FX Island

via DailyFX

• Fed Report Points to Further Rate Cuts, Dollar Accelerates Its Record Breaking Declines
• Euro, Backed By Strong Data, Blows Through 1.50 Against The Dollar
• Australian Dollar Joins Its New Zealand Counterpart At Multi-Decade Highs

Fed Report Points to Further Rate Cuts, Dollar Accelerates Its Record Breaking Declines

Since the dollar marked its unfavorable milestones late in the US session yesterday, traders around the world have jumped in to sell the battered currency. Now at record lows, bulls have quickly lost hope in a possible rebound from an overextended greenback. In fact, looking across the market, we have seen the influences of an unwanted dollar on otherwise sound technical formations among the majors. Momentum in EUR/USD pushed the pair through the closely watched 1.50 level and quickly surpassed 1.51 in the same session. Those currencies with high yields and hawkish central banks proved especially attractive to those wanting to short the dollar. NZD/USD rallied to a new multi-decade high of 0.82 while the Australian dollar broke to a new 23 year high. This follow through momentum wasn’t found on sentiment alone, however; Fed Chairman Ben Bernanke’s semiannual testimony before the House Financial Services Committee certainly played its part. Few major changes were made in the central banker’s outlook for economic activity and Fed policy from last week’s minutes from the January 29-30 FOMC meeting; though his commentary did confirm the outlook for further policy easing. In his testimony, Bernanke said the policy group would be “carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.” In addition to his concern for growth, Bernanke had also recounted concern over inflation trends. While these worries have been present in the Fed’s commentary for some time, more media outlets and analysts have connected the dots and taken these forecasts to mean the economy will fall into a period of stagflation. Besides the Fed Chairman’s dour commentary, the market had further reason to sell dollars from two disappointing indicators. The Commerce Department reported a 5.2 percent drop in durable goods orders – the biggest such contraction in a year – predominately due to the drop in consumer sentiment and its expected effect on American’s spending habits. And, keeping the pressure on the housing market’s recession, new home sales dropped a greater-than-expected 2.8 percent to a 588,000-annual pace, now the weakest since 1995.

[youtube:http://www.youtube.com/watch?v=Xq0TTv-of-M]

by KBC Market Research Desk

EUR/USD showed some intraday swings on Friday, but in retrospect the pair basically traded sideways. EUR/USD started European trading in the 1.48 area, but was propelled higher as the European PMI data came out on the stronger side of expectations. The combination of poor US data recently and those better than expected European data was seen as another indication that the ECB won’t be in a hurry to take action anytime soon, maintaining the euro favourable interest rate differential. To be honest, the European data on Friday weren’t unequivocally positive as the French data (consumer spending and Business confidence) and the EU industrial orders came in well below expectations. The euro fell prey to some profit taking later in US trading, but still closed the day at 1.4828, slightly higher compared to the 1.4814 close on Thursday. more…

by David Morrison
In this article, David describes the advantages of forex trading compared to other forms of trading. Certainly having no brokerage costs adds to the profitability of trading any product, and hence is one of the attractions of currency trading. Here’s the article:

There are many different advantages to trading forex instead of futures or stocks, such as: more…

by David Jenyns

An interesting title? Here David talks about what not to do, and it is a trading strategy that many people still do, usually for no apparent reason apart from being something they heard other people did, but don’t understand how it may not be suitable for trading. Here’s the article:

You may be wondering, `Why would David Jenyns write about the worst Forex trading strategy around? more…

by KBC Market Research Desk
On Tuesday, the euro extended its rise against the dollar. The trend was already in place since early last week and in the absence of key economic data the move was extended. The ECB (Noyer) still being rather optimist on the European economy going into 2008 might have been slightly euro supportive and this also was the case for the positive market sentiment that reigned on the stock markets, at least in the early hours of trading. However, later in US trading the euro (and stocks) clearly lost momentum and EUR/USD closed the day at 1.4725, still a decent gain compared to the 1.4657 close on Monday. more…

by Bob Kozak

Canadian Dollar (CDH8):

