Dollar Suffers Biggest Two-Day Drop in 20 Months after FOMC Minutes

The US dollar was on the chopping block for a second day through Thursday as the fallout from the FOMC minutes continued to eat away at the currency’s run to multi-year highs. Speaking to the rout the greenback has been dealt, the currency closed the past session down against all of its major counterparts, and the Dow Jones FXCM Dollar Index (ticker = USDollar) suffered its biggest two-day drop since November 30, 2011. For EURUSD, the two day dollar sell-off led to its best two-day rally since January 2011 – notably the start of a significant bull leg for the benchmark pair. What makes the reserve currency’s performance so remarkable though isn’t its intensity but rather the contrast it draws from the S&P 500. The benchmark spot equity index has risen for six consecutive trading days – its most consistent advance in four months. With the dollar tumbling and equities rising, it would seem that the ‘risk on’ / ‘risk off’ theme is once again in charge – to the detriment of the safe haven.

Through 2013, the safe haven currency and risk-preferred index have established a remarkable, positive correlation. In fact, the rolling three-month 60-day (three-month) correlation has moved as high as positive 0.75 (1.00 would mean they moved in lockstep). Given this unusual state of fundamental affairs, a correction by one was likely. However, the break we have witnessed this week doesn’t likely reflect a return to traditional investor sentiment as the prevailing fundamental wind for the broader financial system. If we were indeed returning to a market that has been put into gear for a yield chase while ignoring possible future risks, we should expect to see such appetites burgeoning in all asset classes. Yet, a quick look around the markets show the FX carry trade lost ground, speculative commodities retraced gains and even Asian equity indexes leveled off. If the markets were seeking return at all cost, all of these would have advanced.

The source of the market’s volatility over the past 48 hours was the same theme that has defined bearing and momentum over the past few months – stimulus speculation. Under certain conditions, expectations surrounding the outlook for monetary policy can catalyze market-wide positioning based on investor sentiment. Yet, it is fear of the eventual withdrawal of support that carries the greatest risk, not a ramp on the expectations that support will be left in place longer than expected. And so, we have to look back over the FOMC minutes and Chairman Bernanke’s comments. The Fed chief’s comments merely repeated an ‘accommodative’ stance that has been used since rates were cut to zero. It is the minutes that matter most here, and the suggestion that “many” on the Committee want labor to improve further before the Taper is offset by the “about half” that see QE3 possibly ending before the end of 2013. The market is likely very sensitive to further Taper chatter, so news of member Elizabeth Duke’s resignation (effective August 31) alongside the scheduled speeches by Williams, Plosser and Bullard in the upcoming session will likely stir markets Friday. Furthermore, watch JPMorgan and Wells Fargo earnings and the sentiment survey as risk trend fodder.

Euro: Trouble with Greece, Portugal, Others Contradicts Currency Strength

The euro is taking advantage of the pain inflicted upon its primary counterpart. As the world’s second most liquid currency, the shared currency stands to naturally reap the benefit of a broad dollar decline – exactly what we have seen over the past 48 hours. That said, if the anti-dollar sentiment weren’t a prominent drive; the euro would likely be exposed for serious fundamental trouble. On the docket this session, we learned that the Portuguese President rejected the Prime Minister Coelho’s seemingly effective plan and sets the country on pace for further struggle to secure Troika aid. In Greece, an uptick in the jobless rate to a record high 26.9 percent while non-performing loans also soared to 29 percent. These countries are dangerously close to rekindling the Eurozone’s financial crisis, yet the markets remain contentedly blasé of the risks.

Japanese Yen Crosses Unable to Rally Despite Positive Risk Bearing

As expected, the BoJ maintained its policy bearings and kept its ¥270 trillion monetary base target at its meeting Thursday. Furthermore, the assessment by the policy authority that the country is in a ‘recovery’ for the first time since 2011 suggests we will see neither an increase nor tempering of the effort through the foreseeable future. This may seem a problem, but note that most of the yen crosses’ advance has come during the threat and escalation stages of the stimulus regime. This ‘leveling off’ may explain yesterday’s tepid carry performance.

