Mr Spread Better's blog

[Mr Spread Better]

Sterling Surges Against The Dollar

www.paddypowertrader.com

Hi folks,

If I’d known that yesterday’s blog (Is Sterling Next In Line For a Rally?) was going to have such an effect on the global currency markets I’d have used a bigger bet size. As it happens I made a good return on my long bet in GBPUSD, but my open short in EURGBP is only producing loose change at the moment.

Sterling picked up a treat yesterday, though the weaker Dollar was a large influence. My trade in GBPUSD put £250 in my back pocket when I was stopped out at $1.5264. It should have been a lot more, but when I highlighted the move yesterday I wasn’t confident that it would happen so soon. I felt more relaxed with a small bet size and a wide stop loss to give the trade room to breath.

Check out the chart for GBPUSD:

I’m looking for a pullback to the uptrend line to re-open the bet, but not ahead of tonight’s Fed announcement on US rates. I’m likely to be singing Away In a Manger at the time of the announcement so I don’t want much risk on the table.

My only open position at the moment is a £4 short bet on EURGBP, which isn’t setting the world alight. Yesterday’s sale at £0.8988 is showing a small profit after I declined to close out at £0.89 for a quick gain. Today I set a limit order to sell £2 at £0.8946 if support at £0.8950 broke, and it’s too soon to tell how wise that was.

Today is the first day in nine not to register a new high (so far). That in itself isn’t a reversal sign, but perhaps it’s the first sign that some of the fizz is going out of the trade. A lot of speculative short bets on Sterling were opened last week and I reckon that unless they’ve got a really strong view, traders will be happy to take their profits before tucking into their Christmas pud. If that happens it should lead to further weakness in EURGBP.

A few day’s ago I suggested that the US Dollar index was forming a Head & Shoulders pattern (An Equity Rally Please Santa). The pattern worked with a break of the neckline sending the index down to its target level. A rule of thumb reckons that the price should move roughly the same distance from the break of the neckline as the distance from the head to the neckline.

I took that as a target of 82 on the index, which was hit yesterday afternoon. This doesn’t mean the move’s over, just that, for me, that particular game has played out. To me the EURUSD is looking good, but overdone in the short term and with resistance from the 100-day moving average ahead.

Hey, and if you want to kill a few hours ahead of tonight’s Fed announcement, check out this wicked new free extra that Paddypowertraders are providing on Cool:New Research And Data Area.

Happy Trading

 

[Mr Spread Better]

Equities Falter But The Euro Marches On

www.paddypowertrader.com

Hi folks,

So Beardy Ben’s helicopter gun ships sent the bears scampering from the equity camp to join their mates beating up the Dollar. My only involvement last night was to be stopped out of my EURGBP short for a bloody nose, but this morning I used the early morning uncertainty to go long of the FTSE. As we wait for an official announcement on future oil production from OPEC the Euro is king pin in the markets, hitting £0.92 against the Pound.

OK, so who found time to read Moley’s timely piece ahead of last night’s announcement by the FED? It was a great preparation note focussing on what would really be important (i.e. not the rate cut itself, but all the other measures) and he got it bang-on calling a weaker Dollar on the back of the quantitative easing. Check out the Mole’s views today on Stocks Soar As The Fed Makes Money Free.

For a few days my daily FTSE chart has been showing a cautiously bullish pattern, not perfect as the ADX trend was still poor, but prices were well through the early moving averages. I’d been waiting for a good test of 4250 before getting involved and that’s just what happened this morning. Early trade sent the index back through 4300 and down to shake hands with the uptrend line at 4210.

Aware of the risk of falling knives, I waited for a confirmed rise back above 4250 before buying a £2 long bet at 4257, placing my stop just below the day’s low. I rode the rise up to 4337, but decided to take my profits when my intra-day indicators went flat, and sold out at 4317. Did I throw away the chance of a ride up to 4400? Perhaps, but markets this close to Christmas can get a bit daft so I was happy to stick some notes in my pocket to replace the ones I lost on EURGBP.

