FXCM/DailyFX Signals and Strategies

Thanks Fugly!

Too bad we didn't hit parity ...maybe next time . Over the past 3 years or so, SSI has worked really well on USD/CAD from what I have seen. So I tend to watch it the most.

USD/CHF over the past couple of days is an interesting case. Positioning yesterday was at 4.28. Quite a large number of traders long. Typical SSI trade would have been to go short; however, the long term trend on USD/CHF chart is up:

http://img211.imageshack.us/img211/4327/usdchf.jpg

The long positions made sense to me looking at the trend and we were right at the trend line. Sometimes the majority of traders are right! Plus Fitch downgrading Portugal's debt was great timing for this trade. Major props to our traders

SSI's kind of boring at the moment. Everything is within the -3/+3 range. USD/CAD at 1.92 and USD/CHF down to 2.80 on what is probably profit taking. So we'll just sit back and patiently wait for another trade to setup.


On a non-SSI fundamental note, today's announcement by Fitch to downgrade Portugals debt keeps the EUR as one of the weakest currencies in my eyes. On the strong side, I'm watching the USD (risk aversion), AUD, CAD, and NZD due to economic strength.

Pairs to watch: EUR/AUD, GBP/AUD, EUR/USD, EUR/NZD, and maybe AUD/USD if you're playing the progression of lower highs on the daily chart.

And how long will CAD/JPY continue to move sideways? We're right at the top of a 10 month range:

http://img138.imageshack.us/img138/9646/cadjpy.jpg

CAD/JPY testing the range high & nearing the 91.00 level...

http://img113.imageshack.us/img113/9646/cadjpy.jpg

Here's this morning's "News in 60 Seconds" from Sean Hyman of the DailyFX Powercourse:

Biggest % gainers: NZD/USD up 0.89%, CHF/JPY, EUR/JPY, GBP/JPY, AUD/JPY on mild JPY weakness and mild NZD strength.

Biggest % losers: AUD/NZD down 0.67%, USD/CAD, USD/CHF on mild USD weakness and mild NZD strength.

Gold $1,093
Oil $81.04

Swiss President says he's concerned about the rise of the Swiss franc.

EU Summit going on right now. More clarity on Greece aid could come out of it.

GBP Retail Sales m/m better at 2.1% vs. 0.8%. Previous reading revised down to -3.0 from -1.8.

USD Unemployment Claims better at 442k vs. 452k expected and 456k last time.

NZD GDP came in "in line' last night at 0.8% BUT the previous quarter was upwardly revised to 0.3% vs. 0.2% formerly. That's helped out the NZD this morning.

Laptop & TV sales boosts Best Buy's earnings. Qualcomm's earnings also beat estimates....helping stocks in pre-market.

Fed's Pianalto says that unemployment will remain above 9% until mid-2011. Says the economy is still facing significant headwinds, limiting the growth rate for the next couple of years.

Pimco's Bill Gross says that bonds have seen their best days.....says the argument is to not own as many bonds.

Sean Hyman will be one of the speakers attending the FXCM Currency Trading Expo in Las Vegas May 3-4, 2010. Here's a list of the workshops he will be speaking at:

 

1. Intro to FXCM and Forex Markets
2. Using Commodities (Oil and Gold) to Trade Currencies
3. Forex Cross Currencies and Emerging Markets Currencies

The complete workshop schedule can be found on the expo website http://www.fxcmexpo.com/workshops.jsp

5 Key Events to watch this week from DailyFX Analyst John Rivera

The U.S. Non-farm payroll report will be the focus of the week and with expectations for job growth in the world’s largest economy we could see broader optimism. German labor statistics will also cross the wires and brings implications for European domestic growth. However, the focus will be on the week full of U.S. data including the March manufacturing report and the latest consumer sentiment reading.

