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Articles by Mark De La Paz

September 25th, 2014 @ 2:27 pm by Mark De La Paz

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The ECB’s failure to attract more interest in their recent Targeted LTRO, with 400 billion Euro’s on the offer a projected 150 billion uptake and an actual 82 billion borrowing from the banks has seen the Euro collapse on speculation that the ECB will now be forced to adopt real US style quantitative easing.  The continuing lack of inflationary pressure in the Euro area and a recognition of the weak credit conditions as evinced by the low uptake on TLTRO has been taken to suggest that we now need the firm hand of government to get things moving. So just as in the US, where the Fed has bought Treasuries expanding its balance sheet from $1 Trillion to $4 Trillion the last few years, or in Japan where the BoJ has been gobbling up JGB’s people are now thinking that Super Mario will turn into a pacman to eat up the bonds of Greece, Spain, Italy, and all the rest.

MetaTrader - FX Clearing 2

For the markets this has been a convenient excuse to take out 1.2788 the 61.8 Fib retracement level of the rally from 2012  and previous false breakout lows at 1.2745. Yet we are reminded of  how the market behaved on the Scottish referendum right after the news of a possible yes broke out we saw a sharp sell-off in GBPUSD only to spend the rest of the week until the actual vote unwinding the shorts and finally seeing a big rally before the actual vote. This time we will be looking at the ECB’s meeting next week as the key date to watch out for and much as it was with the Scottish vote we expect the ECB to say neigh, at least not just yet.

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September 24th, 2014 @ 1:52 pm by Mark De La Paz

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After spending much of the day in a consolidation, the pre New York open trade has seen a quick rally for the US dollar across the board taking even EURUSD to its key 61.8 Fib retracement support of the rally from 2012. At this point we will look forward to buying interest to develop from the said area given that previous EURUSD pullbacks also used this region  as a bounce off point.

EURUSDnWeekly

Up ahead we are looking at US New Home Sales to be the next market mover with consensus forecast at 0.43 Million but with a spotty performance falling short 4 out of the last 6 releases. Given the weakness that we saw from Existing Home Sales monday 5.05M against 5.21M consensus another poor read here could quickly put a 180 turn on the dollar rally.

 

US data

 

 

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September 23rd, 2014 @ 7:06 am by Mark De La Paz

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Equity markets took a hammering Monday from the open of Asia, to Europe, and all the way to New York trade to underscore our risk averse tone. For currencies this typically means a bias for risk aversion, stronger Yen and a stronger dollar, and with recent gains among the Yen pairs the possibility for a technical correction. Scanning through the pairs with JPY on the left hand side we are liking what we see for EURJPY. With a “Dark Cloud Cover” at the close of Friday the past week suggesting we are now ready to ease-off. Given that we have just about a third of average ranges we are looking for prices to drop to the 38.2 Fib retracement level at 139.14, incidentally also just around the previous daily highs. Statistically the projected lows go all the way down to 138.85 with an even better support / taget at the 138.50 region.

EURJPYnDaily

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September 22nd, 2014 @ 12:07 pm by Mark De La Paz

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Equity markets were broadly weaker in Asia and has been indecisive to bearish in Europe while currencies appear to be on a risk averse footing with the commodities taking the lead heading lower. Today’s calendar has been typical for a monday with little to speak off and the only note worthy events hardly had an impact. Of interest is a recognition on the importance of the US monetary policy to other regulators and market players with ECB Board Member Peter Praet suggesting that other central banks need to factor in the US’s move when making decisions. Whether he is jealous, sarcastic,or making excuses we don’t know but we should point out it takes chutzpah to increase money supply by more than a quarter of your GDP the way Bernanke and now Kuroda has done.

GBPUSDH4

For today’s big trade we still have our eyes on Cable which caught plenty unawares by the big sell-off Friday. Now that the tacticians have had their money pricing in the Scottish “No”, its time to look at the Fundamentals. Economic conditions remain hail and with the much lower Cable, down 5%  from the years highs, we could only look but up particularly as policy sentiment in the BoE continue to move the dial into the hawks favor.