Australia Dollar Ignores Equity Rally, Stumbles after Jobs ReportUS equities have surged and the threat of Taper has eased, yet the Australia dollar has dropped against most counterparts for the second consecutive day. The refusal to climb under these circumstances is testament to the bearish weight on the Aussie dollar’s shoulders. Thursday morning’s jobs data likely sabotaged the opportunistic carry traders from jumping aboard. While the country added 10,300 jobs, it lost full-time positions and the jobless rate rose. Meanwhile, the market sees a 70 percent chance of an RBA cut next month.

British Pound Advances after Miles Says FLS Insurance

The sterling gained against all but the Swiss franc this past session – remarkable given the themes at play and the light economic docket. However, BoE member Miles’ comments speak directly to what traders care about most: relative stimulus. The central banker said the FLS program (a possible venue for more a more flexible QE-like effort) was an insurance program and not likely to increase near-term.

Canadian Dollar Has Little Trouble Rallying Versus US Dollar Unlike AUD, NZD

While both the high-yield Australian and New Zealand dollar’s floundered Thursday, the Canadian dollar had no qualms about forging a significant rally against its US counterpart. The 1.0 percent drop was USDCAD’s fourth consecutive decline and the largest daily drop from the pair since June 2012. The USDollar’s performance resonates far more against this lower-yielding comm bloc pair.

Gold Breaks Above $1,265 but Conviction Far Weaker than USD, S&P 500

The 2.1 percent advance from gold Thursday marked the first four-day rally from the metal since April 22 (post collapse rebound) and the drive needed to push the market back above $1,265. Yet, this performance doesn’t look so impressive when we compare it to the remarkable moves of the dollar or US equities. If recent volatility traces back to Taper speculation – specifically that its implementation could be pushed back – gold should be a serious benefactor. Yet, even a delay is not an expansion of stimulus. And the battered commodity needs more help than that.

ECONOMIC DATA

GMT	Currency	Release	Survey	Previous	Comments
1:30	AUD	RBA Credit Card Balances (MAY)		$49.4B	Despite a short rise in the Aussi following Bernanke comments on Wednesday, the currency continues to stay low on poor Chinese and Australian data. Further missed estimates point to a higher likelihood of an RBA rate cut come August.
1:30	AUD	RBA Credit Card Purchases (MAY)		$21.6B
1:30	AUD	Home Loans (MAY)	2.2%	0.8%
1:30	AUD	Investment Lending (MAY)		1.1%
1:30	AUD	Value of Loans (MoM) (MAY)		-0.9%
3:00	NZD	Non Resident Bond Holdings (JUN)		69.1%	Previous print was the highest since 2009.
4:30	JPY	Industrial Production (MoM) (MAY F)		2.0%	The BoJ on Thursday did not give any indication of more policy moves. A continuation of improved data like previous industrial production readings will likely continue this trend out of the BoJ.
4:30	JPY	Industrial Production (YoY) (MAY F)		-1.0%
4:30	JPY	Capacity Utilization (MoM) (MAY F)		1.6%
8:00	EUR	Italian CPI - FOI Index ex Tobacco (JUN)		106.9	CPI out of Italy has been moving down for the past year, but any move closer to the 2% rate will be viewed as beneficial.
8:00	EUR	Italian CPI - EU Harmonized (YoY) (JUN F)	1.4%	1.4%
8:30	GBP	Construction Output (YoY) (MAY)	-2.8%	-1.1%	Further negative readings on construction output may fuel speculation of BoE easing in the coming months.
9:00	EUR	Euro-Zone Industrial Production s.a. (MoM) (MAY)	-0.2%	0.4%	Negative prints will put further pressure on an already stressed European fiscal and banking situation.
9:00	EUR	Euro-Zone Industrial Production w.d.a. (YoY) (MAY)	-1.3%	-0.6%
10:00	EUR	ECB Announces 3-Year LTRO Repayment
12:30	USD	Producer Price Index (MoM) (JUN)	0.5%	0.5%	More indications of healthy inflation levels will relieve concerns from the Fed about the impacts of an early taper on recently slowing inflation.
12:30	USD	Producer Price Index (YoY) (JUN)	2.1%	1.7%
12:30	USD	Producer Price Index ex Food & Energy (MoM) (JUN)	0.1%	0.1%
12:30	USD	Producer Price Index ex Food & Energy (YoY) (JUN)	1.6%	1.7%
13:55	USD	U. of Michigan Confidence (JUL P)	85	84.1

