How to Trade the AUD in the Upcoming Days?

Since the beginning of 2018, the Australian dollar has depreciated by 6-8% against major counterparts. The currency keeps depreciating and traders are more and more curious about the future tendency.

The analysis of the Commodity Futures Trading Commission (CFTC) displays the net short positioning of the AUD. And it’s clear that shorts of the AUD prevail.

AUD/USD

What factors pull the AUD down?

The first and the major reason of the AUD weakness is trade wars. First of all, the Australian dollar is considered as the risky currency. Traders will never invest in such currencies in times of uncertainties. Secondly, the trade war affects the Chinese economy. China is the main trade partner of Australia. Problems in the Chinese economy will affect the trade relations between these two countries.

Furthermore, a risk-off sentiment that pulls the Asian stock market down affects the currency a lot. Any volatility on the stock market is reflected in the depreciation of the currency.

The second reason is the policy of the Reserve Bank of Australia. According to the central bank, the declining Aussie helps improve economic growth, hiring, and wages. Therefore, the rate hike is planned not earlier than in 2019.

The third reason is economic data that are highly volatile and differ from time to time. For example, the last jobs data that were released on October 18 were mixed, as a result, the AUD fell.

What can change the Australian downtrend?

It’s early to talk about the strengthening of the AUD because up to now, there are no crucial fundamental factors that may become drivers for the Australian currency.

If only the USD plunges significantly, the AUD will get a chance to turn the situation in its favor. Moreover, an improvement in the trade disputes may boost the Australian currency.  However, there are no clues that these factors will occur soon.

Let’s have a look at the short-term trading

AUD/USD

Although the pair keeps trading within the downward channel, it doesn’t mean that the AUD won’t have a chance to rise within the channel.

Events to take into consideration:

AUD:

Oct. 31: CPI, Trimmed Mean CPI

USD:

Oct. 30: CB Consumer Confidence

Moreover, a relief in political and trade issues may improve the investors’ sentiment.

Up to now, the pair has been moving down, however, it still has a long way to the next support. If the pair gains a foothold below 0.7041, it will provoke a further fall to 0.6938. Technical indicators don’t signal an upward move, however, as soon as RSI is below 30 level and the parabolic SAR forms 3 dots above the price, the pair will get a chance to turn around. In the case of positive economic figures and market sentiment, this chance will appear sooner. The important resistance is at 0.7150. The next resistance will lie at 0.7220.

AUD/USD Daily Chart
AUD/USD Daily Chart

Making a conclusion, we can say that the AUD/USD pair is anticipated to trade within the downward channel, as there are no boosters to break this negative trend for the AUD. However, even within the channel, the pair may move up in case of positive economic data and the development in the market risk sentiment.

How to Trade the CAD Ahead of the BOC Meeting?

Traders like central bank meetings as they drive markets a lot. It doesn’t matter whether it is a rate hike or just clues on the economic conditions, the currency suffers a high volatility. The Bank of Canada will release the interest rate on October 24. The market is looking for the rate hike. As a result, the Canadian dollar is anticipated to appreciate against other currencies. Let’s consider currency pairs that will be affected by the decision of the BOC the most.

USD/CAD

It is logical to start with the USD/CAD pair.  Last week, the Canadian dollar suffered because of the negative figures of two the most important indicators such as CPI (consumer price index) that reflects the inflation level and core retail sales data. However, the rate hike may support the CAD.

How to trade the pair?

On Tuesday, USD/CAD keeps rising. But ahead of the rate hike, the CAD will be able to recover and the pair may break the support at 1.3050 (100-day MA). The next the support is at 1.3014.

One small tip: as traders are sure that the BOC will increase the interest rate, this decision will be priced in. So be ready, that after the release, the CAD will weaken. Don’t try to catch a signal to sell after the BOC decision.

But what if the BOC doesn’t raise the interest rate?

This scenario is unlikely, however, traders should be ready for any possibilities. In this case, the CAD won’t avoid a great plunge. As a result, the pair will rise significantly. The USD/CAD pair will appear above the trendline at 1.3117. The next resistance will be at 1.3185.

USD/CAD Daily Chart
USD/CAD Daily Chart

GBP/CAD

The British pound is under big pressure as the Brexit deal is far from its logical end. At the beginning of the week, the British currency plunged because of the risks that Theresa May could face a vote of no confidence.  Up to now, the GBP has been recovering, pushing the GBP/CAD pair up.

On Wednesday, we can anticipate a fall of the pair as the traders will buy the Canadian dollar. Important support levels will lie at 1.6929 and 1.6863. After the release of the rate, we can anticipate that the pair will keep trading within the horizontal channel of 1.6988-1.7088, as MAs are moving in the horizontal channel and the RSI indicator is between 30 and 70 levels.

What if there is no hike?

A cancellation of the rate hike will boost the pair up. As a result, GBP/CAD will be able to break the resistance at 1.7088 (pivot point and 100-day MA) and move further up to 1.7213.

