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[FXCM-PR Rep]

Forex Trading Strategy Analysis: Trade with Market Conditions

US Dollar volatility against the Euro and other major currency pairs has made foreign currency trading more popular than ever, but the influx of new traders has often been met with the loss of old as many traders do poorly amidst volatile markets. But why do many traders fail at forex trading? Very often we find that common trading strategies have limitations that few understand. This article attempts to explain why some of the most popular currency trading strategies fail and, more importantly, how to fix them.

US Dollar volatility against the Euro and other major currency pairs has made foreign currency trading more popular than ever, but the influx of new traders has often been met with the loss of old as many traders do poorly amidst volatile markets. But why do many traders fail at forex trading? Very often we find that common trading strategies have limitations that few understand. This article attempts to explain why some of the most popular currency trading strategies fail and, more importantly, how to fix them.

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Why does the Average Forex Trading Strategy Lose Money?

Both anecdotally and empirically, we have seen that many forex trading strategies are unable to profit due to 1. poor money management techniques and 2. materially adverse market conditions. The first point is simple enough: good money management means letting your profits run and cutting your losses short. A countless number of trading books advise traders to do exactly that, but we see time and time again that few are able to put such advice into practice.

The second point is less-often quoted but equally important: many trading strategies tend to strongly underperform in specific market environments. If we can recognize a strategy’s limitations in certain circumstances, we can go a long way in protecting capital and preserving profits in unfavorable market conditions. Such dynamics go a long way in explaining why so many traders have lost money through especially volatile forex market environments.

Learning the Strengths and Weaknesses of Different Trading Strategies

We can classify trading strategies into many different groups, but it is useful to go through two examples of materially different styles in recent market conditions. Using our newest offering, FXCM’s Strategy Trader platform, we can code said strategies and use the software’s analytics to learn a great deal about the strategies’ strengths and weaknesses. In the beta version of the Strategy Trader platform, said strategies are labeled as “RSI_LE_SE” and “MovAvg3Line_Cross_LE_SE”. S-10-07-19-02

The above trading strategies are approximations of two distinctly different trading styles, and examining the performance of each reveals many important details. First and foremost, we want to look at relative theoretical performance of these strategies.

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Despite the moving average strategy’s impressive outperformance in our 10-year trading period, it remains clear that the range trading strategy was the better option for years at a time. In fact, it seems that moving average strategies lost money more often only make it back in several key instances.

Given such information, we should identify which circumstances we should look to trade using specific styles. Of course, it is virtually impossible to accurately predict which strategy will outperform within a given stretch of time. It subsequently remains critical to use sound money management techniques to protect against the unexpected.

When do we range trade and when do we trade moving averages?

Times of extremely high volatility almost always result in RSI range trading strategy losses, as major breakouts can easily leave currencies in strongly overbought or oversold territory for extended periods of time. Those same breakouts would clearly benefit a momentum-based trading strategy, and the above equity curves emphasize that our moving average trading generated substantial profits through recent price moves.

We need to find a filter that will tell us when to look to trade one type of strategy or look for another. At DailyFX we often make reference to our volatility indices, which use implied volatility levels from forex options markets to gauge overall volatility expectations across key currency pairs. Implied volatility is a key component of forex options prices, and it gives an estimate on how much a given currency will move within a specific amount of time.

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It is subsequently no surprise that our volatility indices correlate strongly to profits and losses from highly-sensitive range trading and momentum strategies. In fact, we see a strong correlation between the Euro/US Dollar 1-month Implied Volatility Index and the performance of both our range trading and momentum strategies.

The strong relationship between performance and our predictive volatility index tells us that we can likely use this volatility measure as a tool to filter our trading strategies. With the benefit of hindsight, we see that the RSI strategy severely underperformed in months where the 1-month Volatility Index reading increased significantly.


According to a simple statistical regression, the RSI strategy never produced a monthly profit whenever the EURUSD 1-Month Implied Volatility level jumped by more than 2 percentage points.

The link between our Moving Average strategy and volatility is quite similar, and we see that the two tend to move in the same direction. Using the same basic statistical analysis, our model suggests that the Moving Average strategy loses every time that EURUSD implied volatility drops significantly. Yet the rule does not work nearly as well as it does for the RSI strategy and serves as a clear reminder that the filter is by no means infallible.

