Global Equity Markets slumped on Tuesday as a wave of poor economic news and lowered rating caught the market off guard.  In Japan, GDP printed less than forecasted, coming in at 1.3%.  Fitch lowered its rating on Greece. In Dubai, the main developer reported a $3.65 billion loss contributing to the market’s woes.  The DJIA finished the session down 104.14 points to close at 10,287.97

The Dollar continued its rally feeding off the poor equity performance as risk aversion remained in firm control.  The DXY closed at 76.31, a level not seen since early November.  Gold continued its selloff as it closed the day down $30 to 1,128.40.  Oil was not far behind finishing the day down $1.31 to 72.62 a barrel.

The BOC left rates unchanged at .25.  In Switzerland, Unemployment printed as expected for November at 4.2%. Later today the RBZ will announce its Interest Rate decision.  They are widely expected to keep rates on hold, currently at 2.5%.  With no relief insight we expect the dollar rally to continue in to today.

Upcoming Forex Events for December 9, 2009

CHF     Unemployment Rate  Actual  4.10% Forecast  4.20%  Previous  4.10%

EUR    German CPI (MoM)   Actual  -0.10% Forecast  -0.20%  Previous  -0.20%

NZD     Interest Rate Decision Forecast  2.50%  Previous  2.50%

AUD   Employment Change Forecast  6.00K  Previous  24.50K

Research by http://www.ufx.com

NZD/USD:

We are not suggesting the Dollar bulls are running wild, however, every rally in hindsight has a defining moment.  Every trader on the street is aware that when the Dollar bulls get set free they are going to come charging.  Even if you are a skeptic to the end just the mere massive unwinding of the carry trade would rocket the Greenback.

Our pick would be the NZD and here 3 reasons why:

Performance – Going back to March 9^th, 2009 through December 7^th, 2009 the top performing G-10 currency (on a percentage basis) against the Greenback has been the Kiwi.  It is up 47.24% which is quite shocking given the New Zealand economy is not among the largest of the G-10. To put some perspective on it the EUR is only up 19.59% and the GBP 20.57%

Technical – There are 2 obvious technical reasons that stand out to us.  A) A pattern we look for are lower lows and lower highs and vice versa.  In the chart below we have depicted the initial emergence of this pattern. B) The Kiwi is already trading below its 50 day MA and on the verge of taking out its 100 day MA, a more significant breakout level than the 50 day MA, which many other G-10 currencies have yet to crack.

Commodities – The Kiwi benefits from rising commodity prices as it is a commodity currency.  Commodity prices are quoted in USD so as the Dollar strengthens commodity prices cheapen.  If commodity prices cheapen so will the NZD.

Combine these three factors and you may see significant price action on this pair.  Of course if the Dollar rallies all currencies will be on their heels but as a trader you are looking for the best trade, and this may be it.  We define the best trade as the one with the best risk to return ratio.

Analysis by http://www.ufx.com

Global Equity Markets were off slightly Monday.  A combination of light volume and a lack of any real economic data releases left markets essentially flat as traders continue to be risk averse heading into year end.  The Dollar had looked to continue its rally until Fed Reserve Chairman Ben Bernanke’s comments regarding U.S rates remaining low for an “extended period of time” and his seemingly unimpressed manner regarding unemployment put the rally on hold.

The Dollar held its gains from Friday as the DXY closed down only a couple points to 75.757.  Gold finished modestly lower to 1,158.10 while Oil gave up a little over a 1.50 a barrel to finish the day at 73.93.

The CAD moved into positive territory as Building Permits jumped 18%.  This once again reaffirmed that Canada is in the midst of substantive recovery.  This news comes on the heels of the BOC Rate decision today.  Mark Carney, Governor of the BOC, has already expressed his commitment to keep rates on hold at least through mid 2010.  In Japan, GDP figures are set to print and in the U.K. Industrial Production number are due out.  We expect a good amount of volatility in the market today given recent events and today’s prints.

