Best Thread FXCM/DailyFX Signals and Strategies

Canadian Dollar at Risk of Pullback on Turn in Forex Sentiment

Strong declines in the US Dollar/Canadian Dollar currency pair have persistently been met with crowd buying, but our recent SSI readings show that short interest has jumped substantially and warns of a potential reversal. Indeed, we rarely see the overall crowd bet with trends except at major sentiment extremes. Such a capitulation combines with extremely one-sided CFTC COT Non-Commercial Futures positioning to suggest that the pair may finally see a turnaround. Of course it is very close to impossible to gauge when such a strong trend may reverse. Yet traders should be wary of jumping on the Canadian Dollar bandwagon when the risk of a pullback is high.

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Written by Thomas Long, DailyFX Course Instructor

Sometimes when you take a step back, you can see things more clearly.

This chart of the US Dollar Index is a good example of what I mean.

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While the FX markets offer the opportunity to trade the USD against a variety of individual currencies, this chart offers a more general view of the state of the USD as it is compared to a basket of currencies. When looking for trades in the USD pairs, I often check this chart out just to make sure that I am seeing the USD strength/weakness in its purest form. Right now the USD is strong and has been since the beginning of December. So this gives me confidence that trending moves, like the downtrend of the EUR/USD is based not only on the EUR weakness, but real underlying strength in the USD. The uptrend continues on the USD as it appears poised to move up to a new recent high, so traders would most likely increase their chance of success by looking to take advantage of this strength rather than its relative weakness against a stronger currency. An example would be the recent sideways trading in the AUD/USD, it may not be based so much AUD weakness, but rather a USD that is continuing to gain strength.


Thomas Long will be presenting at several workshops for the upcoming FXCM Currency Trading Expo in Las Vegas including:

  • Chart Reading 101
  • Top Ten Basic Technical Indicators
  • Top Ten Advanced Technical Indicators
  • High Probability Breakout Trading in the Forex Market
 
Sell the Euro on Near Term Rallies

A small 2nd wave may be complete in the EURUSD at last night’s high (13570). A move above would expose 13650.

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The 4th wave correction in the EURUSD is likely complete. The top is close to parallel channel resistance as well as the 38.2% retracement of the decline from 14583 (common end points for 4th waves). The decline from 13822 has extended below 13530 and is sharp. A small 2nd wave may be complete at last night’s high at 13573. A move above would expose 13650.

Jamie Saettele is attending the FXCM Currency Trading Expo in Las Vegas May 3-4, 2010. He will be speaking at the following expo workshops:

  • -Beginner Elliott Wave
  • -Advanced Elliott Wave
  • -Active Trader: Scalping the Market
  • -Trading with Sentiment Indicators (SSI, COT, etc)
 
Euro / US Dollar 03-25: Elliott Wave Analysis

Written by DailyFX Analyst Jamie Saettele

The extent of the decline from 15380 suggests that wave 4 is complete. I favor a drop below 14780 over the next several weeks in a 5th wave. Similar to the EURUSD, a small 2nd wave may be complete at 15118. Favor the downside against that level.

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Jamie Saettele will be in attendance at the FXCM Currency Trading Expo in Las Vegas May 3-4, 2010. Here's a list of the workshops Jamie is speaking at:

-Beginner Elliott Wave
-Advanced Elliott Wave
-Trading with Sentiment Indicators (SSI, COT, etc)
-Active Trader: Scalping the Market
 
U.S. Non-Farm Payroll Report Headlines Week of Event Risk

5 Key Events to watch this week from DailyFX Analyst John Rivera

The U.S. Non-farm payroll report will be the focus of the week and with expectations for job growth in the world’s largest economy we could see broader optimism. German labor statistics will also cross the wires and brings implications for European domestic growth. However, the focus will be on the week full of U.S. data including the March manufacturing report and the latest consumer sentiment reading.

