FXstreet.com Live Sessions Archives

Swedish and UK central bankers put more pressure on ECB to cut rates

Date: June 29, 2005 14:00GMT
Expert: Piet Lammens, KBC Head of research
Topics:
- Why does the Riksbank decision impact thinking on ECB policy?
- Are there still clear indications in the Euro area of a weaker outcome than was anticipated?
- Are lower interest rates warranted?

Who is Piet Lammens?
Piet Lammens Born in Louvain, Belgium on February 28 1958. Law degree, Catholic University of Louvain, Belgium Legal advisor 1982-1989.CERA: Economist Research Department 1989-97. CERA Investment Bank Analyst dealing room 1998.KBC Head of Research dealing room 1998

Speech Material:

- Swedish Riksbank cuts rates by 50 basis points to 1.5 per cent
- Statement cites weakness of Eurozone activity as a key factor behind the rate reduction
- BoE Minutes show a shift in sentiment towards an easier stance
- ECB is apparently split on the wisdom of a further cut
- Upcoming confidence measures will likely be important for ECB rate outlook

There have been a couple of significant developments in relation to Euro area interest rates prospects in the past couple of days, like the Swedish Riksbank decision to cut its rates drastically, a Reuters story on a split of opinion in the ECB regarding a rate cut and the Minutes of the June BoE meeting, showing two members voting for a rate cut, whereas in May one member still voted for a rate hike.

The rate cut by the Riksbank had been flagged well in advance by comments from senior Riksbank officials and so wasn’t a complete surprise. However, the boldness of the move, a 50 basis point rate cut and the motivation for the move were clearly not fully anticipated and resulted in a further decline in market rates.

Why does the Riksbank decision impact thinking on ECB policy?
The performance of the Swedish economy has been quite similar to that of the Eurozone in recent years (cf. graph 2) and as a consequence Swedish official rates have followed a similar, if not identical pattern (graph 1).

Nevertheless, some differences need to be highlighted, because of their importance in the EMU rate debate. The Swedish economy made more progress on structural reforms. This resulted in a somewhat stronger growth in recent years than the euro average, but also in much lower inflation. Whereas EMU inflation hovers currently around 2% year-on-year, the Swedish inflation is substantially lower and flirts with deflation.

However, despite the differences, the market immediately seized that the EMU case has similarities with the Swedish one.

Tellingly, the Riksbank statement today noted ‘GDP growth slackened more than anticipated at the beginning of the year in both Sweden and the Euro area’. The Riksbank statement went on to suggest that while softer growth in the US may be temporary ‘there are still clear indications in the Euro area of a weaker outcome than was anticipated’. It also indicated that while Monetary policy is ‘now considered to be well balanced,’ ‘ the future direction for monetary policy will depend on new information on economic developments in Sweden and abroad’. So, a further rate cut can’t be entirely ruled out in the Autumn, even if the market currently doesn’t discount an additional rate cut. Most importantly, the Swedish decision underscores the lack of momentum in the European economy.

The Minutes of the June meeting of the BOE brought also a small surprise. Indeed, during the May meeting, the MPC decided 8-to-1 to keep rates unchanged with Andrew Large voting for a rate hike. During the June meeting, the decision for unchanged rates was taken by a 7-to-2 majority, but the two dissenters, Mr. Bean and Ms. Bell voted for a rate cut. Mr. Large now voted for an unchanged decision. While the bias of the two dissenters is crystal clear, the Minutes said that those voting for an unchanged stance felt: “there was time to gather further evidence on the depth and extent of the slowdown in consumption to see if lower interest rates were warranted.” This seems to us a clear hint that sentiment is indeed tilting inside the MPC Committee towards lower rates. To trigger an effective rate cut, the data should point to weaker consumption growth. While this shift was mostly based on arguments about the domestic situation, there were some references to weakness in the euro area.

A Reuters report, based on unnamed sources inside the ECB, suggested the ECB Governing Council is split on the merits of a further Eurozone rate cut. The split reflects a number of considerations. First of all, there are differences of opinion as to the likely impact of a rate cut on the Eurozone economy. In this regard, the Bundesbank report noted that German households paid back more than they borrowed last year in spite of historically low interest rates. Whether this would change immediately after a rate cut to let’s say 1.5% is debatable, a rate cut would reasonably stimulate borrowing in many Eurozone countries and would also act to soften the Euro on FX markets.

A second aspect of the rate debate revolves around whether a rate cut would draw further attention towards Europe’s failings and backfire by damaging sentiment. We don’t think so. It could be argued that if the ECB cut rates from already low levels, it would further underscore the urgent need for structural reform. It would certainly undermine arguments made by a number of European politicians that the ECB isn’t doing enough to support activity and it would put the spotlight forcefully on the absence of serious political action to equip European countries to deal with the implications of the relentless worldwide drive towards greater productivity.

Any decision to cut rates will be heavily influenced by upcoming data, particular business sentiment measures such as the German IFO and consumer sentiment and spending data. Business sentiment deteriorated sharply in recent months, but some temporary stabilization to slight improvement is possible for June, as the euro weakened. Oil prices were down in May, but again sharply up in June making it difficult to assess how these have impacted the June surveys. This might give the ECB some more time of reflection and more data to assess the outlook.

At his June 2 press conference, following the ECB meeting, Mr. Trichet stuck to its vigilance mantra with regard to upside risks to price stability, even if he admitted there is only a moderate economic dynamic and most recent indicators remain on the downside. He called rates appropriate, but declined to repeat that a rate cut was no option. He insisted a few times he was not preparing the markets for a rate cut. The markets didn’t believe him and in the days after the 2-year yield fell to 2.02%, effectively discounted a reasonable chance of a rate cut further down the road. The ECB governors didn’t like that and a PR offensive was done with the objective to turn the tide and prevent the ECB to be backed in a corner. This had a temporary result, but the three events described above have unleashed market forces once again and 2-year yields dropped as low a 1.994% today. Again some governors including Noyer, Caruana and Trichet himself suggested there is no reason to change tack. The market clearly challenges the ECB point of view.

