Will the Top of the Range Hold for USD/CAD? - Trade Review

Trade Review

 With global data and market reactions trending towards "negativeville," I feel like if I held on to a Dollar short position I'll get burned. Check it out!

he big sentiment shifter for me, and the reason why I got out of this trade, was the price action after the Australian Employment report today. Australia added a net 7.8K jobs versus expectations of 25K, and unemployment stayed the same at 4.9%--and the Aussie got hammered for it!

It seems that traders have no sympathy for weaker-than-expected results lately (also demonstrated with US employment last week), so with expectations of 20K vs. the previous month's 58.3K jobs added in Canada, USD/CAD doesn't seem to stand a chance of staying below .9800.

Also, with the uncertainty of the issues in Europe and the US weighing down on global growth expectations, and the uncertainty of the upcoming interest rate decisions from the UK and ECB, risk aversion seems to be the market driver going forward in the short term. So, with that line of thinking I decided to close my trade earlier at .9785 (as announced on my Twitter and Facebook pages).

Total: +15 pips/ +0.30% gain

I think this was a good move as I think there is too much uncertainty in the next couple of sessions, making the probability of success a real gamble.

I will continue to stay glued to the charts, and if a new idea comes up before the end of the week, you know where to catch it! Thanks for checking out my blog...stay focused and flexible...good luck and good trading!

Trade Idea: 2011-06-08 3:25 ET

Good morning! I don't usually take trades on USD/CAD, but there are couple of recent, short-term sentiment shifters out there that makes the pair an interesting short play for the week. Check it out!

During a speech yesterday, Fed Chairman Ben Bernanke stated that until the U.S. sees "a sustained period of stronger job creation, we cannot consider the recovery to be truly established." Now, while he did not mention a plan for "QE3," he did say that accommodative monetary policies are still needed. I believe traders will take this as further reason that U.S. growth will continue to be weak (maybe even spark double dip recession debates) and continue selling the Greenback, especially against countries with relatively strong economic data like Canada.

I'm looking at trading the Loonie as Canada continues to look relatively strong to its neighbor to the south as it adds jobs and maintains a lower unemployment rate. Also, because oil is its biggest export (mainly to the U.S.) I think the pair will do well if we see oil prices continue to find support and rise from its current levels (just under $100/barrel on the NYMEX). With emerging market growth outpacing the developed world and their demand growing for the "black crack," I think $90 - $100 a barrel is the cheapest it can go and probably rise from there during 2011.

Of course, the "X" factor is the recent news that crude inventories have slipped in the U.S., sparking speculation that OPEC will raise its production today to resupply fallen inventories and missing supplies from Libya. In the short-term, this may cause oil prices (and possibly the Loonie) to fall against the Greenback, but create a better price for sellers to get in USD/CAD short.

So, if the next few days plays out as I just described, I'll look to go short on a retest of the major psychological level of .9800 before making my move. My stop will be above the strong resistance level that has held over the past few weeks (around .9820) and my target will be the bottom of this week's volatility range at the MaPs level of .9700. Here's what I am going to do:

Short USD/CAD at .9800, stop at .9850, pt at .9700

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.

This trade structure makes it a potential 2:1 return-on-risk and if it is triggered, I'll stay open to the idea of scaling in another position at .9750 to make it a 3:1 trade.

On the forex calendar, we do have events from both the US and Canada coming at the end of the week, most notably the Canadian jobs report this Friday. We may not see sustained moves until then, so as always, stay focused and flexible in this continually shifting environment.

How an FX Trade Works

FX Trade Works

            In the FX market you can buy or sell one currency for another. When you buy a currency, you are said to be "long" in that currency and when you sell a currency, you are said to be "short" in that currency. As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies in order to make profits - since the objective is to earn a profit from their position. Placing a trade in the foreign exchange market is simple and the mechanics of a trade are virtually identical to those found in other markets. Because of the symmetry of currency transactions, you are always simultaneously long in one currency and short in another.

             An open position is one that is live and ongoing. As long as the position is open, its value will fluctuate in accordance with the exchange rate in the market. To close out your position, you conduct an equal and opposite trade in the same currency pair. For example, if you have gone long in one lot of EUR/USD you can close out that position by subsequently going short in one EUR/USD lot (at the prevailing bid price).

What is Forex Trading?

How an FX Trade Works

Quoting Currency Pairs
Buying / Selling
Margin / Leverage
Rollover
Getting Started
Glossary
Overview

           Forex, FX, or Foreign Exchange, is the simultaneous exchange of one country's currency for that of another. FOREXYARD offers leading online trading platforms for individuals that wish to speculate on the exchange rate between two currencies. In doing so, speculators purchase or sell one currency for another with the hope of making a profit when the value of the currencies changes in favor of the speculator as a result of events that takes place across the globe. This market of exchange has more daily volume - both buyers and sellers - than any other market in the world.

               The FX market is available 24-hours a day, five days a week. Furthermore, the Forex Market is the largest financial market in the world with daily reported volume of over $1.4 trillion changing hands between buyers and sellers across the globe, making it one of the most exciting markets for trading. Although currency trading is inherently governmental (central banks) and institutional (commercial and investment banks), technological innovations, like the internet, have made it easy for individuals to take part in the currency trading markets and to trade via intermediaries online.

