FXstreet.com Live Sessions Archives

Live Perspective Broadcast

Date: October 31, 2005 15:00GMT 10EST

Expert: Derek Frey, Head Trader of Odom & Frey Futures & Options

Topics:
Market reaction to news!
- This week's data and events
- Key support and resistance for major markets
- Derek's insight on the week inreview and the week to come
Currencies
- Euro
- Dollar
- Pound Sterling

Who is Derek Frey?
Derek Frey has been a futures trader since 1989 and is Head Trader and partner at Odom & Frey Futures & Options, a firm that specializes in high probability, defined risk option spread trades for the futures markets. Derek is also co-author of O&F News & Views, a weekly newsletter that is published by several publications and over 20 financial websites including FXStreet.com.

Speech Material:

Market Reaction to News
As I suspected last week the Stock market did not follow through to the downside and is now trying hard to rally back up above 10,400. We are recommending a short term bull call spread at this time by buying the Nov. Dow 105 call and selling the Nov. Dow 107 call as a spread. There is a very strong seasonal tendency for stocks to rally for about the next four weeks. The trade I suggested above is a great way to be positioned to take advantage of this trend if it develops while keeping risk in check.

Key Support and Resistance for Major Markets
Bonds: Bonds Managed to break down this week after a brief dead cat bounce late last week. I continue to be concerned by the excessive small spec short interest. We are doing our FOMC Bond strangle again for Tuesday’s FOMC meeting. I expect a rather dramatic increase in volatility in Bonds after this Fed. meeting due to all the chatter about this being the “8th inning” again. Derek Frey 10-28-05

Insight on the Week in Review and the Week to Come
With a two year low reported in U.S. consumer confidence along with a 2.1 percent plunge in durable goods orders, eyes will be focused on Friday’s Gross Domestic Product figures. Nascent doubts remain on the strength of the world’s largest economy and the validity of rising interest rates.

Currencies/Economic Indicators
The Us Dollar did fail to follow through to the upside this week. This should have given metals boost but was not enough to get them to breakout to new highs. Gold continues to consolidate around the 475 level, while silver is doing the same around the 7.80 level. Copper too is consolidating around the 180 level. Palladium has been the exception as it continues to make new highs. Platinum is trying to follow Palladiums lead but so far has struggled to break out. All of this points to the strong possibility of a continuation of the overall bull trend we are seeing across all metals. Since we have seen such strong consolidations lately it is reasonable to expect that we are only days away from a break out. This Friday’s late dollar rally is likely to fail next week just like last Friday’s dollar rally failed to follow through this week Derek Frey 10-28-05

EUR/USD: The Euro did try to stage a rally this week but was largely held back by the rather stagnant Dollar. I do expect further downside on the Dollar so the Euro should rally this coming week. Wait for a move above 122.00 to get long

USD/CHF: With the Dollar failing to follow through the Swissy also failed to breakout above 130. I do not expect much strength in the dollar this coming week so look for this market to continue to fall.

GBP/USD: The Pound did begin moving towards 180 but fell slightly short. I do see 180 being broken through this coming week.

USD/JPY: I continue to be bullish this market and expect to see a move towards 117 this coming week

AUD/USD: My stop and reverse order at 74.25 so far has held and I do think we should see the beginning of a rally this coming week

USD/CAD: The Canadian broke out mid week only to pull back 300 points in the next four days. I look at this as the final shakeout before a dramatic rally that caries us above 120.00 near term

USD/MXN: The Peso continues to drift sideways this past week. I am bullish this market but not overly bullish. I would prefer the Canadian if I could only be long one currency

Live Market Analysis

Date: October 28, 2005 13:00GMT 10EST

Expert: Richard Lee, Currency Analyst of FXCM

Topics:
Market reaction to news!
- This week's data and events
- Key support and resistance for major markets
- Richard's insight on the week inreview and the week to come
Currencies Pairs examined

Who is Richard Lee?
Richard Lee is a Currency Strategist at Forex Capital Markets. Employing both fundamental models and technical analysis applications, Richard contributes regularly to DailyFX, Yahoo Finance and Comtex. Prior to joining the research team, Richard was one of the senior instructors for the FX Power Course, teaching thousands of traders the basics of currency trading, technical analysis and how to implement trading strategies. He has extensive experience in trading the spot currency markets, options and futures. Richard previously traded FX, equity and equity derivatives for a private equity consortium prior to joining FXCM. He holds a BA in Economics as well as a BS in French with an emphasis in International Business from the Pennsylvania State University

Speech Material:

Market Reaction to News
The U.S. dollar loses mild strength seen last week while the Japanese yen remains hovering the option related 116 resistance in light of further evidence of a turnaround in the economy. Additionally, rising consumer sentiment and expectations of better times ahead look to be adding to the euro while U.K. interest rate cut speculation dissipates.