• U.S. Consumer Confidence (MAR) – March 30, 14:00 GMT
Americans are becoming more optimistic as the economy improves which is expected to be reflected in the upcoming Conference Board index. Forecasts are for a rise to 50.0 from 46.0 which would leave sentiment lower than the January reading of 56.50. The University of Michigan Survey confidence survey for the same period improved to 73.6 from 72.5 which supports the forecast for improvement. Rising optimism often translates into consumer demand which has implications for future growth and inflation, both which could accelerate the time frame for a Fed rate hike. Therefore, we could see bullish dollar sentiment following an inline or better print.

• German Unemployment Change (MAR) – March 31, 07:55 GMT
The German labor markets has started to show signs of weakness as the number of unemployed rose the past two months following six straight months of declines. Economists are expecting that Europe’s largest economy added another 7,000 to the number of out of work Germans. The OECD is forecasting that the unemployment rate will remain at the current 8.2% for the remainder of the year. Therefore, job losses for a few thousand for the 40 million string labor force may not raise concerns. However, a third straight month of declines is a trend that will grab investors’ attention. Considering the debt troubles in the region any weakness from the main engine of growth could weigh in the single currency which has been battered over the past week.

• Canadian GDP (JAN)– March 31–12:30 GMT
The Canadian economy continues to show signs of growth with consecutive months of job growth and a 0.7% improvement in retail sales in January. Therefore, it isn’t a surprise that economist are forecasting that GDP accelerated by 0.5% in the first month of the year. The fourth quarter of 22009 saw the commodity driven economy grow by 5.0% propelled by demand from emerging markets. China and India are starting to take steps to cool their domestic economies but a slow down, is still in the distance. A faster pace of Canadian growth will fuel interest rate expectations which are already on the rise. The BoC has pledged to remain on hold until at least June, but with core inflation already above the target level of 2.0%, they could look to become aggressive and hike rates sooner.

• U.S. ISM Manufacturing (MAR) – April 1- 14:00 GMT
A boost in manufacturing was the key to the 5.6% increase in 4Q U.S. GDP which makes the upcoming March reading an important gauge. The increase in activity has been driven by demand from abroad and the replenishing of depleted inventories. The lack of consumer spending has dimmed expectations for future activity which were validated with February’s decline to 56.5 from 58.4. Forecasts are for a slight pickup in March to 57.0 which isn’t enough to alter the current outlook. Nevertheless, another month of expansion (a reading over 50) is a sign that the recovery is sustaining which could be bullish for the dollar.

• U.S. Non-Farm Payrolls (MAR) April 2– March 19, 12:30 GMT
The U.S. labor report is typically one of the most market moving events, which has grown in importance with the Fed expected to remain on hold until unemployment declines. Economists are forecasting that non-farm payrolls increased by 190,000 in March which would be the most since March, 2007. The past three months have seen the economy lose jobs following the unexpected increase last November. Many had expected that stimulus efforts would have generated positive net employment sooner. A strong result will fuel expectations that a positive trend is emerging which will shorten the horizon for tightening from the FOMC and could generate significant dollar support.



John Rivera will be speaking at the upcoming currency trading expo hosted by FXCM in Las Vegas May 3-4, 2010. Here are the workshops he is hosting:

- Importance of Identifying Drivers of Price Action
- Trading Mistakes to Avoid
 
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NFP’s and Thin Markets May Lead to Whipsaw Action

Written by Michael Wright, DailyFX Research

Fundamental Outlook

Employers in the U.S. are expected to add jobs for the second time in more than two years as payrolls are forecasted to accelerate 185K, marking the largest increase in three years. Meanwhile, the third reading for the annualized GDP report showed that the output of goods and services produced by labor and property located in the region increased 5.6% in the fourth quarter, while consumer confidence in March exceeded economists’ expectations as the gloom for job prospects taper off. Furthermore, durable goods orders in February advanced for a third month, with the reading climbing 0.5%, an indication that manufacturing will fuel the economic recovery as home sales continue to deteriorate. Indeed, paired with the recent improved outlook for U.S., an enhanced labor report could set the stage to trade the greenback as the economy recovers from the worst recession since the Great Depression, with an improved report dismissing any doubts about the sustainability of the recovery. Thus, if employment is released in line or exceeds expectations, this would validate our bearish EUR/USD technical outlook.