What’s the moral of the story?

We have taken two very common trading strategies and identified the proper market conditions for both. In doing so, we have identified when these trading strategies fail. Though it is unlikely that traders follow these strategies exactly, we can use the same concept on a wide range of similar trading styles. If a strategy depends on strong price breakouts or sustained momentum to turn profits, it would likely underperform during times of exceptionally low price volatility. Range trading strategies, by comparison, would outperform in such environments.

We encourage you to try FXCM’s Strategy Trader platform for yourself and learn the characteristics of different trading styles—examining when they do well and when they fail. The beta software comes preloaded with a number of benchmark trading strategies that will allow you to gain a better understanding of a great range of systems.

 

[FXCM-PR Rep]

Markets Await ECB Stress Tests Results

The spotlight this week will certainly be placed on the ECB stress tests results which are expected to be released on July 23rd. As of late, the euro has continued its northern journey on the back of renewed optimism surrounding the potential outcome of these results. However, if the conclusion that surface later on this week is not credible, we may see EUR/USD price action dip back below the 100 day SMA.

Talking Points

•Trichet to Meet with Banks Two Days Prior to Published Results
•Uncertainty About the Consequences Surrounding Failed Tests Remain
•EURIBOR Surpasses 0.80 Percent For the First Time Since August 2009

The result of Europe’s bank stress tests are expected to restore confidence in the financial system this Friday. However, it is not clear whether the outcome will achieve this goal as many details regarding the stress measures lingers. The tests will include 91 banks, with two thirds in the public sector, while the outstanding one third will include banks across the private sector. Furthermore, the number of banks will be comprised of a minimum of 50 percent of the lenders in each country and 65 percent of the sector in the region. Leading up to the highly anticipated announcement, Bloomberg News stated that Hypo Real Estate Holding has failed the Europe wide stress tests. On the other hand, all is supposedly well in Greece as the Finance Minister, George Papaconstantinou recently said that all banks in region are expected to pass.

Prior to the release of the results, European Central bank President, Jean-Claude Trichet is rumored to meet with banks on July 21st, according to an article by Reuters. The meeting is expected to discuss the consensus of publicizing the outcomes, and will evaluate whether any of the commercial lenders will need to recapitalize their balance sheets. Indeed, the tests that will be conducted will include a sovereign risk scenario, a baseline macroeconomic forecast for the rest of this year and 2011, and an adverse macroeconomic situation. In particular, the adverse scenario which assumes a 3 percentage point deviation of GDP is of some concern as economic activity may underperform the baseline by more than 3 percent if another slowdown occurs in the region as predicted by many economists as governments scale back stimulus measures to battle the ballooning budget deficits.

Additionally, the “haircut” measures have added additional weight onto the credibility of the stress tests thus far. Haircuts are percentages in which an assets market value will be reduced, regarding capital requirement for those who are exposed to debt in countries like Spain and Greece. There have been rumors circulating by Reuters that Greek debt is expected to be a haircut of 23 percent, but will only pertain to trading books. It is also worth noting that the stress parameters have not been specified of what will occur if banks fail these stress tests. Some analysts speculate that the consequences of a failed outcome will result in a minimum tier one capital ratio.

All in all, as the euro continues its northern journey, despite the pullback in the equity markets and ongoing concerns in the 16 member euro area, we may see the single currency re couple with risk if the scrutiny of European lenders fails to show that banks have enough capital to withstand another shock to the financial system. In turn, if the results are as ghastly as some market participants believe, a flight to safety across all asset classes will likely be the outcome.

The three month EURIBOR rate, one of the euro-zone’s principal money market indicators continues to push higher on the back of credit risk conditions, rather than lack of ECB liquidity. The EURIBOR3MD is fixed at 0.860 percent. The three month euro libor has risen above 0.80 percent for the first time since August 2009

The euro continues to rally against the U.S. dollar as price action recently broke above the 100-day SMA. As of today, the EUR/USD exchange rate stands at 1.2971 following the massive rally from the yearly low of 1.1876. At the same time, daily studies are showing that the pair is in oversold territory, thus, traders should not rule out the EUR/USD breaking back below 1.29 as we continue to see a lackluster performance in the pair. Additionally, the Purchasing Power Parity now stands at 13.46%, down from its extreme level of 24.35% in the November, a signal that the euro may bottom out in the near term versus the U.S. dollar.

