Stochastic is best technical indicator for sideway market
How many technical indicators you need in making a trading decision? Many traders fall victim to analysis paralysis and use too many indicators. What you need to do is master only these two indicators; The Stochastics and the MACD (Moving Average Convergence Divergence). Both are called oscillators as their values oscillates between two extremes!
Trending conditions in the market exist not more than 30-40% of the time. Rest of the time, the market is range bound or what you call consolidating. After a nice trending move, the market will move in a consolidation phase.
In choppy range bound market conditions, Stochastics is your best friend. And in a trending market conditions Moving Average Convergence Divergence (MACD) will give you solid trading signals.
Now, the myth that MACD is the best indicator out there may not be true. The reason being market conditions change and the people’s perception on an indicator’s given value. There is no holy grail in trading. Under certain market conditions, Stochastics maybe more useful as compared to MACD.
Stochastics is also known as a Momentum Indicator. This is a popular trading tool used to determine whether the market is in an overbought or an oversold condition.
Overbought means that the prices have advanced too far too soon and are due for a downside correction. On the other hand, oversold means that the prices have declined too far too soon and are due for an upside correction.
Stochastics used a mathematical formula that sows the location of the current close as compared to the high/low of the range over a certain period of time. Closing prices near the top of the range show that buying pressure and closing price near the bottom of the range show selling pressure.
Now Stochastics uses two line known as the %K and %D. These two lines are plotted on the chart for a given time period. The %D is the 3 period moving average of the %K line. Now %K is a ratio or percentage and fluctuates between 0 and 100. It is calculated with the formula that used the recent close, highest high and the lowest low.
Now the %K line is the faster line and will change direction as the %D line is just the moving average of the %K line. The general rule is the if the reading is over 80%, the market is overbought and ripe for a downside correction. And if the reading is below 20% on the chart, the market is oversold and ripe for bouncing down.
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EU Deal on Greece Offers No Support to the Euro
Over the weekend, in the single biggest bailout of a country ever, the EU along with the IMF agreed to provide Greece with a106 Billion euro loan package but the currency markets showed little enthusiasm for the deal as they opened for trade at the start of the week. After rallying to a high of 1.3360 in early Australian dealing, the euro tumbled for most of the Asian session hitting a low of 1.3206 before finally finding some support.
Despite the unified front from the EU Finance ministers regarding their commitment to the Greek rescue package the deal may have simply come too late as the damage in the credit markets has already been done. Furthermore the sheer size of the deal which tripled in a matter of weeks from 30 Billion euros to 106 Billion raised fresh concerns about the significant expansion of EU debt obligations. Certainly fallout from the Greek fiscal crisis will force the ECB to maintain a loose monetary policy for a longer period of time than the market had originally expected and such a dynamic will be a secular negative factor for the currency for the foreseeable future.
Nevertheless, today’s news has removed the risk of bankruptcy for Greece for the time being and the credit spreads have tightened with Greek bonds to German bunds trading at 610bp versus 630bp on Friday. Credit risk is likely to be the dominant driver of trade in the FX market for the next several weeks. If Greek yields compress further as bond traders gain more confidence in the deal the EUR/USD should firm up as focus turns to the more favorable micro economic news. If however, the austerity measures which are substantial, trigger more civil unrest in Greece and credit markets lose faith in the deal, the slide in the euro will resume with 1.3000 quickly coming into view.
In Asia today the PBOC raised its reserve requirement ratio for the third time this year. The official rate is now 17% for larger banks and 15% for smaller ones. As we wrote earlier, “Although the tightening moves by Chinese monetary authorities continue to be modest in nature they do suggest that Beijing is becoming increasingly concerned with the nascent inflationary pressures in the system. Therefore growth in China could be tempered as the year progresses – a factor that is sure to weigh negatively on the Australian dollar which has been the primary beneficiary of Chinese growth amongst the G-20 currencies.”
In North America trade, the focus will turn to the ISM Manufacturing data expected to rise to 60.0 from 59.6 the month prior. Given the steep improvement in Chicago PMI report chances are good that ISM could surprise to the upside. USD/JPY tread water most of the night at the 94.00 figure as the pair continues to consolidate its recent gains. This week could prove to be a pivotal week for USD/JPY which could make a run at the key 95.00 resistance level if the US economic data shows further strength into the NFP report on Friday.
Will PBOC’s RRR Hike Hurt Aussie?
PBOC continued to tighten its monetary policy by announcing yet another increase in its reserve ratio requirements by 50 basis points. The PBOC official reserve requirements will now rise to 17% for large banks and to 15% for smaller banks. This is the third such increase this year.
By raising the RRR instead of hiking interest rates or revaluing the yuan China has once again opted for a more moderate policy choice to control the budding inflationary pressures within its economy. Chinese growth continued to expand at a healthy pace in April with PMI rising to 55.7 from 55.1 in March. However many analysts have expressed concerns over the mounting bubble in the country’s real estate sector and today’s modest moves many not be enough to curtail the rising prices in housing.
