FXCM/DailyFX Signals and Strategies

The DailyFX SSI hasn't updated since Friday. There's a technical issues DailyFX is working on with how the data updates. So, here are a couple of messages David Rodriguez sent through on twitter within the past hour:

EURUSD SSI

EURUSD SSI now at its most net-short extremes since the pair made a run to 1.50 in 12/2009.

GBPUSD SSI

GBPUSD SSI has just flipped to net-short as short positions up 16% overnight, longs down 11%.

USDJPY SSI

USDJPY SSI is at a massive 6.9 traders long for every 1 that is short. Near its highest levels since 11/2009

These updates are found at www.twitter.com/drodriguezfx

By now it's old news that the Bank of Japane intervened in the forex market to weaken the Yen. But take a look at retail positioning from this morning. Traders were massively long USD/JPY with nearly 87% of positions long.

http://img413.imageshack.us/img413/8486/ssi9152010.png

It's been a very painful trade for USD/JPY longs over the past couple of months trying to pick a bottom. Take a look at the below graph DailyFX put together. It shows USD/JPY positioning for the entire year. The green/red bar histogram shows you net positioning on a weekly basis (green indicating net long and red indicating net short).

http://img441.imageshack.us/img441/1...pyssigraph.png

Looking at the bar histogram, you'll see the majority of traders have been net long USD/JPY since June when USD/JPY started it's drop from 91.00. This is indicated by the green bars. So while retail traders were rejoicing overnight, they've endured some pain along the way. The 82/83 level seems to be the line drawn in the sand by the Japanese Ministry of Finance. Will they hold to that level or concede defeat as with the Swiss National Bank?

If you have a subscription to the Wall Street Journal online, they have an excellent concise overview of the steps taken in the Japanese government to authorize intervention http://online.wsj.com/article/SB1000...googlenews_wsj

Automated Trading Contest on Strategy Trader

FXCM is holding an automated forex trading contest which begins October 17. Contestants will use FXCM's Strategy Trader platform to automate their forex trades during a seven week trading period. Registration is now open so you can register a demo and start coding your strategy.

This contest is a demo contest with prizes for 1st, 2nd and 3rd place finishers. Here's the prize schedule:

http://img842.imageshack.us/img842/6...dercontest.png

Important Dates:

September 7: Contest registration opens. Begin coding and testing your automated strategy to prepare for the first day of the contest.

October 15: A starting balance of $1,000 will be used for the official contest. Therefore, at the close of trading on October 15th contest demo accounts will be automatically reset to $1,000 and any open positions will be settled.

October 17: Contest officially begins when trading opens Sunday October 17th. Participants should activate their automated strategies for trading. There is a leaderboard on the contest page which will update hourly with the current leaders.

December 3: Contest trading period ends. Final equity levels will be recorded and prizes will be awarded to the top three contestants


FAQ: All information including FAQ's can be found on the contest website: http://www.fxcm.co.uk/automated-fore...ng-contest.jsp

Let me know if you have any questions.

AUD/USD broke through the 0.9350 resistance mentioned during last week's post and it's now test the 0.9500 level. See the updated chart below:

http://img69.imageshack.us/img69/743...eak9212010.png

Taking a look at the latest SSI data (from Monday afternoon), traders were overall short AUD/USD by a factor of 3.84. This means there are 3.84 short positions for every long position so traders are trying to pick a top in the AUD/USD. Here's the SSI table:

http://img340.imageshack.us/img340/9...ssi9202010.png

In other news, this morning we had the US Housing Starts data released at 8:30am ET. If you read the headlines, you'll probably see the increase in housing starts highlighted as a 10.5% increase. This sounds great, but looking at the historical chart of housing starts, we still have quite a ways to go for housing starts to rebound before the housing market is back on track. Take a look at the below graph from www.forecast-chart.com :

http://img820.imageshack.us/img820/5...tartsgraph.png

Source: http://www.forecast-chart.com/graph-housing-starts.html

I hate to be debbie downer, but housing starts are still near the recessionary lows despite the positive 10.5% increase from August. Starts need to increase by another 300k per month to get back to more normal longer term levels.

The dollar is weak overall. Just take a look at the USD Index chart I generated with Net Dania:

USD Index Chart
http://img295.imageshack.us/img295/7...dex9222010.png

An important support level was broken at the 80.20 level, and we're now testing another important support level around 79.50 which is support from back in March & February of 2010. Using this information, take a look at some of the major pairs such as EUR/USD. Joel Kruger pointed out that 1.3500 is a major 50% Fib level:

EUR/USD Chart from Joel Kruger
http://media.dailyfx.com/illustratio...D_body_eur.jpg
Source: http://www.dailyfx.com/forex/technic...10_EURUSD.html

Second, take a look at SSI positioning in USD/CHF. The SSI reading is a whopping +6.64 meaning nearly 87% of retail traders are long USD/CHF. Traders are trying to pick a bottom in USD/CHF now that it has fallen below parity.

SSI Retail Positioning from 9/22
http://img824.imageshack.us/img824/2...chf9222010.png

The previous USD/CHF low was reached in March 2008 when it tested 0.96445. I have a feeling that retail trader fortitude is about to be tested with this one.

