Daily Market Forecast by Capital Trust Markets

[CapitalTrustMarkets]

Daily Gold Technical Outlook

Technical outlook and chart setups:

1. Gold has been moving as per expectations for now. It has paused at $1,310.00 for the moment, breaking down the line of support as seen here. A sharp rally is expected into the $1,360.00/70.00 region from here on, before reversing lower. It is recommended to go initiate short positions between $1,360.00/65.00. Risk remains at $1,388.00.

2. Immediate support is at $1,230.00/40.00, followed by $1,210.00 and $1,180.00, while resistance is at $1,360.00 (the Fibonacci 0.618 of the fall from $1,388.00 to $1,310.00), and followed by $1,388.00 respectively.

3. The structure reveals that Gold is poised to fall into the $1,250.00 region in a corrective counter trend from here on. Trading opportunities are to go short first around $1,360.00 mark and then long around $1,258.00.

Trading recommendations:
Sell between $1,358.00/$1,362.00, stop at $1,388.00, and target $1,260.00.

 

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Daily Silver Technical Outlook

Technical outlook and chart setups:

1. Silver pullback looks to be complete. As seen here, the metal is trading at sub $20.00 levels, which is coincided by the Fibonacci 0.618 support. Also, past resistance turned support around the same lines. A bullish reaction is expected here, which would confirm that the intermediary downswing or the counter trend from $22.30 is complete in 3 waves.

2. Immediate support is at $19.00/50, followed by $18.75 and lower, while resistance is at $21.70/80(intermediary), followed by $22.10(intermediary) and $23.00 respectively.

3. The structure reveals that Silver should resume rally any time from current levels. Only a break below the line of support passing through the $19.30/50 region at present should be a reason to worry.

Trading recommendations:
Remain long, stop at $19.25, and target open.

 

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Top 3 reasons why most currency traders lose in forex market

Currency trading is considered one of the most profitable but risky modes of investment. The total volume of the forex market has been exceeded the whopping $5.3 trillion figure. Unfortunately, many (mostly beginners) in the forex market lose money and aren’t able to earn consistent earnings over a long period of time. There are some basic reasons why mostly new traders lose in the currency market, let’s discuss a few of them.
Greed / Lack of Planning
The first and the foremost reason for failure is greed. Mostly newbies want to become rich overnight. They lack in planning and ignore the golden rule of trading that is “plan your trade and then trade your plan.” Panic is common in such traders, they often close their trades in low profits and high loses.
Lack of Knowledge
Mostly unsuccessful traders lack in fundamental and technical analysis. They don’t know how to insert trendlines, Fibonacci levels or other technical indicators; such traders mostly trade on news when relatively high volatility is observed in the market. Similarly, they also fail to understand the macroeconomic and geopolitical situations. So lack of knowledge is the second most common reason for failure in the market.
No Money Management
Many newbie and unsuccessful traders also know nothing about the money management. They would often be seen risking more than 50% of their entire investment which is totally an insane approach. On the other hand, a seasoned and successful trader never ever risks more than 1% to 5% of his/her total investment.
Overtrading
Overtrading is also a common trait of unsuccessful traders. They usually trade more than 10 trades a day with each trade ending up on small profits or high losses which is obviously a bad approach for trading. Conversely, a successful trader usually place only 3-4 trades a week with an aim of getting substantial profits. So overtrading is another major reason for failure in the foreign exchange market.
Conclusion
Traders lose money in the forex market mostly because of their own mistakes; however, some other factors such as scams from the brokerages or high slippage could also be responsible for big losses. So it is always wise and recommended that adopt diversity in your investment i.e. maintain more than one trading accounts and invest in more than one assets. Higher the diversity, lesser will be the chance for losses.

 

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Head And Shoulders Hints At Long Term EURAUD Reversal

Mixed data out of Europe has traders eyeing the validation of a four-month classical pattern in the EURAUD, with potential completion catalysts scheduled as the day matures.

Background

A month long period of consolidation aside, the pair sustained a relatively steady uptrend throughout the majority of 2013. The trend looked set to continue on January 2014 action, but an end of month high at 1.5829 catalyzed a correction to January lows at 1.5028. The situation in Crimea put pressure on the Euro towards the end of February and throughout early March, and a lackluster Euro performance found resistance at December highs of 1.5535.

This highlighted a potential head and shoulders pattern, and a spate of disappointing data from Europe during the last two weeks has driven the EURAUD to just shy of the pattern's neckline at 1.5021.

Potential Catalysts

A couple of key speaking engagements could potentially catalyze a break below the neckline, and a validation of the pattern, on Tuesday afternoon. The first sees ECB President Mario Draghi address Eurozone monetary policy at Sciences Po in Paris. Draghi has already highlighted the fact that low inflation is a danger to the Eurozone earlier this month, and any hint of a dovish tone could spark a Euro selloff on fears of an interest rate cut.