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EUR/USD: Following up on my report from last week (Euro at Tests Range Ahead of U.S. Durable Goods Orders), the pair initially took out our soft targets at pivot support of 1.3428 and 1.3364 before pushing higher. Currently, the pair looks to test the upper trend line of the descending channel that has held since early December. Indeed, technical studies point further declines in the euro towards 1.3000, with gains likely to be capped around 1.35600.

Written by Michael Wright, Daily FX Research
Questions? Comments? Email me at [email protected]
 
Crude Oil Surges Past Resistance But Will Bullish Momentum Last?

Written by DailyFX Analyst Ilya Spivak

Crude Oil (WTI) $84.57 +$0.81 +0.97%

Prices look to have made a major technical break higher, taking out horizontal resistance at $83.19 to push well above the $84 figure. This opens the door for a move to the top of a large rising channel that has guided prices since mid-2009, now at $91.19. Upcoming US economic data looks supportive of continued upside in Thursday trade, with the ISM Manufacturing gauge set to rise to rebound in March after slipping in the previous month while weekly jobless claims figures track lower. Risk trends point in the same direction, with US equity index futures tracking 0.5 percent higher ahead of the opening bell on Wall St. Still, we remain skeptical of this advance with markets likely positioning themselves ahead of the release of the Nonfarm Payrolls report. The figures are set to cross the wires while trading is closed for the Good Friday holiday, encouraging investors to adjust their positions for the most likely scenario. Indeed, forecasts call for the US economy to have gained 184,000 jobs in March, the largest increase in three years.

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Gold, Silver on the Cusp of Bullish Breakout

Gold $1116.93 +$3.68 +0.33%
Prices are testing above resistance at the top of a falling channel set from the swing high in early March, with a sustained push higher exposing the $1128.91 level. Gold’s function as an inflation hedge remains the primary force behind directional momentum with prices closely tied to the medium-term outlook on US interest rates and inflation. Indeed, the 20-day percent change correlation between gold and 2-year Treasury notes now stands at 0.68, the highest in nearly a year.

Silver $17.70 +$0.23 +1.30%
As with gold, a breakout higher is being threatened as prices test above resistance at $17.65, with a push higher exposing the $18.00 figure. The outlook for US interest rates and inflation remains the primary catalyst, with the 20-day percent-change correlation between silver and the 2-year Treasury note at 0.64.

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Why Would the Australian Dollar Selloff after an RBA Rate Decision?

Written by DailyFX Analyst John Kicklighter

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The Australian dollar enjoyed a notable advance this past week against most of its counterparts on the basis of a substantial rise in risk appetite. However, aside from the aggressive advance and subsequent 17-month high that AUDJPY forge through the period, other liquid crosses were showing surprise restraint. Considering the currency is backed by one of the best performing economies in the industrialized world, its benchmark rate is heads and shoulders above its peers and the outlook for further policy tightening looks to keep the Aussie dollar well ahead of the crowd for the foreseeable future, it would seem unusual that the most appealing ‘carry’ currency would not show a greater sensitivity to speculative appetites. In fact, this disconnect for momentum is a significant sign in and of itself. With a Reserve Bank of Australia rate decision ahead of us and an aggressive swing in speculative positioning probable, can the Australian dollar develop a clear direction and establish the next leg of a long-term trend?

Reflecting on last week’s price action, there is little doubt that risk appetite was on the rise. Equities, commodities and bond yields were all advancing to new highs and finally doing so with significant momentum. Closer to home, the taste for risk was weighing on the funding and safe haven currencies while those currencies that were depressed by risk made an effort at recovery. However, for the Australian dollar – a currency that is already at the top of the yield curve and has not seen its premium altered by risk concerns – the shift in optimism would produce very little response. On the one hand, this may be a sign that the boost in investor confidence is relatively weak. Alternatively, it could point to a problem in the currency itself. Where is there room for uncertainty or bearishness for the market’s best performer? It is exactly the case that Aussie dollar has been considered the best positioned currency since the market recovery began last year that weakens resolve. Its current level reflects not only its static strength, but the expectations for future growth and return as well. All that is needed is one significant disappointment when the rest of the market is playing catch up for the Australian dollar’s rally to collapse under its own weight.

