Can the Sterling Hold at Current Levels?

Can the Sterling Hold at Current Levels?

Sterling

The GBP/USD pair is currently trading at 1.3205, close to its 52-week high of 1.34427. The sterling has enjoyed an imperious run of form in 2017, starting at around 1.23, and gaining approximately 7.3%. The US dollar index indicates an overall poor run of form by the greenback, with a year to date decline of 9.09%. Over the past 5 days (ending August 1, 2017) the DXY has shed 0.96%.

During July, this broad measure of the USD’s performance against 6 currencies (JPY, CHF, GBP, CAD, SEK, and EUR) shed 3.25%. The performance of the USD mirrors the uncertainty currently felt in the US political arena. President Donald J. Trump has been battling to get anything passed in the Senate, with Republicans and Democrats digging in their heels and refusing to budge on repealing and replacing the Affordable Care Act.

Prospects Ahead of Super Thursday Powwow

Weiss Finance expert, Montgomery Smyth is short-term bullish on the cable, and had this to say about its recent performance,

‘…While we have seen a notable uptick in the strength of the GBP, caution remains the order of the day. In the six weeks between 21 June 2017 and 1 August 2017, the cable has appreciated by 5.1%. The last time that occurred was 11 months ago in September 2016. Sterling strength is being helped by USD weakness, but neither points to a fundamental strengthening of the UK economy. Brexit -related concerns remain, and the UK’s negotiating hand has certainly been weakened after the general elections. The main concerns faced by Britons relate to rising CPI figures and weak wage growth. It remains to be seen how the Bank of England will address these concerns when it meets on Super Thursday.’

Meanwhile, currency traders are wasting no time pinning their hopes on an impressive sterling recovery. The GBP/EUR pair rallied on Tuesday, 1 August 2017, in the hopes of increased hawkish sentiment at the BOE. The August interest-rate decision is a big one, and pundits are anxiously awaiting Mark Carney’s statement. The MPC meeting on Thursday will wrap up August’s interest rate decision. Previously, a split vote of 5:3 in favour of retaining interest rates at the historically low 0.25% was adopted. A rate hike may not come to fruition, but sentiment of MPC members will be an important barometer of which direction the GBP will move.

Trading Above the Averages

Experts like Montgomery Smyth believe that even if 2 of the 8 Monetary Policy Committee members vote in favour of a rate hike, the GBP/USD pair could extend its rally. For Pound bears, there is equal optimism. Inflation has retreated from the red line zone of 3%, and that is typically associated with decreased urgency to raise the Bank Rate. The dissenting voices in the MPC include Ian McCafferty and Michael Saunders, but it remains to be seen whether Andrew Haldane will vote to pull the trigger. It has been 10 years since the Bank of England raised interest rates, and most projections indicate this being an unlikely scenario. Currently, the GBP/USD pair is trading well above its 50-day moving average of 1.290, and its 200-day moving average of 1.260. Short-term bulls dominate the scene.

Volatility Could Come Back in the Tech Sector

Volatility Could Come Back in the Tech Sector

There’s been a lot going on in the technology sector lately, with the NVIDIA Corporation (NASDAQ: NVDA) sell off and the selloff in late June after Alphabet Inc Class A (NASDAQ: GOOGL) got hit with a $2.7B fine, which pushed the stock down over 2% after the announcement.

Volatility in NASDAQ-100

Now, in early June, the tech sector fell significantly, with Apple Inc (NASDAQ: AAPL), the world’s largest company by market capitalization, leading the selloff. Apple had its worst plummet in around 14 months, and investors were concerned that the rally in the tech sector might be over. However, traders were loving this volatility, as it provided some opportunities that they could have potentially profited off of.

According to Wedbush Securities San Francisco Senior Vice President Stephen Massocca, “All you need is a spark. Everything has gotten pretty expensive, multiples are very high. It doesn’t take much to get a decline started.”

One of the most talked about stocks that day was NVDA, after Citron Research’s Andrew Left tweeted  about the chip maker. Here’s what Citron Research tweeted, $NVDA become a casino stock. Will trade back to $130 before $180 If you think no comp READ Google whitepaper http://Citronresearch.com.”

According to trader Jason Bond, “Citron Research has been moving stocks with its tweets and research, after their famous short call on Valeant Pharmaceuticals. When they tweet, it’s a catalyst event, and it’s uncovered some potential trading opportunities in those names.”

Take a look at the chart below of QQQ.

qqq
Source: TradingView

The selloff in early June may have been sparked by comments made by Citron Research, which trickled down to other tech names.

