The best way of measuring these trends is generally through the US Dollar Index (DXY) as it relates the US Dollar value toa number of different currencies within the basket, and this is a good indicator of the general momentum that is likely to be found in these parts of the market.

In this chart, the new forex trends that we are seeing have been characterized by a chart rebound in the USD from the lows that were posted during the earlier parts of this month.  Increased volatility was seen after the most recent release of the US Non Farm Payrolls figures, but markets have since returned to pre-release levels once the dust managed to settle.

Events like these can be traded using the modified double stochastic trading strategy given the extent of the prior moves, and the scope for longer-term follow through that could be seen once the broader market trend starts to reassert itself.  In the current scenario, the most likely outcome is that we see a break of the double-bottom lows that were posted in the earlier parts of this month.

Confirmation of this outlook will be seen if there are new failures at the 92.60 level, as this is likely to contain US Dollar markets over the next several weeks.  Moving average readings are also supportive, given the fact that the 20-period EMA on the daily charts is once again moving below the highly critical 200-period EMA on the same price history.

Currently, markets are holding within the 2-standard deviation Bollinger Band and this suggests that shorter-term traders can position on both sides of the market with tight stop losses.  Longer-term, however, the picture is much more one-side as it suggests that we will continue to see forex selling pressure in DXY.

This has come as a result of broad optimism in the equities space and strong metals demand in emerging markets.  The Australian economy tends to be heavily dependant on the metals exports that are in demand in emerging economies (particularly, in India and China) and this has been reflected in the equities space.

Interesting trends are developing in the realm of forex, as well.  When viewing the Australian currency in terms of its value relative to the US Dollar, commonly-watched pairs like AUD/USD can be traded using a market trading platform can be accessed easily.  Currently, we are seeing strong moves to the topside in this currency pair, and we have just broken critical resistance levels near the 0.7850 area.

Psychological Price Levels

Any time we are trading in instruments like the AUD/USD in forex or in the ASX in stock markets, it is a good idea to have an understanding of the upcoming psychological price levels that could start to influence trading activity for investors.  When we are looking at the most likely scenarios to unfold from here, the bullish activity in the AUD/USD could very easily lead to a test of the next psychological levels at 0.80.

Over the last few years, the Aussie pair has had some difficulty moving through these levels, so it is clear that markets will probably take notice if traders are able to drive these valuations further to the topside.

If we do start to see some reversals in this commonly-watched currency pair, it is more than likely that traders will initially target the 0.75 handle as this would mark the outer parameters of the broader trading range that is seen in the forex pair.

External Forex Pairs

Of course, there are many ways of tracking the value of the Australian currency and they do not always include the valuations seen in the US Dollar.  If you are interested in using your trading platform to enact carry trading strategies, one popular option is to look at the Australian Dollar versus the Japanese Yen.  This is expressed through the AUD/JPY forex pair, which is an asset that is typically characterized by significant interest rate differentials.

Another key forex pair is the AUD/NZD, which is often thought of by traders as a means for expressing a market view on the Oceanic region.  If you are establishing a position here using your trading platform, it is important to understand that the AUD/NZD is often characterized by wide trading spreads (which mark the difference between the Bid and Ask prices that are available to traders.  These are all factors to consider whenever you are trading the Australian Dollar in live markets.

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.

Dollar strength has been the dominant trend as we head into the second half of the summer, with the PowerShares DB US Dollar Index Bullish ETF (NYSE: UUP) starting the month at new highs.  These moves have been propelled largely by geopolitical concerns in areas like the Ukraine, Gaza, and Iraq.  Typically, the summer months tend to be market by slower price volatility, but geopolitical concerns like these can have the potential to influence short-term trends in illiquid markets.  Here, we look at the latest technical developments in the forex majors.

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AUD/USD – Australian Dollar vs. US Dollar

Critical Resistance:   0.9505

Critical Support:   0.9210

(Chart Source:  CornerTrader)

AUD/USD Forex Strategy:  Wait for additional pushes lower before getting long again.  Buy at 0.9110, with stop losses below the 0.90 mark in AUD/USD.

The Aussie is starting to show slowing momentum and prices are now rolling over after hitting highs at 0.9505.   Further downside is now expected, given that the AUD failed at 78.6% Fibonacci retracement at 0.95.  Critical support can now be found at 0.92 but any approach of this level would create a head and shoulders pattern on the hourly charts, and a break of 0.92 could be defined as the neckline.  Daily RSI is approaching oversold territory, so bounces are still possible.  The data in these trends has also been confirmed by reports released by FXPips.

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GBP/JPY – British Pound vs. Japanese Yen

Critical Resistance:   1.7530

Critical Support:   1.6950

(Chart Source:  CornerTrader)

GBP/JPY Forex Strategy:  Stay with the positive trend but wait for better buying opportunities, after prices move into oversold territory.  Go long at 1.7050, with a stop loss below 169.50.  

The GBP/JPY is showing a strong uptrend, with long-term highs posted at 175.30  But we are seeing prices drop below the 100-day moving average and break the uptrend line that started back in February.  This suggests that the forex pair has further to fall, and the RSI still has more room to the downside before becoming oversold.  Strong support is not seen until we reach 1.6950, so it is prudent for forex traders to wait until price reach these areas before buying again.

