Here is the latest CFTC Release of FX Futures trading positions on the COT Index. This index can be used to gauge sentiment in the markets. Below is the analysis for the Australian Dollar by Jamie Saettale, CMT, Senior Technical Strategist for DailyFX.com:
The COT Index is the difference between net speculative positioning and net commercial positioning measured. A light blue colored bar indicates that the difference in positioning is the greatest it has been in 52 weeks (bullish) with speculators selling and commercials buying. A light red colored bar indicates that the difference in positioning is the greatest it has been in 52 weeks (bearish) with speculators buying and commercials selling. Crosses above and below 0 are in bold. Non commercials tend to be on the wrong side at the turn and commercials the correct side.
Chart Key
Non Commercials (speculators) – Red
Commercials – Blue
Small Speculators – Black
COTDiff – Black
Volume on bottom
Australian Dollar
Chart prepared by Jamie Saettele, CMT
One of the most awaited events on the economic calendar this week is the release of the unemployment numbers in Australia. While the event is not traditionally as volatile as NFP, these numbers are significant, and can give a trader insight into the strength of the Australian economy. As well, policy makers at the Reserve Bank of Australia (RBA) will be using this information to make future policy decisions.
Here’s an excerpt from an article by Walker England, Trading Instructor at DailyFX.com:
[I]Below you will see a chart displaying the historic unemployment rate out of Australia. This month, expectations are set for the creation of no net new jobs with the economy displaying an unemployment rate of 5.2%.
Below we can see another chart, this time graphing Australia’s benchmark interest rates. This rate is set by the central monetary authority and can be used to heat up or slow down the Aussie economy. Through 2012 the RBA has taken expansionary measures lowering this rate down to its current levels at 3.50%. If unemployment increases more than expected, this may signal another potential round of rate decreases through the RBA.
Ultimately with expectations of a rate cut, it would be expected that the Aussie currency would decrease in value. To learn more, let’s take a look at how this policy has affected price for 2012…[/I]
The past few days have seen the US dollar make gains against most of the major currencies. Here’s an excerpt from an article by David Rodriguez, Quantitative Strategist at DailyFX.com that explains how the US dollar has potential to rise further:
[I][ul]
[li]EURUSD – Euro Forecast to Fall Towards $1.1875
[/li][li]GBPUSD – British Pound Expected to Weaken Further
[/li][li]USDJPY – Japanese Yen Outlook Remains Bullish
[/li][li]USDCHF – Swiss Franc Forecast to fall Against USD
[/li][li]USDCAD – Canadian Dollar Predicted to Weaken
[/li][li]GBPJPY – British Pound Outlook Bearish versus Japanese Yen[/ul]
[/li]
Retail forex trading crowds have aggressively sold into US Dollar (ticker: USDOLLAR) rallies against the Euro and British Pound. Such one-sided sentiment gives contrarian signal that the EURUSD and GBPUSD may fall to fresh lows.
The Dow Jones FXCM Dollar Index now trades at monthly highs as the Euro falls to fresh multi-year lows, and our proprietary retail forex-based Speculative Sentiment Index gives reason to expect further USD strength. Indeed, our technical forecast predicts that the USDOLLAR targets multi-year peaks on the broader Greenback rally…[/I]
Most of you are probably already aware of the Dow Jones FXCM Dollar Index which tracks the value of the US Dollar against 4 major currencies. David Rodriguez, Quantitative Strategist at DailyFX.com has done some interesting studies on the correlation between the US Dollar and stock. Below is an excerpt of his article:
The S&P 500 Volatility Index (VIX) reflects volatility expectations on the benchmark US equity index, and high values are most often associated with fear of significant declines. The Dow Jones FXCM Dollar Index is, in our opinion, the best metric for the US Dollar’s value against major currency counterparts. View the methodology behind the USDOLLAR.
Forex Correlations Summary
View forex correlations to the SPDR Gold ETF Trust (GLD), United States Oil Fund ETF (USO), SPDR Dow Jones Industrial Average ETF Trust (DIA), UK FTSE 100 Index, and IShares Silver Trust ETF (SLV) prices.
The extremely strong link between the Dollar Index and the VIX emphasizes that forecasts for the US currency will depend on moves in broader markets. Correlations show that a higher VIX coincides with a higher Dollar; we may need to wait for the next bout of significant financial market risk aversion to see a significant break higher in the US Dollar.
Today’s readings from the Speculative Sentiment Index (SSI) point to the possibility of future declines in the dollar. Here’s an excerpt from the analysis by David Rodriguez, Quantitative Strategist at DailyFX.com
[I]
Technical analysis studies aside, recent shifts in retail trader sentiment warns that the US currency may indeed have further room to fall. Our proprietary Speculative Sentiment Index data shows that there are 1.2 traders long EURUSD for every one long. Yet long positions have fallen 15 percent since last week while shorts are up 19 percent. An SSI flip to net-short EURUSD would give clear contrarian signal that the Euro may have set an important bottom…
It hasn’t been a good week for the Eurozone. Spain’s heavily indebted Valencia region asked for financial aid, increasing investor fears that the Spanish government will seek a full-blown bailout. Spain’s IBEX stock index fell 5.8 percent on Friday, which is it’s biggest one-day drop in 2 years, and global stocks the Euro fell along with it.