GBP/CAD Daily Chart
GBP/CAD Daily Chart

EUR/CAD

The EUR is still under threat because of Italy’s budget issue. The level of debt overcomes the European Union limit more than twice. Italy has already denied compromising on its economic targets. However, the EU won’t be happy with this budget prospects as well. As a result, risks of the prolonged discussions are increasing.

EUR/CAD has been trying to recover. However, the rate hike will pull the pair down. The first support is at 1.4961. After the interest rate is released, the pair may recover. The market is waiting for the comments from the ECB on Thursday. If traders are satisfied with the mood of the central bank, the euro will recover. The pair will continue trading within the channel of 1.4961-1.5125.

What if the BOC changes its decision?

The pair will move directly to the resistance at 1.5125.

EUR/CAD Daily Chart
EUR/CAD Daily Chart

Making a conclusion, we can say that if the BOC satisfies the market expectations, the CAD will rise and as a result, all three pairs will move in the favor of the Canadian dollar. If the BOC surprises with the cancellation of the rate hike (that is unlikely), the CAD will plunge.

The History of Forex

To understand how Forex market works, we need to define “international monetary system”.

An international monetary system is sets of internationally agreed rules that state how currency relations are organized within the international economy. It consists of six parts. They are:

  • International payment systems.
  • The mechanism for establishing and maintaining exchange rates.
  • The procedure for balancing international payments.
  • Terms of convertibility of currencies.
  • Mode of operation of foreign exchange and gold markets.
  • Rights and duties of intergovernmental institutions, that regulate currency relations.

Until the nineteenth century, there was no formal monetary system for the major global economies (back then they were Europe, the Americas, China, and India). Six parts of the system – that were mentioned above – had not existed yet. The development of the official international monetary system started in 1867. That year the first international monetary conference was held in Paris.

The “gold standard”

Gold played the main role in the international monetary system. The British Empire, which was one of the world’s main economies, fixed the pound’s exchange rate to gold. The government agreed to buy or sell an ounce of gold for 4.247 pounds sterling. After that, the gold standard was established by the USA (an ounce of gold was equal to $20.67), then countries of the West Europe and Russia in 1897.

Advantages

  • Lack of rates volatility.
  • Low inflation.

Disadvantages

  • Inability to have an independent national monetary policy.
  • The tight correlation between the volume of money and production of gold (new gold deposits led to inflation, while the shortage of gold production led to a deficit of money).
  • The gold standard ended at the beginning of World War I because governments decided to print more paper money to finance their huge military expenses.

Between the two World Wars

The second period of the international monetary policy started in 1922 in Genoa. The winners of the World War one got advantages for their national currencies.

At the basis of the new system was gold and the major currencies – of the US, France, and Britain – that converted to gold. National currencies became the international mediums of payments and reserves. This let them overcome the limitations of the gold standard. At the same time, the international monetary system became dependent on the economic health of the mentioned countries.

Gold parities were kept. The exchange of currency for gold could be made both directly (currencies of the US, France and Great Britain), and through foreign currencies.

Advantages

  • National currencies were used as an international payment-reserve instrument. The limitations related to gold standard were removed.
  • The regime of freely floating exchange rates was recovered.
  • The regulation of exchange rates became the new element of the world’s financial system and was held in form of international conferences and meetings.

Disadvantages

  • The international monetary policy depended on national economies.
  • The system created conditions for currency wars and devaluations.

The Genoa system was crashed by the Great Depression of 1929-1933. Firstly, the US dollar suffered and then the crisis spread to other economies.

Bretton Woods system

The next important step in the history of the international monetary policy started in 1944 in Bretton Woods.

The main idea of the Bretton Woods system contained in the dual provision of paper money – by dollar and gold. Countries fixed national currencies to the US dollar. The dollar was converted to gold at a fixed rate of $35 per ounce.

The US dollar was the major reserve and reference currency. Participating countries had to hold their currency rates to the dollar at the constant level. Deviation could be no more than 1%. The International Monetary Fund was launched to control this system.

Advantages

  • During this period the world economy was developing fast.
  • Inflation was low.
  • The unemployment rate decreased.

Disadvantages

Labor productivity in the USA was lower than in Japan and Europe, it caused the rise of the European and Japanese export to the US. As a result, there was a huge amount of dollars in Western Europe, and banks invested these dollars in the US treasury securities. The external debt of the USA had risen.

Moreover, some European central banks requested to exchange their dollars for gold, so the US gold reserves started decreasing. The exchange of dollars to gold was officially stopped in 1971.

The US dollar was devalued twice – in 1971 and 1973 – when the contents of gold were decreased. So, the system died.

Jamaican system

The fourth period started in 1976 in Kingston (Jamaica). Countries got an opportunity to choose any exchange rate regime they want. Currency relations between countries become found on the floating exchange rates. Exchange rates are defined by market forces – demand and supply.

The volatility of currency rates depends on two factors:

  1. Supply/demand of national currencies on the international market
  2. Real value ratios, the purchasing power of domestic currencies at international markets

Demand for foreign currency depends on the country’s import, tourists spending, and external payments. The size of the supply of foreign currency is defined by the volume of export and received loans.

