Forex Daily Review

Forex Daily Review: Austerity Measures are Questioned by Greek Court, NFP Strategy is for CAD/JPY

EUR/USD, Recent Weakness Explained

EUR/USD was the brightest star in yesterday's session following better-than-expected US data. However, as expressed in yesterday's market review the strong gains quickly evaporated in thin market conditions as euro-negative news from Greece resuscitated the elderly bears.

As I've repeatedly discussed throughout the past reviews the new austerity measures in the labour market may not pass the upcoming vote in Greece on 11 November due to the vast objection of the opposition. The recent privatization bill that was approved on Wednesday and scheduled to be voted on 11 November (Greece international creditors' demanded House vote) resulted in one PASOK member (MP Michalis Kassis) and a prominent official to quit the political party. The concern was regarding the sell-off of Greek ports and utilities. 17 PASOK members rejected the measures but the bill passed through a narrow vote. 11 November is therefore a significant day for global markets as should the House disapprove the new bill a strong sell-off will be seen across the leading European indices (DAX, CAC).

In the Forex market, the Euro is likely to be dumped by large traders in an attempt to flee the 'diseased' currency.

Greek Austerity Measures are Questioned by Greek Court

Recent weakness in Euro-dollar is as a result of a Greek court ruling that pension reforms demanded by Troika to ensure Greece will receive the next tranche of the bailout funds could be unconstitutional. If the new reforms are found to be against the Greek constitution a referendum will have to be made (as seen in Ireland with the Fiscal Compact Treaty) to ensure the new austerity measures are applied. Forex traders are well-aware the above, which is why we are seeing heavy selling EUR/USD early in the European session. I am reminding that there is a report that suggests a secret bailout package for Greece (said to range between €15 -30 billion) is being discussed by EU leaders. The new Greek bailout is said to be announced on 14 November but at the time of this writing it appears to me as a pure speculation.

German Government Press Conference and DNT Options in EUR/USD

Main focus will be on the German government press conference at 10:30am GMT. I am uncertain whether Greece will be mentioned by the press conference will be closely observed by investors and traders across the globe.

Market talks point to a 1.2880-1.3040 Double-No-Touch (DNT) option that is set to expire in today's NU cut and another at 1.2810-1.3240 on 9 November. Those price levels are likely to draw some attention and may be protected by the DNT holders. Expect a volatile session as near the US non-farm payrolls at 12:30om GMT.

Non-farm Payrolls Trading Strategy, CAD/JPY

CAD/JPY has maintained its bullish trend following strong JPY weakness. CAD/JPY technical analysis reveals the FX cross is due to correct lower. Overbought intraday indicators concrete my views for a bearish reversal as well as the Japanese reversal pattern, 'Hanging Man.' However, despite the expected weakness I will label the price action as corrective weakness before the resumption of the uptrend re-emerge from the weakness. There is fairly strong support at 80.04, which in my view should support any potential weakness and the bullish target for CAD/JPY trading strategy is seen at 80.90. The 55MA (in pink) may attempt a bullish cross with 200MA (in orange) if 80.04 holds, which reaffirms the bullish outlook for CAD/JPY.

The non-farm payrolls at 12:30pm GMT will be the focal point for CAD/JPY technical analysis. I will highlight that there is faint talk the previous figure for the non-farm payrolls may be revised higher but I base my analysis solely on the graph.

Forex Dealing Rates Table

A trader is allowed to view different instruments using the dealing rates table window, including current day high and low in single view. A trader can complete the same transactions in the same format as the dealing rates window.

Forex Trading Chart

Charts can be analyzed and altered by tabbing onto charts. You can see charts example and find a chart that suits you.

Important Forex Trading Terms

.Spread
The spread is the difference between the price that you can sell currency at (Bid) and the price you can buy currency at (Ask). The spread on majors is usually 3 pips under normal market conditions. For more information on the trading conditions at Saxo Bank, go to the Account Summary on your Client Station and open the section entitled “Trading Conditions” found in the top right-hand corner of the Account Summary.

.Pips
A pip is the smallest unit by which a cross price quote changes. When trading Forex you will often hear that there is a 3-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EURUSD is quoted at a bid price of 0.9875 and an ask price of 0.9878. The difference is USD 0.0003, which is equal to 3 “pips”.

On a contract or position, the value of a pip can easily be calculated. You know that the EURUSD is quoted with four decimals, so all you have to do is cancel out the four zeros on the amount you trade and you will have the value of one pip. Thus, on a EURUSD 100,000 contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen, because USDJPY is quoted with only two decimals.

Why Trade Forex?

.24 hour trading
One of the major advantages of trading Forex is the opportunity to trade 24 hours a day from Sunday evening (20:00 GMT) to Friday evening (22:00 GMT). This gives you a unique opportunity to react instantly to breaking news that is affecting the markets.

.Superior liquidity
The Forex market is so liquid that there are always buyers and sellers to trade with. The liquidity of this market, especially that of the major currencies, helps ensure price stability and narrow spreads. The liquidity comes mainly from banks that provide liquidity to investors, companies, institutions and other currency market players.

.No commissions
The fact that Forex is often traded without commissions makes it very attractive as an investment opportunity for investors who want to deal on a frequent basis.
Trading the “majors” is also cheaper than trading other cross because of the high level of liquidity. For more information on the trading conditions of Saxo Bank, go to the Account Summary on your SaxoTrader and open the section entitled “Trading Conditions” found in the top right-hand corner of the Account Summary.

.100:1 Leverage
Leverage (gearing) enables you to hold a position worth up to 100 times more than your margin deposit. For example, a USD 10,000 deposit can command positions of up to USD 1,000,000 through leverage. You can leverage the first USD 25,000 of your investment up to 100 times and additional collateral up to 50 times.

.Profit potential in falling markets
Since the market is constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. When you trade currencies, they literally work against each other. If the EURUSD declines, for example, it is because the US dollar gets stronger against the euro and vice versa. So, if you think the EURUSD will decline (that is, that the euro will weaken versus the dollar), you would sell EUR now and then later you buy euro back at a lower price. In case that the EURUSD indeed declines, then you can take your profit. The opposite trading scenario would occur if the EURUSD appreciates.

Trading on Margin

Trading on margin means that you can buy and sell assets that represent more value than the capital in your account. Forex trading is usually conducted with relatively small margin deposits. This is useful since it permits investors to exploit currency exchange rate fluctuations which tend to be very small. A margin of 1.0% means you can trade up to USD 1,000,000 even though you only have USD 10,000 in your account. A margin of 1% corresponds to a 100:1 leverage (or “gearing”). (Because USD 10,000 is 1% of USD 1,000,000.) Using this much leverage enables you to make profits very quickly, but there is also a greater risk of incurring large losses and even being completely wiped out. Therefore, it is inadvisable to maximise your leveraging as the risks can be very high. For more information on the trading conditions of Saxo Bank, go to the Account Summary on your SaxoTrader and open the section entitled “Trading Conditions” found in the top right-hand corner of the Account Summary.

Trading Forex

A currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a cross (for example, the euro/US dollar, or the GB pound/Japanese yen.). The most commonly traded currencies are the so-called “majors” – EURUSD, USDJPY, USDCHF and GBPUSD.

The most important Forex market is the spot market as it has the largest volume. The market is called the spot market because trades are settled immediately, or “on the spot”. In practice this means two banking days.