So what to make of the EURGBP rate? Several of us have very publicly made a mess of this one over the past week; on my indicators this trade is showing one of the strongest trends around at the moment. Yet experienced traders (Yep, my hands in the air) have done the equivalent of unzipping their trousers and unleashing six pints of Guinness into a force 8 headwind. And yes, the results were very messy.

I can’t speak for the others, but I guess I allowed the fundamentals to get in the way of a great chart. I’m struggling with the idea that the Euro is making new highs through the intransigence of the ECB. Sure, there’s a small interest rate advantage, and the popular view is that this will increase in the short term. But the Eurozone’s got the same problems, and arguably less chance of finding a solution as that would require EU members to agree on something.

The strong Euro trend on the chart is emphatic, but look at the RSI down the bottom showing an overbought position. Now this isn’t a reversal sign; it’s a sort of amber light for traders with long positions. However, the previous two occasions when the RSI shot above 70 eventually saw a sell-off in the Euro. The trouble is, the keyword is ‘eventually’. So it’s a good trade to keep on the radar, but a dangerous one to pre-empt.

I reckon the illiquid Christmas markets could see some monkey business in this one, but I haven’t got a Scooby Doo whether it’ll hit 100 or 80, or both!

Happy Trading

 

[Mr Spread Better]

Euro Aims For Parity With Sterling

www.paddypowertrader.com

The latest Christmas game is Let’s Push The Euro To Parity with Sterling. Another high-octane morning saw the Euro break £0.95, making the final 500-pips a real possibility.

The Euro is now more overbought than the Nintendo Wii, but who’s likely to sell it just yet? A few of us have tried it and shot out the other side like a scalded cat but, if anything, the ‘buy on dips’ pattern is getting ever more predictable. I’ve traded EURGBP on three occasions this morning; two long trades made me money and a toe-dipping short cost me a few quid to confirm the time wasn’t right yet.

My first long trade, buying a £5 bet at £0.9385, made me over £200. The rise to £0.95 had all the hallmarks of a final exhaustion rally, so when the price subsequently tanked lower I joined the party with a token £2 sell bet. It started to look like the real thing, but stopped just shy of £0.94, and my slow reactions cost me £30 as I closed out. I recouped that loss and made a bit more by going long in a fiver again.

I’ve been probing my mates in the City about whether there is something behind the move; year-end re-balancing, olicrooks switching Roubles into Euros etc. But they’re of the opinion it’s the easy trade in illiquid markets, spurred on by drug-crazed ECB comments.

I also made a few quid on a short bet in FTSE this morning. I don’t have a strong view on equities over the Christmas period, but I’ve traded intra-day technicals a few times.

There was an interesting piece in today’s Financial Times pointing out that the relationship between oil and the price of the US Dollar is currently as rock steady as Madonna and Guy Ritchie. In a previous piece in May (Another Failed Relationship) I wrote that the relationship had broken down with both the Dollar and oil prices rising. A couple of months later the relationship was back on again. In this article John Authors is pointing out that despite a fall in the Dollar, there’s been no positive effect on the oil price. In simple terms, the previous relationship shown on the chart below would suggest an oil price of at least $70.

This chart comes from John Author’s Short View video for the Financial Times. You can check it out here on The Short View.

Hey! There’s no easing down for Christmas at Paddy Towers yet; hot on the heels of the new Interactive Investor service, the Trader Widget has been souped up. The box on the right-hand side of the Home page shows the top long and short open positions at Paddypowertrader. This is a handy little tool for checking what other clients are up to; are you running with the herd or looking for a contrarian trade? And now there’s a speedy single-click chart to see how the price action compares to the positions.

Happy Trading

 

[Mr Spread Better]

Cheaper Prices In The Christmas Sales

www.paddypowertrader.com

No Christmas let-up in the forex markets, with the Euro retreating faster than the Italian army. Gold, oil and equities are also dropping their prices in the Christmas sales.