As the Draghi speech completes, Deutsche Bundesbank President Jens Weidmann is set to speak at the Foreign Press Association in Berlin. Weidmann, who places less importance on inflation levels that his ECB counterpart, is known to be averse to any rate cuts. With this in mind, his tone is far from likely to be dovish, but any hint that inflation may cause trouble for some of the weaker economies during the coming months could compound a Draghi-driven selloff.

Targets

A pattern completion would serve up a standard head and shoulder target at 1.4215, but certain external fundamentals suggest a more conservative approach might warrant consideration. Traders will be well aware of the concerns in Australia over a Chinese economic slowdown, which may pare the downside momentum in the EURAUD.

For this reason, an initial target would be at a confluence of key support and the 200-day moving average at 1.4747. A close below this level would validate a longer-term trend reversal, and offer up a target of 2013 resistance at 1.4527. Beyond that, look to the aforementioned head and shoulders-inferred target at 1.4215 to complete the trade.

*****
Prepared by Samuel Rae - Chief Currency Strategist at Capital Trust Markets

 

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Good Things Come To Those Who Wait

You've formulated a strategy, mastered your risk management principles, spotted a potential trade and pulled the trigger. All of a sudden, the market turns against you and you watch as your stop gets taken out. Sound familiar? Every trader has been in this position. However strong a bias your analysis suggests, there will always be times when the market proves you wrong.

Wait For Confirmation

Successful traders quickly pick up on the fact that there is a simple way to reduce the number of times this happens: wait for confirmation. High up on the list of the most common mistakes that traders make is jumping into trades without confirmation of their bias.

An Example

As an example, consider a swing trader watching a range. She sees the pair break out of the range, and enters a trade. This seems reasonable, until you consider that the vast majority of breakouts are false, in that they quickly reverse and close back above or below range support or resistance.

So what is confirmation? Confirmation simply means waiting until price action confirms your bias. The confirmation itself will differ from strategy to strategy, but as a general rule, wait for the candle you are watching (on whatever timeframe your analysis relies) to close above or below the level you have identified. Sticking with our swing trader, if every time price broke through range resistance she waited for a candlestick close above the level before entering, it would completely remove the risk of false breakouts. The same concept can be applied to a long trade at range support; wait for a price to reach support but close beyond it, and you have confirmation.

An Important Point

One thing to bear in mind is that, as with most technical concepts, this confirmation rule works better on the higher timeframes. A breakout may look to be confirmed on a 30-minute timeframe, but fast forward to the close of the day and the breakout is no longer valid. Having said this, there will generally be many more false breakouts on the lower timeframes; so proportionally the benefit from applying a confirmation rule to your strategy is not all that different from a 1 minute to a daily chart.

The famous phrase states, "Good things come to those who wait," so why not try it and see?

*****
Prepared by Samuel Rae - Chief Currency Strategist at Capital Trust Markets

 

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Identifying long-term trends with Moving Averages

Moving Averages are considered reliable indicators for the identification of medium and long term trends. Traders mainly use three strategies relating to the moving averages that include;

• Single Moving Average
• Double Moving Average
• Triple Moving Average

Let’s discuss each one by one.

Single Moving Average

In this strategy traders use single MA which acts as the support and resistance level. Normally 50 MA, 100 MA or 200 MA are used for this purpose. In a bearish market, the MA acts as the critical support level while in a bullish market the same MA will act as the critical resistance level. 200 Daily Moving Average (DMA) is considered as a long term pivot zone among the traders.

Double Moving Average

In this strategy two MAs are used to generate signals for potential buying or selling opportunities. Traders make use of double moving average or two moving averages to find the crossover.

For this purpose, usually a faster moving average (50 MA) is used in conjunction with the slower moving average (200 MA). A long position should be opened at a point when the 50 MA crosses and comes above the 200 MA. Conversely, a short position is preferred when 50 MA crosses and comes below the 200 MA.

Triple Moving Average

In order to generate signals on the basis of 3 moving averages, the traders need to Insert 10, 20, and 30 or 7, 14, and 21 day Simple Moving Averages. Every time when the fastest moving average (7 or 10 SMA) crosses medium moving average (14 or 20), it is considered as an alert signal for possible trend change, but at this point traders usually don't take any action.

A bullish signal is generated every time when the fastest moving average i.e. 7 or 10 SMA crosses to come above the slowest moving average i.e. 21 or 30 SMA and traders tend to open long (buy) positions at this point. A bearish signal is generated every time when the fastest moving average i.e. 7 or 10 crosses to come below the slowest moving average i.e. 21 or 30 SMA and traders tend to open short (sell) positions at this point.

