Forex Blog

Although the U.S. trade balance deficit in January has actually widened compared to December’s revised value, it was significantly below the analysts’ expectations. The negative difference between the exported and imported goods’ value was at -$58.2 billion which is slightly above the December’s -$57.9 billion (revised up from -$58.8 billion). The trade balance deficit was expected to increase from $58.8 billion to $59.0 billion. The reason for the deficit "widening" was that the imports grew faster than the exports in January.

EUR/USD reacted sharply on the trade balance news release and went down from 1.5455 at the time before the release to about 1.5327 as of 14:22 GMT.

Today EUR/USD renewed its historical maximum on Forex market again. With almost every day for this currency pair being positive in gain, the question arises — where will it stop? So, where is the medium-term resistance for EUR/USD? Is it 1.5400? 1.5000 was a major psychological barrier; after it was broken recently the EUR/USD has already reached 1.5372. In my opinion, dollar will continue to fall for as long as the Fed will be cutting the interest rates and the ECB will be holding or increasing the rates. It’s possible that the pair will touch 1.5800 until they both stop.

Initial jobless claims report failed to hold EUR/USD from reaching a new maximum; in the past week they were at 351,000, below the previous value (375,000) and the forecasted value (360,000).

Pending Home Sales Index in January remained at the same low level as in December — at 85.9%.

The  U. S. managed to fall to another record low value today at 1.5238 per euro but recovered from a daily loss and even gained somewhat against the European currency. Personal income statistics was a little better than expected today and Michigan consumer confidence index was also revised towards the improvement.

Personal income in January rose by 0.3% — better than the expected 0.2%, but this growth was lower the December’s 0.5%. Personal spendings grew also better than expected — 0.4% against 0.2%; in December they grew by 0.3%.

Chicago PMI (it measures the business’s health) fell sharply in February from 51.5 to 44.5. It fell even below the market analysts’ expectations that were at 49.5.

Michigan Sentiment Index (it measures consumer confidence) for February was revised today from 69.6 to 70.8, while the consensus value for the revision was at 70.0.

CPI release for January along with some moderate data on housing lifted traders’ expectations and spurred some good growth of the U.S. dollar with both EUR/USD and GBP/USD losing about a half percent for the day. It may be a good sign for the dollar bulls eventually as it is almost definite now that the recession is either ending or is not going to happen at all.

January CPI grew at the same pace as in December — 0.4% up above the expected by the markets 0.3% growth.

Housing starts during the same month increased from 1,004k to 1,012k, but were slightly below the expected 1,015k level, while building permits decreased from 1,080k to 1,048k and were slightly above the expectations (1,040k).

This week ends far worse for dollar bulls than they may have expected. Only Wednesday was an uptrend day for the U.S. dollar, but it didn’t gain a lot that day. Friday brought in the break through the 1.4700 resistance level on EUR/USD. Some disappointing data on the net foreign purchases and the manufacturing survey were the most important causes of today’s dollar’s decline.

Export and import prices in January grew faster than expected and this can be a positive sign for U.S. economy. Export prices index increased 1.2%, while import prices index increased 1.7%. Expected levels of growth were 0.3% for both of them.

NY Empire State Index — compiled through a survey of manufacturing sector — showed a very sharp decline this month. It went down from 9.0 to -11.7. For the first time since May 2005 it slid down below the zero level .

Net foreign purchases of the long-term securities in December were at $56.5 billion, which is much lower than $76.0 billion expected. Now the inflow barely covers the U.S. trading deficit.

Industrial production and capacity utilization in January weren’t good or bad, they were at the same levels as they have been expected by the analysts. The industrial production grew by 0.1% (the same as in December), while the capacity utilization was at 81.5% (the same as revised December’s value).

EUR/USD rose from 1.4575 to 1.4635 today after the news from the U. S. Department of Labor and the U. S. Census Bureau arrived. Despite them being better than expected, they failed to stop dollar or even stock markets from declining today.

Initial jobless claims for the last week went down from 357,000 to 348,000 — slightly better than it was expected by the markets (350,000).

Trade balance deficit in U.S. decreased in December from $63.1 billion to $58.8 billion — much better than it was expected ($61.5 billion). Exported grew by more than two billion dollar, while imports dropped by almost the same value.

Dollar was almost unchanged versus euro today before some important to fundamental analysis indicators were released in U.S. EUR/USD opened at 1.4580 and made some moderate movements in both directions, but has been near the opening level before the statistics came out. Good data had an improving effect on dollar. It is now trading more than 30 pips below the opening price.

Advance figures for the retails sales in January were released today. They grew up by 0.3% instead of dropping the same value down, as the majority of the economists expected.

Business inventories in December were up 0.6% - a good result, considering 0.5% forecast and 0.4% growth in previous month.

U.S. crude oil inventories last week rose 1.1 million barrels, now they are in the middle of the average range for this time of the year. This is another consequential gain in oil inventories, which may curb oil prices again.

Currency trading can be approached using a number of different methods. Many mathematical purists will tell you that technical analysis is the only way to go, swearing that they can see the future by poring over chart after chart after chart. Others glance at the trends, ruminate for a minute or two, then go with a hunch and ride a pair wherever it wants to go. Some forex traders, however, attempt to accumulate as much information as they possibly can before investing in a currency pair. These thorough individuals stay apprised of politics, trade and investment, interest rates, consumer trends, the housing market, inflation, capital markets, industry indicators, and the latest economic theory. But even these studious individuals can overlook a resource that offers great insight into developments in the forex markets. This important font of knowledge is, of course, your local weatherman.

While this comment is made at least partially tongue-in-cheek, the idea that the weather could affect the forex markets is not at all far-fetched. Weather conditions have a profound effect on local economies, on energy consumption, and on the all-important agricultural industry. A change in the weather can have a tremendous impact on the economy, causing currency values to fluctuate. This article will examine the affects of North American weather on the Dollar, though the observations herein can easily be applied to most developed countries and their currencies.

So without further ado, here are four ways that the weather affects the dollar: a must-read list for the truly obsessive forexer.

1. Tornados, hurricanes, floods and the like: Hurricane Katrina is a prime example of how natural disasters can affect the Dollar, but these incidents don’t need to be on the scale of Katrina to have an influence on the forex markets. Any weather event that damages property or impacts citizens to the point that they require assistance from local or federal government agencies can put a strain on the Dollar. Sizeable disasters can also affect national morale, causing unease or even panic, neither of which is ever good for the Dollar.
2. Droughts and deluges: Anyone who has ever watched the local news in Iowa knows where the agricultural industry’s priorities lie. By the sixth appearance of the weatherman in the first fifteen minutes of the broadcast, it is evident that the weather is a major economic concern. Any conditions that cause crop failure or harm livestock not only hurt farmers, but they drive up prices and force food retailers to look abroad for substitute products. When this occurs, the trade deficit increases and the Dollar takes a hit.
3. Cold cold winters: An extraordinarily cold winter results in unexpected increases in energy costs for both industries and consumers. As the bulk of the gas and oil used in the US is imported, the Dollar suffers as Americans try to stay warm.
4. Hot hot summers: An abnormally hot summer also leads to higher energy costs for consumers. The summer months are normally spending months, when Americans travel and shop for big-ticket items. If Americans have less disposable income because of increased electricity bills, then everyone is more likely to stay home and enjoy the AC rather than venture out into the heat to buy a new car and start that cross-country trip. In this way, a hot summer can slow the economy and have a deflating effect on the Dollar.

By-line:
Heather Johnson is a freelance finance and economics writer, as well as a regular contributor for CurrencyTrading.net, a site for currency trading and forex trading information. Heather welcomes comments and freelancing job inquiries at her email address heatherjohnson2323@gmail.com.

OK, CFD trading is a bit offtopic for the Forex blog, but as many Forex brokers also offer CFD trading services and it is in a lot way similar to Forex trading (high leverage, MetaTrader platform, no dividends), I thought that it would be interesting to share my results for 2007.

I’ve decided to use standard demo account of $10,000 solely for CFD trading in January 11, 2007 with the condition to close all positions before the end of the year and see the results. I’ve closed the last position last Friday, before entering the low liquidity market pre-Christmas period.

Unsurprisingly, the minority of the losing positions outweighed the majority of winning ones. As I was a total newbie to CFD at that moment, my first several positions were badly thought out and planned. So here are the stats:

Total Positions: 26
Profitable Positions: 14
Losing Positions: 12
Total Profit: -$800.10
Total Profit, %: -8%
Average Profitable Position: $417.86
Average Losing Position: -$554.17

Most profitable symbols: #t (AT&T), #mcd (McDonalds), #ibm (IBM).
Most losing symbols: #aig (American International Group), #c (Citigroup), #jpm (JP Morgan Chase).

And yes, all the trades were long (I think there is no point to go into long-term short positions in the bullish stock market). No surprise here - the biggest losers are related to the financial sector, which experienced a very bad year; biggest winners are from IT and consumer’s sectors that wasn’t disturbed by the subprime lending slump.

When I opened positions I’ve used the financial ratings from the various on-line agencies as well as my own vision of the company’s future (that usually proved wrong resulting in the major part of my losers). Stop-loss was usually set to some psychological support level (also wrong, technical support levels with lower loss level proved to be better), take-profit was set the recommended target level or slightly below (in most cases it worked fine).

After six months of CFD trading I started to understand my mistakes and tried to improve my strategy. So I’ve came up with these important “cornerstones” of leveraged CFD trading:

1. Use Alpha and Beta parameters as the indicator of the stock potential (I’ve used the ones from MarketEdge.com).
2. Don’t buy a symbol if some major financial institution states some real reasons against it, or if it has a rating below A.
3. Stop-loss shouldn’t be greater than your take-profit.
4. Close positions that are in a negative zone for more than a month - it’s better to free up some margin to buy a better symbol, there are plenty of them.

I will be trading CFDs for the whole next year too and I will probably start a separate real trading account specifically for such trades. I hope my 2007 experience will help me to gain at least as much as the raw S&P 500 index in 2008.

EUR/USD was mainly ranging today as the markets were undecided whether it is going bullish or bearish expecting the release by U.S. BLS on the November employment situation. After quite optimistic release came out dollar bulls took their ride for a while, but then euro bulls started to push EUR/USD back up keeping it slightly above the average daily range.

Nonfarm payrolls - the main indicator of the U.S. employment situation was at 94,000 in November - an expected continuation of the last month 166,000 increase. But analysts were expecting just 70,000 growth, so the dollar now has some good news to grow on.

Unemployment rate left at the same rate as in October - 4.7%, while markets expected growth to 4.8%. Average hourly earnings increased by 0.5% compared to 0.3% - the average forecast for this indicator.