•U.S. Consumer Confidence (MAR) – March 30, 14:00 GMT
Americans are becoming more optimistic as the economy improves which is expected to be reflected in the upcoming Conference Board index. Forecasts are for a rise to 50.0 from 46.0 which would leave sentiment lower than the January reading of 56.50. The University of Michigan Survey confidence survey for the same period improved to 73.6 from 72.5 which supports the forecast for improvement. Rising optimism often translates into consumer demand which has implications for future growth and inflation, both which could accelerate the time frame for a Fed rate hike. Therefore, we could see bullish dollar sentiment following an inline or better print.

•German Unemployment Change (MAR) – March 31, 07:55 GMT
The German labor markets has started to show signs of weakness as the number of unemployed rose the past two months following six straight months of declines. Economists are expecting that Europe’s largest economy added another 7,000 to the number of out of work Germans. The OECD is forecasting that the unemployment rate will remain at the current 8.2% for the remainder of the year. Therefore, job losses for a few thousand for the 40 million string labor force may not raise concerns. However, a third straight month of declines is a trend that will grab investors’ attention. Considering the debt troubles in the region any weakness from the main engine of growth could weigh in the single currency which has been battered over the past week.

•Canadian GDP (JAN)– March 31–12:30 GMT
The Canadian economy continues to show signs of growth with consecutive months of job growth and a 0.7% improvement in retail sales in January. Therefore, it isn’t a surprise that economist are forecasting that GDP accelerated by 0.5% in the first month of the year. The fourth quarter of 22009 saw the commodity driven economy grow by 5.0% propelled by demand from emerging markets. China and India are starting to take steps to cool their domestic economies but a slow down, is still in the distance. A faster pace of Canadian growth will fuel interest rate expectations which are already on the rise. The BoC has pledged to remain on hold until at least June, but with core inflation already above the target level of 2.0%, they could look to become aggressive and hike rates sooner.

•U.S. ISM Manufacturing (MAR) – April 1- 14:00 GMT
A boost in manufacturing was the key to the 5.6% increase in 4Q U.S. GDP which makes the upcoming March reading an important gauge. The increase in activity has been driven by demand from abroad and the replenishing of depleted inventories. The lack of consumer spending has dimmed expectations for future activity which were validated with February’s decline to 56.5 from 58.4. Forecasts are for a slight pickup in March to 57.0 which isn’t enough to alter the current outlook. Nevertheless, another month of expansion (a reading over 50) is a sign that the recovery is sustaining which could be bullish for the dollar.

•U.S. Non-Farm Payrolls (MAR) April 2– March 19, 12:30 GMT
The U.S. labor report is typically one of the most market moving events, which has grown in importance with the Fed expected to remain on hold until unemployment declines. Economists are forecasting that non-farm payrolls increased by 190,000 in March which would be the most since March, 2007. The past three months have seen the economy lose jobs following the unexpected increase last November. Many had expected that stimulus efforts would have generated positive net employment sooner. A strong result will fuel expectations that a positive trend is emerging which will shorten the horizon for tightening from the FOMC and could generate significant dollar support.

Read more: DailyFX - U.S. Non-Farm Payroll Report Headlines Week of Event Risk http://www.dailyfx.com/forex/fundame...#ixzz0ja2EKgur



John Rivera will be speaking at the upcoming currency trading expo hosted by FXCM in Las Vegas May 3-4, 2010. Here are the workshops he is hosting:

 

1. Importance of Identifying Drivers of Price Action
2. Trading Mistakes to Avoid

Jason,
What if a high percentage of retail traders are using SSI to base their trades? If so, then seems to me it's basically worthless. I compared many of the of weekly SSI reports from this thread with actual charts for the week following the report, and quite a few of them subsequently turned out to be incorrect - even for the extreme values. Do you have any actual historical reports showing SSI vs. actual for the weekly and for the twice daily?

Hi eagle,

Thanks for the post.

That's true…if a high percentage of traders were to start using SSI, then it may not work as well. Same holds true with any indicators. But I don’t think a high percentage of traders will start using it because retail traders like to fade momentum. And traders emotions often override their trading plan causing them to add to losing positions or move stop loss levels. These characteristics are hard to change.