The supply of the US dollar and gold – the main reserve assets – wasn’t able to catch up with the rapid growth of global trade and financial transactions. As a result, a new reserve asset was specifically designed and got the name “Special Drawing Rights” (SDR). SDR is an artificial reserve and international payment instrument issued by the International Monetary Fund. Special Drawing Rights are evaluated on a base of the currency basket. The basket consists of the US dollar, the euro, the Japanese yen, the pound sterling and the Chinese yuan (since 2016). The IMF uses SDRs for internal accounting purposes. The Fund allocates SDRs to the member states and they are backed by the full faith and credit of governments.

Making a conclusion, we can say that Forex has a long history. Although some scientists consider currency exchange since the period of 17000-9000BC, a more complex international monetary system exists since 1867. There were four main periods in the Forex history: “gold standard”, “gold exchange standard”, “Bretton Woods system” and “Jamaican system”. The developing of technologies and the expansion of digital currencies can lead to the change of the system soon.

Will Oil Reach $100?

It seems like you just recently looked at the oil market and was sure about the further direction of prices but something has changed again.

At the beginning of October, two major oil benchmarks reached highs of November 2014. Some traders believe that it’s a strong signal of the further rally and we should eye the price of $100 per barrel. However, there are big doubts that this level is reachable.

$100/barrel – is it real?

  1. Supply threat.

We get more and more news on the tightening oil supply. Let me remind that the US sanctions on Iran will come into force on November 4. Although the sanctions have been discussing for a long time and it seems that risks are already priced in, there is an opinion that after the sanctions are imposed, the effect of them will be even worse for the market.

Another important moment that is taken into consideration is a continuing turmoil in Venezuelan and Libyan production.

And of course, we shouldn’t forget about current events that create a volatility on the market. The conflict between the US and Saudi Arabia is escalating. The US accuses Saudi Arabia of the disappearance of the journalist Jamal Khashoggi. Mr. Trump is ready to put “punishments” on Saudi Arabia if there is any approval that he was killed in Saudi Arabia. Vice versa, Saudi Arabia is ready to retaliate.

All these factors are supposed to pull the oil prices up. However, the situation is uncertain. First of all, don’t forget about the “price in” point. Venezuelan and Libyan production is under the threat for a long time. Iranian deal is under the deliberate attention of traders for long as well. It’s known that the Iranian supply has declined significantly but there is also a possibility that it will be able to recover. First of all, such huge importer of Iranian oil as India is going to keep consuming oil from Iran. Secondly, Iran announced that has already found new buyers for its oil. It means that the cut of the Iranian production maybe be not as hurtful as the market anticipates. Such conflicts as the one between the US and Saudi Arabia definitely create a market volatility and the final effect on the market will be known only after the conflict resolution. Up to now, the conflict between the US and the Kingdom of Saudi Arabia didn’t pull oil prices high significantly.

  1. Spare oil capacity.

Some analysts say that a tough supply (caused by the political conflicts) will limit the capacity that is used in case of a crisis. It may be a reasonable argument because there is no accurate data about the spare capacity. As a result, there are worries that the increased oil output will cover just lack of the supply and there will be nothing for the spare capacity. However, there is always a chance to increase the oil production of OPEC and non-OPEC countries.

  1. Again we are turning to the demand issue.

The International Energy Agency and OPEC cut their forecast for the oil global demand in 2018 and 2019. The decline in the forecast was caused by the weaker outlook on the global economy, trade wars, and higher prices of oil. It’s a big risk for the oil market as Russia and Saudi Arabia agreed on the increase of the oil output. So rising supply and falling demand is a negative driver for oil prices.

  1. The most important factor that will affect the oil prices is the market sentiment and aims of the giant oil producers.

Let’s have a look at comments of the Russian Energy Minister Mr. Novak said that a recent rise of oil prices is just temporary and was mainly caused by sanctions. In the long-term, prices are supposed to be around $50 per barrel. An interesting comment. Previously we also could read comments from Russia that oil prices at $70-80 per barrel are the desired level. No words about $100.

Brent Oil Monthly
Brent Oil Monthly

Making a conclusion, we can say that according to all points mentioned above in the middle term the prices may be pulled to $100 if there is a crucial fall in the supply. However, a chance that the prices will gain a foothold at that level is small. So in the long-term, the prices at the level of $100 are unlikely because even giant producers are not interested in them.

This article was written by Daria Bobrova, a senior analyst at FBS

The Most Important Events to Trade On

All economic data releases are gathered in the economic calendar. There are many different economic indicators there, so if you are a beginner trader, you won’t know where to look first. Don’t worry though! We chose the most significant events that you should definitely follow to predict the behavior of currency pairs you trade.

We offer to start with central banks’ meetings. Meetings are important not only because a central bank announces the interest rate, but also as it gives clues on the future of monetary policy.

An increase in the interest rate is supposed to pull the currency up. Alternatively, a decrease is seen as a bearish, i.e. a negative sign. If a central bank doesn’t change the rate, it may be either bearish or bullish depending on the market’s sentiment.

