as Prime Minister Abe comments about volatility successfully warned investors about possible interventions and pick up on equity markets, which reduced a demand for safe heaven asset.
MSCI Asian index added 2.24% after declining 4% last week, while Japanese Nikkei 225 soared 7.3%, tech companies are best performers.
Trading data from China falls short of expectations: Country exports declined 11.2% comparing to last year. This change shows how successful were an efforts of switch of Chinese investment-stimulated model to consumption-driven, with a cutback in manufacturing.
Japanese economic data demonstrated contraction of GDP by 1.4% in the period of October-December 2015, more than 1.2% expected, mainly due to decrease in exports and a drawdown in consumer spendings.
Prime Minister Sinzo Abe raised concerns on excessive volatility on the currency market and that government will take measures to rein back Yen fluctuations if it threats further economic growth.
Abe also expressed hopes that the management of G20 will act accordingly to withstand threatening global economic setback and take necessary measures in Shanghai meeting which is to be held in next week. The rhetorics of Prime Minister boosted the depreciation of Yen which dropped against the Dollar by 0.6% to 113.92, bouncing off the 15-month low of 110.985, where Yen found itself in last week session.
PBOC took advantage of recent fall of USD and set the monthly exchange rate of USD/CNY on Monday, hoping to curb rumors about possible devaluation. The head of central bank said to Caixin interview that China will keep Yuan stable against the basket of other major currencies, eschewing from volatility control to USD.

Stay tuned for more analytics from BrokerArena.

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29/01/16 Forex education

What is Forex Trading and how it works?

What is Forex Trading and how it works?

FOREX (abbr. from Foreign Exchange) in the broad sense – an aggregate of exchange operations between large banks and other financial institutions like pension funds, insurance companies and transnational corporations. The needs to carry out such exchanges can be different – banks and companies keep reserves in different currencies for their operational needs, hedge funds buy and sell currencies to earn on fluctuations of exchange rates.

The daily volume of transactions on Forex market is incredibly high – about $5.3 trillion per day in April 2013. It greatly exceeds the turnover on stock markets – for example daily trading value of biggest stock exchange NYSE averaged only $169 billions in 2013. 

Let’s take a glance on some useful statistics related to Forex market:

Screen Shot 2016-02-02 at 8.36.36 PM

As we can notice, USD and EURO represent most traded currencies in the world with about 3/4 of daily trading volume.

Screen Shot 2016-02-02 at 8.35.51 PM

US and European banks seems to be the biggest currency traders.

Screen Shot 2016-02-02 at 8.35.03 PM

Daily trading volume has been steadily growing throughout the given period with a dip in 2001 caused by financial crisis in 1998.

So, when we hear something like “Euro became weaker against Dollar” or “Japanese Yen appreciated against Australian Dollar” it invites reasonable question:  What makes exchange rates fluctuate? To answer this question lets consider the state as a big company and national currency as its share. As logic suggests the better company performance the more value receives its shares. So basically, changes in exchange rates reflect how one company (country) outdo in performance other company (other country). 

There are tons of domestic circumstances that leave impact on a country’s economy. By and large we can divide them in two categories: Internal and External. All of them in their underlying principle contain the theory of Supply and Demand. Macroeconomic changes, geopolitical events, natural disasters can be referred to domestic factors, while changes in commodity prices (especially energy), increasing or decreasing supply or demand for certain goods can be considered as external. 

Here are two schemes that can help to understand the impact of both internal and external factors on national currency:

For Internal:

Russian Central bank decides to increase interest rate for Ruble => borrowing costs of Ruble increase (money “become more expensive”) => Russians borrow less and spend less, Foreign Investors tend to buy Ruble as it ensures more return => Amount of this currency on forex market decrease (thus the demand for it increase) => the value of Ruble increase.

For external:

China Oil consumption fall => Supply doesn’t change so world market gets oversupplied with Oil=> Price on Oil declines => Oil return for exporters like Russia drops => Russian economy deteriorates => Ruble becomes cheaper. 

Of course these two basic examples demonstrate clearly how currencies are affected by certain circumstances and describe fluctuations in their plain way, but given that the number of factors can reach thousands or millions its impossible to predict how the exchange rate will change in next 5 minutes (obviously current computational capacities are not enough to collect and analyze all information that may have impact on certain currency). Its essential to know that important economic and political events form only long-term trends in exchange rates – the wave that can  form weeks or months or even years, consisting of numerous smaller waves.