Nevertheless, barring dramatically poorer than expected data, there appears little prospect of a change in rates in July and while the ECB is scheduled to hold an interest rate policy meeting on August 4th, no press conference is scheduled and this meeting will likely be held by teleconference. This brings us to September as the earliest likely date for a rate cut. It would allow the ECB to have a better picture of the economic outlook and to have built a consensus inside the governing council, which in the past was always time consuming.

If the ECB can manage market expectations in the interim, they should be able to ease the monetary conditions facing Euro area businesses and households by prompting a modest softening in fixed term rates and, arguably of greater near-term significance, a lower Euro on FX markets. The Euro is now nearly 5 per cent below its first quarter average, which we reckon this equates to the impact of about a 50 basis point rate cut. This should assist export growth later in 2005, but to boost the Eurozone growth rate towards 2 per cent might require the equivalent of a further 25 – 50 basis points impact from some combination of lower interest rates and a weaker currency.

To be honest, there are some further good reasons why the ECB will seek to talk rather than act in the near term. The first is uncertainty about the outlook for oil prices, with the threat of $60 per barrel crude prices amplified by a softer Euro exchange rate. This causes the ECB particular problems as it threatens a deterioration in the outlook for inflation as well as activity. While very few outside the ECB believe that inflation is a problem for the EMU, on the contrary not much should happen or deflation becomes the problem, inflation stands at about 2% and will probably go slightly higher in the near term. Here is the difference with the Swedish situation.

The strong money supply growth and the abundant liquidity situation is also a hurdle for a rapid decline in rates as the monetary hardliners inside the council need probably weaker economic data to sidestep their usual objection to still lower rates.

A second reason to hold fire now would be to judge the impact of a possible near term revaluation of the Chinese renminbi, even if the timing of this event is very uncertain and has often been mistakenly announced by so-called well-informed observers. Asian currencies account for about 27 per cent of the Euro’s trade weighted exchange rate. So, a near 10 per cent average uplift of Asian currencies would be the equivalent of an ECB rate cut of around 30 basis points.

However, while the ECB may wish to push a decision further out in time, significant pressures on the ECB will come from the markets and politicians’ judgement that what Sweden needs and the Riksbank has delivered is required more urgently by the Eurozone. A major problem for the ECB in coming months is that barring unexpectedly strong data, these pressures will intensify. While we still see a rate cut as about a 50:50 proposition, markets will build in an increasing prospect of a cut with each poor economic number. The ECB will probably hope that this process will mean the exchange rate of the Euro will weaken to levels that will boost growth and lessen pressure for a rate cut. Unfortunately crossing fingers may not be

How to profit on divergences?

Date: June 28, 2005 14:00GMT
Expert: Igor Belitsky, Analyst of FX-Dealer.com
Topics:
- What is divergence?
- Why standard divergences do not work
- When you can rely on divergences
- Our strategy: playing against divergences

Who is Igor Belitsky?
Igor Belitskyis a specialist in applied mathematics and trading systems development. Since 1996 he has been working as a forex market analyst in a Moscow based financial company.

Speech Material:

Divergence occurs when price makes new high/low but technical study does not make new high/low so it fails to confirm the price movement. As technical indicator often measures the underlying power of price movement there is well-known rule to use divergences. For example, bullish divergence occures when price makes new low while technical study does not make new low, and we decide that latest downward move has not enough strength and price should reverse soon.

Below is the chart example with bearish divergence between price and MACD on EURUSD 240 minutes chart. MACD did not manage to confirm new price high near 1.2400 so we concluded that bullish rally run out of steam. The price come into range between 1.2280 and 1.2380 and finally fell south to 1.2150. But this divergence between price and MACD has nothing to do with trend reversal! The price just failed to go through 1.2400 resistance and this triggered profit-taking which was accelerated further after breaking 1.2280 support level.

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Why standard divergences do not work
In fact, future price movements depend only on future flow of buying and selling orders. If the price moves higher but with lower strength (MACD or RSI failed to produce new high) it is only mean that buyers are not so active today. But tomorrow it might be different picture with more buyers, and upward trend would continue. The strength of the current move cannot predict change of the market sentiment.

We believe that if the market makes new high it is only confirm the current upward trend. We cannot expect up-trend reversal if the price just made new high. The only valid strategy to predict trend reversal is looking for breaking through key support/resistance levels.

There is EURUSD 240 minutes chart with double bullish divergence between price and RSI & MACD. As you can see this double divergence failed to reverse euro down-trend. The pair finally plunged below 1.2200.

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When you can rely on divergences
As we note divergences cannot predict trend reversals but there is one situation when divergence really works. It is Zig-Zag pattern. If the global trend is up and you see bullish divergence on the lower scale chart you can open long position. In practice, Zig-Zag and divergence often appear together. There is no any logic behind it: divergence just helps you to notice "classic" Zig-Zag pattern and play against it in direction of the global trend.

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Our strategy: playing against divergences
We have found that it is more profitable do not follow reversal patterns based on divergences but to play against them. Our trading system is based on MACD. If there is bullish divergence between price and MACD open short (not long!) position when MACD returns back to zero level. If there is bearish divergence between price and MACD open long (not short!) position when MACD stay near zero level.

Below are chart examples to explain our strategy. Both examples show so called "Bullish divergence". Trading rule is simple: If there is bullish divergence open shorts position when MACD goes back to 38% from recent peak. If there is bearish divergence open long position when MACD goes back to 38% from recent peak. When building real mechanical trading system one should use additional trading rules and charting analysis to confirm signals based on divergences. Also do not forget that key role is always belong to trend direction.