Today’s a bit of a chart feast, though events are overtaking my two-fingered typing. I’ve broken one of my looser trading rules, selling EURGBP (again) against the trend. I traded it a few times yesterday, the subtle difference being that I would use a £5 bet on the upside, but a £2 bet on the sale. Today I sold a £5 bet, and here’s why:

Admittedly this is too short a time period to be significant, but yesterday saw a double top, which this morning’s rally failed to reach. I sold a fiver at £0.9408 and I’m able to relax now with my stop loss locking in a profit at £0.9358. It’s tricky; this could be the beginning of a massive reversal, which would set me up nicely for January. However, these are silly, illiquid markets with, I suspect, a few traders playing games with the levels. I’d rather be stopped out for a Christmas profit than spend the break worrying about a loss. So, I’m trailing my stop with enough room for the trade to breathe, but also sticking a few quid in the bank as I go.

Keeping with the Euro, this chart shows just when the cops arrived to shut down the party. Traders yanked on the brakes of the EURUSD’s turbo-charged rally as it approached the 200-day moving average.

That’s not calling an end to the Euro’s bull run; this could just be a much-needed correction from a hugely overbought position. The 21-day moving average, my favourite trend indicator, is pointing at the nose, not the toes, so I’d treat this more as a correction than a reversal for a while yet.

And what of gold? Yesterday it was looking spot on; the 21-day MAV supported the up-trend that had just broken above its key 200-day moving average. But it was always going to be vulnerable to any recovery in the Dollar. As the EURUSD rate plunged over 700 pips, gold crashed back below the 200 MAV and is currently testing support at $837.

It’s an interesting one; since August gold has struggled above the 200-day MAV, but the trend looks reasonable, suggesting another attempt will be made to capture the higher ground. But in the real world I wouldn’t be buying gold with the prospect of further weakness in the EURUSD rate.

Be careful trading the early US market today; as Moley explains it could be a very volatile market up to options expiry at 3 o’clock.

Hey, have you seen another new feature on the Home page, the Trader Report? This is a fast and easy summary of the early headlines and stories to watch, along with a snapshot of what happened in yesterday’s markets. There’s also a comprehensive list of the day’s economic and corporate releases, so well worth a glance before putting on that bet. The boys reckon it should be out by 9 o’clock each day.

And finally, amongst the daily servings of central bank bailouts and economic forecasts, some sound advice from the Jamaican Central Bank:

Happy Trading

 

[Mr Spread Better]

Bank Official Talks Down Sterling

www.paddypowertrader.com

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.

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.

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

 

[Mr Spread Better]

Euro Suffers New Year Hangover

www.paddypowertrader.com

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.

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.

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

 

[Mr Spread Better]

Sterling Rallies Back Above $1.50

www.paddypowertrader.com

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.

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

 

[kingdomsharma]

Very good post, informative and logical explanations. Thank you for sharing your knowledge

Keep up the hard work,

 

[Mr Spread Better]

UK Rate Cut Boosts Sterling

www.paddypowertrader.com

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.

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?

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

 

[Mr Spread Better]

Markets Survive US Payroll Numbers

www.paddypowertrader.com

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.

Have a good weekend

 

[Mr Spread Better]

Around The Forex World In 12 Days

www.paddypowertrader.com

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.

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.

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

 

[Mr Spread Better]

Gloomy Economy Hits Sterling And Equities

www.paddypowertrader.com

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.

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:

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

 

[Mr Spread Better]

Equities Crash On Banking Woes

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A trip down memory lane saw shares plunge on a tsunami of bad news across the banking sector. Darling’s attempt to breathe life into corporate UK was eclipsed by news of further losses, job cuts and possible capital raising by European banks.

