forex trading & market analysis

Hello traders , the market is giving great signals to buy AUD/USD:
australian dollar fundamentals :
the PMI data are pulling back to above 50 signaling a retune to expansion territory.
also a strong recovery in china supports australian exports and trade.



the third element is the recovery in oil prices and demand.

U.S Dollar fundamentals:


most leading indicators in the united states are signaling a bottom in april and slight signs of recovery with pmi data above 50 indicating expansion too.
this optimism about the U.S economy is driving the VIX lower and government bonds as we see in the chart below that government bond yields starts pushing higher building a new phase of up trend.



this situation is expected to drive the U.S dollar downward the the third quarter -2020 as investors are selling cash seeking early opportunity in the equity market.


comparative AUD/ USD analysis:

taking a look at the CFTC futures money managers commitment of traders COT REPORT, we see strong increase in demand for the AUSTRALIAN DOLLAR and a short selling of the U.S DOLLAR.

as you see in this chart the percent open interest long / short spread is in a turning point for both the AUD and USD signaling a great buying opportunity for the AUD/USD pair.

week ahead : major events on the economic calendar


CHINA

major economic data releases for the upcoming week will start from China on Monday, which include july inflation data and M2 money supply.
on the CPI side markets expect a decline from 1.1% in June to 0.8% in July on a year over year basis. the main reasons behind the slowdown in inflation are the base effect from previous year uptick in the CPI , the second thing is the ease in price pressures as reported early in the Caixin China General Manufacturing PMI report for July, which stated that “The latest survey data saw inflationary pressures soften. Input prices rose
at the weakest rate since November 2020,”
in terms of M2 money supply, the PBOC is adding liquidity in the market at an annual rate of around 8.6%, nearly the lowest level in history. markets expect slight uptick in M2 on a year on year basis but the levels remain generally low.
United States
in the U.S, investors will keep close eye on CPI data on Wednesday as its expected to be a strong market mover, the main consensus for inflation is to stabilize around 5.4% to 5.3% in July.
on Friday the University of Michigan will publish its preliminary consumer sentiment report for august where no big changes are expected to take place and the index is seen to remain around 81, far bellow pre-COVID levels at 100.
Eurozone
on Tuesday the ZEW institute will publish its Economic Sentiment index for euro area and Germany, the index has already signaled a slowdown in economic activity in July with a decline from 79.8 to 63.3 in Germany and from 81,3 to 61.2 in the eurozone. the index has reached its peak in may at around 84, levels unseen since 2000 for Germany and never reached in the euro area history. the slowdown in economic sentiment in expected to persist through august results as the number of Delta cases continues to increase across Europe.
Industrial production statistics will be released on Thursday, the annual rate of change is highly expected to decline from its last reading of 20.6% in May as the base effect of past year decline starts to unwind and production rates are declining back to normal.