Using SSI for trading…

I don't blindly follow every SSI signal. First, I check the general trend of the currency pair, and then I look for extreme levels of positioning against the trend. USD/CAD has been one of my favorite pairs to watch because the overall trend has been down. USD/CHF, NZD/USD and AUD/USD were two more favorites during 2009. Recent USD/CHF positioning is a good example of where I would be very cautious. USD/CHF SSI is currently at +4, but the overall trend of USD/CHF on the daily chart is to the upside. Traders are trading with the overall long term trend, something I would probably do myself. Not the best signal in my opinion. Positioning in the remaining pairs (EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD, GBP/JPY) is not extreme so I’m not watching them very closely.

DailyFX releases a once a week SSI report that gives an overview of week to week positioning and overall sentiment. The images show historic SSI positioning in the histogram portion compared to the currency Price itself. Here’s an example of the USD/CAD over the past year or so:

http://www.dailyfx.com/export/story-...1727801350.gif

The weekly SSI research is updated every Thursday on this page http://www.dailyfx.com/technical_analysis/sentiment/ .

-Jason

Jason,
Let me know if my interpretation of the chart is correct:

1) If the green line is above the red line, it means more traders are long than short, and thus price should go down.

2) If the red line is above the green line, it means more traders are short than long, and thus price should go up.

If above is correct, then very few times in the usd/cad chart you posted did the red line cross above the green, as I noticed that when the price increased on the chart, that usually did not occur. And this is true for other charts in the FXCM analysis I looked at - very few times when red crossed above the green eventhough there were some major increases in price during the time period shown in the charts.

-or-

is it the change from the prior week that holds more weight?

Hi eagle,

Your points 1 and 2 are correct. When the red line is above the green line, positioning is net short. When the green line is above the red line, positioning is net long.

The histogram in the section above displaying the red and green bars gives a visual of the difference between the red and green lines and color coded to indicate net long or short.

The magnitude of long/short positioning is something that should also be taken into account as well. DailyFX classifies extreme values as equal to or greater than +3/-3. At the few points during which the red line crossed above the green line, net positioning short was not very extreme. Very little conviction on the part of traders taking on short positions.

During the past 9 months or so, traders have taken every opportunity to go long USD/CAD fighting the trend. During that time USD/CAD has dropped from 1.14 to 1.02 at the current level.

This isn't to say SSI is as easy as taking a look at whether traders are purely long/short and doing the opposite. Timing is important as well, and I look at technical setups to help time entries, such as with this post http://www.forexfactory.com/showthre...5#post35356665 . I would prefer to be patient and wait for a well setup trade.

Here are a couple more charts I'm watching. I'm starting to watch EUR/JPY and CAD/JPY more closely for JPY weakness.

Last week, John Kicklighter pointed out a developing head and shoulders pattern, and today's daily candle is pushing through the neckline. Continuation could reach a target of the 127.50-129.00 area. Fundamental risk to the trade would be Greek fiscal problems becoming a main talking point in the news again.

http://img355.imageshack.us/img355/3...ndshoulder.jpg

I mentioned CAD/JPY in a post last week, watching a multi-month range. CAD/JPY is pushing higher on the daily chart. If we see oil prices push higher, it could help CAD/JPY continue to push higher.

http://img138.imageshack.us/img138/3488/cadjpyrange.jpg

Event risk for CAD?....nothing scheduled as far as economic releases from Canada for the rest of the week according to the DailyFX calendar www.dailyfx.com/calendar

Reminder that this Friday is the NFP report. Friday is also Good Friday, a public holiday in many parts of the world. The NFP report, coupled with the public holiday, could cause trading to be more volatile than normal so take caution! Trading hours at FXCM remain the same closing on Friday at 4pm EST and opening on Sunday at 5:15pm EDT.

If you happen to be trading during NFP, you're welcome to join John Kicklighter of DailyFX for live coverage of the event starting at 8:15am EDT. John will be providing live commentary, important chart setups, trading information, and the announcing the number immediately at the release.

Here's where to find the live coverage on DailyFX the day of... http://www.dailyfx.com/calendar/trade_the_news/

Today's ADP release came out at a loss of 23,000 jobs. The DailyFX calendar shows an estimated job gain of 190,000 jobs. Two very divergent views on job creation should make for exciting trading.