If there is a single event that can dramatically alter the outlook on this single currency; it is a shift in the monetary policy regime. Already holding near recent historical highs, to feed momentum and carry the market to new highs requires a consistent deterioration in the health of the Aussie’s peers or a constant improvement in the currencies own fundamental backdrop. The former scenario will not happen. In fact, the health of the global economy is improving rapidly and the interest rate outlook calls for a significant round of tightening for most of the major central banks over a six to twelve month time span. That leaves us with the Australia’s and the RBA’s performance. Data is certainly impress, but the strains of global stagnation and the aftereffects of previous policy hikes are showing through in economic activity. That leverages an even greater dependency on monetary policy.

Early forecasts for the outcome of the meeting are calling for yet another hike to 4.25 percent. Economists heavily favor such an outcome and the market is pricing in a 65 percent probability of the same. However, recent data has more clearly reflected a stalling in activity following previous policy actions (notably retail sales and a few ancillary housing numbers). What’s more, China, the region’s largest economy and consumer of the vast majority of Australian exports, has announced some time ago that it was taking measures to cool its economy and markets. Just this past week, they have even warned of asset bubbles. Continuing to raise rates when the risk of a ‘W’-shaped global recovery is rising and when the rest of the world is holding off on tightening themselves is a dangerous and highly speculative position. Yet, since the market is already pricing in a hike; if the market doesn’t get one, the Aussie dollar could plunge. - JK
 
USD/CAD Elliott Wave Analysis

Written by Jamie Saettele

The USDCAD has traded to fresh 2010 (and lowest since July 2008) lows and the next levels are potential support are near 9900. 9914 is the 61.8% extension of the 13068-10782 decline and 9892 is where the decline from 10307 (probably a 5th wave) would equal the decline from 10784-10368 (1st wave).

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Crude Oil Technical Positioning Points to Losses Ahead

Written by Ilya Spivak

Crude Oil (WTI) $85.40 -$0.48 -0.56%
Prices have put in an Evening Star bearish reversal candlestick formation below resistance at the $87 figure, with a turn lower opening the door for a move to support at $83.19. Risk trends remain significant, with the 21-day percent-change correlation between crude and the MSCI World Stock Index at 0.79. This bolsters the case for a bearish scenario as European shares trade lower amid renewed concerns about Greece after reports that EZ lenders including Commerzbank are withdrawing credit lines to the country while depositors have pulled close to 10 billion euro out of the nation’s financial institutions. Meanwhile, US equity index futures are tracking down 0.4 percent ahead of the opening bell on Wall St. Weekly US jobless claims figures and a series of scheduled speeches from Fed officials including Chairman Bernanke and Vice Chairman Kohn headline the economic calendar.

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Forex Strategy Outlook: Range Strategies Attractive for Euro on Greek Bailout

Written by David Rodriguez

Forex options market volatility expectations have leveled off near their lowest points in nearly two years, suggesting that major currencies will continue to see slow moves through the foreseeable future. The recently-announced financial aid package for Greece will likely depress Euro volatility in particular, as it removes a key source of uncertainty surrounding Euro Zone unity.

Market Conditions Summary

Forex options market volatility expectations have leveled off near their lowest points in nearly two years, suggesting that major currencies will continue to see slow moves through the foreseeable future. The recently-announced financial aid package for Greece will likely depress Euro volatility in particular, as it removes a key source of uncertainty surrounding Euro Zone unity.

Yet other currencies such as the Japanese Yen continue setting new lows against key counterparts and leave our momentum trading bias roughly intact. Watch for danger of a return to rangebound markets in Euro pairs, while we suspect the Japanese Yen will continue setting fresh lows against major forex counterparts.

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A Developing Wedge Makes GBP/JPY Scalping Target

Written by DailyFX Analyst John Rivera

The GBP/JPY has started to consolidate following a month long rally which saw the pair appreciate over 1200 pips. The lack of news from the U.K. and indifferent risks sentiment has helped quiet volatility for the pair. The BoE will refrain from commenting on monetary policy until after the May 6th political election which could leave sterling crosses without a catalyst. A wedge formation is developing which typically leads to further consolidation, making the pair an ideal scalping target.

