Spectrum Forex LLC Blog

April 20, 2010

Canada to raise rates

Filed under: General — Tags: , , — ntsl283061 @ 8:49 pm

In a move that was expected by many and doubted by others, Bank of Canada spoke about its interest rate policy. BoC became the first central bank among G7 countries to indicate that it will start raising rates soon. No hike today, but it could come as early as June 1st. No sign how big the increase could be, but 0.25% would be decent target, with maybe 0.50% at most. One must remember that current rates are historically low, so perhaps boost by 0.50% wouldn’t be out of the question.

News proved positive for Canadian Dollar. Loonie experienced strong jump against all currencies. Strong reaction to this news was expected.I wrote about in Loonie- Yen post, without trying to predict the outcome. But that was important for the developing down trend, such as it was. Taking a short position here before the announcement was dangerous. For me 4H chart was main time frame to watch, the intermediate trend. Didn’t want to take trade immediately under Friday’s low, because of lousy stops. One could have used 1H chart, but that should have had smaller objective. Guess it could have worked, if target was smaller than 40 pips, but I didn’t play with it.

The red eclipse shows approximate area where I wanted to see a bearish reversal pattern. I didn’t concern myself with exact level, but rather strength of a signal. Obviously, none was created, so no trade. Besides, general area on interest was reached not too long before the announcement, so there would have been no trade regardless. Interestingly enough, price still didn’t climb above the previous high, so the down trend has not been broken, for this time frame, that is. For this chart, however, development of any tradable signal (either way), as I see it, will take some time. Time to move on.

Japanese Yen is going through a weakness, not only against CAD but all over. It dipped under important supports last week, but picture is very unclear. If last week’s highs are touched, up trend is likely. Most larger tiem frames are showing wide and widening patterns, so for me staying with smaller magnitude charts makes more sense. For now. As things look right now, JPY will need some generally depressing news, in order to get stronger again. Don’t know what it might be – more GS debacle, whatever. But if it happens, plays like the one above should be order of the day. Hourly charts and breakouts under recent lows, with fairly small targets. Here it could be as much as 100 pips, but 80 is more realistic.

Other than that, I think I’ll try to chip away few pips today using very short time frames, like 5M in EUR-JPY, looking for small target set ups either way. I’m still waiting for the time frames I customary use to be a little more clear. No sense pushing trades when my opinions are comparable to guesswork.

Mike K.

April 10, 2010

Filed under: General, articles — Tags: , — ntsl283061 @ 5:14 pm

While Euro dominates Forex landscape in Europe, especially now during most turbulent times for the common currency since its inception, there are still few others left on the continent. Swiss Franc, is of course, one of the best known and most traded currencies in the world. Scandinavian countries still maintain there own monetary systems, which are growing in terms of popularity among foreign exchange traders. Central and Eastern European countries also have domestic currencies. Polish Zloty(PLN) represents the largest economy among those.

Just like most other currencies from so called emerging economies, Zloty suffered during the height of global financial crisis of 2008. Some of the major currencies dropped as well with Australian Dollar, for example, losing 50% of its value. Since the crisis peaked, however, PLN has been recovering very nicely, especially in relation to the Euro. This process accelerated recently, with Zloty gaining 6% on EUR in first three months of this year. EUR-PLN dropped to 3.8210, the lowest level in well over the year. In a move that surprised many, National Bank of Poland intervened in the open market with aim to weaken its currency, first such move since 1990’s.

eur-pln.jpg

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Some would think it action by NBP is very rational. After all, over 75% of exports form the country go to EU, so keeping Zloty low would benefit domestic producers and manufacturers. On the other hand, with Poland trying to join monetary union (converting to Euro) in not too distant future, this could be seen as little puzzling. Country is on track to meet the Maastricht Treaty requirements over next couple of years, paving the road for converting PLN to EUR. If this is going to happen, strong Zloty would be preferable, since at some time wages, pensions and savings will be changed over to Euro. As high conversion level as possible should be of most benefit to citizens.

NBP might be trying to insure short term competitiveness, in order to keep the economy growing. And growing it has been. Poland has been the only member of EU which didn’t suffer recession, at least as it is officially defined. Coutry experienced growth even in 2009, while the rest of Eurozone’s GDP contracted. While the increase of 1.7%, maybe small, it is sure better than the 4% drop in EU. Frankly, no small feat in in light world wide crisis.

polish-growth.jpg

Read more of Polish Zloty

April 5, 2010

Currency games

Filed under: General, articles — Tags: , — ntsl283061 @ 6:12 pm

On April 15th US Treasury is scheduled to present Congress with its biannual report on world currencies. This particular one has been anticipated with some anxiety. Political forces in US are applying pressure on Treasury Secretary Timothy Geithner to openly name China “currency manipulator”. This would open door for possible legal action against Beijing, namely economic sanctions, in order to have Yuan un-peged from the US Dollar, something that has become a little bit of an obsession for some members of Congress. Rightly or not, Chinese inflexible exchange rate policy is seen by them as a source of all economic evil.

