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Old Dec 22, 2008, 4:52pm   #25
 
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Bank Official Talks Down Sterling

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Official; the UK is desperate for a lower currency. At the first sign of Sterling regaining its poise, one of the Bank of England top dogs was wheeled out to give it a slap.

Sterling’s trade-weighted index fell to a new low following comments from the deputy governor of the Bank of England. Sir John Gieve admitted that the Bank hadn’t fully understood the severity of the economic problems before they kicked off. Further comments got the market all excited about a rate cut in January. Funny, I didn’t think any of that was ‘news’ but it served its purpose in getting the currency lower.

Towards the end of last week investor nervousness saw the Dollar return to favour, but the Euro’s record run against sterling looked to have run its course. However today’s comments put paid to that and although the rate spent most of the morning with a £0.94 handle it did pop up to have a sniff at Thursday’s high of £0.9558.

Click the image to open in full size.

Over the past week or so I’ve warned that chart patterns hold less authority in easily manipulated illiquid markets. But this one below seemed like a good excuse to introduce new traders to Mr Fibonacci. As things stand, the EURUSD rate bounced off the Fibonacci 38.2% retracement level with more precision than a Ronaldo free-kick. If you’re new to trading, Fibonacci levels are taken very seriously by a lot of traders, so it’s worth taking a few minutes to read through the basics on Fibonacci And The Bonking Bunnies.

Click the image to open in full size.

Trading’s been pretty quiet today; I’ve no interest in trading equities at the moment, though looking at the open positions widget throughout the day I reckon there’re a few happy Santas out there. When equities were at the lows the open positions in FTSE and the Dax were longer than Pinocchio’s nose; once over 4300 the positions started turning red.

I’ve traded both ways in EURUSD this morning, just in small size and made enough for the turkey and a few Christmas puds. Tomorrow might be a bit livelier with quite a few economic releases throughout the day. Check out the Weekly Wrap for details.

Oh, and just in case you missed it, China cut interest rates by a very old-fashioned 0.27%.

Today’s Alphaville in the Financial Times features UBS’ choice of gifts for members of the ECB.

Happy Trading
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Old Jan 5, 2009, 4:01pm   #26
 
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Euro Suffers New Year Hangover

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Now it’s the Euro’s turn to get pummelled; the key mover is the turbo-charged Dollar, but Sterling has also gained to the tune of 250 pips.

I’ve experienced a morning of mixed emotions; I’m pretty chuffed with the £470 profit on shorting the Euro, but really it could have been so much more. And my long bet on gold has proved, once again, that I should stick to my favoured markets. Oh, and I’ve just shorted FTSE at 4557 on an intra-day trading signal.

Click the image to open in full size.

The first thing I noticed on my daily charts this morning was that the EURUSD rate had failed to rally above its 14-day moving average, which was a bit of a hint that demand for the Euro was drying up. The trouble was that my indicators still show both EURUSD and EURGBP in strong uptrends, and we all know what can happen when trading against the trend!

Whatever, my intra-day indicators signalled a sell so I sold EURUSD in a fiver at $1.3912. However, I’m always cautious when trading against the bigger trend, which is why I bought back £2 at $1.3898 and a further £1 at 1.3875. Sure, it was a massive wasted opportunity, but my financial testicles are still growing (I’m not up with the big boys yet) and running the smaller bet, with a small profit locked in, helped me to trail the balance down to $1.37.

I closed a further £1 at $1.3702 and was eventually stopped out at $1.3717 for an overall gain of £470. The more frustrating trade was my token £1 sale of EURGBP at £0.9421. After an immediate rally to test £0.9450, and my resolve, the price settled down below the £0.94 level. I brought my stop down to breakeven minus one and settled down to some research.

Blow me, just before mid-day, the market went ape; it looked like early US traders were throwing their money around. Sterling dumped over a few seconds, just far enough to trigger my stop, before resuming its earlier course. Whilst I waited for a pullback to re-enter the trade, the EURGBP rate continued to drop-down to £0.9350!!!

I’m looking to jump back on board both short bets on EURUSD and EURGBP, but they look a little over-cooked in the short-term.

Gold- Huh! I’ve just been stopped out for a £300 loss. The lesson to be learnt? Only trade what I’m good at and ignore the potential profits elsewhere.

A storming Christmas performance has brought up a load of positive chart signals for equities, but I’m sorry, I just struggle to join the euphoria. Without help from the US, the FTSE stumbled at its 100-day moving average this morning, but that in itself wasn’t a reason to sell. The market had put in such a good performance that, even with the price coming off, my indicators took an age to flash up a short-term sell signal.

Click the image to open in full size.

