USD in a trading range as US observes Thanks Giving!

• The Dollar Traded quietly during yesterdays US market holiday. The majors traded inside recent ranges with little fresh news to move the markets beyond. Risk aversion took a small break during the day however as the Asian session begun risk aversion trickled back in the market once again pushing the EURUSD back to its lows.  In Asia the focus was on the Korean peninsula standoff which dampened appetite further. US stocks remained unchanged yesterday due to Bank Holiday for Thanks Giving.
• The Euro (EUR) was able to find support at the 1.3300 level with ECM Member Weber stating the Euro is a long term project and that it was possible to increase the size of the EU bailout fund. Euro zone Government Bonds continue to be under pressure with Spanish and Portugal yields rising. EUR/USD traded with a low of 1.3285 and a high of 1.3389 before closing at 1.3335. Looking ahead, German October Import Prices forecast at 0.1% vs. 0.3% previously.

Currency to watch out for: EURUSD & USDJPY

• § The EURUSD pivot point is at 1.3280 with a preference to enter into Long positions at 1.3290
• § The USDJPY pivot point is at 83.50 with a preference to enter Long positions at 83.90

Today’s calendar and market movers:

• § Switzerland KOF Indicator for November forecasted at 2.1
• § Canada Budget Balance for September is out with previous month -5.81 bio

Equity Markets:

• US equities were closed yesterday with a market holiday. The European bourses were positive with the FTSE up at 0.74% the DAX and the CAC closing up at 0.82% and at 0.34% respectively. The NIKKEI and the HSI at the time of writing is -0.4% and -0.98% respectively.

Source: Easy Forex

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• USD: Higher, fresh Greek debt worries, improving US housing data, consumer confidence declines
• JPY: Higher, China tightening, Yuan revaluation speculation, Goldman default swap spreads widen
• EUR: Lower, Greece may soon tap EU IMF aid, Trichet says Greek bank troubles could worsen
• GBP: Lower, UK election uncertainty, polls suggest surge for the Liberal Democratic Party
• CAD and AUD: AUD & CAD lower, China tightening, Canada’s mfg. shipments weaker than expected

Overview
The USD and JPY traded higher supported by worries over the Greek fiscal crisis and in reaction to report that China is taking measures to curb growth and allow the Yuan to gradually appreciate. EUR traded lower pressured by report that Greek officials seek talks on the rescue plan and may soon tap EU/IMF aid. EUR was also pressured by a statement from ECB President Trichet that Greek bank troubles could worsen. China raised its down payment requirements and rates on some mortgages to cool off the housing market. A Chinese central bank adviser says that China has come to consensus on adjusting its exchange rate gradually. Asian equities traded lower and commodity currencies were pressured by the report of tightening by China. GBP continued to trade in a narrow range despite the latest UK election polls which indicate that support for the Liberal Democratic Party has surged and support for the Conservative party and Labor party has declined increasing the risk of a hung parliament. JPY traded higher supported by an uptick in risk aversion and Yuan revaluation speculation. JPY rallied despite by a statement from Japan’s ruling party that monetary easing and currency intervention are needed to weaken the JPY and combat deflation. JPY traded to the day’s highs in reaction to a sharp selloff in US equities sparked by report that the SEC has charged Goldman Sachs with fraud on subprime mortgages and credit default swaps rise. Financial stocks and risk related markets were hit by the Goldman news. Today’s US economic data was mixed as housing starts and building permits rose more than expected. US housing starts rose to the highest level since November 2008 and building permits hit a 17 month high. Consumer confidence came in weaker than expected declining to an 8 month low. The trade will continue to monitor news on the Greek debt, next week’s US economic data and BOC policy meeting Tuesday.

Today’s US data:
April housing starts rose by 1.6% to 626k, a reading of 590k was expected. April building permits rose by 7.5% to 685k, a reading of 620k was expected. April Michigan consumer sentiment came in at 69.5, a reading of 74 was expected.