Stop loss management, or rather mismanagement, has played a major part in my trading fortunes over the past 24-hours. Yesterday I had a £4 short bet on FTSE, which I’d opened at 4421. Keen to lock in a profit, I trailed my stop down to 4355 where I was duly hit. That trade made an overall profit of just over £250, but a wider stop loss might have kept me in the game for a much bigger prize today. Let’s see, FTSE’s currently trading at 4200, so that would have been (4421-4200)X 4=Aaagghhhhh.

This morning I sold £5 of EURGBP at £0.9091. I bought back £3 at £0.9078 and brought my stop down to breakeven where I was taken out. Profit on the trade was £39-the EURGBP rate is now having a sniff at £0.90. Hmmm

I bought GBPUSD in a fiver after appalling US retail sales data. I paid $1.4539 and the price is now $1.4590. Looks good, except that somewhere in the middle of all that I was stopped out for a £95 loss.

Further short bets on FTSE and EURGBP mean that I’m a few quid up on the day but not a lot. I’m not too upset; it was deliberate plan to run tight trades the day before the ECB announcement and avoid getting mauled, and I’ve managed that. It’s just a great example of how a less cautious approach would have paid dividends (and there aren’t many of those around these days).

Ah, and talking of the ECB, here’s another competition with a chance to win a copy of Harriman’s Money Miscellany. Three simple questions; the one nearest the bull wins:
1) How much will the ECB cut rates by?
2) Will the EURUSD be up or down on the day?
3) Will the Dax be up or down on the day?

For this competition we’re defining ‘the day’ as between 7 am and 4 pm tomorrow; prices as per paddypowertrader.

So come on; there’s not much work involved here, just three simple guesses. I’ll get the ball rolling with a stab at a 75bp cut sending the EURUSD rate lower and the Dax higher. In the event of a tie we’ll pull names out of Z’s hat.

Finally, if you’re new to spread betting you might want to check out a piece I’ve just put out on a Dummies Guide To Charting Part I.

Happy Trading

 

[Mr Spread Better]

Equities Rally As Bush Bids Goodbye

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Yesterday the Dow popped down for a close look at 8000 and decided not to bother. The screens are full of reasons for today’s savage bounce but, more importantly, will these levels hold?

Not a great day’s trading today; luckily a late-in-the-day forex trade bailed out some poor trading in FTSE. I made money this morning by closing out a short bet on FTSE from last night, then made the mistake of trying it again after blisteringly bad numbers from Citigroup and Merrills. But in a week of bad news, traders just couldn’t be bothered by these numbers; after all, the banks only need to pull the arm on the taxpayers’ fruit machine and money will come pouring out.

Needless to say the loss wiped out the overnight profit as I stopped out near the high of the day (doesn’t that just always seem to happen?).

Undeterred I went £2 short this afternoon at 4208 and I’ll probably run it over the weekend.

I’d been prepared to leave Sterling alone today. I missed the early move and didn’t fancy chasing it near $1.50. But as the price retreated back to the $1.49 area I reckoned there could be a trade on. I keep a record of the daily trading range for GBPUSD; it’s generally over 200-pips, but today’s action fell well short of that. The key was betting on the right direction-a bounce off $1.49, or a decent fall through it.

The first visit to $1.49 saw a worthy bounce, but this was short-lived and next time around I decided to have a go at it. Normally I’d wait for a confirmed break of the big figure before committing myself, but the price action was giving a strong hint at breaking through.

I sold a fiver at $1.4902, with a 40-pip stop. The plan worked and I closed out £3 at $1.4878 and $1.4862 (Friday afternoon is no time for heroics). I bought back £1 at $1.4803 and still have £1 running, protected by a stop at $1.4852. Nice one Charlie!

And here’s one for next week;

The chart looks tempting. I don’t like holding forex positions over the weekend, so I should leave this for Monday. The Euro’s had a good bounce from the same low as last Friday, but I still think it has to go easier, regardless of interest rate policy. Discipline, discipline; I’ll shut my screens down early to avoid the temptation.