Chinese policy makers are clearly walking a fine line by trying to curb real estate speculation while at the same time supporting economic growth. Chinese Finance Minister Xie Xuren reaffirmed his pledge to maintain a “moderately loose monetary policy” as he tried to reassure the markets that Chinese tightening will not crimp expansion going forward.
With most of Asia closed for May Day holiday, equity markets have not had a chance yet to respond to the latest PBOC policy action although currency markets sold off mildly on the initial reaction to the news. Although the tightening moves by Chinese monetary authorities continue to be modest in nature they do suggest that Beijing is becoming increasingly concerned with the nascent inflationary pressures in the system. Therefore growth in China could be tempered as the year progresses – a factor that is sure to weigh negatively on the Australian dollar which has been the primary beneficiary of Chinese growth amongst the G-20 currencies.
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GBP/AUD To Resume Downtrend at 1.6596?
A bearish Gartley pattern is currently forming on the GBP/AUD 4hr Chart below. The trade setup has excellent price symmetry. The trade still has to rise a little bit to enter, but looks good so far. At this point I would be surprised if the time symmetry didn’t end up working well. Also, the Weekly Chart trend line shows that the pair has been in a pretty clear downtrend, which also increases our chances.
We are looking to sell the GBP/AUD if it rises to 1.6596 (Point D). Point D is located at the convergence of the following points:
We will now go over what to watch for assuming the pair continues rising toward our entry at 1.6596. If the pair moves up rapidly and has long bars near point D, we will not enter the trade. Also, if the pair comes within 12 pips of reaching our entry, does not enter, and reaches 1.6530 before entering, the trade is invalid. The trade is also invalid if the pair falls below 1.6395 before hitting our entry.
To recap, we will look to sell the GBP/AUD at 1.6596 with our stop placed at 1.6636. Our initial profit target is 1.6536 (38.2% of CD).
Weekly Chart – Trade would enter near the bearish trend line.
2hr Chart – Bearish Gartley; sell at 1.6596.
U.S. Growth Slows in Q1, But Impact on USD Minimal
The U.S. economy expanded by 3.2 percent in the first quarter thanks to an acceleration in consumer spending. Unfortunately growth fell short of expectations and has slowed from the previous quarter, eliminating any dollar positive contributions from the report. Instead of rallying on a continuation in growth, the greenback weakened against the euro and Japanese Yen.
The slowdown in growth verifies the Federal Reserve's concerns that a sustained recovery is all but certain. At the same time, it is undeniable that the U.S. consumer is playing a larger role in the recovery. Personal consumption grew by 3.6 percent, the strongest pace since the first quarter of 2007. Therefore the drag on growth came primarily from a drop in trade activity and a pullback in government spending. Although the GDP Price index rose by 0.9 percent, core prices grew by only 0.6 percent, which indicates that inflation remains muted.
Bernanke may be skeptical about the pace of growth but as we have seen by the pickup in consumer confidence and spending, more Americans are beginning to believe that the recovery is sustainable and there is plenty of evidence that the U.S. economy has turned a corner. As long as job growth continues and non-farm payrolls remain positive, this sentiment should hold and risk appetite should continue to improve. The weaker GDP number will only deal a small blow to USD/JPY which will be more sensitive to the market's overall risk appetite.
Major Pair, Heading South or North
Risk FX continued its short covering rally on the last trading day of
the week as European officials assured the markets that the Greek
bailout deal would be completed shortly. Jose Barroso the European
Commission President said that he was confident the rescue package
would be ready ";in days."; As the result, EUR/USD rallied through the
1.3300 barrier in early morning European dealing.
With the unit now grossly oversold and economy data supportive some
light short covering could push it back above 1.3300 before the week's
end. Having reached the target the euro may now find some resistance
around the 1.3400 level but with the Greek crisis under control for
the time being, the single currency has lost much of its downside
momentum and may spend the next several weeks consolidating at these
levels unless currency traders see further turmoil in the credit
markets.
There were no surprises on the economic front with European
unemployment printing at 10% as expected while CPI reading rose to
1.5% – the highest level in nearly two years. Still the data had
little impact on the market and many analysts argue that as a result
of the massive rescue package for Greece, the ECB will have to
maintain a loose monetary policy irrespective of any price pressures
in the region. That factor could weigh negatively on the euro late
into the year if the Fed begins to tighten while Mr. Trichet and
company are forced to remain stationary. For now however, the unit
was befitting from the easing or risk aversion sentiment and appears
to have stabilized at these levels.
In UK, the focus will turn to politics as the election campaign enters
its final days. The strong performance of Tory leader David Cameron
in last night's final televised debate has turned the markets more
optimistic about the prospect of a Tory win. Even if Mr. Cameron is
forced to form a coalition government, Mr. Glegg has indicated that he
would be open to the idea of sharing power with the Tories, thus
lessening the chances of protracted political battle and a hung
Parliament.
