Bond Spreads In Forex

Came across a really interesting article by Kathy Lien, Chief Strategist at FXCM about Bond Spreads and Interest and how they affect the Forex Market. Some of this is common sense, but is always good to be reiterated and gone over from time to time. Including the idea that investors will tend to seek higher yields on interest rates and thusly buy currencies with higher rates than the currency they are holding. Read more

Forex Pro Indicators Review — DAY 1

DAY 1 —- Last night I purchased ForexProIndicators.com’s Forex Pro Indicators Software. The 14-Day Trial is only $25, a very small investment for a good amount of time to try out their indicators software. Purportedly, Forex Pro Indicators will indicate when it is best to long or short GBP/USD on a regular basis at a particular time.

This first day I decided not to trade, just to see how the indicator would work. Boy was this a mistake. If I had followed the indicators advice, I would have made over 150 pips today. Today is special, the Fed cut rates by more than expected and the GBP/USD spiked sharply, but even without that spike, the indicator would have made me 50 pips. Hopefully the indicator will do the same tomorrow and steer everyone who uses it toward big bucks.

As you can see from the chart, the indicator tells you to either enter long if the price goes up to 1.9947 and sell if it goes down to 1.9876. Clearly, within an hour the price reaches 1.9947 and I would have entered long into GBP/USD. Momentarily (for a few hours) the price goes down a little bit, we see some resistance, but slowly but surely, the price rises and would have seen a few dozen pips profit at EXIT POINT 1. After the Fed cut the Interest Rate, we see a huge spike in the market. Now, ForexProIndicator’s website indicates they only made 30 pips on September 18, 2007. However, if you stayed long yesterday and liquidated your position at or around EXIT POINT 2, you made hundreds of pips.

Based on one day of trying out Forex Pro Indicator, it seems like a really sound investment. If I were using just 3 lots yesterday, I could have made over a thousand dollars profit, but I foolishly stayed away just to test the system out: such is life in Forex.

USD falters after Employment Report

Predictably, The USD was down across the board today after the after US labor department released an unexpectedly weak employment report. Analysts were way off on their estimation of 110,00 new jobs this quarter; the real number, a 4,000 job loss.

• The announcement backed up the expectation that the Fed will cut interest rates in two weeks at a policy meeting. Following the release of the report the following changes were noted:
• the 2-year Treasury note yield fell below 4% for the first time in 2 years and the 10-year note dropped to a 9-month low. Interest-rate futures pricing showed traders added odds on a 50 basis point rate cut on September FOMC to 74% from 42% before the non-farm payrolls.
• The euro broke the 1.37 handle and gained sharply to test the 1.38 level against the dollar.
• The sterling also rallied more than 100 pips to as high as 2.0323 versus the dollar, while the yen strengthened to 113.15 from above 115 versus the dollar.

USD/JPY in Late August 2007

Foreign exchange volatility remains at historical highs across the components of the carry trade basket. In fact, USDJPY volatility as implied by one month over the counter FX options is much lower than it was during last week’s carry unwinding and this more stable environment should make carry trade eye catching for many investors.

USD/JPY volatility OTC USDJPY options is lower than it was during last week’s carry unwind ( Last week IV jumped to 18 percent, nearly two times the average volatility of the past year).

With this much volatility, this should make carry trade more attractive for many investors.

Thoughts on The NZD Mid August

The NZD is heading for lows in February. You can see there is a tremendous amount of pressure to short on bot NZD/USD and NZD/JPY. Arguably, the lower it goes the more pressure it puts on any carry traders to unwind their positons. On top of that, any hedge funds that had major positions in NZD/JPY or NZD/USD and are staring down major recessions and are going to have to unwind their positions as well.

I don’t see the Reserve Bank of New Zealand interfering at all. In fact there are many in New Zealand that welcome this decline because it lower the prices of their exports in comparison to other currencies and it will curb inflation.  It will be interesting to see what transpires in the next few days, but I don’t predict this upward trend will continue for long.

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