Forex Strategy : Momentum Trading Systems Attractive on US Dollar Trend

An early-week turnaround in the US Dollar has led our trend-based trading signals , and a continuation in US Dollar strength could set up ideal conditions for outperformance in key strategies. Extremely choppy market price action has made it difficult for longer-term trend traders to catch worthwhile currency moves, and our Momentum systems are no exception. Yet markets have been a bit too volatile for our Range strategies to do well, and unclear market outlook leaves us in a difficult position. When in doubt, we typically revert back to our high-risk/high-reward Momentum and Breakout systems.
Given our bias, we leave ourselves at clear risk of being shaken out on continued market choppiness. Yet the rewards on a sustained US Dollar breakout could offset the low-probability nature of Momentum and Breakout trades.

Forex Trading Automated Systems Outlook
Momentum2 and Momentum1 have put up lackluster numbers as of late, with directionless and volatile price action shaking out the trend-following trading signals. Momentum2 has been marginally more successful because it typically switches direction much more quickly, and it has accordingly been the first to latch on nascent trends. We like its prospects and will accordingly favor said trades through the near-term.

Forex Market Conditions Outlook

NOTE: Data has once again been changed. Due to the ineffectiveness of the 30-day horizon, we are returning to the original 90-day time horizon.

Definitions
Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 30 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 30 trading-day range. A very low number tells us that price is currently at or near monthly lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s monthly range.
Range High – 90-day closing high.
Range Low – 90-day closing low.
Last – Current market price.

Strategy – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.
The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

Article source: http://www.dailyfx.com

Short-Term Forex Technical Outlook: EUR/CHF

The drop in risk appetite pushed the EUR/CHF lower during the previous day and the pair may continue to trend lower as market sentiment wanes however, as the Swiss National Bank attempts to put a floor on the exchange rate in an effort to stem the risks for deflation, speculation for a currency-intervention could lead the pair higher over the week.


Currency Pair: EUR/CHF

chart: 60 Min Charts

Short-Term Bias: Flat


Analysis

The drop in risk appetite pushed the EUR/CHF lower during the previous day and the pair may continue to trend lower as market sentiment wanes however, as the Swiss National Bank attempts to put a floor on the exchange rate in an effort to stem the risks for deflation, speculation for a currency-intervention could lead the pair higher over the week. After slipping to a low of 1.4299 in October, the euro-franc bounced back to reach a high of 1.5885 on 12/15, but the lack of momentum to break back above 1.5270-80 (38.2% Fib) and the 200-Day moving average is likely to hold the pair within range as investors weigh the outlook for future policy. At the same time, as the European Central Bank puts a floor on the interest rate and maintains a dovish outlook for future prices, expectations for further easing is likely to weigh on the exchange rate as growth and inflation falter. Over the next few hours of trading, we may see the Swiss franc continue to benefit from safe-haven flows however, as the EUR/CHF approaches oversold territory, moves to the downside are likely to be capped, and we may see the pair push back above 1.5090-1.5100 (50.0% Fib) to fill-in the gap from the 120 SMA. Nevertheless, as the Swiss National Bank is widely expected to hold the benchmark interest rate at 0.25% later this week, comments from the central bank head are likely to spark volatility in the currency market, and the board may decide to expand its purchases of foreign currencies as the risks for deflation intensify. Be sure to check out other Technical Reports from FX ONLINE TRADING for additional information on the major currency pairs.

source: http://www.dailyfx.com/

US Dollar Rally Continues as DJIA Tests Key Support at 8600

US Dollar Rally Continues as DJIA Tests Key Support at 8600
The US dollar was one of the biggest winners on a day when equities and FX carry trades took a beating, indicating that the greenback hasn’t lost its luster as a “safe haven” asset. Looking to the news of the day, the US Treasury said that foreign demand for US assets rose more slowly during the month of April, as total net purchases of long-term equities, notes and bonds increased by a net $11.2 billion, down from $55.4 billion in March. Meanwhile, the New York Fed’s “Empire” manufacturing index fell more than expected to a reading of -9.41 in the month of June from -4.55, signaling a deeper contraction in business activity. A look at the breakdown of the report shows that the shipments component fell negative once again after rising into positive territory last month for the first time since July 2008. In fact, every other component - including prices paid/received, new orders, inventories, and number of employee - remained negative, suggesting that the manufacturing sector is far from recovery.

According to Bloomberg News, the Commerce Department may report on Tuesday that US housing starts and building permits staged a healthy rebound during the month of May. Indeed, housing starts are projected to have risen to an annual rate of 485K from a record low of 458K, while building permits are forecasted to have risen to 508K from a record low of 498K (revised up from 494K). This will be one of the first housing-related indexes released for the month of May, but as we saw with last month's results, it isn't necessarily a great leading indicator as new and existing sales improved while starts and permits tumbled. Nevertheless, surprisingly strong results could offer a boost to investor sentiment, while unexpected declines could lead risk aversion to dominate once again.