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Trend Trading: Detecting, Confirmations, Continuation and Reversals

Date: June 23, 2005 14:00 GMT
Expert: Sam Shenker, Currency Analyst at FXCM
Topics:
- Trend Following
- Detecting Trends
- Confirming Existence of Trend
- Continuation
- Reversals

Who is Sam Shenker?
Sam Shenker is a Technical Currency Analyst for Forex Capital Markets (FXCM). Sam is the author of the Daily and Weekly Technical Research reports at FXCM. His reports include: Daily Technicals, Weekly Crosses and the Weekly Futures Commitment of Traders Report. Prior to joining FXCM, Sam spent a number of years on Wall St and has traded many different products, including: equities, equity derivatives and futures. He also specialized in research and analysis of high yield bonds, corporate bankruptcies, restructurings, reorganizations and venture capital. He holds a Bachelors degree in Finance and Business Management from Pace University and is an active currency trader. Sam is frequently quoted on FXStreet.

Session Transcript:

Trend Following:
Trend following is one of the most difficult and lucrative trading techniques in the world of financial markets. Currency markets are renowned for creating trends, there is at least two major moves (1200+ pips) per year in any given currency pair.

Detecting and trading trends can be a difficult endeavor as traders need tools and discipline to stay in the trade for prolonged periods of time, while fighting temptation to take the profits and “run”.

Markets tend to remain in trading ranges with trends occurring less than 20% of the time, which is why it’s imperative for a trader to utilize a set of tools to detect and stay within a trend.

Detecting Trends:
To detect a trend trader has a number of different tools at their disposal.

I utilize ADX (DMI), SMA’s Stochastic and Regression Trend Channel to detect and remain with a trend, occasionally adding to my existing position.

Indicators/Tools
ADX (DMI) is an oscillator that assesses the strength of current trends, and can also be used to identify potential changes in a market from trending to non-trending, with a reading of 25 and above signaling a trending market. Note should be taken that ADX does not show a direction of a trend, just confirms an existence of one.

SMA, simple moving average, I utilize 21 SMA and 50 SMA, as both keep close tabs on the price and do not react to small price moves or “noise”

Slow Stochastic is used to confirm the existence of a trend.

Linear Regression trend channel uses statistical volatility and standard deviations to capture the price movement and to contain the price trends. The best setting to use would be 3 standard deviations as statistically is would contain over 99 percent of the price data.

Detection
Trend detection is not simple, but given a proper technical setup can produce spectacular results. In order to detect a possible existence of a trend, trader will look for a particular setup that combines tools and indicators mentioned above.

Setup:

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Price Crossed Above 21 and 50 day SMA

Price crosses above (below) the 21 and 50 day Simple Moving Average

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DI+ crossed above DI-, thus issuing a buy signal

ADX (DMI) issues buy signal with DI+ (blue line) crossing above the DI- (red line) thus issuing an indicator based buy signal

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21 Day SMA crossed above the 50 Day confirming a possible trend Confirmations

Moving Average crossover thus issuing a confirmation that a trend might be in place

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Automatic trading system vs. Manual trading system , Part II

Date: June 22, 2005 14:00GMT
Expert: Adrian Aquaro, Head of Trader College LLC and True Market LLC
Topics:
-The right system
-Advantages
-Disadvantages

Who is Adrian Aquaro?
Adrian Aquaro has been a trader for the last 3 years, specializing in the International Foreign Exchange Market and acting as an Introducing Broker for the Latin America market. He heads True Market Services LLC and is also the director of Trader College LLC. He has vaste experience in forex education, making of him a leader in this particular part of the financial services industry.

Speech Material:

A few weeks ago, we talked about automatic and manual trading systems.
We said that manual system requires a permanent analysis, whereas automatic system works by its own.

So, in the following pictures, you can see what are the principal advantages and disadvantages of each system:

Click image to enlarge:

Which is the best way to trade in forex market?
- Automatic? Manual?
Well, our opinion is that the best system is YOUR system. But the first thing is to have a system. When you have a system that you fell comfortable, and gives you some confidence, you can say that you have found the right system.But, actually, we think that a combination of both systems, manual and automatic, is the best thing to do.

How can you do it?
Well, it´s no so difficult to do. The whole automatic systems give some market orders, sometimes once a day, sometimes twice or three times a day.
If you have a once a day automatic system, you can enter trades with a very slow leverage, and system will work for you.
Major systems will give you al least 200 point a month, and then, you can trade taking those profit points.
So, when you use your own manual system, you only “play” when your profit, so you don’t risk your equity.

For example, you won 300 points last month, which are U$S 300.- This month, you can enter trades and risk those U$S 300.- and not your account. Also, you have to be careful of the leverage: if you have a very low leverage in automatic system, you have to keep that leverage for manual system.

In our opinion, is very important to know which are the tools used to make an automatic trading system. Also, trader can make his own system.
Remember that, in forex, profit comes when you have system, and system is a combination of discipline and method. No profit is realized when you want to win too much money in a couple of days.

Effective forex trading - it is only a money making process like any other business

Date: June 21, 2005 14:00 GMT
Expert: Dr. S. Sivaraman M.Sc., Ph.D.,
Topics:
- Conditions
- Equity management
- Reading market moves
- Decision making in trading

Who is Dr. S. Sivaraman M.Sc., Ph.D.?
Dr. Sivaraman has nine years experience in working with the Forex Market forecast, professional trading training Trading and Portfolio and forex fund Management. He provides professional Forex, Indices and commodity markets analyses using unique proprietary forecast algorithm.

Session Transcript:

Trading forex appears simple for many new traders entering into the fray. They normally follow the technical and fundamental analyses of experts; learn to follow the breaking news, views from forum etc.

But they find something is lacking, as they find that they are not able to use the perspectives correctly, or they intend to blame the analysts for their wrong views.

In this process their decision-making ability is lost. The market fear grips in. The confidence level becomes low. They aim to enter into market to earn quick and easy money but end up in find it a costly experience after making many loss-making trades.

So they need to learn effective forex trading techniques. They are simple.

The main objective is to invest some money and earn more than the investments in the process like any other business. In normal business capital is very important to develop the infra structure and to keep seed money for promotions.

But in forex trading the traders generally fail to understand that to hold the positions in the market we need floating equity or usable margin.