 

[FXCM-PR Rep]

British Pound Bounces Back as BoE Sees Risks For Inflation, Euro Extends Previous Day

The British Pound bounced back from a low of 1.5185 during the European trade as the Bank of England dropped its dovish outlook for inflation, and the central bank may see scope to start normalizing monetary policy going into 2011 as it aims to balance the risks for the region.

Talking Points

• Japanese Yen: Rallies Across the Board
• Pound: BoE Votes 7-1, Andrew Sentance Dissents
• Euro: ECB Financing Increases
• U.S. Dollar: Chairman Bernanke Testimony on Tap

The BoE policy meeting minutes showed the MPC voted 7-1 to maintain its current policy in July, with board member Andrew Sentance dissenting against the major for the second month and pushing for a 25bp rate hike, and the central bank may look to switch gears over the coming months as they expect the rise in the value-added-tax (VAT) to stimulate inflation over the following year.

At the same time, the MPC said that the outlook for future growth had “deteriorated a little,” with the board reviewing “arguments in favour of a modest easing in the stance of monetary policy,” and the central bank went onto say that “the softening in the medium-term outlook for GDP growth over recent months would put further downwards pressure on inflation, once the impact of temporary factors had waned.” As a result, the BoE concluded “it seemed likely that growth would be weaker than previously expected but, at least for a while, inflation was likely to be higher,” and the stickiness in inflation could give the central bank scope to raise the interest rate next year as price growth continues to hold above the government’s 3% limit. However, BoE board member Adam Posen said that there’s more than a 50% chance the MPC will move “to loosen rather than to tighten” according to an interview with the Dow Jones Newswires, and continued to see a risk for a double-dip recession as the economy struggles to brush off the recession.

The Euro extended the decline from the previous day and slipped to a low of 1.2791 during the overnight trade, and the uncertainties surrounding the results of the commercial bank stress test could push the exchange rate lower going into the U.S. trade as investors hold a cautious outlook for the region. A report by the Bank of Portugal showed commercial bank funding by the European Central Bank increased 12% in June to EUR 40.2B from EUR 35.8B in the previous month, while the nation’s Finance Ministry announced tax revenues increased 6% during the first-half of the year, which encourages an improved outlook for the region as the government struggles to balance its public finances. However, as the European financial system remains weak, with government officials taking steps to tighten fiscal policy, the ECB is likely to support the economy throughout the second-half of 2010 as it aims to encourage a sustainable recovery.

The greenback rallies against most of the majors, while the USD/JPY slipped to a low of 86.86 as the Japanese Yen rallied across the board, and the dollar could face increased volatility later today as Fed Chairman Ben Bernanke is scheduled to deliver the semi-annual monetary policy report to the Senate Banking Committee at 18:00 GMT. The central bank head is likely to maintain a dovish outlook for future policy as households continue to face tightening credit conditions paired with the deterioration in the labor market, and the chairman may reiterate his pledge to hold the benchmark interest rate close to zero for an “extended period” of time in an effort to stem the downside risks for the world’s largest economy.

How Will The European Bank Stress Test Affect The Exchange Rate? Join us in the Forum

Related Articles:

Forex Trading Strategy Analysis: Trade with Market Conditions

To discuss this report contact David Song, Currency Analyst: [email protected]

 

[FXCM-PR Rep]

June FXCM King of the Micro Winner Garners Nearly 835% Profit*

New York, July 20, 2010—FXCM (www.fxcm.com) King of the Micro Contest competitors struggled to profit from a forex market in transition during the month of June. Following six months of steady appreciation for the U.S. dollar, the benchmark currency would finally work towards a meaningful correction as fears surrounding the European debt crisis and the possible collapse of the euro subsided. The markets, however, remained as volatile as ever throughout the month, and disciplined traders reaped huge profits as currency pairs adapted to changing economic and political currents.

(Disclaimer: Although the information expressed below was obtained from actual FXCM account records, gains of the magnitude described are not typical and, therefore, are not representative of the majority of forex traders as past performance is not indicative of future results.)