In case you haven't heard, FXCM is holding an automated forex trading demo contest which begins October 17. Contestants will use FXCM's Strategy Trader platform to automate their forex trades during a seven week period. Registration is now open so you can register fro a demo and start coding your strategy. Please make sure to register for a demo through the contest page so it is entered into the contest http://www.fxcm.co.uk/automated-fore...ng-contest.jsp

Here are some important dates to keep track of for the contest:

September 7: Contest registration opens. Begin coding and testing your automated strategy to prepare for the first day of the contest.

October 15: A starting balance of $1,000 will be used for the official contest. Therefore, at the close of trading on October 15 contest demo accounts will be automatically reset to $1,000 and any open positions will be settled.

October 17: Contest officially begins when trading opens on Sunday, October 17. Participants should activate their automated strategies for trading. There will be a leader board on the contest homepage, which will update hourly with the current contest leaders.

December 3: Contest trading period ends. Final equity levels will be recorded and prizes will be awarded to the top three contestants.Additional information including contest rules and FAQs can be found on the contest website: http://www.fxcm.co.uk/automated-fore...ng-contest.jsp

The following prizes will be award to the 1st, 2nd, and 3rd place finishers:

First Place: $10,000
Second Place: $7,000
Third Place: $3,000

Let me know if you have any questions.

Hi Jason,

Ray the Random Robot got terribly excited about this news, but then he read the small print.

He was ever so pleased when we installed new multiple micro memory modules (MMMMs for short) to allow him to try and juggle with up to 12 pairs at once in the MetaTrader 5 Automated Trading Championship, but it looks like we'll have to take them out again for the Strategy Trader contest.

Have I got that right?

Ray is also terribly disappointed to only have $1000 to play with in your contest. He's just had tremendous fun blowing the best part of $100,000 in a competing competition!

Jim

Will check on this!


I'll give Ray a login to the DailyFX+ Course for some help with risk management

-Jason

That's very kind of you Jason, but it wasn't Ray's fault. Honestly!

Admittedly he was being rather aggressive, but some beta software he relied on for converting MQL4 to Java appears to have a few teething problems. He ended up trying to trade 5 times the size he intended, which was pretty big to start with!

I'm sure he won't suffer any problems like that with Strategy Trader. Will he?

Jim

The market has traded right towards the 1.3500 fibonacci level mentioned by Joel last week, and it's looks to be stalling somewhat and finding difficulty pushing through. As far as where the market may be headed from here, Jamie Saettele has one of the more interesting charts I've seen today:

http://media.dailyfx.com/illustratio..._IC_Screen.png
Source: http://www.dailyfx.com/forex/technic...cument2_1.html

Jamie is calling for a possible push up towards the 1.4130 area. Retail traders are slightly short in overall SSI positioning with a reading of -1.45.

I follow your thread , Thanks a million and dont be tired...
Keep going on your nice job Jason Rogers
FXCM Representative
Great man.

Hi Naseri,

Thanks for following the thread and happy to see you enjoy the posts. I have to apologize for my posting this week as it will probably be a little slower than normal until Friday.

Happy Trading!

-Jason

Here's a quick update on the AUD/JPY, AUD/USD, and EUR/USD levels we've been watching over the weeks.

AUD/JPY: Last week I posted a chart from John Kicklighter where he noted a potential breakout in the AUD/JPY. The market broke to the upside and has been consolidating between the 80.50/81.20 area. Take a look at the 8 hour chart below, looks like a triangle (or flag) is forming before a possible push higher. If you're long, watch out for possible risk aversion and drops in the stock market which could cause this pair to drop. Further BOJ intervention could help this pair move higher.

http://img9.imageshack.us/img9/3045/...art9292010.png

AUD/USD: Nice move in the AUD/USD the past couple of days and the 0.98 resistance level is within sight. Remember that 0.98 is resistance from back in March of 2008. May have a tough time breaking through that level, but if it does, will we see a run towards parity?

http://img843.imageshack.us/img843/3...usd98level.png

EUR/USD: And saving the most popular pair for last, I'm just going along for the ride on this one. Last week Joel Kruger pointed out previous resistance at 1.35 which the market clearly broke through. The next resistance level he's watching is 1.3690 representing the high from April of this year http://www.dailyfx.com/forex/technic...USD_09_29.html . But I also want to go back to his chart displaying the fibonacci levels. The 61.8% retracement level is 1.3892, a possible long term target if EUR/USD momentum continues.

http://img694.imageshack.us/img694/1...ibo9292010.png

Other Important Events to Watch
Keep an eye on the situation brewing between the US and China concerning the Yuan appreciation. Reuters is reporting that:

"the House of Representatives is poised on Wednesday to pass legislation to pressure China to let its yuan currency rise more quickly, fanning the flames of a long-running dispute over trade and jobs." (Source: http://www.reuters.com/article/idUSTRE68S0NJ20100929)

Even though the RMB has appreciated about 2.5% since June of this year, US lawmakers want to see a faster appreciation. China has indicated their desire to move towards a freely floating currency albeit gradually, and pressure to do so quickly could create tension. This situation could get very very messy..just be aware.

