Peter Bain Forex Trading Commentary for Friday March 3, 2006

Forexmentor.com Currency Trading Price Action

According to trendline analysis, the trend on the daily chart for both the euro and the pound is up. That's good for position traders. From a day trading perspective, the one constant remains trading the news. Two of our members have documented systems to trade the news - MMTS and KTTN. More often than not, they have proven effective in catching the aftermath of news coming out at 8:30 am ET. This is something you may wish to specialize in. The other thing you may wish to focus on are the opening and closing times for the various markets - watching for swing trades. Today's price action for the two pairs was rather anemic at the London open - the euro just meandering sideways, and the pound getting some oomph well after the London open. It really does pay to study both currencies, as you will catch movement on one that you won't on the other, albeit they usually move in tandem. But, the subtle differences in their behavior are worth being aware of.

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The Canadian dollar has been so strong that there has been interest across the board in buying it on the crosses. Not only has the loonie surged against the U.S. dollar, but It has also gone up against the sterling, the euro, the yen and the Swiss franc - not to mention achieving 14-year highs.

We are getting conflicting signals about the health of the U.S. economy. Yesterday, I reported "Recent U.S. regional data, weaker than expected, indicates a weakening U.S. economy, and raises questions about corporate profits and economic growth. That data included existing home sales, consumer confidence, and Midwest business conditions." Today, however, the bouncing ball continues to bounce, with the release of strong data from that economy. The U.S. Institute for Supply Management's monthly index on manufacturing activity beat analysts' forecasts and, get this, the U.S. Office of Federal Housing Enterprise Oversight reported that U.S. house prices rose 12.95% from the fourth quarter of 2004 through the fourth quarter of 2005.

Oil prices remain strong, given the concerns about interrupted exports from OPEC counties, including Iran and Nigeria, and U.S. refineries shutting down units for maintenance (which will escalate in the weeks ahead). Such closures necessitate withdrawals from stockpiles, thereby whittling away at the high inventory levels.

Peter Bain Forex Trading Commentary for Thursday March 2, 2006

Forexmentor.com Currency Trading Price Action

The trend on the daily chart for the euro is still UP, as a common sense demand (read, support) trendline is being respected at that level. Yesterday, in the am review, I indicated that price on the 15 minute was bucking the trend I was reading into MACD on the hourly, and that we should expect divergence. Well, that happened, as what you see on the hourly rules. Price then went into a period of sideways action (read, consolidation or equilibrium - i.e., traders trading wood). By watching the euro and pound side by each, a downtrend continuation pattern was expected to unfold - and it did quite nicely for the pound. The euro, on the other hand, decided to test its expected high for today (M3), before following the pound in like kind. That's the advantage of watching the 'three musketeers' in unison. By observing price action on the 5 minute for the euro, it was pretty easy to see what was going on, by observing the behavior of the 10 and 80 EMAs.

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Recent U.S. regional data, weaker than expected, indicates a weakening U.S. economy, and raises questions about corporate profits and economic growth. That data included existing home sales, consumer confidence, and Midwest business conditions. Of course, the biggest surprise of all has to be Google, which all of a sudden is saying that their Internet-search advertising growth is slowing.

North of the border, the exact opposite is true . High commodity and energy prices and sturdy economic growth may leave the BoC with no choice in the matter of raising interest rates. Higher borrowing costs will be loonie-positive, and that's what has driven that currency to a 14-year high. That, combined with slower growth in the U.S., is giving Canadian exporters a bad case of heartburn.

Oil worries abound. Now, it's concern over shipments from Saudi Arabia and Iran being disrupted. U.S. stockpiles of oil, at healthy levels (actually above the five-year average), are not enough to assuage geopolitical fears.

Peter Bain Forex Trading Commentary for Wednesday March 1, 2006

Forexmentor.com Currency Trading Price Action

The euro, pound and swissy have all had nice runs since the 26th of Feb. Looking closer in on the euro, MACD on the hourly chart is showing weakness - with price action on the 15 minute trying to buck that trend. It wouldn't surprise me to see negative divergence form on the 60 minute. Looking at the daily, the uptrend appears to have been salvaged by the recent rally. Yesterday's reported news about the ECB's desire to jack up rates was obviously euro-positive. Let the fight begin. Canada and the U.S. also have plans to tighten further. Should be an interesting race. Concerning today's day trading opps., nothing was terribly obvious on the 15 minute for the euro - as price just meandered sideways - but, a nice reversal at the London open for the pound was quite apparent. There's virtue in keeping an eye on these three major pairs - the three muskateers.

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State-side, better-than-expected earnings and lower oil prices are fuelling the markets. Housing-wise, though, it's anybody's guess as to what is really going on. A recent government report indicated that new home sales dropped more than had been expected. A sign of the bubble bursting? Yeah, but not so quick . Lowe's came in with the biggest increase in quarterly profit in three years. That said, the Fed Reserve's resolve to fight inflationary fears by further tightening of interest rates has got to have an impact on housing somewhere down the line. Ditto for Canada.

Canada's economy (the world's eighth largest) is on a tear, prompting some to believe that the BoC may have no other alternative but to raise its key interest rate further. The Canadian dollar approached a 14-year high recently on the heels of a government report showing Canada's current account surplus widened to a record last quarter. This is the broadest measure of international trade. The BoC has raised rates four times since September in its fight against inflation. All bets are on two more rate increases, with rates rising to the 4% level. Translation: expect a strong Canadian dollar.

First it was Nigeria, then it was Saudi Arabia, but terrorist threats have not resulted in sustained higher prices for crude oil. However, prices are still 18% higher than a year ago. Translation: inflation-positive. Natural gas hit its lowest point in more than eight months, as milder weather is in the forecast. This results in less pressure on utilities to use stored reserves to meet heating demands.

Forexmentor.com Currency Trading Price Action

The current rise in the euro started at the Tokyo open Feb. 26/06 in the form of a hammer reversal formation on the hourly chart. I like to do my price projections after a major shift in price direction. A price projection after that swoon in price saw price rising to ~1920. Coming into today's session, knowing that and seeing the attitude of MACD on the hourly chart (read, up), it was logical to assume that price would go on a tear, and race through all its pivot points to achieve the end of that price projection. It got as high as 1894. In the news, the ECB's main refinancing rate could rise to as high as 3.25% by the end of this year, with a likely hike in the key interest rate by 25 basis points to 2.5% this Thursday. It is expected to be raised by an additional quarter percentage point in each of the following quarters of 2006, for a total of 100 basis points this year.

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The Canadian dollar, to some extent, moves at the whim of oil prices which, in turn, are impacted by the short-term effects of market psychology. That said, day-to-day moves have marginal impact on Canada's oil profits or prospects. Canada is a net exporter of oil and gas.

Gold-positive news (read, oil price worries) also burnish that metal's allure as a safe haven. However, gold prices are at a 24-year high, which has been deterring demand from jewelers. Their buying activity, for the fourth quarter, was the lowest in almost four years.

The expectation of higher interest rates in Canada and the U.S. is a negative for major European currencies. The hawks are taking note of Canada's healthy current account surplus. In theory, that number should keep the U.S. dollar versus Canada below $1.15.

Last week's unexpected drop in jobless claims added fuel to the notion that the Fed Reserve will have to keep its tightening policy up. The thinking is that companies will have to offer higher wages to keep workers.