A few weeks later, as stated earlier, Google got hit with a $2.7B fine, and the stock started selling off. Thereafter, this led some other tech stocks to sell off, and the Nasdaq-100 ETF ended the day down over 1.5%.

Here’s how the PowerShares QQQ Trust, Series 1 ETF (NASDAQ: 100) traded in the start of the last week of June.

powershares
Source: TradingView

For investors and traders who are still long technology stocks, but want to hedge some risk, they could potentially use gold to diversify their holdings.

Gold As A Hedge

Historically, we’ve seen precious metals rise when the market is selling off. The primary reason for this is due to the market’s view of gold and silver as potential safe havens. That in mind, if the technology sector continues to experience volatility, some investors and traders might want to look to gold as a hedge. However, those who don’t want to hold physical gold could use exchange-traded funds that provide exposure to gold.

Now, when gold prices rise, this trickles down to gold miners, and ultimately, exchange-traded funds (ETFs) tracking the gold mining industry, such as the Market Vectors Gold Miner ETF (NYSEARCA: GDX), tend to rise.

That in mind, some investors would want to look to an ETF like GDX and the SPDR Gold Shares (NYSEARCA: GLD) to potentially hedge against another sell off in the tech sector.

The Bottom Line

Volatility could come back into the technology sector, which could ultimately affect the overall market. We’ve seen NVDA fall significantly, after Citron Research tweeted about the name. Additionally, we saw the European Union slap Alphabet Inc  with a $2.7B fine, causing the stock to selloff, which trickled down to some other technology names. That in mind, those who are still long tech stocks might want to consider hedging their portfolios.

Are Bank Stocks Looking Bullish Again?

Are Bank Stocks Looking Bullish Again?

bank of america

2017 gave investors pause with respect to banking and financial stocks. What started out as a year of bullish expectations rapidly waned and became a risk-off approach to bank stocks. On Friday, 9 June 2017, banks returned to favour once again. A record-setting session of trading boosted major Wall Street indices on the back of strong gains by major banks like Bank of America Corporation (BAC), Goldman Sachs (GS), and JPMorgan (JPM).

The S&P 500 index rallied accordingly, and the financial index rose almost 1.5% on the day. Of course, Friday’s rally on Wall Street was driven largely by the ineffective testimony of disgraced FBI director Jim Comey to the Senate intelligence committee. Now that it is clear that no criminal charges or investigations are ongoing with the US president, he has been vindicated to a large degree.

Why Are Bank Stocks Looking Attractive to Traders and Investors?

For the most part, banks have not fully absorbed the impact of multiple rate hikes from the Fed. For example, the Fed FOMC meeting on Wednesday, 14 June should be viewed as a catalyst for greater profitability for the US banking and financial sector. When the federal funds rate increases, this benefits banks, credit providers and other financial institutions immeasurably. This will ultimately be reflected in greater profitability, and a higher stock price.

Bank of America is currently trading at $23.68 per share, up 0.11% on the day. The bank has a year to date return of 7.78%, and a 1-year return of 68.92%. As of June 9, 2017, the 1-week return of BAC was 5.43% – significant given the selloff that took place with technology stocks on the NASDAQ.

There are many reasons why investors are taking a favourable view of bank stocks, including the proposals of the Trump administration:

  • Deregulation of the corporate sector will reduce operations and compliance costs dramatically
  • A possible repeal of Dodd Frank will make it easier for major banks and financial institutions to operate
  • Decreased corporate taxation to 15% (if possible) will boost bank profits
  • A steadily increasing federal funds rate will make it possible for banks to generate more interest-related earnings
  • Banks are now reaping the rewards of austerity measures, disruptive technology, and various other downsizing initiatives

What Are the Most Successful US Banks?

Banks are known as yield sensitive financial industries. In other words, they are heavily dependent on monetary policy for their profitability. There is a marked contrast between the profitability of US banks and their European or Japanese counterparts. Banks in those regions operate in negative interest territory, and their profitability is in serious jeopardy. US banks have approximately 75.6% interest-sensitive assets, and their fixed-rate assets proportion is low. Their interest-sensitive liabilities are at 29.2%.

US banks also have a 1.0% return on assets, and a low overall risk to profitability.

A leading Lionexo trading options analyst, Harriet P. McGurdle believes that the health of the global banking industry hinges on the top 5 US banks. ‘…compared to France, Germany and Switzerland, US banks are much better positioned for growth, across multiple metrics. The US is the only developed economy which has turned the corner on QE and banks are first in line to gain from this.