During the meeting, the central bank often presents its outlook on current and future economic conditions. If the bank sees them as encouraging, traders will expect future rate hikes and, as a result, a stronger currency. Vice versa, a weaker economic outlook will make traders sell a currency. Moreover, both the interest rate and economic outlook should be taken into consideration.

Let’s look at an example of the correlation between the central bank’s meeting and the currency’s movement.

On May 10, 2018, the Reserve Bank of New Zealand kept the interest rate on hold. Its decision should not have affected the currency a lot, as the market was ready for it. However, the central bank’s speech was dovish – the inflation target was lowered and the current inflation outlook was negative. As a result, the New Zealand dollar fell a lot against the USD.

Let’s turn to economic indicators.

GDP. GDP or Gross Domestic Product can be called the most important indicator of a country’s economic health and the broadest measure of an economic activity.

It is worth noting that in many advanced economies there are three versions of the GDP release – advanced, preliminary and final. An advanced GDP moves the market the most.

Any increases in GDP growth leads to an increase of a currency’s exchange rate. Vice versa, if the GDP data is weaker than anticipated, a currency will fall.

CPI. CPI or consumer price index represents average prices paid by consumers for a basket of market goods. As a result, changes of this index identify periods of inflation and deflation. Moreover, the data displays how effective the government’s economic policy is. There are two types of CPI: CPI and Core CPI (excludes the volatile energy and food prices) that are published at the same time. Traders pay a higher attention to the CPI data.

As you know, the interest rate of a central bank depends on economic growth and inflation. That is why central banks pay great attention to CPI releases. If the CPI growth is close to the inflation target of a country or higher, a central bank will likely lift up its rate and a currency will rise as well. Alternatively, a currency will depreciate.

PMI. As we talked about GDP, it is worth mentioning PMI. PMI or Purchasing Managers’ Index is an indicator that measures the economic health of the manufacturing sector. The aim of the Index is to provide information about the current business conditions to analysts, purchasing managers, decision makers. Furthermore, it is used as a leading indicator of GDP growth or decline. Moreover, central banks use these data when formulating monetary policy.

If a PMI goes down in a given country, investors may expect a dovish mood of a central bank. Moreover, they may reduce their exposure to the country’s equity markets and increase it into other countries’ equities with rising PMI reading.

NFP. NFP or Nonfarm Payrolls is an economic indicator that displays the change in the number of employed people in the United States during a previous month, but it excludes the farming industry. The indicator is highly important as it gives clues on consumer spending that accounts for a majority of overall economic activity. A higher NFP signals healthier and more robust economic growth. Lower NFP points at a weaker economy. As a result, the US dollar falls. It is released on the first Friday of a month and causes great moves in the Forex market as the USD is a part of many popular currency pairs.

If the actual figure of the payrolls is as it was predicted, the USD movement will depend on the additional data such as the unemployment rate and average hourly earnings. The latter is a measure of inflation and has a big impact on the policy of the US central bank, so its role is becoming more and more important.

We presented the most important events that will give you chances to boost your profit. Follow economic calendar’s events and market’s movements, build your own trading strategy based on these events and earn more!

This article was written by Daria Bobrova, a senior analyst at FBS

Keeping Trades over the Weekend: Your Chance or Failure?

Trading over the weekend is a big dilemma. On the one hand, you may suffer big losses, if the market is shocked by the unexpected news that you couldn’t take into consideration before weekends. On the other hand, you may close trading before the weekend and lose an opportunity to have a profitable trade. Imagine that after the weekend the price continues moving your way, but there is no longer point to enter this trade and as a good entry point is lost.

So, should you keep a trade open over the weekend? If you expect an accurate answer, you won’t find it here. There are many factors that you will have to take into consideration before keeping the trading open.

  1. Timeframes

If you read our previous articles, you could notice that timeframes play an important role in different trading issues. And this case isn’t an exception.

If you are a long-term trader, you keep your positions open during weeks and months, this issue isn’t for you. Any temporary volatility won’t affect your trading. If you are a day trader, your trades last from several minutes to several hours, this question isn’t for you as well. You will consider keeping trades open over a weekend if you are a swing trader who has one trade last for up to several days.

To keep the trading over the weekend, be sure you trade on the right timeframe. H4, daily timeframes may provide you with this opportunity.

  1. Risk/Reward Ratio

Always take into consideration the risk/reward ratio (how much you can afford to lose relative to your potential gain). The optimal risk/reward ratio is 1:3. It means that the potential profit is 3 times higher than the possible losses. Be sure that even if the trading will go against you after the weekend, you will have a safety mechanism in place.

  1. News

Even if you don’t believe in fundamental analysis, it’s worth checking events that may happen on the weekend. If such important events as Brexit negotiations, Trump’s speeches, NAFTA negotiations, etc are planned on the weekend, it’s wise to think about closing the trades. You never know what news will be out and how the market will react to it.

