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Choppy Forex Conditions and the Trading Week Ahead

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Choppy Forex Conditions and the Trading Week Ahead

Forex traders may be feeling a bit perplexed if they have blindly been looking for a weaker USD the past two weeks. While outlook for a bearish USD over the mid-term remains a theme from many analysts, day traders need to accept that intra-day results often create price fluctuations which make wagering on short and near-term perspectives dangerous. Trading conditions have been turbulent the past week and early this morning.

While analysis of monetary policies and economic data are vital, it is also important to remember there is a significant difference between the desires and needs of businesses functioning in global commerce, and the trading perspectives of speculators who are hoping to ride on the back of ‘insights’ provided by experts. It should also be considered that coming out of the holiday season many global corporations are now repositioning for 2024, and the financial institutions that work for these companies are also trying to get these outlooks aligned.

The USD has become stronger over the past day against many major currencies, but looking for a 100% reason to explain why this happened is likely misguided. Most U.S financial institutions were closed yesterday for the MLK holiday observance. While inflation data from the U.S Producer Price Index was weaker than anticipated last Friday and caused a brief spurt of USD bearishness, the greenback is lingering within the stronger realms of its near-term values against many currencies.

The idea that recent USD bullishness may simply be a sign that financial institutions believed the greenback had been oversold over the past couple of months may be correct, but this also opens the door for the potential of a reversal to develop and more USD selling as sentiment and economic data try to dance in a unified manner.

The week ahead may still prove to be choppy, but there are interesting bits of evidence that risk appetite lingers within the stomachs of many large investors. The slight rise in U.S Treasury yields recently may be worrying to some, but it should be acknowledged that the climb higher has been achieved while yields remain near mid-term lows. The same can be said for U.S equity indices which provided choppy conditions last week but certainly remain in highly valued realms.

Patience is a needed tool when trading, speculators looking for instantaneous results often lose money because they are being too aggressive. Risk taking tactics always have to be given importance.

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Gold Three Month Chart as of 16th January 2024

Gold remains rather comfortable above the 2000.00 USD level. As of this writing the spot price for the precious metal is near 2050.00 USD. This is fascinating because it underscores the notion that long-term gold buyers appear to believe the USD will remain within weaker territory. But again, short-term and mid-term outlooks for speculative wagers are two very different things.

Tuesday, 16th of January, Canada Consumer Price Index – the inflation numbers from the ‘North’ are expected to be lower than last month’s results.

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Shanghai Composite Index Five Year Chart as of 16th January 2024

Wednesday, 17th of January, China Industrial Production and GDP – recent economic reports regarding the deflationary troubles the nation is facing have been loud. The industrial and growth numbers should be monitored. The Shanghai Composite Index (SSE) is trading near values last seen in May of 2020, this is not a good signal.

Wednesday, 17th of January, U.S Retail Sales – the consumer data will have an affect on sentiment in the broad markets. The results are anticipated to match the Core Retail Sales gains from last month, and the broad number is expected to be slightly higher. Traders should be alert in case a surprise outcome occurs. If the statistics are close to the estimates, this could create some calm in Forex and perhaps set the table for USD weakness to be seen for a moment.

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USD/JPY Three Month Chart as of 16th January 2024

Thursday, 18th of January, Japan Revised Industrial Production – while the report is not viewed as a major piece of financial impetus in the speculative world, the USD/JPY has been rather dangerous for short-term traders caught on the wrong side of recent bullishness. If the number comes in at minus -0.9% as expected, it will then likely take USD centric bearish sentiment to cause a reversal lower. The past two weeks in the USD/JPY have been difficult for traders looking for downside momentum. A stronger than expected industrial number from Japan would likely help USD/JPY bearish outlooks.

Friday, 19th of January, U.K Retail Sales – the British consumer spending numbers are expected to come in weaker. The GBP/USD is currently trading near early January values as choppy short-term conditions persists.

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Risks Ahead and Turkey as the USD Gets Speculative Attention

by with No Comment AMT MarketsAssetsFeatured Highlights

Risks Ahead and Turkey as the USD Gets Speculative Attention

The USD stumbled last week as inflation numbers via the Consumer Price Index and Producer Price Index both came in slightly below expectations. Yes, inflation is still dangerous in the U.S, but an erosion of momentum has certainly been hoped for by financial institutions, and they clearly took advantage of the CPI and PPI reports and helped a selloff of the USD build momentum.

