DOW30 last kiss?
May the ODDS in your FAVOR!: DOW30 Last Kiss?
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[QUOTE=“peterma;661954”]Good post, the day after your original post the WSJ ran an article on this very subject.
In Currency Markets, The Safest Haven Is Yen, Not the Dollar - MoneyBeat - WSJ[/QUOTE]
Hah yeh didn’t see that article, but it definitely covers the subject in pretty much the same light as how I view it.
Hello Globalmacro,
Thank you for opening up this thread. I really appreciate this thread. Finally some meaningful to read on here… I’ll catch up later on…
Still on vocation. Hola from Cancun 
[QUOTE=“PipNRoll;662070”]Hello Globalmacro,
Thank you for opening up this thread. I really appreciate this thread. Finally some meaningful to read on here… I’ll catch up later on…
Still on vocation. Hola from Cancun :)[/QUOTE]
Ha your welcome. Feel free to begin a discussion on any topics you want to, may want to enjoy Cancun first.
Some critical data came out of china that should have a positive affect on the Aussie. The Chinese GDP was slightly better than was expected, not only was it higher than the consensus, there was significant concern over the downside risks which proved unfounded. Industrial production also demonstrates the risks of a hard landing being diminished as well. This should provide a boost to risk sentiment and in turn boost Audusd.
However, rather than longing the pair, I will use this as a chance to short at a higher level. Wednesday the Aussie CPI will probably come in soft and there is a big Australian government bond maturity occurring on the 24th. The lower CPI will give the RBA plenty of time to keep monetary policy accommodative which should cap the rally. I will be waiting for 0.8900 for a chance to short.
“He wrapped himself in quotations- as a beggar would enfold himself in the purple of Emperors.”
– Kipling
Just a quote about individuals who substitute quotations for substantive ideas.
[QUOTE=“GlobalMacro;662320”]Some critical data came out of china that should have a positive affect on the Aussie. The Chinese GDP was slightly better than was expected, not only was it higher than the consensus, there was significant concern over the downside risks which proved unfounded. Industrial production also demonstrates the risks of a hard landing being diminished as well. This should provide a boost to risk sentiment and in turn boost Audusd.
However, rather than longing the pair, I will use this as a chance to short at a higher level. Wednesday the Aussie CPI will probably come in soft and there is a big Australian government bond maturity occurring on the 24th. The lower CPI will give the RBA plenty of time to keep monetary policy accommodative which should cap the rally. I will be waiting for 0.8900 for a chance to short.[/QUOTE]
An update on my thoughts regarding the Aussie. After the CPI release today, I still believe that we are going to see the Aussie push higher against the dollar over the remainder of the week. Inflation in Australia is right where the RBA wants it, and therefore is not a concern for monetary policy as it is for many of the other developed countries right now. Chances are high that tomorrow’s US inflation report will be soft, and being below the Feds target already, it should garner more attention from the market and probably will result in dollar weakness. Dollar long positions are still stretched at this point and profit taking can see these unwind a bit more before the trend resumes.
Equity markets are starting to ease from last weeks turbulence and commodity prices are coming off their lows, both supportive factors for the Aussie. My sell order is sitting at 0.8930.
Anyone want to take a stab at why a foreign exchange trader should be cognizant of a country’s current account balance? I can add to the discussion if anyone wants to start.
I’ll give it a go…
First, I would like to know what is the definition of " Current Account Balance" is…
The current account balance is one of the two main metrics of the nature of a country’s foreign trade; the other is the net capital out flow. The current account surplus signifies an increase in a country’s net foreign assets by the corresponding amount, and a current account deficit indicates the exact opposite. It is referred to as the current account because it computes the goods and services consumed in the current economic period.
Second, I want to know why this is important…
Current account balance is released on a quarterly basis, it is very important in directing the federal board on their decisions regarding monetary policy. This is simply for the reason that a deficit in the balance may spell disaster to the economy and the fed may be forced to put up measures to try to correct the imbalance. If the fed deems it necessary, they might try to give incentives such as lower interest rates to attract local production that will increase the current account balance deficit.
Third, how does this affect in Foreign exchange market?..