GMT	Currency	Upcoming Events & Speeches
	USD	Fed's Plosser and Bullard Speak on Central Banking
8:00	EUR	ECB's Carlos Costa Speaks on Euro Economy
21:15	USD	Fed's John Williams Presents a Monetary Policy Paper

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT							SCANDIES CURRENCIES 18:00 GMT
Currency	USD/MXN	USD/TRY	USD/ZAR	USD/HKD	USD/SGD		Currency	USD/SEK	USD/DKK	USD/NOK
Resist 2	13.4800	2.0000	10.7000	7.8165	1.3650		Resist 2	7.5800	5.8950	6.5135
Resist 1	13.2000	1.9500	10.2500	7.8075	1.3250		Resist 1	6.8155	5.8475	6.2660
Spot	12.8248	1.9532	9.9898	7.7565	1.2611		Spot	6.6645	5.7005	6.0533
Support 1	12.6000	1.9100	9.3700	7.7490	1.2000		Support 1	6.0800	5.6075	5.9365
Support 2	12.0000	1.6500	8.9500	7.7450	1.1800		Support 2	5.8085	5.4440	5.7400

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY	Gold
Res 3	1.3207	1.5321	100.65	0.9579	1.0466	0.9268	0.7945	131.66	152.53	1315.85
Res 2	1.3176	1.5284	100.28	0.9553	1.0444	0.9238	0.7918	131.18	152.02	1307.84
Res 1	1.3145	1.5246	99.91	0.9527	1.0422	0.9208	0.7891	130.71	151.50	1299.83
Spot	1.3084	1.5172	99.18	0.9475	1.0378	0.9149	0.7838	129.76	150.47	1283.80
Supp 1	1.3023	1.5098	98.45	0.9423	1.0334	0.9090	0.7785	128.81	149.44	1267.77
Supp 2	1.2992	1.5060	98.08	0.9397	1.0312	0.9060	0.7758	128.34	148.93	1307.84
Supp 3	1.2961	1.5023	97.71	0.9371	1.0290	0.9030	0.7731	127.86	148.41	1315.85

v

 

Source: http://dld.bz/cH6YP

US Dollar Smashed by Fed, Bernanke; Aussie Up on Jobs, Yen on BoJ

ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is down modestly on the day, having recovered half of its losses this week following dovish saber rattling from the Federal Reserve. Price action today has been largely dictated by what began on June 19, when the Fed suggested that it could wind down is QE3 easing program by mid-2014, given the recent improvement in the US labor market. From the low on June 19 to the yearly high set on Monday, July 8, the USDOLLAR rallied by +4.74%.

The optimism surrounding the US Dollar was dispelled quickly yesterday after the Fed’s June meeting Minutes showed the policymakers remained split over the timing of when to end QE3, and then at a policy speech after the US cash equity close when Chairman Bernanke said that tapering QE3 wouldn’t mean the Fed’s accommodative policy stance would change. This is important because it highlights the distinction between “tapering” and “tightening”: the Fed has merely indicated that it will slow, not stop, its easing measures.