In commodity business one does stock and sell. As the stocks get reduced they replenish to maintain the business. If they do over trading by giving more credit to clients, the timely cash flow gets affected and they either borrow to get more stocks or reduce the stocks.

In that process it may affect the inflow of clients as the expected goods is not available for them to buy, which results in debt trap to the businessman.

So the decision taken by the businessman was responsible for his closure of his business. Because, he wanting to follow the business model of another business man, but fail to follow his management style namely risk avoidance and management.

Forex trading is similar to perishable commodity business or airline business. Where the perishable stocks are to be sold as quickly as possible.

Also more stocks cannot be held without suitable provisions or holding capacity.

In forex trading also the positions are to be handled with care and over exposure will lead to distress closing of positions. Instead of providing suitable solutions the beginners are provided with the distress option of using stops in risk management.

So the traders use the stops and found mostly their views were correct but their stops are hit and the equity is reduced.

In normal business many businessmen think that the turn over is important, but actually the profit making is important.

Similarly in forex trading the number of trades and views on the currency pairs are not important, but the profit earned at the end is important.

Many feel happy that their views came true in spite of their positions are stopped out. What is the greatness of the views? That gives only ego satisfaction. Ultimately what we earn from the market consistently is important.

So including many large funds uses the mandatory clause – the past performance does not guarantee the future performance.

But a systematic approach to forex trading – effective forex trading should be able to provide the right perspective and consistent earning from the market like any other business.

The level of profit making can vary in business based on the seasons. In forex trading also the level of earning can vary based on the positions and the market moves, but the prevention of losses that could erode the earlier profit made is very important.

So one need to learn how to make profits in any position irrespective of market volatility. We can talk more on that at a later time.

How to make effective forex trading – first decide to trade forex and choose the equity size you can allocate without hurting your normal life style. If the equity allocated is less than $30000,then open a mini forex trading account with a good broker.

For more than $30000 one can open standard forex trading account with hedging capability. In the absence of hedging capability in the platform the equity required to handle positions is more than $50000.The amount of equity are estimated based on the potency and limitations of market volatility.

Take positions based on your market perception. Always in any market sell near the high or buy near the low set for the day to protect profit using trailing stop will give swing trades profit making opportunities.

Avoid taking positions when the market rests in the middle level. Also take positions during active phase of the market- that will be seen during beginning and end of each session.

Still the types of moves made by the operators – like stop hunts, false moves, extended moves and intentional moves, extended stop hunt besides swings are to be identified by the trades before taking positions.

Also understand that the data release time the operators use as market trigger time and not necessarily the market has to move as per the expectations of large number of traders.

Because the operators create the market sentiments to induce the traders to commit by taking position, later they reverse the market move quickly using different interpretations.

The media is effectively used for that purpose. So if you avoid following such interpretations, your trades will make profit.

You cam take positions near low the long or near high the short and keep 40-75 pips limit and use trailing stop once the position makes profit of 30 pips. Always close the positions before taking another position- the simple way of effective trading.
We will now see other conditions need to be followed in effective trading.

Conditions: market makes swings. They need not be related to another other factors other than the net long and short built up in that pair from time to time. If you relate market moves to any other factor then the confusion arises

For example Euro was rising last year when Dow was correcting. This time of the year, Euro is rising when Dow also rises.

So avoid relative comparison as for as market moves are concerned.

We normally look for such relationship and when that does not happen, the surprise comes in and the market fear grips.

Besides, please understand that the entire market moves are based on US Dollar sentiments; at the same time the degree of rise or drop depends upon the volume of pending unfavorable positions.

So even if the US data release is not optimistic for US economy, the other majors need not rise if majority of the traders hold long positions in Euro and GBP. So ignore such spikes, they are irrelevant and they are only trap moves to induce fear to traders…

Keep in mind the spikes are extended moves in 24 hrs market cycles the reverse move of the spike will happen called intentional moves. The operators quickly drop the market and buy when all turn sellers…if the traders refuse to sell in distress, they make further drop using circular trading and create more fear to traders.

This way if not stopped out, the margin call pressure will come. Later we will realize that any level position we will be able to book profit provided we stay patient.

Market punishes impatient and impulsive traders and not the calm and defensive trader.

So be casual in your approach with less position. The types of market fears- namely stop out and margin calls will not trigger your emotions.

Emotional control can be easily achieved if the hedging facility is available, or you avoid viewing the market all the time. Try to view the quotes than charts that will give true picture of the market moves.

Equity management: the trading plans are to be decided based on the equity size of the individuals and not based on market perception.

Never jump into conclusion that your decision to take long or short in euro will be correct. Still understand that taking long near low or short near the high set for the day will give profit booking opportunity in 24-48 hrs.

To discourage the traders holding positions for more days the platforms charges over night interest or premium unlike stock trading where the delivery based trading is possible and in forex spot market one can hold the positions for many days until the profit is seen.

So if the market exposure to the equity size is only 2-10% in a given time, one can wait with just limit and no stop.

The profit will be seen during the market cycle. So instead of making frequent losses by changing the market perception, one can wait to book profit in holding positions by calmly planning the trading strategy rather than trying to cut the position and turn opposite and lose again.

There is market saying, -when the strongest bull turns bearish the market reverses to bullish mode.

So never change the market perception – keep one view that there will be big up and down moves in the market to trap the bullish and the bearish traders alternatively.

So if you are neither bullish nor bearish, you make sensible traders of turning long during distress drops and turning short when there is distress short covering rise.
Because once the distress traders close their positions the operators make consolidations and reverse. So learn to earn equity consistently by taking less risk and maximizing the profit.

Reading market moves: The market moves will appear like mere swings all the time- either small or big…. actually they are made big during start and end of each session and subdued during mid sessions.

The operators are also traders, but big…. so they are active when the traders commit more .if the traders keep away they make circular traders to keep floating the market.

Understand that the quick moves are false moves in the market. If the quick move is repeated again in 30 min, understand that it is extended move. Then wait if you hold position against the intra day trend. You will see profit booking opportunity in next day during reverse move.