Euro Tumbles as ECB Says Banks Stand to Lose Another $283 Billion
The euro fell sharply against the greenback after the European Central Bank (ECB) said that commercial banks in the region may stand to lose another $283 billion by the 2010 due to write downs. Indeed, European banks have not been as quick to realize losses as US banks have, suggesting that negative news for the European financial sector is likely to seep out for quite a while longer. Looking ahead to Tuesday, Eurostat has already estimated that Euro-zone inflation stagnated during the month of May, but traders should still keep an eye on the final reading of this report. Indeed, Eurostat may confirm that CPI stagnated on both a monthly and annual basis, the lowest readings on record. However, the European Central Bank has already stated that they anticipate that CPI growth will “decline further and temporarily remain negative over the coming months, before returning to positive territory by the end of 2009,” which may prevent speculation from arising about the prospect of additional rate cuts. Nevertheless, surprisingly weak results could still weigh on the euro upon release.

Swiss Franc Mixed as Inflation Measure Plunge to 22+ Year Low
The Swiss franc ended on a mixed note, losing against the British pound, US dollar, and Japanese yen while gaining against the commodity dollars and euro, as the Swiss producer and import price index fell 0.3 percent in May, dragging the annual rate down to -5.0 percent, the lowest since December 1986. Indeed, lower commodity prices and a stronger Swiss franc, which dampens import prices from the Euro-zone, have both been contributors to the drop in Swiss inflation. This turns our attention to Thursday, when we’ll see a policy announcement from the Swiss National Bank (SNB). The SNB is likely to leave their 3-month LIBOR target range unchanged at 0.0 percent – 0.75 percent, but the thing to watch for in the SNB’s subsequent policy statement is talk of FX intervention. Indeed, the SNB’s last statement on March 12 indicated that the central bank wanted to “prevent any further appreciation of the Swiss franc against the euro” in an effort to “counter the risk of deflation and of a dramatic deterioration in the economy.” Similar comments have the potential to drive the Swiss franc lower upon this 3:30 ET release, while a neutral policy stance and no mention of currencies will likely lead the Swissie higher.

British Pound Down vs. US Dollar, Japanese Yen Ahead of UK CPI Report
The British pound was actually one of the stronger currencies of the day on Monday, except when it came to GBP/USD and GBP/JPY, as the pairs fell toward near-term support levels at 1.6250 and 159.00, respectively. The British pound could come under pressure on Tuesday, though, as UK inflation data will be released. While the May reading of UK CPI is projected to rise 0.3 percent, following a 0.2 percent gain in April, the annual rate may fall to an annual rate of 2.0 percent from 2.3 percent. Such a result would mark a 19-month low and would also bring CPI in line with the Bank of England’s (BOE) target. Nevertheless, the central bank has said in the past that they expect inflation to full much lower later in the year, and greater-than-expected declines could trigger British pound declines amidst fears that CPI will eventually fall negative.

Japanese Yen Gains as FX Carry Trades Tumble – Will the Bank of Japan Have Any Impact on the JPY Crosses?
The Japanese yen rallied across the majors, even beating out the US dollar, as a more-than 3 percent plunge in some European equity indices and a 2.13 percent drop in the DJIA signaled wide-spread risk aversion, weighing on FX carry trades. While risk trends will likely continue to determine price action for the Japanese yen crosses, the currency will face some event risk overnight. Just before midnight, the Bank of Japan is anticipated to announce that they are leaving rates unchanged at 0.10 percent, but this is not the part of the central bank’s announcement that will garner the most attention. Instead, the FX markets may only respond to the sentiment reflected in their subsequent policy statement. After the BOJ’s last meeting, they raised their outlook on the economy for the first time in nearly 3 years, saying that “economic conditions have been deteriorating, but exports and production are beginning to level out.” There is speculation that the BOJ will upgrade their outlook once again, and if this is the case, the Japanese yen could gain on a very short-term basis. On a longer-term basis, though, risk trends have been driving price action and the impact of positive BOJ commentary may not go very far.
Article source: http://www.dailyfx.com

USDCHF Looking at a Strong Range Should The Dollar's Rally Ease

The markets have experienced a dramatic reversal in risk appetite and the US dollar through past 24 hours. It isn’t a coincidence that this turn between sentiment and currency come hand-in-hand; and it should not be forgotten when defining our trades.































Why Would USDCHF Hold a Range?

Levels to Watch:
-Range Top: 1.0965 (Pivot, Fibs)
-Range Bottom: 1.0600 (Trend, Fib)

In an unlikely turn of events, the Swiss economic docket is the more heavily stocked calendar for USDCHF. An SNB rate decision, first quarter industrial production report, retail sales figures and the SECO growth outlook offer high-level event risk. However, while these indicators are fundamentally important; they have little chance of catalyzing a major breakout. The true threat to this pair is risk appetite and the general strength of the dollar.