Upcoming Forex Events for December 8, 2009

CAD   Interest Rate Decision            Forecast  0.25%  Previous  0.25%

GBP    NIESR GDP Estimate            Previous  -0.40%

JPY     GDP (QoQ)     Forecast    0.90%  Previous  1.20%

AUD   Home Loans (MoM)   Forecast  -1.80%  Previous  5.10%

Research by http://www.ufx.com

The Greenback has been offered across the board since March 2009.  As long as risk did not rear its ugly head investors were
selling the dollar in favor of better yielding assets.  When risk showed up at the Market’s doorstep the Dollar was right
there with it ready to regain market control.  We saw this a week and half ago when Dubai spooked the market with a needed
debt restructuring.

The pattern we have seen for the last 9 months has been  equities advancing as the dollar slides.  Equities would advance on
positive (or at least less negative) economic data. The correlation between increasingly better news and the Greenback was
therefore negative. When normal markets are in control positive news typically strengthens a currency.  What we witnessed
Friday may be an early indicator that the Dollar bear is finally ready to hibernate.

Friday brought us 2 very important prints from the U.S. The first was the Change in Nonfarm Payrolls and the Unemployment
Rate.  The Change in Nonfarm Payrolls fell by just 11k and the Unemployment Rate fell from 10.2% to 10%.  This is obviously
positive news for the U.S economy and the Global economy as well. Stock’s advanced, but this time the Greenback would not
yield any ground instead it posted gains on all its G-10 rivals.  The Dollar move was positively correlated with the
economic news, something not seen in 9 months.  There was a tangible shift in market sentiment regarding the timing of a
potential rate increase.  Originally, forecasts were  calling for an increase in Q4, however, analysts now think it may come
sooner.

It is not by coincidence that a number of pairs slid almost exactly to Support levels before firming against the Dollar.  A
breakthrough of support would most likely trigger a massive Dollar rally, something the market is not whole heartily a
believer in at this point in time.  Rather, the move on Friday was one of caution as it may be the first signal the Bull is
getting ready to run.

Let’s analyze current key technical levels and what the trading implications are:

EUR – Friday’s close put the EUR right at the 50 SMA.  The 50 SMA has been holding as support for nearly 9 months.  An
entire candle below the 50 SMA would trigger a Short EUR entry while  a quick  bounce off of support levels would trigger a
a resumption of our EUR Long

AUD Similar to the EUR, the 50 SMA has been holding firm support.  Therefore, a Short AUD  entry would be triggered
with the appearance of an entire candle below support.  We would resume a Long AUD position with a bounce off of support.

GBP The Cable has been trading the range but has not dipped below the 50 SMA since mid September at which point it
gave up over 4.5% to the Dollar.  As with the EUR and AUD, an appearance of entire candle below the 50 SMA would trigger a
Short GBP entry.

Obviously one occurrence hardly represents an entire shift in trend, however, a shift in trend starts with one occurrence.
Continue to monitor the correlation between economic news and the Dollar.  In addition pay special attention to support and
resistance levels on the majors, as a breach of S&R may signal future changes and should be capitalized on.

Analysis by http://www.ufx.com

Gold tumbled on Friday as better than expected Unemployment and Nonfarm Payroll figures helped prop up the Greenback. Gold
fell 5.1% during intra-day trading to a session low of 1,150. Crude Oil was mixed on Friday as it originally bounced higher
on the positive news, however, it gave up its gains and then some as the Dollar firmed throughout the day. Both Gold and Oil
are quoted in Dollars ,so as the Dollar strengthens it sends commodity prices lower.

Global Equity Markets advanced Friday finishing the week in positive territory. The DJIA added 22.75 points to close at
10,388.90. At the moment Equity Futures are pointing lower ahead of the open. Economic data releases will be on the lighter
side for Monday although the remainder of the week will yield some interesting price action as Canada, New Zealand,
Switzerland, and the U.K are on deck for rate decisions.

The DXY soared to highs not seen since early November as the DXY touched 75.911 during the Friday session. Traders were
unwinding some bets and covering shorts as the positive employment data gave rise to concerns that the U.S Federal Reserve
may raise rates sooner then later. With little economic data due out today do not expect much price action.

Important Forex Events for December 7, 2009

EUR ECB President Trichet Speaks
CAD Building Permits (MoM) Forecast 1.00% Previous 1.60%
USD Fed Chairman Bernanke Speaks
AUD Current Account Forecast -17.00B Previous -13.30B

Research by http://www.ufx.com

The Dollar tumbled Tuesday falling just south of 74.30 on the DXY. The Kiwi was the big winner advancing 1.38% followed by the Pound at 1.03%. Meanwhile the JPY was the only major to lose ground to the Greenback as an emergency meeting of finance minister in Japan was convened to discuss the JPY’s continued strength.