According to reports, the total wealth held by the top 10 biggest US banks exceeds $10 trillion in assets. Leading the charge are the following top 5 US banks:

  • JPMorgan Chase and Company with total assets valued at $2.42 trillion
  • Bank of America Corporation with total assets valued at $2.15 trillion
  • Citigroup Inc. with total assets valued at $1.77 trillion
  • Wells Fargo & Company with total assets valued at $1.75 trillion
  • S. Bancorp with total assets valued at $415.94 billion

10 Creative Ways to Raise Funding for Your Business

10 Creative Ways to Raise Funding for Your Business

Nobody ever said that being an entrepreneur would be an easy task – it is probably tougher to be an entrepreneur (at the start) than to work a 9-to-5 job. One of the things that make it hard to be an entrepreneur is the money matters that arise over the course of starting and running a business. This piece provides insight into 10 creative ways for raising funds for a business.

calculator

Squeeze more money of yourself

If you need more funding for your business, you should start by finding ways to squeeze money out of yourself before looking for loans from external sources.

  • Don’t fire your boss yet: You can alleviate some of the cash problems ailing your business by keeping your current job. Keeping your current job will provide you with a steady source of income while you continue to work on your business
  • Get another job: if the income from your current job is not enough to raise your startup capital, you should consider taking on a second job. You can take on a part-time second job or start looking for ways to make money with your skills as a freelancer
  • Downsize personal expenses: You can free up more money for your business by finding ways to reduce your expenses. Perhaps it is time you learnt how to cook instead of eating out. You can also clip coupons and watch movies on Netflix.
  • Sell off some personal assets: If you have gadgets, a second car, or other valuables, you should consider selling them to raise more money for your business.

Approach loans from a unique perspective

Sometimes, the odds of getting a loan from traditional sources are simply stacked against you. Maybe your business is new, your industry is struggling, or you didn’t meet some other requirements. You can get creative to raise the funding you need.

  • Short-term loans: short-term loans are perfect for meeting short-term financing needs. If your business has a strong cashflow, short-term loans are probably the fastest routes for getting industry funding with minimal hassle.
  • Invoice factoring: You can borrow money against your account receivables by doing invoice factoring. With invoice factoring, a lender gives you money against your unpaid invoices (minus a fee)
  • Customer financing: if your business serves a sort of independent contractor to a much larger business, you can get money to keep your business afloat through customer financing. You only need to prove to the customer that they have much to gain by giving you an advance/loan to keep you in business.

High-risk loans

Sometimes, you just need the cash to save your business from going under the water and you won’t think twice about borrowing money from the devil himself. If you are in a desperate need for cash, you may want to look at some of the following options. Of course, it’s in your best interest to seek the input of a financial advisor before you take any of these high risk loans.

  • Home equity loan: You can get serious funding for your business if you don’t mind taking out a loan against the value of your home equity. Don’t default; otherwise, you’ll be moving out (or become homeless)
  • Title loans: you can get a title loan against the value of your car if you have already paid of the auto loan on the car.
  • Whole-life insurance: Many people are soaking money away in life insurance policies – you can borrow against your life insurance policy if you have paid a decent amount in premiums over the years. You’ll need to ensure that you don’t terminate the policy, default on the loan, or die until the loan is repaid.

Alternative stock trading strategies for beginners

Alternative stock trading strategies for beginners

stock trading Investing in stocks has traditionally been done through actual purchase and possession of stocks of a particular company. However, this comes with the risk of having to stick with the stock even when the price is falling and you do not find a ready buyer in the market immediately. In addition, for some other stocks you might need a huge capital outlay in order to purchase them due to their high price per share in the market. To overcome these challenges, you can choose investment strategies that allow you to trade on the stock of your choice without actually having to own it.

Trading on price movements of underlying assets

Derivatives are financial instruments that allow you to trade based on the price movements of the underlying assets without having to own the underlying assets. This gives you the protection from holding onto loss making stocks when there are no willing buyers immediately. You achieve this through the ease of exit provided by derivatives incase the market moves towards the red and you would like to let go the derivative instrument you are holding. Derivatives come in different forms and they range from the very complex financial instruments traded in futures markets by hedge funds to very simple and easy to learn binary options trading and spread betting.

For beginners, binary options trading and spread betting are the easiest to understand and start executing if you are looking for an alternative stock investment strategy. Both binary options and spread betting allow you to trade based on the price movement of the underlying stock or any other asset class that you choose; while actually not owning the underlying asset. The two trading strategies are similar in that they are executed via online trading accounts that are hosted by online trading brokers. To secure your online transactions, you will however need to thoroughly screen different brokers before landing on your preferred online trading platform. In addition, you need to consider the additional trader support offered by different platforms such as the daily market reviews offered by SaxonTrade before making the final choice. After choosing the right online trading platform, you will then need to start learning how to trade via demo accounts before delving into the live account where you invest your real money.