Turns out that currency report will not be revealed as planned. Timothy Geithner decided to delay publication of the document. With series of high level meetings scheduled over next few months, he believes “they are best avenue to advance US interests”. Another phrase from his official statement “Our objective is to use the opportunity presented by the G-20 and S&ED meetings with China to make material progress in the coming months”. One could call him pragmatic, while somebody else would say that he chickened out. Others might say he is naive, if he believes yet another promise from Chinese official late last week about “being ready to relax currency regime”. Whatever the reason, currency games are alive and well, and will go on for at least another few months (read “indefinitely”).

I took it easy trading-wise on Monday. Normally after Easter I’d try straddle trading, just like last year. However, situation was different this time around so I skipped it. Most often Good Friday is very boring, creating tight daily ranges. This year, US news caused moves late on Friday, which didn’t fit the pattern for possible trades. I didn’t expect much happening after the open today, but few gaps opened up so one trade was taken – long beast.

gbp-jpy-04-05-1.jpg

Read the reast of this More currency games.

April 4, 2010

Trading Forex with little leverage.

Filed under: General — Tags: , — ntsl283061 @ 11:55 am

Interesting subject – trading Forex with little leverage. See the video

For more information of the subject visit www.fxmadness.com

November 9, 2009

Using currencies for “buy and hold” investing.

Filed under: General, articles — ntsl283061 @ 8:11 pm

Currencies are not financial instruments which typically come to mind when talking about long term investments. Vast majority of financial advisors suggests a mix of bonds and stocks to their clients, with some cash investments, like money market funds or CD’s thrown into the mix. Such is long standing, conventional wisdom regarding regarding allocating money for a long haul and is almost universally practised on “main street”. The only difference is specific split among  these asset groups, in most cases related to the age of person. Virtually all other forms of investments are considered “derivatives” and not suitable for most people.

These views have been slowly  changing over last few years, if not decades. Explosion of hedge funds have brought alternative forms of investments, other than stocks and bonds, into a vernacular of most individual investors. Today just about everybody with any interest in financial markets knows, at least in principle, what options, futures and commodities are. More and more often these groups of securities are mentioned as separate asset classes with a place of its own in a carefully balanced investment portfolio. Same goes for currencies.

Popularity of spot Forex trading proves that currencies are great trading instruments. Brokers report record numbers of accounts opening every year, trading volumes keep rising and the most liquid markets in the world are becoming even deeper. This is easily noticed when spreads from just few years ago are compared to ones today. In many cases they were cut by half, clearly outcome of increased activity as well as competition for clients among Forex brokers.

One of the characteristics of currencies often talked about is the presence of unusually long and persistent trends. They often last months and years and are the main reason behind inclusion of them into main asset classes. But really, are currencies the kind of financial instrument that could be put away for an indeterminate period of time without more or less active portfolio management? Long term chart of any one currency pair indeed reveals long term trends, but how does it look like on bases of currency baskets, something that would have to be done in order to minimize risks of any one currency exposure? Things get a little different than.

Carrencies since 1970-s-e

This is a chart of how major currencies performed against a basket of peers since 1970. It was compiled and published recently by Financial Times (www.ft.com). Rates used were trade-weighted exchange: “showing the value of a country’s currency in relation to the currencies of a group of countries with which it trades. In the index, each country’s currency is given an importance in relation to the amount of trade it does”. Another way of valuing currencies is by using Purchasing Power Parity Index. Using trade-weighted exchange we can see which currencies outperformed, or underperformed, based n the same criteria. This chart is a little crowded, but individual currencies can be isolated. 

CHF since 1970-s-e

The best performing currency over the period, as measured using trade-weighted exchange, has been Swiss Franc. From 1970 to about 1995 it has just about doubled in relation to all other currencies included here. Since than, however, CHF has been declining slightly. One could generously call it a sideways move. All told, over almost 40 years time span this currency gained about 80% against a basket of currencies of its major trading partners. These are not stellar results, especially considering that last 15 or so years produced a net loss….

Read conclusion of Currencies as long term investment.

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September 27, 2009

Gold-Silver spread.

Filed under: General — ntsl283061 @ 2:31 pm

Gold has been in the news a lot lately. Reasons are many and varied, but mostly because it is around historically, and psychologically, important level of $1000 per ounce. This alone creates tremendous buzz among both media and investors. One can’t avoid hearing and reading about. My personal interest is in precious metals is two pronged: I just closed my gold-silver trade, which lasted few months, a long time for me. Second reason is in the fact that gold is continually used as some kind of proxy for US Dollar, bringing it into sphere on interest for currency traders like myself.

Testing of highs from last year, the $1000 level, comes at very peculiar time. September the 24th market 140th anniversary of market panic in 1869, which was caused by wild price swings in gold. Group of speculators, including Jay Gould and James Fisk, attempted to corner the gold market. Price jumped by about $20 dollars in one day, to a high of over $162, huge swing for that time. In response, federal government flooded the market with metal, crushing the prices to $133 within 15 minutes. Many investors were wiped out, banks failed and country was tossed into depression lasting until 1871. All this time has gone by and not too much has changed- gold is flirting with all time highs, speculators keep trading and government still keeps intervening. Maybe not gold, but financial markets at large. Funny, isn’t it?
Long term gold-silver chart.