Upcoming US data:
Next week’s US economic calendar includes the April 19th release of March leading indicators expected at 0.9% compared to 0.1% last month. On April 22nd initial jobless claims for week ending 4/17 will be released expected at 460k compared to 484k last month. March PPI and existing home sales will also be released on April 22nd.PPI is expected to rise by 0.3% compared to 0.6% last month. Existing home sales are expected at 521k compared to 502k last month. On April 23rd March durable goods and new home sales will be released. Durable goods are expected to rise by 0.3% compared to 0.9% last month and to rise by 0.8% ex-transports. New home sales are expected at 320k compared to 308k last month.

JPY
JPY traded sharply higher supported by gains in cross trade and by Yuan revaluation speculation. JPY was supported by a spike in risk aversion as the Nikkei closed 172 points lower and Asian equities traded weaker in reaction to report that China is taking measures to curb growth. Earlier in the week China reported acceleration in its Q1 GDP and strong retail sales and industrial production. These reports increase fears that the Chinese economy is overheating and maybe creating a bubble in the real estate market. China raised its down payment requirements rates on some mortgages to cool off the housing market as property prices in major cities rose at the fastest pace in five years. A Chinese central bank adviser says that China has come to consensus on adjusting its exchange rate gradually. A revaluation of the Yuan could boost demand for Asian currencies because it makes their exports more competitive. The JPY sometimes trades as a proxy for Yuan revaluation and anticipated rise in Asian currencies that may result from appreciation of the Yuan. JPY rallied despite increased threat of intervention and strong US housing data. A spokesperson for the Japanese ruling party said that monetary easing and currency intervention are needed to weaken the JPY and combat deflation. US housing starts and building permits rose more than expected confirming improving outlook for the US recovery. JPY gains in cross trade are attributed to fresh worries about the Greek fiscal outlook and the impact tightening in China. EUR/JPY and AUD/JPY traded almost 1% lower. Recent economic data from Japan shows that the economy is picking up. This may make it more difficult for the Japanese government to convince the BOJ to ease monetary policy and will likely help BOJ officials deflect calls for additional monetary ease. BOJ Governor Shirakawa said growth may moderate in the near term and the BOJ will maintain very easy monetary policy. Shirikawa went on to say that the BOJ is committed to combating deflation. His comments suggest that the BOJ may be open to calls for intervention to try to weaken the JPY as a stronger JPY tightens monetary conditions and ads to deflationary pressures. JPY traded to the days highs as stocks drop in reaction to news that the SEC has charged Goldman Sachs with fraud on subprime mortgages.

Next week’s Japanese economic calendar includes the April 19th release of February tertiary activity expected at 1.4% compared to -0.8% last month along with April consumer confidence expected at 40 compared to 39.8 last month. On April 20th revised February leading indicators will be released expected at 1% compared to 2.2% in the original report. March trade balance and February all industry activity will be released April 22nd. March trade balance is expected at ¥750bln compared to ¥651bln last month. All industry activity is expected to decline by 0.4% compared to the 3.8% rise last month.

Key technical levels to watch in USD/JPY include support at 91.75 the March 25th low with resistance at 93.79 the April 9th high.

EUR
EUR traded lower pressured by report that Greece may soon tap EU/ MF aid and in reaction to strong US housing data. The latest concern about Greek debt troubles have been fueled by report that Greece will seek aid and may not issue US denominated bonds. Additionally there are reports that some EU nations may try to block aid for Greece and EU President Trichet says that Greek bank troubles could worsen. US March housing starts and building permits came in higher than expected. The US housing data follows recent improvements in US employment, retail sales and manufacturing/ services PMI. Improving US economic data encourages speculation that the US recovery is gaining traction and that faster US growth may encourage the Fed to soon change its policy guidance and move the timetable forward for hiking interest rates. The Fed’s Yellen who has expressed concern about the strength of the US recovery said today that she thinks that the economy is on the right track but the recovery remains fragile. Yellen went on to say that the Fed will have to hike rates at some point. Today’s EU economic data was generally positive with report that the February trade balance swung to a 2.6bln surplus from a 9bln deficit last month and March inflation rose by 0.9%.There is report on MarketWatch which suggests that investors remain skeptical about the viability of the EU/IMF Greek rescue package. New York University economist Roubini says the Greek crisis is the “canary in the coal mine” for the EU. Roubini is referring to rising fiscal troubles in peripheral European in nations like Spain, Portugal, Italy and Ireland. Investors are also concerned that the measures needed by Greece and other European nations to reduce their deficits could lead to a sharp contraction of growth spark deflationary pressures. The deteriorating fiscal outlook in peripheral European nations will encourage the ECB to maintain accommodative policy and could threaten the existence of European Monetary Union. Yield differential is moving in favor of the USD as the ECB is seen on hold for the remainder of 2010 and improving US economic outlook suggests that the Fed is likely to hike rates before the ECB.