Key Support and Resistance for Major Markets
Significant activity surrounding the 115 figure in the USDJPY with formidable resistance at the 116 option related barrier. The Euro bounces off of the key 1.1900 support figure and moves higher to the 1.2252 ceiling (50 percent fib from the Aug’03-Dec’04 move). Notable double top at the 1.3000 resistance in USDCHF could lead to a test of the 1.2500 near term floor.

Insight on the Week in Review and the Week to Come
With a two year low reported in U.S. consumer confidence along with a 2.1 percent plunge in durable goods orders, eyes will be focused on Friday’s Gross Domestic Product figures. Nascent doubts remain on the strength of the world’s largest economy and the validity of rising interest rates.

Currencies/Economic Indicators

Euro
With the elections past and the grand coalition formed, traders will look to any reforms that may occur in the near term. Additionally, with economic data to the upside, Chief Economist Otmar Issing and several other central bank officials hint at rising interest rates in preventing inflation.

Dollar
Ben Bernanke is confirmed as the newly elected Federal Reserve Chairman, lending some instability in the underlying spot. Subsequently, consumer confidence declines to a two year low as durable goods orders plunge.

Pound
Interest rate cut speculation wanes slightly in light of Sir Andrew Large leaving central bank. Moreover, consumer prices remain lofty with housing prices seemingly stabilized. Nonetheless, the latest CBI industrial survey remains weak as manufacturing activity continues to slow in line with consumer demand.

Yen
Department store sales adds to overall pickup in consumer spending with traders focusing on rhetoric issued by central bankers on interest rate increases and further yuan revaluation.

Psychology of Trading: To Trade or Not to Trade

Date: October 27, 2005 14:00GMT 10EST

Expert: Jerry Chin, Currency Analyst Fxsolution's

Topics:
- Should you trade.
- Do you have what it takes to trade
- If you dont have what it takes, how to build yourself into a trader.

Who is Jerry Chin?
Jerry Chin has over fours years of experience trading futures and forex. He is currently a currency dealer at FX Solutions. As a dealer, He has a lot of interaction with FXSolutions diverse trader clientele. Many of the traders I interact with are day traders. Prior to joining FX Solutions, I was a trader with Goldenberg, Heyehmeyer & Co. one of the largest clearing firms on the CBOT. He electronically day trades firm capital in US Treasury futures.Having had experience in the largest financial market in the world, and the most liquid respectively, He has a detailed knowledge of the markets and how to trade them on a short term basis, with a successful strategy.

Speech Material:

To paraphrase the tortured young Prince of Denmark, “To trade or not to trade, that is the question.” This is the question I would like to tackle in this session on the psychology of trading. Whether you are thinking of opening a trading account or you are ambivalent as to continuing trading your account, or are thinking about re-entering the market after an absence, I hope my thoughts on the psychological decisions you have to make to answer this question will be helpful to you.

Why should a person trade? There are many psychological reasons why people follow the path to trading. Sometimes trading offers a thrill and exhilaration that a person does not experience in his normal routine. Excitement is a major marketing point many in the industry point towards as an enticement to enter the markets. Some people engage in trading because they want to be proven right on their opinions regarding the economy, political situation, or the weather. Everyone talks about these topics, and some people want to put their money where their mouth is. People want their opinions validated and there is none greater validation than cold hard cash. Others feel a certain prestige attached to being a participant in the financial markets. Others are never comfortable with certainty and actively seek out the uncertain to gratify their psychological cravings.