Alright, seems we’ve dealt with a notion of exchange rate fluctuations. Let’s take a look under the hood.

As you may already have guessed, forex market operates 24/5 (banks don’t work during weekends). 24/5 means that exchange rates are continuously floating from Monday to Friday. The continuity is achieved by Trading sessions, which times of operations overlap each other. Look at the picture below to get a clue on how trading sessions work:

London session is considered biggest by trading volume, second is New-York session. Asian and Australian sessions feature with lowered trading activity (amount of transactions). The overlap of London and New-York session is considered to be most active time of trading. In trading terms it means “time of best market liquidity”. 

That’s it for today. In next article we’ll get insight into how retail forex trading works and how access to biggest market in the world can be served to any trading newbie.

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29/01/16 Forex education

How currencies are traded in Forex?

How currencies are traded in Forex?

In our opening lesson “What’s Forex and how it works” I provided a brief account of main participants of currency market and what make exchange rates fluctuate. It is essential information you need to know, but not sufficient to start trading. Let’s examine exact process of how currencies are exchanged, what are costs of these transactions and how to profit from them.

First thing you need to know is that currencies are traded in PAIRS. Not in triads, quartets etc. Symbols like EUR/USD or USD/JPY mean two currencies that “compete” against each other – EUR/USD is EURO vs US Dollar, USD/JPY is US Dollar vs Japanese Yen. When you see a message that EUR/USD fell by 1% it means that EUR value decreased against USD by 1% or USD appreciated against EUR by 1%. It can sound a bit confusing so lets put it simple, considering on the of currencies as a “good”:

Screen Shot 2016-02-08 at 2.42.34 PM

A currency that comes before “/” is called “base currency” (good), currency that comes after “/” is called “quote currency” (money you pay for the good) and the number in right side is “exchange rate”. In our case EUR/USD=1.10 means that if we buy 1 EUR we pay 1.10 Dollars, if we sell 1 EUR we get 1.10 Dollars.

Consider other examples:

USD/JPY = 118.20 –  to buy 1 Dollar we pay 118.20 Japanese Yens, if we sell 1 Dollar we get 118.20 Yens.

EUR/GBP= 0.77  to buy 1 Euro we pay 0.77 pounds.

So what “EUR/USD rose from 1.10 to 1.12” exactly mean? It means that to buy 1 Euro we now need more Dollars (1.12 USD instead 1.10 USD). In other words we need to spend more Dollars to buy Euros or Euro became more expensive that USD.

When exchange rate rise = base currency become more expensive or quote currency become cheaper.

When exchange rate drops = base currency become cheaper or quote currency become more expensive.

Hope its clear. Moving further.

Now we understand which exact changes mean fluctuations in exchange rate. So if we expect that exchange rate of EUR/USD will rise how to profit from it?

The answer is – we should buy EUR/USD. When we make such transaction it means that we buy EUR and pay with USD for it. And vice versa, when we sell EUR/USD it means that we sell EUR and get USD instead.

Here are simplified calculations of what happens when you try to speculate on currencies:

For example you think that exchange rate of EUR/USD will rise from 1.10 to 1.20. You buy 100 000 EUR paying 110 000 USD for it. Then exchange rate rises from 1.10 to 1.20 and you execute reverse transaction: Sell your 100 000 EUR and get 120 000 USD instead. Net profit is 10 000 USD.

But what happens if exchange rate falls short of your expectations and drop from 1.10 to 1.00? You buy 100 000 EUR for 110 000 USD but when making reverse transaction when exchange rate dropped to 1.00 you get back only 100 000 USD. Net loss is 10 000 USD.

Here we have important conclusion: Any trade consists of two transactions, where second transaction is reverse to first.

We already know such currency pairs like EUR/USD, USD/JPY, AUD/USD. But how much pairs there are and what pairs are best to trade? Let me try to answer this questions.

Trading is possible providing that there is a counterparty willing to sell you what you want to buy and buy what you want to sell, i.e. make an exchange with you. When you want to sell EUR/USD there should be a counterparty willing to buy EUR/USD in the same amount. Same for reverse transaction. It is quite logical that the more members willing to exchange the better for every member as they can complete exchanges faster. Its called Liquidity. The bigger is Supply and Demand the better is liquidity. Did you guess which currency pair is most liquid? Of course it is EUR/USD. It means that if you decide to buy 10 000 000 EUR for USD at current exchange rate I’m pretty sure you can do that almost Instantly. But if you try to exchange 10 Million Dollars for example to Mexican Pesos it should take some more time because there’s less Supply of Pesos and probably less demand for such amount of Dollars (less number of market participants). In this case, it is said market has thin liquidity.

