Forex Insights 26-March-2019

USDJPY

• Analysts explained that USD/JPY has eroded the 55-day ma and the 2-month uptrend at 110.25/33

• USD/JPY is currently trading at 110 the figure, trading between a range of 110.24 and 109.70.

• Japanese yen near six-week highs on global growth fears and moved for its biggest gain since January as safe-haven buying propelled the currency.

• USD/JPY attempts the retrace the sharp decline following the Federal Reserve meeting, with the pickup in volatility spurring a more material shift in FX sentiment, but recent price action raises the risk for a further decline in the dollar-yen exchange rate as it extends the series of lower highs & lows from the previous week.

EURUSD

• Euro firmed on Monday as a stronger-than-forecast German business confidence survey allayed some fears about a recession and pulled the safe-haven yen from a 6-week high against the dollar.

• Euro gets a boost as IFO survey data beats forecast

• EURJPY surged 0.46 percent to a high of 124.81

• EUR/USD vulnerable to furthernear-term losses – focus is on uptrend support just lower

• Euro is down more than 1.1% from the Pre-FOMC high against the US Dollar after turning precisely off yearly open resistance last week.

GBPUSD

• GBPUSD overnight implied volatility has jumped to its highest level since November 15 as forex option traders price in the latest Brexit uncertainty.

• GBPUSD currency traders who utilize options to hedge their positions and reflects the market’s view that spot prices could experience significant swings over the contract’s respective duration.

• Prime Minister Theresa May stated that she will not put her Withdrawal Agreement to a vote tomorrow due to continued lack of majority support as the latest Brexit drama drags on.

• Currency markets still await clarity on the next direction of Brexit and its impact on the Sterling as the risk of UK departing the EU without a deal remains elevated .

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What are Currency Pair Correlations?

What is Currency Correlation?

Currency correlation depicts an extent to which two currency pairs have moved in same, opposite, or totally random directions over a period of time.

Thought Process:

Why a certain currency pair rises, another currency pair falls?

Why same currency pair falls, another currency pair seems to copy it and falls also?

This is because of correlations between currencies. Correlation is the numerical measure of the relationship between two variables. The range of the correlation coefficient is between -1 and +1.

Positive Correlations: A correlation of +1 denotes that two currency pairs will flow in the same direction.
For Example: Correlation between EUR/USD and GBP/USD is an epitome as if EUR/USD rises then GBP/USD is moving the same direction.

Negative Correlations: A correlation of -1 indicates that two currency pairs will move in the contradictory direction 100% of the time.
For Example: Correlation between EUR/USD and USD/CHF is an epitome of negative correlation, if EUR/USD rises, then USD/CHF falls.

Zero Correlation: The correlation of zero denotes that the relationship between the currency pair is completely arbitrary.

Currency correlation is strongly connected with risk management, and can help you to better understand the market when trading.

Some of the highly correlated currency pairs are:

Positive Correlations:

EUR/USD and GBP/USD (+ 0.89)

EUR/USD and AUD/USD (+ 0.81)

EUR/USD and EUR/CHF (+ 0.93)

AUD/USD and Gold (+ 0.75)

Negative Correlations:

EUR/USD and USD/CHF (- 0.85)

USD/CAD and AUD/USD (- 0.88)

AUD/NZD and NZD/SGD (- 0.78)

USD/JPY and Gold (- 0.78)

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FOREX INSIGHTS 29-DEC-2018

EUR/USD:

• EUR/USD is poised to close nearly 5% lower year-to-date with the pair trading just 1.5% off the 2018 lows.

• For months now, we’ve been tracking a key support pivot in Euro and the focus remains on a breakout of the consolidation range which has governed price since October.

• Price holding critical support confluence at 1.13

GBP/USD:

• Sterling is facing resistance and rallied a bit during the week, reaching towards the 1.27 level.

• The British pound has broken through a significant support a couple of candlesticks ago, and it now looks as if it is offering resistance yet again.

• GBP will continue to struggle, and the breakdown from a couple of candlesticks ago suggests that we are trying to make the next leg lower.

USD/JPY:

• Traders have remained net-long since Dec 18 when USDJPY traded near 112.517; price has moved 1.9% lower since then.

• The percentage of traders net-long is now its highest since Mar 11 when USDJPY traded near 106.9.

• The number of traders net-long is 8.7% higher than yesterday and 2.7% higher from last week, while the number of traders net-short is 14.5% lower than yesterday and 17.2% lower from last week.

CRUDE OIL:

• U.S. oil futures finished higher Friday after government inventory data showed a smaller-than-expected fall in crude inventories, but contrasted with unofficial figures that had showed a massive supply build, sparking a relief rally.

• West Texas Intermediate(WTI) crude for February delivery rose 72 cents, or 1.6%, to end at $45.33 a barrel.