Prior to opening a trading account, you need to honestly answer the question, why am I trading? If you are trading for the excitement, the adrenaline rush, to be proven right, or any other reason, you might be able to attain those things through trading, but you most likely will not make money while attaining those goals. The decision to lose money trading while satisfying your other needs is yours to make. But do not be under the impression that you can satisfy your wants and needs and make money at the same time. It simply cannot be done. The reason is because when you have your psychological baggage attached to a trade, you cannot think through clearly the critical decisions necessary to cut losses and let profits ride. Your mind, whether consciously or unconsciously, will be clouded by the urges that need to be satisfied, whereas the trader who’s only urge is to make money has more than a fighting chance to do so because he is not consciously or unconsciously seeking ulterior goals.

After you find your true motivation to trade, you will be able to decide whether you can attempt to attain those goals through trading. If you want to trade to feel the rush, you probably will feel the rush in fast market conditions, as there is peril and shelter from the storm with every tick along the way. If you want to trade because you have an opinion on the direction of the economy, you might be proven right 50% of the time, eventually. If you want to trade because you want to have good cocktail party conversation material, you will be the life of the party talking about the United States twin deficits forcing the value of the dollar down versus its major trading partners. If your true motivation to trade is to employ risk capital in a productive fashion in order to grow your equity, then you just might have a chance of making money trading in the financial markets.

After you have made your decision whether to trade or not, whether you might be able to attain your goals by becoming a participant in the market, you must now figure out do you have what it takes to trade? Do you have the personality traits that will allow you to survive and thrive in the markets? Although there are a million ways to make a million dollars in the markets and there are a million personalities in the market, there are certain traits that help people and there are certain traits that hurt people. You need to be resilient. You will suffer many setbacks and disappointments with your successes. The nature of trading is that no matter how many setbacks you have, you must continue to strive for a good trade. If you are resilient, you will continue to be in the market no matter how many times you suffered losses, or strings of losses. You need to be resilient in trading because you need to be in it to win it, and the only way to be in it all the time is to be resilient in the face of setbacks.

In addition to being resilient, you also need to have the humility to admit your mistakes, and learn from then. No one will make the right decision 100% of the time. When you don’t make the right decision, and in fact even when you do make the right decision, you must analyze what went right and what went wrong so that next time, you do it right. Being humble and having an appropriate sense of self will allow you to be egoless and recognize when you are right and when you are wrong. Ego will prevent you from admitting your mistakes. Ego will prevent you from admitting mistakes and ego will prevent you from finding better ways of doing things.

The markets constantly change. What drives price action today, this week, or this year, will be quickly forgotten, next year, next week, or tomorrow. As a trader you must be just as flexible and adaptive. You must adapt to changing trading environments, either ranging markets or trending markets. You must adapt your opinions on the direction of prices as new economic or political events occur. A short term memory and a lack of stubbornness leads to flexibility in trading. Do not relive yesterday’s trades during today’s trading session. The decisions or opinions you had yesterday that lead to success yesterday can lead to failure today. Short term memory means that you start every trade fresh without any preconceived notions of what will lead to success or failure. Lack of stubbornness means you are open to change and changing your opinions as necessary. The flexibility to adapt not only leads to survival in nature, but in the markets as well. A single individual animal is not stronger than the forces of nature. A single trader is not stronger than all the aggregate forces in the market. Don’t ever think you can stick to your outdated opinions and views, when the market tells you are obviously wrong and are about to be extinct.

I have found that the most important personality trait to be able to participate in the markets is resiliency of purpose and personal flexibility. Although some people are just born more flexible and resilient than others, these character traits can also be developed and attained through experience. People who have gone through tribulations and failures in their life experience and come through successfully are usually more resilient than those who are never challenged and are equally successful. To become a resilient individual, test yourself, push yourself, expand your envelope of comfort everyday. You can do so with small steps, running faster at the gym, attaining a higher score in school, being a better parent to your children. As long as you are pushing yourself to improve, no matter you succeed or fail in reaching your goals, you will build up your resilience.

To increase your flexibility, learn to live with uncertainty. You need to face the uncertain in your everyday life. Be creative when confronted with uncertain situations. Do not look at them as obstacles and a source of frustration, but rather as problems to be solved and tasks to be conquered. If you take this attitude towards uncertainty, then you will develop the skills necessary to adapt and adjust to changing conditions in the market.