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September 18th, 2014 @ 2:28 pm by Mark De La Paz

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Latest polling according to the UK Telegraph is showing a slight margin for the neighs on the Scottish referendum with about 8 percent undecided. Technically that’s a big enough number that the Yeas could still get their numbers. From a psychological standpoint however people who sit on the fence have a preference for the status quo, there is a fear of the unknown and an independent Scotland is a big uncertainty. Will have my pension tomorrow? Will social services continue as they are? Are my taxes going to rise. Against such concerns I would lean on the 8% going mostly the neighs direction. For a trade we should favor a quick surge for the British Pound though protecting against the downside will be difficult as a surprise yes could see dealers gapping the market down hitting stops at the worst possible price. For those preempting the buy side, go get some put options instead of hedging in the spot market.

 

Polls for the Scottish referendum continue to indicate a narrow lead for the No campaign. The last three polls to be released on the eve of the referendum suggested the following:

• Ipsos Mori: Yes 49%, No 51%

• YouGov: Yes 48%, No 52%

• Survation: Yes 47%, No 53%

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September 18th, 2014 @ 5:26 am by Mark De La Paz

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Markets reaction to prospects of a 3.75% Fed Fund rate by 2017 was a clear dollar rally with only Cable not showing that solid strong dollar real body. The implication of the majority’s expectations on rates is clear, we will see the Fed raising rates nearly every other meeting from the middle of 2015, thus markets excitement. MetaTrader - FX Clearing

But before people start buying the greenback by the boat load lets consider what else was said by the FOMC Chair Yellen. While indeed the FOMC admits the potential for a faster pace of tightening it is also worth mentioning that they recognize the difficulties involved in forecasting economic conditions, things on the ground could change,  after all economics is not a hard science of rules. As such we expect that markets strong dollar response may find it very difficult to get a follow through going.

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September 17th, 2014 @ 2:19 pm by Mark De La Paz

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Today’s FOMC meeting at 1800GMT is one that’s worth the wait and some burning of the midnight candle. The Fed is on track to stop its bond buying program by October, aka quantitative easing and we recall the previous talk of perhaps raising rates as early as 6 months after which would mean the second quarter of 2015 though this view has long been rescinded by the phrase “considerable time”. So what exactly will the Fed be doing? The answer is no one can really be sure right now but what makes this FOMC meeting more special than usual is that we have the release of the FOMC Economic Projections allowing us to get a feel for the policy environment they expect to face six months on.

So what could drive the markets? Watch out for three things.

1) A deflationary environment, ie inflation expectations putting CPI at barely above zero could see traders discounting a prolonged low interest rate regime.

2) Labor market forecast, true that the recent NFP numbers were a disappointment and yet historically reads greater than beyond 100K have been seen as good for the US dollar.  Another six months of a 150K read in NFP would mean almost a million new jobs created during period, should the Fed predict a tight labor market you have argument for a tightening sooner rather than later.

3) And last but not the least do we keep the phrase “considerable time” in the Fed statement as a removal of this tonight would signal a bias to tighten which markets will likely price in giving us a stronger dollar.

Note, its always possible for the Fed to rephrase the words which should mean knee jerk dollar strength may not last.

 

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September 16th, 2014 @ 11:00 am by Mark De La Paz

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With currency markets getting know where thus far, a Bloomberg report has us feeling buoyant as the information asymmetry between big institutions and the retail trader is about to get narrower. With all the investigations going about their practices in different jurisdictions it appears Tier 1 market makers, they who make the prices, are putting some curbs on the information and client abuse the buy side of the market has been getting.  Of course this doesn’t mean that dealers will be unable to do some stop hunting or price fixing but these preemptive measures should make it a slightly more uncertain environment for a dealer put to fatten their bonuses.

 

Biggest Banks Said to Overhaul FX Trading After Scandals

The world’s biggest banks are overhauling how they trade currencies to regain the trust of customers and preempt regulators’ efforts to force changes on an industry tarnished by allegations of manipulation.

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