Next week’s EU economic calendar includes the April 19th release of February construction output expected at -1% compared to 2.2% last month. On April 20th German March Producer Price Index will be released expected at 0.1% compared to flat last month along with EU February current account expected at – €12.3bln compared to minus -€16.7bln last month. On April 20th German ZEW survey will also be released expected at 45.2 compared to -44.5 last month. On April 22nd EU manufacturing and services PMI for April be released. The manufacturing PMI is expected to improve to 56.7 from 56.3 and the services index is expected to improve to 54.5 from 53.7. On April 23rd German April IFO business climate survey will be released expected at 98.6 compared to 98.1 last month along with EU February industrial orders expected that -1% compared to -2% last month.

The technical outlook for the EUR is negative as EUR fails to hold above 1.3600. Expect EUR support at 1.3441 the April 9th low with resistance at 1.3667 the April 15th high.

GBP
GBP traded mixed to lower pressured by UK election uncertainty as the latest UK election polls show that support  for the Liberal Democratic Party has surged and support for the Conservative party and Labor party has declined increasing the risk of a hung parliament. The UK Parliamentary election will be held on May 6th. If the election results in a hung Parliament it would greatly reduce the likelihood that the UK will take action to reduce its budget deficit. Failure by the UK government to reduce its budget deficit could result in a downgrade of the UK AAA sovereign debt rating. UK election uncertainty coupled with improvement in the UK economy clouds the outlook for BOE policy. UK economic data suggest that the UK economy is improving and inflation rising. Tuesday the UK reported a 9.5% jump in exports and 0.9% rise in house prices. Earlier in the week the UK reported a sharp jump in input prices. The improvement in the UK economic outlook and rising inflation may encourage the BOE to end its asset purchases and move towards normalization of monetary policy. The BOE is less likely to move towards normalization of policy if the UK election results in the Conservative party winning a majority. The conservative party has pledged to take quick action to reduce the deficit. The reduction government spending would be a near-term drag on the UK economy and could slow the recovery. The BOE may elect to try to counteract this drag by increasing its asset purchases and expanding monetary policy accommodation. Focus turns to next week’s release of UK inflation data and the MPC minutes for the April meeting. Investors will be looking to see if UK inflationary pressures are continuing to build and if the MPC is shifting its focus from growth risks to inflation risk.

Next week’s UK economic calendar includes the April 18th release of April Rightmove house price index expected to rise by 0.5% compared to 0.1% last month. On April 20th March CPI will be released expected at 3.1% compared to 2.9% last month. On April 21st February average earnings, April mortgage approvals, March claimant count, February unemployment rate and March money supply will be released. Average earnings are expected to rise by 0.6% compared to 8% last month. Mortgage approvals are expected at 38.4k compared to 35.2k last month. Claimant count is expected unchanged at 4.9% and the unemployment rate is expected at 7.7% compared to 7.8% last month. Money supply is expected to rise by 0.4% compared to 0.2% last month. The minutes for the April 7/8 BOE policy meeting will be released on Wednesday.  On April 22nd March retail sales will be released expected to rise by 0.8% compared to 2.1% last month. On April 23rd Q1 GDP will be released expected at 0.5%.

The technical outlook for GBP is positive as GBP holds above 1.5400. Expect near-term support at 1.5335 the April 13th low with resistance at 1.5575 the February 23rd high.