It is of little surprise that the other majors, berated by the US Dollar since mid-June, have made a strong comeback. In fact, since Monday’s high, the USDOLLAR is now off by -1.69%, and was down by as much as -2.19% overnight. The Australian Dollar has posted modest gains following an improved June Australian labor market report, while the Japanese Yen has garnered favor following the Bank of Japan’s policy hold earlier today.

Taking a look at European credit, peripheral yields have jumped on the day while core yields have fallen; putting upward pressure on Italian- and Spanish-German spreads (typically a sign of Euro-Zone sovereign debt crisis stress). The Italian 2-year note yield has increased to 1.662% (+9.2-bps) while the Spanish 2-year note yield has increased to 2.072% (+7.3-bps). Likewise, the Italian 10-year note yield has increased to 4.476% (+3.2-bps) while the Spanish 10-year note yield has increased to 4.838% (+4.9-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 10:45 GMT

CHF: +1.11%

GBP: +0.85%

CAD: +0.79%

EUR:+0.75%

NZD:+0.68%

AUD:+0.57%

JPY:+0.47%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.57% (-0.84% prior 5-days)

ECONOMIC CALENDAR

 

TECHNICAL ANALYSIS OUTLOOK

 

EURUSD: The EURUSD was flirting with a H&S breakdown but instead rebounded sharply off of the purported Neckline and achieved price over $1.3200. Today’s close is very important for sentiment headed into next week; a close below 1.3083 would signify a 50% pullback of today’s rally and set up an Inverted Hammer (bearish reversal candle). I maintain: “A [weekly] close below 1.2800 tentatively triggers the broader Head & Shoulders pattern, whose measured move points to a return to the June 2010 lows near 1.1875.”

 

USDJPY: No change from Tuesday: “The rejection of the 76.4% Fib retracement at ¥101.35/40 (May high to June low) is only a near-term setback, as the break off of the late-May to mid-June correction in the pair completed the last week of June. Furthermore, a run to RSI resistance should be accompanied by price accompanying higher towards 102.40/60. Looking to buy dips as long as 99.00/25 is held.” An Inverted Hammer today with a close above 99.00/25 would suggest longs preferred into early next week.

 

GBPUSD: No change: “Big picture: the GBPUSD broke the uptrend off of the 2009, 2010, and 2012 lows, signaling the beginning of a greater selloff towards 1.4200/50. Any rallies in the pair look to be sold; price could climb to 1.5290 (50% Fib March low to May high) on a rebound now that the GBPUSD has broken through RSI trend support off of the March 12 and May 29 lows. Price has undercut key Bear Flag support off of the March 12 and May 29 lows; and now the move towards 1.4200 appears to have begun.” The rally the past two days has seen price trade back to the underside of the Bear Flag, and ideal selling opportunity.

 

AUDUSD: No change: “Fresh selling has provoked an even steeper decline in the AUDUSD, with the pair falling towards the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie. Bullish divergence on the daily chart has formed once more, suggesting that consolidation or perhaps a small rally back towards 0.9330/420 is due; or another quick, sharp drop is necessary to clear the technical discrepancy.”

 

S&P 500: Last week I said “now price finds itself on its way towards mid-June swing highs and the 76.4% Fib retracement (May high June low) at 1655/60.” Gains have accelerated, with the S&P 500 achieving the 88.6% Fib retracement at 1672/75 overnight; a test of the yearly and all-time high at 1687.4 shouldn’t be discounted yet.1640 is key support for bulls.

 

GOLD: No change “Gold has fallen into the 10/20 RSI support region, where price has held on numerous probes lower ultimately producing a short-term rally. More recently, daily RSI has only dipped into this region in mid-February and mid-April…Basing just below $1200/oz shouldn’t be dismissed, as at 1189.91 lies the 100% extension of March high/April low/April high move, as well as the 61.8% extension of the October high (post-QE3 announcement)/April low/April high move at 1192.” It should be noted that the rally off of Friday’s low has produced a maximum of +10.02% so far, eclipsing the rebound seen from late-May to early-June, when Gold rebounded by +6.36%.