The Federal Reserve is now highly anticipated to begin lowering the noise of its aggressive rhetoric, and actually start to sound more neutral when December’s FOMC Statement is delivered. Yes, this is speculative and things can change, but financial institutions like speculators position their assets based on outlooks.

Equity markets in the U.S also showed that there is growing risk appetite which wants to be part of the moves higher in the major indices. The NASDAQ 100, the Dow Industrials 30 and S&P 500 have all sustained upwards movement and are at three month highs with additional upwards targets clearly in sight. However, before day traders try to hop onto the higher trajectory they should remember the speculative timeframes of institutional investors are different than their own. Fear of missing out could feed into buying momentum, but caution is needed.

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GBP/USD Six Month Chart as of 20th November 2023

The GBP and JPY look to be intriguing opportunities for traders with a capacity to hold positions over the mid-term. Having struggled since July of this year, financial institutions are likely looking at these two currencies as having been oversold. Many other major currencies are all rather speculatively attractive at this time, but again, day traders should not wager blindly and keep realistic targets for their short-term wagers.

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USD/JPY Six Month Chart as of 20th November 2023

The U.S will celebrate its Thanksgiving holiday this Thursday. Volumes across the broad markets will begin to drop significantly on late Wednesday, and full trading will not return until Monday or Tuesday of next week until the U.S turkey meals have been digested. Meaning that while risk appetite has certainly begun to creep in the broad markets again, forecasts this week should be treated carefully. Day traders should watch momentum today and tomorrow, if the USD remains weak going into Wednesday, this could signal further weakness in the USD is anticipated. Yet, the dangers of near-terrm reversals exists and speculators should not get over confident.

U.S Treasury yields remain near their five day lows. The price of gold is range trading below its highs made late last week, this as the USD has shown weakness and risk adverse global concerns have also become more calm. Trading results later this week should be viewed suspiciously, price velocity when unbalanced positions are executed often leads to spikes during the Thanksgiving holiday, like the Christmas holiday which will follow in a little more than a month.

Monday, 20th of November, Germany PPI – the inflation data has already been published and the Producer Price Index came in at minus -0.1%, which was below the estimate. Global economic data the remaider of today will be rather light, and behavioral sentiment being generated from U.S markets should be watched.

Tuesday, 21st of November, U.S FOMC Meeting Minutes – this report which will be published late on Tuesday for many global traders, may provide evidence to previous thoughts regarding the outlook for the U.S economy regarding inflations impact on monetary policy. Meaning that if there are signs that FOMC members were already talking about the notion that inflation was eroding last month and was expected to continue to decline further – this could feed into weaker USD outlooks mid-term.

Wednesday, 22nd of November, E.U ECB Financial Stability Review – this report will have limited impact because Forex will remain USD centric. The EUR, like the GBP and JPY, is showing signs of a recovery based on the notion of having been oversold. Traders should be cautious about the EUR/USD later this weeek because of the U.S holiday and expect volatility.

Wednesday, 22nd of November, U.S Core Durable Goods Orders, and Revised Consumer Sentiment via University of Michigan – both these reports may fall on a U.S marketplace that is preparing to escape for the long holiday weekend. Last week’s weaker than anticipated Retail Sales numbers will combine nicely with the Consumer Sentiment reading, but again its affect may be muted. If the Core Durable Goods Orders number meets expectations or comes in with a slightly less than expected statistic, this could help continue to create weaker USD outlooks.

Thursday, 23rd of November, U.K and E.U Flash Manufacturing and Services PMI – the reports from Great Britain and the European Union are expected to show stable results, but also that purchasing managers remain unimpressed by the prospect of future demand over the mid-term in Europe.

Friday, 24th of November, Germany Business Climate via ‘ifo’ – this report is expected to be better than last month’s outcome. If the result is stronger than expected this could help the EUR/USD going into the weekend.