Conclusion

Moving Averages are considered fast and reliable indicators for the change in trend however they must be used in conjunction with the other technical tools such as trend-lines, fibo levels, CCI or RSI. Moreover, fundamental events as well as the overall macro-economic scenario also need to be monitored carefully.

 

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Will NZ Trade Data Overlook The Longer-Term Bias?

On Wednesday evening, just after US close, Statistics New Zealand will report the nation's latest trade balance data. The report comes off the back of considerable strength in the NZDUSD, fueled by the interest rate hike earlier on in the month. Better than expected data could compound the bullish bias in the pair and carve out highs not seen since 2011, but this scenario is from a certainty; here's why.

To start with, let's take a look at the interest rate hike. The RBNZ boosted rates from 2.50% to 2.75%. The accompanying statement hinted at a sustained policy of hikes throughout the year, saying, "In this environment it is important that inflation expectations remain contained. To achieve this it is necessary to raise interest rates towards a level at which they are no longer adding to demand. The Bank is commencing this adjustment today."

The word commencing makes the NZD hot property. In effect, the RBNZ has beaten the Fed to the punch, and in doing so, offered up a medium term bullish bias in the pair.

However, Wednesday's trade balance data could draw attention to a potential tripping point in the aggressive tightening policy - China. A recent spate of Chinese data has highlighted the potential a Chinese economic slowdown, a scenario that could have long-term repercussions for New Zealand.

The NZ government has taken steps towards reducing the nations dependency on China, with the latest being a potential free trade deal with the EU, but two way trade between the economies continues to swell. Targets set by NZ Prime Minister John Key and China's President Xi Jinping suggest two way trade at $30B by 2020, versus just $18B last year. With these figures in mind, it is easy to see how combination of higher interest rates, increased dependence and a dip in import demand from China could override the short to medium term bullish sentiment in the NZDUSD.

This is a long-term situation however, and the market will likely overlook the overarching fundamentals as we head into the release. Consensus suggests a trade surplus of 600M, almost double the previous release at 306M. A better than expected release would validate a retest of 0.8630 resistance, and could catalyze fresh NZDUSD highs. Such a situation would put 2011 highs just shy of 0.8839 on the radar as a potential upside target.

Conversely, a downside miss might draw attention to the above scenario, and could potentially reverse sentiment. In this situation, look to in-term resistance at 0.8513 as an initial target. A close below this level would hint at further downside, with a secondary target at 0.8469 and, beyond that, January resistance at 0.8390.

*****
Prepared by Samuel Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Three Psychological Traits Of Successful Traders

One of the key factor in the success of any trader is psychology. Many beginner traders put together a winning strategy, yet fail to achieve long-term profitability as a result of poor implementation. There a number of key traits every successful trader has, and most unsuccessful traders lack, that cause enable consistent facilitate consistent strategy implementation, and in turn, long-term success. Never fear however! These are traits that, with practice, nearly anyone can learn. Here are the three most important to get you started.

Trait Number One: Patience

Every trader needs patience. Why? Because the market does not work itself around your schedule. Think about it – what are the chances that the exact moment you load up your charting software is the right time to enter or enter a trade? Almost nonexistent. More likely is that you will need to wait for a pattern to develop, or price to reach a trendline; or on the other side of the trade, price to hit your profit target. Impatient traders will both enter and exit trades too early. This leads to unnecessary losses and missed profits; two sure-fire paths to a blow up.

Trait Number Two: Faith

This sounds a little preachy, but every trader needs to have faith in two things: themselves, and their strategy. Having faith in yourself is important because you need to trust your analysis. If you are always double guessing a bias you have formed, and the your reasoning behind it, you will end up never being able to pull the trigger on a trade. This will lead to missed opportunity. Having faith in your strategy is equally as important, as it allows to you follow its rules without questioning them. A profitable strategy is only profitable over the long term, and only if its rules are maintained. Changing just one part of a complex approach will alter its outcome. Think butterfly effect.

Trait Number Three: Humility

Humility is important, mainly because it allows you to remain objective. It is important to realize that the market is always right, which by definition means that you are not. The quickest way to rack up losses in the market is to allow previous losses to influence your decisions. If you chase profits after a string of losing trades, you will inevitably make bad trading decisions, and these decisions will hamper your long term profitability. There is no reason to feel bad if you lose, every strategy loses; you should only feel bad if it came about as the result of an emotionally driven trade.

******
Prepared by Samuel Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

USD/JPY slides down ahead of Japan’s inflation report

US Dollar (USD) extended downside movement against Japanese Yen (JPY) on Thursday despite an upbeat durable goods report yesterday, the focus has now been shifted to Japan’s National Consumer Price Index (NCPI) which is scheduled for release today.