Seven Personal attributes of a successful trader

There is a fine line between trading and gambling; trading in financial markets without having enough knowledge and discipline is gambling and usually leads to large losses.
A trader must build sound individual psychology through which he/she can manage emotions of greed & fear, pleasure & pain.
The inability to manage your emotions leads to poor money management of your account.
Two main elements are helpful to keep control of your individual psychology.
First, a trader must build a logical trading system, a complete process that starts with fundamental analysis and idea generation, then timing the market using technical analysis and market sentiment measures. This keeps you from overtrading and executing trades based on emotions.
Second, traders must have a good money management plan. Draw a line between a businessman’s risk and a loss; a trader must take a businessman’s risk, but he may never take a loss greater than his predetermined risk.
Remember to keep trading records and analyze your performance over time; poor record keeping is a sign of a gambler and a loser.
In addition, To be a successful trader, you must have certain mental and psychological qualifications; the next points may be helpful in acquiring discipline as you practice.
1- Survey the outlook and reasonably appraise the future.
A successful trader should be able to analyze the different market data and get an objective outlook of what the market is probably to do in the future.
2– Plan a campaign to meet the probable alternatives and have the courage to carry out such a plan.
Plan a trade and trade a plan is one of the most famous phrases among traders.
It is a golden rule to follow, especially when you are wrong.
Putting a plan with “if” & “if not” helps you to be fully prepared for different scenarios, and not to get stressed or panicked when the market goes against you.
3- Change the plan when conditions make it necessary.
Do not change your trading plan only when things become worse unexpectedly.
In contrast, unexpected strong market-moving events could push prices in both directions.
As you rush to change your trading plan when things go bad, it is also demanded to change your plan or tweak it when the market moves unexpectedly in your favor.
Adding to your position or moving your stop loss to breakeven may be good tactics.
4- Stay out of the market when you get confused.
You may find yourself, sometimes, in front of market movements that you don’t understand.
It seems to you that are illogic or manipulated, they don’t follow either technical measures or fundamental rules.
That is normal to happen because of randomness in markets, or maybe you get confused and you didn’t get the market message, which was clear to someone else.
In those sensible moments, Please, I am begging you, to shut down your computer and go away.
……and maybe you will get it later.
5- Limit and take a loss, and let a profit run.
It is natural for humankind to believe in tangible objects, and do less for unguaranteed things.
If you ask any normal person: “do you prefer a thousand dollars now or 10 thousand after 10 years”. In most cases, you would expect the answer “give me my thousand bucks right now!”
It is the same in trading. You may see traders using much leverage and risk more funds than they can afford to lose in active trading, hoping for small gains. And conversely, they keep moving their stop losses away and their take profits closer.
6- Systematic trading:
Have a system and adhere to it, trading from the gut or revenge trading as well as FOMO type of speculation often causes you to fail. Sticking to an efficient system helps you keep an overview of the market and its major fundamental movers, as well as helps you to find opportunities and filter good trades.
7- Make and rely upon your own market opinion.
Don’t follow the fool! Beginners and not fully knowledgeable traders follow media and market gurus to have an opinion about the market which is not theirs. Thus in case of loss keeps them from blaming themselves, and through the blame on others to feel unguilty.
This is a bad path to follow. Instead, try to study the market and make your own opinion about it. This helps you make decisions that best suit your goals and strategy, and is helpful in the long run to learn from your own mistakes and do better in the future.

U.S Labor market analysis: key fundamental indicators to watch

Jobs data are important for financial markets, traders and policymakers. Higher employment means more paid salaries, more money spent on consumption, and more taxes paid to the government. The opposite is true when there are fewer jobs created both in the private and public sectors.
Employment plays a key role in the economy and can have a major impact on the financial markets. By understanding and analyzing labor market data, investors and traders can get a better sense of the overall health of the economy, whether it is expanding or contracting, and make more informed decisions about their investments.
The importance of Employment indicators
Employment is considered a key economic driver and an important measure of economic growth. According to the International Labor Organization, unemployment is defined as ‘’people of working age who are without work, available for work and actively seeking employment.”
Employment is an important factor to consider in fundamental analysis.
Changes in labor market supply and demand have a direct impact on both growth and consumer spending.
For the United States, the Federal Reserve Bank (The Fed) relies on employment data, among other factors, when assessing potential adjustments to monetary policy.
The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Even though the act lists three distinct goals of monetary policy, the Fed’s mandate for monetary policy is commonly known as the dual mandate.
The reason is that an economy in which people who want to work either have a job or are likely to find one fairly quickly and in which the price level is stable creates the conditions needed for interest rates to settle at moderate levels.
A higher unemployment rate due to economic slack may push the Central Bank to boost the economy with expansionary monetary policy.
As the unemployment rate drops, businesses will have a more difficult time finding employees. Competition for those workers may drive wages higher. This usually coincides with economic expansion and a tight labor market. While spending increases, inflation is likely to rise.
Higher Inflation is usually the bigger motivator for Central Banks to hike interest rates and tighten monetary policy to protect the financial system from capital erosion via negative real rates or runaway inflation.
A more detailed approach to the job market will tell us which sectors and industries are hiring or firing and whether wages are going up or down.
To build a clear overview of the U.S labor market, traders should look at six main employment indicators:
– The Unemployment rate
– The non-farm payroll (NFP)
– Initial and continuing jobless claims
– The labor force participation rate
– Wages i.e., average hourly earnings
– ISM employment
Unemployment rate
The Unemployment rate is a key economic indicator because it shows the workers’ ability to find employment and contribute to economic output. High unemployment can signal an economy in distress.
Depending on where the unemployment rate stands, we can confirm our view on where we are in the economic cycle.
Low unemployment is generally an indicator of a strong economy, but unemployment figures that are too low can reflect an economy at risk of inflationary pressures. The Federal Reserve points out that it’s impossible to know how low unemployment can drop without causing inflation. When unemployment rates dip too low, however, the lack of available workers can force companies to raise their wages and hire employees who aren’t as productive — which can mean productivity doesn’t cover the cost of new hires.
The unemployment rate can be affected by many things, such as the number of people entering and leaving the labor force, the level of economic activity, and the number of jobs available.
The unemployment rate is usually higher during economic recessions and declines during economic expansions.
In addition to other labor market data, the unemployment rate is a key economic indicator that measures labor market health. It is the percentage of the labor force actively looking for work but still unable to find a job. However, the unemployment rate does not include people who are not looking for work.
Some analysts consider the unemployment rate a leading indicator, meaning that it can signal future economic activity. It can also be a lagging indicator, meaning that it can indicate past economic activity.
I think of it at some point in between, a coincident indicator. Because the unemployment rate most of the time rises as the economy begins to slow down.


