FX Island

Oil futures were trading higher early Tuesday at the New York Mercantile Exchange, assisted by U.S. dollar weakness and concerns that a Nigerian labor dispute could hinder global crude supplies.

However, West Texas crude for August delivery recently retraced the bulk of its gains and was ahead by 17 cents at $136.91 a barrel. Brent crude was 55 cents higher at $136.46 a barrel.

Reformulated gasoline was fractionally higher at $3.46 a gallon, and heating oil was up 3 cents at $3.82 a gallon. Near-term natural gas was down 14 cents at $13.06 per million British thermal units. more…

US consumer confidence, as measured by the Conference Board, fell to a fresh 16-year low of 50.4 in June from 58.1. The news was much worse than expected, as the index was forecasted to slump to 56.0. A breakdown of the report shows sentiment on the present situation, future, and labor markets turned increasingly pessimistic. In fact, the employment component indicated that 30.5 percent of respondents said jobs were hard to get, up from 28.3 percent, while 14.1 percent said jobs were plentiful, down from 16.1 percent. These indexes have shown a consistent deterioration since December, and with the US unemployment rate rising steadily and energy and good prices rocketing, consumer confidence is likely to slump further, boding ill for consumption growth in the US.

Rising oil prices mixed with fading growth prospects pressed on the US dollar, and led the currency to weaken against all of its major counterparts. In the fray, the commodity currencies picked up minor gains against the greenback though oil prices rose above $136/bbl. The low yielding Swiss franc soaked in the biggest gains against the greenback, while the Japanese yen rebounded from a three-month low to trade around 106.8. Against the European currencies, the dollar tumbled against the euro to 1.56, while the British pound inched higher to trade at 1.96 against the greenback.

Today’s fundamental winds were driven by interesting Fed commentary. At the Boston Fed Conference, Fed Vice Chairman Donald Kohn stated that rampant energy prices have driven up inflation expectations, and that anchoring long-term inflation expectations will be ‘critical’ to the success of the Fed’s monetary policy. This more or less confirms Chairman Bernanke’s suggestions that monetary policy will be based on inflation trends going forward. The same sentiment was found in the Fed’s Beige book. Though the report noted ‘generally weak’ economic conditions through April and May – with particular concern surrounding a ‘widespread’ fall in domestic demand – it had also confirmed upside inflation risks. From the docket, only the MBA index was noteworthy. The indicator reported a 10.9 percent rebound in filings from a six-year low, suggesting lower prices are slowly encouraging buyers back to the market even as mortgage rates rise. more…

Forex options are a great way to invest in the forex. This introduction will give you the basic information you need to start understanding forex options and how they can be a great tool for risk control and speculation.

About trading forex options

Forex options are available from certain forex dealers in over-the-counter versions, just like spot forex contracts. If you are interested in setting up a demo account with a dealer that offers forex options, click here. Forex options are also available as exchange-traded securities, which means you will need an options broker to trade them.

You can buy and sell forex options. When you buy, or go long, a forex option, your risk is limited to the amount you paid for the option. When you sell, or go short, an option, your risk is unlimited, just like going long or short a currency pair. In this section we will talk about using options as a long trade. In later sections, we will talk about how you can use options on the short side. more…

As anti-dollar sentiment reached its peak mid-March, the Swiss Franc overcame parity with the US dollar to reach a historic low at 0.9644. The franc derived additional strength from its status as a safe-haven currency, gaining additional momentum as the dollar sell-off intermingled with intense bouts of risk aversion. As it became increasingly clear that Europe and Asia would not decouple from US slowdown towards the end of the first quarter, the greenback began a slow retracement from the lows.

USDCHF price action is now showing a Flag pattern indicative of continuation for the fledgling bullish trend. With the pair trading just below resistance just days before the markets expect to see May Non Farm Payrolls shrink -52k, there is a substantial possibility that the pair will retrace lower before a topside breakout is to materialize.

Hedging Strategy

Currency Pair: USDCHF

Long Term Bias: Bullish
Long Term Position: Holding Long

Short Term Bias: Bearish
Short Term Position: Short below 1.0490, Target 1.0290, Stop-Loss at 1.0540

Traders looking to protect their existing long USDCHF position or enter long at a favorable price may consider a hedge short USDCHF below 1.0490 with a target at 1.0290. Once the profit target is hit, we expect the bullish trend to resume. We will maintain a stop-loss on our hedge position should USDCHF break out to the upside prior to the limit being hit. We will set the stop-loss near 1.0540.

by KBC Market Research Desk

KBC Bank

On Thursday, EUR/USD extended its correction lower. This was mostly technically driven. The intra-day (inverse) correction between de dollar and oil prices was far less obvious than on Wednesday, even if it is often mentioned as the explanation for the move. Both the European data (M3, en EC business confidence indicators, among others) and US data (Claims and GDP revision) had a limited impact on trading. Aside for technical considerations (EUR/USD dropped below the 1.56 neckline double bottom) we also assume that markets considers the change in the European interest climate as mostly priced in. Investors now apparently tend to give more attention to the recent warnings of the Fed that interest rates might be raised rather soon in order to contain inflationary pressures. Whatever the reason, EUR/USD closed the day again lower (fro the third day in a row) at 1.5530 compared to 1.5639 on Wednesday.

Today, the European calendar contains the EMU CPI and unemployment data. In the US the Michigan confidence and the Chicago PMI will be published. There are also speeches of ECB hawks Weber and Stark on the agenda. more…