 

Source: http://dld.bz/cH3uM

How to Trade Forex after a Major News Release

Article Summary: News trading often brings the biggest moves of the month. Because of this, it’s no wonder that trader’s seek out high importance news events to try and catch a big move. However, if you don’t have a solid plan for trading the upcoming event, you’re likely better off not trading at all. Here is a plan to make sure you’re ready when a big move comes your way.

“Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there. In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there’s nothing more for you to do. Focus instead on those things you want least to happen and on what your response will be.” – William Eckhardt

Have you ever wondered why markets move so much before a news release? Quite simply, it’s because of massive amount of traders are entering or exiting based on the news release and these traders want to do so at the price they feel is best. This causes a relatively large move immediately following a news release.

Now, trading the news is exciting. However, it’s also risky due to the large moves that follow a news release and because of these moves you need to be well prepared ahead of time if you’re interested in trading around big news events. First, it’s important to cover how to know when a big news event is coming out.

Learn Forex: News Events Cause Forex Prices to Fluctuate Greatly

 

A Quick Primer on the DailyFX Economic Calendar

The Economic Calendar is a key tool to help make you aware of when a High Importance event is coming out like the Federal Reserve Minutes or a Bank of Japan Rate Decision. To find the news that will most likely move the market, you should adjust the filter to only see High Importance events so that your calendar isn’t flooded with news that has little probability in moving the market. Once the filter is applied, you can begin looking for news events on currencies that you’re trying to find good opportunities in.

Learn Forex: DailyFX Economic Calendar Can Help You Be Aware Of Market Moving Events

Courtesy of Dailyfx.com/Calendar

The Two Kinds of News Results You Should Be Aware Of

Now that you know what news events to focus on, you should know that all news releases are not treated equal and you should know the differences. what the expectations for the numbers are. The expectations are important because the market has likely priced in the expectations so that should the news release is exactly at expectations you wouldn’t expect too large of a move. On the other hand , if news releases and the numbers are way out side of expectations, then you will see a massive move in which you should be prepared to trade if this style of trading fits your risk profile.

Whether you’re trading a short-term or longer-term strategy, you need to know how news comes out in regards to expectations. If markets come out in line with expectations then you will approach the set up completely differently than if the release is completely outside of expectations.

Release In Line With Expectations: Locate Key Price Levels to Enter Into a Trade

More than likely, you will see a reaction to the news event even if the numbers come in line. This can be because a flow of orders comes in the moves around prices but regardless of the reason this is your opportunity to have the market prove to you a level of support or resistance. If price touches that important level and holds, you can enter in a way so that your risk is still tight as the market continues business as usual.

Learn Forex: When News Comes Out In Line, Look For a Good Entry on the Current Move

 

There are two simple and objective tools you can use to find support or resistance so you can identify a high probability entry off a news event. The first would be Pivot Prices which are objective points of support and resistance based on prior price action. The other tool would be a trendlines which is a manually drawn line connecting price points where the trend continue.

Release Outside of Expectations: Locate Breakout Levels to Enter Into a Trade

Learn Forex: Trendlines Can Help You Catch an Entry as The Next Move Unfolds

 

If a trendline is truly broken, retested and then continues in the direction of the break, you have a clear trade with tight risk. Naturally, a trend line break would most likely happen only on high volatility caused by news coming outside of expectations. When an entry is triggered of such a move, you can place a tight stop below the trendline to prevent you from holding a counter trade if the trend resumes.

 

Source: http://dld.bz/cH3tQ

US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

ASIA/EUROPE FOREX NEWS WRAP

The USDJPY imploded overnight, slipping by over one percent and testing prices under ¥100.00, as the continued streak of improved Japanese data has investors reconsidering their stance on the Bank of Japan. Volatility in the USDJPY couldn’t be more appropriate, given what’s due ahead on the economic docket into the end of the week.