The Dollar slide was triggered by a wave of positive economic data releases. On the home front, contracts to purchased existing homes jumped 3.7% unexpectedly. ISM figures remained above the critical 50 level. Couple the data releases with positive Black Friday and weekend sales as well as Dubai shoring up its debt facility payments and we had the ingredients for a massive Global Equity Market rally. It will be a quiet Wednesday for economic releases.

Oil finished the day up just over a dollar a barrel to 78.37. Gold closed at 1,196.60 up $20 from the day before. In intra-day trading Gold broke 1,200 before retracing, although futures are pointing up this morning so 1,200 should be no barrier today.

Upcoming Forex Events for December 2, 2009

EUR PPI (MoM) Forecast 0.10% Previous -0.40%
USD ADP Nonfarm Employment Change Forecast -148.00K Previous -203.00K
USD Beige Book
AUD Retail Sales (MoM) Forecast 0.50% Previous -0.20%

Research by https://www.ufx.com

EUR/USD:

Now that the EUR has safely breached resistance and survived the Dubai scare let’s take a look at where the EUR may be heading next. In order to project forward we must first look back at where the EUR has been. In the Graph below you can clearly see the period of complete market turmoil, commencing July of 2008. Over the next year notice the ensuing volatility represented by the white circle. The area in the red box shows a steadier trend emerging in June 2009. This is further evidenced by price cleanly riding up the 50 SMA in yellow.

I drew a Fibonacci Projection from the low indicated by Box A to the high indicated by Box B on the Graph below. These points are significant because they are inflection points that began the EUR rally. Additionally, they are located in the area of volatility circled in white above. Fibonacci makes sense and order from disorder and chaos. Therefore using these points for the basis of the projection is taking chaos or what we refer to as volatility and making order and sense from it which is the period of time represented by the red box above. View the results in the Graph below.

The Fibonacci’s Projections land on almost precisely the last 3 resistance levels and highlights past price action resistance points as well. The FIBO 138.2% level at 1.5048 was struck in October when the EUR finally broke the psychological 1.50 barrier. It was tested again in November before finally being taken out a few days ago.

So where is the EUR headed next? Based on the Fibonacci Projections we expect to meet resistance at 150%, which coincides with previous support levels as indicated by the 2 blue circles back in May and June of 2008. If the Fibonacci 150% level is taken out then the next point of resistance is the 161.8% or approximately 1.55. You can see the congestion at that level starting in May 2008 and lasting through June 2008.

Since the 50 SMA has been holding such strong support for this EUR move our new Long entries would trigger near the 50 SMA (buying on the dips). If we breach the 150% Fibonacci level then we would increase our Long and look to take profit near 1.55. However, in order to enter a short we would need to see an entire candle appear below the 50 SMA. This is an occurrence that has not taken place in months.

USD/JPY:

Fibonacci tools never cease to amaze me.  The question becomes do they predict or become a self fulfilling prophecy?  In the end it may not matter.  What does matter is that Fibonacci tools assist traders in generating expectations on price action whether you day trade or trade a couple times a week. Traders can quantify seemingly random or chaotic price action with the use of Fibonacci tools.

Near term resistance on the JPY was at 88.00 or R1 as shown on the Graph below.  R1 was tested twice before giving out last Thursday the 25^th.  R2 at 87.15 formed in December of 2008 and was tested again in January of 2009.  The Candle that broke R1 stopped precisely at R2.  The very next day  R2 was taken out.  The question becomes where will price go from there?

For the answer we turn to Sir Fibonacci.  If you drew a Fibonacci Projection from the JPY low back in April of 09′ at a handle of 101.44 until R1 then the next Fibonacci level forms at 84.84, or 123.6%. Notice on the Graph that JPY hit exactly that line before retracing its path back to R2.

Simply looking at price action, the breaking news, and fundamentals would have left a trader sidelined by the volatility.  However, the use of Support and Resistance lines coupled with Fibonacci Projections helped interpret price’s volatile ride.