Every now and then I post Sean Hyman's "News in 60 Seconds" morning market update. Sean will be speaking at a couple of the workshops for the FXCM Currency Trading Expo being held May 3-4, 2010 at the Rio in Las Vegas. Here are the topics he will be discussing:

 

1. Introduction to FXCM and the Forex Markets: Sean will discuss pips, lots, and the advantages of the forex market over the stock market.
2. Using Commodities (Oil and Gold) to Trade Currencies: Learn how gasoline/oil, gold, and the Dow Jones Industrial Average correlate to the currency markets.
3. Forex Cross Currencies and Emerging Markets Currencies: Learn the advantages of trading crosses over “the majors” and how to leverage the most exciting emerging market currencies.

Would love to see you there if you can make it. You can register and view the complete workshop schedule and speakers list at: http://www.fxcmexpo.com

Also, if you book a hotel room at the Rio, use this link https://www.harrahs.com/CheckGroupAv...oupCode=SRFCM0 because there are a limited number of discounted rooms available for the FXCM expo attendees.

-Jason

A lot to discuss regarding the market. Will post about SSI this afternoon, but first take a look at CAD/JPY, EUR/JPY and Oil.

CAD/JPY breakout has continued now that oil is pushing higher. Take a look at the chart (CADJPY on the left, oil on the right).

http://img59.imageshack.us/img59/7581/cadjpyandoil.jpg

This chart was taken from an FXCM UK account. You can now trade CAD/JPY and oil through the same account (not available for US residents). Search for the USOil symbol in the dealing rates window.

And the EUR/JPY continues to move higher off of the inverse head and shoulders. Will we reach 127.50?

http://img338.imageshack.us/img338/7...pyneckline.jpg

More to come later in the day...

As promised, here's the SSI post!

If you've watched SSI over the past couple of days, you noticed USD/CHF positioning was hovering around the 3-3.5 level the past couple of days. I must admit that I was a part of the crowd biased towards a long position due to the trend line. Naturally, USD/CHF starts testing the trendline on the daily chart, ultimately closing below the trendline. So what did traders do with their long positions? That's right, add even more, bringing USD/CHF SSI to an extreme 5.47 early this morning. But alas, the SNB came to the rescue....

http://img31.imageshack.us/img31/7745/usdchfmove.jpg

Moving USD/CHF 170 pips in 5 minutes. And the USD/CHF long positions breathed a collective sigh of relief.

The move in EUR/CHF was even bigger!! Over 250 pips...

http://img525.imageshack.us/img525/4835/eurchf.jpg

Not a good day to be short EUR/CHF. Traders will have the long holiday weekend to think about that one. You will also notice a blue line on the EUR/CHF chart. This is the "ruler" feature built into marketscope. It's like drawing a line, but the ruler will measure how many pips your line covers, in this case 262.2. Great tool for quick analysis rather than having to subtract levels yourself.

Moving on to the last pair for the day...USD/CAD. SSI increasing again as the USD/CAD breaches the 1.01 level. We're now up to 3.39 as of the reading at 17:43 GMT. Previous support at 1.0070 is holding, but the increase in long positioning is signalling the potential for a move towards 1.0000

http://img11.imageshack.us/img11/479/usdcadparity.jpg

Don't forget tomorrow is NFP. Join John Kicklighter of DailyFX at 8:15am EDT for live coverage of the NFP report. http://www.dailyfx.com/calendar/trade_the_news/ . John will be taking your questions and analyzing charts as the market moves.

Here's a list of the live events from DailyFX next week. Live coverage starts 15 minutes before the release, and you can access the trading room through this page: http://www.dailyfx.com/calendar/trade_the_news/

 

1. Tue (Mar 30th, 10:00 EST) – US Consumer Confidence (MAR) with John Rivera
   
2. Wed (Mar 31st, 3:55 EST) – German Unemployment Change (MAR) with David Song
   
3. Wed (Mar 31st, 9:00 EST) – Technical Trading with Jamie Saettele
   
4. Thu (Apr 1st, 10:00 EST) – US ISM Manufacturing (MAR) with David Rodriguez
   
5. Fri (Apr 2nd, 8:30 EST) – Change in NFPs (MAR) with John Kicklighter

Have a great weekend!