Deciding whether one should trade is a very personal decision that in addition to financial considerations, there are also many psychological considerations. You need to take into consideration what needs are you trying to satisfy in the market and whether you are likely to fulfill it through trading. You also need to consider whether you have the necessary character traits to be able to survive and thrive in the markets. Are you adaptable, are you flexible, are you resilient? And lastly do you want to put yourself in situations where you will have to be all those things? These are the questions you need to ask yourself before you are even ready to amass the necessary risk capital to open a trading account, let alone to open a trade.

Mechanical Trading Systems

Date: October 26, 2005 14:00GMT 10EST

Expert: David Lyder, Co-founder of iExpertAdvisor, LLC.

Topics:
- Why everyone trader should have one?
- Various types of systems
- Strategy for building a system

Who is David Lyder?
David Lyder is a co-founder of iExpertAdvisor, LLC, as well as the author of Automatic Alpha: How to Build a Winning FOREX Trading System. iExpertAdvisor is a newly formed company dedicated to providng information and ideas about FOREX trading systems. Visit us at http://www.iExpertAdvisor.com .

Speech Material:

If someone offered you $10 a day, everyday, what would you say? Would you reply: No, thanks - $10 isn’t that much.

If your smart, you’ll take the money. Why not? After all, $10 is $10, and it adds up quickly. Running a profitable mechanical trading system is similar to someone giving you money almost everyday. Whether it is $10, $100, or even a $1000 – the work required after building the system is the same. Simply turn on your computer and start the program.If gaining access to an automated trading platform was expensive, that might be a legitimate reason for a trader to not have a mechanical system. After all, who wants to accept more risk. Now, in addition to beating the market, you also need to generate enough profit to cover the cost of the trading system.But a free platform is available. And as a FOREX trader, you are already aware of demo accounts and mini accounts.

So here is the situation:

You have a free platform capable of developing, testing and executing an automated trading system.

You have a demo account so you can run the system live and evaluate its performance before risking any money.

When you are satisfied with the system’s performance on the demo account, you can open a mini account and risk a limited amount of capital.

Given the upside of running a mechanical trading system, there is no reason every FOREX trader should not run at least one mechanical system.

Whether you are a technical trader or a fundamental trader or a discretionary trader – why not have a mechanical trading system running in the background continuously generating profits for you?

And here is the bonus: the skills used to develop a mechanical trading system will enhance your skills as an overall FOREX trader. Once you have learned the framework used to develop a robust mechanical trading system you will naturally apply the same methods to all of your trading decisions. This will make you a better FOREX trader. Okay, so you realize and appreciate the benefits of building and running a mechanical trading system. Well then, how does a trader go about building a mechanical trading system? That is what this Q&A session is about.

Various Types of Systems. There may be as many kinds of mechanical trading systems as there are traders. To name a few types of systems:

Breakout System
This system determines a breakout price level. If the price of the currency pair breaks through this level, the system trades in the direction of the breakout.

Reversal System
This system looks for signs that a price movement is near exhaustion and will soon move in the opposite direction. When the price exhaustion is confirmed, this system trades in the direction of the reversal.

Indicator System
An indicator system simply follows the rules of the particular indicator. Wells Wilder’s oscillator systems are often built as mechanical trading systems.

Trend Following System
A trend following system determines the existence and direction of a trend. If a trend exists, the system trades in the direction of the trend. Any of these systems can prove profitable. But be warned, the road is littered with new traders who were fascinated with the “holy grail” system. I can not even count how many traders I have worked with that were

- just looking for a scalping system that
- just went into the market a few times a day and
- just scalped about 20 pips everyday
- A system like this can be difficult to build. (Especially if it is your first system). There are a few reasons:
- with so many trades, trading costs become a significant factor;
- while price movement in general may not be random, the lower the timeframe, the more random it behaves;
- these systems are difficult to backtest – most historical tests do not use tick data, which is required for testing this kind of system;
- many of these systems usually do not work for long.

Actually, there is evidence that suggests the only type of trading system that proves to be profitable over the long run is the trend-following system.

Gary Hirst, of Hirst Investment Management Inc., conducted research on technical analysis (TA) in 1991 and found that most TA systems, besides trend-following systems, eventually give back their profits. (See this article).