Once you learn the types of market moves and how the operators sequence it from time to time, you will gain more confidence in position taking.

The operators, as market facilitators continue to make moves to trap traders and earn their money. There is no point in blaming them. Instead we need to learn how to trade and earn along with operators.

It may appear that we are trading against the market trend, but what appears in market is not true. Hence many think that market is a gambling place. It is not, if you keep your mind calm and understand the moves, your trades will see profits.

Decision-making in trading: There is normal saying in the market that when you feel bullish sell and when you feel bearish buy to earn from the market. It is not true all the time.

Because the market can make wide range swings. If you want to quickly book profit on the same day you can take a higher level long or lower level short using double stop to gain net profit during either way moves of the market. This is called technical trading.

But you need to be alert to do this type of trade…. the reward will not be phenomenal and will be stressful.

Instead you can calmly wait for the full rise and next day you can do higher level short and lower level buy trades to earn easily. So if you miss the position taking opportunity, always think that you will continue to get good position taking opportunities in the market.

If you take long positioning Euro at the lowest level and book say 75 pips profit, or take next day Euro long or short and earn 75 pips profit the earning is the same.

So aim to earn and don’t feel that you missed the trading opportunity. This will avoid the emotional decision making in you.

Don’t expect the spike every time. The operators do that mostly when traders have built up more positions.

So they make lower level consolidation with lower stop hunt, then a spike to middle level. Then middle level consolidation with either way stop hunt, then the spike up to reach higher level. Then higher-level consolidation with upward stop hunts and downward spike to middle level and repeat the cycles.

So try to understand at what level the consolidation happens and don’t think that the market has become suddenly dull. Relate to earlier levels and find the next consolidation level and accordingly take positions.

Chartist Dynamic Analysis

Date: June 16, 2005 14,00 GMT
Expert: Adrian Aquaro, Head of Trader College LLC and True Market LLC
Topics:
- Support and resistance
- Trend line
- Fibonacci
- Speed lines

Who is Adrian Aquaro?
Adrian Aquaro has been a trader for the last 3 years, specializing in the International Foreign Exchange Market and acting as an Introducing Broker for the Latin America market. He heads True Market Services LLC and is also the director of Trader College LLC. He has vaste experience in forex education, making of him a leader in this particular part of the financial services industry.

Speech Material:

Before beginning with dynamics of the analysis, we would like to see some basics points. As all traders know, support and resistance are points where offer force is stopped by demand force, and these points are registered as a congestion zone. The more times price touches these points, resistance and supports are more valid. Let´s see how supports and resistance work.

Click to enlarge:

In this example, we can see some support and resistance zones. In our opinion, supports and resistances are the most important tool, and if you work with technical analysis, is the first thing to use.

Many traders ask which is the best time frame to use. We always say that it depends of the trader strategy, but we recommend to go from large charts (week, day), to small charts, (60, 30, 15 and 5 minutes). This way, you can find supports and resistances in weekly and daily charts, and then enter trades outside these points or waiting for a rebound. In the first case, you an enter a trade in 1,1540 bullish, when price breaks resistance in 1,1530. In the second case, you can enter a trade 1,1530 bullish again, but when 1,1530 is support, not resistance.

Don´t forget that market will do the same time after time, and because of this support and resistance exist.

There are three types of support and resistance:
- Horizontal
- Mathematics
- Perpendicular

Horizontal support and resistance
This is the first type of support and resistance. To find them, you have to see at least the last two “screens”, and draw horizontal lines joining several points at the same price, or at the same zone. This way, you´ll see that usually, price touches a point and rebound, in “V” form. When you have this “V” rebounds three of four times, and congestion zones, you´ll have a valid support or resistance point.

Now, you have the current price, and you can find the two first resistances, that we will name R1 and R2, and the first two supports, S1 and S2. The best zone to trade is between price and R1, R1 and R2, R2 and R1, price and S1, S1 and S2, and S2 and S1.

Let´s see the following example:

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Mathematics supports and resistances:
Fibonacci: At first, we will see Fibonacci rates: these are 38,2, 50 and 61,8%, and 23,6 and 76,4%, but no so important. Fibonacci rates are the possible retracements, taking a determined rally. When you have a reverse pattern, like a trend line break, you can draw the Fibonacci´s rates, and those rates are the supports and resistances.

Click image to enlarge:

There is a lot of information about Fibonacci rates, and really, most of traders use them now. Actually, we think that is a very important tool, and ALL traders have use Fibonacci.

But Fibonacci have not only rates. There are speed lines too. Speed, in technical analysis, is the line where price curve rests. If there is a sudden price change, we can see that price lateralizes and rests in the next vector. When price breaks the third speed line, usually price line goes in the trend way, as we can see in the following example:

Click image to enlarge

In this chart, we can see that after price breaks the third speed line, the next support is 38,2 or 61,8% of 1,2020/1,2310. For this example, we used Fibonacci´s retracements and Fibonacci´s speed lines. A combination of the two tools gives us a very clear objective.

Moving average: Dynamic support and resistance
MA takes the last N session close average, and its principal function is to show the main trend of market. Also, we can analyse moving average as dynamic supports and resistances.

First, we have to look for the best frame. If we take a 5 session MA, we will see that price breaks it too many times, so it is not so useful. But, if we choose for example, 60, 100, or 200 MA, they will work as a very important support or resistance, and price will not break them easily. Look at the example:

Click image to enlarge:

In this chart, you can see that price cannot break 100 MA, and when finally breaks it, it´s not easy to break 200 MA. To have a better interpretation of this, you can read R1, R2, S1 and S2 concept. Moving average will work as resistance and support zones. Also, remember that while price is over MA, trend is long, and while price is behind MA, trend is short. This is a simple but important point when you enter a trade in the market.