Later today, the Fed’s June 18 to 19 meeting Minutes will be released, which will only be market moving insofar as there is a vocal minority apparent – one that seeks to extend QE3 or one that seeks to taper immediately. While the Minutes would normally garner more attention, the big Fed event on the day is Chairman Bernanke’s speech in Boston on economic policy shortly after the closing bell. The speech is entitled “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future,” meaning there is scope for discussion on future policy.

Considering that Fed officials have been on the defensive since the June FOMC meeting – and the chairman himself has yet to opine – it wouldn’t be surprising to hear Chairman Bernanke utilize dovish rhetoric, if only to serve as a counterweight to the recent uptick in borrowing costs. With the Fed set to balance its tone, the BoJ on Thursday will provide the ammunition to see the USDJPY selloff into the end of the week as long as a hold prevails. This may be the last BoJ meeting marked by inaction, as the Japanese diet elections over the coming days will cement power with the pro-easing/Abenomics camp, which should pave the way for more accommodative policies in the fall.

 

Taking a look at European credit, weaker peripheral credit has fueled the EURJPY selloff, although pressure on the Euro is quite limited. The Italian 2-year note yield has increased to 1.580% (+5.7-bps) while the Spanish 2-year note yield has increased to 2.008% (+9.4-bps). Similarly, the Italian 10-year note yield has increased to 4.469% (+6.2-bps) while the Spanish 10-year note yield has increased to 4.815% (+9.7-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 10:55 GMT

JPY: +1.11%

AUD: +0.49%

CHF: +0.38%

EUR:+0.33%

GBP:+0.28%

CAD:+0.25%

NZD:+0.22%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.47% (+0.57%prior 5-days)

ECONOMIC CALENDAR

 

TECHNICAL ANALYSIS OUTLOOK

 

EURUSD: No change as price flirts with a H&S breakdown:“Risk should be contained to the June 25 high at $1.3150, looking for a break below 1.2970 to yield a move towards 1.2770/800.” 1.2807 printed to the downside before price rebounded this week, and the rejection of the 76.4% Fibonacci retracement at 1.2902 (price fell short at 1.2897 today) suggests that selling pressure remains strong. A close below 1.2800 tentatively triggers the broader Head & Shoulders pattern, whose measured move points to a return to the June 2010 lows near 1.1875.

 

USDJPY: No change from Tuesday: “The rejection of the 76.4% Fib retracement at ¥101.35/40 (May high to June low) is only a near-term setback, as the break off of the late-May to mid-June correction in the pair completed the last week of June. Furthermore, a run to RSI resistance should be accompanied by price accompanying higher towards 102.40/60. Looking to buy dips as long as 99.00/25 is held.”

 

GBPUSD: No change: “Big picture: the GBPUSD broke the uptrend off of the 2009, 2010, and 2012 lows, signaling the beginning of a greater selloff towards 1.4200. Any rallies in the pair look to be sold; price could climb to 1.5290 (50% Fib March low to May high) on a rebound now that the GBPUSD has broken through RSI trend support off of the March 12 and May 29 lows. Price has undercut key Bear Flag support off of the March 12 and May 29 lows; and now the move towards 1.4200 appears to have begun.”

 

AUDUSD: No change: “Fresh selling has provoked an even steeper decline in the AUDUSD, with the pair falling towards the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie. Bullish divergence on the daily chart has formed once more, suggesting that consolidation or perhaps a small rally back towards 0.9330/420 is due; or another quick, sharp drop is necessary to clear the technical discrepancy.”

 

S&P 500: No change: “A brief reprieve at 1635/40 (23.6% Fib Feb low May high, 61.8% Fib May high June low [blue line]) proved only a near-term stumbling block, and now price finds itself on its way towards mid-June swing highs and the 76.4% Fib retracement (May high June low) at 1655/60.”