This does not mean that many of these TA systems are never profitable. In fact, many of these systems have a good run – maybe 5-10 years of profitability. Then they stop working.

Therein lies the problem with building a TA system as your first mechanical system. You don’t know when the system will stop working. (Probably when you start trading it.)

So there are at least two good reasons to build a trend-following system (especially if it is your first mechanical system).

Trend-following systems have produced steady and consistent results historically. The market has been shown to distribute returns unequally – that is with long fat tails.

A trend-following system is easy to divide into separate parts; each part can be developed and tested separately.

Strategy for Building a System
A good strategy for building a mechanical trading system is to break the system into parts. Each part is then individually developed and tested. A trend-following system is easily separated into the entry and the exit.

The Entry
The job of an entry in a trend-following system is to get the trade started in the right direction.
An effective method for testing the entry is to simply exit the trade after a fixed number of bars (the exit-bar test) and record the winning percentage. The trading costs are not considering in the test. Neither is the profitability. The only metric considered is the winning percentage:

Winning percent = (number of winning trades)/(total number of trades)

The winning percent must be greater than 50% - otherwise the entry in no better than random. Generally, the higher the winning percent, the better the entry.

After an acceptable entry has been proven through the exit-bar test, the entry can be tested for robustness.

In this context, a robust system is defined as a system whose input can be varied without significantly changing the output.

Generally speaking, a system with fewer input parameters is usually more robust than a system with many input parameters.

If an input parameter can be removed from the entry, without reducing its effectiveness, the parameter should most certainly be removed. This will increase the robustness of the entry.

The entry can be tested for robustness by varying the input parameters greatly, and retesting the entry using the exit-bar test.

For instance, if the entry uses a 10 period moving average (MA) as an input parameter, test the entry using a 5-period MA and then a 20-period MA. If the winning percent is still acceptable, the entry is probably robust

The Exit
Most traders place too much emphasize on the trade entry. Again, the sole purpose of the entry is to get the trade started off in the right direction. It is the responsibility of the trade exit to actually make a profit.

The quality of an exit is judged by its profitability – so when performing exit testing all trading costs should be included in the test.

The simplest exit strategy is the fixed stoploss and fixed take profit. This is often used as a benchmark against other strategies.

An exit strategy can be based on a technical indicator, a time factor, and of course a price-level.

The most popular price-level based exit strategy used with trend-following systems is the trailing stop.

There are many creative ways to implement a trailing stop strategy. The simplest is for the stop to trail the price by a fixed number of pips. More advanced trailing stop strategies may consider the highest and lowest price values in the last few periods as well as the time the trade has been open.

In order to test an exit objectively, the entry must remain constant. With a constant entry, each exit strategy can be tested and the results can be compared and evaluated.

In general, fixed stops usually provide a greater profit than trailing stops. However, trailing stops usually have a higher winning percentage. The trading system developer must choose what metric is more important: profits or winning percentage.

Sam Shenker's Free Fire Zone

Date: October 25, 2005 14:00GMT 10EST

Expert: Sam Shenker, Technical Currency Analyst of FXCM

Topics:
- Ask the Forex Expert!!
- All you technical doubts and queries solved

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, Daily Crosses and the Weekly Chart Analysis. 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, and his research can be found daily on Bloomberg.

Speech Material:

- Ask the Forex Expert!!

- All you technical doubts and queries solved

***OPEN FORUM***

All you technical queries answered by our Technical Analyst.

Please ensure you kepp questions coming in to enhance the quality of the session.

Weakness in Retail Forex: Inherent risks of a single market maker structure OPEN FORUM

Date: October 21st, 2005 14:00GMT

Expert: Peter Rosentriech Author of 'Forex Revolution'

Topics:
- The role of counterparty risk in forex trading
- How counterparty risk might manifest itself
- Basic rules of caution

Who is Peter Rosentreich?
Peter Rosentreich is a principle and foreign exchange trader for Rose Stevons & Company, a boutique New York alternative investment firm specializing in providing retail clients with innovative, structured products. Mr. Rosenstreich has extensive experience in the retail Forex sector. He is licensed with a series 3, 7, and 63, and is registered with the NASD and National Futures Association as a Commodity Trading Advisor (CTA). Mr. Rosenstreich holds a BA in History from Clark University and an MBA from the City University of New York, Zicklin School of Business.