What’s in store for the single currency for the new week? Below is an excerpt from a preview by David Song, Currency Analyst at DailyFX.com:
Fundamental Forecast for the Euro: Bearish
As we’re expecting to see a slew of dismal developments next week, we should see the downward trend from 2011 continue to take shape, and the drop in risk sentiment should produce fresh yearly lows in the EURUSD as European policy makers struggle to restore investor confidence. In turn, we may see the euro-dollar make a run at the 1.2000 figure to test for psychological support, but we will be keeping a close eye on the relative strength index as it approaches oversold territory…
Welcome to the forum I’m glad you’ve enjoyed my posts. Let me know if there is a particular currency or type of strategy you would like to see more information about. Our analysts at DailyFX.com have expertise in a variety of different trading styles.
Today’s post is about trading crosses, which are currency pairs in which neither of the two currencies is the US Dollar. Currency crosses can be particularly conducive to long term trends. Below is an excerpt from article today by Walker England, Trading Instructor at DailyFX.com:
[B]Today we will specifically be comparing the EURJPY and AUDJPY currency pairs to see the advantages of trading Euro crosses in present market conditions.
Strength Of Trend
Regardless of your trading strategy, it is important to evaluate the direction of the trend. Above we have daily charts for both the EURJPY and AUDJPY. Looking at the EURJPY we can see the pair is working on creating new lows under 94.46, and declined as much as 1716 pip through present prices. On the other hand the AUDJPY has declined as much as 1417 pips through the same time frame, but has not established a new low in over 6 weeks. Both pairs are trending lower from their 2012 highs in March, that much is clear but we can see that momentum is clearly on the side of the EURJPY.
With the EURJPY making lower lows and having a stronger trend, which pair would you prefer to be trading?
Rollover Rates
Strength of trend is not the only consideration we should take into account when opening a position. Every good trader will always keep their eye specifically on costs that can eat into potential profits. Rollover is one of those factors, and can either work in your favor or against it…[/B]
The Euro, the US stock market and other “risk on” trades got a boost today from the economic trifecta of lower jobless claims and higher durable goods orders in the US, and strong statements by ECB President Mario Draghi that the central bank will do whatever it takes to preserve the Euro. The big question is whether the recent rally in the Euro and other major currencies versus the US dollar has legs. According to the latest readings of the Speculative Sentiment Index (SSI)… possibly. Below is an excerpt from this morning’s report by David Rodriguez, Quantitative Strategist at DailyFX.com:
Forex trading crowds have aggressively bought into US Dollar (ticker: USDOLLAR) declines against the Euro, and our sentiment-based trading strategies are now short USD and call for further EURUSD gains. Our sentiment-based trading strategies are now long Euros and short US Dollar against the Japanese Yen, Swiss Franc, Australian Dollar, New Zealand Dollar, and Canadian Dollar. It will be critical to watch whether…
Last week ended with a surge in “risk on” trades in global markets including the Euro and US stocks. The Dow blasted through the 13000 mark, a level not seen since May of 2007. The reason for the recent bullishness? Expectations that the Fed and the ECB will provide more stimulus to the markets. This week, we will see if the central banks deliver with the Fed announcement on Wednesday at 18:15 GMT, and the ECB announcement on Thursday at 11:45 GMT.
In the video below John Kicklighter, Senior Currency Strategist at DailyFX.com previews the week ahead for us and highlights what to look for from the two central bank announcements and the employment report on Friday. “One thing is clear, next week will be defined by volatility and speculation.”
We have 3 busy days ahead of us with the FOMC announcement on Wednesday, the ECB announcement on Thursday, and Non-Farm Payrolls on Friday. I thought I would use today to address a skill that is absolutely essential to becoming a successful trader: How to Manage Losing Trades. I want to share with you an excerpt from an article written by James Stanley, Trading Instructor at DailyFX.com:
[B]If there is one feeling that traders universally abhor, it would probably be the emotion derived from watching a losing trade turn deeper, and deeper against them. At this specific point in time – you are watching yourself getting poorer; the complete antithesis of why you trade. If the trade is left unchecked, things can get really ugly very fast. An overleveraged position can lead to an outsized loss; and as a position can move against you for an extended amount of time, these losses can irreparably damage futures.
