Something Interesting in Financial Video April 2016 - page 2
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Forum on trading, automated trading systems and testing trading strategies
Something Interesting in Financial Video September 2013
Sergey Golubev, 2013.09.19 08:00
120. Economic Releases that Move the US DollarAs you can probably imagine, we could spend many lessons and multiple hours going over each of the economic indicators that affect the price of the US Dollar. It is for this reason, that before getting into any of the actual indicators, I wanted to give everyone an overview of the broad things that move the market. As we have discussed in previous lessons the two broad categories that pretty much everything that moves the forex market fits into, are trade flows and capital flows, as covered in module 3 of this course.
Once you have an understanding of this, all that is necessary to understand how economic numbers move the dollar, is to understand which numbers are important to the market at the time, whether those numbers fit into the trade flows or capital flows category, and how they should affect the dollar as a result.
As we learned in module 8 of our basics of trading course, how the market reacts to economic releases is generally determined by two factors:
1. How important the market considers a particular release to be.
2. How close to market estimates the number comes in at. Remember that markets anticipate news, so generally if an economic release comes out as expected, there is very little if any market reaction to that release.
How important the market considers a particular economic release to be, is something that changes over time depending on what is happening from a US Dollar fundamentals standpoint. If there are worries that the economy is going into recession, then the market is going to be extra sensitive to any numbers, such as non farm payrolls and consumer spending, which may provide early warning signs that this is the case. Conversely, if the economy is heating up and the markets are worried that inflation may become a problem, then the most market moving numbers may be price data releases, such as the CPI and the PPI. For your reference, according to Dailyfx.com the most market moving indicators for 2007, in order of importance were:
1. Non Farm Payrolls
2. FOMC Releases
3. Retail Sales
4. ISM Manufacturing
5. Inflation
6. Producer Price Index
7. The Trade Balance
8. Existing Home Sales
9. Foreign Purchases of US Treasuries (TIC Data)
We have discussed most of these indicators already, and for those which we have not, a quick google search, and review of the indicator in the context of whether it fits into trade flows or capital flows, should answer the question of why they move the market.
Although I am probably a little biased since I used to work with the people who run the site, I am a very big fan of Dailyfx.com as the place where I go to find out what economic data is due for release, and for commentary on the number after the release. They have a great global calendar which you can find at the top of the site as well as tons of both technical and fundamental commentary on everything that affects the US Dollar and forex market in general.
For this lesson specifically, if you click the calendar button at the top of the site you will see they have all of the economic data releases from the major countries of the world with the time of the release, the previous number, the forecasted number and the actual number which is updated after the release. You will also notice here they have links for the more important numbers giving a definition of the release, the relative importance of the release, and the latest news release relating to that release.
If you click back to the homepage of the site you will see lots of fx related reports which the Dailyfx staff puts out throughout the day. Two of my favorite reports are the Daily Fundamental report by Kathy lien, and the US Open Market Points by Boris Schlossberg which you can find in the middle of the page.
As we discussed in module 8 of our basics of trading course, the best way to get a feel for how economic numbers affect the market, and which numbers are in focus, is to start following the market on a daily basis and seeing how it reacts to various news events. As this is the case, I highly recommend following the commentary on Dailyfx.com as well as the forex commentary on InformedTrades.com, and start putting your analysis to practice on your real time demo accounts. If you have not registered for a free realtime demo account I have included a link above this video where you can do so.
Forum on trading, automated trading systems and testing trading strategies
Something Interesting in Financial Video February 2014
Sergey Golubev, 2014.02.04 12:10
Currency Correlations, Part IA short video introducing traders to the subject of currency correlations.
Forum on trading, automated trading systems and testing trading strategies
Indicators: MFCS Currency Correlation Chart
Sergey Golubev, 2013.10.26 09:29
Currency Pairs Correlation in Forex Market: Cross Currency Pairs
As a forex trader, if you check several different currency pairs to find the trade setups, you should be aware of the currency pairs correlation, because of two main reasons:
1- You avoid taking the same position with several correlated currency pairs at the same time and so you do not multiply your risk. Additionally, you avoid taking the positions with the currency pairs that move against each other, at the same time. 2- If you know the currency pairs correlations, it may help you to predict the direction and movement of a currency pair, through the signals that you see on the other correlated currency pairs.
