Thursday, September 4, 2014

The Forex pairs we trade | Mario Draghi shocks the market

The table above shows the currency pairs we will be trading this season. We may add others as appropriate, if these exhibit the kind of price action we like.

The market was choppy for the first half of august and then the Euro took off on the downside, with the US dollar strengthening against all of its counterparts. The principles of discipline that we adhere to mean that we cannot chase any of these moves, and in fact the EURUSD pair in particular has the look of an instrument that is reaching for a exhaustion low, and one that could make a turnaround at any time.

We are very conscious of the fact that the Foreign Exchange market moves in cycles.

Pairs that involve the pound sterling are suffering from the uncertainty that now surrounds the upcoming vote on Scottish independence. The long term trend for the pound and the fundamentals attaching to the United Kingdom economy all point to Sterling strength, but the currency is suffering at present. If the UK is no longer united after the referendum, then all bets are off. This is not a good backdrop for currency trading.

In the meantime, for a number of reasons, we believe that the Aussie dollar, in the form of AUDUSD, is on the cusp of a fall, and for this reason we have set the Mandelbrot routine to enter this to the downside in the event that it gets a signal.

Mario Draghi shocks the market

The ECB monetary policy statement and press conference yesterday took most commentators by surprise. Mario Draghi announced interest rate cuts across the board, and said that Quantitative Easing is about to start in the Eurozone. This accelerated the decline of the Single Currency.

Now the focus is on the other side of that pair, the US dollar, as today is Non-Farm Payroll day in the USA. The ADP employment report, which comes from a private firm and which attempts to anticipate the NFP outcome, indicated yesterday that job numbers were softer than expected and hoped for in August, and the July figures were revised downward. This does not auger well for the official figures today, but then the ADP reports are not always reliable as a leading indicator.

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