The forex rate is the one directly affected by the trends of the current account balance. It is so direct that the two will move in the exact same direction. A deficit in current account balance simply signifies diminishing foreign currency reserves. This situation may put the economy in a complex situation as doing business internationally may prove difficult or too expensive if the state has to buy foreign currency at higher interest rates to transact business. If the trend persists, then other foreigners may try to avoid transacting any business in U.S. dollars if the value is perceived to decline. In similar fashion, a current account surplus signifies that the country is doing much business internationally and they thus have enough foreign currency reserves a trend that will strengthen the exchange rate of the dollar against other currencies. If the foreign currency reserves are in surplus the federal bank can comfortably decide forex rates without any external pressures, however if it is in deficit then the federal bank has to bend to the directions of other stronger currencies.
[B]Question:[/B]What I would like to know is “How” you can apply it and leverage this type of information to get into the right trade. Also, which currency pairs you need to look for and the most currency pairs affected by these? major currencies or exotic/cross pairs?
P.S: Feel free to correct me if I am wrong. I would rather someone tells me if I am incorrect so I know what I need to work on…I have a pen and notebook ready
It’s an interesting subject.
In the old days a country with a large trade surplus (it exports more than it imports) was to be envied.
Immediately China would spring to the mind of most people.
One of the difficulties China faces at present is it’s heavy reliance on foreign markets, it is currently looking to stimulate it’s domestic market.
The current account just that - money in less money out, last posted Sep 17 for US
The bigger your surplus (or the lesser you deficit) means there is more demand for your currency.
Linked to this is the trade balance, the US current account is in better shape than expected on Sep 17, then again the trade bal is in reasonable shape also.
Hmm… interesting comparison on USDX since May 2014 and this:
United States Balance of Trade | 1950-2014 | Data | Chart | Calendar
Trading in Forex market is risky. I don’t know how we newbie can do this as like professional trader. Every trader do his trade best on their knowledge basic. So i think we need to learn forex first as like a experienced trader, than we started our trade.
Good replies pipnroll and Peterma.
Here’s my contribution.
The current account consists of the balance of trade, net income from foreign investments, and current transfers (which would include foreign aid or other one off transfers of money). If these add up to an inflow of money into the country, then we have a current account surplus, if it indicates an outflow then we have a current account deficit.
The most important concept when dealing with current account analysis is to realize that you can not apply a single metric to all countries. What is considered a healthy current account for developed nations is much different that what is healthy for emerging market nations as their economies are structurally different.
Generally, developed countries tend to run current account deficits as these typically import more goods then they export (it’s cheaper to import goods from developing countries then it is to produce it in a developed country). During good economic times, the current account deficit for developed countries tends to increase as the domestic demand for more goods increase, and thus the country imports more. During recessions, the current account deficits of developed country typically decrease as domestic demand for imported goods fall due to consumers saving more and spending less.
Thus the current account during normal conditions is typically not the cause of market moves but rather a reflection of the current market dynamics. Lets take Australia as an example. Australia’s biggest export is iron ore, and during periods of time when iron ore prices are going up, the Australia dollar also tends to follow, as higher iron ore prices means more export profits. The current account will adjust positively as a result, but it did not cause the market move, it was merely a reaction to the move and therefore isn’t a tradable justification.
Another current example is the US current account deficit shrinking on the back of reduced energy imports. As oil production from the US increases due to the fracking boom, energy imports have been dramatically reduced, which has a significant affect on the trade balance and the current account. In this case, traders would be well aware that the current account would be affected positively BEFORE the effects actually hit the current account and would be making trades based on the developments in the energy market rather then waiting for the slow moving current account to change. Therefore the moves in the current account would be confirmation rather then a cause for a trade entry. Most of the time, the current account is indicative rather then causative.
However, there ARE times when the current account is causative of big moves in the currency market. To figure out when these events will occur, you have to understand that to cover a current account deficit, the country must borrow money from foreign sources. The credit worthiness of the deficit country and the confidence that creditors have in that country’s ability to pay of the debt determines to a large degree how easy it will be for the deficit country to finance a deficit.
As long as global credit markets are extremely liquid, and the deficit country is stable with solid economic numbers, a country can maintain a large current account deficit (4% of GDP or higher) for quite some time. In order to justify shorting the currency based on the current account deficits, one of two things need to occur. The first possible trigger would be global credit markets tightening dramatically. This happened last year when the feds scared the market with faster then expected tapering rhetoric, and will undoubtedly happen again as the feds begin raising rates possibly next year. Without access to easy financing, current account deficit countries can’t find creditors and are forced to reduce their deficit. In this scenario, nearly all current account deficit country’s are affected, with emerging market nations hit the hardest. If a country can’t finance its deficit because the financial conditions are too tight, it’s deficit will be forcefully reduced.