GBP/USD Drops on Disappointing Construction PMI

GBP/USD now trades at 1.6460, down over 60 pips from 1.6515 before the release. It seems that there were high hopes for this number, contrary to leaks about such numbers in other cases. Note that EUR/GBP crossed the 90 cent line – the pound is weakening across the board.

Yesterday, the manufacturing sector disappointed. This sector, which pushed the economy earlier in the year, has undergone significant slowdown in the past two months, with the score diving quickly from above 60 points to 54.6 now.

BOE Governor Mervyn King, that warned against the consequences of a rate hike, has now more reasons to wait. A rate hike now will hurt the very fragile economy, as reflected by these numbers.

Earlier today, GBP/USD managed to recover, escape the lows of the 1.6430 support line and climb back above 1.6515.

Resistance is found at 1.66 and 1.67. Support is at 1.6430 and the region of 1.6280 – 1.63. For more technical analysis and upcoming events (we have another PMI tomorrow), see the GBP/USD Forecast.

In other British news: net lending to individuals, which is another gauge of economic activity, dropped to 500 million pounds, much lower than 1.7 billion that was expected, and also here, lower than last month’s 2 billion.

M4 Money Supply, which is a second-tier gauge of inflation, rose by only 0.1%. This is better than last month’s drop of 0.3%, but also here, short of expectations for a rise of 0.4%. One figure that was positive was the final read of mortgage approvals. It was unexpectedly revised to the upside, from 44K to 48K.

Osama and the Dollah!

Osama and the Dollah!

           Finally, the search is over! After a decade of playing hide-and-seek with the U.S. government, Osama bin Laden has finally fallen! Five months of spying and planning (and maybe even practicing on Call of Duty?) culminated in a 40-minute firefight that ended with the death of the world's most wanted terrorist.

Americans poured out into the streets after news broke out that the U.S.'s number one enemy had fallen. Crowds formed seas of red, white, and blue as cries of "USA! USA!" filled the night air.

Not wanting to get left behind, the markets expressed their joy as well. With the al Qaeda's leader finally out of the picture, a broad risk rally ensued and lifted other major currencies against the safe haven dollar.

Oil prices eased briefly on this bit of news, probably because many are hoping Osama's downfall will positively affect global oil supply.

However, the dollar eventually had the last laugh on Monday as it ended the day ahead of most of its major counterparts. It seems after all was said and done, investors still believed the dollar was the best bet on that day.

So does this mean Osama bin Laden's death will have a lasting effect on the dollar? Not necessarily!

For one, its effects on global risk basically cancel out. The risk of an al Qaeda retaliation sort of counters improved risk appetite brought about by the death of the world's most wanted terrorist. Although many predict that retaliation efforts are isolated and will only have minimal impact, it does take away a bit of the safety effect of Osama's death.

The second and most important factor to consider is that while good vibes are high in the U.S. right now, the country's fundamental problems haven't changed.

Unless the Fed members have suddenly turned hawkish because of Osama's death, we have no reason to believe that the Fed will change its dovish stance from last week's FOMC meeting. Remember that since the beginning of the year, the dollar has been losing ground against its major counterparts on interest rate differentials and weak economic growth.

And while we're on the subject of economic growth, we might as well recall that the latest economic reports from the U.S. haven't exactly been attractive for dollar bulls. The latest GDP report, for instance, came in below expectations at only 1.8% in the first quarter. Of course, let's not forget that U.S. officials still haven't presented a solid, long-term plan to rid the country of its debts!

I guess what I'm trying to say is that while it's definitely a cause for celebration to be rid of the most dangerous terrorist in the world, we shouldn't trade based solely on initial price action. If you look closely, you'll see that the event really didn't do anything to change the dynamics of the dollar.

Lower UK House Prices Make Pound Weaker

  Lower UK House Prices       

         The Great Britain pound slipped today after the report showed that the house prices in Britain unexpectedly decreased in April, confirming the weakness of the UK economy.

The report by Nationwide showed today that the house prices in Britain dropped 0.2 percent in April, while experts hoped for an increase by 0.3 percent. That leaves the prices 1.3 percent lower than in the same period last year. The poor macroeconomic data reduces incentive for the Bank of England to increase its interest rates, erasing appeal of the sterling.

Will ECB Raise Interest Rates Tomorrow? Euro Bulls Hope So

The euro advanced versus 14 of 16 most traded currencies, including the US dollar, today as euro bulls hope that the European Central Bank will increase its interest rates tomorrow.

The euro surged at the beginning of the trading session, but fell by 8:00 GMT. Yet currently the shared European currency is steadily pushing higher. The EUR/USD currency pair reached earlier this weak 1.4901, the highest level since December 2009. The ECB will announce its decision regarding the interest rates tomorrow.

EUR/USD advanced from 1.4823 to 1.4868 today as of 8:50 GMT after earlier it fell to 1.4774.