Returning to our main question which pairs are popular in forex and why are they and not some other:

The answer is: most popular pairs are those with best liquidity. They’re split into groups:

Majors:

EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD. Why are they? Because United States, European Union, Japan, Switzerland, Canada, Australia are biggest economies in the world thus has biggest Supply and Demand on their national currencies on foreign exchange market.

Next are cross pairs:

EUR/CHF, EUR/JPY, NZD/JPY, EUR/GBP, CAD/JPY. These are just some of them. Why are they called cross pairs? Because these are major currencies but not quoted in Dollar. They are less liquid than majors but enough to trade with large positions (200 000, 500 000 currency units or even more).

And last are minor pairs or so called exotics:

USD/RUB, USD/TRY, USD/NOK, USD/MXN, USD/ZAR, USD/SGD. Most of them has USD as second currency because only with USD they have adequate liquidity to make trading possible.

Okay, now we know that there are three types of currency pairs and they all have different liquidity. But what pair to choose for trading?

Actually the question is incorrect :). Quick glance may suggest that best pair to choose is EUR/USD or other majors. But its not absolutely true. For example USD/MXN may be more preferable for you because you’re living in Mexico and know your national currency – Mexican Peso (MXN) better than international traders. You can get quicker access to local news, events, government decision that may affect currency and thus USD/MXN exchange rate and turn it into your favor. In trading terminology its called “EDGE”. Having an edge means know something that other traders may don’t know and what you can use to predict the moves of certain currency. Trading knowledge, access to information and quick response are three main constituents of consistent profitable trading.

In next lesson we will study what are transactions costs – Spreads and commissions and how they connected to liquidity of a pair. We will also find out what are other expenses you can incur during your trading.

Thanks you for reading this article.

See ya next time.

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03/01/16 Market notes

Stournaras Warns on Measures as Tsipras Defiant on Pensions

Stournaras Warns on Measures as Tsipras Defiant on Pensions

Bank of Greece governor Yannis Stournaras gave a stark warning about the risk of Greece failing to reach an agreement with its creditors on a set of measures attached to the country’s bailout as Prime Minister Alexis Tsipras reiterated his government won’t succumb to “unreasonable” demands for additional pension cuts.

The European Union is now much less prepared to deal with another Greek crisis, Stournaras wrote in an article published in Kathimerini newspaper, in an unusually strong public intervention, as Europe’s most indebted state braces for negotiations with creditor institutions on a set of tough economic steps, including pension and income tax reform. A repeat of the 2015 standoff which pushed Greece to the verge of leaving the euro area would entail risks that the country’s economy may not be able to withstand, the central banker said.

After months of brinkmanship which resulted in the imposition of capital controls last summer, the government of Alexis Tsipras signed a new bailout agreement with the euro area committing Greece to economic overhauls and additional belt-tightening in exchange for emergency loans of as much as 86 billion euros ($93.4 billion). Greece will implement the agreement, Tsipras said in an interview with Real News newspaper published Saturday, adding though, that creditors should be aware that the country “won’t succumb to unreasonable and unfair demands” for more pension cuts.

Greece will reform its pension system, which is on the “brink of collapse” through “equivalent” measures targeting proceeds equal to 1 percent of the country’s gross domestic product in 2016, Tsipras said. The proposals include raising mandatory employer contributions, according to the country’s Labor Minister, George Katrougalos. Creditors oppose an increase in compulsory contributions, as they argue these create a disincentive for hiring workers and declaring incomes.

Negotiations with representatives of the European Commission, the European Central Bank and the International Monetary Fund will be “tough,” and the government is redoubling its efforts to find “diplomatic” support, Katrougalos said in an interview with To Ethnos newspaper, also published Saturday.

Stournaras warned, however, that escalating discussions to a level of European Union leaders would be “exceptionally dangerous,” at a time of open divisions within the bloc on issues ranging from immigration to banking union. Stalling negotiations would deepen recession, and lead to a tightening of restrictions in the movement of capital, according to Stournaras, who is also a member of the Governing Council of the European Central Bank. The government must implement the agreement that it negotiated last summer and parliament must back it, Stournaras said, blaming the capital shortfall of Greek lenders identified last year on the prolonged wrangling between Tsipras and euro-area states.