Melquiades Matacot of Canada, raking in nearly 835% in profits, captured the crown and its accompanying $25,000 purse in June. Trading primarily GBP/USD and GBP/JPY, Matacot deployed a variety of fundamental and technical strategies to beat out the competition. A relative newcomer to the forex markets, Matacot started trading currencies less than two years ago. But already, his new passion has had a profound impact on his life. “[Forex trading] has changed my life for the better,” says Matacot. “It has given me a new beginning and has made me a new person.” For other traders that are also new to the market, Matacot advises them to develop patience, discipline, and emotional detachment; without those traits, successful trading is next to impossible. View Matacot’s trading report and survey.

Finishing in second place was Yu Quan Du of China with a 579% profit. Du, who generally prefers to hold trades open between two and ten days, speculated entirely on USD pairs, garnering his biggest gain on a 1,170 pip GBP/USD trade. Money management skills and an overall placid disposition have proven Du’s greatest assets as a trader. “Success or failure lies in one’s mindset,” says Du. “One needs to take profits timely and exit a trade decisively when loss is incurred.” View Du’s trading report and survey.

Rounding out the top three, with a 368% profit, was Ian Thomas of the United States. Unlike Matacot and Du, who both incorporated long-term trades into their strategies, Thomas preferred scalping, a tactic whereby traders attempt to profit from multiple small price changes rather than a few large price changes. This particular trading method is highly reflective of Thomas’s overall trading philosophy: “Every scenario developed can and often does fail.” However, even with such a sober outlook of the markets, Thomas enjoys trading tremendously, and finds that it allows him to earn a modest wage while engaging with fascinating problems and challenges. View Thomas’s trading report and survey.

What is the FXCM King of the Micro Contest?
King of the Micro is a currency trading contest hosted by FXCM, which gives away cash prizes every month: $25,000 for the trader with the highest trading return, $10,000 to second place, and $5,000 goes to third place. Since its inception, FXCM has awarded over $500,000 in cash prizes.

In the past, winners have come from the United States, China, Malaysia, Canada, and the United Kingdom, among others. It’s free to enter and no registration is needed. All you need to do is be an FXCM client with $500 in your Micro account at the beginning of each month, and you’re automatically entered. You also must make ten trades during the month to remain eligible.

For more information on the King of the Micro Contest, to read the full contest rules, and to deposit money into your FXCM Micro account, click here.

FXCM Micro is a division of FXCM that provides new traders with access to the currency markets for as little as $25. With a small (1K) lot size, FXCM Micro provides a great way to get started in the forex market. FXCM Micro is offered for individual, self-traded accounts.

FXCM Holdings LLC Facts
Forex Capital Markets (FXCM) is a leading global forex and CFD broker† that caters to both retail and institutional markets. Founded in 1999, FXCM is one of the largest brokers, regulated by several of the world’s most respected financial authorities.

At the heart of FXCM’s client offering is No Dealing Desk** forex trading. Clients have Direct Market Access to some of the world's largest forex liquidity providers, enabling FXCM to offer clients spreads as low as 1 pip on major crosses. Clients also have the benefits of mobile trading, one-click order execution, and trading from real-time charts. FXCM’s CFD product offers no re-quote trading and allows traders to trade oil, gold, silver, and stock indices, along with forex on one platform. In addition to currency and CFD trading, FXCM offers educational courses on forex trading, and provides free news and research through DailyFX.com.

*Past performance is not necessarily indicative of future results.

†Please be advised that CFD accounts are not available to residents of the U.S or its territories.

**Please note, FXCM Micro, in its discretion, may or may not offset individual transactions unlike transactions in most FXCM standard accounts. For additional information, click here.


Trading foreign exchange and CFDs on margin carries a high level of risk, and may not be suitable for all.

Press Contact:
Gregory Kelly
E-mail: [email protected]
Phone: (646) 432-2122

 

[FXCM-PR Rep]

Fed Chairman's Testimony Spooks Markets

Cautious language from Federal Reserve Chairman Bernanke sent risk sentiment reeling on Wednesday. While US rate hike expectations continue to deteriorate, markets are pricing in significant monetary tightening elsewhere, with the US Dollar caught between the opposing forces of risk aversion and a lackluster yield profile.

United States Federal Reserve (FED)
Weekly Update

On Monday, Federal Reserve Chairman Ben Bernanke, delivered the Semiannual Monetary Policy Report to Congress. The highlight of the report was the Chariman’s characterization of the economic outlook as “unusually uncertain.” While Bernanke still anticipates growth in the economy, the rate of growth is now expected to be slower than previously thought. The Fed is forecasting GDP growth of 3 to 3.5 percent in 2010, and 3.5 to 4.5 percent in 2011 and 2012. The unemployment rate is expected to decline to between 7 and 7.5 percent by the end of 2012. In his testimony, Bernanke repeated the Fed’s pledge to maintain “exceptionally low levels of the federal funds rate for an extended period of time,” however, no new measures were offered to stimulate the economy. Fed Funds futures indicate no rate hikes from the central bank until August of 2011.

European Central Bank (ECB)
Weekly Update

ECB council member Jozef Makuch recently remarked that government bond purchases have diminished. Indeed, in the past week, the central bank bought a mere €302 million worth of bonds, down from nearly €1 billion last week and €4 billion in the week before that. Since the program began on May 10th, the European Central Bank has bought over €60 billion worth of bonds. ECB executive board member Juergen Stark has suggested that purchases may come to a halt if bond markets continued to improve. The yield on the Spanish 10-year bond, which has benefitted from the central banks’ purchases, has fallen to the lowest since early June, and is down nearly 70 basis points from the peak levels of one month ago. Turning to rate hikes, the general consensus of ECB officials is that the next hike will be sometime in 2011; markets foresee a single 25 basis point hike over the next twelve months.

Bank of England
Weekly Update

The minutes of the July Bank of England policy meeting were released on Wednesday: The central bank felt that prospects for GDP growth had “probably deteriorated a little over the month.” The bank went as far as to say “…the medium-term outlook for growth might have weakened too.” With regard to inflation, the BOE felt that “near-term prospects had worsened” and that “inflation is likely to remain above the target level for some time.” Nevertheless, the Committee’s central view remained that “the substantial margin of spare capacity [in the economy] was likely to persist for some time and would bear down on inflation over the medium term.” Based upon the minutes, the Bank of England is likely to maintain interest rates at current levels into next year, for upside risks to inflation are balanced by downside risks to the economy. Overnight index swaps suggest that there will be no rate hikes over the next year.


Bank of Canada (BOC)
Weekly Update

The Bank of Canada raised the benchmark overnight interest rate 25 basis points to 0.75%, as was widely expected. The central bank sees the global economic recovery as “proceeding but not yet self-sustaining.” Given the weaker profile for global economic growth and the consequent impact on Canadian trade, the BOC downgraded its outlook for GDP growth to 3.5% in 2010, 2.9% in 2011, and 2.2% in 2012. Inflation is expected to be well-behaved near 2% throughout the projection period. The central bank believes that “considerable monetary stimulus remains in place” even after the latest rate hike, but “any further reduction of monetary policy stimulus would have to be weighed carefully against domestic and global economic developments.” Market interest rate expectations soared following the policy meeting, with 106 basis points of hikes expected over the next twelve months.


Bank of Japan (BOJ)
Weekly Update

Earlier this week Bank of Japan Deputy Governor Yamaguchi commented on recent developments. Yamaguchi says that the BOJ needs more time to assess the impact of the strong Yen on businesses, and that there may be an effect on exports. Though he declined to comment on intervention, many market participants believe that the BOJ may enter the market to weaken the Japanese currency, were it to strengthen further from here. That being said, the USD-Yen exchange rate remains close to 15-year lows.

Reserve Bank of ew Zealand(RBNZ)
Weekly Update

The Reserve Bank of New Zealand will meet next week to determine the fate of interest rates. In the last meeting, the central bank said that further rate hikes will be reviewed “in light of economic and financial market developments.” While there has been evidence that economies around the world may be experiencing a slowdown of some sorts, markets believe that the RBNZ will continue its rate hike campaign regardless. There is a high probability of a 25 basis point hike at the July 28th meeting. Furthermore, markets expect 128 basis points of rate hikes from the RBNZ over the next year.


