Forex - USD/CHF hits 4-day high as risk aversion eases

Forex - USD/CHF hits 4-day high as risk aversion eases

 Forex pros - The U.S. dollar rose to a four-day high against the Swiss franc on Tuesday, as risk aversion eased after a rebound in equities bolstered market sentiment and curbed safe haven demand.

USD / CHF hit 0.8234 during European late morning trade, the pair's highest since July 13; the pair subsequently consolidated at 0.8198, gaining 0.29%.

The pair was likely to find support at 0.8079, the low of July 14 and the pair's all-time low and resistance at 0.8330, the high of July 13.

Investors remained wary amid concerns over sovereign debt contagion to Italy and Spain from Greece, after Monday saw Italian and Spanish 10-year bond yields advance above 6% and their spreads over benchmark German bonds rise to euro-lifetime highs.

Later in the week, euro zone leaders were to meet in Brussels to discuss a second bailout for Greece and the overall financial stability of the single currency bloc.


The Swissie was also lower against the euro, with EUR/CHF rallying 0.81% to hit 1.1631.

Later Tuesday, the U.S. was to publish government data on building permits and housing starts.

The Value of Trade Balance

The Value of Trade Balance to Local Economy

               The balance of trade also referred as trade balance, which sometimes is symbolized as NX, is the difference of the monetary value of imports and exports in one economy in a given period of time. The balance of trade is considered the biggest part of a country’s balance of payments.

        Imports, domestic spending, foreign aid, and investment abroad are called debit items while credit items includes exports, foreign investments in domestic economy and foreign spending in domestic economy.

A trade surplus is a positive balance of trade which is consists of more exporting than importing. A trade deficit is the negative balance of trade or sometimes called a trade gap. The trade balance can sometimes be divided as services balance and goods balance just like in the United Kingdom which they use the terms invisible and visible balance.

The balance of trade is a part of current account which includes transactions that includes income derived from international investment and international aid. Thus, if the current account comes as a surplus then the nation’s international net asset increases also while deficit will decrease the international net asset.

A good trade surplus is achieved when a country exports products more than buying imported goods. A trade deficit is eventually experience as a result of the opposite of a trade surplus. The trade balance is alike to the difference of a country's output and the domestic demand. These factors may affect the trade balance: prices of goods manufactured, taxes and tariffs, trade agreements, business cycle (home or abroad), and exchange rates.

The trade balance is different in many business cycles. For instance, export growth like oil and industrial goods which improves when there is economic expansion.

In developed countries like; Japan, China and Germany usually run at trade surpluses in which they experience a higher savings rate. Around the world there are different natural resources which a country may have for instance, countries from the coastal regions are major producers of fish, Canada can be a major producer of lumber because of its huge forests while in the Middle East, has the most oil reserves.

International trade is important so in order to sustain the balance of trade. A country should be totally self sufficient without international trade. Through international trades, each country will have the opportunity to produce specialize goods efficiently. In relation, when a nation specializes in producing these goods, the total production increases instead of trying to be self sufficient. Nations will benefit from international trades and also meets their needs. Generally, nations will trade to other nations when they gain from the trade. But the gains are not usually equal in terms of benefits and profit.

What is a Transaction Cost

What is a Transaction Cost and How to Calculate It?

              In economics, transaction costs are the rate acquired when making an economic exchange. This costs incurred when buying or selling securities or stocks. This is also referred as transaction fees. Transaction costs also comprise of brokers’ commissions ad spreads (difference between the price that the dealer paid for a security and the price it may be sold. This is what the broker or bank produce for being a middleman in a transaction.

               For instance, most people when buying or selling a security or stock, pays a commission to their broker and that commission can be considered as the fee or transaction cost for doing that stock deal. When evaluating a potential transaction, it is crucial to think about these costs that might prove significant. Mostly, in financial markets, the initial cost for these transactions is commission which is paid to brokers upon trade execution. This costs becomes increasingly important the shorter the holding time of an investment.

                  Many market models disregard transactional costs, presumptuous instead those markets are non resistant. While this thought is invalid, for many applications such costs are low enough that they can be disregarded. The lesser the cost for a transaction, the more effective and competent a market is said to be. The Foreign exchange market and stock market have lower costs for such transactions of any major asset class.

                It is considered to be much more cost- efficient to trade in Forex in terms of both commissions and transaction fees. An online website for example charges no fees or commissions and at the same time offer traders an access to all relevant market information and trading tools. On the contrary, online stock trade commission ranges from $7.95 - $ 29.95 per trade and up to $100 or more per trade with full service brokers.

Another thing to consider, which is an important point is the width of the bid / ask spread. Regardless of the deal size, foreign exchange dealing spreads are normally or common in 3-4 pips (anyway a pip is .0001 US cents) in the major currencies. Generally, the width of the spread in a foreign exchange market transaction is less than one tenth (1/10) that of a stock transaction, which could contain a .125 or one eight (1/8) wide spread.

                Since transaction costs are paid via bid/ask spread, there has to be no charges to trade or hidden fees. There are instances that there would be extra charges asked by good brokers for some non compulsory services or access to particular reports. A smaller spread is visibly better. Since brokers are taking the other side of all the customer trades, brokers gain profit by making the spread between the bid and offer prices. You may find that find spreads vary by broker.

             In order to be successful in trading on the foreign exchange market, you have to find a good broker.

How Interest Rates Play a Role

How Interest Rates Play a Role in the Currency Markets

                        Interest rates play the foremost important role in moving the prices of currencies in the Forex market. As the institutions that set interest rates, central banks are therefore the most influential factors. Interest rates dictate flows of investment. Since the currencies are representations of a country’s economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the Forex market to experience movement and volatility. In the realm of Forex trading, accurate speculation of central banks’ actions can enhance the trader's chances for a successful trade.

