Monetary Flows and Economic Policy

Monetary Flows
Large mergers and acquisitions can create an often temporary demand for a particular currency which can cause the currency to strengthen. The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. Large trade deficits (imports > exports) usually have a negative impact on a nation's currency.
Economic Policy
Fiscal policy which is essentially the way a government chooses to manage its revenues (tax) and expenses (spending on health, education and defense). The difference between the two is the government deficit/surplus. A country’s currency usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits.

Monetary policy which is the way in which a government's central bank influences the supply and "cost" of money. The cost of money is reflected on a currency’s interest rate while the money supply is managed with the buying or selling by the central banks of government bonds. High real interest rates (nominal interest rates less inflation) usually tend to attract capital causing a currency to strengthen. The level of interest rates also affects the domestic economy in that a high interest rate tends to slow economic growth and inflation, while in periods of low growth or deflation central banks use low interest rates to stimulate growth or bring inflation back to target. Adding money supply (buying government bonds back from the market-quantitative easing) is used to stimulate growth and inflation, whereas withdrawing money supply (selling government bonds) is slowing growth and inflation. Excess money supply tends to weaken a country’s currency while low money supply tends to strengthen a country’s currency.

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Why It's Important to Accurately Time Your Trade

Timing is everything in forex. Time it right, you win. Get your timing wrong, your money goes up in smoke.

In a fast paced market with periods of intense volatility like the forex market, timing is essential. There is a saying that “the trend is your friend till it ends”. I will say that the “trend is your enemy if you get in too late”.

Traders are advised to “trade fundamentally, enter technically.” This implies that traders are expected to follow the direction of a high impact news item. But in doing so, traders must use their technical analysis to enter at the right time.

What happens if entries are not timed properly? These are the scenarios that could occur.

1)      Some high impact news hits the news wires and it favors a long trade. You go long, but you discover that the market has spiked by almost 80 pips about a second after news release. Your entry is still pending, waiting for the broker to fulfill it. Too late. Prices are too far gone and you are asked to “REQUOTE”. Not wanting to miss out, you re-enter the market not minding the prices, and your order is instantly fulfilled. Suddenly, the price starts to retrace wildly, and you are stopped out, just in time for the price to resume its move northwards. It’s almost like the market maker was watching you to do you in.



2)      The second scenario is a bit like the first, but instead of a requote, your order is filled at a price so far away from market price, it will take a miracle move in the trade direction to break even, let alone make a profit. Slippage sucks.

Let’s explain the two scenarios. In a high impact news trade, the news feeds are received by the institutional investors before anyone else via premium news services like Bloomberg and Reuters, who charge thousands of dollars a month for this. A team of veteran traders will be waiting to analyze the news and hit the trade buttons fast. The sheer volume of such trades sends the currency price candlesticks spiking. Sometimes the spikes happen even before the retail traders get the same news. As such, any trade entered by a retail trader at this point will most likely not be fulfilled; requotes follow. If a trader enters the trade at this time, he will meet the institutional guys offloading their positions to take profits, and he will get hit by the unavoidable retracement that follows.

The two scenarios are a case of wrong timing at work.

How Can You Accurately Time Your Trades to Avoid Losses?

For news trades, it is pretty obvious here that you should not try mixing it with the big dogs. You will get blown out by the two scenarios I painted again and again. Only enter news trades when the initial madness has died down. Soon, the market will respond in a slower and more purposeful direction to the news trade, as we see here from the Non-Farm Payroll report of June 3, 2011.

Secondly, use pivot points in addition to your other technical indicators to determine if you are still within touching distance of a profit. If a long trade is closer to a resistance than a support level, the chances of that trading making a profit is lower than if the entry was closer to the support level.

There are many tips, but hang on to these two for now.

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Technical analysis Principles

Technical analysis is a method of forecasting price movement by data comparison in different time frames and by eliciting regularities of market behavior. Application of a technical analysis in Forex activities is irreplaceable for the most of traders.
Technical analysis is based on three general principles:
1. Market movement is taken into account by everybody
The price is always impacted by external factors, however technical analysis implies that investigation of political, economic and psychological factors influencing the price movement is not obligatory, as the main motion indicator is the price as it is. Any slight influence of factors is considered and reflected by a price, that is why it will be the object of study.
2. Price movement moves in a certain direction
For applying a technical analysis it is necessary to comprehend the trend meaning. The main goal of a technical approach is determination of price move tendency in order to trade in compliance with this trend.
There are three trend types:
•  Bullish when price moves up
•  Bearish when price moves down
•  Flat - has no certain price move direction
As a rule, during the price movement you can elicit each of trend types, but only one of them can be major. Worth keeping in mind that tendency change takes place only after it gives certain signals.
3. History repeats itself
This principle implicates that in the course of human history the rules and analysis types do not change, that preconditions a multiple repeating of price movement on different time intervals.
The market dynamics is primarily studied by means of charts during a technical analysis. The main tools are as follows:
•  Oscillators
•  Japanese candlesticks
•  Bar chart (intervals)
•  Line chart
•  Trend indicators
•  Wave analysis
Technical analysis can be a foundational forecasting instrument in the currency market. This technique is successfully used by professional traders and analysts of Forex. Their long experience points to practicability of using technical analysis in trading.

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Market Makers

The participants of Forex currency market are divided into two groups by their activity and influence on currency rates: market makers and market users.

Market makers are large banks and financial organizations which determine the current level of a currency rate, owing to a significant share of their operations in a total volume of the world market. Market makers exercise a constant control of different trading instruments, and they also conduct trades with them. Market makers are market members providing liquidity of particular instruments, making buy or sell orders. These are big international banks and financial institutions, which run daily currency operations of buying or selling trading instruments for more than billions of US dollars. Every market has its own market makers. Similarly, every Forex broker has its personal market makers, the quoting rates of which are exploited by it and offered to its clients further on. Among the greatest market makers such as Deutsche Bank, Mizuho Bank, Barclays Bank, PBS, Citi Bank, Chase Manhattan Bank, Union Bank of Switzerland can be named. In order to define whether the organization is a market maker it is important to consider not only the size of a bank, but also its share in market operations and its capability to influence the market by setting a price policy.

As mentioned before, for a particular market there can be own market maker. Worth pointing out that for the USD/CHF trading instrument the main market makers are Credit Suisse Bank and Union Bank of Switzerland. For trading instruments comprising the Asian currencies the major market maker is the Standard Chartered Bank. As to the rouble instruments, here the top market makers are the International Moscow Bank and the Onexim Bank. The Central Bank of Russia can also play this role being one of the most active participants in setting up the quote rates of currencies vs. the rouble, making different currency interventions, if the rouble rate exceeds the regulated currency rate limits.

Market makers determine the current currency exchange rate by conducting trades with each other as well as with smaller banks, which are also market participants. That is the market makers who introduce quote rates to small banks, organizations and individuals. Thus, another notion emerges characterizing these participants - market users.

Market users are financial organizations, broker companies, small banks and individuals, who use the quoting rate set by market makers for their operations. Market users are not aggressive market players, though a total volume of their operations in the market can be significant, but the share of each one is minor. The role of small market users consists in either acceptance or not of the rates provided by market makers. Consequently, market makers make price and market users take it.

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Sell Usd/Cad

Sell Usd/Cad @ 0.9962
T.p -0.9890
S.L -1.0070

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EUR/USD Currency Pair

The international currency market is built on principles of buying one currency and selling another. The daily market turnover is about 3 million US dollars. With the help of brokers and dealing centers one can trade almost any world currency.
In this article we consider one of the most popular currency pairs – EUR/USD. The euro-dollar currency pair appeared on April 7, 1989. The initial EUR/USD rate was 1.0445.
Statistics for 2007 confirms that 27% of all operations are executed with euro-dollar currency pair. To the present time EUR/USD pair has been the most traded and popular in the international currency market Forex. The pair is interesting both for professionals of currency speculations and absolute novices of trading. It is one of the most active pairs in the market and notable for insignificant volatility, attracting traders with different experience on Forex. EUR/USD pair movements are smooth, but during the day high activity can be noticed and used by the intraday and short-term traders for getting great profit.
Traders who actively work with the euro-dollar currency pair should be always aware of economic events in the USA and Eurozone. The pair adheres to the trend trading. Entering the market trader should estimate the current prices, draw a trend and find the historical levels of short trading prospect.
Every currency pair in the market has its own peculiarities and suffers from impact of different factors. Traders should realize these peculiarities and trade paying great attention to them.

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