Forex Blog

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.

Dollar started to trade higher today against euro after the productivity report by the Bureau of Labor Statistics came out, as it was trading against pound sterling earlier in the morning after some bearish data on United Kingdom PMI and housing were released.

Nonfarm productivity (revised value) in third quarter of 2007 increased unexpectedly well - by 6.3%. Previous value was 4.9% and the analysts’ expectations averaged at 5.8% growth. This indicator without any doubts will continue to strengthen dollar until the end of the week.

Factory orders in October also showed a growth that almost no one could see happening - 0.5%, while analysts’ consensus was at 0% stagnation.

Bad news came with non-manufacturing ISM report which showed today that November Business activity index in services sector declined to 54.1% from 55.8% in October, which worse drop than it was expected - 55.0%.

Crude oil inventories again were in the red zone, but today with a very high negative value - 8 million barrels drop compared to previous week report. Combined with today’s OPEC decision not to increase oil output, this news may hit dollar as the oil prices will surge to the new maximums.

EUR/USD seemed almost completely independent of the important fundamental indicators which were signaling the worsening economical situation in USA. EUR/USD was falling by more than 100 pips during the day, but then it returned to a more moderate loss - 50 pips.

Manufacturers’ durable goods orders in October 2007 decreased by $0.9 billion which is 0.4% the previous month value. The consensus forecast for this value was at 0%, meaning that the orders shouldn’t been changing at all.

National Association of Realtors announced its October existing home sales number - 4.97 million annualized, well below both 5.03 million in September and 5.00 expected for October.

Crude oil inventories reported by the U.S. Department of Energy from November 16 to November 23 declined by 0.4 million barrels, showing another week without an increase, which is so needed after some major inventories downfall several weeks ago.

U.S. dollar looks unsure whether to fall or to rise on the Forex market after some important macroeconomic indicators were released today. One of the most important data came out from the University of Michigan and Reuters - Michigan Sentiments Index, which represents consumer confidence. Consumer confidence is important, because it will determine future consumer spendings that in their turn fuel the U.S. economy growth.

Michigan Sentiments Index in November was 76.1; it fell by 4.8 points compared to its October value of 80.9. But according to over-pessimistic expectations (that were at 75.0), Michigan index did quite well this month. Of course, objectively it didn’t.

Initial jobless claims for the previous week were released today by the U.S. Department of Labor. They fell right into the market forecast value of 330k, lower than last week’s 341k (revised from 339k).

Leading market indicators are considered to be weak in their influence on markets behavior, but nevertheless their value for the October reflects current U.S. economical situation - decrease by 0.5%, below 0.3% expected drop and, of course, worse than 0.3% growth in September.

And with the U.S. commercial crude oil inventories another falling week, oil can be expected to see new record highs in the next days. Crude oil inventories decreased by 1.1 million barrels last week, following the 2.8 growth on previous week. High oil prices may hit dollar on Forex, pushing to the new bottoms.

EUR/USD is hitting its all-time record high level beyond 1.4800 after the pessimistic analysts’ forecasts on housing data appeared to be almost completely true today. Housing Starts for the October grew to a seasonally adjusted annual rate of 1.229 million, compared to 1.193 million in September and 1.175 million expected for this month. Meanwhile Building Permits dropped significantly - October seasonally adjusted annual rate appeared 1.178 million, compared to 1.261 million in September and 1.200 million expected by the market for this month. Significant dropdown in new building permits will eventually lower the housing starts numbers in future, thus the all-negative market reaction to this housing report.

Federal Open Market Committee released the minutes for their October 30/31 meeting today. As it was generally expected by the traders, the concerns of FOMC are slowly but surely moving from inflation to a possible economical slowdown on the background of the housing crisis, the subprime lending crisis and unemployment destabilization in U.S. These were also the first minutes to include Federal Reserve Governors and Reserve Bank Presidents projections of the future economy development. Actually, those projections don’t look very informative to me (with a high possible forecast error and all the numbers to close to the current), but it is a good sign that FOMC will share its views regularly and formally, without traders having to guess “what did they mean by that node”-style. Here is the introduction of the projections from the minutes:

The Committee then resumed its discussion of an enhanced role for the economic projections that are made periodically by the members of the Board of Governors and the Reserve Bank presidents. At this meeting, participants reached a consensus on increasing the frequency and expanding the content of the projections that in the past have been released to the public in summary form twice a year. They agreed to publish with the minutes a summary of participants’ economic projections made for this meeting and to release a press statement describing the plan for the future. The release of more frequent forecasts covering longer time spans and accompanied by explanations of those forecasts was seen as providing the public with more context for understanding the Committee’s monetary policy decisions.

I hope that FOMC will continue to improve its information sharing services and these projections will start to offer a more clear picture of the market to the traders soon.

EUR/USD stopped its fall today and jumped back up to 1.4670 levels on Forex after today’s Federal Reserve release on industrial production. In this October industrial production fell by 0.5% after 0.2% growth in September and median expectation at 0.1% for this month. That means that FOMC will probably need to adjust U.S. interest rates once again to stimulate economy growth.

With the decrease of industrial production, economy of the Unites States showed a decrease in industrial capacity utilization (which, of course, could be a cause for production drop). It fell from September’s 82.2% to 81.7%, while an insignificant difference was expected (82.0%).

While Henry Paulson of U.S. Treasury spoke that Government will conduct a “strong dollar” policy. Its hardly can be done with such economical indicators reports. “Currency will represent the U.S. economical growth” - that was the main idea of Paulson’s speech. But if economy is taking damage? Dollar will continue its demise.

Net foreign purchases of the long-term U.S. securities in September were at $55.4 billion. This is better than the August’s negative -$33.6 billion, but worse than expected number ($66.0 billion) and average 2006 monthly net foreign purchases ($97.2 billion).

The release of the not so good news from the U.S. economy caused a wave of bullish dollar speculation on Forex with the increased risk aversion sentiments among traders. Going back from stocks to bonds wasn’t prevented even by the fear of another possible cut rate before the year’s end. EUR/USD fell from almost 1.4700 to the powerful psychological support level of 1.4600.

Bureau of Labor Statistics published its consumer inflation data - CPI increased only by 0.2% in October, whereas 0.3% growth was mostly anticipated. U.S. Department of Labor gave its numbers for the previous week’s initial jobless claims - 339,000 - 14,000 higher than expected.

Crude oil inventories report finally gave a positive sentiment for the dollar bullish traders - there was a 2.8 million barrels growth last week. A good sign after some major decreases, which spiked oil prices to $100/barrel and depreciated dollar against other currencies.

Unexpectedly, Philadelphia Fed General Business Conditions Index increased significantly in November compared to October - constituting 8.2 against 6.8 in October with even more pessimistic forecasts for November.