  1. Trading Diary

Let’s imagine you tried keeping the trade open over the weekend and you lost. Is it a reason not to try it ever again? Of course not. Make a rule of recording your trades. By doing this, you will be able to track all your profits and losses. It will be easier for you to create your own trading strategy that will lead you to success.

  1. Calmness

There’s one important thing that relates not to the market but to your personality. Imagine you have an open trade over the weekend, you don’t know what news might be released and what mood the market will have on Monday. Are you ready to be stressed over the weekend and wait in a sweat for Monday? If not, better save your nerves and start trading with a clear head on Monday morning. If you are self-confident and risky, trading over the weekend will be just another interesting challenge for you.

Consider your personal qualities and be sure the weekend won’t become a horror for you.

Making a conclusion, we can say that it’s only your decision whether to keep trades open over the weekend and either expect a bigger profit or stay calm and limit your possibilities. When this question comes to your mind, check all the points we mentioned above and your decision will become easier.

The CNH: Any Chances to Recover?

Asian currency market suffers tough times. Trade war tensions that started in January 2018 are supposed to keep going. The US and China are two major players in the tariff game. While this game seems to be positive for the US dollar, the Chinese yuan is loosing.

The depreciation of the CNH is enormous. Since the beginning of 2018, USD/CNH has surged from levels near 6.26 to 6.90. Is it the endpoint? Unlikely. The leading world banks came to the conclusion that the CNH traders should expect more difficult months for the currency.

The main reason that made the banks decrease their forecasts on the CNH’s rate is the trade war’s impact. According to the economic data, in the first half of 2018 China suffered the first current account deficit in 20 years. China also got the first quarterly current account deficit in 17 years. As a result, experts predict a narrowing surplus or more frequent current account deficits in the future. It’s highly possible as the US is going to keep rolling out tariffs on Chinese goods.

On September 24, the US imposed $200 billion worth tariffs (additionally to $50 billion worth tariffs imposed earlier this year). The levied duty is 10%, however, it’s anticipated to increase to 25% at the beginning of 2019. Even though China may retaliate with additional tariffs, the situation will just worsen.

Another important reason is the gap between the US interest rate and Chinese interest rate. The Federal Reserve has already raised the interest rate three times this year and is anticipated to do it once again in December. At the same time, the People’s Bank of China is expected to keep the interest rate on hold. Leading financial institutions assume that China will sacrifice the price of the Chinese yuan to support the economy.

JPMorgan was one of the first banks who cut its forecast for the Chinese yuan. They think that the People’s Bank of China may hold a looser monetary policy that is anticipated to support the economy without an intervention in the yuan’s rate. As a result, the central bank may let the currency slide further. JPMorgan sees the USD/CNH at 7.01 by the end of December. The first half of 2019 will bring the pair to 7.19 (versus the previous forecast of 7.02).

Deutsche Bank AG considers the same reasons for the yuan’s decline. Bank’s experts see the worst scenario for the yuan in the next year. USD/CNH is expected to climb to 7.4.

Bank of America Merrill Lynch agreed with others and downgraded its forecast for the Chinese currency. The new forecast for the USD/CNH is 7.05 in the first quarter of 2019 (6.90 previously) and 7.10 (versus 6.85) in the second quarter. Moreover, talking about the current situation, the bank anticipates that the yuan will plunge by 2.5% by the next quarter.

However, not all experts are so pessimistic about the Chinese currency. According to the Bloomberg survey, there are analysts that predict the strengthening of the CNH and fall of the USD/CNH pair to 6.70 by the end of next year.

Who is more correct about the future of the CNH? Let’s have a look at the current situation.

On the weekly chart, we can see that the USD/CNH pair is trading at the highs of May 2017. The crucial resistance is at 6.9875 (the highest level since the beginning of 2017). In case the pair breaks above this level, there will be no doubts that it will surge further.

USD/CNH Weekly Chart
USD/CNH Weekly Chart

Making a conclusion, we can say that the yuan is under big pressure. Most of the experts predict the significant plunge of the Chinese currency. As the trade war is anticipated to escalate further, the Chinese economy and currency will suffer a lot. If only Mr. Trump changes its policy towards China, the CNH will be able to recover.

This article was written by Daria Bobrova, a senior analyst at FBS

Is NZD/USD in the Horizontal Channel?

NAFTA, Brexit, worries around Italy took all attention of traders. However, it’s always worth to take into consideration other currencies that can offer good opportunities to make a profit.

Let’s dive into NZD trading.

The downtrend of the NZD/USD started in the middle of April and had been continuing until the middle of August. However, moves of the past recent weeks signal the forming of the horizontal channel. Does it mean that the NZD got chances to recover or it’s fake signs?

A relief for the NZD?

Last week differed with the big amount of economic news that didn’t let traders invest in the risky assets. NAFTA negotiations, Italian budget, Brexit deal had been putting pressure on markets. As a result, the NZD couldn’t stick at good highs. Moreover, the USD was supported by the rate hike. Although the market anticipated an increase in the rate that didn’t push the USD to significant highs, at least, this decision helped the US dollar to become stable.