The second possible trigger would be a localized stress placed on a specific deficit country that jeopardizes creditors’ outlook of the risk premium they incur for financing that country. Possible stresses could be a severe natural disaster, political instability, or prospects for a recession. Turkey was a great example of this last year with the Lira collapsing dramatically as its deficit made it vulnerable to political instability. If a country can’t finance its deficit because it can’t find willing creditors, its deficit will have to be reduced.
In both instances, the reduction in the deficit is both a forceful and painful event. The hallmark moment of such an event is a sharp devaluation of the deficit country’s currency. The currency devaluation serves two purposes. The first is that it drastically reduces the value of its existing debts, as these are in terms of its own currency. The second, is that it makes imports more expensive and makes exports cheaper, thus reducing the future deficit as import demand diminishes due to costs.
So a current account deficit isn’t a problem, until it is. Being cognizant of which countries have large deficits allow you to anticipate LARGE and violent moves in their exchange rates when one of the two triggers described above are met. It’s like a car driving down the road filled with explosives. It could keep driving for hundreds of miles, but if it gets a flat tire and goes off the road, its going to explode with a huge fireball, whereas another car (a country with a current account surplus) could safely navigate to the shoulder and stop.
Pipnroll, a current account deficit does not have to mean low foreign reserves, although that will exasperate the situation.
Now please don’t take this wrong as its obvious that you guys n girls probably have forgotten more about the markets than I currently know. But what good is this to me as a daytrader looking to “scalp” a few pips out of the markets. To me knowledge is everything and my trade is just the final execution of that knowledge. Would like to more. Thanks
Bob
PS thanks for your contribution Global, sufferring from the green eye monster I am lol
[QUOTE=“bobbillbrowne;662783”]Now please don’t take this wrong as its obvious that you guys n girls probably have forgotten more about the markets than I currently know. But what good is this to me as a daytrader looking to “scalp” a few pips out of the markets. To me knowledge is everything and my trade is just the final execution of that knowledge. Would like to more. Thanks
Bob
PS thanks for your contribution Global, sufferring from the green eye monster I am lol :)[/QUOTE]
Fair question. When a current account deficit is being forcefully reduced (which means a strong devaluation of the currency) do you really want to be longing , even if its only for a few pips? No you don’t. Being aware of what’s happening you’d only be looking for short opportunities, even at the intraday level, and perhaps be more comfortable holding your trades for more pips. The scenario doesn’t occur frequently and when it does, the move is measured in hundreds of pips. That being the case it wouldn’t make sense to settle for scalping a few pips out of it, but at the very least ruling out long positions will make the knowledge of what’s occurring worthwhile and profitable.
[QUOTE=“GlobalMacro;662770”]Good replies pipnroll and Peterma.
Here’s my contribution.
The current account consists of the balance of trade, net income from foreign investments, and current transfers (which would include foreign aid or other one off transfers of money). If these add up to an inflow of money into the country, then we have a current account surplus, if it indicates an outflow then we have a current account deficit.
The most important concept when dealing with current account analysis is to realize that you can not apply a single metric to all countries. What is considered a healthy current account for developed nations is much different that what is healthy for emerging market nations as their economies are structurally different.
Generally, developed countries tend to run current account deficits as these typically import more goods then they export (it’s cheaper to import goods from developing countries then it is to produce it in a developed country). During good economic times, the current account deficit for developed countries tends to increase as the domestic demand for more goods increase, and thus the country imports more. During recessions, the current account deficits of developed country typically decrease as domestic demand for imported goods fall due to consumers saving more and spending less.
Thus the current account during normal conditions is typically not the cause of market moves but rather a reflection of the current market dynamics. Lets take Australia as an example. Australia’s biggest export is iron ore, and during periods of time when iron ore prices are going up, the Australia dollar also tends to follow, as higher iron ore prices means more export profits. The current account will adjust positively as a result, but it did not cause the market move, it was merely a reaction to the move and therefore isn’t a tradable justification.