Technical Analysis

USD/JPY is being traded near 101.85 at 3:15 GMT in Asia. Immediate support may be seen around 101.85, the 23.6% fib level, ahead of the channel support which is currently standing near 101.27. A daily closing below the channel support shall push the pair into deeper correction, opening doors for 99.42, the 50% fib level.

On the upside, the pair is expected to face hurdle near 102.49, the 38.2% fib level, before the 103.00 handle that is the channel resistance as demonstrated in the above chart. A daily close above the channel resistance will be required for further upside movement towards the 105.00 milestone.

Japan’s Inflation

The Statistics Bureau of Japan is due to release the inflation report today. The CPI –a main gauge for inflation—rose to 1.5% in February as compared to 1.4% in the month before, the median projection of various analysts says. Generally speaking, a high CPI reading is considered good for an economy and vice versa.

Durable Goods Report

Sales of durable goods in the US jumped unexpectedly by 2.2% last month as compared to 1.1% decrease in the month before, analysts were expecting an increase by 1% due to bad weather. The data showed the strength of growth in the world’s largest economy. USD/JPY however shrugged off the data and closed yesterday in the negative territory, indicating considerable downside risk.

US Growth Data

Today the commerce department of the US is scheduled to release the Gross Domestic Product (GDP) figure for the fourth quarter. The economy grew at 1.6% in the previous quarter as compared to 2.0% in the quarter before, the forecast says. The GDP however rose to 2.7% in last quarter as compared to 2.4% in the same quarter of the year before, the forecast added. Better than expected GDP report will be seen as bullish for USD/JPY and vice versa.

Conclusion

A breakout through the daily wedge will provide USD/JPY a clear direction. The pair might test the 100.00 handle if Japan’s inflation rises more than expectations.

********
Prepared by Usman Ahmed, Chief Fundamental Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Market Review and events to monitor (Mar 27, 2014)

European markets are likely to open lower on Thursday following weak global cues. U.S. stocks slumped on Wednesday after President Barack Obama warned the crisis in Ukraine may escalate. Speaking in Brussels, Obama warned against complacency on Russian moves in Ukraine, and said Russia’s actions must be met with condemnation. IMF and Ukraine held bail-out talks on Wednesday as the United States and its European allies warned they’ll further penalize Russia if it escalate tension in the region.

After market close, the U.S. Federal Reserve announced the outcome of its yearly stress tests of the country's 30 largest lenders. Citigroup Inc (NYSE:C) had its capital plans rejected by the Federal Reserve, which noted that the bank did not make sufficient progress in improving risk-management and control practices. The Fed, which for the first time subjected three foreign banks to the annual test, barred the U.S. units of London-based HSBC Holdings plc (LON:HSBA), Spain’s Banco Santander, S.A. (BME:SAN) and Royal Bank of Scotland Group plc (LON:RBS), from paying increased dividends to their parent units and said they would have to resubmit their capital plans.

U.K. Retail Sales (YoY) (February)
Retail Sales in the United Kingdom grew by 4.30 percent in January of 2014 compared to the same month in the previous year. Retail sales data for February will be released by the Office for National Statistics at 09:30 GMT. Economists expect sales to have grown by 2.5 percent in February from a year earlier. The retail sales release is an important gauge of the health of the overall economy and often moves markets upon release.

Asian markets down
Asian markets fell on Thursday following a late decline on Wall Street. Japanese stocks slipped in trade largely due to the yen rising overnight. Also, most blue chips begin trading ex-dividend today, adding pressure on the benchmark Nikkei, which is hovering around the strong support zone of 14,203, a break of which could trigger a slide to 14,000. Investor sentiment was also cautious ahead of the sales tax hike next week, which is expected to negatively impact consumer spending. Australia's benchmark S&P ASX 200 dropped sharply amid declines in big mining stocks. Chinese mainland shares also extended their losses on Thursday. Investor expectation about possible stimulus from the Chinese government had been supporting Asian stocks in recent sessions, but those expectations are starting to fade given the lack of any concrete steps.

Gold up; Oil near one-week high
Gold prices rebounded from a six-week low as weakness in equities boosted the metal's safe-haven appeal. Gains were however kept in check by a second successive day of outflows from gold funds. SPDR Gold Trust, the world's largest gold-backed ETF, said its holdings were down 1.80 tons to 816.97 tons on Wednesday. WTI Crude traded near its highest level in a week as crude stockpiles at Cushing, Oklahoma, the main U.S. oil storage hub, fell for an eight straight week to the lowest in two years. Cushing stockpiles fell by 1.33 million barrels to 28.5 million in the week ended March 21, according to the Energy Information Administration.