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The GBP/JPY has begun to trade near the100-Day SMA at 142.73, we saw similar price action before the extended bearish and bullish rallies over the past two months. The trend lines forming the wedge formation are potential target levels for entering and exiting positions. Psychological resistance at 1.4500 also appears as a solid level to target and may limit upside risks.

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Written by DailyFX Analyst Jamie Saettele

The EURUSD may make a run towards 13820-14030 over the next several days as a larger correction of the decline that began last December takes place.

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With the EURUSD holding above its channel for several days now, I am looking higher towards 13820 and 14030. 13545 ideally holds. A drop below would expose shift focus to potential support at 13500.
 
Dollar Yen Tests Middle of Former Range at 9250

Written by DailyFX Technical Analyst Jamie Saettele

The USDJPY has slid lower and former resistance at 9200 is now in focus. Bigger picture, I remain bullish against 9100 in anticipation of a move above 9480.

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US Dollar Likely to Rally Further if S&P 500 Continues Recent Decline

Written by DailyFX Analyst David Rodriguez

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- US Dollar rallies sharply on S&P 500 tumbles on Goldman Sachs SEC Complaint

- Greenback stands to gain sharply on further unwind in leveraged futures positioning

- Volatile Greek fiscal crisis may likewise lead to US Dollar strength

The US Dollar finished the week roughly unchanged against other G10 counterparts, but a key surge through Friday’s S&P 500 declines leaves short-term momentum in favor of further Dollar appreciation. An SEC complaint that Goldman Sachs failed to disclose clear conflicts of interest in Subprime Collateralized Debt Obligation offerings sent the financial titan’s stock down an impressive 12.8 percent through Friday alone. Such sharp declines elicited sympathetic moves in firms such as Morgan Stanley and Bank of America, forcing the S&P 500’s Financials sub-index 3.7 percent lower through the day’s close. Whether or not the allegations prove true may matter little in the court of public opinion, and the mere accusation greatly increases the probability that financial market regulation will pass both houses of the US legislature. What this means for financial market risk sentiment is, in this author’s opinion, relatively clear.

The US Dollar stands to appreciate further if the S&P 500 and other key financial market risk sentiment barometers head lower in the coming week of trade. This is especially true against currencies such as the recently high-flying Australian and Canadian Dollars. Recent CFTC Commitment of Traders data showed that Non-Commercial traders remained incredibly net-short US Dollars against both the AUD and CAD. The leverage that typically goes into these futures positions leaves them especially susceptible to unwinds as traders receive cash calls in other leveraged securities, and it will be critical to watch the trajectory of risky assets in the week ahead.

A comparatively empty week of economic event risk leaves the Greenback at the whims of broader financial market moves. The volatile situation surrounding Greece only adds to potential catalysts of market turmoil; as we saw this past week, the safe-haven US Dollar stands to gain on further deterioration in the Euro Zone’s dilemma. Possible exceptions may include Producer Price Index, Housing Price Index, Durable Goods Orders, and New Homes Sales reports. Nothing especially stands out as far as consensus forecasts are concerned, and it would be a stretch to claim that the US dollar would react to anything but the largest surprises in these indicators.

The all-important question remains whether we can expect further S&P 500 pullbacks. The S&P Volatility Index (VIX) saw its largest single-day advance since the sharp market corrections we saw in early February. Further deterioration in conditions and heightened fears of volatility could push the S&P 500 lower and the recently-resurgent US Dollar higher. - DR
 
Understanding Foreign Exchange Rollover

By Antonio Sousa, Chief Strategist for DailyFX
Published: Tuesday, April 20, 2010


Foreign exchange rolls are often misunderstood despite their importance for every currency trader. Indeed, the interest rate differential between two currencies is not the only factor that affects overnight rolls. In fact, just like with currencies, foreign exchange rolls are affected by market conditions, supply and demand forces and many other factors.

Foreign exchange rollover, what is it?