Sorry, if it is a silly question. But if the long positions are increasing the price movemenent should up, right ? rather than down ? Please explain.

Hi cprao,

Thanks for the post and great question. It's helpful to go back every now and then and talk about retail traders and why SSI positioning can be used as a contrarian indicator.

Retail forex traders like to fade momentum. Traders often sell into rallies and buy into declines. They tell themselves..."look at how much the market has moved, it can't possibly go any further! I'm calling the bottom, time to trade the retracement!". Only to see the market continue trending.

I'm of the same opinion that volume should follow trend. The problem in this case is that the retail trading volume is fighting against that trend and their volume is not enough to counter the trend. In a trending market this becomes a poor trading strategy.

Second, the poor trading habit of adding to losing positions or not setting stops makes the trend fighting strategy even worse. Retail traders will add to their losing position to get a better break even price. In a ranging market this can work out because you're counting on the market to come back in your favor. In a trending market, the end result is an accumulation of very large losses and ultimately a margin call.

If you're intent on trading ranging markets, my suggestion is to look for a currency pair with low volatility and small movements. FYI: The range trading strategies were the worst performing strategies for DailyFX over the past 60 days. Take a look:

http://img401.imageshack.us/img401/4...gestrategy.jpg

DailyFX has a nice "How to Use.." SSI guide on their website here http://www.dailyfx.com/forex/educati...e_the_SSI.html

Continuing with this mornings post on the DailyFX Plus trading signals...

The performance section shows the performance of each strategy over the past 60 days. It's a rolling 60 day period so you can see which strategy is performing best during current market conditions. Market conditions change over time. What worked last year may not work today. If the market is trending, then you shouldn't be using a range strategy which worked well pre-2007.

Second, the performance measures the strategy as a whole for signals it generated on any currency pair. For example, if Momentum1 made 10 pips on a USD/CHF trade and 20 pips on a USD/JPY trade, the Avg Pips is 15. You would have had to have traded both the USD/CHF and USD/JPY signal to replicate the performance on the signals page.

You can register for a free trial of the DailyFX Plus signals through the FXCM website http://www.fxcm.com/trading-signals.jsp

Thank you for the explanation.

News in 60 Seconds by Sean Hyman

Biggest % gainers: AUD/NZD up 1.28%, AUD/CHF up 1.09% on the Aussie rate hike of 1/4 point to 4.25% overnight. (I find it interesting that AUD/CAD still slumps...shows you the strength of CAD lately).

Biggest % losers: GBP/JPY down 1.16%, EUR/JPY down 1.14% on yen strength.

Gold $1,133
Oil $86.85

Geithner says that the U.S. economy is expanding faster than anticipated.

CAD climbs to parity vs. the USD for the first time since July 2008.

FOMC Meeting Minutes come out at 2pm EST today.

Japanese interest rates come out tonight. As usual, they don't give a time that they'll announce the results. However, rates are expected to hold at 0.10%. JPY is rallying into the event though. See if it sells off upon the announcement or if that rally continues.

UK's Gordon Brown sets election date of May 6th. Therefore the central bank will move their policy meeting to May 10th.

UsdCad update summary: Traders continue to pick bottoms by opening new positions. Traders as a group are not however, adding to losing long positions.

When the sentiment is increasing it signifies that the ratio of buyers to sellers is increasing, most likely because traders are adding to long positions. When the sentiment ratio is flat it signifies that the ratio of buyers/seller is also flat.

In this case, a leveling out of sentiment indicators most likely signifies that traders are going long at bottoms, placing stops close to entries, being stopped out as price goes lower, and re-entering at new lows. This would not affect the buyer/seller ratio and make the sentiment indicators (SSI & RPM) flat.

Stops still expected lower and where there are stops, there are profits for bigger players.

Live Sentiment chartshere.

http://i260.photobucket.com/albums/i...99E6/image.png