 

GOLD: No change “Gold has fallen into the 10/20 RSI support region, where price has held on numerous probes lower ultimately producing a short-term rally. More recently, daily RSI has only dipped into this region in mid-February and mid-April…Basing just below $1200/oz shouldn’t be dismissed, as at 1189.91 lies the 100% extension of March high/April low/April high move, as well as the 61.8% extension of the October high (post-QE3 announcement)/April low/April high move at 1192. It should be noted that the rally off of Friday’s low has produced a maximum of +7.36% so far, eclipsing the rebound seen from late-May to early-June, when Gold rebounded by +6.36%.”

 

Source: http://dld.bz/cHvTw

Pound Sells Off on Concerned BoE Forward Guidance

The Bank of England released slightly dovish forward guidance with its July interest rate and asset purchase decision, thereby breaking away from the usual habit of not providing reasoning for the decision until the release of the meeting’s minutes later in the month. The BoE comments noted that higher market interest rates are weighing on its economic outlook, which led to a selloff in the Pound against the US Dollar.

The BoE decided to keep the interest rate and asset purchase target at 0.5% and 375 billion Pounds respectively, as was expected by a majority of Bloomberg surveyed analysts. However, there was speculation that the new governor, Marc Carney, would look to add a forward guidance statement, as a measure to explicitly spell out flexible inflation targets and desired economic performance. Therefore, the appearence of forward guidance that noted worry over interest rates was received as dovish in Forex markets.

Regarding economic performance, the BoE said that although the economic recovery is on its way, it is still weak based on historical standards and slack is expected for some time. These comments may have been seen by some as unexpected following the recent multi-year highs seen in UK manufacturing and services PMI’s.

The central bank also said that inflation is set to rise further above May’s 2.7% rate in the near term, but will eventually fall back to the BoE’s target inflation rate. The minutes from the meeting will be published on July 17.

The presence of the forward guidance as well as the new concerns over market interest rates drove the Pound over 150 points lower against the US Dollar. GBP/USD is trading below 1.5100 at the time of this writing, and may next see support by the key 1.5000 level. Cable may find resistance by a rising trend line from March, currently at 1.5128.

GBPUSD Daily: July 4, 2013

Source: http://dld.bz/cGx5p

Why Human Nature Works Against You as a Trader

The goal of trading is to make money by forecasting future price movements.

This is inherently difficult because, as human beings, we cannot tell the future.

Surely many new traders analyze data announcements, or economic reports with the goal of buying cheaply before prices may run up, or selling ‘expensive’ before prices move lower; but those traders will often soon find out that consistent profitability is considerably more difficult than ‘out-guessing’ the market.

In this article, we’re going to approach a psychological road-block that many new traders struggle with in their effort to find consistent profitability.

Defining Trading Success

Human beings naturally recognize patterns. It’s an evolutionary trait; if a man or woman were to wander out of a cave only to get eaten by a bear, others in that cave should grow cautious of leaving.

We attach emotions to results because that’s the best way to move towards success, whatever the pursuit may be.

In trading, this often entails feeling good when we win, or feeling bad when we lose. This is the stimuli that guide our future patterns and decision making processes. But is this the best way for a trader to approach the market; hinging their decisions on what may feel ‘best?’

It’s Not How Often You are Right that Matters

Despite the fact that traders, on average, lost money – they still won well over half of the time in most currency pairings. Below, we take a look at the average winning percentage in the major currency pairs:

Think about these winning percentages for a moment. These traders had that feeling of jubilation that comes from a winning trade more often than they had the feeling of failure after taking a loss.

So, despite the fact that traders lost money, on average, in these pairings, they still ‘felt’ like they were successful.

Is Feeling Successful More Important than Being Successful?

Just as the title of this article states, default human nature – that which runs towards pleasure but away from pain is the same thing that makes it so difficult for new traders to learn to trade.

And the reason for that is what happens on a per trade basis…

Remember, the traders above – while they felt successful more often than they felt failure – they were still losing money. So, they were still, on average, facing failure.

And the reason for this is because of what happens on an individual, per-trade basis.