The CD opened higher at .9932 against a weaker DX, as higher metals/energy prices increased export revenue potential. Prices hit a morning Hi of .9948, before a decline in Dec.Wholesale Sales and lower core inflation set the tone for at least a 50bp rate cut at the March 4th rate meeting. The CD retraced to a daily Lo of .9824, before bouncing into the close to end the session at .9827, down 77 tics. The s/t trend remains ‘negative’ w/ ‘weak’ momentum indicators. Traders will key on the Fib .618 level of .9818, looking for support and watching the U.S. CPI and Housing Starts data. A lower open may find Support at .9785 and .9742, while an open above .9866 should find Resistance at .9909 and .9990.
Dollar Index (DXH8): more…

Source: The Forex Trader

As a Forex trader you will always be attempting to make more profits than losses from the fluctuations of exchange rates between currencies in the forex market; in short, this is what is called forex trading. The good news is that nobody is going to ask you for a diploma, or somehow verify the amount of hours you’ve spent studying the foreign exchange market (FOREX). All you need is the proper training and the tools that will help you become a profitable trader. But this is not the only advantage you get when trading forex, compared to other ways of investment and speculation as stocks. You have a other great advantages that will make you decide for forex and forget about stocks and commodities.

1): There will Never be a Bear Market in FOREX.
You can have access to a mutually-inclusive (two-way) exchange of world currencies. In other words; currencies trade in “pairs”(for example, US dollar vs. yen or US dollar vs. Euro), one side of every currency pair is constantly moving (up or down) in relation to the other one. Thus, when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value while the other will decrease proportionally. It is up to you to choose the correct currency to be long or short. Since currency trading always involves buying one currency and selling another, it all means that you have equal potential for profits in both a rising or falling market.

2): Trade with High Leverage – up to 200:1 Leverage.
Every trader participating in the forex market is allowed to trade foreign currencies on a high leverage basis – up to 200 times your investment with some brokers. This is primarily attributed to the higher levels of liquidity within the currency markets. Standard 100,000-unit currency lots can be traded with as little as 1% margin, or $1,000, which is a pretty nice feature of forex. Mini Forex accounts are permitted to trade with just 0.5% margin — in other words, just $50 allows you to control a 10,000-unit currency position. Futures traders, who are asked for margin requirements generally equal to 5%-8% of the total contract value, will immediately appreciate that the FOREX market provides much greater leverage; and stock traders, who must post at least 50% margin, may think they are dreaming.

3): Most Price Movements Are Highly Predictable.
Many times currency prices in the forex market may be volatile, but they have the great advantage that generally repeat themselves in relatively predictable cycles, creating trends. The strong trends that foreign currencies develop are a significant advantage for traders who use the “technical” methods and strategies.

Unlike stocks that sometimes seem to simple lay down in narrow price alleys, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. It is known that over 80% of the trading volume in forex is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. As a technically-trained trader, you can easily identify new trends and breakouts, which provide for multiple opportunities to enter and exit trading positions.

Source: Reuters

By Toni Vorobyova

LONDON, Feb 6 (Reuters) - The yen gained against the dollar and euro on Wednesday as worries about the health of the global economy and a sharp sell off in Asian equity markets made investors less willing to take on risk.

In such an environment, they tend to buy back the Japanese currency, having previously borrowed it as a source of cheap funding for relatively risky carry trade bets in higher-yielding assets.

Worries about the global economic outlook were stoked on Tuesday by a much bigger than expected plunge in the U.S. Institute for Supply Management’s non-manufacturing index, which posted its biggest monthly decline on record. more…

The EUR/USD broke support at the 1.4600 psychological level, and the European Central Bank announced its decision to keep rates on hold, during the hour prior to the start of today’s New York session. Traders who took the short trade entry at the re-test of the figure were in excellent position to capitalize an hour later. The euro dropped to the tune of 60 pips in response to the speech by ECB president Jean-Claude Trichet, whose comments were less hawkish in comparison to his recent language on monetary policy. The move from conservative entry to logical profit target produced nearly 90 pips before the session’s first hour was complete, and a second chance trade about two hours later was good for an additional 50 to 70 pips.

[youtube:http://www.youtube.com/watch?v=7ND6dw3nX5E]