Chart and indicator, a good combination
We usually look at price line, and analyse chart and indicators separately. But we can combine both tools, and many times, you will see that, if you draw a trend line for indicator, when indicator line breaks its own trend line, this will anticipate what price will do. In the following example, we took Momentum indicator and a GBP/USD daily chart, let´s see how it works:

Click image to enlarge:

In the previous example, daily GBP/USD chart, we can see that if we follow Momentum indicator, there is a line break, and this anticipates a price line break. If we draw a line joining two or more points, if order to confirm the break, we have an interesting filter, of chart analysis.

Perpendicular line
First, we have to draw a trend line. We have now a channel, which touch two or more points. In the following examples, you can see that when there is a bull channel, and in this channel, price rise with a 45° angle, taking time and price axes. After, when price falls, you can see that you can draw a perpendicular line from main trend line to price line.

Let´s see the following chart: USD/JPY 4 hour

Click image to enlarge:

This tool will show where price could break trend lines, or go in the main trend way again. Remember that the more extended trends have a 45° angle.

The interest rate 'conundrum' and impact on the dollar

Date: June 15, 2005 14:00 GMT
Expert: Jack Crooks, President of Black Swan Capital
Topics:
- What is driving long-term rates?
- Are historically low long-term yields signaling recession?
- Is the market underestimating the Fed?
- Does it matter for the dollar?

Who is Jack Crooks?
Jack Crooks is founder and President of Black Swan Capital. Jack has close to 20 years experience in the currency markets and is seasoned investment advisor who has held key positions in brokerage, money management, trading, and research. He has written extensively on the subject of global currencies and international economics. Most recently he has been published in Asian Times, Ominous: The US deficit vs. the dollar.

Speech Material:

- What is driving long-term rates?
-Are historically low long-term yields signaling recession?
-Is the market underestimating the Fed?
-Does it matter for the dollar?

The interest rate 'conundrum' and impact on the dollar

Click the image to view the Power Point:

Important Note: Take into account that the PowerPoint that will open by clicking the link is a large file and you may experience some difficulties when trying to open it.

Highlights:
-The economic and financial world is changing in ways that we still do not fully comprehend.
-Long rates lower and short rates higher: It has to be a sign of economic weakness—right?
-The Fed has to slowdown in this environment—don’t they? Maybe not!
-A bubble the Fed was very instrumental in creating—Real Estate. Why?
-The Fed Funds rate drove liquidity…now it taketh away!
-Four reasons why the $ goes higher:

May the forex be with you. Making 683 pips in 6 days

Date: June 14, 2005 14,00 GMT
Expert: Rob Booker, Currency Analyst
Topics:
- What Indicator Did the LA team Use?
- What Time of Day do they Trade?
- Why were they so successful?

Who is Rob Booker?
Rob Booker trades profitably for his own account and manages money for others. Rob has trained hundreds of fx traders around the world. He has helped them develop their own trading systems, but more importantly, Rob focuses on helping traders deal with the mental, psychological, and discipline issues related to training. For Rob, successful trading is more mental than anything else.

Speech Material:

May the Forex Be With You:
How the Winning Team of the LA Trading Competition Made 681 Pips in 6 Days First, I’d like to provide some context for why I’ve chosen this topic.

Last week (June 9-10), I held the 3rd Team Trading Competition. These are live training sessions where I teach systems, money management principles, and discipline techniques – and simultaneously, we all implement what we are learning in a team trading competition. I divide the seminar attendees into teams and they work together during and after the competition.

During the competition, my personal team made about 900 pips. But every team that attended came out positive. Later on, I’ll provide the link to the complete competition results, so you can see the breakdown of trades for every team. But for now, you know the context for this chat – that it’s possible to make a lot of pips in a team trading competition. And you don’t have to be on my team! These teams were not comprised of consistently profitable traders. These were teams of traders hoping to learn what they needed to learn in order to be profitable.

Today, we’re going to look at what made LA Team #1 the 2nd place team – and the team that won the competition (my team was not eligible to win). We’ll also get a little bit of help from characters from the Star Wars movies. That will make the chat more fun, and maybe we’ll all remember something!

The LA team that won the competition started with a plan. They didn’t start with a plan like “Hey, let’s win the competition”. They started with a plan that detailed their trading strategy. It detailed who was responsible for taking trades, who was responsible for looking at certain time frame charts, what indicator they were going to watch, what currency pairs they were going to follow, what money management principles they would obey, and so on.

I hear from traders all the time who have lost money and who do not have a trading plan. They have no set of rules to follow. They have no focus on time frames they watch. They have not limited their charts to a certain small number of indicators. So what happens next? They trade just about any signal from any time frame chart, on any currency pair. This leads to a lack of focus. This leads to losses.

So what pairs did the winning team watch? What indicator did they use? What schedule did they keep? We’ll talk about all that – but first, it’s important to drive this point home even further. Team 1 did not make their plan in 1 day. Their plan is the result of a lot of work together; of testing, or trial and error. You can’t make a successful trading plan in 1 day. It’s impossible. You need to take the time to put the following into your plan:

- What pairs to watch. Keep this small – no more than two pairs for your first 6-12 months as a trader
- What money management principles to obey – you have to know what your max stop loss is, what your usual take profit level is, what your max drawdown will be. Don’t worry as much about leverage. Worry more about what percentage of your account you can / cannot afford to lose. Then trade accordingly. Never risk more than 3% of your account on a set of open trades when you are starting out. If you do, you are asking for trouble
- What indicators to watch – keep it simple. Don’t clutter your charts with all kinds of indicators. Choose a few at most and create a system from them.

I can say this a million times, and most people still don’t listen. You have a much greater chance of failure if you trade against the trend. Period. If you trade against the trend, you are setting yourself up for losses. Many, many traders try to pick the bottom or top of the market. To see what happens when you try to pick a bottom, visit the link below:

http://www.barryandandy.com/sounds/chimp.mpg

I am not the first and I won’t be the last to tell you that trading with the trend increases your chance of profit by a zillion percent. Whatever system you follow, it is wise to trade with the trend. Here are some examples:

Breakout systems: If you trade a breakout system, try only trading the breakouts that go with the trend. If you trade against the trend, severely reduce your trade size, and reduce the profit goal. But keep a bias for trading with the trend.