We want to find the reason that traders were losing money despite the fact that they were winning over half the time; and the answer is below:

As you can see in the above series of pie charts, traders lost, in many cases, significantly more when they were wrong, than they won when they were right.

And this is precisely how human nature can work against us as traders. When we get a losing position, we want to wait it out, hoping that prices come back so that we don’t have to take a loss. We desire that ‘feeling’ of success as opposed to thinking of the bigger picture, and the fact that this trade that has already shown us a loss has the potential to show us an even bigger loss.

And when we do get a winning position, that same human nature comes into work against us. We watch the position with fear, hoping that this gain doesn’t turn around and become a loss. So, we have a tendency to close these positions really fast in an effort to prevent a winner from becoming a loser…. Once again, allowing our actions to be driven and directed by that desire to ‘feel’ successful.

 

How can we beat our own Human Nature?

While beating human nature in a larger context may be considerably more difficult than we can propose to counter in this article, doing so in trading can be quite a bit easier to implement.

First and foremost – look for minimum risk-reward ratios of 1-to-1 or better; or put more simply, only enter trades in which you can make more than you stand to lose.

Secondly, remember that any given trade that you place is unlikely to be anything more than just one of a thousand insignificant trades that you place in your career.

And third, don’t expect that you are going to ‘out-guess’ the market… because it likely won’t happen.

If this is challenging, place a stop and a limit on the trade to enforce this minimum 1-to-1 risk-to-reward ratio, and let the trade work. You can add or program for a break-even stop, or a pre-determined stop movement; but at all points – Plan your trade, and trade your plan.

 

Source: http://dld.bz/cGndV

British Pound, Euro Reverse and Post Modest Gains vs USD on Stronger Data

ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is slightly lower on the day as the rest of the majors outside the Japanese Yen have started to claw back the prior two week’s losses, although any such bearish price action exhibited by the US Dollar is largely seen as an opportunity to get long. The three safe havens – the Swiss Franc, the US Dollar, and the Yen – are trailing overall, while the commodity currencies – the Australian, Canadian, and New Zealand Dollars – are among the top performers amid relatively calm beginning of the week, of the month (July), and of the quarter (3Q’13) flows, typically a more volatile period.

Accordingly, today’s price action is very indicative of only a modest desire for risky assets, despite stronger than expected data from the Euro-Zone and the United Kingdom. Notably, peripheral PMI Manufacturing surveys (Italian and Spanish) for June outperformed, as did the UK’s PMI Manufacturing report; the EURUSD climbed above $1.3050 on the news while the GBPUSD retook $1.5200. Whether or not the early-week bullish price action in the European currencies can be sustained through the week’s close is in question, given the significant overhang of the Bank of England Rate Decision, the European Central Bank Rate Decision, and the June US labor market report, all of which are due between Thursday and Friday.

Looking ahead to the North American calendar today (see more below), the US ISM Manufacturing (JUN) report should generate significant interest despite a very meager print expected. While manufacturing activity hasn’t been the cog to strong American growth in several decades, strength in this sector implies a healthier economy in general, and therefore, the print will be important insofar as it will set sentiment for the US Dollar in the days leading up to the June labor market report.

Taking a look at European credit, another bout of strength in peripheral debt has afforded the Euro room to rally on Monday, particularly against the Japanese Yen (the EURJPY tracks short-term peripheral debt closely). The Italian 2-year note yield has decreased to 1.853% (-6.6-bps) while the Spanish 2-year note yield has decreased to 2.126% (-7.7-bps). Similarly, the Italian 10-year note yield has decreased to 4.492% (-4.8-bps) while the Spanish 10-year note yield has decreased to 4.638% (-11.1-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 10:45 GMT

AUD: +0.57%

NZD: +0.52%

EUR: +0.31%

GBP:+0.07%

CAD:+0.31%

CHF:+0.01%

JPY:-0.47%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.20% (+1.04% prior 5-days)

ECONOMIC CALENDAR

Source: http://dld.bz/cGbY6