Speech Material:

Given recent developments in the investment world, it is critical to revisit and review the role of counterparty risk to the retail forex trader. In recent years counterparty risk, while still an important factor to institutional traders, has become less important to retail traders. Retail traders tend to choose a trading firm based on other factors such as spreads, cost and execution.

In a single market maker system, which is the mechanism utilized by most retail platforms, there is a heavy reliance on the creditworthiness of the counterparty. This is due to the fact the firm is handling the trade for some period of time. Either holding the currency in inventory or quickly offsetting the trade, but both ways exposing them to additional risk.

Discussion – Please post your questions it is vital that we hear what you have to say!

- The role of counterparty risk in forex trading
- How counterparty risk might manifest itself
- Basic rules of cautionmy the euro could fall apart !

Live Market Analysis

Date: October 21, 2005 13:00GMT 9EST

Expert: Kathy Lien, Chief Currency Strategist of FXCM

Topics:
Market reaction to news!
- This week's data and events
- Key support and resistance for major markets
- Kathy's insight on the week inreview and the week to come
Currencies
- Euro
- Dollar
- Pound Sterling

Who is Kathy Lien?
Kathy Lien is the Chief Currency Strategist at Forex Capital Markets. Kathy is responsible for providing research and analysis for DailyFX, including technical and fundamental research reports, market commentaries and trading strategies. A seasoned FX analyst and trader, prior to joining FXCM, Kathy was an Associate at JPMorgan Chase where she worked in Cross Markets and Foreign Exchange Trading. Kathy has vast experience within the interbank market using both technical and fundamental analysis to trade FX spot and options. She also has experience trading a number of products outside of FX, including interest rate derivatives, bonds, equities, and futures. She has a Bachelors degree in Finance from New York University. Kathy has written for Stocks and Commodities, CBS Market Watch, ActiveTrader, Futures and SFO Magazine. She is frequently quoted on Bloomberg and Reuters and has taught seminars across the country. She has also hosted trader chats on EliteTrader, eSignal, and FXStreet, sharing her expertise in both technical and fundamental analysis.

Speech Material:

FX street.com is proud to bring you a NEW informative, analytical, overview of the pre-week Market. We are delighted to have Kathy Lien Chief Currency Strategist of FXCM and as our guest to give a fly on the wall insight to the happenings in the FOREX & Futures market for the coming week.

We hope you enjoy the Live broadcast and get up to date tips on how to tackle the week ahead. Bring your thoughts and doubts to the table by participating throughout the session actively and challenge the speaker with your questions, & concern's for the week ahead.

FXStreet.com has spoken with and listened to the needs and wants of thousands of clients and combined with our Live Q&A Sessions hope to erase the fears & woe's of our cliental and bring them up to speed with the latest happenings in the market.

***Please note that this session is not a lecture format chat session. To ensure success, please actively participate throughout, ask REAL time questions, post points of view, queries, doubts and concerns and receive immediate feedback and the opinion of our expert.**

Don’t miss the chance to pick his brains and be well informed for the week to come.

- Kathy’s perspective for the week to come

- Market reaction to news!

- This week’s data and events

Dollar Rally Part II Open Forum

Date: October 20, 2005 14:00GMT 10EST

Expert: Jes Black, Director of Research at FxMoneyTrends.com

Topics:
- Interest Rates to Dominate Dollar Trend
- Gold Rally Near an End
- FX Outlook for 2006

Who is Jes Black?
Jes Black is the hedge fund manager at Black Flag Capital Partners and director of research at FxMoneyTrends.com, a forecasting service dedicated to professional traders. He is also the author of 'Currency Forecasting and Trading Methods', which will hit bookstores this summer.

Speech Material:

- Interest Rates to Dominate Dollar Trend

- Gold Rally Near an End

- FX Outlook for 2006

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Technical Viewpoint of the EUR/USD

Date: October 19, 2005 14:00GMT 10EST

Expert: Justin Strausbaugh, Currency Analyst CMC Markets

Topics:
- In-depth analysis of the key/support resistance levels.