Hey! Here’s a good tip. Tonight, grab the remote off the missus and switch onto Sky Sports. Sale need to beat Munster at Thomond Park to stay in the Heineken Cup. Munster will start with a 5-point advantage from their supporters, but Sale are on top form and have a point to prove. It should be a cracker.

 

[Mr Spread Better]

Will Bailout Save The Banks?

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European banks got caned this morning; Her Royal Highness’s Bank of Scotland plunged over 50%, closely followed by the newly formed Lloyds-HMG-HBOS, down 35%.

My morning began with a nasty reminder of the downside of using stops overnight. In Friday’s blog (Equities Rally As Bush Bids Goodbye) I decided to run my £2 FTSE short bet over the weekend. I left my trade in good shape; I was reasonably in the money with a stop loss at 4198 locking in a small profit.

Well, not exactly. First off, I tend to leave the desk a bit earlier on Fridays to start the weekend, so I missed the mega sell-off that started just after the close. Secondly, the subsequent rally didn’t go quite far enough to stop me out, but this morning’s optimistic open did. The early mark-up took me out at 4208, way above my stop, back to where I sold in the first place.

Today’s trades haven’t been too adventurous, what with the US being on holiday. In the early market I sold GBPUSD for a £50 profit and made a further £20 by shorting EURGBP. And talking of EURGBP, although I missed out on Friday’s equity collapse by leaving early, at least it prevented me from opening a short in EURGBP, as mentioned in the blog. Now that would have ruined my Monday morning.

At the moment I’m running three short bets, opened this morning:

1) I’m short £1 FTSE (again) from 4195.
2) I’m £2 short of EURUSD from $1.3196. I sold £5, but closed out £3 at $1.3186 to make sure of a gain. This one’s working quite nicely, but I’m giving the bet some slack with my stop way back at $1.3186.
3) Not done this for a while (and really should have done it last week when I first thought about it) but I sold £7 of Lloyds TSB HBOS (whatever) at 76.3p. I’ve since bought a scrap back at 64p, leaving me short of a fiver. I’m not sure about this one; at 68p it could be a screaming buy, but the price action seems to be following the pattern of Northern Crock, Bungle & Bodgit and RBS.

The Eurozone still looks to be falling apart at the seams. Today, Spain lost its treasured AAA credit rating, following last week’s downgrading of Greece. And over the weekend an ex-official from the Irish central bank called for the Emerald Isle to threaten withdrawal from the EU unless it’s owners, France and Germany, bother to lend a helping hand. Like I mentioned in last week’s blog (Around The Forex World In 12 Days) whichever way you shake the tin, it doesn’t look good for the Euro.

This week sees CPI and GDP releases in the UK and a big step-up in US corporate earnings reports. Check out what’s coming up in the Weekly Wrap.

And finally, we have one last copy of Harriman’s Money Miscellany to give away. As this week is likely to be about one man this competition has an Obamarama theme. All you’ve got to do is guess the level of the Dow when President Obama finishes his inauguration speech tomorrow. As usual, the prices will be as per paddypowertrader’s screen and nearest the bull will win. I’ll get the ball rolling with a wayward 7950.

Happy Trading

PS. If you’re going through a tough time with your trading, watch BBC2 at 9.00 to see how bad it can get with Million Dollar Traders.

 

[Mr Spread Better]

Sterling Hits 7-Year Low Against The Dollar

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Once again UK officials managed to put the skids under Sterling. The Pound smashed the 7-year low against the Dollar and hit an all-time low against the Yen.

I’ve said before that, even if they deny it, it suits the UK’s men in charge to have a lower currency. The usual depreciation downside, higher inflation, isn’t the number one worry, but a lower exchange rate to help what’s left of its export sector would do nicely thank you.

And what better way to give a green light to the forex market than to combine a multi-billion giveaway with a request for the banks to say just how much mess they’re really in? So on the day that RBS hinted that it had lost more than any UK company in history, the Prime Minister admits that he hasn’t a clue just how bad things are!!! Interesting to note that 93% of the open positions on the paddypowertraders Home page are long GBPUSD. After a 600-pip drop from 5 0′clock yesterday, that could be a canny move.