Rollover is the interest paid or earned for holding a currency spot position overnight. Each currency has an overnight interbank interest rate associated with it, and because forex is traded in pairs, every trade involves not only 2 different currencies but also two different interest rates. However, unlike what many traders think, foreign exchange rolls are not only based on central bank rates. First of all, forex rolls are constructed using forward points which are mostly based on overnight interest rates at which banks borrow unsecured funds from other banks. After all, the foreign exchange market works over-the-counter. Market and spot trades need to be settled and rolled forward every day. If the interest rate on the currency you bought is higher than the interest rate of the currency you sold, you will earn a positive roll. If the interest rate on the currency you bought is lower than the interest rate on the currency you sold, then you will pay rollover. In addition, foreign exchange rolls also account for market conditions, supply and demand for specific currency rolls and many other factors. For instance, Japanese retail and institutional investors are famously big carry traders, and often their demand for yield is so strong, that is not unusual to see fluctuations on foreign exchange rolls between Tokyo, London and New York market sessions. Moreover, the same roll calculation rules do not necessarily apply for all currencies in the same way because some countries follow different monetary policies and exchanges rate mechanisms. For example, finding the correct roll for the Singapore dollar can be difficult
as the free-floating currency's value is tied to a basket of undisclosed currencies from the country's largest trading partners.

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Currently, most forex rolls are low and some are even negative, why?

In the last two years, central banks around the world took a number of measures to increase liquidity and stabilize financial markets. Among the actions taken by central bankers was a significant reduction in overnight lending rates and major injections of capital into the banking system. Eventually, after restoring some confidence on the financial system, central bankers succeeded in bringing down interbank rates. In other words, it became cheaper for banks to lend money between themselves. However, it also meant that the interest paid or earned for holding a currency position overnight would be significantly lower. In this situation, it may happen that both rolls for buying and selling
currencies are negative because banks and other foreign exchange market players charge a small spread on interest paid or earned.

How do carry trades work?

Traders looking to “earn carry” will buy a high-yielding currency while simultaneously selling a low-yielding currency. So, assuming the exchange rate remains constant, an investor is able to earn the difference in interest between the two currencies. The foreign exchange carry trade has a successful track record that goes back more than 25 years. However, the recent shift in the world’s financial markets towards lower interest rates and higher risk aversion makes it more difficult to make successful carry trades.

When is rollover booked?

5 pm in New York is considered the beginning and end of the forex trading day. Any positions that are open at 5 pm sharp are considered to be held overnight, and are subject to rollover. A position opened at 5:01 pm is not subject to rollover until the next day, while a position opened at 4:59 pm is subject to rollover at 5 pm. A credit or debit for each position open at 5 pm generally appears on your account within an hour, and is applied directly to your accounts balance.

How do banks account for Weekends and Holidays?

Most banks across the globe are closed on Saturdays and Sundays, so there is no rollover on these days, but most banks still apply interest for those two days. To account for that, the forex market books 3 days of rollover on Wednesdays, which makes a typical Wednesday rollover three times the amount on Tuesday. There is no rollover on
holidays, but an extra days worth of rollover usually occurs 2 business days before the holiday. Typically, holiday rollover happens if either of the currencies in the pair has a major holiday. So, for Independence Day in the USA, which is on July 4, when American banks are closed an an extra day of rollover is added at 5 pm on July 1 for all US
dollar pairs.

You can view how rollover is counted for holidays using the rollover calendar found on the DailyFX website.

Why should you invest in currencies, even with low interest rates?

Even though, making carry trades has been less appealing over the last few months, the currency market is still one of the best places to invest. After all, the forex market is still the most liquid financial market in the world with an average daily volume of over US$3 trillion, according to the Bank for International Settlements. This is more than
three times the total daily volume of the stocks and futures markets combined. Moreover, with a no-dealing-desk forex broker, every trade is executed back-to-back with one the world's premier banks which compete to provide your broker with the best bid and ask prices. This competition between banks can reduce the potential for market
manipulation by price providers.

Antonio Sousa is a Chief Strategist for DailyFX.com at FXCM in New York City where he performs global economics research and develops systematic trading strategies.
 
British Pound Rallies as U.K. Labor Market Improves, European Policy Makers Convene..