Differences between binary options trading and spread betting

Binary options trading differ from spread betting in a number of ways. For binary options, you make a yes or no decision with regard to the price movement of your chosen stock. If you predict that the price will go up, this is referred to as a call option; while if you predict that the price will drop this is referred to as a put option. Binary options are referred to as fixed risk contracts due to the fact that you only risk a specified amount of money if your prediction for price movement is wrong or out of the money. On the other hand, if the trade goes according to your prediction you are said to be in the money and your payoff is also fixed at certain percentage of your wager.

binary optionsSpread betting on the other hand primarily differs from binary options trading based on the fact that it has unlimited gains and unlimited loses. In spread betting, you predict whether the price of the underlying stock that you are trading on will rise or fall. Your returns are determined by the difference between the opening price and the closing price of the underlying stock. Unlike binary options where you know your maximum gain or loss before you start trading, in spread betting, your winning or losing chances are unlimited and depend on how far the price movement will be during your trading period. However, you can opt to set a “stop loss” or place a “take profit” level such that you limit your losses and profits and have a bit of control over your risk exposure.

Choosing between binary options trading and spread betting is always a matter of personal preference. Some traders prefer binary options due to their fixed risk and return structure, while shying away from spread betting due to the unlimited risk exposure they possess. However, using stop loss and take profit levels you can be able to mitigate your risk exposure in spread betting while at the same time enjoying the higher margins you stand to gain as compared to binary options trading. Ultimately your risk appetite and desired returns will be a key determinant of which alternative stocks trading strategy you will opt to go with.

 

 

Global Crude Oil Price Continues to Enjoy Bullish Tailwinds Despite Increase in U.S. Output

Global Crude Oil Price Continues to Enjoy Bullish Tailwinds Despite Increase in U.S. Output

Crude oil prices have been climbing up steadily in the last couple of months as investors continue to expect a balance in the demand and supply dynamics of oil. Last year, OPEC announced that it has worked out a deal with its member nations and some other producers to cut production volumes in order to force an increase in oil prices. Data on oil output in January shows a 90% compliance level among member nations as the promised production cuts become evident. Russia and other non-member nations have also started reducing their output to uphold their ends of the deal.

Oil wells

Oil prices started falling some two years ago after an increase in the supply of oil and a decline in the demand shifted the dynamics of oil trade. The entry of U.S. shale oil and the return of OPEC producers such as Libya and Iran caused the supply of oil to surge. To OPEC’s credit, last year’s deal to reduce the supply has shown that the cartel is not a toothless dog and investors are more optimistic about the prospects of oil. This piece seeks to provide insights into what commodity traders can expect from crude oil going forward.

Oil prices are on a bullish rally

Stakeholders in the global energy industry are optimistic that oil prices will rise – commodity traders must pay attention to this rising bullish sentiment. Since OPEC announced the deal to cut output on November 30, 2016, Brent Crude has gained an impressive 12.93% and the West Texas Intermediate has gained a decent 7.18% as shown in the chart below.

oil charts

At the start of the new week ending February 24 crude oil was up across the board. April contracts for the Brent crude oil had gained 0.49% to trade at $56.08 per barrel.  March contracts for the U.S. West Texas Intermediate was booking gains of 0.32% to trade at $53.95 per barrel.

The aforementioned gain in oil prices is particularly interesting and impressive because investors and traders are bullish even though U.S. producers could erase the production cuts from OPEC by flooding the market with more shale oil. Peter Sawyer, an analyst at Stern Options observes that “an increase in U.S. oil is a worrisome move that could potentially sustain the supply glut and water down the effects of the production cuts that OPEC is celebrating.”

Analysts at Goldman Sachs have observed that U.S. current oil rig count and been increasing for five straight weeks and the increase suggests that U.S. output could increase by 130,000 barrels per day this year. The U.S. Department of Energy also echoes the same sentiments about an increase in U.S. oil output. The Department of Energy notes that U.S. oil production could climb to 9 million barrels per day up from 8.9 million barrels per day in 2016.

In essence, stakeholders must contend with the realities of OPEC’s output cut on the one hand and rising U.S. output on the other hand. However, the fact that global oil prices are rising despite the two sides of the market coin suggests that investors are betting on increased bullishness ahead.

Final words

Crude oil is currently enjoying bullish tailwinds because investors are rewarding OPEC with goodwill for pulling off the historic deal to cut oil output. In fact, investors are starting to place speculative trades on the increased bullishness of crude oil. Bloomberg’s CFTC NYMEX crude oil net speculative positions have soared to another record high of 557,570 after gaining 29,704 points. Of course, there’s the attendant risk that crude oil could suffer a massive crash if OPEC loses its bullish goodwill. However, crude oil should continue to rise going forward inasmuch as OPEC continues to record an impressive level of compliance in the deal to cut oil production.

