With this fundamental trigger in the bullish direction signaling an end to profit taking, what methods could the trader have used to effect a technical trade in the bullish direction?  The following article provided to us from the www.investing.co.uk team provides some clues as to how this could have been done.

Example 1

We see from the chart below that a bullish pennant as well as a symmetrical triangle has formed on the USDJPY hourly chart. The symmetrical triangle has a bias which could at one time be bullish and at other times be bearish. In this case, it would have a bullish bias, giving a direction to the price according to the market sentiment which is decidedly bullish.

At the same time, a bullish pennant, which is a continuation pattern, formed on the chart. The two chart patterns were identified by the Autochartist MT plug-in.

We clearly see the pennant traced out in purple, and the symmetrical triangle traced in green. In this setup, it is preferable to use the pennant since it is a confirmed bullish continuation pattern, unlike the symmetrical triangle whose bias is determined by the market sentiment.

With these two chart pattern technical triggers, the trader could enter long around 92.01.

Example 2

In the second example, we have used a different technical analytical method, which is the Fibonacci retracement method. This method is based on the combination of the Fibonacci retracement tool with an oscillator and/or candlestick pattern, with the aim of the trade being to pin point at which Fibonacci level the profit-taking induced retracement would end and a bullish re-entry by market participants would occur. We see this at the 38.2 Fibo level where the Stochs cross occurred at 20 (oversold level) and a bullish harami formed at the same time. Combining these technical triggers would put our re-entry price at 91.98, which is only two pips below the entry price derived from the first example.

Look at the setup on the chart. This is the same USDJPY hourly chart, showing the application of the Fibo retracement tool from the swing low to the swing high, the retracement which was caused by profit taking (and which completed the pennant in the first example), as well as the bullish harami that formed on the 38.2 Fibonacci retracement level. The combination of at least three technical confirmations strengthened this signal to buy at 91.98. In practice, it is safer to buy above the physiological resistance of 92.00.

Conclusion

In the forex market, the key trading dictum is “trigger fundamentally, enter technically”. This trade on the USDJPY is a clear example of how this is done, using a fundamental trigger to assess market bias and finally nailing the trade with a variety of technical setups. 

Although most of the instruments offer essentially the same thing, there are some important differences you should be made aware of. 

This article aims to highlight the main features and differences between:

Options Trading

Spread Betting

CFDs (Contracts For Differences)

Forex Trading Platforms

We will discuss each of these derivatives in turn:

Options trading.  One of the less risky financial trading instruments is options trading.  Although it can be a pretty expensive way to trade, it gives the ability to purchase a set amount of shares while limiting losses.  When you trade options, the broker will give you a price on say a company’s stock.  This price will include a premium that is charged for the benefit of having the option.  If the price goes in your favour, gains are unlimited.  If the price goes against you, even to the point that the company folds, your loss is limited to the amount you paid for the option.

Spread Betting.  Spread betting is mainly a UK phenomenon although it is also popular in a variety of other countries.  Spread betting is banned in the US.  When you bet on a spread you are simply putting a wager on which way you think the market is going to go.  You decide how much you want to bet per point and if the market goes in your favour, for every point it does so, you will win your stake.  If the market goes the other way then you will be liable to pay the value of your stake (per point) for every point it does so.  As with many other financial derivatives, spread betting is based on leverage.  Leverage allows you to place significantly more valuable bets than if it wasn’t an available option.

CFDs.   CFDs (or Contracts For Differences) are financial derivatives with many similarities to spread betting. They are in fact so similar that many spread betting companies offer CFDs too.  When you buy a Contract For Difference you are making an agreement with a broker that you will settle the difference between the opening and closing prices of a financial asset before or at the point of expiry.  Like with spread betting, CFDs are traded on margin (leverage) and allow for massive returns although this can just as easily lead to large losses.

Forex Trading.  Forex trading accounts work in a very similar way to spread betting.  The goal is to simply choose correctly, the direction in which the price of a currency pair is going to go.  You choose a stake and for every point the market goes in your favour, you will stand to win that stake back. If the market goes against you then as with spread betting, your loss will be multiplied by the value of your stake per point.