Measures of Unemployment
The BLS’s official unemployment rate typically receives widespread media attention. That measure is just one of six measures (U-1 to U-6) that the Bureau of Labor Statistics (BLS) uses to inform economic policy and determine the need for government aid.
For a clearer picture of the U.S national labor market, the U.S. Bureau of Labor Statistics provides six measures of categories of unemployed people.
The official unemployment rate, showing the total number of unemployed people as a percentage of the labor force, is the U-3 measure.
Here is a list of the other BLS Alternative measures of labor underutilization:
U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force
U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force
United States Non-Farm Payrolls
The Non-Farm Payroll (NFP) report is released by the Bureau of Labor Statistics on the first Friday of every month at 08:30 EST.
All Employees: Total Nonfarm, commonly known as Total Nonfarm Payroll, is a measure of the number of U.S. workers in the economy, excluding general government employees, private household employees, employees of nonprofit organizations that provide assistance to individuals, and farm employees.
This measure accounts for approximately 80 percent of the workers who contribute to the Gross Domestic Product (GDP).
The NFP provides useful insights into the current economic situation because it can represent the number of jobs added or lost in an economy.
Increases in employment indicate that firms are hiring, which might suggest that businesses are growing. Additionally, newly employed people increase their personal income and consumption, thus fostering further economic expansion.

The above chart shows the NFP monthly change since January 1990. It represents the number of jobs created or destroyed over the previous month, excluding the farming industry.
What is important is to determine the trend of job creation. There will be some noise in the number (margin of error), so you shouldn’t be looking only at numbers, but rather filtering the noise by following the employment trend and the average.
If we compare the NFP monthly change with the annual percentage change, as in the chart below, we find that the annual % change filters much of the volatility of NFP raw numbers. In addition, it makes it easier to determine the long-term trend of job creation.
Moreover, as we compare the number of jobs added this year to the number of employed people in the previous year, we can determine the annual performance and health of the labor market and the economy.

The NFP report comprises data from the Current Employment Statistics (CES) program which produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls.
Each month CES surveys approximately 131,000 businesses and government agencies, representing approximately 670,000 individual worksites in the United States.
The NFP is widely followed due to its early release, highlighting data for the most recently completed month. However, given the early nature of the report, it is often subject to revisions in later months.
While navigating through the web and in Financial Media, you may come across quotes like:
“The NFP report is one of America’s most influential economic announcements.”
“It is a direct representation of U.S. economic growth.”
“The NFP is one of the first barometers that market participants have for that period.”
“How to trade the NFP data?”
You may notice that NFP data are highly watched, especially among retail traders, where some of them may place trades based only on that macro-fundamental indicator.
In fact, the NFP number is only one factor among many that affect the U.S economy and financial markets. Therefore traders should keep an eye on all different macro drivers that may affect financial markets in addition to other factors related to specific assets they want to trade.
This, of course, should be done through an analysis process, a model framework that encompasses different fundamental indicators and market drivers in a trading system that allows traders to build a global macro view and make informed trading decisions.
The problem with retail traders when reading NFP data is that they focus mainly on the nominal change in the last month i.e. “the U.S added 200k jobs last month” the number in itself does not carry much significance on whether the U.S economy is adding more or less jobs.
Proper data analysis should look at numbers in their context, whether the economy is adding more or fewer jobs compared to previous months and compared to the same period the previous year, and by how much in percentage terms.
This type of analysis allows traders to identify trends in the labor market and whether the slope is up or down. Analyzing changes in percentage terms helps also identify whether the number of jobs created is in a rising or falling momentum.
The pace by which employment increases or decreases is important in determining possible trends of economic growth and investors’ sentiment.
U.S employment leading indicators:
ISM employment survey:
The employment component of the ISM manufacturing and services PMI survey gives early indications about the employment situation and whether it is likely to improve in the coming months or not.
As we notice in the chart below, ISM employment gives early leading indications of the future rise or fall in employment.

