Australian Dollar Outlook 9/8/2010

Australia: The Australian Dollar has opened this morning just under 0.9200 after breaching this level on Friday night after the market digested the release of US July non-farm payrolls that saw a decline of 131k in the month, which was more than the forecast loss of 65k.

Also disappointing was a revision downward for the June figure by 96k to a loss of 221k for the month.

The unemployment rate held steady at 9.5%, as fewer people were looking for jobs. The bright spot in all of this was an increase in private sector payrolls of 71k, which was again below the anticipated figure of a gain of 90k.

The equity markets at first reacted very negatively with the Dow off over 100 points, but by the end of trading the Dow was only off 0.2% to 10,654 with the S&P 500 off by 0.4% to 1.122 and NASDAQ weaker by 0.2% to 2,288.

Concerns about a double dip recession in the US are still there but with a FOMC meeting on Tuesday this week there is a strong suspicion the Fed will offer some clues on whether it will continue with its quantitative easing.

With this prospect, the yield on US 2 year treasury bonds fell to 50bps, a new record low while 10 year bonds fell to a 16 month low of 2.82%.

Commodity prices were mixed but crude oil fell 1.6% to US$80.70 a barrel. Gold spiked up almost 1% to finish at US$1205 an ounce.

The huge run up in wheat futures ended on Friday when wheat fell almost 8% after a rise of almost 80% in 5 weeks as investors speculated farmers would plant more wheat in the future.

This week eyes will be focused on the jobs data due Thursday which is anticipated to rise by 20k and the unemployment rate of 5.1% to remain unchanged.

On Tuesday and Wednesday China will release a slew of data for July that will likely have a large influence on how the AUD trades this week.

Majors: The AUD has lost a little ground on the cross rates with the EUR/USD trading above 1.3300 on Friday after the US payroll data which sees the AUDEUR just above 0.6900 this morning.

Industrial production in the Eurozone and the UK eased in June with Germany recording a decline of 0.6% and the UK a negative 0.5% figure which saw all European equity markets lower by 0.4% to 1.3% on Friday.

Cross rates on AUD/GBP (mid 0.5700's) and AUD/JPY (low 78's) are slightly lower than we saw on Friday afternoon.

Forex Market Update

Friday's payrolls may have been a disappointment but the market is still uncertain as to whether the data represents an 'appreciable' weakening in the US economy. While the market did move towards pricing in a Fed ease in the aftermath of the jobs data there is a strong force of opinion that the Fed is unlikely at this stage to announce significant new policy measures.

This opinion appears to be based both on the notion that the Fed has no incentive to shock the market and on the view that despite the weak labour data, most other economic indicators continue to suggest expansion, albeit at a moderating pace. A consensus appears to be emerging that if the Fed does announce new measures at its policy meeting on Aug 10 that these are most likely to take the form of a reinvestment into the bond market of proceeds from maturing mortgage backed securities. Insofar as this was first flagged in an article in the WSJ last week it would not shock the market. It would have the additional advantage of not expanding the Fed's balance sheet any further at this stage so strictly speaking it would not be a new round of QE.

The dollar has traded in a choppy fashion this morning as the market grapples with the possibilities that face the Federal Reserve. Having flirted on Friday with the risk that the Fed could be on the cusp of easing again, the USD is a touch stronger this morning as the market recognises that the Fed may not at this point expand its balance sheet any further. While steady policy from the Fed this week could boost the USD a little further, the dollar could find the going tough near-term with German economic data suggesting that the ECB is far better positioned to carry on reigning in exceptional policy measures. This morning brought the release of better than expected German June trade data. The strong 3.8% m/m increase in exports massaged the idea that German's export led recovery is expanding nicely. Also worth noting is that the rise in imports was better than expected; a factor which may support growth elsewhere in the Eurozone. Later this week, German Q2 GDP will be released. Strong data would provide more fodder for the squeeze higher in EUR/USD.

USD/JPY continues to hover within spitting distance of the 15 yr low at 84.84. The outcome of the FOMC tomorrow has the capacity to break through this support; if a fresh round of easing is announced. Although the market remains wary of intervention from the MoF, such an outcome is still unlikely. With the obvious exception of the SNB, central banks and governments tend to avoid intervening in the fx market unless they have confidence that the fundamentals also support a change in the course of the currency. Given that the MoF have no control on the Fed and that this is the most clear influence on the USD at present, the chances of intervention from Japan is still unlikely.

Sterling has been relatively stable this morning ahead of the Fed and the release of the BoE's Inflation Report later in the week. Typically, Governor King has shrugged off the strength of CPI suggesting that inflation will be pressured lower by excess capacity in the economy. While it is unlikely that he will steer away from this line too much, stronger Q2 data suggested that excess capacity levels are a little lower than previously thought suggesting that the Bank may have to revise higher its inflation projections. Such an outcome is likely to be supportive for the pound.