Reserve Bank of Australia (RBA)
Weekly Update

In the minutes to the July 6st meeting, the RBA noted that the global economy was expanding at about trend pace in recent months, “although the pattern of growth was uneven among regions…” Importantly, members of the board saw some moderation in Asian growth as “desirable.” According to the central bank, headline inflation was expected to rise due to “the effects of some tax increases, with the year-ended increase in the CPI rising above 3 percent.” The RBA believed that past rate hikes had afforded it the “flexibility to maintain steady settings in the face of increased international uncertainty.” Overnight index swaps indicate that there will be no rate hikes from the RBA over the next year.

Swiss National Bank(SNB)
Weekly Update
Over the past three weeks, the Euro-Franc exchange rate has showed some signs of life, as the pair finally arrested its precipitous decline to new record lows. The Swiss National Bank is surely satisfied by this development. Nevertheless, the Franc probably remains stronger than the SNB would like, and thus the probability of any rate hikes in the near-term is close to zero. Markets are expecting no rate hikes from the SNB over the next year.

 

[FXCM-PR Rep]

US Dollar Forecast Turns Bearish on Forex Crowd Sentiment

EURUSD – Euro Forecast to Gain Versus US Dollar
GBPUSD – British Pound Likely to Rally
USDJPY – Japanese Yen Outlook Positive Amidst Sentiment Shift
USDCHF – Swiss Franc May Strengthen against Dollar
USDCAD – Canadian Dollar Forecast to Appreciate Against Greenback
GBPJPY – British Pound Forecast to Decline Against Yen

View individual currency SSI charts in our FX Sentiment section


Interested in building your own SSI-based strategy? Request SSI data on our forex forum.

A noteworthy US Dollar decline has been met with aggressive forex crowd buying, giving contrarian signal to go short the USD versus the Euro, British Pound, Japanese Yen, Swiss Franc, and Canadian Dollar. This is a considerable shift from just yesterday when early signs of a turn in sentiment hinted that the Greenback could stage a bigger reversal versus major counterparts. Given such sharp choppiness in forex markets our forecasts have been admittedly inconsistent, and there is risk that current US Dollar tumbles will come to an abrupt end. Yet declines have been met with aggressive crowd buying, and such crowd reactions often precede a continuation in trend—pointing to US Dollar losses.

 

[FXCM-PR Rep]

British Pound Benefits From Jump in 2Q GDP, Euro Maintains Rally Ahead of Stress Test

The British Pound extended the rally from the previous day and rallied to a fresh weekly high of 1.5412 during the European trade as the advanced 2Q GDP report for the U.K. reinforced an improved outlook for future growth, and the GBP/USD is likely to maintain the upward trending channel from the June low (1.4346) as the recovery gathers pace.

Talking Points
• Japanese Yen: Weighed by Risk Appetite
• Pound: 2Q GDP Exceeds Forecast
• Euro: German Businesses Confidence Unexpectedly Improves
• U.S. Dollar: European Bank Stress Test on Tap

However, a report by the British Bankers’ Association showed loans for home purchases unexpectedly slumped to 34.8K in June from a revised 36.4K in the previous month to mark the lowest reading since February, and the slack within the real economy may lead the Bank of England to maintain a dovish policy stance over the coming months as it aims to balance the downside risks for the region.

Economic activity in Britain expanded 1.1% in the second quarter, which exceeded forecasts for a 0.6% rise, while the growth rate increased an annualized pace of 1.6% to mark the first positive reading since 2008, and the larger-than-expected rise in economic activity could give the BoE scope to normalize monetary policy going into the following year as price growth continues to hold above the government’s 3% limit for inflation. The breakdown of the report showed manufacturing increased at the fastest pace in over a decade, with construction surging 6.6% to mark the largest advance since 1963, while service-based activity, which accounts for more than two-thirds of the economy, expanded 0.9% from the first three-months of 2010. However, as the new coalition in the U.K. targets the budget deficit and tightens fiscal policy, the central bank may look to support the economy throughout the remainder of the year as the outlook for future growth remains clouded with uncertainties.

