The Parrotster Forex

GMT NEW YORK LONDON TOKYO

MAPPING THE MAJOR CURRENCIES

Major currencies this week

THE EUR/USD (week Jan 11th 2010)

Last month the euro was all over the place reaching a high of  1.5142 to a low of  1.4261. With rumours swirling about US interest rate hikes, the Dubai debt crisis and the downgrading of Greece’s sovereign debt , we saw the euro do down by over 800 pips vs the Usd. *read MORE

GBP/USD

ABOVE  1.6240 BUY TO 1.6420

ABOVE 1.6420 BUY TO 1.6640

BELOW 1.6420 SELL TO 1.6270

BELOW 1.6240 SELL TO 1.6037

UNDER 1.6037 WE COULD SEE A BEARISH TREND BUT NOT WITH THE SAME TYPE OF VOLATILITY AS LAST YEAR ON ACCOUNT OF THE QUANTITATIVE EASING METHODS OF THE BOE.

The British Pound reached a high of 2.0158 vs the Usd in June 2008 but by Jan 2009 it had fallen to 1.3502 ( a 34 year low for the GBP). The Pound has risen steadily since then and by Spring it had retraced 38% of its losses vs the Usd @ 1.6067. The  GbP has not been able to really reach the  50% fibo retraces of its losses @ 1.6950 however. It did touch that level briefly  in July 2009 but it has not managed to break above it. Since April 2009 the Gbp has been ranging between its 38% and 50% fibo levels.

It has been a difficult year for those who traded the Gbp since it did not show the type of volatility we came to expect from it since last year. The reason for this is fairly simple.O In March 2009, the BoE announced it would  inject 75 billion pounds  of new capital into the British economy, a process that is known as quantitative easing.The  BoE created new money for itself, which it used to purchase assets such as government bonds, bank loans, or mortgages. Quantitative easing is not about  printing money, the   money is created electronically and  is not circulated as cash. By November 2009, 175 billion pounds  had been injected using quantitative easing. It is clear that these economic measures were  meant to resolve the ever present problems of inflation, and  to keep exports at competitive price. Bur it seemingly also kept the GBP from reaching record highs and record lows vs the Usd  by keeping it in a fairly tight  range throughout most of the year. The chart below shows the typical range for the Gbp/Usd pair. A break below 1.6067 (38% fibo level) would be significant and  indicate a bearish trend . A break above 1.6950 (50% fibo) would see the Gbp go past 1.70. Neither one of these scenarios is very likely given the tight controls applied to the Gbp this year.

GOLD

Gold nearly hit the $1000/oz  mark four times in the past year and the fourth  time was the charm.  Gold has risen steadily since it reached that threshold in Sept 2009 reaching a high of $1226.oz.  For those wishing to trade Gold you need to know that the increase in the price of Gold has little to do with gold “fever”. The factors that contribute to the appreciation in the price of Gold are very real and Gold plays an important role in the preservation of capital. Gold plays an important role in preserving the investors wealth and purchasing power. Gold increases in price only to the extent that its function is to preserve the wealth and purchasing power of investors, and anything else would defeat its purpose. Because gold is a hedge against inflation and the loss in value of other assets, the price of gold must move in a direction opposite that of other assets. Because gold is there to preserve the value of investors capital when other investments classes are losing value, its price has to vary inversely to that of the main types of financial assets.

In very simple terms, Gold will appreciate when several factors obtain. Namely high inflation and taxes and under-performing stocks and bonds markets. If these cannot provide investors with a return that is judged sufficient to preserve investors capital then Gold will play the role that was created for it as a preserver of wealth,  “a store of wealth”. (read more)

Gold’s rise from $1000 to $1226/oz was very brisk, but once the markets go up and inflation is brought down to an acceptable level, we will see Gold decline. Any break under $1059 would signal a bearish trend.

USD/CAD

In early 2009 the Usd was worth well over $1.30Cad. In February 2009 however it started the depreciate and this December we saw the Usd reach 1.02$ Cad. Throughout the year the Usd did attempt to retarce its losses vs the Cad, however since this summer it has barely been able to retrace 23% of its losses. With the Usd about to fall below 1.0559 Cad, the situation is becoming one of concern for Canada. The Bank of Canada could not raise interest rates in the near future as this would send the Cad to rise too quickly against the Usd. The effect would be detrimental to canadian export markets (84% of canadian exports are to the Usa). The Bank of Canada mentioned that it would intervene if the CAD appreciates too strongly however it is not habitual for the BoC to do so, and one is doubtful that Canada has the means to affect the currency markets in a very significant manner. It could perhaps do so in conjunction with other Central BAnks if an intervention were needed to prop up the faltering Usd.

In any case, the rates to look out for in the coming weeks center on 1.0877 as any break above this would indicate a bullish trend for the Usd. Any break under 1.0559 needs to be considered carefully as this is indicative of a very deep bearish trend and it is likely that if the Usd reaches parity with the Usd some type of intervention would be in the works.

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About The Parrotster Forex

The Parrotster Forex welcomes all forex traders  new and experienced alike. The best advice The Parrotster can offer new traders is that they visit BabyPips.com. It is probably one of the best online beginners guide to forex.trading.Forex trading is not for the faint hearted. It goes require knowledge, experience, skill  and, ultimately, artistry. Forex trading carries a very high risk of loss and for that very reason The Parrotster very strongly recommends that new traders get educated, trade on practice platforms (they do carry live rates for currencies),  specialize in one or two currencies and learn everything there is to know about them before they even start to trade with real money. And on the subject of real money The Parrotster Forex strongly recommends that new traders start trading with small amounts of money with the lowest leverage available to them on the forex trading  platform of their choice.. New traders will soon realize that trading with real money is very different from practice trading. Practice trading is more often than not very profitable but real money trading brings adrenaline and real emotions into play and these factors will very often cloud one’s judgment when trading forex. Money remains a very emotional issue for most of us.

Forex trading carries a high level of risk. The opinions expressed on these pages do not constitute financial advice. The opinions expressed here are based on the trading experiences of the Parrotster Forex and as such represent a certain view of the market. The Parrotster Forex strongly advises traders reading these pages to think for themselves on all things relating to the Forex market. It is best to keep informed on the the latest economic news releases, study the charts , look at indicators and attempt gauging the market sentiment. This is the best way to go about trading.

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