Oscillator systems: If you depend on an oscillator (RSX, Stochastic, RSI, CCI, etc) to help you make trade decisions, then keep an eye on the major trend. If the trend is Down, then look for an opportunity to sell when your oscillator says the pair is overbought.

Those are just two examples – and you have to add your own time frames, your own ways of judging the trend (which is outside the scope of this chat). But the point is the same: whatever system you use can be improved by trading with the trend.

Some people ask me how they can trade with the trend in a ranging market. My answer is that there is always a trend on some time frame chart – whether the 1 month chart, the 1 week chart, or the 5 min chart. There is always a trend. Even in a ranging market.

Oh, and by the way. The photo above is not from Star Wars, obviously. But I like it so much I had to include it. Remember when Luke resisted turning to the dark side:

When you are tempted to trade against the trend, remember that Luke plunged into the depths of some freakish Cloud City tunnel system, with only one arm. He did that, rather than turn to the dark side. How about that for discipline?

In Star Wars, Luke closed his eyes and used the Force to help him blow up the Death Star. He wasn’t even watching his targeting computer! That’s like a trader who has so much confidence in her system that she ignores other charts, other indicators, other time frames.

The more indicators you add to your charts, the more likely it is that you are going to become confused. The same goes for adding more currency pairs, more time frames you watch, or the more systems you follow. We all know how it feels to be following multiple time frames / systems, and get simultaneous buy and sell signals. And we don’t know which one to take!

This confusion can be avoided completely if you simple focus on one set system. On just a couple of currency pairs. On just a few time frames. This is what I call 1-2-3 trading: One system, two pairs, three time frames.

This is what Team 1 did in Los Angeles. There was a great temptation to trade recklessly in order to win the competition. But you’ll find in Team 1’s trade journal (link below) that they consistently took modest profits on trade after trade. That was one major secret to their success – they did not change their system just to win something. By focusing on what they were best at, by not involving new strategies etc, they were more successful.

What indicator did they use? They used the McGrew MACD. That’s an indicator developed by my team member and friend Phil McGrew. More details on the indicator are available below.

Team 1 was not focused on the big score, or the huge gain. They were focused on repeated, modest profits, over and over again.

Many traders are so focused on big wins that they never take profit – and they let winning trades become losing trades, and let those losing trades become absolute disasters. That’s not what you want to do. You want to bank consistent gains, time after time. I often say that I would rather have 10 weeks in a row of +10 pips for the entire week, than have 9 weeks of 500 pip losses and then one week of 5,000 pip gain. The point is that it’s better to be able to consistently gain (and keep) your profit than it is to score the big win.

Going for the big win creates a mentality that the market hands out 100 pip trades really often. We know that’s not true. 100 pip moves in 1 direction are rare. Major currency pairs generally don’t move more than 150 pips in one day, in one direction. When they do, it’s because there was a major economic event. Most of the time, currency pairs move 20-40 pips in one direction, and then retrace the other way for a similar move. A solid day trading system takes advantage of this, and does not focus on trying to get a big win every day.

If you look at the information above, you’ll notice that all I am doing here is telling you that Team 1 was very, very disciplined. Any way you look at it, they cut their losses, and didn’t try to ride their gains for too much. They planned ahead of time, and took the trades that followed their set system. They had a written trading plan.

Other Stuff We Did in the Competition that Worked
Here are some other things that I taught in Los Angeles that I think you might find helpful.
- Don’t trade against the trend. I know I already said that, but I could not resist saying it again.
- Give Pivot Points a chance on big news days. I don’t use Pivot Points on any other days. But on big news days, like the US Trade Balance or the Non Farm Payroll report, I plot the pivots – you will notice that on these days, the price tends to move from pivot to pivot.
- Trade in a team. Traders do better when they have others around them to assist them, to bounce ideas around with, and to hold each other accountable. I set traders up into teams as part of the training that I do.

Team Results competition results:

http://www.robbooker.com/woodchuck/journal/LA_Competition/TeamCompetition.php

Indicator that Team 1 Uses:
Team 1 uses the McGrew MACD. It’s a powerful indicator developed by my friend and fellow trading team member, Phil McGrew. You can get the indicator on TradeStation or on Xtick. It is not currently available on any other charting packages. If you want your current chart provider to add the indicator, call them up and tell them they should add it, and they can contact me (rob@robbooker.com) to get more information.

Long Tern Implications of Rejection of EU Constitution

Date: June 9, 2005 14:00GMT
Expert: Boris Schlossberg, Fundamental Analyst at Forex Capital Markets
Topics:
- The NO vote does not mean the death of the euro
- European poltical problems will have to dealt with but economic integration will continue.
- The panic over the EU break up may be an economic blessing in disguise as it drove the euro down and now the export sector can grow.
- The poltical turmoil may weigh on the euro but the defictit and Iraq will weigh on the dollar.
- So the likely result is a stalemate throughout the summer

Who is Boris Schlossberg?
Boris Schlossberg serves as Fundamental Analyst at Forex Capital Markets. He has been an independent trader since 2000. He is also a frequent contributor to SFO Magazine with articles focused on risk management.

Speech Material:

Well it has certainly been fun run for the dollar bulls. The unit gained an astounding 13 cents against the euro in last 2 months and reversed the whole euro rally of late 2004.

At that time Newsweek came out with its infamous “The Incredible Shrinking Dollar” cover story proving once again that there are no worse traders than the popular press.

Of course now that the tide has turned we are waiting for the Time magazine article to solemnly proclaim “The End of the Euro!” which will no doubt mark the top of the dollar rally

The recent rejection of the EU Referendum by both the French and the Dutch has certainly weighed heavily on the euro as fears spread through the FX market that the currency itself may be in trouble.

To add insult to injury, Italian Welfare Minister Moroni did what politicians do best – grandstand and called for Italy to reintroduce the lira.