Initial and continuing jobless claims:
Initial and continuing jobless claims are reported by the U.S department of labor every Thursday at 8.30 EST. They can give traders an idea of how many people are losing their jobs every week.
Initial jobless claims: are a measure of the number of people who have filed for unemployment benefits in the previous week.
Continuing jobless claims: represent the number of people receiving unemployment insurance benefits for more than a week.
Those two weekly indicators are good high-frequency data that reflect recent changes in the job market. They are closely watched by economists and investors as a gauge of the health of the labor market.
When analyzing jobless claims data, it is better to look at a four-week average instead of one week to avoid the noise in weekly numbers.
Initial and continuing jobless claims are good leading indicators that give an earlier view of the employment and economic situation in the United States. They also have a good predictive value of future expectations about changes in the unemployment rate.
Here are some graphs that emphasize the predictive value and importance of the initial and continuing claims indicators, as they are plotted and compared with the unemployment rate and the non-farm payroll data.




Charts shown in this article have an educative value, as they are intended to teach traders and market participants how to perform a proper analysis of the U.S labor market.
This helps traders to come up with an overview and full understanding of the current employment situation in the United States and future expectations to make an informed trading decision.

Download the U.S labor market indicators excel spreadsheet.
Keep track of job data and perform your fundamental analysis of the U.S labor market.
Download U.S Labor Market indicators

what are the different types of technical indicators?

What are technical indicators?
A technical indicator is a series of data points that are derived by applying a formula to the price data of a security, whether it is a forex pair, a stock, bond, or any other derivative.
Technical indicators have three main functions:
1- confirm other technical analysis tools.
It is very useful to combine different technical indicators with other technical analysis tools so that their noisy negative features cancel each other out while their signals (positive features) remain undisturbed.
2- they are alert to study price action a little more closely.
Unusual spikes or declines, divergences, or some classical chart patterns shown inside the technical indicator window are early signs of a probable important price move that is worth watching closely.
3- Helps at better timing entry and exit positions.
Better timing is an essential component in active portfolio management strategies. Good fundamental trading ideas can go awry with poorly timing entry and exit levels.
types of technical indicators
It is important for traders to know the different types of technical indicators and in which classification each indicator falls. Most essentially, to understand how do they work to generate signals and how significant those signals are. The aim is to answer the question of which indicator a trader should use and in what circumstances.

Generally, technical indicators are classified as either leading, coincident, or lagging indicators. And here is a brief explanation of each type and when you use it.
Leading indicators:
Many leading indicators come in the form of momentum oscillators and are designed to lead price movements. (example: CCI, MOMENTUM, RSI, STOCHASTIC, WILLIAMS %R, ROC …)
They catch turning points in flat markets but give premature and dangerous signals when markets begin to trend.
Leading indicators are best used in trading ranges. they can also be used in trending markets but usually with the major trend not against it.
In a market that is trending up, the best use is to help identify oversold conditions for buying opportunities. While in a market that is trending down, the best use is to help identify overbought conditions for selling opportunities.
Benefits

1. Early signaling for entry and exit.
2. Generate more signals and allow more opportunities to trade.
3. Forewarn against potential strength or weakness

Drawbacks

1. More signals and earlier signals mean that chances of false signals and whipsaws increase.
2. False signals will increase the potential for losses, and whipsaws can generate commissions that may eat away profits.