The pound may rally to the 1.5500 level if polling continues to favor
Tories as campaigning enters its final days. Still as we noted
earlier, ";the euphoria over the pro-business Tories will last only as
long UK economic data continues to surprise to the upside. Any
slowdown in growth will revive concerns over the country's extremely
fragile fiscal condition and could trigger the type turmoil that we
are seeing in European credit markets.";
In North America today the market could see conflicting US economic
data with GDP missing slightly to the downside but the Chicago PMI
possibly beating its forecast. Overall US economic data continues to
show steady improvement and that fact is being reflected in USD/JPY
which has held the 94.00 level for the past several days and has burst
through 94.40 resistance in overnight trade. With BOJ officials
stating that the Japanese monetary will continue to remain stationary
and with Japanese economic data overnight relatively mixed, the 3
month LIBOR spread between US and Japanese rates continues to widen
out which is indicative of further upside in USD/JPY as 95.00 now
comes into view
- Barroso assures the market Germans will pass the Greek bailout deal
- UK election – Tories take the lead
- Asia up 1.2%, Europe up .4% as risk appetite returns
- OIl all the way back to $86/bbl
- Gold hitting new highs at $1174/oz.Overnight Eco
- AUD HIA New Home Sales 0.9% vs. -5.2%
- AUD Private Sector Credit
- JPY Manufacturing PMI 53.5 vs. 52.4
- JPY Household Spending4.4% vs. 0.7%
- JPY Tokyo Core CPI-1.9% vs .-2.0%
- JPY Unemployment Rate 5.0% vs. -4.9%
- JPY Prelim Industrial Production 0.3% vs. 0.9%
- JPY BoJ Rate Decision 10bp
- EUR Unemployment Rate 10.0%Event Risk on Tap
- CAD GDP expected at 0.5%
- CAD RMPI expected at 0.6%
- CAD IPPI expected at 0.3%
- USD Advance GDP expected at 3.4%
- USD Employment Cost Index expected at 0.6%
- USD Chicago PMI expected at 60.2
- USD Revised UoM Consumer Sentiment expected at 71.3Price Action
- USD/JPY rallies to 93.25 as risk flow return and BOJ remains still
- AUD/USD good housing data push it above .9300
- GBP/USD just below 1.5400 as market grapples with election news
- EUR/USD short covering continues as 1.3300 taken out to the upside
Taking Advantage From Forex Market Cycle
Forex Market moves in a fairly predictable cycle on a daily basis. It is as your local traffic, where you’ll have traffic jam during certain hours in a certain direction flow, and other hours at the opposite direction.
If we can predict market direction during this cycle, we will have an advantage that most traders don’t have.
It is like having local traffic radio on while driving, letting you know where are the accidents and delays, so that you can choose the least travelled road.
Market generally moves in the following manner:
02:00pm ~ 09:00pm PST Ranged market.
09:00pm ~ 11:00am PST Market prepares to breakout prior to London open
11:00pm ~ 12:15am PST Market reverses as Asian traders take profits
12:15am ~ 02:00am PST Market Trend Re-Establish in the direction of the Asian session
02:00am ~ 04:00am PST Market Trend Continuation
04:00am ~ 05:15am PST Market reverses as we see some profit taking
05:15am ~ 06:00am PST Market Trend Re-Establish
06:00am ~ 06:30am PST Market Minor Reversal
06:30am ~ 08:30am PST Market Trend Re-Establish and Continuation
08:30am ~ 09:30am PST Market Minor Reversal and profit taking
09:30am ~ 02:00pm PST Market Ranged Continuation
You can backtest this hours. Watch the price movement during those hours.
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Payrolls contest open for business
Guess the non-farm payrolls figure from this Friday, February 5 and you will win a luxurious ForexLive tee-shirt. The first person to choose a number (to the nearest thousand please. That’s the way the government reports it…) gets owner ship of that number.
Original post:
Payrolls contest open for business
White House sees FY 2010 budget deficit of $1.556 trln (pvs forecast $1.502 trln)
If you say the amount real quick, doesn’t sound so bad…….. FY 2011 $1.267 trln; 2012 $828 bln; 2013 $727 bln; 2014 $706 bln; 2015 $752 bln
Read more from the original source:
White House sees FY 2010 budget deficit of $1.556 trln (pvs forecast $1.502 trln)
Asian FX market wrap: quiet session consolidating Friday’s falls
Australian TD-MI measure of Australian inflation +2.6% YoY Noted RBA watcher thinks rate hike not a certainty Australian job ads -8% MoM, house price index +13.6% YoY Hometrack survey of UK house prices -0.8% YoY China manufacturing PMI in January down 0.8 to 55.6 Latest market positioning research suggests that EUR shorts at 16 month …
Excerpt from:
Asian FX market wrap: quiet session consolidating Friday’s falls
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