Never mind that Italy’s secession from the EMU would be utterly disastrous for the country which is in the midst of a recession, plagued by serious productivity problems in its Industrial sector, must roll over national debt in excess of 100% of its GDP and is in the hands of an increasingly ineffective government.

If Italy returned to the lira – would anyone buy their bonds?

So will the events of the past two weeks lead to the abandonment of the euro? We don’t think so. Traders should not make the common mistake of equating The European Union (E.U) with the European Monetary Union.
The EU and EMU are two very distinct groups. There are 25 countries within the E.U, which was created to foster free trade within its member countries. However, not every country within the EU participates in the EMU - the UK is a perfect example.
At this point they have no interest in adopting the euro.
The EMU includes 12 countries that take the idea of a European Union one step further by sharing a common currency. All 12 member countries are firmly committed to the EMU and even the majority of French and the Dutch citizens who voted no to the Constitution, still support the idea of the euro

With so much money invested in this euro project, we believe it to be far more probable that our friends across the Atlantic would rather hole themselves up in a boardroom until they figure things out than have to dig up old Italian Liras, French Francs and German Deutschemarks out of their trash cans.

In fact, many countries have already made the shift of increasing their euro holdings. Just to drop a few names on a long list, this includes Korea, India, South Africa, and Russia. Back in February of 2005, Russia announced an end to its de facto dollar peg and plans to align the rouble with the euro. Given that Russia conducts 65% of their trade with Europe, they plan on changing their mix of reserves from 70% dollars and 30% euros to 30% dollars and 70% euros.

In March of 2005, the Ukraine announced similar their plans to completely drop their dollar peg and move to a euro basket. Yet these are not the only countries to be considering increasing the amount of euros that they own. There is a widespread belief that China and Japan are also contemplating changing their reserve holdings. In fact, China has already been quietly accumulating euros into their reserves. It is only a matter of time when the dollar has to move over and make room for the euro.

No doubt the political turmoil stirred by the rejection of the EU Constitution is severe and likely to have long lasting implications as EZ governments have to go back to the drawing board to create a workable alternative. But the path in Europe is intractably towards more integration and cooperation, as new dynamic East European nations join the block and infuse the region with much needed vigor and competition.

Ironically enough , one of the unexpected benefits of the weaker currency will be the boost to the region’s very important export sector and tourism industry With the euro fully 1300 points lower than it was just a few months ago, European manufacturers may enjoy a much needed increase in productivity as their inventory will suddenly become more affordable.

Over the past decade Europeans have hardly been trailblazers on the road to economic prosperity. However, they have always been very conservative with their assets. To this day the Euro-zone runs substantial Current Account surpluses and the E.C.B, unlike the Federal Reserve is far less tolerant of inflation and credit growth

Although the relaxation of the European Stability Pact definitely had a negative impact on the euro, the loosening of the 3% of GDP threshold is temporary and the fact the E.U has a formal process to limit runaway deficit spending ultimately makes it a much better credit risk than the US.

Speaking of the US, part of the dollar advance was largely due to Fed’s tightening monetary policy that took interest rates from 1.00% in September of 2004 to 3.00% presently, providing the dollar with a carry trade advantage against both the euro and the yen. However, recent economic indicators like the Empire and Philly and especially the latest Non-Farm payroll numbers suggest that the US economy may be rapidly slowing down which would lead the Fed to cease hiking rates in the near future. Some analysts now suggest that the Fed may at 3.50% which would significantly limit its carry trade advantage. The greenback would then lose its attractiveness to speculative money flows and the market may once again focus on US’s ballooning deficits.

Some analysts project that the US Trade deficit could reach 1 Trillion dollars in 2006 as the higher dollar will spur imports and curb exports, generating just the opposite dynamic necessary to relieve global imbalances. In addition The Federal budget deficit, burdened by the continuing conflict in Iraq is also likely to be a drag on US growth What does this mean for EUR/USD in the near term Most likely a stalemate.

Recently, Michael Deppler Director, of the European Department of International Monetary Fund noted that he thought 1.20-1.30 range was just about right for the pair, a view with which we concur as we believe the EUR/USD will now enter a protracted period of consolidation and range trading because neither currency offers strong value.

Take a look at the following charts.

Lest you think that this euro decline is the death knell of the three year rally note the very sharp retraces in the past.

Visual content:

Click image to enlarge:

Summer time is typically a slow time in the FX market as most of European businesses including dealers want to go on vacation. The seasonality, along with little reason to prefer one or the other one of the currencies favor range trading for the next few months.

Click image to enlarge:

Central European markets after the French/Dutch EU referenda

Date: June 8, 2005 14:00 GMT
Expert: Piet Lammens, KBC
Topics:
- The "No" That's Shaking Europe
- Result of EU Referenda
- Fluctuated Bonds
- Interest rates
- Impact on currencies

Who is Piet Lammens?
Piet Lammens Born in Louvain, Belgium on February 28 1958. Law degree, Catholic University of Louvain, Belgium Legal advisor 1982-1989.CERA: Economist Research Department 1989-97. CERA Investment Bank Analyst dealing room 1998.KBC Head of Research dealing room 1998

Speech Material:

Despite all the turmoil on the politcial scene and some euro scepticism, the result of the EU referenda in france and the Netherlands will not change the future for the 10 newest EU members.

Their path to the euro is self-determined, although some of the newest members are better positioned than others. EU candidates Bulgaria and Romania are also in the clear. Potential problems could arise though for other candidate countries such as Croatia and especially Turkey.

Topics for today´s discussion:
- The "No" That's Shaking Europe
- Result of EU Referenda
- Fluctuated Bonds
- Interest rates
- Impact on currencies

Visual Content:

Click the image to view the Power Point: NAME

Important Note: Take into account that the PowerPoint that will open by clicking the link is a large file and you may experience some difficulties when trying to open it.

Highlights:
- EMU key in the hands of new member states
- Referenda as catalyst
- NO doesn´t bar EU accession
- Does change in GSP bring EMU closer?