When we think of traditional investments, stocks and mutual funds are probably the first things that come to mind.  But when we think in historical terms, precious metals have been around far longer, and are still actively used by investors today.  Assets like gold and silver have set a strong historical precedent in the marketplace but there can be difficulties when trying to figure out when and how to invest.  There are common market instruments like the SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV), but these are typically referred to as “paper assets” because they do not allow you to take ownership is physical assets.

Physical Assets vs. Market Funds

In these cases (GLD and SLV), you are buying into a fund.  This is very different from buying a gold coin or gold bar, and these two asset types will generally not trade at the same value.  For these reasons, most traditional investors feel much more comfortable owning physical gold or silver, which generally comes in the form of jewelry, gold coins, or gold bars.  There is a variety of ways to buy these types of assets but it is important to understand that much of what you might typically see in the financial news headlines does not actually refer to gold prices, but instead to funds that are designed to trade close to the underlying prices in the physical metal.

When To Buy Gold

Now comes the real question:  When is the best time to start buying gold?  Traditionally, investors have used gold as a hedge against price inflation and a falling US Dollar.  When the Dollar is buying, your cash purchasing power is falling, and it will often make sense to start moving into safer assets in order to gain additional financial protection.  Most investment managers recommend that you have at least some precious metals exposure as part of your portfolio.

Gold also tends to perform well during times of uncertainty.  If we think back a few years to the financial crisis of 2008, gold markets began trading in an incredibly strong rally that ultimately reached valuations above $1,900 per ounce.  This was largely because investors were looking for asset security during a time of financial turmoil.  Since gold has one of the longest histories as a stable financial market asset, gold tends to be one of the first choices when the economy starts to look gloomy and negative.

But even when we understand these historical tendencies, there are still difficulties that can be found when you first start trying to invest in gold and other precious metals (like silver or platinum).  Daily commodities market updates at ForexMinute offer a good way for investors to stay ahead of the market and to monitor gold prices as they begin to change.  It can be easy to miss new information and start to make position mistakes if this is not done correctly.  Fortunately, these mistakes can be avoided when we take a conservative approach.

How Long Should You Hold a Gold Investment?

Gold investments tend to be long-term investments.  This means that most people buying exposure in these sectors tend to avoid the “day trader mentality” and hold their positions for extended periods of time.  When price moves occur in gold and other metals, those moves tend to unfold over years (rather than months or days).  This is the reason that a majority of investment advisers recommend obtaining exposure with a “retirement mindset” rather than to assume you will be actively buying and selling your assets on a regular basis.  Fortunately, this makes investments in these areas much easier as you will not be forced to “time the market” and risk significant losses if you happen to buy or sell at the wrong time.

When we look at the price activity seen in recent weeks, it certainly looks like the tide is turning for the Euro and that we are ready to see lower market valuations into next quarter.  From a chart perspective, we have already seen a break in critical support in the 1.3630 region and was a highly bearish move that has built in momentum and sent prices much lower as we head into the middle of June.

On the other side of the coin (looking at the fundamentals), there are plenty of factors that support these moves.  So while the US Dollar has been on the receiving end of most of this year’s selling pressure, there have been many developing reasons for why forex traders should have expected bearish moved in the Euro shared currency.  For stock traders, it will be important to see how the PowerShares DB US Dollar Index Bullish ETF (NYSE:UUP)  and SPDR S&P 500 Trust ETF (NYSE:SPY) behave in response.  But there is likely to be some carry over into precious metals, as well.  So watch for increased volatility in the SPDR Gold Trust ETF (NYSE:GLD) and the iShares Silver Trust ETF (NYSE:SLV).

New investors should consider researching these topics further, and learn finance online at Global Finance School.

Sovereign Debt Crisis

Most important is the fact that there is little reason to believe that the Eurozone has officially recovered from its sovereign debt crisis from just a few years back.  If you remember, these negative economic scenarios tyrannized financial news headlines for an extended period of time and then quickly disappeared.  But when we look at the underlying economic data, this lack of attention makes little sense.  What makes even less sense is the fact that the currency has been rallying against the Dollar for most of this year even though the Federal Reserve has made it abundantly clear that its QE stimulus programs will be completed before the end of this year.

Since this essentially means that fewer Dollars will be running through the global economic system (and no real change in the underlying demand for the US currency), the implications here should be bullish for the currency.  But the broader cross-currency correlations have snowballed and the resulting forex news stories for most of the year have involved higher market valuations in the EUR/USD and GBP/USD.  These latest moves signal that a change is afoot and that the market is now ready to correct back toward its fundamentals.  This means that forex traders will need to acknowledge the 11.3% unemployment that is seen in the region as a whole along with the fact that annual growth numbers as measured by GDP clearly favor the US economy on a relative basis.

Chart Perspective:  EUR/USD

But while most of the market has ignored the fundamentals and traded almost entirely using momentum based strategies, the break of 1.3630 has confirmed that a new environment is in place and that the Euro itself is likely to encounter prolonged weakness.  “Critical support for the EUR/USD was originally found at 1.3630, but since this area was invalidated we are not likely to encounter additional support until we reach 1.3480,” according to the expert market analysis team at ForexAbode.  “1.35 is likely to give some psychological support in the interim but the overall bias is clearly bearish given the latest price trajectory.”