Euro struggles
The euro hovered near recent lows against the dollar following comments from ECB officials that rekindled speculation that the central bank may launch fresh monetary stimulus measures to stave off potential deflation. The prospect of further easing was revived after Bundesbank chief Jens Weidmann said on Tuesday that the central bank could exercise several options to temper the currency. The euro hit a two-week low against sterling in early trade, while against the yen, the single currency touched a three-week low of 140.28 yen, a level last seen before this month's ECB policy meeting.

 

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Understanding Bollinger Bands, Parabolic SAR & Stoch

Bollinger bands indicator is one of the most famous and widely used tools among currency and stock traders. The indicator is particularly well-known in scalpers who keep their trades open for just a short period of time. Similarly, Stoch and Parabolic SAR are also reliable tools for confirmation of the trend signaled by Bollinger bands.

Bollinger Bands

Bollinger bands comprise of three bands, lower Bollinger band, upper Bollinger band and middle Bollinger band. Middle Bollinger band is nothing but a 20-day Simple Moving Average (SMA), upper and lower Bollinger bands are of main significance.

A bullish reversal is expected every time when the price hits lower Bollinger band, whereas a bearish reversal is expected when the price touches the upper Bollinger band.

In addition to potential reversal, Bollinger bands also show the level of volatility in the market. Market is less volatile when Bollinger bands are squeezed and vice versa.

It is pertinent that one should not rely solely on the Bollinger bands for decision making, technical indicators are always effective when they are used in conjunction with other tools particularly Fibonacci levels and trendline.

Parabolic SAR

SAR refers to “Stop And Reverse”, it is another one of the most famous technical indicators that foresees potential reversal in price pattern. Traders tend to open buy position when Parabola SAR dots are below the price line, whereas selling is preferred when the SAR dots are above the price line.

In the end, it must be noted that all the technical indicators work fine when the market is trendy, they all fail to produce reliable signals in range-bound market.

Stochastic

Stochastic is another very useful technical indicator which measures the momentum of the price. Stochastic is plotted on a scale ranging from 0 – 100. Traders tend to look at Stochastic readings over 80 as an indicator of a market that is overbought or ready for a downturn, readings under 20 as being market oversold or about to have a reversal/uptrend and neutral at 50 reading. It is however pertinent that the Stochastic as an oscillator does not indicate the highest and lowest price level. It is usually used as a guide/ estimate in conjunction with other parameters.

Conclusion

An ideal trade setup should be based on trendlines, Fibonacci levels, and confirmation through the technical indicators such as Bollinger bands, parabolic SAR, RSI, CCI etc. Opening a buy or sell entery solely based on a single technical indicator might not yield reliable signals.

 

[CapitalTrustMarkets]

USD/JPY: Trading Japan’s Industrial Production Release (March 28, 2014)

USD/JPY is trading in a tight range for now, as traders await the release of more top-tier data from Japan and the implementation of the sales tax increase in April. Before the Asian session starts on Monday, Japan will release its manufacturing PMI and industrial production data for February.

After showing a weaker than expected 2.8% annual increase in industrial production for January, a slight improvement is projected for February. If that’s the case, traders might buy up the Japanese yen in anticipation of less economic downside even if the sales tax is imposed.

Earlier this week, CPI reports have come in stronger than expected, with more than 1% gains seen in Tokyo and on the national level. This confirms the BOJ’s assessment that the Japanese economy is on track to recovery.

A stronger than expected industrial production release might cause USD/JPY to gap lower on Monday, as traders are already starting to liquidate their long dollar positions. Data from the US has been mostly unimpressive, leading many to believe that the Fed isn’t likely to hike interest rates around six months after stimulus ends, as Yellen hinted.

A look at the previous industrial production release shows that the yen sold off when the economy churned out bleak figures. This led to a bounce all the way up to the 103.50 minor psychological handle throughout the week.

Such reaction might not be as strong this time around, as USD/JPY remains stuck in a longer-term range. Traders might take more cues from more US or Japanese economic data before determining a long-term direction for the pair.

 

[CapitalTrustMarkets]

The Importance of Interest Rates (Part I)

The ability to use charts to gain a visual representation of price action is undoubtedly a useful tool, but only if used correctly. For many traders, the visualization takes too much focus away from the underlying markets and what drives them. Traders that do not fully understand the mechanics of the currency markets are exposing themselves to unnecessary risk, so here's a quick primer on the most important fundamental concept in the industry – interest rates.

What are interest rates?

In this context, the term interest rate refers to the base rate set by a central bank. Banks and other financial institutions use this base rate to set their own interest rates on the money they lend to consumers and businesses.

Why are they so important?

Interest rates are important for two main reasons. The first reason, the more direct reason, is that the rate represents the return for holding a currency. When a trader buys AUDUSD for example, she receives interest equal to the Australian base rate on her holding. Why not just buy and hold a currency with a high rate then? Logically this seems to make sense, but in reality, value fluctuations often negate any interest rate return. The second reason is that they are the principal monetary policy tool used by central banks. At their core, central banks have just one main task – to control inflation. Most central banks use interest rates to do this. Not all–the monetary Authority of Singapore, for example, buys and sells its domestic currency in the open market to control inflation– but most.