What Do Traders Look for with Gold?

What Do Traders Look for with Gold?

Gold Chart

Gold is currently trading at $1,215.85 per ounce, up 0.96% or $11.55. The precious metal has gained 6.40% over the past 30-day period, up $72.40. For the year to date, gold is up 4.7%, and it has an average return of 10.7% since 2002. Its best year on record in that time is 2007 when the price advanced by 30.9%. It should be remembered that gold is a safe-haven asset that thrives during times of geopolitical uncertainty. The recent appointment of Donald Trump to the presidency has had a jarring effect on financial markets. In the run-up to the election, and the immediate aftermath Wall Street equities rallied.

Indices, Currencies, FX and Commodities

The Dow Jones Industrial Average is hovering around the 20,000 level, and sharp gains have been reported with the S&P 500 index, the NASDAQ Composite Index and other minor indices. However, the rally appears to have faded somewhat after Trump’s inaugural address. The USD has been casualty number one after comments made by Trump to various newspapers to the effect that the greenback is overvalued and this is detrimental to US economic growth. An immediate selloff in the USD ensued, and this is evident in the currency cross-exchange rates of major pairs, minor pairs and exotic pairs.

  • The USD/EUR pair is down 0.3426% or €0.0032 at 0.9308
  • The USD/GBP pair is down 0.87% or £0.01 at 0.8012
  • The USD/JPY currency pair is down 1.23% or ¥1.402 at 113.193
  • The USD/CNY currency pair is down 0.31%, or CNY 0.02, at 6.8513

Dollar weakness is confirmed across multiple currencies, and the US dollar index. The vaunted DXY is trading 0.40% lower, down 0.40 at 100.23, slipping away from its 52-week high of 103.82. The index has a 52-week low of 91.92. The DXY measures the performance of the greenback against 6 major currencies including the JPY, EUR, CHF, GBP, CAD and SEK. The most heavily weighted currencies in the DXY are the EUR at 57.6%, the JPY at 13.6% and the GBP at 11.9%.

The Gold Price and the Greenback

The recent weakness in the USD was met by increasing demand for gold, which makes sense. However, as a dollar-denominated asset, gold has also moved independently of the USD. The main driver of gold demand is speculative behaviour and investment activity on major funds like the GLD SPDR Gold shares on the New York Stock Exchange. This ETF is the most important gold fund in the world. This fund is valued at $31.225 billion with 809.15 tonness of gold under its control. Any major capital inflows into this fund naturally fan out into the markets raising the price for gold bullion. In much the same way, any major outflows from GLD will negatively affect the gold price.

The Gold Price and Interest Rates

The gold price has an interesting relationship with interest rates. If rates rise, gold loses favour. The rationale behind this is simple: gold is not an interest-bearing asset. This means that the opportunity cost of holding gold when interest rates are rising is high. Since gold does not pay interest, investors tend to shy away from gold when rates are rising. Instead, they plow their money into fixed-interest-bearing securities such as treasuries, certificates of deposit or savings accounts. The Fed is expected to increase interest rates at least 3 times in 2017. The FOMC will convene again on Wednesday, 1 February, but no rate hikes are expected at this juncture.

While analysts will be cautioning market participants about the impact of rising interest rates (the federal funds rate), many opportunities exist for gold traders in the futures market. Analysts point to important educational resources such as CreditLoan.com for didactic insights into accessing credit in a tightening economy. Interest rates are expected to rise by upwards of 0.75% by the end of 2017, and this will have far-reaching implications for commodities like gold, home loans, personal loans, and overall economic activity. When the costs of capital are higher, the money supply diminishes. It will be interesting to see whether the current long-term trajectory of gold continues and the precious metal continues to lose value.

Social Investing Offers High Tech, Low-Cost Way to Copy Stock Traders

Social Investing Offers High Tech, Low-Cost Way to Copy Stock Traders

While managed funds have seen a waning interest as more investors prefer mutual and index funds, there are still those out there who prefer to follow the guidance of others when it comes to picking which stocks to buy and sell.

This is evident by the rise of online and mobile platforms that allow users to follow and copy stock traders. This is part of the growing sector of financial technology, which is rapidly changing the traditional methods of banking, trading, investing and other activities.

Known generally as social trading platforms, websites and apps that allow users to copy stock traders are playing a larger role in the growing online trading sector. Online trading initially gained popularity because it allowed individuals easy access to the market, usually with minimal to no fees.