Lagging indicators:
Moving Averages, MACD, and the Average Directional index are among the most known and used lagging indicators. They are commonly referred to as trend-following indicators because they follow the price movement and turn only after trends reversals. Usually, they work best when markets develop strong trends, and their role is to keep traders in as long as the trend is intact.
Benefits

1. They are designed to get traders in and keep them in as long as the trend is intact.
2. The longer the trend, the fewer the signals and less trading is involved.

Drawbacks

1. These indicators are not effective in trading ranges or sideways markets and may lead to many false signals and whipsaws.
2. Trading signals tend to be late. Late entry and exit points can skew the Risk/ Reward ratio.

oscillators
An oscillator is an indicator that fluctuates above and below a centerline or between set levels, as its value changes over time. Oscillators identify the emotional extremes of market participants. Oscillators could be either coincident or leading indicators and often turn ahead of prices.
Centered oscillators (ex: MACD, ROC …)
They fluctuate above and below a centerline and are best suited for analyzing the direction of price momentum and its strength or weakness. Momentum is bullish when a centered oscillator is trading above its centerline and bearish when it is below.
Banded oscillators (ex: RSI, STOCHASTIC …)
They fluctuate between overbought and oversold extremes and are best suited for identifying overbought and oversold levels. Most banded oscillators rely on divergences and overbought/oversold levels to generate signals.
The middle ground for this type of banded oscillators is a bit of a no man’s land and is probably best left to centered oscillators.
Oscillator signals
Divergences:
Divergence is a clear difference between the price trend and the trend of the indicator. It can be caused via a deceleration of prices or a matter of time, which decreases the angle of each lower low in the downtrend, or higher high in the uptrend compared to the previous one. In addition, what can cause a divergence is that the price movement has the same strength compared to the previous one in the same direction, but the amplitude of the previous correction is greater.
A divergence signals a waning of momentum, but it does not necessarily signify new momentum in the opposite direction. Divergences are best thought of primarily as warnings to exit, and second as opportunities for a reversal.
Overbought and oversold extremes:
Overbought and oversold extremes are a price level that a security reaches and that analysts believe is well above or below its intrinsic or average value. Markets usually expect a stock or security price to correct toward its average value after trading at an extreme.
This situation involves what is known in the market as a mean reversion trading strategy. It considers that prices over time will revert towards their mean or average.
Centerline crossovers:
Centerline crossover signals apply mainly to centered oscillators that fluctuate above and below a centerline. Movements above and below the centerline indicate that momentum has changed from either positive to negative or from negative to positive. Traders have been also known to use centerline crosses with the Relative Strength Index to validate a divergence or a signal generated from an overbought or oversold reading.
Another way to categorize technical indicators
cycle indicators
Generally, a cycle refers to repeating patterns of market movement. Markets tend to move in cyclical patterns, and cycle indicators may potentially determine some of those particular market patterns.
As an example, we can cite the father of technical analysis CHARLES H DOW, where he mentioned through his theory and its principles that bull and bear market cycles have a tendency to move in a zigzag way; either higher highs – higher lows, or lower highs – lower lows.
Momentum indicators
Momentum is a term used to describe the speed at which prices move over a given time period. Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum tends to be higher at the beginning of a trend and lower at trend turning points. The divergence between price and momentum is a warning of weakness.
If price extremes occur with weak momentum, it signals a probable end of movement in that direction. Stochastic and RSI are examples of momentum indicators.
Strength indicators
Market strength or sentiment describes the intensity of market opinion regarding the price of a security through examining market positions taken by various market participants.
Among this category, we can find various trading volume indicators as well as the commitment of traders’ data.
The options market has great potential in determining market sentiment and traders’ short-term mood. Options implied volatility describes market participants’ complacency, uncertainty, or fear.
volatility indicators
They describe the intensity of fluctuations in the asset price, Bollinger bands, historical volatility, and options market implied volatility are useful examples of volatility measures. Generally, changes in volatility tend to lead changes in prices.
As a rule of thumb, before using any technical indicator or relying on its signals to enter trades, it is very important to understand what type it is, in which conditions the technical indicator should be used, and what signals it does generate.