CAD
CAD traded lower pressured by a number of factors which include weaker equity markets and lower commodity prices, tightening of lending conditions in China, report of weaker than expected Canadian manufacturing shipments. The Goldman news dampens risk appetite. CAD traded to the lows of the day in reaction to the Goldman charge and widening of credit default spreads. Today’s weakness in equity markets and commodities is partly attributed to report that China has raised down payment requirements and rates on some mortgages to slow the housing market. Investors are concerned that China may be planning to take additional measures to tighten monetary conditions to curb acceleration of China’s growth. The tightening of monetary conditions in China could be a drag on the global recovery and reduce demand for commodities. Canada’s manufacturing shipments came in weaker than expected reported up 0.1%, a 0.6% rise was expected. The weaker Canadian manufacturing shipments report may dampen BOC rate hike speculation. CAD traded lower despite Yuan revaluation speculation as Chinese officials signaled that they may soon allow a gradual appreciation of Yuan and strong US housing data. Yuan revaluation speculation and stronger US economic data cuts two ways for the CAD. Yuan revaluation could be an additional drag on the global recovery and dampen demand for exports. Yuan revaluation could also be a boom for commodity prices because it makes it cheaper for China to purchase commodities. Strengthening of the US economy is positive for North American domestic growth outlook and export sales for Canada .The data may also increase the odds of the earlier Fed rate hike canceling out the positive impact of BOC rate hike expectations. Focus turns to the BOC policy meeting Tuesday. Investors will be looking to see if the BOC signals that rate hikes are coming.

Next week’s Canadian economic calendar includes the April 19th release of March foreign investment flows expected at 7bln compared to 11.8bln last month. On April 21st February wholesale sales will be released expected to rise by 3.2% compared to 3% last month. On April 22nd March leading indicators will be released expected at 1% compared 0.8% last month. On April 23rd March CPI will be released expected to rise by 0.9% compared to 0.7% last month along with February retail sales expected to rise by 1.2% compared to 0.7% last month.

The technical outlook for CAD is mixed as USD/CAD trades above 1.0100. Look for near-term support at 1.0003 the April 16thlow with resistance at 1.0304 the March 26th high.

AUD
AUD traded lower as investors reduce risk positions in reaction to weaker equity and commodity prices. Fresh worries about the Greek fiscal crisis coupled with report that China is taking actions to curb lending activity sparked selling of equities and commodity markets. The drop in equities accelerated on news that the SEC has charged Goldman Sachs with fraud. China reported a sharp acceleration in Q1 GDP and acceleration in China’s growth increases the risk that the Chinese economy is overheating. China has taken measures to cool the housing market and may be setting the stage for additional tightening of monetary conditions including the Yuan revaluation. A revaluation of the Yuan could help the Chinese central bank control the money supply and would be a drag on growth. The Greek fiscal crisis has not had great impact on investor confidence up to now and investors will be monitoring the situation to see if it is contained. If the Greek fiscal crisis spreads to other parts of Europe it could increase investor concern about global sovereign debt risks and dampen risk appetite in demand for growth led currencies. AUD should remain well supported on breaks by RBA rate hike speculation. The tightening of monetary conditions in China may cloud the outlook for the RBA policy. Earlier in the year the RBA paused its tightening cycle because tighter monetary conditions in China did the job for the RBA. Thursday, Australia reported that inflation expectations rose to the highest level since October 2008. The rise in Australia’s inflation expectations could revive RBA rate hike speculation. Over the past few weeks there has been growing uncertainty about RBA policy outlook and whether the RBA is nearing a pause in its rate hike cycle. The RBA’s Debelle said interest rates are close to normal levels. Debelle’s comments have encouraged speculation that the RBA may pause. Last week the RBA raised interest rates 25bps to 4.25% and left the door open for future rate hikes. Debelle’s comments and mixed Australian economic data suggest that the RBA may elect to pause in its rate hike cycle. Thursday’s Australian inflation report may tip the scales back in favor of another 25bps RBA rate hike next month. AUD downside was partly limited by report of strong housing data from New Zealand.

Next week’s Australian economic calendar includes April 22nd release of March new car sales expected to rise by 3% compared to -1.9% last month. On April 23rd Q1 export and import prices will be released. Export prices are expected to rise by 0.7% compared to a 1.7% decline last quarter and imports prices are expected to fall by 0.6% compared to a 4.3% decline last quarter.