Now, most online platforms also offer copy trading, where users set portions of their portfolios to automatically copy the investment moves of others. Those traders who are copied are paid a commission from the platforms. The potential to earn commission payments encourages experienced investors and traders to sign up and gain a following of users who copy them.

The ability to easily copy stock traders automatically and in real time stems from the use of CFDs, or contracts for a difference, which are derivatives based on the movement of assets such as stocks, currencies and precious metals.

Because copy-trading platforms sell CFDs rather than assets themselves, accounts can often be open with as little as $50 and users can also engage in leveraging. These lower bars of entry help open up financial markets to the masses, and the ability to copy traders that are more experienced offers new investors some guidance.

The development of the fintech sector, including copy-trading platforms, is changing the way people invest and manage their money, making markets more accessible. This is having a spillover effect into the general financial sector, which now needs to adapt to consumers’ expectations for automated services, lower fees and other demands.

In fact, even traditional money management firms, under growing pressure to justify the fees they charge, are increasingly bringing big data and other forms of technology into their investment strategies, according to a recent report from Fitch Ratings. Those firms open to such changes in strategy will likely be the ones to succeed, the report said.

How To Trade Forex Using A Technical Indicator-Based Strategy

How To Trade Forex Using A Technical Indicator-Based Strategy

When it comes to currency trading, there is a vast range of different strategies you can adopt to generate trading profits. For example, you could pursue an event-focused strategy, where you place trades just after large market-moving macroeconomic or political events. Alternatively, you could put on medium to long-term trades based on your view of countries’ economic fundamentals and how they will affect their currencies in the next 6-12 months. You could also become an expert in selected particular currency pairs and focus on your trading activities around those. On the other hand, you could also adopt a technical indicator-based strategy to trade currencies, which new research shows works particularly well in ‘hot’ markets. This is the strategy we will discuss in the article.

Popular technical indicators

There are a substantial amount of technical indicators focusing on different areas, such as volume, momentum, volatility, and trend following. However, it is important to note that using just one single indicator will not help you generate a trading profit. If you want to trade forex using chart analysis and technical indicators you must always combine complimenting indicators to generate trading signals.

blue chartPopular technical indicators include the Moving Averages, the MACD (Moving Average Convergence Divergence), the RSI (Relative Strength Index), OBV (On Balance Volume), Bollinger Bands, the Chaikin Oscillator, and the William %R. The list goes on as new indicators are created as the popularity of chart analysis tools rises. In fact, Mark Priest Head of Index & Equity Market Making at ETX Capital stated that “traders are increasingly demanding more sophisticated tools to trade forex and a large part of that is developing improved chart analysis tools to accommodate this demand.”

Combine indicators to create a trading strategy

As I mentioned above, if you want to trade forex using chart analysis the key is to combine complimentary technical indicators to generate strong trading signals. An example of a trading strategy that you could apply to your chosen currency pairs would be to combine the MACD (Moving Average Convergence Divergence), the RSI (Relative Strength Indicator) and Bollinger Bands.

Combining these three indicators you can gauge price movements based on moving averages, momentum, trend, and volatility. The way to turn these three indicators into a trading strategy is to trade when three out of the three indicators say buy (or sell) then you buy (or sell). This would be a strong signal. If two out of the three indicators give you a trade signal, you could also trade, but it would be a less strong trading signal. If only one or no indicator indicates you should execute a trade, you don’t trade.

Let’s look at how these indicators work in combination. We will use the EUR/USD as an example.

On the chart below we can see the Bollinger Bands overlaid on the candlestick chart for the EUR/USD and we can see the Relative Strength Index and the MACD below the price chart. The three indicators used actually show a buy signal for the EUR/USD on a medium term basis.

The Bollinger Bands, which are volatility bands placed above and below a moving average, show the price moving through the moving average from bottom to top during a low volatility phase (as indicated by the tight bands around the moving average). This would indicate a price increase. The RSI, which shows the momentum of the price movement, is close to pushing through the centerline indicating a change in trend towards a price rise.

white chart

Finally, the MACD shows three, albeit weakish, buy signals. Firstly, it shows a signal line crossover of the fast moving average through the slow moving average (the black line crosses through the red line). Secondly, it shows the trend line moving towards the zero line and, thirdly, it shows the divergence between the two signal lines increasing.

Judging by the trade signals from these three indicators we should be buying EUR/USD. However, the trade signals, especially from the MACD, are not as strong as they could be so it would now depend on your risk profile whether you would want to buy EUR/USD or hold off and wait for clearer trade signals from this strategy.