Another current example is the US current account deficit shrinking on the back of reduced energy imports. As oil production from the US increases due to the fracking boom, energy imports have been dramatically reduced, which has a significant affect on the trade balance and the current account. In this case, traders would be well aware that the current account would be affected positively BEFORE the effects actually hit the current account and would be making trades based on the developments in the energy market rather then waiting for the slow moving current account to change. Therefore the moves in the current account would be confirmation rather then a cause for a trade entry. Most of the time, the current account is indicative rather then causative.
However, there ARE times when the current account is causative of big moves in the currency market. To figure out when these events will occur, you have to understand that to cover a current account deficit, the country must borrow money from foreign sources. The credit worthiness of the deficit country and the confidence that creditors have in that country’s ability to pay of the debt determines to a large degree how easy it will be for the deficit country to finance a deficit.
As long as global credit markets are extremely liquid, and the deficit country is stable with solid economic numbers, a country can maintain a large current account deficit (4% of GDP or higher) for quite some time. In order to justify shorting the currency based on the current account deficits, one of two things need to occur. The first possible trigger would be global credit markets tightening dramatically. This happened last year when the feds scared the market with faster then expected tapering rhetoric, and will undoubtedly happen again as the feds begin raising rates possibly next year. Without access to easy financing, current account deficit countries can’t find creditors and are forced to reduce their deficit. In this scenario, nearly all current account deficit country’s are affected, with emerging market nations hit the hardest. If a country can’t finance its deficit because the financial conditions are too tight, it’s deficit will be forcefully reduced.
The second possible trigger would be a localized stress placed on a specific deficit country that jeopardizes creditors’ outlook of the risk premium they incur for financing that country. Possible stresses could be a severe natural disaster, political instability, or prospects for a recession. Turkey was a great example of this last year with the Lira collapsing dramatically as its deficit made it vulnerable to political instability. If a country can’t finance its deficit because it can’t find willing creditors, its deficit will have to be reduced.
In both instances, the reduction in the deficit is both a forceful and painful event. The hallmark moment of such an event is a sharp devaluation of the deficit country’s currency. The currency devaluation serves two purposes. The first is that it drastically reduces the value of its existing debts, as these are in terms of its own currency. The second, is that it makes imports more expensive and makes exports cheaper, thus reducing the future deficit as import demand diminishes due to costs.
So a current account deficit isn’t a problem, until it is. Being cognizant of which countries have large deficits allow you to anticipate LARGE and violent moves in their exchange rates when one of the two triggers described above are met. It’s like a car driving down the road filled with explosives. It could keep driving for hundreds of miles, but if it gets a flat tire and goes off the road, its going to explode with a huge fireball, whereas another car (a country with a current account surplus) could safely navigate to the shoulder and stop.
Pipnroll, a current account deficit does not have to mean low foreign reserves, although that will exasperate the situation.[/QUOTE]
Bloomberg posts an interesting article regarding the UK’s current account deficit a day after my post.
Thanks GM for the post above and for the explanations with some examples. These is a good info to add and what to look for. I will need to put this into practice.
I’m curious to see if anyone here realizes the low risk profit potential that eurchf possesses for scalping, why this is the case, and what the best way to approach the pair right now is…
[QUOTE=“bobbillbrowne;663255”]I don’t know bro, why did the chicken cross the road?
But at volatility levels like this why bother
<img src=“301 Moved Permanently”/>[/QUOTE]
True. Volatility is slow. But it is as close to a no risk trade as possible in this market. It’s sitting at 1.2058 right now, the lowest it can go is 1.2000. The Swiss central bank is committed to selling unlimited Francs to keep the pair from going below that, they have stated this many times.
Now pull up the 15 min eurchf, put a 14 period rsi on there, wait until the rsi falls below 30, and then long with a TP of 10 pips. Sure it may take a day or two to hit the target, but as long as you are buying it below 1.2100, your maximum risk is less then 100 pips, and even if it did continue going down, you’d simply average in again at 1.2010 before the Swiss central bank intervened to bring the pair back up.
Is ten pips worth it? To some its not… But it’s basically a gift trade by the market, we will probably see 5 to 10 or so such entries before it creeps back up above 1.2100. So that’s 50 to 100 pips to be made with EXTREMELY low risk.