On the trading front I’m still short of FTSE and Lloyds, but yesterday’s short bet on EURUSD was stopped out at $1.3156 (boy does that look a long way off now!).

This morning I added a £2 short bet on HSBC at 508.4. The price had been holding up well, relative to the other banks, and this morning provided a golden opportunity to short the opening rally. Doing the school walk meant that I missed the best prices, but I’m happy enough with the position.

But the real earner was another short bet in GBPUSD. I thought I’d missed the boat as the rate was already 200-pips lower by 7 o’clock, but once the break below $1.42 was confirmed I sold £5 at $1.4181. As usual I closed out part of the trade for an early profit, buying £3 at $1.4156, but resisted the urge to deal again until the break below $1.40. I reckoned that area might put up some resistance so bought back £1 at $1.3996 and trailed my stop down to $1.4021 where I was hit later on. But that’s OK; the trade put £400 plus in my back pocket, leaving me with just my short equity bets to manage this afternoon.

Hey! Check out the Lloyds price. Does some-one know something there? It’s just gone 38p bid. HSBC is holding up well at 496p-perhaps benefiting from switch activity. I’ve just closed out some of my Lloyds short at 40p and sold some more HSBC at 490p. And I’ve just closed out my FTSE short at 4115 in case there is an Obama rally this afternoon. There shouldn’t be as that’s far too predictable, but you can never tell with the Americans. If we get a decent rally I’ll be looking to put my short back on again.

Don’t forget this afternoon’s Obamarama competition; if you haven’t entered yet, we’re looking for where you reckon the Dow will be when Obama finishes his inauguration speech. Nearest the bull wins our last copy of Harriman’s Money Miscellany.

Enjoy the speech, and happy trading

 

[Mr Spread Better]

New Lows For Britain

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Growth in the UK, or rather the lack of it, was even weaker than expected. Traders ignored a dubious rise in retail sales and sold Sterling down to yet another new low. Equities are pushing ever closer to November’s lows.

A lighter day on the trading front so far; I had to see a man about a car so missed the early Dollar strength. When I got back I didn’t fancy selling Sterling at a multi-year low, and buying it would have been spitting into a very strong wind. The US session usually offers between 80 and 160 pips on a quiet day so I’m sitting back with my charts and watching to see which way the US folks go.

Yesterday, late trading saw EURGBP crash through my tidy uptrend line (featured in Equities Fail To Hold Gains), but by this morning normal service had resumed with a new recent high at £0.9472.

I closed out my FTSE short late yesterday purely because I didn’t fancy much exposure to the vagaries of overnight markets. It was the wrong move, but that’s OK; I’d locked in a profit and my short bets in Lloyds and HSBC are showing small gains this morning. My exposure isn’t much, but I still need to decide whether to close them out ahead of the usual weekend banking headline lottery.

Hey, check out this chart and see if you get as irritated as I did:

I trade FTSE regularly, but I’m a simple bloke and recently most of my attention has been on the forex market (my missus will tell anyone that I can’t multi-task). I’ve been trading FTSE on the short side, but not with the determination, or size, that I used so successfully in the autumn.

But this chart makes it look so simple; when the index rises up to the downtrend line, sell it. Go and have a shot of caffeine then come back and book your profits! So, what’s the chart telling me now?

Two things:

1) I should look to sell any rally up to the 4050 area (although there’s room for a rally up to 4100 on today’s candle). Of course it’s only a chart, and charts do go wrong so I wouldn’t blindly sell there, but I would watch the test of the trend line and sell on a failure to hold above it.

2) So far FTSE has found support at the 3950-4000 area. A lot of the clever people are targeting a break of 3953 for full speed ahead to November’s lows. Oh, and something else worth watching out for is the weekly close on the S&P 500. In Wednesday’s blog (Sterling Rout Continues)I highlighted the break below key support at 812. The pre-open price is 811 so it should make for some interesting trading.