The technical outlook for the AUD is positive as the AUD rallies above 9300. Expect AUD support at 9273 the April 14h low with resistance at 9389 the April 12th high.

Source: Easy Forex

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The great advantage of a non-numerical stop-loss order is its partial immunity to price swings. If the trader has confidence in his analysis, and is satisfied that standing firm in the face of market volatility is sensible and acceptable given the major dynamics and currents in the market, maintaining positions with non-numerical stop loss orders can be advisable and lucrative. In order to manage the inevitable massive swings in account value, professional managers will implement hedging strategies in addition to money management methods, to control and minimize the volatility of the portfolio. Thus, even if the mental stop triggers a massive drawdown in our position, they can minimize the effect on the portfolio through diversifying and distributing the risk among various funds pairs.

An equity stop is two where the position will be closed in case the total equity in an account falls below a sure value. A stop loss at 2 percent of total equity is generally regarded as a conservative strategy, while the maximum is 5 percent for most money management methods. Thus, to give an example, a 1000 USD account would have the stop loss for an open position at the point where to the total equity would fall below 980 USD.

Let us examine the various ways of implementing a stop-loss order now.
Equity Stop

Another important problem with the equity stop is its inability to prevent a string of losses. For instance, when the trader closes a position at a three percent loss, there’s nothing that will prevent him from opening another position in the same direction (buy or sell) a small while later, if the causes that justified the first trade are still in place. For instance, if the trader enters a sell order when the RSI is above 80, and consequently the stop loss is triggered, and the position closed, there’s small that will prevent the same events from being repeated if the price action repeats the same movements. In order to keep away from this pitfall, the trader can tie the stop loss point to a non-price factor, and the rest of this editorial discusses such scenarios.
Chart Stop

Both the disadvantage and the advantage of the equity stop is its inflexibility. The equity stop provides a solid criterion for deciding on the success or failure of a single trade, as there’s no way of being mistaken about an account in the red. On the other hand, the same inflexibility may prevent the trade from functioning as expected. The markets are volatile, and a trade that has a perfectly valid cause behind it may yet be invalidated by the random fluctuations that are not predictable.

The chart stop is more flexible and reliable than a direct equity stop, because it adjusts to price action and volatility, and is therefore independent of the random movements of the price. The problem with the chart stop is twofold. First, the technical indicator used to generate the signals may fail to capture the change of the market trend, resulting in massive losses. The other, and obvious problem is related to the indirect character of the stop-loss mechanism. Because the order is independent of the price, it may not be able to cut losses as effectively as a direct equity stop, and larger than expected losses may materialize as a result.
Volatility Stop

In a chart stop, the trader will place the stop loss order not at a price point, but at a chart point which may be static or dynamic. For instance, a stop loss order may be placed at a Fibonacci level, which would be a static value. On the other hand, the trader may use an API (an automated trading process), or mentally prepare himself to close the position if a technical event, such as a crossover, a breakout, or divergence occurs, which would constitute a dynamic stop-loss point. In all these cases, technical analysis generates the triggers and determines the price where the position must be closed.

A volatility stop is contingent on volatility indicators, such as the VIX for determining the exit point for the trade. As such, market panics and shocks will cause the order to be executed, but mere price fluctuations in the funds market which lack their counterpart in other asset classes will be ignored for the most part. The trader who utilizes a volatility stop expresses the opinion that unless a major, unexpected shock hits the market; his position should be held regardless of the behavior of the markets. This is a more dangerous strategy than the equity stop, but can be profitable and valid depending on market conditions and the economic environment. In general, it is doubtful that a volatility stop can be useful in a nervous and volatile market. But it could be helpful in maintaining a long-term position where risk perception is low.

The volatility stop is sensitive to prices, but only in an indirect manner, and its nature is similar to the chart stop. It is useful for eliminating short term distortions from our analysis, and allows us greater resilience in the face of noise in the information.