Furthermore, it is important to back test technical indicator-based trading strategies using historical data. That way you can check how accurate your chosen indicator combination is at determining profitable trade signals for your chosen currency pairs.

Should You Trade the EURUSD?

Should You Trade the EURUSD?

The most widely traded financial asset in the world is not any particular stock, oil or gold – it is the EURUSD (Euro/ US dollar) currency pair. The pair represents two of the largest economies of the world. Created to facilitate cross-border trading among European and American partners, the euro (EUR) has risen to become the second largest currency in circulation after the US dollar (USD). As the official currency for 16 countries that comprise the Eurozone, the euro has also become the second largest reserve held currency in the world after, again, the US dollar. The US dollar itself needs no introduction. It is the official currency of the world’s largest economy and is generally accepted as the reserve currency of the world. Most global central banks hold a big part of their foreign currency reserves in US dollars while many other countries peg the value of their currency to that of the USD. Additionally, the OPEC (Organization of the Petroleum Exporting Countries), the world’s largest producers of oil, transacts in US dollars. There is a phrase in the financial markets that goes ‘The Dollar is King’ and it is easy to see why.

Euro/USD trading

 

The EURUSD currency pair is incredibly popular among traders. But should you trade the pair that represents two of the economic world’s most powerful trading blocs?

Liquidity

In the financial markets, liquidity is the ability to sell out of an investment without triggering a significant movement in price. A liquid asset is easy to cash up because there are many able and willing takers. An illiquid asset, on the other hand, is difficult to sell out without suffering a price hit. The EURUSD is the most liquid financial asset in the world and enjoys a very high liquidity premium. Approximately 80% of the world’s transactions are completed in either of these two currencies. As the most liquid asset, investors receive transparent EURUSD quotes throughout the day because its price cannot be influenced by few market players, as is the case with other assets such as stocks. Liquid assets also tend to make regular price movements unlike illiquid assets that are prone to occasional price whipsaws.

Assets with massive liquidity also have the benefit of low transaction costs. On most online trading platforms, the spread or commission for trading the EURUSD ranges from zero to a few hundredths of a cent. While it is not any easier to trade liquid assets than illiquid ones, it is definitely less risky.

Volatility

Volatility refers to the frequency and severity of an asset’s price movement. Volatile assets move faster and make bigger trading ranges in any particular trading session than the less volatile assets. In markets such as binary options, where investors trade on the direction of the price movement of assets, volatile assets offer more profit opportunities than the less volatile ones. The EURUSD almost always guarantees volatility at all times due to the many factors that impact on its price and can offer great trading opportunities for investors.

volatility

 

Trading on Fundamentals

The EURUSD offers investors the easiest way to profit using fundamentals or fundamental analysis. The euro itself is sensitive to political and economic developments in the 16 countries it represents. The number of nations that release data that might impact on the euro means that there will always be numerous opportunities to profit on a daily basis. Add that to news coming from the US and its major trading partners, and it is almost mandatory to include this currency pair on your asset watch list.

Not all news is traded though. Investors mostly trade new releases that are likely to have a high impact on the price value of the EURUSD. Such news includes, for example, the US Nonfarm Payrolls and the Eurozone CPI (consumer price index). Investors can track such economic news conveniently using a binary options app or site that contains the Economic Calendar tool.

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EURUSD Current Fundamental Analysis

The EURUSD currency pair has lately been driven by market sentiment. After drifting higher since the start of the year and into the first week of February, after the non-committal sentiments from the US Federal Reserve, the pair has now closed lower for 5 consecutive days. The recent publication of the European Central Bank (ECB) January meeting eased the downward pressure on the pair. In the meeting, ECB’s head Mario Draghi discussed about further downside risks and vowed action in March. In a symbol of unity, Draghi’s most vocal opponent Jens Weidmann provided his support for the quantitative easing program. Of late, though, the euro has acquired a safe haven status and continues to ignore many pieces of negative data coming from the Eurozone. This general mood for the euro is upbeat with crude oil prices also rising as well as the increasing market expectation that the ECB will do something next month.

QE Theory

The dollar, on the other hand, is affected by a cautious and uncertain Fed. Strings of positive data are coming out of the US, the latest being a fall in unemployment claims to 262K against expectations of 282K, but the greenback is not reacting accordingly. The main reason has been recent commentary from Fed officials, including its chair Janet Yellen, which have not given a clear direction on the future of interest rates in the country. As it stands, the markets now anticipate a rate cut more than a rate hike. With crude oil prices seemingly starting to rise, pressure on the dollar could increase.