Eventually I sold £2 at 4557, closing out at 4546 and 4530 for a scrappy profit.

So, a net profit this morning with good gains in forex land undercut by a poor gold trade from last week. Don’t forget to check out the Weekly Wrap for economic releases due out this week, including Thursday’s decision on UK interest rates and the monthly US payrolls data on Friday.

Happy Trading
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Old Jan 7, 2009, 4:54pm   #27
 
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Sterling Rallies Back Above $1.50

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Yesterday it was the Euro; today it was the Dollar’s turn for a good kicking. Meanwhile, Sterling has been recovering from its Christmas hangover to blast back above $1.50.

The forex market is in a bit of a spin; it was just getting on with the idea that the Euro was thoroughly deserving of a good spanking, reinforced by ECB members hinting strongly at a January rate cut. Then, blow me, after an early morning shuffle the Dollar’s heading up the Least Wanted list.

Either way, the major beneficiary has been Sterling, improving against both the other majors and showing some signs of recovery from December’s thrashing.

The Galloping Zebu has just posted Part 1 of an excellent article on Profitable Mechanical Trading Systems, showing you how to create your own system and looking at what you need to consider.

And his timing is spot on because today I experienced sharply contrasting fortunes from trades that were ‘instinctive’ and those that were mechanical. After a couple of successful days I felt pretty gung-ho this morning. I thought the GBPUSD chart was showing early signs of a recovery so I paid $1.4953 for a £2 bet. I also sold £5 of EURGBP at £0.9080 because it had bounced from yesterday’s lows and because that trade had worked for the past two days.

After selling £1 of GBPUSD at $1.4968 I popped down for my Weetabix, but returned to find both trades stopped out for an overall loss of £183. My directional calls both subsequently proved to be correct, but my timing was poor as I’d reverted to guesswork rather than using a trigger.

Fast forward a couple of hours to another attempt at the same trades, this time with a proper system and decidedly better results.

Click the image to open in full size.

Using one of my short-term strategies I paid $1.4867 for £2 of GBPUSD when the price crossed the MAV and the MACD turned positive. I trailed my stop loss, initially at 15-pips below the moving average, then 10-pips below as the price took off. I still find trailing so far behind the price frustrating, but, in fairness, it kept me in the trade for a good run. Although I missed out on the top 70-pips I still bagged 188 (times 2) when I was stopped out at $1.5055.

My other trade saw me short EURGBP in a fiver at £0.9126 after a confirmed break of the £0.9130 pivot point. For this one I reverted to my more standard strategy of buying back £3 for 10 pips then trailing my stop loss at a distance of 30 pips. I was stopped out on this one at £0.9050.

So, after an early £183 loss I’m now a net £371 up on the day. Diary note for tomorrow to use a strategy, not a whim.

Hey guys, no New Year’s resolutions to offer? There must be some good ones, even if it’s getting to meet Bloomberg’s Nina De Roy, or not trading until after your third cup of coffee. If you missed yesterday’s blog, check it out for the chance to win a copy of Harriman’s Money Miscellany.

Happy Trading
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Old Jan 7, 2009, 4:59pm   #28
 
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Very good post, informative and logical explanations. Thank you for sharing your knowledge

Keep up the hard work,
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Old Jan 9, 2009, 3:40pm   #29
 
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UK Rate Cut Boosts Sterling

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No surprises from the Bank of England today, but a big one from my favourite squawk box, which shrieked out a 1% cut before adding a hasty correction.

The trading gods continue to smile down on me, giving me another bumper day in the markets. I made good money backing Sterling against the Euro, and even more so against the Dollar. I even made enough for a small round of drinks tonight on a short FTSE bet, but I entered at the tail-end of the fall and jumped ship pretty damn quick.

A quiet morning ahead of the MPC announcement provided a good opportunity for a gym session and a much needed haircut. But before leaving I made a quick £50 shorting EURGBP in a fiver at £0.9040 with a limit order to close out 10-pips lower.

Click the image to open in full size.

The rest of my trades followed the predicted 0.5% cut in UK rates. I bought GBPUSD in a fiver at $1.5120 and sold £2 of EURGBP at £0.8969. I treated the EURGBP as a quick in-and-out jobby, closing at £0.8957 and £0.8939, so that I could concentrate on my GBPUSD trade. My entry price of $1.5120 wasn’t clever (it had already rallied from $1.5020 since the announcement), but two earlier rallies had lost their nerve at $1.51 and I wanted to see this hurdle cleared before putting my money to work.

The rally quickly went supersonic, allowing me to close out £2 at $1.5171 and a further £1 just before the $1.52 big figure. I sold £1 when the move seemed to be tiring at $1.5345 and, as I type, I’ve just been stopped out of the balance at $1.53. Total profit on the trade was a healthy £582.

Sterling looks to have the legs to test the December high at $1.57, but I prefer to play smaller ranges on a daily trade than leave overnight positions in these fickle markets.

The Euro looks interesting; after being written off against the other majors it’s recovered the £0.9 handle against Sterling and is back to a crucial level against the Dollar. Remember on Tuesday I was cautioning that the 21-day moving average still had EURUSD in an uptrend (Euro Slide Continues), and that generally the price rallies back to this level?

Click the image to open in full size.

Since Tuesday’s Euro dump found last-ditch support at the 61.8% Fibonacci level, the price has recovered to test both the 21-day MAV and a hastily drawn downtrend line. It’s a tricky call, especially with the 14-day MAV rolling over (and the real life view that Euro-rates have to fall, and soon).

This could be the place to open a new short in EURUSD-but that would still be bucking the longer trend.

To finish, here’s what you’ve all been waiting for. The Galloping Zebu’s follow up to yesterday’s Profitable Mechanical Trading Systems (the appropriately named Profitable Mechanical Trading Systems Part 2) where he talks about the system he uses and some of the advantages of using such a system.

Happy Trading
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Old Jan 9, 2009, 5:54pm   #30
 
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Markets Survive US Payroll Numbers

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So the Payrolls numbers were better than expected-weren't they? I'm not sure if traders know what to think (me included) and this afternoon's action has had more to do with position squaring than fresh views.

The headline payroll release of 524,000 sacked workers was close to consensus, but in reality much better than feared by the market. But, but, but the payrolls numbers warrant further investigation. For example:
* Revisions to the two previous months add a further 145,000 to the jobless total, which is more than 1 million for the past two months alone.
* The unemployment rate came out at 7.2%, higher than the forecast 7%.
* Manufacturing lost 149,000 jobs this month compared to a forecast 100,000.

Whatever, traders weren't sure what to make of it all; an early rally in equities petered out as did a dollar sell-off. More recent trade has seen Dollar strength, even against the now-mighty Sterling. And equities have slipped a bit.

My trading today has been as muddled as the market reaction and ended on a slightly sour note. I'd bought GBPUSD in a fiver last night at $1.5187 and made just short of £200 when I was stopped out this morning.

But after the US data I made peanuts on a long GBPUSD trade, lost £90 on a short GBPEUR trade (yep, how could I lose money on that?) and lost £36 on a short EURUSD trade (again, how could I lose money on that today?).

The reasons for my losses were the reasons why I shouldn't have dealt in the first place. I was indecisive in jumpy, volatile markets. And because they were so jumpy I traded with tight stop losses, which were invariably hit just before the market went where I'd hoped for. I still need to suppress the instinct to get stuck in, when occasionally it makes more sense to watch from the touchline.

My EURUSD trade was frustrating, but thankfully only in a token £1. I decided to sell on the break below $1.35, at $1.3496, with a stop at 1.3532. But I was too early in my call; the price consolidated after the earlier 200-pip fall and just reached far enough to trigger my stop before crashing down to $1.3470. It wouldn't have been a big profit, and it wasn't a big loss, just professionally irritating.

Today's profit ended up at a net £90, but over the week I made a decent shade over two grand; a better start to the year than Marks & Sparks.

I still don't have a short-term view on equities; my long-term view is that they're way too high, but that's not a view to trade off yet. The UK's FTSE index is still well-supported by its 14 and 21-day moving averages and remains above the trend line from November's lows. The chart pattern suggests a re-test of the 4680 level is still on the cards-just so long as investors ignore the world outside.

Click the image to open in full size.

Have a good weekend
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Old Jan 13, 2009, 1:49pm   #31
 
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Around The Forex World In 12 Days

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Currency markets have turned full circle in just over a week; now the wheel of misfortune has swung back to Sterling, sending it lower against both the Dollar and Euro.

After Sterling’s lousy Christmas, it was the Euro that suffered the New Year hangover. Within days it was the Dollar’s turn to get the January blues. But it’s taken just over a week to return to the sport of ‘pounding the Pound’.

I’ve packed in trading for the day. After last week’s bumper trading profits this morning’s trades were predictably messy. Small gains on GBPUSD and EURUSD were cleared out by repeatedly looking to short EURGBP.

One of my trading rules is to stop trading if I make 3 consecutive losing bets, which I’ve now managed in EURGBP. Luckily 2 of my 3 EURGBP trades were just in a quid (the other was in £2) making the losses irritating but manageable.

