Forex Blog

I added two new Forex broker categories to the site today — Forex brokers with gold trading and Forex brokers with oil trading. Recently I’ve noticed that many traders seek opportunity to trade on something other than plain old currency pairs. Apart from being able to trade currencies they usually also want to have an opportunity to trade oil or gold from time to time when there are some good fundamental conditions for such trades. These two new categories should help traders to find those Forex brokers that fit their oil/gold trading needs, while they will still be able to choose only those brokers that support their favorite payment method and trading platform.

By the way, I failed to find any Forex broker with oil trading that wouldn’t offer gold trading, though it’s not true for vice versa (not all gold trading brokers support oil trading). So, if you see an oil trading broker you can be almost 100% sure that it also has GOLD among its trading symbols. And almost all gold trading brokers feature not only gold but also silver and sometimes platinum, while more advanced brokers offer all possible precious (and sometimes not only precious) metals.

Wall Street Brokers is the new on-line Forex brokerage company that was added to the Forex broker list on my site today. It’s a somewhat strange broker that is registered in the United States but isn’t regulated by any institution there. It went on-line in 2008. Other highlights of this broker:

• Forex, CFD, gold, silver, oil and futures trading
• Credit card, Moneybookers or wire transfer for deposits and withdrawals
• Automated trading with signals subscriptions (at a cost of 1 pip per trade)
• 3 pips spreads
• Micro accounts from $10 and 1:500 leverage
• Muslim-friendly accounts (actually ALL accounts bear no overnight interest)

The gold seems to be becoming the favorite investment around as the traders are afraid of the crisis and the fiat currencies seem to be in a great danger when all those anti-crisis measures will induct a massive wave of inflation, reducing the money’s buying power. In such an environment gold looks like a good investment to save one’s assets and to multiply them if you trade with a considerable leverage. Forex traders may also decide to capitalize the expected upward gold trend as many Forex brokers provide the gold vs. dollar or gold vs. euro pairs.

There is one problem with investing in the gold now — it’s already way overbought. For almost ten years — from 1995 to 2005 the gold has been trading between $250 and $420 per troy ounce. The gold began its rally in 2005 and peaked above $1,030 in March 2008. Now it’s trading not far from that level — near $940 per troy ounce. Gold’s «bubble rally» accompanied the similar rallies in carry trade (GBP/JPY, EUR/JPY, AUD/JPY currency pairs, etc.) and in oil. Both the carry trade and the oil rallies ended with the bubble bursts as the financial crisis reached its apogee in September 2008. The gold bubble lived through that period falling to is local minimum of $680 in October and that minimum was far above the recent average trading range for this commodity. You can compare a carry trade unwinding with the drawdown in the gold prices during the crisis time from these charts:

Gold Chart

AUD/JPY Chart

The gold is praised by many as the real investment in the world full of the paper money and the bills that go default or the shares of the companies that may just vanish. Gold is seen as some kind of a standard of value compared to other assets. Average Joe might even hope to use the gold as the method of payment during the harshest times when the fiat currencies won’t be considered as anything worthy. In reality gold has almost no real value. Of course, it’s nice and makes a good jewelry but its value has nothing to do with its current price. The current price was raised by the investors, traders and the short-time speculators. Investors opt to gold as the safe haven investment, traders buy it because they can get an almost risk-free ROI during the time of the near-zero interest rates; the short-time speculators just find a good opportunity in riding the wave and gaining from the daily or weekly pull-backs on the gold market.

But the bubble will continue to grow until one day it bursts. So, when will it happen? It will happen only when two conditions become true. First, the financial markets should offer something else for the investors to get in — the higher interest rates by the major central banks is a good indicator that the investors now have better ways to multiply their funds than sitting on the piles of gold. Second, stability should rule the finances — not many investors will go investing into South African or Russian papers (which still offer more than 10% ROI) if there is a high probability to lose their money. Gold offers safety and the new investments should be also considerably safer. When the traders will have something new to invest in and the safety of their funds will become satisfying they will start to move out of the gold gradually. When the short-time speculators realize that the gold is falling they will start to bet on the short side, pushing the gold down faster, which will trigger the major stop-losses of many long-term investors forcing them out of this asset. As the oil fell from near $150 to $40, the gold will probably fall from $1,000-$1,200 to about $400 in a period of a month or two.

It can’t be known exactly when the right time for the burst comes. For now gold is still a good buy — central banks maintain the near-zero interest rates, the risks are high and the risk-aversion is the general trend. The gold should flourish at least for the next several months, bellying the bubble even further. I’d watch closely for the U.S. interest rate and if it comes close to 3-4% (and they will eventually have to increase the rates because of the budget deficit-induced inflation) that means the major part of the gold investors will start to slowly move out of it. But for now, selling the gold probably won’t be a good trade.

My last forecast (for the year 2008) missed the real world market action significantly. The financial crisis made a lot of the forecasts made by the analysts and traders useless but, nevertheless, I still wish to offer my vision for the next year. This is just my opinion and it shouldn’t be taken as a serious forecast or some guide for trading.

EUR/USD will go down in 2009 and will probably reach 1.2000-1.2400 and then jump up to about 1.3000.
GBP/USD will head down; probably, to a parity.
USD/JPY will be very volatile, falling down to about 80.00 and rising up to about 100.00.
EUR/JPY will be even more volatile ending up the year 2009 not far from 130.00.