The BOJ picked up its rhetoric alluding to potential intervention once the Yen slid beneath 85.  Japan almost outright favors a weak JPY as they rely on a weak exchange rate for their export business. The export business accounts for a large part of Japan’s GDP. So where will the JPY go next? Consult your local Fibonacci tool………

Research by http://www.golearnforex.net

Commodity currencies rallied today with the AUD gaining 1.03% on the Greenback while the Pound gave up nearly 3/10^th of a percent.  The EUR and CHF were basically flat on the day.  Speculation in the market about European exposure to Dubai kept the respective currencies in check.  Gold advanced $1.20 to 1,178.90 and Oil picked up $1.15 to close at 77.18. In the Agricultural space Corn, Wheat, and Soybeans were up strongly as well.

Global Equity Markets were mixed as Asian markets advanced while European markets gave up Friday’s premature gains.  In the U.S the DJIA picked up 34.92 points to close at 10,344.84.  Normal trading volumes are expected to resume tomorrow.  Futures at the moment are mixed with Asian markets looking to give back Monday’s gains while European markets look set to advance.

On the data docket for Tuesday we have the RBA set to announce its interest rate decision.  The market is looking for another quarter point hike to 3.75%. In Switzerland GDP is set to print.  In the Euro-zone, German Unemployment Change is due out with analyst expecting a positive print.  In the U.S. ISM Manufacturing figures will be publish and expectations are for a 55 figure.

Upcoming Forex Events for December 1, 2009

JPY     Interest Rate Decision Actual  0.10%   Previous  0.10%

CHF    GDP (QoQ) Actual  0.30% Forecast  0.30%  Previous  -0.30%

JPY      BOJ Press Conference

USD     ISM Manufacturing Index Forecast    54.80  Previous  55.70

Research by http://www.golearnforex.net

You will read everywhere that a positive outlook and a dash of optimism is integral when trading in the foreign exchange market.  Learning forex trade is more than just examining charts and diagrams, but rather keeping a stiff upper lip and a bit of self control.

Attitude carries more than the worth of gold when dealing with the pressure and consequence of trading forex.  Frustration grows easily when forex traders miss a lucrative opportunity or take a big loss.  The temptation to go “all in” can be overpowering and impatience can breed a losing attitude.

Not allowing your emotions determine your next trade is easier said than done.  It all comes down to one word – discipline.  If you think that after a big loss (or a series of small ones) that you are going to “take vengeance” on the market, you’re about to embark on a disappointing path.  Yes, being able to make serious decisions spur of the moment is crucial, but not when they are done in a reckless, emotional way.  What differentiates these two behaviors is the thought process leading up to the quick trade.

Throwing off the negative feelings and low worth that accompany a loss is often the driving force that leads to these behaviors.  You should never risk more than 2-3% of your capital on any trade, however during these emotional hazes, traders sometimes leverage 5-7% to compensate for the previous losses.

There are a few simple practices that you can implement that can help keep you grounded when trading in such a highly volatile market.

1)      Have a trading plan.  Start your day with a purpose, after reading the reports and signals.  This plan needs to have freedom to move according to market fluctuations, but put certain boundaries on your trading behavior.

2)      Be the adult.  When you feel those feelings welling up inside of you that push you to make irrational trading choices, walk away from the trade.

3)      Keep a “mantra” or “motto” next to your computer.  Find something that speaks to you and your goals as a forex trader.  Draw on this wisdom instead of trusting your emotions whenever you feel tempted to make forex more of a gamble than an investment option.

4)      Analyze your losses, don’t just try to erase them.  It is irrational to take a loss for 60, 70 or even 100 pips. This is the obvious outcome of a bad trade decision.  If this happens it’s time to take a step back and re-evaluate whether you’re trading with your mind or your emotions.

5)      Put your heads together.  Keep in the company of grounded individuals who are also experienced in forex trade.  By getting feedback and analyzing together, you will feel less isolated and be held accountable to trade with the right expectations and intentions.

There’s always tomorrow, “it’s only a day away.”  So, meditate on this and be assured that the next profitable trade will be coming along in a short while.  Exercise some patience and faith and keep your mind free and clear to ensure success.  Avoid getting down in the dumps over a few losses and keep on the sunny side of the forex trade.