Friday, 24th of November, U.S Flash Manufacturing and Services PMI – both reports are expected to be slightly weaker than the last month’s numbers. U.S trading will be limited before going into the weekend. Yes, many markets will be open but volumes will be sparse. This could set the table for a reaction early next week if financial institutions believe they can take advantage of Forex, equity and commodity markets that became unbalanced during the Thanksgiving holiday celebrations.

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Trading Tactics to Add to Your Risk Management Knowledge

by with No Comment Behavioral SentimentFeatured HighlightsRisk Analysis

Trading Tactics to Add to Your Risk Management Knowledge

Retail traders seeking quick speculative positions are not the masters of the financial world. Institutions which day traders are hoping to reflect are the real shakers of the markets. Understanding your actual place in the world of trading is crucial, accepting this point and putting ego to the side will create a better grasp of behavioral sentiment as you interpret combinations of fundamentals and technical perceptions and merge them into your risk taking.

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Making your decisions with the acknowledgement of your place in the trading world is important. Your 10,000.00, 50,000.00 and 100,000.00 USD value based positions are very small fish in a large ocean. Your trades are very unlikely to affect market direction in any meaningful manner. The more leverage you use makes your available ‘margin’ prone to failure.

Risk analysis is vital for day traders, guarding you money should be a fundamental aspect of your tactical decisions. Deep pockets are not luxuries most day traders have.

If you happen to have a solid amount of money to speculate with it will assist you, but you will still need to practice solid risk taking strategies.

Plenty of rich folks have lost all of their money trading, that isn’t written to make you feel better, it is written as a warning and highlights that speculating is dangerous when not done with a solid plan of action. Once a trade is placed your work than immediately doubles via responsibility, because you have ‘skin in the game’ and need to manage your emotions and thinking as the markets move.

Metallgesellschaft and Barings Bank are two prime examples of two institutional traders who made vital mistakes with risk management and lost everything in the 1990’s. Protecting cash reserves are vital for all. Metallgesellschaft and Barings did not supervise their traders and ‘hoped’ that all things would work out in the end, because they had the false notion institutionally that their capacity to hold onto positions that were not profitable would eventually turn into positive results. Their losing trades caused the destruction of their enterprises.

Most speculators by nature are optimists. After all day traders are gambling on the movement of assets they believe they have a correct perspective regarding future direction of value. In order to wager a trader needs to feel confident regarding their outlook, otherwise they would not pursue currency trading. The same can be said for equities and indices, commodities and all other financial assets. False hope can destroy the efforts of all traders and they must be alert to perspectives which can lead to detrimental results as they trade.

Too much leverage, no real insights about direction, and trading based on ‘noise’ that influences and causes you to make unwise decisions are dangers. It might be boring to constantly be told to be careful, a bit like a parent warning you when you were little to act in a certain way. Good risk management while day trading is vital for surviving and finding success.

Do not be stubborn. In trading no matter if it is Forex, CFDs with equities, indices, commodities or cryptocurrencies you should not ‘marry’ your position blindly. If your trading position begins to show signs of potentially failing and you have concluded you are wrong – end the trade asap.

However, at the same time do not make your decisions based on emotions which may create whipsaw reactions regarding your choices. Having solid goals before going into a trade will help you eliminate emotional stress.

Have price targets and a strategy for getting in and out of trades. If the trade is going in your direction, then protect your profits by either cashing out of the trade, or raising your stop loss to a place that you are actually still going to make money. Some trading platforms may allow you to raise your stop losses – this is called a ‘trailing stop’. If you are lucky enough to catch a trend at the correct time and it is being sustained, using a ‘trailing stop’ is a solid risk management tactic and can protect your profits.

If the trend in your position starts to reverse against you, do not cancel your ‘trailing stop’ because you think the reversal is a momentary cycle. Trading floors are littered by people who had substantial gains and then watched them vanish, all because they thought the market would reverse in their chosen direction again. Folks dream about owning a castle when all they need is a comfortable home. Cancelling stop loss orders is a sure way to the poor house.

Immodest ambitions can ruin your trades when you become stubborn, unrealistic and emotional. Make sure you stay ‘grounded’ and are pursuing trades because you believe in them, and not because you are looking for price action to fill up a boring day with wagers than make no sense.