Oil. My last forecast on this important commodity missed its real trading range by the tens of dollars. In 2009 the oil will most probably remain below $75/barrel and will probably reach its bottom near $30.

Interest rates will remain quite low in 2009 but, starting from the middle of the year, the central banks will begin to increase them gradually:
Fed’s one will be near 1% by the end of 2009.
ECB — close to 2%.
Bank of England — ~1%.
Bank of Japan — ~0.5%.

Today the oil was in the focus of many currency traders as the extraordinary OPEC meeting in Oran, Algeria, was deciding the oil output cut and also the U. S. Energy Information Administration reported its weekly data on the commercial crude oil and distillate inventories. The oil traded with the elevated volatility — a small drop on the NYMEX Crude Future, and the small gains on both Brent and WTI. It looks like the investors were more driven by the U.S. crude oil inventories than the OPEC decision.

EUR/USD continued with its strong bullish rally peaking through the chart and breaking the important resistance level near 1.4400. The daily maximum was at 1.4437 today but the currency pair retreated from it and is now trading near 1.4324.

Crude oil inventories in U.S. increased by 0.5 million barrels last week — more than 0.4 million barrel a week before — and are now near the upper limit of
the average range for this time of year. Distillate fuel inventories increased by 2.9 million barrels.

OPEC during its 151st meeting decided to cut the daily oil output by 4.2 million barrels from the September level of 29.045 million barrels per day; the new quota target is 24.845 million barrels per day. Positive for oil and negative for the U.S. dollar this data can’t be interpreted as a clear signal. The question remains — if all OPEC countries will follow the decision and actually cut the production?

OK, the New Year is coming close and as this year is ending it’s about time to try to forecast the future of the Forex market (and some other factors that influence Forex) for the year 2008. My last forecast (for 2007) didn’t get its own post on this blog, but I must admit that it was a disastrous attempt – I thought that dollar will start to grow and it lost more than 10% against euro, I also predicted for the oil to remain below $65/barrel and it got beyond $90/barrel.

By posting my forecast to this blog I can be sure that I will be able to compare actual results with my thoughts exactly as they were. And maybe it will help some long-term traders too.

So here it is, 2008 forecast:

EUR/USD – ~4% down to about 1.4100.
GBP/USD – ~4.3% down to about 1.9100.
USD/JPY – ~9.6% down to about 101.50.
EUR/JPY – ~10% down to about 148.80.

Oil – it’s hard for me to predict this one, but judging from the outlook on growing dollar, it should remain in the $80-$120/barrel boundaries for the whole 2008. Yeah, that’s a huge range, but oil is really volatile.

Interest rates:
Fed is more likely to lower the interest rate by 1%-1.5% next year (2.75%-3.25% by the end of the year).
ECB will most probably be lowering the rates or holding them around the same level – 5-5.5% by the end of the year.
BoE will certainly cut – 3.75%-4.0% by the end of the year.
Only Bank of Japan looks bullish on the interest rates to me – 1%-1.5% by the end of 2008.

Anyway, this is just a Forex trader’s forecast, so don’t rely on it much. It would be also interesting to see your forecasts. Feel free to leave one in the comments.

Today EUR/USD hit 1.3738 mark renewing its maximum since 1995. So we are at the almost twelve years maximum now and the possibilities for going even farther are getting higher and higher. Not many reasons for such a strong Euro rally for today. The only good ones I can think of – oil prices rising and some Eurozone financial leaders speaking of support for an expensive Euro. Other than that – only some really powerful bullish speculators could EUR/USD in such a dramatical way. Anyway, it’s a good time to be in the market and get some more pips on falling dollar when EUR/USD breaks the 1.3800 level.

With an impressively high ISM Services index today’s macroeconomic data from United States was a very optimistic news for USD bulls. June ISM non-manufacturing index came out at 60.7% – 1% higher than May number, and a lot better than expected, since the negative change in ISM index was expected. Crude oil inventories for the previous week came out at a very good level too. They rose 3.1 million barrels – which will probably mean that there will be no problems for the U.S. holidays period. Initial jobless claims were a bit worse than expected (318,000 against 315,000) – but it’s not a big deal really, especially if overall unemployment data which will come tomorrow will be OK.
As for the Eurozone – European Central Bank decided to leave the interest rates at 4% – no surprise here. But they also didn’t mention any dangers of inflation, like they did before, so it might be a first sign for the end of ECB rate hike.
Bank of England increased the interest rates to 5.75% as expected. The main concern for them is still an inflationary pressure, but the biggest locomotive of the consumer prices in United Kingdom – real estate market is showing a slowdown.

EUR/USD continues on its way down and now it is a trend which must be taken to consideration even for long-term Euro bulls. Correction which has seemed to be trying to return EUR/USD back to bullish trend on 04/06 and 05/06 stopped too soon releasing EUR/USD to even deeper lows. Today on Forex EUR/USD reached new low since March and it doesn’t seem to be stopping yet. Overall there are some good data from U.S. coming almost everyday. Today – Retail Sales came out to be more than twice as higher as expected – 1.4% against 0.6%, while oil and gas reserves remained on high levels.