Who is Justin Strausbaugh?
Justin Strausbaugh serves as the in-house Analyst at CMC Markets in New York. CMC Markets was established in 1989 and has evolved into a market leader in real time Internet trading. After launching the world's first real-time Internet Foreign Exchange trading platform in 1996 the firm has evolved and now services clients in over 100 countries, offering them real-time internet trading in thousands of products.

Speech Material:

- In-depth analysis of the key/support resistance levels.
- Short, Medium, Long-term Technical Viewpoint.
- Will look at momentum, trend indicators, & candlestick patterns.

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Fundamental Analysis Techniques

Date: October 18, 2005 14:00GMT 10EST

Expert: Francois Nembrini, Managing director of FXCM, London

Topics:
- What influences prices in the currencies market?
- How does fundamental analysis explain long term trends?
- How does fundamental analysis explain short term trends?
- Currency Pairs

Who is Francois Nembrini?
Francois Nembrini is responsible for FXCM retail and institutional sales in Europe. Prior to assuming his current position, he worked at FXCM, LLC, in New York in the System Trading department as manager. There he helped develop trading systems on the major currency pairs and crosses. He received a BA in international business from the American University in Paris.

Speech Material:

What influences prices in the currencies market?
Prices in the currencies market are affected only by macroeconomic factors, such as inflation, unemployment, and industrial production. Information on events such as these is easy to find and based on their analysis of the economic data, traders take positions on the market to make profit.
• There are three main macroeconomic factors a trader should focus on when analyzing foreign exchange rates:
• Each currency has an overnight lending rate attached to it at the country's interest rate which is determined by the central bank of the country. Lower interest rates usually lead to a depression in the value of the country's currency.

This is largely due to traders who execute carry-trades. A carry-trade is a trade where a currency with a low interest rate is sold and a currency with a high interest is bought. This is based on the idea that currencies with higher interest rates will generally rise in value, and currencies with higher interests will rollover and allow trades to earn interest on a daily basis.

An example of this would be the decline of the interest rate in the United States imposed by the Federal Reserve. From June to December 2001, the interest rate declined from 3.75% to 1.75%. This caused huge depreciation of the USD against the Euro, causing the EUR/USD pair to rise to an unheard rate (at the time) of 0.9975.
• A country's unemployment rate is a key indicator of its economic strength. If a country has a high unemployment rate, it means its economy is not strong enough to provide people with jobs, and thus, leads to a decline in the currency value.

The decline of the dollar against the Euro in the previous example was not only due to interest rates, but also unemployment rates. From 2000 to 2003, the unemployment rate steadily rose from 4.0% to 6.5%, contributing to the steady decline of the dollar.

• Geopolitical events are key international political events. These events affect not only the foreign exchange market, but all other markets as well.

A prime example of this would be the attacks on the World Trade Center and the Pentagon on September 11, 2001. After these terrorist attacks, many investors pulled money out of US markets because they feared another terrorist attack, causing a decline in the value of the dollar.

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This graph illustrates the rise of the Euro against the US dollar in the last three years. The affects of geopolitical events, decreasing interest rates and increasing unemployment cause a decline in the dollar.

How does fundamental analysis explain long term trends?
Fundamental analysis is very useful for determining long-term trends within a currency pair. By focusing on long term economic factors that affect countries, fundamental analysis predicts long term trends. For example, the rising unemployment rates and deficit combined with declining interest rates in the US led to an upward trend in the EUR/USD which has been going on since 2002

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This graph shows the long term upward trend of the EUR/USD over the past three years, which is composed of smaller trends.

How does fundamental analysis explain short term trends?
Fundamental analysis can also explain short term trends. By keeping up to date with economic data, rumors, and news, a fundamentalist can better forecast short term trends since these are all factors that affect currency pricing. For example, the USD/JPY stayed high throughout May 2003 due to fears of intervention by the Bank of Japan. Another example is when the European Central Bank stated that the dollar would inevitably fall, causing the EUR/USD to rally 200 pips on October 6, 2003.

Click to enlarge:

Short term rally of about 250 pips lasting 3 days
10/01/03
This graph depicting the EUR/USD rate in October 2003, graphically shows the effect the European Central Bank had when they predicted the dollar would fall. The Euro rallies against the dollar, resulting in a short term trend.