Now I explain how currency pairs correlation helps. Lets start with the 4 major currency pairs: EURUSD ; GBPUSD ; USDJPY and USDCHF.
In both of the first two currency pairs (EURUSD and GBPUSD), USD works as the money. As you know, the first currency in currency pairs is known as the commodity and the second one is the money. So when you buy EURUSD, it means you pay USD to buy Euro. In EURUSD and GBPUSD, the currency that works as the money is the same (USD). The commodity of these pairs are both related to two big European economies. These two currencies are highly connected and related to each other and in 99% of the cases they move on the same direction and form the same buy/sell signals. Just recently, because of the economy crisis, they moved a little differently but their main bias is still the same.
What does it mean? It means if EURUSD shows a buy signal, GBPUSD should also show a buy signal with minor differences in the strength and shape of the signal. If you analyze the market and you come to this conclusion that you should go short with EURUSD and at the same time you decided to go long with GBPUSD, it means something is wrong with your analysis and one of your analysis is wrong. So you should not take any position until you see the same signal in both of these pairs. Of course, when these pairs really show two different direction (which rarely happens), it will be a signal to trade EUR-GBP. I will tell you how.
Accordingly, USD-CHF and USDJPY behave so similar but not as similar as EURUSD and GBPUSD, because in USD-CHF and USDJPY, money is different. Swiss Franc and Japanese Yen have some similarities because both of them belong to oil consumer countries but the volume of industrial trades in Japan, makes JPY different.
Generally, when you analyze the four major currency pairs, if you see buy signals in EURUSD and GBPUSD, you should see sell signals in USDJPY. If you also see a sell signal in USD-CHF, then your analysis is more reliable. Otherwise, you have to revise and redo your analysis.
EURUSD, GBPUSD, AUDUSD, NZDUSD, GBPJPY, EURJPY, AUDJPY and NZDJPY usually have the same direction. Just their movement pattern sometimes becomes more similar to each other and sometimes less.
What do I prefer?
If I find a sell signal with EURUSD and GBPUSD and a buy signal with USDJPY, I prefer to take the short position with one of the EURUSD or GBPUSD because downward movements are usually stronger. I will not take the short position with EURUSD or GBPUSD and the long position with USDJPY at the same time, because if any of these positions goes against me, the other one will do the same. So I don’t double my risk by taking two opposite positions with two currency pairs that move against each other.
How to use the currency pairs correlation to predict the direction of the market?
When I have a signal with a pair, but I need confirmation to take the position, I refer to the correlated currency pairs or cross currency pairs and look for the confirmation. For example I see a MACD Divergence in USDCAD four hours chart but there is no close support breakout in USDCAD four hours or one hour chart. I want to take a short position but I just need a confirmation. If I wait for the confirmation, it can become too late and I may miss the chance. I check a correlated currency pair like USDSGD and if I see a support breakout in it, I take the short position with USDCAD. Now the question is why I don’t take the short position with USDSGD and I use its support breakout to go short with USDCAD? I do it because USDCAD movements are stronger and more profitable. I use USDSGD just as an indicator to trade USCAD.
It happens that you take a position with a currency pair, but it doesn’t work properly and you don’t know if it was a good decision or not. On the other hand, you don’t see any sharp signal on that currency pair to help you decide if you want to keep the position or close it. In such cases, you can check a correlated currency pair and look for a continuation or reversal signal. It helps you to decide about the position you have.
Sometimes, some correlated currency pairs don’t move in the way that they are supposed to move. For example EURUSD and USDJPY go up at the same time, whereas they usually move against each other. It can happen when Euro value goes up and USD value doesn’t have a significant change, but at the same time JPY value goes down, because of some reason. In these cases, you can use the below table to find and trade the currency pair that its movement is intensified by an unusual movement in two other currency pairs. In this example, if EURUSD and USDJPY go up at the same time, EURJPY will go up much stronger (see the below chart).