Today’s 150-point, USDCHF rally marked a minor break above resistance – though the true technical turning point lies around 1.0965. Through the first half of May, this level acted as a temporary double bottom. And, since the break, it has reverted into a range resistance with multiple tests. With a 50% Fib as confirmation, we could see another rebuff.


Suggested Strategy
Short: Half-sized entry orders will be placed at 1.0935 to fall within today’s range.
Stop: An initial stop of 1.1035 should avoid moderate false breakout attempts. To secure
profit, move the stop on the second lot to breakeven when the first target hits.
Target: The first objective equals risk (100) at 1.0835 and the second target will be 1.0735.


Trading Tip – The markets have experienced a dramatic reversal in risk appetite and the US dollar through past 24 hours. It isn’t a coincidence that these this turn between sentiment and currency come hand-and-hand; and it should not be forgotten when defining our trades. For USDCHF, the links to this underlying fundamental driver are blurred. The dollar is the primary safe haven when liquidity and financial conditions are threatened; but the franc itself is considered a safe haven currency and this specific pair’s bond to EURUSD can sometimes overwhelm other considerations. To garner a clear outlook for this pair, we need to narrow the conditions effecting USDCHF to its simplest form. The dollar is the primary driver for this pair; and therefore, a range or breakout rests with the direction and intensity of risk appetite. A pull back in optimism following the G8 meeting is reasonable considering officials’ decision to avoid a unified withdrawal for government funds on fears that the economic recovery is still too fragile. Balancing it out, this does help to break the stride on a very aggressive appreciation in yield-intense assets; but at the same time, this does not present something the market did not already know. Technicals present a clear setup for a range; but we need to acknowledge the risks. A reasonable stop is notionally wide, so we have to cut position size. Furthermore, this pair is very similar to the USDJPY setup from this past Friday; and exposure to risk-trends should not be leveraged. For timing, we will cancel all open orders by Wednesday or should spot hit 1.08 before entry.

Event Risk for US and Switzerland

US – Scheduled economic event risk from the US docket has tapered off over the past week. Looking ahead, the docket once again is expected to produce little in the way of market-moving event risk. For influence, most of the notable releases will filter through price action by adjusting expectations for long-term growth. Wednesday’s first quarter current account balance is the most commanding piece of data; yet it clearly lags the GDP numbers that have already been well documented. Indicators like housing starts and industrial production will present more timely numbers to work with; but their impact on forecasts for economic recovery is questionable. Straying from the confines of data, speaking engagements for policy officials on the health of the economy and financial markets will help market participants benchmark their expectations and perhaps give a look into future policy efforts. In the meantime, the high volatility in risk sentiment following this past weekend’s G8 meeting could blur the dollar’s immediate future.

Switzerland – Risk trends still hold a considerable influence over the Swiss franc; but this direct link has tapered significantly from 12 months ago. Today we can see that the health of the Euro Zone economy and Switzerland’s own domestic faring are just as influential to direction (if not more) than its status as a safe haven. At the G8 meeting this past weekend, it was made abundantly clear that European officials would not perform their own bank stress tests – threatening regional financial troubles. As for the domestic economy, factory activity, retail sales and the SECO forecast will all factor in. The SNB could even surprise with quantities easing.
Article source: http://www.dailyfx.com

Calm Markets Highlights the AUDCAD's Range; But Stability Won't Last Forever

Congestion has grown so prevalent that it has started to set in for even the most volatile and high-risk currency pairs. However, all ranges eventually come to an end (with those risk-laden pairs typically making the first move). For AUDCAD, the fundamental catalysts for a potential breakout are relatively reserved; but the technical build up is coming upon its critical state.

Why Would AUDCAD Hold a Range?




















· Levels to Watch:
-Range Top: 0.8930 (Fib, Range High)
-Range Bottom: 0.8760 (Trend, Fibs, SMA)

· Sentiment is still sidelined for even the most risk-sensitive currency pairs; but this does not mean we should leverage our risk to unforeseen fundamental event risk. Even though there is a considerable yield differential for AUDCAD (indeed all Aussie dollar crosses have such a gap), this pair nonetheless finds stability in the relative strength of the two economies; the stability in their respective financial systems; and a shared interest in commodities.

· This yet another chart pattern that promises short-term congestion but threatens breakout pressure further out on the horizon. AUDCAD has produced a rising wedge formation that has really taken shape since March. There is a clear, bullish bias; but resistance in a long-term Fib (Jul. to Oct. 2008) and prominent pivot can buy time for range activity.

