Forex Volume April 18th Report

The latest Commitments of Traders Report was released today.

Name	Open Int	Long Pos	Short Pos
Crude Oil	495795	183102	116353
CAD	40999	23225	16307
CHF	43779	10744	32912
GBP	49814	27302	22208
JPY	118999	38749	79890
USD Indx	18272	11223	4994
EUR	86016	70019	14677
NZD	6072	5272	800
AUD	30108	20597	9436

Crude Oil - ↑ Very Bullish

CAD - ↑ Very Bullish

CHF - ↓ Very Bearish

GBP - ↑ Bullish

JPY - ↓ Very Bearish

USD Index - ↑ Very Bullish

EUR - ↑Very Bullish

NZD - ↑Very Bullish

AUD - ↑Very Bullish 

Popularity: 6%

There’s a New Kid in Town

There's a new guest trader on fxcmtr.com.  His name is John Putnam and he comes from Putnam Financial. 

This is John's Trade Methodology:

FX Analytics (FXAN) is a blend of quantitative modeling, combined with advanced technical overlays. PFI's trade and forecast models are built around a balanced dollar index providing exceptional insight and liquidity into a large group of US based pairs. FXAN utilizes a mathematical model and scientific grade software to process a large dataset across a distributive grid of computers. This forecast is then triggered into actual trades through a series of overlays where algorithm efficiency, market dynamics and specific risks are modeled and factored in.

HIS ANALYSIS?

Trade Idea:

Long EUR/USD on a bullish candle reversal (1 hour or 2 hour bullish Harami) that fails to sustain a break below 1.2240

Stops below 1.2210

Target 1.2330

Dollar forecast for the next 24hrs: Bearish

Stronger EUR/USD, GBP USD & AUD/USD

Weaker USD/JPY, USD/CHF & USD/CAD

Market Dynamics:

Favored - Cyclical & Regression Models 

At Risk - Trend Models

PFI exited its long EUR/USD trade this morning for 221 pips. For all practical purposes I could have stayed with it given the model bias remains bearish on the dollar.  That said, with a major event risk on the horizon (NFP on Friday) I've decided to stand aside for the balance of the week.

Today's price action will probably look a lot like yesterdays and will remain choppy through the day. This makes the target of the trade idea (1.2330) a tough task in the short term and could push traders into Friday trying to achieve it; which I don't encourage.  1.2240 and 1.2210 are Bollinger Band and ma support levels (different time frames) with 1.2330 bringing in substantial Bollinger Band resistance.

Overall the dollar is finding some support at our lower channel; it would be unusual for the dollar to sustain a push deeper into this region after floating across the top for any length of time. If we don't see a substantial pull-back to a more neutral position tomorrow, I'd almost expect to see NFP come out stronger than expected or an overall muted reaction to poor numbers, which will leave the market in good shape for a technical reversal at the beginning of the week.

 

 

 

 

Popularity: 3%

Newest Forex Volume Report Released

Open interest dropped across the board this week except in the Australian dollar.

Canadian Dollar
Big swing from NET LONG to NET SHORT

Swiss Franc
Very Bearish.  50,327 Short positions vs. 3,462 Long positions

British Pound
18,418 Short positions, 13,183 Long positions 

Japanese Yen
Decrease of 17,632 short positions.  Still Bearish 

USD Index 
Decrease of 7,196 long positions.  Still bullish with 11,114 Long positions and 4,491 Short positions 

Euro 
EURO remains Bullish with another decrease this week in Short positions (-10,149) 

New Zealand Dollar
Less Bullish than last week with decrease of 688 long positions and increase of 178 short positions 

Australian Dollar
Bearish.  Increase of 15,455 Short positions on increasing open interest. 

Crude Oil 
Less open interest than last week with an almost equal balance of long (128,840) to short (135,177) positions. 

Popularity: 4%

Learn from Booker

More Booker Today:

The pair closed above the channel top.  I am very bullish on this pair right now.  The channel is about 500 pips wide, and that means that I am looking for a move above the channel of 500 pips, give or take 50.  The pair broke above the channel at 205.20-30 or so, and that means we are targeting 210.00 for the profit target.

 

 

 

 

I took the first part of this trade with a small lot size (a fraction of my regular trade size) so that I could safely place my stop back inside the channel at 203.60.  This means that I have plenty of room for the pair to bounce around.

This trade is not risk free!  Even though it seems to be on a trip upward, we could see a sudden reversal in this pair.  Do not ever risk a substantial portion of your account on 1 trade or set of trades.  Make sure you limit your risk on wide stopped trades by reducing your trade size.

Popularity: 2%

Do Interest Rate Differentials affect Currency Price?

I wanted to do a study on my own between the EUR/USD and interest rate differentials so I gathered all historical interest rate data from 1/1/1999 to present.  What I found was that there was no correlation between the actual differential and the price of the currency pair.  What I did find was the following:

We are in the third cycle of price changes.  What I mean by this is that there was an extended period where the USD gained versus the EURO (Cycle #1) and then an extended period where the EURO gained versus the USD (Cycle #2).  Currently there has been another extended period where the USD has gained versus the EURO (Cycle #3)

Here are my estimates of cycle length:

Cycle #1 - 01/1999 - 05/2001   BULLISH USD (29 months)
Cycle #2 - 05/2001 - 12/2004   BEARISH USD (43 months)
Cycle #3 - 12/2004 - present    BULLISH USD (16 months +)

I found that the most defining point regarding the change of cycle was that it happened right after the interest rate differential between the EURO and USD hit 0%.

Here are the periods of time when the differential hit 0.00%:

5/11/2001
11/10/2004 

As you can see, there is a correlation between the differential being 0% and the change of cycle.  Unfortunately we have limited data since the EURO has only been in existence for the last 7 years or so.

If I was to use this information to predict the future direction of this currency pair, I would have to predict that the USD will remain BULLISH for quite some time to come.  Seeing that the interest rate differential currently is 2.50% and the fact that the Fed may increase rates 2 more times, I cannot foresee this differential decreasing anytime soon.   

I don’t know if this study is B.S. or not.  There are many other economic factors that can affect currency prices and I didn’t take any of these into consideration such as the US Account Deficit or the Eurozone’s slower GDP growth.  In addition, with Iran switching to EURO’s for payment of oil, there are other things in play that make it more difficult to predict the future. 

 EUR/USD Interest Rate Diff- Excel (20.50 KB 06.03.2006 11:32) 

Popularity: 2%

CFTC report for February 28th Released

As always, the "Forex Volume" reports can be viewed at http://www.forexproject.com/Forex_Volume/

Summary:

1.  CAD increase of 8,221 long positions (Sentiment:  Very Bullish)
2.  CHF increase of 23,807 short positions (Sentiment: Extremely Bearish)
3.  GBP decrease of 11,359 short positions (Sentiment: Bearish)
4.  JPY decrease of 33,735 short positions, increase of 14,628 long (Sentiment: Bearish)
5.  USD Index had no major changes (Sentiment: Extremely Bullish)
6.  EUR increase of 8,785 long positions (Sentiment: Bullish)
7.  NZD had no major changes (Sentiment: Bullish)
8.  AUD decrease of 3,474 long positions (Sentiment: Neutral)

Popularity: 3%