How does this work?

Say, for example, US CPI data suggests inflation of 5%. The Federal Reserve would likely view this as too high (generally, a central bank will target 2-3%), and so would raise interest rates. Higher interest rates make borrowing more expensive, which dissuades both businesses and consumers from spending. Reduced demand creates a reduced supply requirement, and output slows. Reduced demand and reduced supply slows inflation. Conversely, if the Fed felt inflation was too low, it could cut the base rate to stimulate borrowing, consumption, output, employment and, in turn, economic expansion.

 

[CapitalTrustMarkets]

Six Degrees of Separation (The Importance of Interest Rates Part II)

If you've heard of the six degrees of separation concept, this part will be much simpler to understand. For those that haven’t, it is the theory that everyone in the world is linked by no more than six people, by means of introduction. Interest rates are similar, in that they provide a common link through which all core economic indicators flow. The key thing to understand is everything comes back to interest rates, and interest rate expectations. Every market reaction to every piece of core economic data represents the market's perception of future interest rates. Take any piece of core data, however obscure, and work through the economic principles to which it relates. Every time you will come back around to interest rates.

An illustration

To illustrate, consider the durable goods figure. The figure represents the change in the value of orders placed for goods that have a relatively long life (generally, more than three years). Things like white goods, office furniture and machinery all count as durable goods. Herein starts the chain. An increase in durable goods orders will lead to an increase in production; an increase in production will lead to an increase in employment; an increase in employment will lead to an increase in household income and, in turn, consumption; increased consumption will lead to rising prices, or inflation. And here we go…inflation leads to the federal reserve raising interest rates to maintain sustainable growth.

So, when a trader spots a better than expected durable goods order they run through this process in their head. They then buy the USD on the assumption that the Fed will raise interest rates in the near future.

Let's do one more. The same trader watches the market as the US Department of Labor reports its latest initial jobless claims figure. She knows the figure is forecast at 300,000, yet the release comes out at 320,000. What should she do? Well, initial jobless claims refers to the number of people who filed for unemployment insurance for the first time during a period, normally the week preceding the data. So, a higher figure suggests an increase in unemployment. Increased unemployment leads to lower disposable household income, which leads to lower consumption. Reduced consumption (demand) leads to either excess supply, and in turn, reduced output. Excess supply leads to a reduction in price (deflation), which the fed counters with lower interest rates.

So, what does our trader do? She sells the USD on expectations of reduced future rates.

A final note

All said trading forex is one thing, understanding what moves markets is another. Yes, technical analysis can greatly improve entry and exit accuracy, as well as offer insight into the direction of a currency. What really drives the value of a currency however, is the condition of the economy it represents, and the effect that these conditions have on a central bank's monetary policy decisions. Some people choose not to let fundamentals influence their trading, and to trade solely from the charts. This is fine, of course. Many very successful traders trade this way. Just make sure that, if you choose to, you don’t forget what those candlesticks represent.

 

[CapitalTrustMarkets]

GBP/USD threatens channel resistance before key economic releases

GBP/USD threatens channel resistance before key economic releases
Great Britain Pound (GBP) jumped broadly against the US Dollar (USD) last week amid better than expected Core CPI report, the pair is expected to continue the upside movement during the current week, as per technical analysis.

Technical Analysis

GBP/USD is being traded around 1.6630 at 4:15 GMT in Asia. The pair is likely to find support near the 1.6600 handle that is 38.2% fib level and psychological level, ahead of 1.6515 which is the channel support as demonstrated in the following daily chart. A break and daily closing below the channel support could push the pair into deeper correction, exposing 1.6383 and then 1.6250.

On the upside, the pair is likely to face hurdle near 1.6685, 23.6% fib level, before the channel resistance which is currently sitting in near 1.6738. A daily closing above the channel is required for further rallies above the double top pattern.

UK Consumer Credit

The Bank of England (BoE) is going to release the consumer credit report today. According to forecast, the volume of consumer credit rose to 0.70 billion pound in February as compared to 0.66 billion pound in the month before. Better than expected actual outcome will be seen as bullish for GBP/USD and vice versa.

Mortgage Approvals

BoE’s Mortgage Approvals report is also due today. The number of approvals declined to 75.000K in February as compared to 76.947K in the month before, the median projection of different analysts says. Generally speaking, high number of mortgage approvals is considered positive for the housing sector and the overall economy.

Conclusion

An upside breakout through the rising wedge formation might be in play this week if the UK comes better than expectations. In long term, the pair is headed to the pre-recession levels; fresh highs above the 1.6850 are very likely in the near future.