Currency Descriptions:

EUR/USD

• Dollar weakness drives EUR/USD higher
• US recovery and strong influx of foreign demand will send EUR/USD lower

If, for example, you think the U.S. economy will continue to worsen and that will hurt the USD, you click on BUY, which means that you are buying euros and expecting them to go up against the USD. If, for example, you think that there will be increased foreign demand for US assets such as equities and treasuries and that will benefit the USD, click on SELL, which means that you are buying U.S. dollars, expecting them to climb in value against the euro.

USD/JPY

• Japanese government intervention to weaken their currency sends USD/JPY higher
• Gains in Nikkei and demand for Japanese assets drive USD/JPY down

If, for example, you think that the Japanese government will continue to weaken the yen in order to help its export industry, you would click on BUY, expecting the U.S. dollar to increase in value against the yen. If you think that Japanese investors are pulling money out of U.S. financial markets and repatriating funds back into the Japanese asset markets, such as the Nikkei, you would click on SELL. This means that you expect the yen to strengthen against the U.S. dollar as Japanese investors sell their assets and convert their dollars back into yen.

GBP/USD

• High Yield and attractive growth in the UK drives GBP/USD higher
• Speculation about UK adopting the euro will send the GBP/USD lower

If, for example, you think the British economy will continue to benefit from its high yield and attractive growth, thus buoying the pound, you would click BUY, which means that you expect the British pound to strengthen against the U.S. dollar. If you believe the British are about to commit themselves to adopting the euro, you would click SELL, expecting the pound to weaken against the dollar as the British devalue their currency in anticipation of merging with the euro.

USD/CHF

• Global stability and global recovery will send USD/CHF higher
• USD/CHF rallies on geopolitical instability

If, for example, you think that the market is headed towards a period of global stability and economic recovery, meaning that investors no longer need to park their money in the safe haven currency, or Swiss franc, you would click BUY, expecting the U.S. dollar to strengthen against the Swiss franc. If you believe that due to instability in the Middle East and in U.S. financial markets, the dollar will continue to weaken, you would click SELL, expecting the Swiss franc to strengthen against the dollar.

EUR/CHF

• Swiss government uses verbal intervention to weaken the franc, sending EUR/CHF higher
• If inflation took off Germany and France it could drive EUR/CHF lower

If, for example, you think the Swiss government wishes to devalue the currency to help exports in Europe, you would click BUY, expecting the euro to increase in value against the Swiss franc. If inflation started taking off in Germany and France, you would click SELL expecting the Swiss franc to increase in value against a devalued euro.

AUD/USD

• Rising commodity prices sends AUD/USD higher
• Droughts hurts Australian economy and AUD/USD

If, for example, you think that commodity prices are going to rise dramatically, thus benefiting the AUD, you would click BUY, expecting the aussie to strengthen against the U.S. dollar due to Australia's status as one of the world's leading commodity exporters. If you believe that Australia will face another drought, hurting the domestic economy, you would click SELL, expecting the U.S. dollar to strengthen against the AUD.

USD/CAD

• Canadian economic underperformance against US sends USD/CAD higher
• Higher interest rates and rebounding labor market in Canada will help to drive USD/CAD lower

If, for example, you think that the U.S. economy is going to rebound while the Canadian economy goes into recession, you would click BUY, expecting the U.S. dollar to strengthen against the Canadian dollar. If you believe that the higher yields and rebounding labor market in Canada warrants a higher valuation for the Canadian dollar against the U.S. dollar, you would click SELL, expecting the CAD to rise against the U.S. dollar.

NZD/USD

• Increased tourism and migration into New Zealand drives the NZD/USD higher
• Weakness in the Australian dollar sends the NZD/USD lower

If, for example, you think the success of Lord of the Rings will cause tourists to flock to New Zealand and pump money into the local economy, you would click BUY, expecting the NZD to strengthen in value against the U.S. dollar. The New Zealand dollar has a strong positive correlation with the Australian dollar, so if you expect falling commodity prices to drive the AUD lower, you would click SELL expecting the NZD to drop in value against the U.S. dollar.