Up to date, the NAFTA deal that had been threatening traders in past weeks ended successfully. The US, Mexico, and Canada came to an agreement and formed United States-Mexico-Canada agreement (USMCA). It seems that the Brexit deal is closer and closer to the end.  The fewer worries, the more chances for the risky assets. However, the NZD/USD pair doesn’t look strong.

Firstly, the market is still under pressure because of the Italian budget issue. Risk won’t let traders invest in the NZD. Secondly, the lack of the New Zealand economic data and the big amount of the US data gives positive signals for the USD and negative for the NZD.

Does it mean that the trading in the channel is fake and the downtrend will be resumed?

What about the technical side?

On the weekly chart, the Relative Strength Index has been moving within 30-70 levels. If only the pair is able to break one of these levels, the pair will show significant moves. Otherwise, the consolidation is anticipated. The MACD indicator doesn’t give signs of the strong moves as well. Moving Averages are going in the horizontal direction that is an additional sign of the pair’s consolidation.
As a result, in the middle term, the pair is anticipated to trade within 0.65-0.6720 channel. If only the USD is able to surge to previous highs (breaking news), the pair will fall below 0.65. The break below the support at 0.65 will be a crucial moment for the pair. The further fall to 0.6265 will be likely.

NZD/USD Weekly Chart
NZD/USD Weekly Chart

Making a conclusion, we can say that there are no significant drivers for the NZD. However, according to the technical side, there are chances that the currency will be able to stick within the horizontal channel. If only the USD surges crucially, the NZD/USD pair will plunge. Otherwise, we still anticipate the trading in the channel.

This article was written by Daria Bobrova, a senior analyst at FBS

Words Every Trader Should Know

Bear or bearish

A “bear” is a trader who believes that a price of a currency pair will move downwards. The strategy of such trader is to sell this pair or any other instrument. Why bear? Imagine an angry bear that leans on the price chart with its paws and pulls it down. The adjective “bearish” can refer to a declining trend.

Bull or bullish

A “bull” is an opposite of a bear. It’s a nickname of traders who believe that a price of an asset will rise. The term is based on the idea of a bull that raises an asset with its horns. There’s also a word “bullish”: an uptrend is called a bullish trend.

Bretton Woods system

This is an international monetary system started in 1944 in a place called Bretton Woods. It replaced the previous financial system based on the gold standard. The main idea of the Bretton Woods system is that the US dollar played the main role in the world finance. It was converted to gold at a fixed rate of $35 per ounce. Other national currencies were fixed to the USD. The International Monetary Fund was launched to control this system. You can still come across the name “Bretton Woods” when you read articles about currencies. Simply remember that it is the synonym of the US dollar’s hegemony.

Central bank

A central bank is an independent national authority that is in charge of a country’s currency, money supply, and interest rates. This institution conducts monetary policy, regulates commercial banks and provides financial services. The main goals of a central bank are to stabilize the domestic currency and support economic growth.

Central bank intervention

Sometimes a central bank needs to influence exchange rates by buying or selling currency in the Forex market. Usually, that happens when its national currency either rises too high and too fast or, on the contrary, when it collapses.

There are two kinds of interventions:

A central bank tries to weaken a domestic currency by purchasing a foreign currency. This way is used if the central bank wants to support exports.

A central bank wants to strengthen a domestic currency by selling a foreign currency in the market. As a result, domestic customers will pay less for imported good.

When a central bank intervenes, the Forex market usually reacts with big swings. That’s why traders have to be aware of risks related to central banks’ currency interventions.

Cheap money

This is the name of a monetary policy when a central bank sets low-interest rates. As a result, credits become cheaper and borrowing becomes easy for business. It stimulates investment and expansion of operations. In the medium term, cheap money can encourage economic growth. At the same time, if the central bank maintains such monetary policy for long, there is a risk of a spike in inflation.

Cross rate

An exchange rate that doesn’t include the US dollar. The calculation of cross rates is carried out via the ratio of each of the two currencies against a third currency – as a rule, the USD. For example, pairs EUR/USD and USD/JPY are used to calculate a cross rate of EUR/JPY. So, while the US dollar is not involved in a cross-currency pair, it has some indirect impact on it. Examples: EUR/JPY, EUR/GBP, EUR/CHF, GBP/JPY, GBP/CHF, and AUD/NZD.

Currency basket

A set of currencies used to establish a value of a national currency in relation to other currencies included in the basket. For example, the US dollar index is a currency basket that tracks the dynamics of the US dollar versus the currencies of America’s 6 trading partners.

Dovish

This word comes from a bird “dove”. “Dovish” refers to an attitude of a central bank towards interest rates. When you hear the word “dovish”, it means that a central bank aims at a low-interest rate to encourage economic growth. When you hear that a central bank was dovish in its report, it means that it won’t increase the interest rate in the near future. As a result, a domestic currency will decline.

Hawkish

The word “hawkish” comes from the bird “hawk”. It’s an opposite of “dovish”. When a central bank sounds hawkish, it means that it has an anti-inflation stance and aims at a high-interest rate. When you hear that a central bank was hawkish in its report, it means that it plans to increase the interest rate soon. As a result, a domestic currency will rise.

Gold standard

The gold standard is a monetary system, in which the value of banknotes and coins is linked to a certain guaranteed amount of gold. Nowadays, the gold standard is not used. It was replaced by the so-called fiat money that is used and accepted as means of payment only because a government ordered to do so. For example, lira is fiat money in Turkey.

Pump and Dump

It’s a fraud when a price of an asset rises because of false, misleading or greatly exaggerated statements. The aim of those who make such statements is to heat up the market so that they could sell the asset at a higher price. This practice is illegal.

Quantitative easing

Quantitative easing (QE) is an extraordinary type of monetary policy when a central bank aims to lower the interest rate and increase the money supply. To do that, it buys assets from the market. By doing so, it creates additional money. Increased money supply makes the national currency lose its value.

Tight monetary policy

It’s a type of monetary policy. Its main feature is that a central bank plans to reduce the demand for money and limit the pace of economic expansion. For this aim, it increases the interest rate. The national currency appreciates.

Brent and WTI: Where Differences Lie

We have gathered the most important information about Brent and WTI you need to know to make a profit on them.

Let’s start with the basics. There are plenty of oil grades and varieties in the world. However, just three oil marks became oil benchmarks. They are Brent, WTI, and Dubai Crude. We will talk about Brent and WTI. They are the most frequently used as they are ideal for refining into gasoline.

Why were these benchmarks created?

It happened at the end of the 1980s when the OPEC (the organization of the world’s largest oil exporters) refused to regulate prices making them dependent on traders’ sentiment. To set an appropriate price, exporters needed an orienting point. Brent and WTI were created for that purpose. So, nowadays, each oil producer sets a price for oil as its production depends on how much it corresponds to the benchmark.

If you think that Brent or WTI means just one of the oil grades, you are wrong! They are a common name for different grades that have common characteristics.

Let’s take a closer look at these characteristics

  • The first one is a location.

Brent is a standard for European and Asian markets. This benchmark consists of more than 15 oil grades produced on the Norwegian and Scottish shelf blocks of Brent, Ekofisk, Oseberg, and Forties.

WTI is a mark for the Western Hemisphere. It is sourced from US oil fields, primarily in Texas, Louisiana, and North Dakota.

  • The second characteristic is a chemical formula.

Firstly, it’s worth saying that there are no absolutely similar oil grades. Even grades that are included in Brent or WTI have a different structure.

Brent is the low-sulfur oil of a light type. WTI is a denser oil grade. The quality of WTI is higher than Brent’s one.

Why do Brent and WTI have different prices?

Since the middle of 80s WTI and Brent had traded at almost the same price. There were times when WTI was more expensive than Brent. However, currently, WTI has a lower price than Brent.

Mostly, prices depend on a cost of production and delivery.

Brent is produced near the sea, so transportation costs are significantly lower. Conversely, WTI is produced in landlocked areas. As a result, there are infrastructure problems that make it harder to bring surging North American production to the market and as a result, transportation costs become bigger.

Another important factor to take into consideration is geopolitical trouble. Middle East tensions weigh oil the most, especially Brent. Tensions lead to a decline in supply. You should remember that when the supply of any asset declines, prices go up. West Texas Intermediate is less affected because it is based in landlocked areas in the United States.

A price of WTI is formed by crude oil inventories. As soon as the number increases, WTI goes down. If the number of inventories declines, WTI rises. Here you should remember about a supply issue again.

So as you can see, the major benchmarks are affected by different factors. However, their trends are mostly similar. If Brent goes up, the WTI will go up as well with a high probability.

Making a conclusion, we can say that Brent and WTI will remain reliable oil benchmarks. If you want to trade in the oil market, choose one of them. However, choosing one of the benchmarks remember factors that affect their prices. By that, you will be able to forecast the future price more accurate and your trading will be profitable.

This article was written by Daria Bobrova, a senior analyst at FBS

Key Factors for Trading EUR/USD

To understand what factors affect the EUR/USD, let’s start with a description of the currency pair.

EUR/USD also has two other nicknames such as the Euro and Fiber. The name Euro is quite simple when there are two opinions why the name Fiber appeared. Some claim the currency got the name Fiber because of the GBP/USD pair that is called Cable. It is like traders made an upgrade of the old telecommunications cable that was used to connect the UK and the US to a newer fiber cable. Others decided that the Fiber name appeared because the Eurozone has the best optical fiber network in the world.

The Fiber belongs to the group of “Majors”, that also includes another six pairs such as GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD and USD/CAD.

The power of the pair is incredible. The US dollar is the most traded and widely held currency and the euro is the second most popular currency in the world. The EUR/USD covers two main economies: European and American, so it has more than half of the total trading volume in the world on the Forex market.

So let’s move to the key factors.

Sessions

The first factor is sessions. Traders should know when the pair can have the highest volatility and when it is nearly not traded. Usually, the pair is slightly traded during an Asian session because the most important economic data and events for EUR/USD are released in European or US sessions. The activity slows down at noon when traders have lunch and rise again later when the US session starts. Liquidity leaves the market again at 5:00 GMT when traders in Europe close out their positions.

Institutions and personalities

The most important institutions that affect the pair are the central banks of Europe and the US. The European Central Bank (ECB) under the guidance of Mario Draghi and the Federal Reserve Bank with Jerome Powell as its chair regulate the monetary policy, money supply, interest rates, and the strength or weakness of the currency as a result.

The market follows every meeting of central banks and speeches that the president and the chairman give. It creates volatility in the Forex market.

Political instability

Any political issue can affect the EUR/USD pair. For example, Brexit, crises in European countries, elections in countries with the biggest economies in the European Union.

We can mention the claims of politicians as well. For example, the US Treasury Secretary Steven Mnuchin said that “a weaker dollar is good for the US”. This statement caused the immediate fall of the USD.

Economic Reports

Every week the economic calendar offers a huge amount of data. We will mention the most important, that every trader should take into account.

We have already mentioned central banks of the EU and the US and their monetary policy.

The next significant factor is CPI – Consumer Price Index – that measures inflation, the most important indicator of the economic health.

Another crucial data is GDP. It shows how much the economy is strong and healthy.

PMI is another way to estimate the economic health that affects the strength of a currency. The survey shows whether purchasing managers are optimistic or pessimistic about the economy in the medium-term. This survey is highly important because central banks use data when formulating monetary policy.

The balance of payment is not the last in the list of important economic reports. It shows how much money a country receives from abroad and how much it pays to other economies.

There are a lot of other economic reports, however, these ones are the most important and should be taken into the consideration firstly.

Interest rates

According to economic theories, there is a correlation between interest rates and exchange rates. It is called the International Fisher effect. And indeed, in most cases, it is so. Usually, currencies rise and fall according to interest rates of economies. For example, when US interest rates are higher than the European Union ones, the US dollar strengthens versus the euro. Conversely, the higher Eurozone interest rates, make the dollar weaken.

To sum up, it is important to say that the EUR/USD pair is the main pair at the currency market because it gathers two major economies. If traders want to trade it successfully, they should take into account a lot of factors such as sessions during that the pair is traded more, institutions and personalities whose comments and decisions create volatility, political instability, and of course, economic reports that display growth and health of the economy.

This article was written by Daria Bobrova, a senior analyst at FBS

Can Gold Investors Hope for A Rally?

The gold market got a chance to recover slightly in the middle of August. Up to now, XAU/USD has been showing mixed moves, however, we can see that the downward trend is ended.

Usually, the strengthening of gold is caused by the weakness of the USD or geopolitical events that increase the market’s risk level. Looking forward, we know that the Federal Reserve is anticipated to raise interest rate in September and there is a high chance for another rate hike in December this year. Rate hikes will support the USD and there is a chance it will be able to return to previous highs.

Therefore, we have a question: Will Gold Rise?

Usually, gold is considered by traders as a safe haven that rises in times of uncertainties. However, as we can see, the gold market was depreciating despite trade wars tensions, Brexit issues, Turkish lira’s fall, and geopolitical tensions. Investors preferred the US dollar, yen and treasuries over gold. What should traders expect from the gold market if its traditional rules are not valid anymore?

Analysts at the Commerzbank believe that the gold market has good chances to surge and it’s early to say that gold has lost its status as a safe haven. According to Commerzbank, the weakness of gold was caused by the strong USD, the strong US equity market, weak emerging market currencies, and speculative selling. However, the analysts see the end of the USD’s rise. If we remember the situation before the crisis of 2008, gold fell to $700 and the USD rose, however, later the gold price surged to $1,200 by December 2009 and $1,400 at the end of 2010.

According to the COT report, hedge funds and managers keep betting on weak gold despite its recent rise. However, Commerzbank’s analysts see this as a positive signal. As the large speculators hold net-short positions for a long time, the reversal moment should happen soon. The bank predicts that as soon as the market gets a fresh catalyst, traders will close positions and the price will go up.

As a result, the bank forecasts a gold’s rise to $1,300 by the end of the year and to $1,500 in 2019.

What about the short term trading?

In case the USD falls further down in the near future, gold will have a good chance to start its uptrend. However, the rise may be limited, 1,216.50 level is too strong. Only if the USD plunges, the XAU/USD pair will be able to break above it and move to the next resistance at 1,228.65. On the weekly chart, RSI has been moving near the 30 level. If it crosses the level upside down, it will be a signal that the pair is oversold and we can hope for the gold’s rise.

If the USD recovers, there are risks of the fall to 1,189.50.

Gold Weekly Chart
Gold Weekly Chart

Making a conclusion, we can say that in the near term the forecast for gold is mixed. The weakness of the USD may support gold prices. In the longer term, gold might appreciate. As soon as there is a strong driver for the market, the price will go up.

 This article was written by Daria Bobrova, a senior analyst at FBS