EURUSD Technical Analysis

The current price of the EURUSD is 1.1170. The pair seems to have found support after retreating lower for five straight days. The pair has largely been trending this year before breaking above its 200-day moving average at 1.1105 this month and going on to form this year’s current high at 1.1375. It fell from those highs and found support at 1.1085 (21-day moving average). The pair is now back and hovering above its 200-day moving average, which is expected to provide support for the medium term. Important technical support levels to watch out for in the near term are 1.1080, 1.1045 and 1.1000. The resistance levels to watch out for are 1.1160, 1.1200 and 1.1245.

EUR USD Graph

Final Word

In the medium term, the EURUSD is expected to be driven by market sentiment. The market has shown contempt towards the Federal Reserve and the dollar, while it seems to cheer on the euro. Upcoming fundamental data could prove crucial for the pair in the medium term. Positive news for the euro could send the pair higher as will negative news for the dollar. Negative news for the euro could be ignored by the market or it might send the pair marginally lower, same as positive news for the US dollar. All in all, with numerous economic news affecting the pair scheduled to be released in the coming days, investors should look to exploit the amazing and lucrative opportunities the EURUSD will offer them.

How To Use FX Derivatives To Hedge Your Currency Risk

How To Use FX Derivatives To Hedge Your Currency Risk

In the last six months we have witnessed strong volatility in the global currency markets. Emerging markets currencies weakened aggressively against the U.S. dollar, which has strengthened substantially leading up to the Federal Reserve’s U.S. benchmark interest rate hike in December of last year. Volatility in the currency markets is not just an issue for governments and investors, but also for companies involved in international business.

Currency Risk Affects International Businesses

riskIf you are a business that has operations outside of your country’ borders you will inevitably have to deal with currency risk. Currency risk, also known as foreign exchange risk, refers to the risk of a potential loss stemming from exposure to fluctuations in currency exchange rates. For example, if you are a U.S. based company and you have revenue-generating operations in the United Kingdom you will generate revenue in British pounds that will need to be transferred back into dollars. If, for example, your revenue in Q1 from your company’s U.K. business was GBP 10 million, but the pound weakened 5% against the dollar in Q1, then your actual revenue will be worth 5% less, as soon as you exchange it back into dollars at the end of Q1. Hence, it is so important to implement an adequate currency risk hedging strategy, using financial derivatives, when you have operations overseas. Having said that, it is not always easy to use the full range of possible hedging tools. Retail clients and SME’s, for example, have limited access to these options via banks. However, they have the option to use commercial FX services instead. Banks, on the other hand, tend to only provide currency-hedging solutions to large multinational corporations. A cfd online trading brokerage firm can provide access to all major world markets with FX trading solutions best suited to your needs irrespective of whether you run a freelance business, SME, or large corporation.

FX Forwards

curreniesThere are several possible financial derivatives used in the currency market that can help corporations, SME’s and retail clients hedge their foreign currency exposure. The most commonly used derivatives in this space are so-called FX forwards. An FX forward contract is an agreement between two parties to buy or sell an amount of a foreign currency at a specific price for settlement at a predetermined future date. Using FX forwards you can ‘lock in’ the exchange rate at which you will exchange your money at the date you are required to transfer it into another currency. This hedges you entirely against currency fluctuations. However, it does not let you benefit from a beneficial move in the foreign currency that you are generating revenue in. This is the only downside of using FX forwards as your currency-hedging tool of choice.

FX Options

An alternative to FX forwards would be the use of FX options to hedge your currency exposure. Through purchasing a FX option you have the right but not the obligation to exchange an amount of money denominated in one currency into another currency at a pre-determined exchange rate on a specific date. The benefit using FX options over FX forwards is that if the foreign currency strengthens, you can still benefit fully from this move (minus the premium for the FX option), as you do not have the obligation to exercise the option. So, if you know that if the foreign currency hits a certain level your foreign business will lose revenue, you can purchase a FX option with a strike at that level. You can exercise the option once that level has been reached to hedge out your currency exposure in that currency.

Participating Forwards

A third way if how you could hedge your currency risk is by using so-called participating forwards. Participating forwards provide a guaranteed FX rate for your currency exposure, while still allowing you to benefit from beneficial exchange rate moves on a predetermined portion of your FX exposure. For example, if you need to exchange GBP 1 million in three months time into U.S. dollars, you could enter into a participating forward contract that allows you to exchange the full amount at GBUSD 1.40 and agree a participation rate of 50%. Should the currency strengthen, however, to say 1.50, then the participation forward will allow you to exchange GBP 500,000 at 1.40 and the remaining GBP 500,000 at the prevailing spot rate of 1.50. This is an excellent way to hedge currency risk exposure as you are not required to pay a premium for this derivative transaction.