Disappointing Australian housing and job ads data weighed on the AUD/USD overnight. Risk appetite fared better in European hours with stocks trading higher and AUD/USD pushing back to the 0.9205 area. However, conditions are subdued ahead of the FOMC tomorrow.

There are no key US or Canadian economic releases this afternoon.

Jane Foley

Research Director FOREX.com

Can You Follow Your Forex Rules… Just Once?

Traders need to have a set of Forex rules to follow to give them a guide in their trading. Without a guide you will wonder aimlessly through your trading giving away your money as you go.

Many traders have no plan and no rules, those are not traders, they are gamblers. What about you? Are you a trader or a gambler? I get emails all the time from people telling me that they lost all their money and they need help.

The first question I ask is do you have a plan? The standard answer is no. So my response is get a plan. I am not going to discuss that here but I have previously discussed trading plans here and on my other blog at forex4noobs.com. If you don’t have a plan or strategy, you can get one by signing up for my newsletter, I have some that you can download.

We have established that you need rules and now I am going to ask you a question. Can you follow your Forex rules just once? I have good news for you! If you can do it once you can do it twice. If you can do it twice you can do it 10 times.

What I am going to do :

• I am going to post 10 trades here on this blog.
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My challenge to you:

• Follow the rules on 10 trades.
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If you can do that then you are taking a great step to becoming a great Forex trader. I am willing to take a stand here and say that if you follow your rules you will do well. If you do not do well while following your trading rules then you will at least know that your strategy needs some adjustments. Which is still a great place to be.

Are you up for the challenge?

I am up for it, come join me in taking steps to becoming great. I think this is going to be fun, helping people make a great new leap in their trading. Please comment below if you want to take part in the 10 day challenge.

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Why Forex? Advantages of Forex

Why Forex? Advantages of Forex

Highest Liquidity
There is always buyer and seller in Forex market. The Forex market absorbs trading volumes and per trade size which dwarfs the capacity of any other market. On the simplest level, liquidity is a powerful attraction to any investor as it suggest the freedom to enter or exit the market at any time. Forex traders benefit from the ability to respond to breaking news immediately. There is no other market or investments that you can ever make an exit exactly at the time you wish to.

24 Hour Trading
The Forex market is open 24 hours daily. When Asia market is close, the European market start follows by the USA market and continue by Asia market again the next day. Thus, this allows Forex traders to take positions regardless of the hour and locations.

Profit on Bulls and Bears
"Buy low sell high", this is what every investor knows and practising in whatever market. One of the most exciting advantages of Forex trading is the ability to generate profits whether in the bull or bear condition. In the Forex market, apart form buy low sell high, Forex traders can always sell high and then buy back at lower price to generate profit.

High Leverage
In Forex trading, a small margin deposit can control a much larger total contract value. 200 to 1 leverage enable Forex traders to buy or sell $100,000 worth of currencies with $500 margin deposit. It gives Forex traders the ability to make extraordinary profit.

No Commissions or fees
Trading Forex has much lower transaction costs than other investment products, a very important point for active traders.

Free Resource for Forex Trading
There are lot's of online Forex Brokers offer free Demo accounts for potential Forex traders to practice trading. Just register and start demo trading to get feel on Forex trading. Besides that, there's also tonnes of free Forex news made available online, along with Forex charts and other resources. Just make sure you have browse thought all other pages in this site to learn on the essential Forex websites you have to visit for Forex trading.

what is forex trading ?

An overview of the Forex market

The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

The main enticements of currency dealing to private investors and attractions for short-term Forex trading are:

• 24-hour trading, 5 days a week with non-stop access to global Forex dealers.
• An enormous liquid market making it easy to trade most currencies.
• Volatile markets offering profit opportunities.
• Standard instruments for controlling risk exposure.
• The ability to profit in rising or falling markets.
• Leveraged trading with low margin requirements.
• Many options for zero commission trading.

Forex trading

The investor's goal in Forex trading is to profit from foreign currency movements. Forex trading or currency trading is always done in currency pairs. For example, the exchange rate of EUR/USD on Aug 26th, 2003 was 1.0857. This number is also referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1000 euros on that date, he would have paid 1085.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value of the euro (the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar. The investor could now sell the 1000 euros in order to receive 1208.30 dollars. Therefore, the investor would have USD 122.60 more than what he had started one year earlier. However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a "risk-free" investment. One example of a risk-free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation.

When trading currencies, trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the currency you are buying does increase in value, you must sell back the other currency in order to lock in a profit. An open trade (also called an open position) is a trade in which a trader has bought or sold a particular currency pair and has not yet sold or bought back the equivalent amount to close the position.

However, it is estimated that anywhere from 70%-90% of the FX market is speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency.