Markets are starting to return to full strength again, now that the holiday period has officially come to a close.  The next moves in the US Dollar Index (DXY) could be significant in terms of their possibility to define the broader market trends seen for the remainder of this year.  As we will see here, this did happen in 2017 and this does match the historical averages that develop in the Bitcoin and the USD when its value is compared to a basket of heavily traded currency counterparts.

In this chart, we can see that the US Dollar Index (DXY) has been in a steady downtrend since the beginning of the stock market rally 2017.  This actually came as a surprise to many forex analysts, as the pro-growth agenda that was expected after the Donald Trump US Presidential election did not ultimately translate into a higher US Dollar.

Chart: US Dollar Index Daily Chart

There is the possibility that this could change if GDP reports continue to impress.  But, until then, it looks like the majority of the market’s momentum is currently headed in the other direction.  One strategy for this type of market scenario can be found in the forex trend swing trading strategy because of its ability to establish clear positions on the approach of long-term support levels.

The DXY instrument itself is now clearly focused on a retest of the lows from last September near 91, and and downside follow-through from there would be a heavily bearish event for the US Dollar.  A period of prolonged extensions of the current rate policy could mean that the Federal Reserve could impact financial stocks in addition to values in the US Dollar and so there are several different asset classes to watch over the next few weeks.

A bounce off of the 91 level in DXY would be encouraging, however, and this means that simple levels trading could be the way to go during the remainder of this month.  Indicator readings also suggest a bounce could be in order but we will need to see an upside break through 93.60 in order to confirm the downtrend is finally completed.

The currency symbols can be divided by a slash (AAA/BBB), colon (AAA:BBB), dash (AAA-BBB) or sometimes nothing at all (AAABBB).

The position of the symbols is significant to determine value, understand the quote and make informed trade decisions that are commonly associated with success in the financial markets.  This is typicallly done using forex trading account Australia for buying and selling currencies, and then profiting from scenarios that agree with an active position in the markets.

Base Currency

The base currency is the first currency listed in a pair. In the pair USD/JPY, the base currency is the United States Dollar. The base currency is the unit of measurement for the secondary currency listed. For example, in the currency pair USD/JPY, the US Dollar is the base unit of measurement. The base unit is always one. Therefore, USD/JPY tells us how many Japanese Yen will equal one US dollar.

Quote Currency

The quote currency, also known as counter currency, it is the second currency listed in the pair. The base currency is always one, so the quote currency shows the value of the second currency against one unit of the base currency. For example, EUR/USD shows how many US dollars equal one Euro.

Direct and Indirect Quotes

Which comes first, foreign or domestic currency? It’s a common practice that the domestic currency is the base currency in a quote. That means, traders will be seeing the value of foreign currencies against their home currency. When the base is domestic, this is called a direct quote.

Indirect quotes, however, put the foreign currency in the base position. Most countries use direct quotes, so the market trader is viewing quotes based on their home currency. However, in some countries, such as Canada, the United Kingdom, Australia and New Zealand, the preference is to use indirect quotes.

Regardless of whether the base currency is foreign or domestic, it always equals one unit, so it only takes a little math to calculate the domestic price on an indirect quote.

Exchange Rates

The exchange rate always refers to the rate of exchange on the quote currency. It’s sometimes called the forex rate or the conversion rate, but it means the same thing. The rate is the formula for how many quote units it would take to equal one base unit.

For example, if the USD/CAD is quoted at 1.292, that means it takes 1.292 units of the quote currency (Canadian Dollar) to equal one base unit (one US dollar). Clearly, with this exchange rate, the US dollar has a stronger value and new forex trend against the Canadian dollar.

When to Buy, When to Sell

Buyers purchase a currency pair when they feel the base currency will rise against the quote currency. They sell when they feel the base will weaken against quote currency. Many forex traders watch news reports about the top 8 currency nations to get a feel for how market values may change.

For example, in 2008, many forex traders saw the Canadian dollar gaining momentum against the US greenback, spurring them to buy Canadian currency and sell US. Those who bought CAD were rewarded when the Canadian dollar reached parity and then surpassed the US dollar.

Buying and Selling on Every Transaction

The nature of currency pairs means each trade is both a buy and sell transaction. However, decisions to buy or sell are made according to the projected value of the base currency. Therefore, buying the pair AUS/USD means that you are buying Australian dollars, while also selling American dollars.

Essentially, the trader is converting or exchanging American dollars for Australian dollars. If the trader is selling the same pair, then the transaction is selling Australian dollars and buying American dollars.

In the end, mastering currency symbols and how they relate to each other is not as daunting as some would believe. The basic rules of how currency pairs and forex quotes are presented do not bend or change. Learning how they work is the first important step to successful trading in the forex market.

GBP/USD Faces Resistance at 1.3850

By  New Forex Trends

The GBP/USD continues to press forward with its long-term downtrend but there are still opportunities for bullish currency investors that are looking to capitalize on opportunities at lower levels.  After seeing some critical changes in the need for higher interest rates, the Bank of England has quickly started to alter its stance and this is leading to a turnaround in the GBP off of its prior lows.

Traders that are looking to take a position in the GBP/USD must understand that there is a large amount of momentum in the bearish direction and that any trades taken here should have relatively tight stop loss levels.  To the topside, there is now clear technical resistance in the 1.3850 zone and this is the first bullish target for long positions from here.

Ultimately, we are looking at an emerging uptrend channel on the shorter-term charts and this is coming into somewhat strong trendline resistance near 1.35.  The Commodity Channel Index is now holding at middle levels, so there is clear room to extend higher and the GBP will likely he helped further by suggestion that building inflation in the UK economy could make price stability less manageable.

This could require the Bank of England to start making additional changes in its interest rate outlook, and tighter monetary policy will likely push the GBP into prior resistance levels.  Using the best forex trading indicators for this currency pair, it is possible to assess the broader trends that have quickly become apparent in the GBP/USD.  We are looking to establish longs in the GBP/USD at current levels, with our stop losses placed at 1.3030.  This places risk-reward ratios in favorable territory and forex traders can build longs into these lower support areas to improve average entry prices.

Interest Rate Outlook

Recent policy commentaries at the Federal Reserve have shown that it is becoming less and less likely that we will see new interest rate increases added to the current outlook.  Stalling growth prospects in the world’s largest economy have made it more difficult to raise interest rates as this could lead to declines in the national labor market.  Lower interest rate prospects might have it harder for the USD to gain traction, and this would ultimately lead to higher valuations in the AUD across several currency pairs.

Forex traders are able to initiate trading positions in the AUD/USD using a capable forex trading platform that offers broad access to a large number of currency pairs.  These types of trading platforms will allow investors to buy or sell the AUD so they can be highly versatile in cases where new trends are ready to start developing in the Australian currency.

Carry Trades

One of the most popular forex trading strategies in the market is the carry trade, which will actually allow investors to benefit from the interest rate differentials that are seen in the currencies of two different nations.  The Australian Dollar tends to be one of the countries associated with higher interest rate conditions as an economy that exports commodities (such as copper and metals).

If we see an investment scenario where this type of trend is likely to continue, the Reserve Bank of Australia could continue to raise interest rates and this would create significant carry value relative to currencies like the Japanese Yen which have had interest rates near zero for several decades.  Whenever long positions are being taken in forex pairs like the AUD/JPY the trader is able to capture the higher interest rate of the two pairs.  This is one of the reasons for why carry trades are one of the most common trades in the forex markets.

Of course, it will be up to the central bank members themselves to determine whether or not these trends will continue.  Higher interest rates generally mean higher currency values, so the valuation race here is really going to be determined by the interest rate threshold that will be seen in the US versus Australia.  There are strong arguments on both sides but it is increasingly looking as though major trends are developing that will influence the foreign exchange markets over the long-term.

There are many different modern forex trading strategies by which one can trade the financial market successfully. Breakout trading strategy is one of the most important oil trading strategies since the market tends to show high volatility followed by a successful breakout of confined region. Professional daytraders keenly wait for the breakout and enter into the trade with proper risk management system.

Chart Example:  Breakouts

Figure: Trading the breakout

When using this strategy, it is important to watch world news for indications of broad market volatility.  In the above figure, the price was confined in a rectangle region with a two false spike penetrating the upper key resistance. Traders who entered aggressively in the market without price action confirmation would have badly burnt. On the contrary, professional traders wait patiently for new forex trends even though the market clearly breached the support zone.

Fibonacci Retracements

The market eventually retraced back to the support level which turned into resistance and formed a bearish engulfing pattern. With the formation of this bearish engulfing pattern, the market gives a clear direction of the new bearish movement of the pair. Remember fake out are the more common phenomenon for the day traders since they rarely trade the weekly charts before taking any forex trades.

Longer-time frame tends to develop less false signal compared to the shorter one for those in binary options trading. It is very crucial that traders use proper money management while trading the breakout in the daily chart to avoid unavoidable circumstances.