In conclusion:

There are many available financial derivatives for traders to choose from including CFDs, spread betting, options and even binary options (not discussed here).  Although they perform the same function there are some subtle differences between them.  The best option for you will depend on the markets you are looking to trade, the country you are based in, etc.  Make sure you research the market before signing up with a broker, no matter which instrument you decide to trade as some are far superior to others.

The thing about currency value is the sheer range of variables that will affect its value. Whereas your time trading stocks for a single company or taking a closer look at the fluctuations and market effects of Gold at BullionVault will teach you about ripples in small ponds, the currency market is unique, and here’s why – it’s a shoreline where every wave could’ve started thousands of miles away. 

That’s the thing about currency trading – a currency is a financial indicator of the fiscal health of an entire nation, or group of nations. One can only imagine the sheer numbers of variables that might affect it. But currency exchange is one of the biggest factors – those buying heavily into a currency are going to increase its worth, and thus the flowing back-and-forth of currency trading comes into play. Move from GBP to USD, and USD may lower, allowing you to then flip back to USD and profit. It’s a game of watching the slight movements of a currency and knowing that to invest at a high level means profits of less than 1% can mean thousands of dollars. 

So if you’re tempted to see how currency can, with multiple markets that constantly fluctuate, be more complex, interesting and stimulating than watching corporate stock rise and lower according to the latest business news, then jump right in! Currency traders are motivated, excited and always thinking ahead, so play the numbers and see what you can learn. 

Over the last two weeks, the United States dollar has risen 3.4 percent versus Japan’s currency. Much of the rise has been attributed to expectations that japan may embark on a new fiscal easing policy. On December 16, Japan will be holding snap elections. The Liberal Democratic Party is widely expected to win additional seats. The leader of the opposition party, Shinzo Abe, has made headlines in the last few weeks for his desire to adopt an unlimited monetary policy in Japan. The Liberal Democratic Party wants to set a two percent goal for inflation and have the Bank of Japan purchase bonds. These bonds would then be used to fund government projects. These objectives have hit world markets hard and caused many investors to sell of the yen. It has also caused a backlash in Japan and many citizens have advocated for more independence for the Bank of Japan.

The euro dropped by 0.2 percent versus the Japanese yen to a level of 105.92. On Thursday, it hit a seven month peak of 106.585. Europe’s common currency has risen slightly over the last week as expectations for the next bailout tranche in Greece have increased.  The Australian dollar also lost out against the euro during Friday’s early morning session.

Ukrainian Outstanding Debt

On November 20, the Ukrainian government managed to raise $1.25 billion in a bond sale. Despite the additional funds, the government is still running out of financing options for the $4.3 billion it owes in foreign-currency debt. To tide over the Ukrainian government, the International Monetary Fund has allowed Ukraine’s loan to be suspended until the end of this year. Ukraine wants the International Monetary Fund to extend the $15.4 billion suspension again to help the government fund operations.  

Ukraine’s economy was one of the hardest-hit in the world during the 2008-2009 global recession. Since recent debt crises in Europe have tamped down demand for exports, Ukraine’s steel production has suffered from a decline in buyers. Presently, Ukraine has the sixth highest risk of default among 93 countries. International reserves have dropped to their lowest levels since 2010 and are presently at $26.8 billion. Meanwhile, the Ukrainian Equities Index has fallen by 40 percent since the start of this year.

The Ukrainian economy has fallen by 14.8 percent since 2009 and dropped 1.3 percent since this time in 2011. Bonds in the nation are yielding 7.9 percent which is 6.187 higher than similar bonds in the United States. To garner investors, Ukrainian must pay this large amount.

To fix the lack of funds, some investors have advocated making a deal with Russia or the International Monetary Funds on gas prices. Ultimately, Ukraine will have to find an alternative to selling bonds. Currently, it sells off bonds each time it needs to fund its debt repayment to the International Monetary Fund. Ukraine will need to adopt IMF measures and budget cuts if it wants to get back into the black.

The Greek Bailout Tranche

Versus the United States dollar, the euro managed to hold steady at a level of $1.2886 on Friday. On Thursday, it hit a three-week peak of $1.2899. Much of the recent rise in the euro was caused by statements made by German Chancellor Angela Merkel on Wednesday. Despite an uneventful meeting of the Eurozone finance ministers earlier in the week, Merkel announced that the Eurozone could still decide to release aid money on Monday.