Or if EURUSD goes up and AUDUSD goes down at the same time, EUR-AUD goes up strongly.
Another important example: If EURUSD goes up and GBPUSD goes down at the same time, EURGBP goes up strongly. Maybe this is the most important case that we can trade based on this rule. It happens many times that EURUSD and GBPUSD move against each other and that is the best time to trade EURGBP. Now you know why EURGBP doesn’t move strongly most of the time. It is because EURUSD and GBPUSD move in the same direction most of the time. For example they go up at the same time and so EURGBP doesn’t show any significant movement because when both of the currencies of a currency pair go up or down at the same time, that currency pair doesn’t show any strong movement and direction (I hope you know why a currency pair goes up or down. It goes up when the first currency value goes up OR the second currency value goes down. For example EURUSD goes up, if Euro value goes up or USD value goes down. If this happens at the same time, then EURUSD goes up much stronger).
The below chart includes almost all of these unusual movements and their results on the third currency pair.
if EURUSD and USDJPY then EURJPY means if EURUSD and USDJPY go up at the same time, then EURJPY goes up much stronger.
Forum on trading, automated trading systems and testing trading strategies
Something Interesting in Financial Video February 2014
Sergey Golubev, 2014.02.04 12:14
Currency Correlations, Part II
The second video in a two-part series on currency correlations.
Forum on trading, automated trading systems and testing trading strategies
Indicators: MFCS Currency Correlation Chart
Sergey Golubev, 2014.02.04 08:27
Trade Gold Using Currency Correlations (based on dailyfx article)
Talking Points:
- Correlations are useful to find direction for a variety of markets.
- Gold and the AUDUSD have a positive correlation.
- Once direction is found, plan your trading strategy for another asset.
Understanding correlations is a great way for traders to form opinions on markets that they may previously not follow. The idea of a correlation is to take two seemingly different markets or assets and see how market price moves relative to each other. Today we will review using the AUDUSD currency pair to determine the direction of gold through the use of a correlation.Let’s get started!
Golds Correlation
When someone mentions Gold, the AUDUSD should immediately come to mind as a correlating asset. These assets are positively correlated, meaning they can be seen generally moving in the same direction. First this correlation works because both assets are priced in US Dollars. The AUD/USD pair represents Aussie Dollars priced in US Dollars. While gold is XAU/USD or gold priced in US Dollars per oz. When the US dollar gains strength, both assets tend to depreciate in value.
Secondly, the AUD has a high correlation to gold due to Australia’s extensive gold mining operations. As gold prices fluctuate, this increases or decreases the amount of funds transferred into AUD to make purchases of the metal. These transfers essentially change demand for the currency and can directly cause changes in the AUDUSD currency pair as well.
Trading the Correlation
The key to trading positively correlated assets, is finding a direction from one of the underlying assets before making a trading decision. If traders are seeing the AUDUSD push to lower lows, this could easily be the catalyst for a bearish bias on Gold. Conversely if gold is trending upwards, this can also be a signal of a new uptrend on the AUDUSD.
As you can see, this information is very useful to traders that have a general fundamental view of the market. If you have an opinion on Gold or the US Dollar this can be relayed into a trade idea. Often traders that are bullish on Gold choose to trade the AUDUSD instead of the metal itself. The Aussie Dollar carries a 2.50% banking rate, meaning traders can earn additional interest while executing a buy order on a positively correlated opinion of Gold. If a trader is bearish on the AUDUSD currency pair, traders can in turn sell gold to avoid accumulating interest on their trading balance.
Forum on trading, automated trading systems and testing trading strategies
Indicators: MFCS Currency Correlation Chart
Sergey Golubev, 2014.02.04 09:27
Australian Dollar Strongly Correlated to Gold, Silver, Steel Prices (based on this article)
View forex correlations to the SPDR Gold ETF Trust (GLD), United States Oil Fund ETF (USO), SPDR Dow Jones Industrial Average ETF Trust (DIA), UK FTSE 100 Index, and IShares Silver Trust ETF (SLV) prices:
XAUUSD/AUDUSD :
XAGUSD/EURUSD :
XAGUSD/USDCAD :