                  An increase in interest rates encourages traders to invest within that market and causes the demand for the currency to rise. As demand rises, the currency becomes scarcer and consequently more valuable. Investors are drawn to the currency, causing it to appreciate, because they will gain a higher yield on their investments, as in the Jane example. In order to purchase the country's assets (stocks or bonds), Jane will have to convert her domestic currency to the target country's currency also increasing demand. Conversely, a fall in interest rates discourage investors from purchasing assets in that particular economy, as the return on their investment is now smaller. The economy's currency will depreciate as a result of the weaker demand.

Waiting For Break of Trend Line on EUR/AUD

Waiting For Break of Trend Line on EUR/AUD

One reason why I love trading the cross-currency pairs is because it gives me plenty of trading opportunities to choose from! If I have a short euro bias, I'm not forced to stick to just EUR/JPY - I can choose to go short on other euro pairs as long as a valid setup emerges!

Why am I bearish on the euro? Well, as I said in my last EUR/JPY trade, it's all about politics right now baby!

The big news in the market right now is that our buddies over at Greece can't just get along. Because the New Democracy, Syriza, and Socialist parties couldn't form a coalition government, the Greek government decided that they would be better off having another election in June.

This puts Greece in a rather dangerous situation, as the country won't be able to receive any bailout funds from the EU and IMF. Take note that Greece has no more moolah in its vaults and without aid, it will run out of money by July.

As expected, this has been taking its toll on the euro, which is why the shared currency has struggled against other major currencies.

This brings me to my trade setup on EUR/AUD.

The pair has been respecting a long-term rising trend line for quite some time now, but seeing as how the outlook for the euro is looking rather dim, I have a feeling that the trend line could break soon.

For now, I'm going to be patient and wait for a BREAK of the trend line before establishing my short position. I think if price breaks below the recent support level at 1.2785, we could see a smooth ride back down to the former area of interest around 1.2600.

Here's my master plan:

Sell stop order at 1.2760, stop loss at 1.2830, take profit at 1.2600.

I think this should give my trade ample breathing space should we see any choppy moves. Also, I think my profit target is well-placed, and if it gets hit, this trade will give me a sweet reward-to-risk ratio of just over 2:1. Lastly, I'll be risking 0.50% of my account on this trade.

You fellas willing to join me on this trade?

EUR/USD: Selling on a Pullback

EUR/USD: Selling on a Pullback

          Last week, I rode the downtrend on GBP/USD. This time, I'm going to try out EUR/USD. I hope I'm not too late! As you can see, the pair seems to be starting to retrace. It had hit a bottom just below 1.2700 and then suddenly surged higher. To me, this is a good time to consider selling, as I may get in at a good price!

I'm hoping to jump in somewhere between the 38.2% and 61.8% Fibonacci retracement levels. I have set a limit sell tentatively at 1.2760. I could still change it depending on how price action plays out in the next couple of hours though. I'm also keeping a close eye on Stochastic.

As for my stop, I've placed it 70 pips away just to give my trade enough room to breathe. I'll ultimately be aiming for new lows but I could close early if price stalls at 1.2700.

Fundamentally, Europe's debt crisis situation still looks far from promising. In fact, according to Pip Diddy, the ECB just stopped providing liquidity to some very undercapitalized Greek banks yesterday. Yikes!

It seems to me that with each passing day, the prospect of a Grexit becomes more and more real as bad news from the region pop out one after another. This is why I'm still bearish on the euro.

To recap, here's my trade idea:

Sell at 1.2760, SL at 1.2830, PT to be determined, 1% risk. (Risk disclosure.)

XOXO,

Read more: http://www.babypips.com/blogs/loonie-adventures/eurusd-selling-on-a-pullback.html#ixzz1vOF0Ux3f

Playing the EUR/CAD Downtrend

Playing the EUR/CAD Downtrend

          Good morning forex friends! I've decided to close out this trading week by dipping into an arena I'm not too familiar with: currency crosses! Even though it's not in my usual bag of pairs to watch, I think EUR/CAD is a simple play both fundamentally and technically.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

Fundamentally, I'm sure by now we all know about the European debt crisis and the recent developments of how Greece may, or may not, leave the euro (if your not up to speed, check out Forex Gump's Piponomics blog for series of articles on the whole mess.) On the other side of the pond we have Canada, whose recent positive economic data, most notably their recent positive jobs data, has made Canada and the Loonie an attractive investment in the short-term. I think these themes will continue to bring sellers into EUR/CAD, at least until we see declining Canadian data and/or a resolution to the entire European debt crisis issue (you probably shouldn't hold your breath on the latter).

Technically, the pair has been in a downtrend for quite some time, and just recently broke through a major support area. Is it a fake out or will the market continue lower? I don't know, but for now I'm going with the trend.

On the 60 minute chart above, it looks like we're getting a short-term pull back to an area of previous support. It may now serve as resistance, so I'll look to scale in short between the current levels and just above the major psychological level, 1.2900. My stop will be a fourth of the weekly ATR from my average price, and my target will be this week's low. Here's what I am going to do:

Short half position EUR/CAD at market (1.2880), stop at 1.2975, pt at 1.2785

Short half position EUR/CAD at 1.2925, stop at 1.2975, pt at 1.2785

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

This trade setup gives me around a 1.5:1 potential return-on-risk if both positions are entered. Of course, with so many different issues around the globe, sentiment can shift on a dime, so be sure to follow our Forex calendar for important upcoming events for both currencies. Also, be sure to follow me on Twitter and Facebook for updates and adjustments in case we see a sentiment change. Good luck, good trading and thanks for checking out my blog!