With GE’s results out the way there’s no data out from the US today.

Happy Trading

 

[Mr Spread Better]

Bumper Day For Banks And Sterling

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Sterling defied a barrage of negative press stories to rally against both the Dollar and Euro. A relief rally in banks pushed my FTSE short deep into the red.

Whenever a chart looks ‘irritatingly simple’ beware-or you might get caught out like I did. And I made matters worse, not only by trading, but by trading badly. Instead of just selling the rally at Friday afternoon’s high I waited for my mechanical trigger and by the time the green light flashed the FTSE index had fallen to 4030. I sold £3 at 4033; a trade which is now covered in red ink.

In fairness, I could have taken a small profit in pre-trade this morning, but took the lower market as confirmation that the sell-off remained in place. As Julia Roberts once said, “Big Mistake, Big Mistake.” I’m currently about £250 in the red on that trade and a touch more on what’s left of my bank short bets (luckily I took a nice turn on the HSBC bet on Friday).

This is a huge week for US earning reports (check out the Weekly Wrap for details) so I’m not looking to panic out of my trades on a Monday rally. However, the US missed a trick on Friday, allowing the S&P 500 to close above the key 812 level; despite dropping below the line during the day, support has continued to stand up and look strong:

Surprise of the day must be good old Sterling. Another weekend of negative press (Darling plans another rescue, MPC member says rates should head for zero, biggest fall in house prices since 2001, yeah, yeah, yeah) saw a predictable sell-off in early trade. I can count my blessings that I didn’t join in, but my discipline paid off. I didn’t want to press the button until my MACD indicator confirmed the moving average crossover. No confirmation, no trade; not long afterwards Sterling bounced, taking out a couple of resistance levels to boot.

I was happy to let the school walk/gym combination get in the way; my trend indicators still have Sterling heading south so I wasn’t too keen to open a counter-trend bet so early in the week. But an hour and a half later, with GBPUSD just breaking $1.38, I decided to push the button. My indicators showed that I was late to the party, but had scope to come away with a result.

I paid $1.3803 for a £5 bet and took a £50 profit out of the trade, but the usual rush to bring my stop loss up for a profit meant that I missed out on the bigger gains. That’s OK; for me it’s too early to call a change of direction in Sterling, so I’m happy to nibble away at the smaller trades.

Update
Interesting that traders tried to take GBPUSD down at the US open (1-1.30pm) but the break below $1.38 aroused as much interest as a Gordon Brown press conference. It looks a tempting buy, but I’m going to be off the desk for a while so I’ll leave it and kick the cat later when I return to a higher level.

On a similar theme, equities look to have ignored the early negative earnings releases, FTSE lacking sellers below 4100. I can’t bring myself to buy the market but can expect a bigger loss on my short when I return.

Happy Trading

 

[Mr Spread Better]

IFO Numbers Fail To Spark The Euro

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The Euro found few friends despite better than expected IFO numbers and lost ground against the Dollar and Sterling.

I had to work hard this morning to pay for my toilet rolls and Weetabix; plenty of trades but no big winners. I’m still running my short FTSE bet, along with short bets in Lloyds and HSBC, and, yes, they’re still covered in red ink. Last night I traded the Dow in both directions for a bit of beer money, but I’m trying to break my relationship with the evening session in favour of a bit of family time.

Today’s trades focussed on Sterling, mainly because it showed slightly more sign of life than the equity markets. But it’s been damned tricky because the short charts are showing a positive trend, but scaling back to the daily chart still has it in a miserable downtrend. Also, one of the factors driving Sterling higher is the supposed return of risk appetite. As I don’t reckon the risk appetite is sustainable I shouldn’t get too bulled up on Sterling. Looking at today’s chart I don’t think I’m alone in wondering what to do next.