The Euro crossed back above the 100-Day SMA (1.2878) and surged to a high of 1.2965 following an unexpected rise in business confidence, and the single-currency is likely to face increased volatility later today as the European Central Bank is scheduled to release the results of the commercial bank stress test at 16:00 GMT. The German IFO business confidence survey increased to 106.2 in July from 101.8 amid forecasts for a decline to 101.5, with the gauge for future expectations advancing to 105.5 from a revised 102.5 in June, and businesses may turn increasingly optimistic going forward as the region benefits from the rebound in global trade. Nevertheless, as the stress test takes center stage, dismal results is likely to weigh on the exchange rate, which could stoke a sharp selloff in the euro-dollar, but even a lackluster outcome may keep the single-currency above the 100-Day SMA as the economic outlook improves.

U.S. dollar price action was mixed overnight, while the USD/JPY advancing to a high of 87.22 as the Japanese Yen weakened against most of its major counterparts, and the reserve currency is likely to face increased volatility later today following the results of the European stress test as investors weigh the outlook for the global financial system. However, the major currencies could face choppy price action as market liquidity thins ahead of the weekend, but the rise in risk appetite is likely to dictate price action going into the North American trade as equity futures foreshadow a higher open for the U.S. market.

How Will The European Bank Stress Test Affect The Exchange Rate? Join us in the Forum

Related Articles:

US Dollar to Rise Against Yen, Decline vs Pound and Euro

To discuss this report contact David Song, Currency Analyst: [email protected]

 

[FXCM-PR Rep]

US Dollar to Rise Against Yen, Decline vs Pound and Euro

US Dollar to Rise Against Yen, Decline vs Pound and Euro

EURUSD: Move Above 1.30 Ahead After Consolidation

USDJPY: Remain Long, Targeting Advance to 88.80

GBPUSD: Candles Hint Rally to Resume After Pullback

USDCAD: Consolidation Triangle Hints Losses Ahead

AUDUSD: Bulls Take Out Resistance, Eyeing 0.90

NZDUSD: Sellers Lose Momentum, April Top in Playhttp://www.dailyfx.com/real_time_news

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

 

[FXCM-PR Rep]

Forex Weekly Trading Forecast - 07.26.10

US Dollar Awaits a Clear Bearing on Risk, Looks Ahead to 2Q GDP

Euro Vulnerable as Markets Weigh Stress Tests, Short-Covering Slows

Japanese Yen May Falter as Speculation For BoJ Intervention Resurface

British Pound at Risk As Yield Expectations Decline

Canadian Dollar Trend Points to Further Gains

Australian Dollar Looks to Inflation and Risk Trends for Direction

New Zealand Dollar Prices in a Rate Hike as Risk Trends Grow Heavy

Gold Poised to Push Lower Amid Fading Inflation Expectations

 

[FXCM-PR Rep]

Lower Than Expected U.S. Consumer Confidence Would Validate the Bearish USD/CHF

Fundamental Outlook

Consumer confidence in the U.S. is expected to weaken in July to its lowest level since July 2009. Economists are forecasting the Confidence Board’s index to fall to 51.0 from 52.9 in June as Americans continue to face a weak labor market paired with tight credit conditions and uncertainty in the economic recovery. Indeed, the unemployment rate for the month of June fell to 9.5 percent from 9.7 percent the previous month. However, the unexpected decline came on the back of the surprising plunge in the number of job seekers, while federal employment fell a massive 198K. At the same time, private payroll gains were tepid, adding 83K amid economists’ expectations of 110K. Also weighing on consumer confidence ahead of tomorrow’s release is Fed Chairman Ben Bernanke’s recent comments at his semi-annual testimony to congress last Wednesday. Mr. Bernanke stated that the economic outlook looks “unusually uncertain,” and went onto add that “long-term unemployment not only imposes exceptional near-term hardships on workers and their families; it also erodes skills and may have long-lasting effects on works employment and earning prospects.” All in all, a consumer confidence reading much lower than expectations may validate our bearish USD/CAD technical outlook.


Technical Outlook

USD/CHF: The pair has recently broken below the 200-day SMA which has held as a line of support since the beginning of the year. When price action first crossed below this moving average, a break back above 1.0600 seemed apparent as daily studies were in oversold territories, however, this upside failed to occur. As of late, congested movements in the pair have sent the relative strength index back above 30. Going forward, further declines seem to be in the horizon as our speculative sentiment index now stands at 2.37, signaling for additional losses.