What’s your forecast on the August NFP? Always a scary one that I stay away from on my live account but I don’t mind throwing around some ideas on the demo…
What I should be asking is how do I read into the forecast, and what sort of effect is it expected to have on the market? My experience is pretty limited with economic forecasting and fundamental analysis…
This afternoon traders will be listening intently for comments from the FOMC announcement. Here’s an excerpt of an article by Ilya Spivak, Currency Strategist at DailyFX.com highlighting the main items to watch for:
[B]Talking Points
[ul]
[li]Haven Currencies Fall as Risk Appetite Firms on FOMC Stimulus Hopes
[/li][li]US Dollar Likely to Recover as Fed Disappoints Hopes for Additional QE[/ul][/B]
[/li] The safe-haven US Dollar and Japanese Yen pushed lower and S&P 500 stock index futures rose overnight amid hopes the Federal Reserve will announce additional stimulus measures at the monthly meeting of the rate-setting FOMC committee. A disappointment seems likely however, with Ben Bernanke and company opting not to stray from familiar territory. Such an outcome is likely to weigh on risk appetite, boosting the greenback and punishing its stocks-linked counterparts…
If it’s forecasts you’re after, the DailyFX Calendar will show you the economists’ estimates for all the scheduled news announcements for the week. For NFP, the economist are predicting a number of 100k versus 80k the previous month.
More interesting to me is your second question about wanting to know how to read into the forecast. As a trader, this is the more important question to be asking. Economists can try to forecast the numbers all they want, but a traders job is not to predict, but to react. In regards to NFP, the reason traders pay attention to this number is that it can be an indicator of whether the economy is improving overall, and therefore of whether the Fed will be inclined to provide more economic stimulus to the market and when. These fundamental concepts will be discussed live before, during and after the NFP announcement live by Currency Analyst Christopher Vecchio in the Live Trading Room at DailyFX.com.
Christopher Vecchio will be giving his real-time analysis of the NFP announcement beginning at 8:15am New York time on Friday. That’s 15 minutes before the NFP announcement, so you can click on the image above to join the Live Trading Room at that time. In the meantime, I wanted to share with you a simpler approach to trading NFP that might be easier for you to practice first.
Cheers for the post, I’ll jump on the live feed on Friday. As I said before, I have stayed away from the NFP releases as I’ve never been able to look into the announcements with any sort of clarity and have always found the market reaction just a little too random for my liking.
Thanks Jason,
Tim
It was an up and down morning for the Euro as first markets were encouraged that the ECB held rates at 0.75% but then discouraged when ECB head Mario Draghi made it clear that no new bond buying measures will be in place in the near term. This would be a good time to check in on the latest SSI readings on DailyFX.com to gauge market sentiment going into Friday’s Non-Farm Payrolls.
Forex trading crowds have aggressively faded the US Dollar (ticker: USDOLLAR) declines against the Euro, and our sentiment-based trading strategies are now long USD and call for new EURUSD loses. It remains to be seen if the EURUSD holds the July low at 1.2040/45, which we expect to break now that…
Today I wanted to share a video with you by Christopher Vecchio, Currency Analyst at DailyFX.com. In this video, he discusses the today’s Non-Farm Payrolls, and how the US Dollar will perform against the Australian Dollar, the Euro, and the Japanese Yen.
Last week the ECB and Fed made their rate announcements, and the Non-Farm Payroll numbers were released. This week the focus shifts to the Asia Pacific. At 00:30 EDT tonight, it’s the Reserve Bank of Australia’s turn to announce its rate decision. David Song, Currency Analyst provides this preview on what to expect:
[I]Although the Reserve Bank of Australia is widely anticipated to keep the cash rate at 3.50%, the fresh batch of central bank rhetoric is likely to spark increased volatility in the AUDUSD as market participants weigh the outlook for monetary policy…[/I]
[B][U]Potential Price Targets For The Rate Decision[/U][/B]
[B][U]How To Trade This Event Risk[/U][/B]
[I]Trading the rate decision may not be as clear cut as some of our previous traders as the RBA is widely expected to keep the benchmark interest rate on hold, but a less dovish statement could set the stage for a long Australian dollar trade as market participants scale back bets for more easing. Therefore, if the central bank turns more upbeat towards the $1T economy, we will need to see a green, five-minute candle following the announcement to generate a buy entry on two-lots of AUDUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion…[/I]
Yesterday, I mentioned that the focus this week will be on the Asia-Pacific region. Today, I wanted to share with you a trade setup to scalp AUD/USD. Below is an excerpt of details on this trade idea from Michael Boutros, Currency Strategist at DailyFX.com:
The Australian dollar seems poised for a correction lower after posting an impressive 10.6% rally off the June 1st lows at 9582, with price action now retracing 78.6% of the entire decline off the 2012 highs made in late February. AUDUSD options show that 3-month volatility expectations have fallen below the 10% threshold for only the third time since 2008, suggesting that a near-term top may now be in place. The proximity to our topside limit at the 1.06-figure offers favorable risk-reward on aussie shorts with clearly defined downside targets now in view.
Today I wanted to share a video recording of this morning’s Live Scalping Webinar by Michael Boutros, Currency Strategist at DailyFX.com. In this video, he shares his insights regarding opportunities to trade the Euro and Pound including his current trade setups.
Join Michael every Wednesday morning for his Live Scalping Webinar on DailyFXplus.com (Exclusive for Live Clients Only) at 1400 GMT (10ET)
I’m glad you’ve enjoyed my posts. Let me know if there is a particular currency or type of strategy you would like to see more information about. Our analysts at 