In recent weeks, the Eurozone has delayed giving Greece its latest aid tranche. The IMF and European Central Bank want to ensure that Greece holds to new austerity measures and budget cuts.

On Friday, the euro could see a strong movement after Germany releases data about business morale. The IFO business climate index is used to determine the health of the German economy. In October, it was at 100.00, but many analysts believe that it will drop to 99.5 in November.

Asian Currencies Expected to Rise

Although the week is not quite over yet, it appears like many Asian currencies may post their first weekly gain in a month. The Philippine peso led the growth with a 0.6 rise to 41.073 versus the United States dollar. The South Korean won advanced by 0.5 percent over the past five days to a level of 1,086.25 while the Chinese yuan rose 0.13 percent to 6.2277.

Meanwhile, investors from overseas added an additional $625 million into the stock markets in the Philippines, South Korea and Thailand. Much of the new growth was attributed to the preliminary release of China’s manufacturing index. According to the data, China most likely experienced its first increase in output for more than 13 months. In Taiwan, data from November 20 shows a higher-than-expected advance. Malaysia also reported a gross domestic product of 5.2 percent for the third quarter. Previously, it was expected to have just a 4.8 percent increase.

Despite appreciating for the week, the South Korean won lost some of its advances over the last three days. Many analysts have expressed concerns that the Korean government will try to stop the won from appreciating. On Thursday, Deputy Finance Minister Choi Jong Ku of South Korea announced that many of the changes in the won’s value were due to herd behavior. If required, the government would take action to stop the value from fluctuating excessively. Over the last year, the won has advanced 6.1 percent versus the greenback.

In Thailand, the baht appreciated by 0.1 percent over the last week to reach 30.72 against the United States dollar. The Indonesian rupiah remained stable at 9.628 while Vietnam’s currency dropped by 0.1 percent to 20,845. In Taiwan, the Taiwanese dollar advanced by 0.5 percent to reach a level of NT$29.140.

On the London Metal Exchange, three-month copper dropped 0.5 percent to a level of $7,646 per ton. At the same time, gold advanced 0.27 percent to $1,724.51 an ounce. Gold is still lower than the three-week high it hit on Friday of $1,738.

Germany managed to sell 4.3 billion euros in two-year bonds this week. The bonds are offered with zero percent yields due to high demand for a stable investment. The triple-A rated nation has a highly liquid debt market and is viewed by many as a secure investment. In Italy, borrowing costs also dropped as the government sought to sell off 3.5 billion in three-year bonds. This sale is expected to complete the funding needed by the Italian government for the remainder of the year.

Stocks

Surprisingly, Abercrombie & Fitch reported a 50 percent increase in net income for the third quarter. This advance was unexpected by investors since the clothing retailer has struggled to gain ground in US markets over the last few years. Rising international sales fed the advance. Stock in Abercrombie & Fitch rose by $9.53 to $40.69 per share. Abercrombie & Fitch’s competitor, American Eagle, also saw its shares advance by 1.5 percent to $19.93. American Eagle has seen its stock rise by more than 30 percent for the year to date.

On Wednesday, lock-up stock owned by former Facebook employees officially expired. Stock in the company rose by $2.21 during the session to reach $22.06. A leading chipmaker, Advanced Micro Devices, saw its share prices fall by 5.3 percent or 11 cents. It reached a level of $1.98 after the company denied reports that it was debating a sale. In March, stock in Advanced Micro Devices hit a one-year high of $8.35. As consumers switch from PCs to new devices, the stock has lost roughly 76 percent of its value.

Cisco Systems shares rose by $0.96 to reach $17.85. At the end of the day on Tuesday, Cisco Systems announces that its earnings increased by 18 percent in the third quarter. Shares in Mosaic dropped by $1.31 to reach $49.95 following announcements of weakened international demand. Mosaic is a company that mines potash. This key ingredient for fertilizer is expected to have lowered sales for the fourth quarter.