Take a look at the USD/CAD. It's been trading in this nice little range over the past 3 weeks, and we're sitting at the bottom of the range at the moment.

USD/CAD Chart
http://img72.imageshack.us/img72/990...drangeoct1.png

I wanted to bring this up because of the SSI positioning for USD/CAD which was around 4.05 as of the latest update this morning. Not surprising that positioning has increasing to the long side since retail traders like to pick bottoms, and the range on this pair has held up pretty well over the past 3 weeks.

See the image below, I posted the chart which DailyFX uses to gather the SSI information (this chart was posted inside DailyFX+). The bottom of the chart shows the SSI indicator (btw, not yet available on Strategy Trader). You can see the indicator was at 4.0516 when the screenshot was taken. I drew a green dotted line at the 0 level so you can easily see that when the line is over the green dotted line, that indicates positioning is net long. When the line is below the green dotted line, positioning is net short.

USDCAD Chart with SSI
http://img685.imageshack.us/img685/3...iusdcad101.png

It will be interesting to see if the market can finally push through this support level at 1.02. Personally, when this type of situation comes up, I look at the news, economic reports, etc. for possible fundamental events that can act as a catalyst sending the market lower. The economic calendar for CAD is fairly light up until next week when the employment data is released. Possibly oil? It's been pushing higher this week. Remember that Canada is a large exporter of oil so as oil prices go up, it should work to Canada's economic benefit. (In case you didn't know, Canada is also the US's largest foreign supplier of oil http://www.eia.doe.gov/pub/oil_gas/p...nt/import.html . I always find this fascinating.)

A couple of reminders...

1. Automated Forex Trading Contest: Only 15 days until the automated trading contest for Strategy Trader begins http://www.fxcm.co.uk/automated-fore...ng-contest.jsp

2. NFP: The Non-Farm Payrolls report will be released next Friday. The DailyFX calendar is showing the forecast is for an increase of 5,000 jobs. Not a very stellar number.


Have a great weekend!

The Reserve Bank of Australia rate decision comes out tonight at 3:30am GMT (or 11:30pm ET). The RBA is expected to raise rates by 0.25% bringing the target rate to 4.75%, but one has to wonder if this information is already priced into the AUD/USD considering the uptrend over the past month. Watch out for the "buy the rumor, sell the news" setup going into this news event.

Ilya Spivak will be hosting live trading coverage during the RBA rate decision starting at 3:15am GMT (11:15pm ET). That is the time the streaming audio and chat discussion room will activate.

http://img823.imageshack.us/img823/589/tradethenews.png

Where is gold headed?....Jamie Saettele is mentioning $1,405. Here are his remarks:

.... An objective going forward is 1405, which is the 100% extension of the 1048-1270 advance. The short term trendline is at 1333 today. A drop below 1300 would shift focus to last week’s low of 1275.

http://media.dailyfx.com/illustratio..._IC_Screen.png

Read more at: Forex @ DailyFX - Elliott Wave | Forex Technical Analysis http://www.dailyfx.com/technical_ana...#ixzz11Uaw4KsI

And check this out, Jim Rogers is calling for gold to reach $2,000 (sometime over the next decade ) http://www.cnbc.com/id/39506845 .

If you're coding a strategy or indicator on Strategy Trader, you may find the PDF document I attached helpful. The programming team put together a tip sheet on the top questions coming up when coding on Strategy Trader.

Take a look at the most recent SSI from this morning, EXTREME positioning in USD/JPY:

http://img227.imageshack.us/img227/8...ing1062010.png

It's not looking good for the USDJPY traders. USD/CHF is hitting new lows, and USD/CAD is making a move towards 1.0000. Not a good time to be bottom fishing.

An overview of this morning's news:


Weekly jobless claims drop by 11,000 to 445,000

China tells EU to back off from calls for rapid Yuan appreciation http://www.bloomberg.com/news/2010-1...-the-yuan.html

China vows to buy Greek debt http://www.marketwatch.com/story/chi...k=MW_news_stmp .

Australian economy adds 49,500 new jobs, sending the AUD higher! http://www.bloomberg.com/news/2010-1...nth-month.html

Gold reaches another record high. Key dates in the history of gold since the 1970's http://www.reuters.com/article/idUSLDE6951PG20101007

USDJPY hits 15 year high! Check out the headline on this article from Bloomberg:

Dollar `Panic' Drop to Record 74 Yen Is Likely in 2011, Wakabayashi Says

The dollar may fall to a record 74 yen by February 2012 as concerns about the U.S. budget deficit weaken its currency, said Eishi Wakabayashi, the strategist who forecast the yen’s surge to an all-time high in April 1995.

Lastly, I believe there is an IMF meeting this weekend, which could be very important, but I'm having a hard time finding an article confirming date/time. So be careful with any positions you hold over the weekend. FT.com article where IMF chief warns on exchange rate wars.


At the moment, EUR/USD is pushing above 1.4000, USD/JPY approaching the 82.00 figure, AUD/USD pushes above 0.9900, USD/CHF drops below 0.9600...important moves happening all over the place!