• Oil booked a weekly decline of 0.6% based on last Friday’s settlement.

GOLD:

• Gold prices pressed higher on Thursday as a record surge in stocks showed signs of fading and political uncertainties supported demand for the safe haven metal.

• Gold futures for February delivery on the Comex division of the New York Mercantile Exchange rose $5.70, or 0.45%, to $1,275.45 a troy ounce.

• Gold surged 4% so far in December as investors rotated out of stocks and into the safe haven asset.

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Importance of Avoiding Revenge Trading

The market is never responsible for your loss so getting mad at the market and trying to seek revenge really doesn’t make sense. Trading is all about taking responsibility.

In the emotion of revenge trading sometimes you get crazy at the market and try to get your losses back in an emotional way instead of a rational and logical way and in this way, you are viewing the markets through your emotional filters and not are the best state to be trading mind.in this way you will make more trading mistakes.

It is difficult to avoid Revenge Trading but by practice you can overcome this emotion. You should try to accept the losses and not let your judgement in the future be clouded by your ego. You should focus your efforts and energy on analyzing what went wrong and figuring out what you can do to improve your subsequent trades.

Revenge trading is mainly driven by the fear of being wrong. It’s usually when a trader, coming from a particularly frustrating loss, decides to make up for it by being more aggressive in his/her next trades.

There are ways to recover from a bout of revenge trading. Let’s take a look at some of them:

1. Step out and clear your head after a frustrating loss. Do non-trading related activities and come back only once you’ve acknowledged that losing is part of the game.

2. Document the reasons why you lost your trade. Identifying what went wrong with your trade and focusing on improving your trading process helps lessen the feeling that the market is against you.

3. Take note of your triggers and tells on your trading journal. Do you do it when you’re trading big positions or when you got taken out by unexpected catalysts? Do you do usually bite your fingernails, snack on Cheetos, or scream at your cat before doing it? Knowing your triggers helps you prevent yourself from taking on more revenge trades.

4. Trust in your system! If you’ve tested your system and follow your trading plan 100%, then you won’t mind the losses much because you know that the end numbers will add up in your favor in the end.

5. Practice risk management. If you make risk management a habit, then you’ll have better trading discipline and are less likely to take impulsive trades. If you’re not used to it yet though, then you can start with following strict rules on position sizes and trade duration.

Remember that even the most consistently profitable traders have bad trading days. It’s all part of the game after all.

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Trading is an art of making handsome amount.

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Impacts of Trade War

Traders are struggling to place trade concerns into a coherent narrative. As the instigator of the recent trade tensions with most of its major partners (China, Canada, Mexico and the EU), the U.S. economy could soon see exports take a hit from multiple directions. From another perspective, the U.S. economy is outperforming most of its global peers and therefore may be best situated to weather a protectionist-driven economic slowdown.

Currency war, also known as competitive devaluations, is a condition in international affairs where countries seek to gain a trade advantage over other countries by causing the exchange rate of their currency to fall in relation to other currencies.

Trade war risks becoming a dangerous currency war as China weakens yuan the most in 2 years.

Not only does the threat of a trade war impact the day-to-day of the currency markets, it is also related to a currency war where countries devalue their own currency so exports can be sold cheaper overseas in order to jump start the economy at home. The problem with currency wars – just like trade wars – is that more often than not there are no winners.

The United States’ trade deficit to China no longer seems the top issue in the trade war: A deal for an additional $70 billion in Chinese purchases of US goods was reached after rounds of bilateral negations in May and June. Yet, that didn’t stop US President Trump from abandoning the deal.

For China, it can no longer rely on high growth rates that it enjoyed for decades; the need for industrial upgrading and developing new momentum, such as high-technologies, has become inevitable. In 2017, China announced it had shifted emphasis on quality over speed for economic growth. The Chinese government will support innovations and technologies industries further, as well as promoting the “Made in China 2025” plan.

As the world’s largest economies open up a new front in their increasingly acrimonious game of brinkmanship, the consequences could be dire — and ripple far beyond the US and Chinese currencies. Everything from equities to oil to emerging-market assets is in danger of becoming collateral damage as the current global financial order is assailed from Beijing to Washington. Risk assets and oil prices would likely tumble as worries about growth arise, hitting currencies of commodity-exporting countries particularly hard — namely, the Russian ruble, Colombian peso and Malaysian ringgit — before taking down the rest of Asia.

The present currency war started in January 2010. The problem with currency wars is that all advantage is temporary and is quickly erased by retaliation. Trading partners retaliate with their own devaluations. Currency cross-rates end up back where they started, with costs imposed due to the uncertainties. Not only is the world not better off but it is worse off because of the costs and uncertainty resulting from the currency manipulations. Once countries realize that currency wars don’t work, they turn quickly to trade wars through tariffs and other trade barriers.

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