In addition to pension reform, creditors also asking Greece to implement more belt-tightening in order to meet an agreed primary surplus target of 3.5 percent of GDP, excluding interest payments, by 2018. According to Greece’s finance minister Euclid Tsakalotos, the International Monetary Fund isn’t convinced how the country will meet this target. The IMF doubts the efficiency of some measures already adopted and is more pessimistic on its assumptions about the Greek economy, Tsakalotos said in an interview also published Saturday in Kathimerini.

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24/12/15 Market notes

U.S. dollar drifts lower against euro, yen in pre-Christmas trade

U.S. dollar drifts lower against euro, yen in pre-Christmas trade

Investing.com – The dollar edged lower against the euro and yen in subdued trade on Thursday, with moves likely to remain limited ahead of the Christmas holiday.

A pedestrian walks past a money exchange bureau with a board displaying the exchange rate of the U.S. dollar against the Chilean Peso, in downtown Santiago October 30, 2014. REUTERS/Ivan Alvarado

A pedestrian walks past a money exchange bureau with a board displaying the exchange rate of the U.S. dollar against the Chilean Peso, in downtown Santiago October 30, 2014. REUTERS/Ivan Alvarado

Trading volumes are expected to remain light, with much of the Western world already shuttered for the Christmas and year-end holidays.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.27% at 98.12 during European morning hours.

The index, which has fallen back to levels seen before the Federal Reserve raised interest rates on December 17, remains well off last week’s two-week high of 99.33.

The greenback weakened followed the release of mixed U.S. economic data on Wednesday. Orders for U.S. core capital goods, a key barometer of private-sector business investment, declined 0.4% last month, while shipments of core capital goods, a category used to calculate quarterly economic growth, slumped 0.5%.

However, separate reports showed that personal spending rose for the eighth straight month in November, while consumer sentiment improved to a five-month high in December.

With the first U.S. rate hike since 2006 out of the way, the focus is now on the pace of future rate increases. The Fed, from its forecasts, is anticipating four rate hikes next year. However, the Fed funds futures currently suggests there will be just two rate increases, in June and December.

The dollar slid against the euro, with EUR/USD gaining 0.37% to 1.0952. Against the yen, the greenback dipped 0.45% to 120.38 (USD/JPY).

Trading volumes are expected to remain light as many traders already closed books before the end of the year, reducing liquidity in the market and increasing volatility. U.S. markets close early Thursday, Christmas Eve, and are shut Friday for Christmas Day.

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03/03/15 Market notes

Iran’s Khamenei Warns of Repercussions for Saudi Cleric’s Death

Iran’s Khamenei Warns of Repercussions for Saudi Cleric’s Death

Iran’s Supreme Leader Ayatollah Ali Khamenei warned of repercussions after Saudi Arabia executed a prominent Shiite cleric critical of the kingdom’s Sunni rulers.

“The divine hand of revenge will take the Saudi politicians by the throat,” Khamenei, Iran’s highest authority, said on Sunday. Cleric Nimr al-Nimr “was neither encouraging people to armed protests, nor plotting secretly, all he did was to openly criticize.”

Iranian protesters armed with rocks and firebombs attacked the Saudi embassy in Tehran on Saturday and set parts of the building on fire after the execution of al-Nimr, an outspoken critic of the kingdom’s treatment of its Shiite minority. A small group stormed the premises and several people were arrested, Tehran police chief Hossein Sajedinia told the state-run Islamic Students’ News Agency.

Al-Nimr’s execution and the ensuing protests further strained ties between Saudi Arabia and Shiite-ruled Iran. The two regional powers are on opposite sides of Middle East conflicts from Syria to Yemen. Saudi Arabia is also concerned about Iran’s growing influence after last year’s nuclear accord with world powers.

Increase Tensions

The cleric was one of 47 executed across Saudi Arabia on Saturday for terrorism-related offenses. The men were convicted of crimes including bombings that targeted the traffic department and interior ministry in Riyadh, plots to attack military airports, and other strikes on security forces.

“This sends a message of resolve and firmness in Saudi Arabia’s policy of confrontation with its two enemies, mainly al-Qaeda and Iran,” Ibrahim Fraihat, senior foreign policy fellow at the Brookings Doha Center, said in an interview. “It will also increase tensions inside Saudi Arabia because it gives the Shiite community new grievances and symbols to rally around within the country.”

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