My sell bets were at £0.8885, £0.8929 and £0.8945. I wasn’t adding to a losing position; each trade had been stopped out, but I kept looking for a reversal that wasn’t there. Total loss on my EURGBP bets this morning was £94; profits from the Dollar cross trades was £72 before being stopped out on both, so not a disastrous morning.

Where now for Sterling? Dunno. On a rotation basis it must be Sterling’s turn for a rough ride after recent hits on the Euro and Dollar. In terms of GBPUSD a small amber alert flashed up on Friday when the price didn’t make a new high. It was no more than that as the Pound could well be consolidating after a 4-day uphill run. Today’s price action hasn’t been too healthy; it’s now dropped below the 21-day moving average.

Click the image to open in full size.

But against the Euro I still favour Sterling, though some short-term weakness is reasonable after the recent sell-off. Just like the EURUSD last week, the price has rebounded from the last-ditch Fibonacci 61.8% retracement (If you’re new to trading and wondering who, or what, Fibonacci is we’ve got a handy article called Fibonacci And The Bonking Bunnies). But note that although the EURUSD bounced of that level, subsequent price action hasn’t been too hot. I reckon it’ll be the same story for EURGBP.

Click the image to open in full size.

Talk of Germany’s latest stimulus plans and uncertainty ahead of Thursday’s ECB meeting could be reasons for a few traders to lock in last week’s gains, but look at what bond investors are telling us.

German government bonds currently yield around 3%. But you can get a yield of 4.35% from its Euro-neighbour Italy. Or 4.70% if you fancy buying bonds issued by the Irish government. And to top it all, Greek bonds offer a yield of 5.30%, a whopping 230 basis points more than German bonds.

Think of the extra yield as the risk premium; the extra return demanded by investors for the higher likelihood that these countries default on their debt; not really the sign of one big happy family. Investors are taking the view that should one of these smaller countries fall into difficulties then it’s more likely they’ll be cast adrift than bailed out by the Fatherland.

Either way, large parts of the Eurozone are losing confidence and economic growth at an alarming rate so either lower rates, lower currency, or preferably both are needed pretty damn quick. And that should make the Euro a less attractive investment.

Happy Trading
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Old Jan 14, 2009, 11:19am   #32
 
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Gloomy Economy Hits Sterling And Equities

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Forget last week’s US payrolls, this week the Dollar is flying. Meanwhile, Sterling’s slump continues after a further downpour of gloomy retail sales and housing news, and equities drop below trendline support.

I’ve decided to bite the bullet on equities; after a tentative intra-day sale yesterday I plucked up the courage to short the FTSE in a fiver last night. I sold £5 at 4421 and although I bought back £2 at 4403 I sold a further £1 at 4373. Why?

It looked as though the Santa Claus/ New Year rally had run its course; a pattern of lower highs and lower lows was emerging. The S&P 500 had struggled above 900, then yesterday the Dax and FTSE dipped below their recent (slightly arbitrary) uptrend lines.

Click the image to open in full size.

At the moment I’m short £4, with my stop at 4355 to lock in a profit if the US decides to rally. A couple of things worth noting; this week sees the expiry of January options on Friday and the theory runs that more often than not equities rally during that week (my shorter term analysis hasn’t been able to back that up for FTSE).

Also, the US earnings reporting season is just warming up. This week is pretty low key with only 8 S&P 500 companies reporting, but next week sees 52 companies baring their souls, followed by a further 99 in the last week of January. Add in ECB rate cuts and fiscal stimulus plans by the day and there’s likely to be plenty to trade off.

I’ve turned cautious on the EURGBP rate, just in the short term. I lost money on three short bets yesterday so I’m obviously on a different wavelength. But, regardless of what’s going on in the real world (and, sure, there’s plenty of gloom in the UK today), yesterday’s chart action is warning me off:

Click the image to open in full size.

Yesterday’s green candle reversed Friday’s fall, and further rises today took the price back above Thursday’s level. Throw the upward 21-day moving average into the mix and there’s a hint of higher prices to come. Am I going long? Nope, I’ll watch from the touchline, but concentrate on my FTSE bet this afternoon. If I decide to short Sterling I’m more likely to work it through GBPUSD.

Good news for the pirates; yesterday’s Times reported that more oil companies are looking to store oil in super-tankers whilst they wait for the price to rise later in the year.

Yesterday I drew attention to the widening gap between yields on German bonds and the bonds of its poor Eurozone neighbours. Today, John Authers talks more articulately about the same subject. It’s worth clicking here for a quick video and a couple of easy to view charts.

Finally, good news for some, a small worry for others. British researchers with too much time on their hands have concluded that when it comes to trading, size matters. But before you start peering below the desk, they’ve been measuring traders’ ring fingers as a gauge of early exposure to androgens (male sex hormones).

Happy Trading
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