Volatility may fail to react to market swings. Sometimes a massive fall in the market has no equivalent rise in the various volatility gauges. Similarly, volatility can sometimes rise without any obvious corresponding price action. Consequently, a volatility stop (and similar stops based on non-price information) can be triggered even before a trade is in the red. All these must be kept in mind if the trader decides to use this type of stop order.
Volume Stop

When the trader expects an ongoing trend to be reversed or invalidated subsequent to a change in volume, a volume stop perhaps appropriate. While volume statistics are not available for the forex market, positioning as depicted by the COT document can be used for establishing this type of stop. For utilizing the order, the trader determines a percentage value on futures positioning above or below which the position must be liquidated, depending on market conditions and the nature of the order. In the same context, other types of information can also be used to generate a stop loss trigger point. A particular put/call ratio or option risk reversal value may all be selected to provide the equivalent of a volume stop in the stock market.

In example, let’s think about a trader who opens a short position in a carryover trader pair, confirming his trade by developments in the stock market. His expectation is that the recent rise in the stock market indexes (and the corresponding rise in the carryover pairs) occurred on low volume, and will soon be reversed without new money flows. Consequently, they places his stop-loss at a volume level which, if reached in a rising market, will invalidate the beginning premise, and cause the position to be liquidated. When this occurs, and volume rises above the preconceived level, the trader will close his short position in the carryover trade pair.
Margin Stop

The margin stop is not a stop loss order, but the absence of it. In this case the trader will let his account absorb the unrealized losses until a margin call is triggered, and a massive part of the account is gone. The margin stop is a sign of indiscipline and lack of insight, because a diligent trader will always predetermine the conditions that will lead to the closing and liquidation of a position. Since not even the brightest analyst is capable of predicting the future with any certainty, lack of a stop loss order is an indefensible practice.

Notwithstanding the previous, the margin stop is a popular choice among lots of traders who are unable to remain calm in the face of the great emotional pressures of trading. It is only viable under low leverage such as 2:1, and even then a margin stop would not be the best choice. At much higher leverage, the margin stop is indefensible, and should be avoided altogether
Event Stop

Fundamental analysts do make use of technical tools, if only for determining the trigger points for a trade. Take profit, and stop loss orders are used by every trader in the world, and its is unthinkable that a serious analyst won’t have a condition, at least in mind, for closing an open position, however convinced they may be of its ultimate validity.

But fundamental analysts are not limited to technical tools and the price action for determining when to exit a trade. The event stop that they would like to discuss here is a device that the trader can use to decide a trade’s exit point.

When using the event stop, the trader will ignore the price action for the most part (and will use low leverage), and will only close a position in the red when the scenario they had pictured in his mind becomes contradicted by events. For instance, a trader is anticipating that Bank A will be nationalized by the authorities of Nation X, and they expects that this will lead to X’s funds depreciating against its counterparts. In consequence, they short it. They will refuse to close the position until authorities confirm and clarify, in a solid and unmistakable fashion that they will refuse to nationalize Bank A. In the meantime, they will be willing to put up with all the rumors, extreme swings, and short term fluctuations in the market without worrying about the unrealized profit or loss in his account.

The best choice for the beginner is the equity stop. During the learning method, the trader can concentrate on bettering his understanding of the markets without worrying about excessive losses. Two time the trader gains a lovely understanding of market dynamics, and can form and implement his trading designs, the equity stop will quickly lose its attractiveness.

As they mentioned at the beginning, the event stop is for those traders who know what they do, and who possess the track record, the intellectual background, and the confidence to use it. But do not take our word in order to evaluate your own skills; you ought to know yourself better than anyone else, and if you believe that you understand the economic dynamics of the era, and can defend your claim in your trading activities, you will be perfectly capable of using the event stop.
Conclusion

Needless to say, every trader will have his own choices on stop loss orders. And they would like to conclude this section by noting that the key to a successful stop-loss order is a disciplined risk management strategy, and everything else is detail.

The best method for using the non-price stop orders is combining them with a wide equity stop which will serve as a final safety precaution in case the price action becomes unsafe. For instance, a trader can long the EUR/JPY pair and hold it indefinitely until the VIX registers a value above 35, where a volatility stop would be placed. Simultaneously they will protect from extreme, and unexpected swings by placing an equity stop at 5-7 percent of total equity. Thus, unless a massive price swing overruns the main criterion for the stop loss order, and triggers the equity stop, the trade would be maintained indefinitely.