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One of the fundamental variables that affect sentiment regarding the U.S. dollar is the fact that as a nation the United States has huge foreign debt. For example, economist David Levy said recently The current account deficit measures the difference between what U.S. residents spend abroad and what they earn abroad in a year. It now stands at almost six percent of GDP total net foreign liabilities are approaching a quarter of GDP. Sudden unwillingness by investors abroad to continue adding to...
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Patterns that endure over time through 20 or more candles demonstrate sentiment stability. The best visualization of this is the channel pattern. Channels can be sideways or tilted downward or upward. It is called a channel pattern because the patterns are similar to a river channel, and, in fact, the geometry and energy flow of water in a river channel is very similar to the movements prices make when forming a channel pattern. Channel patterns in forex trading are examples of traders using...
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The Swiss franc represents an interesting niche among the global floating currencies. Over the years, it has been used as a safe-haven currency because it had a link of convertibility. This link was abandoned in 2000, but the Swiss National Bank SNB , the central bank, still holds 30 percent of its assets, about 1200 tons in gold. Even though it is more than 70 years after the global collapse of the gold standard in 1936, there is still an association of gold and the Swiss franc. In a speech...
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FIGURE 10.4 Three-Line Break Reversal Points. Source www.tradesignal.com. trend by showing that it is producing consecutive closes of newer highs. The timing of the entry may be based on other setups, but it is even better if the entry to buy occurred on the three-line break reversal from a previous series of down sequences. The decision to sell a currency pair would be confirmed by having the three-line blocks showing a down sequence, and preferably the entry would occur upon the reversal. The...
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FIGURE 7.4 Australian Dollar-Japanese Yen Carry Trade. Source Guy Debelle, head of the International Department, Australian Foreign Exchange Market, November 2006. significant over the coming year are events in Japan. If Japan raises its interest rates, the aussie will suffer because the conditions for the carry trade will decline. The Japanese rate of 0.50 percent and the aussie rate of 6.25 percent has encouraged a great deal of investment flow out of Japan and into Australia. If this spread...
Volatility in Forex and Its Dimensions
This chapter reviews how volatility should be used in helping the forex trader evaluate market conditions. Volatility conditions, when added to classical support and resistance, and trend analysis identify high-probability trading opportunities and patterns. By identifying currency pair volatility and associated exhaustion conditions, the trader gains knowledge of what the currency pair is doing. What the trader is most interested in is the behavior at prices at the extreme. A currency pair can...
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FIGURE 3.1 Crude Oil Weekly Patterns. Source CQG, Inc. Copyright 2006. All rights reserved worldwide. FIGURE 3.1 Crude Oil Weekly Patterns. Source CQG, Inc. Copyright 2006. All rights reserved worldwide. amounts to 500 billion The economies of Organization of Petroleum Exporting Countries OPEC nations are accumulating current account surplus due to petrodollars that are nearing 30 percent of their GDP If oil producers start to shift into nondollar assets such as the euro and pound sterling, the...
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One can argue that economic data on housing activity is lagging and that a trader needs to find indicators that are more coincident with activity or even leading. A valuable source for assessing housing activity in the United States is the survey releases of the National Association of Housing Builders NAHB . According to the NAHB, The Housing Market Index HMI is based on a monthly survey of NAHB members designed to take the pulse TABLE 1.1 Number of New Privately Owned Housing Units Started...