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Archive for October, 2007

201px-ben_bernanke.jpg Tomorrow the Fed steals the show announcing its latest decision on interest rates. Forex basics recap: high rates are good for the dollar, low bad. Low are good for stocks, and stocks still have a leadership cap on, meaning the more rate cuts the better for most currencies out there (the carry, the higher interest payers.)

Here’s the deal. Stock investors have been halfway in a parallel universe of delusion lately! There’s huge expectations of a 25 basis point cut, perhaps 50. I think with this pressure, there is more risk to the downside. What if the Fed only does .25 and everyone is disappointed there’s no .50? What if the .25 doesn’t even come? It’s always possible .50 comes or there is lots ofhawkish pulpit pounding, but I’m a little leery. We’ll see right?

Sooooo, this is called event risk. It’s like super earnings for a stock, but universal. If you’re up a way in a trade, “being careful” here may mean taking some profit off the table. Some tighten stops, whatever that means (I always keep mine as tight as technically makes sense …)

Otherwise, if you trade longer term (daily) it’s business as usual – there just may be a bigger move than usual one way or the other. If you trade long term watch for a break and follow it till it runs out of steam. And enjoy the show!

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australia.gif Last we saw this pair it was heading for a collision with resistance, and now it looks like it is bouncing lower.

Basically the aussie has been softening broadly over the last few days, while the loonie is untouchable. It hasn’t been this high since 1960 it turns out. Wow. Interestingly, some of the aussie weakness has been generated from this cross. It hit that resistance level and I think some big money bailed.

If you are interest in participating, a 8/15/200 MA is an example of how to do this. Being below the 200MA, the pair is below its long-term trend. The 8/15 cross not only is a short-term trend shift, but also a signal. If the cross comes soon, in the context of this bounce down from resistance, it would be a possible entry signal.

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Once again: this week David Settle – a friend and fellow analyst on our site – will be hosting a guided tour on Thursday of the Investools FX site during a 90 minute Open House session. This is a Webex session, so you have the luxury of seeing, hearing and interacting (in the last half hour, David opens it up to questions) with David in real time as he highlights the benefits of the currency market. As David will be using the tools at the FX website he will also be doing some analysis along the way which is sure to help even some of you seasoned vets. Here’s what’s covered:

 

  • Proprietary fundamental tools that’ll give you a quick and simple way to determine a currency’s strength or weakness versus others.
  • Our Powerful charting package including 100+ technical indicators on more than 60 currency pairs at your disposal streaming 24/7.
  • Daily and weekly commentary written by experienced Forex traders.
  • Our interactive educational environment that allows you to learn at your own pace on your own schedule.
  • Other features designed to help you on your path to forex success.

David is very intelligent and has great insight both economically and technically. He’ s a great trader, does some of our trading rooms, and I’ve coached both forex as well as stocks and options with him for years. To register for the event simply go here, and then show up at the right time.

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wealth1.jpg Revisiting “The Secrets of Intangible Wealth, ” and what I’ve been hammering on about franc valuation (under valued and destined for the stars when carrys unwind) and the future of the USD/CHF (down, down, down): notice that the World Bank ranked Switzerland tops in regards to wealth (intangible.) The swissy’s been held down for so long because it funds carrys since it pays little interest.

Something’s gotta give sooner or later. Staying up on intermarket analysis, watching the charts and using a bit of leverage in a forex account is a great way to participate in this.

 

If you wish to read more of the report, it is here, the article’s launch site is here. The World Bank is one of the links under Useful Organizations above.

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This one is a little bizarre guys, but if you want a good chuckle over a 2 minute youtube joke about the credit fiasco here ya go! One of the best parts is the clip from Jim Cramer’s bizarre, infamous manic moment of ranting how Uncle Ben “has no idea how bad it is out there!” Reminiscent of Howard Dean’s yeooow howl in the last election, so let’s link that here for old time’s sake while we’re at it. The whole thing is a little corny and pretty funny if you’re staying up on this stuff, enjoy!

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If you read one thing this week to further your FX education here it is: the latest comments from money manager and commodities guru Jim Rogers. The man is amazing and very highly respected. I read his book Hot Commodities and it was great, the real deal, not some fluff. I’ll add it to our book list above sometime.

Here is the link, courtesy Bloomberg:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7Yy4VHfagTQ

Some snippets:

“The U.S. dollar is and has been the world’s reserve currency, the world’s medium of exchange,” he said. “That’s in the process of changing. The pound sterling, which used to be the world’s reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world’s reserve currency.”

Rogers said he remains bullish on commodities because “that’s where the big fortunes are going to be made in the world in the next five, or 10 or 15 years. The current bull market is going to last until sometime between 2014 and 2022.”

The carry trades in yen and francs will “unwind someday,” which will send the currencies “straight up,” Rogers said.

China, growing faster than any other major economy, is “going to be the most important country in the 21st century,” he said. China’s gross domestic product expanded 11.9 percent in the second quarter.

And here is some interesting, related data about the USD, euro and long-term international reserve diversification which I pulled from the IMF’s website (think about this in context of the EUR/USD and the flag break we just watched – we were on this here and here!:

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Call it the clash of the titans: the two hottest currencies head-to-head in a pair. The loonie has been outperforming the aussie in the long run. In the past couple of months it’s the other way around.

Let’s keep an eye on the pair. It may just bounce down from long-term resistance and gold could easily be the cause. A pull back in gold (or oil) could shift the dynamics.

Remember what affects gold prices:

  1. Turmoil (gold is used as a safe haven)
  2. Oil and other commodities (a positive correlation, often leading the others)
  3. The buck (a weak dollar spurs gold on)

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