The day’s range has struggled up to around 215 pips, but check out the chart:

There’ve been a few trades in both directions, but by the time part of the move has been used to confirm the direction (ie breaking the moving average), and part of the move has been taken up by a retracement to the trailing stop loss, it wasn’t a day for ’sit back and watch’ trades.

My winning trades came from going long of GBPUSD early on, then changing direction with the chart and shorting the Pound. I sacrificed part of my winnings to the trading gods with an unsuccessful trade in EURGBP. I bought EURGBP at £0.9363 after support at £0.9350 appeared to hold. I placed a tight stop at £0.9340 in case support broke. Unfortunately it broke just long enough to close me out before pushing ahead as my trade had planned.

I made the ultimate sacrifice to the trading gods this morning; I traded in gold. Regular readers will be well aware of my trading record on gold (I’m King Midas’s poor cousin). Gold looked to have held the $900 support with enough conviction yesterday so, with the Dollar going weak at the knees, I thought a small purchase of bling at $906 was reasonable.

It might have been reasonable, but it was poorly timed and has languished in the losers’ corner all day with a stop loss at $890. I’m still in there, but not booking a holiday on the strength of that trade.

Update
OK, so after the mother of dull afternoons GBPUSD threw a neat dummy to send me short at $1.4034 then rallied hard. I took a bloody nose, closed the trade for £100 loss and went long to recoup nearly the full amount. Hmm, that’s trading.

Don’t forget tonight on BBC2 it’s the final instalment of Million Dollar Traders (even better at 10 o’clock there’s a new series of Shameless).

Happy Trading

 

[Mr Spread Better]

Bad Bank Gives Shares A Boost

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How much further will equities travel before they arrive? The ‘Big Bad Bank’ talk has worked wonders for ailing banks around the world, but how will equities react when the facts are announced?

The rally’s a bit perplexing (what with short bets on FTSE and a couple of banks), but there are several factors driving the move. The obvious one is the ‘Bad Bank’ talk and, in percentage terms, it’s given one helluva kicker to the banking sector. Also, speculation over what could come out of tonight’s FOMC meeting is adding to the purple haze.

Given that the Fed hasn’t got any interest rates worth talking about, it’s thought they might announce details of their Quantitative Easing plan. And if you’re wondering what the hell that’s all about, Moley wrote a great piece about it in December.

And to finish off the bull casserole add a sprinkle of month-end adjustments. But, especially in the US, the January month-end is more peso sauce than a touch of basil. The S&P provides added interest as US folk-lore has it that January’s performance determines life for the rest of the year; if January’s up, it’s a bull year; if it’s down, put on your bearskins.

At the moment the S&P is fast-tracking at 866; it’s target to break-even is around 894 and I reckon there are plenty with a vested interest in seeing the market above there.

But what of next week? With the month-end out of the way and Obama unwrapping the nation’s present to itself, what’s there to look forward to? Yeah, it might be the start of the brave new world, but we’ve seen that a few times before over the past year.

This morning George Soros lent an uncharacteristic helping hand to Sterling. Having presumably made another fortune selling Sterling he reckoned that the risk of shorting below $1.40 was too great. Cheers George.

I’ve made 4 bets on Sterling today; all long, and guess what? If I’d run my first trade of the day with a wider stop then the others wouldn’t have been necessary. But each trade was a winner, and I quite like the practise of spotting entry levels. My gains were a modest £200, but so long as the numbers are in black, not red, I’m happy. Sterling could have a testing few days; the GBPUSD rate is approaching resistance in the $1.44-1.4450 area.

Quite a few of the clever guys are marking this as the end of Sterling’s glorious run and a return to the serious business of disappearing down the toilet. But, if this level is broken and held then (Wahey) up we go to the 50-day mav at $1.4750.

No surprises, my gift to the trading gods ran to form. My gold trade was stopped out this morning for a £160 loss. If ever I trade in gold again, take notice. Trading against me is the safest bet you’ll get!

Happy Trading