 

[CapitalTrustMarkets]

NZDUSD struggling post ANZ business confidence

NZDUSD traded higher during last week along with AUDUSD, as the market is expecting China to overcome hurdles and increase the prospects of stimulus. The pair climbed to new 2 1/2 year high of 0.8697 last Friday. However, the pair is trading a touch lower today after the release of ANZ Business Confidence.

ANZ Business Confidence
In the Asian session, New Zealand’s business confidence was published by ANZ Bank New Zealand Limited. The report highlighted that net 67 percent of firms are optimistic about general prospects, down from last month’s 71 percent. The market was unhappy with the decline, but the fact remains that confidence levels are still elevated. The report mentioned that the “confidence across all the major subsectors is now north of +50 – that’s a sign of a broad-based expansion, as opposed to an upswing dominated by a few pockets of the economy”. NZDUSD pair traded a touch lower after the release, but the impact should be limited in the short term.

Technical Analysis
NZDUSD extended the upside movement during last week, and challenged 0.8700 physiological level. There is a channel forming on the 4 hour timeframe with resistance around recent 0.8695 high. As of writing, the pair is flirting with 0.8640 support level, which also represents the March 18, 2014 high. This level can hold the downside in the pair for now. A break and close below the mentioned spike level might open the doors for further downside acceleration towards the channel support zone. 50 simple moving average is also moving along the channel support zone, which signifies the importance of channel.

On the upside, 0.8695 and 0.8700 levels remain key resistance area for the pair. If buyers succeed in pushing the pair higher, then a test of 0.8780 level might be on the cards. There is a divergence noted on the RSI, which is an early-warning sign.

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Prepared by Aayush Jindal, Chief Technical Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

All Eyes On Australia As AUDUSD Targets Fresh 2014 Highs

Expect considerable volatility in the strength of the Australian dollar on Monday evening as a host of key events look set to shape a medium term bias in the outlook for the currency.

First on the schedule is the much-anticipated Chinese purchasing managers' index (PMI), slated for release at 21:00 EST. Consensus forecasts the figure at 50.3, a small increase on the previous month's 50.2. Forty-five minutes subsequent to this release, HSBC will release its counterpart figure, with consensus forecasting HSBC manufacturing PMI unchanged at 48.1.

China has as-yet failed to divert investor attention from a potential economic slowdown, with data released throughout the latter half of March simply serving to compound the bearish outlook for the Asian superpower. A downside surprise in either release would cap off a month to forget, and likely serve up some AUD weakness as throughout the Asian session and heading into the European morning.

Australian Prime minister Tony Abbott has done his best during the past two weeks to downplay any claims of Australian collateral damage in response to a Chinese slowdown, but politics aside, the fact remains that Australia relies on China for a majority portion of its export revenues. China also holds large investments in a number of Australia's leading mining organizations, offering up the potential for a decline in sector specific employment in the wake of waning foreign demand.

Shortly after, the spotlight will focus directly onto the Australian economy, as the Reserve Bank of Australia takes the stage to report its latest interest rate decision and its accompanying statement.

Market consensus looks to favor a rise, or at the very least a hawkish statement, suggesting that, for now at least, the RBA is not concerned about any potential Chinese impact. The AUD strengthened versus the USD last week, with the pair posting its biggest one-week rise in two months. The gain broke the pair through its 200-day SMA, suggesting the longer-term downtrend may be weakening.
An interest rate hike (or a hawkish statement tone), coupled with an upside surprise in the Chinese data could carve out fresh yearly highs in the AUDUSD, with a close above in term resistance at 0.9280 validating an initial upside target of September/November resistance at 0.9435.

Conversely, disappointing Chinese data and a dovish statement tone (unlikely) will likely offer up some short-term weakness in the pair. Look for aforementioned resistance to hold and a break towards in-term support at 0.9155.

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Prepared by Samuel Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

The Difference Between Fundamental Analysis And Trading The News

There are many different ways of operating in the foreign exchange markets, and traders should never feel like they are constrained to just one. Some of the most successful traders combine numerous tools and methods to form a personal strategy that works for them. At its most general level however, market analysis and approach can be split into two distinct realms: fundamental analysis and technical analysis. This piece focuses on the former, with the specific goal of differentiating fundamental analysis and news trading.

Fundamental Analysis

Fundamental analysis is all about economics. This, however, does not mean you need to be an economic graduate to apply it successfully. Rather, you just need to be able to understand the impact on certain pieces of data on an economy, and in turn, its currency. Every day, economies all over the globe release pieces of fundamental data, all of which relate to a particular aspect of that economy's conditions.