Suggested Strategy

· Short: Entry orders will be placed at 0.8925 for an aggressive risk/reward profile.
· Stop: An initial stop of 0.8975 covers the pivot high but not the May 19 false breakout. To secure profit, move the stop on the second lot to breakeven when the first target hits.
· Target: The first objective equals risk (50) at 0.8875 and the second target will be 0.8800.

Trading Tip – Congestion has grown so prevalent that it has started to set in for even the most volatile and high-risk currency pairs. However, all ranges eventually come to an end (with those risk-laden pairs typically making the first move). For AUDCAD, the fundamental catalysts for a potential breakout are relatively reserved; but the technical build up is coming upon its critical state. For the past three months, this commodity bloc cross has developed an ascending wedge pattern with a clear top at 0.8930. Frequent test and rejections of this resistance have since solidified its prominence among the technically savvy; but it also calls greater attention to itself. Now with approximately 150-175 pips to work with; this wedge will soon have to decide on a direction. Though it is difficult to estimate when a breakout could occur, it is best to err on the side of caution. Therefore; our strategy will be held open until Friday’s London session close. Should our orders still stagnate until then, or spot hit 0.8840 before our entry, we will cancel them. Looking at the setup itself, there are a few particulars that should be noted. Entry is aggressive (set very close to resistance); but that is a necessity considering the timing and tension in the range. Furthermore, the stop does not cover the March false breakout, but this is accordance with a reasonable risk/reward setup. And, another push above resistance as aggressive as that is likely to evolve into a true trend revival.
Event Risk for Australia and Canada

Australia – The Australian dollar may be the best positioned economy among the G10. Should the recovery in risk appetite continue, the Aussie dollar will draw capital with the highest benchmark yield among its global counterparts. At the same time, should sentiment sour and investors seek safety in a stable economy and financial system; Australia has maintained growth and credit conditions are still robust thanks to relatively small exposure to the financial collapse in the Western world as well as relatively modest counterparty risk among local lenders. However, skeptical market participants are still waiting for any sign that the economy is not as healthy as the currency and data have suggested. Data over the coming week will help establish a benchmark for expectations. First quarter housing construction, employment and the RBA minutes will present a mishmash of market-moving fundamental data.

Canada – There has been a lot of activity on the Canadian dollar’s fundamental front; but much of this data (and its market-moving influence) has come and gone. Looking at the docket for the coming week, the offerings are relatively bare-bones. Before the weekend, only the capacity utilization rate figure for the first quarter is of note; and even this indicator is lagging and a derivative of labor. The offerings within scope after the lull in volatility are just as staid. Manufacturing shipments is a repetition of trade data; and inflation has lost much of its impact since interest rates have been so thoroughly reduced. The greater threat to activity over the coming week will come through speculation surrounding the health of the US economy – its largest trade partner.
source: http://www.dailyfx.com/

Risk Trends Continue to Dictate Price Action in Currency Market

The USD has continued and looks to remain inversely correlated to commodity and stock markets (ie risk appetite). Yesterday's U.S. Treasury's $19 billion auction of 10-year paper was OK, though the 3.99% award rate was high and illustrates that higher yields are being needed to get the paper sold in the current environment. The higher yield backdrop raises concerns about the impact of higher mortgage rates to America's soft recovery, which in turn keeps the U.S. currency on a downer, in addition to Russia's active stance to wind down dollar reserves. The AUD and NZD were strong performers in Asia, aided by better than expected employment data out of Australia in addition to firm commodity prices. The Kiwi also benefited after the RBNZ kept rates steady at 2.50% rather than cutting 25bp as expected (though the statement remain dovish). Reports of rising demand for oil in China also fed risk appetite trades, being exhibitive of improving global economic conditions. Ahead Thursday, markets will look to the $11 billion 30-year bond sale after a poor 10-year sale yesterday. The U.S. has some interesting data on retail sales, initial jobless claims, and business inventories. The European calendar is relatively quiet, with only the ECB monthly report (likely to repeat president Trichet's statement from last week) and the BoE inflation expectations survey and Swedish May CPI.
source: http://www.dailyfx.com/

U.K. Recession May Have Ended in March, Pound Continues to Rally

Cable has recovered nicely from losses in NY on Wednesday, with the currency reaching a low of 1.6241 to open in Asia at 1.6342 and steadily rise to 1.6420. The Cable fell on warnings from BOE Barker, that rates could remain low for some time. But, aiding the recovery was the report from the NIESR on Wednesday that the UK recession may have ended in March. Also seen as positive are the comments from BOE Sentance that the UK and global economy are bottoming. Resistance remains at 1.6473 and the highs traded on Wednesday. No real strong direction for sterling crosses emerged in Asia with GBP/JPY range bound between 160.35-160.87 and EUR/GBP stabilizing after Wednesday's decline, and trading a range of 0.8547-65.
source: http://www.dailyfx.com