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September 26, 2009

CAD trades.

Filed under: General — ntsl283061 @ 4:45 pm

Canadian Dollar became very active yesterday- it fell. Seemingly without any news it started to drop about the same time my last update was posted. And these were not small swings one could consider a noise, but rather large, couple hundred pips moves, pretty much across all pairs. Something Bank of Canada has been gunning for. They have been expressing “concern” and vaguely threatening intervention if CAD stayed at elevated levels. Of course it has never been explained what BoC considers an “elevated level”. Something everybody is expected to figure out without help from the financial authorities.

It is almost certain this drop in Loonie is not courtesy of BoC. Nature of the move was not consistent with the behavior of currencies during intervention by a central bank. Not quite fast and violent enough. Also, there was not big time news or CAD specific announcements, at least I didn’t catch any. Some attributed it to the G-20 meeting in Pittsburgh. USD gathered some strength, pushing everything else down, except for the Yen. For whatever reason this is supposed to be bad for Canadian Dollar. Hmm, let me see. Marginal demonstrations in the rust belt are dragging the Loonie down? I fail to grasp why or how.
Canadian Dollar.

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BoE comments.

Filed under: General — ntsl283061 @ 4:44 pm

Bank of England joins an ever lengthening list of central banks which support weal local currency. Unlike, say, Reserve Bank of New Zealand, or Swiss National Bank, BoE finds itself in much more comfortable position in regards to its desires- Pound is already in shambles and falling even more. BoE governor, Mr. King, expressed content with latest developments, causing farther drop in GBP. Talking the Pound down appears to be one of the favorite activities for them, and one of the very few that actually work, after a fashion. Just how much longer will that last? Who knows? Strange world we live in- everybody wants to have weak currency.

This includes US and the Dollar. Much like expected, FOMC announcement yesterday produced no surprises. Interest rates were left alone at a fraction above zero, and projected to remain depressed, most likely helping USD to gradually keep falling in relation to other currencies. Reaction to the news was relatively subdued, especially when looked at from perspective of hourly charts or higher magnitude. All you can see is a minor price spike- nothing.
GBP-CAD

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Waiting game.

Filed under: General — ntsl283061 @ 4:43 pm

Some time ago I saw this post somewhere on the web-”What do traders need most”. My reply was “Patience and discipline”. I know, because I lack both of them. It is easy to equal trading success to performance of computer, or internet connection, or the broker and, my favorite, the “system”.  Everybody always chases newer and better trading strategy. We almost always forget about the intangible parts of this endeavour, but in the long run they are most important.

Even the best system will not do anybody much good, if one is not patient enough to wait for trades to come to us. It is almost universal fault of traders to force trades during times that given strategy produces no or little activity. This is equally true for longer an shorter term trading methods. For scalpers 3-4 trades a day might be very slow, while others would consider 2 trades a week to be busy. No matter how active one’s style is, periods between trades are always difficult, but we must learn to wait until proper set up, as defined by trading strategy, happens.

Once developed, or purchased, a system should be given long enough run to either prove or disprove itself. Very often people spend a lot time and/or money pursuing perfect strategy, only to discard them after few loosing trades, or sub par periods. While there is no universal length of time by which to judge given approach, past performance should provide some clues. We always should look at the length of loosing periods, depth of draw downs, number of consecutive loosing trades. If in real time use system performance starts to exceed historical extremes, perhaps is time to look for something else. At any rate, without patience ad discipline, trading career will be either short or fruitless.
Patience and Discipline.

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September 23, 2009

Weak Dollar.

Filed under: General — ntsl283061 @ 8:35 am

US Dollar slipped into new lows for the year against many currencies. Euro, Australian Dollar, Swissy and Kiwi all made new annual highs. Markets are not very volatile, most movement seems to done in this persistent, relatively steady pace which is great for long term trend followers. Slightly harder for active traders, like me, to play it, though. Thankfully, shorter time frames, as well as unrelated currency crosses, provide many other trading opportunities.

USD is getting in trouble on the eve of G-20 meeting in Pittsburgh, where it is expected to be high on the agenda. Well, perhaps not the exchange rate of our Dollar, after all people attending this conference are Forex junkies (we hope), but rather  the debt which is denominated in USD. President Obama is expected to face tough questions about our skyrocketing Federal debt, and ways to curb it. His answer? In an interview with CNN, he outlined his “plan” on how countries should manage their deficits. This includes forcing citizens of countries like US to save, while “getting” people in China and Germany to spend more. I’m not good at reading between the line, but isn’t it blaming our debts on other countries, not any “plan”? Perhaps we should start by shrinking our own burden, before developing “plans” for others. With FED meeting tomorrow, next few days should be interesting for USD.
Troubled US Dollar.

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