USD Graphic Rewind 08.03

DailyFX Research Team

The dollar index once again found itself being brutally beaten down yesterday as risk appetite soared and investors bought into riskier FX and other asset classes. The rout got started early as Euro-zone and UK factory activity came in better than expected allaying fears of a double dip in the global economy. This run on positive data was bolstered by some not-as-bad-as-expected data from the US in the form of ISM manufacturing. Global equities also got a firm kick-start to the month as European bank earnings came in much stronger than expected helping to lift sentiment regarding the European banking sector. As risk appetite roared on the dollar was slammed across the board, additional concerns regarding further quantative easing in the US added to the weights dragging on the dollar. As trade as worn on in the Asian session bulls have run out of steam to push equities and FX higher and thigns have tapered off a little as assets consolidate some of their massive gains from yesterday.
Looking ahead, risk appetite should remain well supported going into the European session, we may see the index claw back some ground as a bulls take a breather awaiting further cues to send currencies higher. A piece in the WSJ over-night suggesting further loosening of policy in the US is likely to be discussed at the next FOMC meeting will keep the topside. Read more:

Fundamental Forex Analysis

Predicting the next moves in the market is what the art of trading is all about. Of course this isn’t easy and putting this basic concept into action requires a lot of skill and experience. This is especially true in the forex market. Investors and traders have long known that the forex market is influenced by far more than just forex. The truth is, currency is influenced by many factors, political, economic, interest rates, economic growth and much more, and all are interlinked to some extent making it that much harder to isolate one moving factor.
Specifically some currencies are strongly linked to other factors, such as for example commodities. In this article we will show some examples on how you can trade currency based on movements in the commodity market and how you analyze those numbers.
Lets go back to the year 2005, where oil and gold unlike now where at all time record highs. Those two commodities were the big movers in the markets that year. The dollar had very different reactions to other currencies based on those commodity movements and how the foreign currency related to oil and gold. The way a trader can take advantage of this is to figure out how a currency will react when the oil price rices or falls. In the next example we will look at the CAD (Canadian Dollar) and its reaction to the oil price.
In 2005 the Canadian Dollar was very strong. This was a direct result of the high oil prices, rising more than 60% over the year. Because Canada is a net exporter of oil, the extra revenue of oil income greatly improved the CAD as the overall Canadian economy benefited.
On the other hand the other example here is Japan.Japan is a an oil importing country, importing close to 99% of its oil, virtually all. Because Japan also lacks other natural resources to compensate for this energy problem, the Japanese economy is particularly vulnerable to the oil price. In fact the Japanese imports more than 79% of its total energy need. So stable and low oil prices are of utmost importance for the Japanese economy. So when the oil prices rise it hurts the Japanese Yen.
When we know these two things, how can we capitalize on this knowledge?
We can now accept these to currencies or rather their currency pair CAD/JPY as a prime indicator on oil prices. So, we can trade this currency pair for profits on nothing else but oil information. Or the CAD/JPY can give us additional information on the market sentiment on oil.
Gold is another currency that tends to be linked to especially the dollar. When the dollar weakens, and thus the markets belief in the monetary system, gold rises in value. While gold is no longer the reserve value of the world, it is still a leading storage of value and will likely continue to be so.

Forex: USD/JPY hits fresh 8-month low at 85.85

FXstreet.com (Barcelona) - Dollar recovery attempt was capped on Monday at 86.90, and , after brief consolidation during Asian session, the pair has broken lower, weighed by broad-based Dollar weakness to hit a fresh 8-month low at 85.85, right at Nov 30, 2010 low.In case of breaking below 85.85 (Nov 30 low), next support level could be at 85.00 and 84.80 (Nov 27 low). On the upside, the pair might find resistance at 86.85 (Ago 2 high), and above here, 87.00/20 87.20 (intra-day level) and 87.45/65 (intra-day level).On a wider perspective, Nicole Elliott, senior technical analyst at Mizuho Corporate bank warns about a potential wedge formation, which could cause a sudden short-covering rally: "Expect more cautious downside probing today and probably throughout August. However, we warn against complacency as price action since mid-June is a potential ‘wedge’ formation which could cause a sudden and large short-covering rally at any point in time."

How to Trade Forex

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.
The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.
The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.
Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements.