Forex Investment and Currency Trading

We are back to the medium-term trend in place since July where global recession risk, repatriation and negative surprises outside the US are the dominant themes in global FX markets. Thursday’s German Q3 GDP showed that the Eurozone’s biggest economy has now entered a technical recession. (Two quarters of negative growth). This may be followed up by UK and Japanese data in coming weeks which could show that these economies are also in recessions. How far can this process of de-leveraging continue? Data such as US bank credit as a percentage of GDP suggests that the de-leveraging potential is significant. US [...]

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The following candle formations are indications that price trends should continue. Price gaps within the patterns occur in each of these formations:
Upside Tasuki Gap
In a rising market, a white body gaps higher. This is then followed by a black body which pens within the white body, and closes lower, but does not fill in the gap. It is important that any lower shadows also do not fill in the gap. The market should be bought on the close of the black body (as long as the gap was not closed). Normally, the black body would be considered bearish. In this [...]

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Umbrella lines
These candles can be recognized by two features, a real body at the upper end of the entire trading range, with little or no upper shadow and a lower shadow that is at least twice the length of the real body. The color of the real body isn’t important.
Umbrellas can be either bullish or bearish depending on where they appear in a trend. If they occur during a down trend, they are called hammers and are bullish, as in “the market” is ‘hammering out’ a base. If an umbrella appears in an uptrend it’s bearish, and is referred to [...]

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The decline in oil prices in recent weeks has applied downward pressure on the currencies of several oil exporting countries. Within the commodity currency space, the Norwegian krona has underperformed the Canadian dollar, but CAD/NOK appears to be posting unsustainable highs from a technical point of view. The pair recorded new recent highs on three separate occasions with the 15-day relative strength index not matching those new highs (triple divergence), suggesting that a top may finally have been reached. The first major level of support is created by the 23.6% retracement (5.629) of the rally from April 23 to November [...]

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Treasuries rallied on the week as the unemployment rate rose to the highest since 1994, vehicle sales fell to their lowest level since 1983 and the ISM Manufacturing Index fell to the lowest since 1982. Still, October’s job loss of 240k was less than September’s 284k, suggesting that the speed of economic decline could soon slow.
The Treasury’s refunding announcement included reintroduction of monthly 3-year issuance, monthly issuance of 10-years and quarterly issuance of 30-years. Still, the tremendous financing need of the TARP may need to be met from the Special Financing Program (SFP), whose proceeds have been held in cash [...]

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