This news arrived at the same time that unemployment numbers were released in Greece. Currently, Greece has an overall unemployment rate of 25.1 percent.  For youth in the nation, the unemployment rate is at 54.2 percent. Partially due to the ongoing unemployment rate and budgetary issues, the German Economy Ministry lowered their growth expectations for the nation to just one percent for 2013 instead of the previous forecast of two percent.
Despite the ongoing crisis in Europe, the euro gained against the United States dollar and the Japanese yen on Friday. It is still within normal ranges as investors wait for a bailout decision from Spain. On Friday, the economy minister in Spain stated that a bond-buying plan was in place and there was not political opposition to Spain placing a request.
Euro Down for the Week

On Thursday, Europe’s currency was trading at a ten-day low of $1.2824. Investors see support for the euro at $1.2823. By Friday, the euro was up 0.2 percent to $1.2952. It was still down 0.6 percent for the entire week and has stayed within a range of $1.28 to $1.3170.  A total of US$4.7 billion euros were exchanged on Friday which is lower than the US$5.7 billion traded on Thursday. Many analysts believe that the euro should return to a range of $1.3170 to $1.34 by the end of 2012.

Versus the yen, the euro gained 0.3 percent to reach 101.55 yen. At the same time, the greenback reached a high of 78.53 yen for the day. By the end of Friday, the United States dollar had gained 0.1 percent for the day and was at a level of 78.40 yen. Overall, the greenback ended the week 0.3 percent lower versus the yen.

In the next week, the currency markets could be used to finance a deal in Japan. Softbank Corporation is expected to buy a majority stake in the company Sprint Nextel. This deal is expected to cost more than one trillion yen. After its completion, the purchase should help to advance the greenback versus the yen.

Iranian Government Says Currency in Good Position

After a month of rapid inflation, the Iranian government says the currency is stabilizing. The Economic Affairs and Finance Minister, Shamseddin Hosseini, stated that the government was attempting to curb speculation on the currency. Over the last two weeks, the rial’s exchange rate with the greenback has declined drastically.

Western nations placed economic sanctions on Iran in an attempt to stop their nuclear program. After the sanctions, oil earnings in Iran dropped and the rial has become devalued. As citizens found out about the sanctions, they rushed to place their funds in foreign banks accounts. The move proved to the smart one as the rial lost one third of its value in just ten days. Over 15 months, the rial has lost two-thirds of its value. At the start of last week, the rial was being exchanged at a rate of 37,500 per United States dollar.

Inflation has risen to 25 percent and the price of imports has drastically risen. The ongoing currency issues have caused riots in Tehran and political protests.

U.S. Treasury Delays Reports

On Friday, the United States Treasury announced that it would wait to release its semi-annual report on major trade partners and their currency policies. The Treasury has come under increasing pressure to label China a serial currency manipulator. According to the Treasury, it wanted to delay the semi-annual report so it could wait for the meeting of the G-20 finance ministers that occurs next month.

In the United States Congress, critics have accused China of manipulating its currency. By making the renminbi artificially low, it props up Chinese exports and makes products produced in China unfairly lower priced. Some Congressional critics want to apply sanctions against China. Currently, the Obama administration has refrained from officially labeling the nation a currency manipulator although they have raised pressure on China.

In May, the report concluded that China did not meet all of the standards for being a currency manipulator. Although the Treasury believed the currency to be undervalued, they did not state that the China had met the standards for manipulation. Speculation around the decision to delay the report centers on the upcoming United States presidential election. The Republican challenger, Mitt Romney, has announced his decision to increase pressure on Beijing if he becomes president. Last month, Romney announced that China’s currency manipulation was pushing American manufacturers out of business.

Malaysian Bond Market Contracts

For the month of August, industrial production in Malaysia dropped by 0.7 percent. This number is revised from a level of 2.9 percent in July. Manufacturing activities slowed in the nation overall and bond prices for three-year, five-year and ten-year bonds dropped 1 to 3 basis points. Ten-year bonds ended the day Friday at 3.52 percent while three-year bonds were yielding 2.12 percent.

At the same time, the Malaysian ringgit was traded at lower rates amid concern over extended losses in global equity markets. Concern also existed for economies in the area, although future rate cuts are not expected. MYR IRS rates for Malaysia finished out the week 3 to 4 basis points lower.

In Australia, the Aussie dropped from Thursday’s one-week high. By the end of Friday’s trading session, the Australian dollar was at $1.0232. This marks a 0.3 percent drop from Thursday.