Written by DailyFX Analyst David Song

The British Pound rallied to a high of 1.5438 during the European trade as the economic docket reinforced an improved outlook for future growth, but the lack of momentum to retrace the decline from the previous week may keep the exchange rate within a narrow range going into the U.S. session as the U.K. National Statistics Office is scheduled to release the 1Q GDP report on Friday at 8:30 GMT.

Talking Points

• Japanese Yen: Tips Lower Against Most Currencies

• Pound: BoE Maintains Cautious Outlook

• Euro: Bundesbank Says Rates Are “Appropriate”

• U.S. Dollar: Risk Sentiment To Drive Price Action on Light Event Risk


The Bank of England minutes showed the MPC voted unanimously to hold the benchmark interest rate at 0.50% and to maintain the asset purchase target at GBP 200B earlier this month, but went onto say that above-target inflation was being a “concern” for some board members.

Nevertheless, the central bank said that “overall, the committee agree that it was appropriate to maintain the current stimulatory stance” as policy makers aim to encourage a sustainable recovery, and noted that the rebound in economic activity “appeared to have been carried forward into the beginning of 2010” as the expansion in monetary and fiscal policy continues to feed through the real economy. At the same time, jobless claims in the U.K. fell 32.9K March to exceed expectations for a 10.0K decline, with the claimant count rate unexpectedly slipping to 4.8% from 4.9% in the previous month, while the ILO unemployment rate increased to 8.0% during the three-months though February versus forecasts for a 7.8% clip. As the short-term rally in the GBP/USD tempers off ahead of the monthly high at 1.5523, a rise in public sector net borrowing could weigh on the exchange rate on Thursday as market participants expect the budget deficit to rise another GBP 24.0B in March following the GBP 12.4B rise in the previous month, but an better-than-expected 1Q GDP reading could push the exchange rate higher as investors weigh the prospects for future growth.

The Euro held a narrow range during the overnight trade after bouncing back from a fresh weekly low of 1.3399, but the single-currency may face increased selling pressures as European policy makers and the International Monetary Fund convene with the Greek government to discuss the EUR 45B bailout for the ailing economy. At the same time, Bundesbank Axel Weber said that he “never made an assessment of the short or long term financing needs” for Greece and argued that he never said the nation would need an EUR 80B bridge loan from the EU, and went onto say that it would take some time for the EU, ECB, and the IMF to hammer out the bailout package. In addition, the central bank head said that varying pace of growth in the euro-area could hamper the Governing Council’s policy as price pressures “are tilted a bit to the upside in the short-term,” but reiterated that interest rates “remains appropriate” as the ECB expects President Trichet expects to see an “uneven” recovery this year.

The greenback lost ground against most of its major counterparts as the rise in risk appetite carried over into the overnight trade, while the USD/JPY tipped higher for the third-day to reach a fresh weekly high of 93.40. As the economic docket for the U.S. and Canada remain fairly light for Wednesday, risk sentiment is likely to drive price action going into the North American session, which could push the greenback lower as it remains the most popular funding-currency, next to the Japanese Yen.
 
Forex Crowds Buy Euros Despite Greek Fiscal Crisis

Forex trading crowds have bet quite aggressively on a Euro bounce despite continued turmoil in Greece and the broader Euro Zone. Our Speculative Sentiment Index shows that the number of traders long the Euro against the US Dollar jumped a substantial 52 percent in the past week, giving a strong contrarian signal to go short and stay short the fast-falling currency pair. Any and all developments in the ongoing Greek financial crisis would nonetheless spark substantial moves in all EUR pairs, and we advise caution against taking excess leverage through short-term trade. Suffice it to say, it will be critical to see what Greece, the European Monetary Union, and the International Monetary Fund do in the next several days of trading.

EURUSD – The ratio of long to short positions in the EURUSD stands at 1.84 as nearly 65% of traders are long. Yesterday, the ratio was at 1.59 as 61% of open positions were long. In detail, long positions are 12.6% lower than yesterday and 52.4% stronger since last week. Short positions are 24.4% lower than yesterday and 26.8% weaker since last week. Open interest is 17.1% weaker than yesterday and 4.2% below its monthly average. The SSI is a contrarian indicator and signals more EURUSD losses.

