Forex Trading Australia, FX Trading Strategies

The most recent bout of investor risk aversion cites numerous causes:
•    Chinese regulators draining liquidity from their domestic markets
•    The possible end to Chinese stockpiling of commodities
•    The possibility of U.S. Federal Reserve chairman, and architect of their quantitative easing programme, Ben Bernanke, not being reappointed for a second term
•    Sovereign debt worries, especially concerning Greece, Japan, Ireland, Iceland, and Portugal, and peripherally the U.K. and U.S.
•    Proposed U.S. banking regulations impacting investors and, less directly, traders
•    The economic recovery slowing and possibly stalling
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Multiple factors weighed on markets this week, including European sovereign debt concerns, developing economies including China and Brazil initiating their liquidity exit strategies, and U.S. political issues such as Fed Chairman Ben Bernanke’s reappointment vote and proposed banking regulations which could slow the recovery even further. Risky trades lost favour, including commodities, and the VIX volatility index spiked back toward the 30 level.

Australia’s Treasurer Swan discussed a “resource tax” on mining revenues, as high as 40%. January Westpac consumer confidence surged 5.6% m/m and DEWR skilled vacancies improved 1.1%. December motor vehicle sales rose 3.3% m/m, 17.2% y/y, and the TD Securities inflation gauge rose 0.3% m/m, 2.6% y/y. AUD/USD fell almost from the opening with a brief pause midweek for profit taking, losing 1.8% in the week and closing at 0.9006.
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The AUD/CAD currency pair remains one of the strongest trending pairs in the forex trading market. From its 2008 low of 0.7724, reached 2 February, to its high of 0.9912, reached 9 November, AUD/CAD sustained a bullish trend that gained 2188 pips, or 28%, in nine months.

However, since the peak of investor sentiment on 9 November, AUD/CAD has reversed, breaking and closing beneath its bullish trendline on 7 December. The currency pair is now trending down, as shown on the daily chart, below: Read More

The Greek financial tragedy continues, with Eurozone peripheral debt spreads widening and putting pressure on the Euro even as U.S. fundamental data disappointed. Risk aversion wasn’t helped with U.S. consumer credit warnings from JP Morgan and Citigroup in their earnings reports, and falling commodities prices, particularly gold and crude oil, dampened commodities exporters.

The Australian economy added 35.2K jobs in December and the unemployment rate decreased to 5.5%, with job advertisements rising 6.0% m/m. November value of loans shrank −2.9% m/m, with home loans contracting −5.6% but investment lending increasing 2.1%. AUD/USD tested resistance at 0.9330 twice in the week but remained bound beneath it, closing at 0.9234. Pressure appears to be building to the upside. Read More

European sovereign debt concerns and Japanese cabinet shuffling encouraged risk aversion flows into the U.S. dollar but technical factors limited the USD upside. Fundamentals paint a mixed picture of the global recovery, leaving economists concerned whether gains will hold with stimulus winding down. Investors and traders didn’t care, and risk commodities were largely bought.

Australia’s December PMIs both declined, printing 48.5 manufacturing and 50.0 services. November retail sales surged 1.4% m/m, new home sales 0.3%, building approvals 5.9%, and the trade deficit narrowed to AU$1700Mn, with both exports and imports falling. AUD/USD gained 2.9% in the week and recovered much of its December losses, climbing as high as 0.9265 before closing at 0.9237. Read More

Consider this common situation:

Humans tend to prefer round numbers, and often retail and commercial traders congregate their entry orders at or very near such a level. Dealing desk traders know this. They also know that the amount of money earned by the desk is directly related to the number of these trades that are activated, ensuring them the spread from each trade regardless of the losses or wins of their clientele. As the amount earned by the desk directly relates to their future bonuses and commissions, let’s simply say the dealing desk is motivated to see many such trades enter the market.

So when the price action of a currency pair approaches a round number, where somnolent entry orders lurk, dealing desk traders have been known to use their reserves to nudge the price past that point. The orders are then activated, the desk earns many spreads, and afterwards, they simply close their open positions—often taking the price action right back where it came from. Read More

The forex trading week saw European majors and investor confidence roiled by a Greek financial tragedy, mixed fundamental data, and thin liquidity all aiding USD strength.

Australia’s 3Q2009 GDP printed 0.2% q/q, half market expectation, and 0.5% y/y. RBA meeting minutes were mixed and hinted of further losses in employment even as 3Q2009 housing starts surged 9.4% q/q. AUD/USD dropped through the lower trendline of its consolidation triangle, best seen on daily charts; it lost 2.7% in the week, respected support at 0.8808, and closed at 0.8906. Read More

With the continued widening of the interest rate differential between Australia and Japan, one would expect the currency pair involved to be strengthening toward the AUD side. This has been happening, but it has not been a straight line, as shown on the daily chart, below:

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