Fundamental analysts use this data to form a bias as to the outlook of an economy. Say, for example, the UK reports low unemployment. This suggests that, medium term, consumption will increase as a result of higher household incomes. Increased consumption requires increased production, which translates to a rise in GDP. A rise in GDP is seen as positive for an economy, as it often precedes an interest rate hike, which boosts the value of a currency to its holder. A fundamental analyst will see the initial unemployment data, conduct this analysis and form a bullish long term bias in the strength of the UK Sterling. They will then buy a GBP pair, for example the GBPUSD, as a response to this bias.

News Trading

Many traders get confused between fundamental trading and news trading, so let's look at the difference between the two. It's simple really, fundamental traders use data to predict an economy's future outlook. They then take a medium to long term position in a currency, and allow their bias to play out, or not. News traders, on the other hand, enter trades based on surprises.

Say, for example, the same unemployment data mentioned above was forecast at 6.5%, but was reported at 5%. A news trader would still buy the GBPUSD, but not because they expect a rise in UK GDP. They buy the pair because they know the surprise will likely cause some short-term strength in the GBP as traders readjust to the new information. They don't generally care about the long term outlook, then just enter and exit the market to take advantage of the volatility that surrounds surprise releases.

A Final Note

It is important to realize that neither of these approaches is better than the other. A fundamental trader may not possess the quick reactions needed to enter and exit minute-long news response trades. Similarly, a news trader may not have the patience to wait months while the market confirms her bias. Find what works for you, and stick with it. In the end, we are all in the markets for the same reason.

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Prepared by Samuel Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Trading the UK Manufacturing PMI Release with GBP/USD (April 1, 2014)

The UK economy is scheduled to print its manufacturing PMI reading for March in today’s London trading session. A slight dip is expected, as analysts estimate the reading could fall from 56.9 to 56.7 and reflect a slower expansion in the manufacturing industry.



Bear in mind though that BOE Governor Mark Carney recently spoke of higher interest rates for the UK central bank, as the economy continues to progress. This sparked a strong rally for GBP/USD in yesterday’s trading sessions, boosted further when Fed Chairperson Yellen adopted a more dovish stance and admitted that the US labor market could rely on more support.

Also note that GBP/USD has confirmed its long-term uptrend recently, as the pair bounced off a rising trend line on its daily time frame. A stronger than expected manufacturing PMI reading could push the pair to new highs, possibly until the 1.6800 major psychological resistance.

A weaker than expected manufacturing PMI reading might spark a small retracement though. Traders are more reactive to the services PMI, which is up for release tomorrow, since the UK economy relies more heavily on this industry. This means that a small slowdown in manufacturing may not hurt the economy as much but a larger expansion could heighten demand for the pound as traders anticipate a BOE rate hike.

A quick look at the past release on March 3 shows that the pair reacts positively to a decent improvement. At that time, the index climbed from 56.6 to 56.9 as expected yet the pound still made a decent rally of at least 50 pips.

Another strong reading could push for a 50-pip rally for GBP/USD while a weaker than expected result might lead to a retracement to the 1.6600 major psychological level.

 

[CapitalTrustMarkets]

Danger Looms In The UK Housing Market

Early Tuesday morning, at 02:00 EDT, the Nationwide Building Society will release its two monthly housing price index releases, the MoM and the YoY figures. With calls of a current house price bubble ringing around the UK markets, the releases have the potential to spark some considerable volatility in the strength of the GBPUSD.

The Financial Conduct Authority’s annual Risk Outlook recently identified house price growth as one of the areas "posing the most significant risks’ to the UK financial system, and policy makers have called for an interest rate hike to counteract any potential impact of a bubble burst. Current interest rates in the UK are at an all-time low of 0.5%, which when combined with rising prices leaves borrows wide open to interest rate shocks on the back of a hike. An interest rate shock could lead to widespread mortgage default, which in turn could lead to a tightening of bank lending.

All this makes housing data some of the hottest releases in Britain at present, so what impact might this release have on the GBPUSD?

The pair has ranged upward throughout the latter half of 2013 and the first three months of this year, and a March 24 bounce suggested there may still be sterling strength in the market. A look at the longer-term charts reveals price trading just shy of key six-year support, which will likely serve to cap the strength, at least in the short-medium term.

Even with the potentially catastrophic effects of an interest rate shock just around the corner, it is likely that the Bank of England will give house price inflation precedence over default risk. For this reason, higher than expected data will spark talk of an interest rate hike, and strengthen the GBP versus its US counterpart. Look to previous highs at 1.6822 as an initial target, and beyond that, channel resistance, likely to lie just shy of 1.7000 flat.

Conversely, lower than expected data could spark fear of a delay in any rate hike, which would serve up some GBPUSD weakness. Look for a retest of channel support around 1.6544. A close below would hint at a medium term reversal, and validate February lows at 1.6250 as an initial downside target.