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Markets Will Focus on FOMC Meeting With Potential For Asset Purchases

5 Key Events to Watch from John Rivera of DailyFX:

The potential for the FOMC to initiate a asset purchase program will make their upcoming policy meeting as the biggest event risk for the week. Another pause by policy makers would shift focus to the 1Q GDP report to end the week as the U.S. economy is expected to have grown by 3.4% over the period. An RBNZ policy meeting could also generate volatility as a change in the post release language is expected. Outside the FOMC decision the issues in Greece have the potential to dominate headlines as the indebted country has asked for the aid package outlined by the E.U. and IMF.


• Australian Consumer Prices(1Q) – April 28 - 01:30 GMT
Australian headline CPI is expected to have risen by 0.8 percent in the March quarter for an annual pace of 2.8 percent. This compares with a headline CPI of 0.5 per cent in the December quarter, for an annual rate of 2.1 per cent. While most economists are forecasting the Reserve Bank of Australia will keep interest rates on hold, a bigger than expected March quarter consumer price index, issued on Wednesday, could influence the central bank's May 4 board meeting on monetary policy. The RBA has already lifted the cash rate five times since October last year, but Governor Stevens recently commented that rates were near average which has raise speculation that the central bank will bring an end to their tightening policy.


• FOMC Rate Decision – April 28 – 18:15 GMT
Speculation that several FOMC members will push for the central bank to start selling assets from its balance sheet will increase the importance of this week’s meeting. There are still concerns that the economy remains too fragile for the Fed to start removing liquidity which may see another decision pass before action. Nevertheless, diverging opinions is the first step toward a tightening policy which could raise the outlook for interest rates and generate dollar support. Policy makers are expected to keep rates on hold until the end of this year with markets only pricing in a 42% chance of a rate hike in September.


• RBNZ Rate Decision – April 28–21:00 GMT
The RBNZ is expected to keep their target lending rate at 2.50% as the central bank has committed to remain on hold until mid-year. Consumer prices holding at 2.0% in the first quarter gives policy makers the flexibility to wait for stronger signs that the economic recovery is sustainable. However, we could see the committee chose to signal a future hike similar to the BoC by removing the mid-year commitment language from the post release statements. The New Zealand dollar has been trading in a tight range and the rate decision could spark enough volatility to lead to a breakout with a bullish move favored on hawkish statements.


• German Unemployment Change (APR) – April 29- 07:55 GMT
The German labor market continues to strengthen as the economy benefits from foreign demand. The number of unemployed is expected to have decline by 10,000 in April which would mark the tenth straight month without an increase. However, the unemployment rate is forecasted to remain unchanged at 8.0%. Meanwhile, investor and business sentiment significantly improved during the month despite the issues in Greece, which bodes well for future hiring. Therefore, with help from the IMF and E.U. on the way for the indebted nation, signs of job creation from the region’s largest economy should help provide Euro support.


• U.S. GDP (1Q A) April 30 – 12:30 GMT
Gross domestic product in the U.S. is forecasted to have risen by 3.4% in the first quarter as the economy built upon the prior period’s 5.6% improvement. The manufacturing sector has been the main driver on the back of demand from abroad and companies replenishing inventory levels. The current inventory cycle is expected to continue over the short-term which should help offset potential weakness from ending government stimulus. However, although we saw the labor market add jobs in March, elevated unemployment remains a weighing factor on domestic spending. Therefore, we could see personal consumption figures weigh on overall growth. Nevertheless, a third straight quarter of growth following the worst recession since WWII could spark optimism and generate dollar support.
 
US Dollar / Japanese Yen 04-27

Written by DailyFX Analyst Jamie Saettele

If the USDJPY is on the verge of breaking higher, then price should remain above 9270. This is the level I am moving risk to on these longer term positions. 9712 is where the rally from 8813 would equal the rally from 8481 (arithmetic) and is the initial objective. However, the drop below short term parallel channel support warns that the rally from 9160 may be just a b wave in a larger corrective pattern (triangle or flat). 9270 defines the trend.

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