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Over the past month, we have seen a sharp revival of risk appetite; but the market’s preference for safe haven versus those with potential for speculative appreciation have changed dramatically.
The following is our monthly correlations update for August. As we have stated time and again, correlations between different currency pairs will inevitably shift over time. Therefore, it is of utmost importance to keep abreast of these fluctuating relationships to fully understand your trades and portfolio. Below are the one-, three-, six- and twelve-month correlations for the seven major currency pairs. Additionally, we have included the six-month trailing correlation for the majors against the EURUSD for a different view of correlation.
In order to be an effective trader, it is important to understand how different currency pairs move in relation to each other. There are a few reasons why this is significant, but most importantly, it allows traders to understand their exposure. For example, having a portfolio that consists of the USDCHF and EURUSD is different than having a portfolio comprised of USDCHF and USDJPY. Over the past month, we have seen a sharp revival of risk appetite; but the market’s preference for safe haven versus those with potential for speculative appreciation have changed dramatically. In this period, a currency that was often hailed as one of the two three carry currencies – the Swiss franc – has seen considerable deviation from the normal path of risk appetite that has been carried by the Japanese yen alone. Through the third of these low yield currencies in – the US dollar – and the correlations (or lack thereof) are laid bare. In the past month, we have seen the trouble in the Swiss banking sector and SNB intervention break the franc’s rudder as the low risk currency in the USDCHF pair and leave the correlation between the two near zero (0.00). In the absence of risk appetite and aversion, franc traders are drawn to the health of the small economy which is heavily influenced by the health of its primary trade partner – the Euro Zone. In the past month, the correlation between EURUSD and USDCHF has soared to near lock-step levels (-0.96). Clearly, having a long position in EURUSD and USDCHF at the same time would have the general effect of one cancelling the other out. Of course, these two currencies may have different pip values and the correlation is not perfect, so the P/L will not be exactly zero. Falling into the middle ground, the returns of a long USDCHF and USDJPY position would in essence reflect two totally independent positions (though don’t expect this free-floating relationship to last forever).
Furthermore, we can tell from our tables correlations rise and fall through different periods. Monitoring the changes in these relationships, further clarifies the underlying changes in risk appetite and those currencies that are at the extremes of the speculator’s spectrum. Juxtaposing a currency that was once held a safe haven currency, but that is now holds a very different influence against its US counterpart; USDCHF has seen its relationship with AUDUSD tighten with time. Over the past year, AUDUSD would take the opposite path to USDCHF only 34 percent of the time (-0.34). However, just over the past month, these high risk currency pair (AUDUSD) and former safe haven leader (USDCHF) has seen a far more consistent pace amongst each other. Overall, having this knowledge will allow traders to effectively diversify and manage their portfolios over time.
Regardless of your trading strategy and whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to keep in mind the correlation between various currency pairs and their shifting trends.

The Canadian dollar, Australian dollar, US dollar, and euro all face major event risk next week from the most market-moving indicators available: GDP, central bank rate decisions, and employment data, including US non-farm payrolls (NFPs)
• Canadian GDP (Annualized) (2Q) - August 31, 8:30 ETThe Canadian economy is projected to have contracted for the third straight month in Q2, this time by 3 percent. Such a result would indicate a moderation in the pace of Canada’s decline, as GDP fell 5.39 percent in Q1 and 3.74 percent in Q4 2008. Generally speaking, exports are likely to remain a heavy weight on GDP, as the nation posted a record current account deficit during Q2 after exports fell C$9.3 billion, though this is somewhat better than the drop of C$19.9 billion in Q1. The consumer end of the line has shown more improvement, though, as the Canadian economy only lost 13,300 jobs in Q2, compared to a loss of nearly 273,000 in Q1, while retail sales picked up in May and June. Overall, there is potential for slightly better-than-anticipated result, which would likely offer a boost to the Canadian dollar, but if GDP actually falls by more than 3 percent, hopes that the Canadian economy will be one of the first to emerge from recession may be dashed.• Reserve Bank of Australian (RBA) Rate Decision - September 1, 00:30 ETThe Reserve Bank of Australia (RBA) is anticipated to leave their cash rate target unchanged at 00:30 ET for the fifth straight month at 3.00 percent, and the Australian dollar may only respond to a biased monetary policy statement. As it stands, Credit Suisse Overnight Index Swaps (OIS) are pricing in 191 basis points worth of rate increases by the RBA over the next 12 months, compared to 112 basis points a month ago, as economic data has shown slight improvements and the central bank has taken a more hawkish stance. Indeed, the RBA’s last policy statement dropped a line that said that "the outlook for inflation allows some scope for further easing of monetary policy," suggesting that they have no intention of cutting rates any further. If the RBA doesn’t bother to really change the statement, there may not be much of a market reaction, but if there are signs that the central bank is feeling more optimistic on the growth outlook, the Australian dollar could rally.• Federal Open Market Committee (FOMC) Meeting Minutes (AUG 12) - September 2, 14:00 ETThe main event risk for the US dollar on Wednesday will be the release of the minutes from the Federal Reserve’s last meeting on August 12. Following that meeting, the policy statement initially led Treasuries to sell-off and the dollar rallied sharply against the most popular currencies. However, a quick return to risk-taking pushed the greenback lower, as the Federal Open Market Committee said that even though “conditions in financial markets have improved further in recent weeks” the committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period”. At the same time, because the current "policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth", the committee has decided to gradually slow the pace of Treasury securities purchases. A reiteration of these statements has the potential to lift risk appetite further, but on the other hand, indications that FOMC members are feeling uneasy about the outlook for growth or the need to expand quantitative easing down the road could do quite the opposite.• European Central Bank Rate Decision - September 3, 7:45 ETThe European Central Bank is anticipated to leave rates unchanged at 1.00 percent at 7:45 ET. Where the currency ends the day, though, may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Traders will likely focus on any comments regarding the future of interest rates in the region, including whether 1 percent should be considered the “floor.” That said, the ECB will also be announcing new economic outlooks for the Euro-zone, and if we see any sort of revisions, the euro will likely act accordingly.• Canadian, US Employment Report Day - September 4, 7:00 ET and 8:30 ET At 7:00 ET, the Canadian net employment change may show a decline of 16,200 during August following a drop of 44,500 in July. Furthermore, the unemployment rate is anticipated to have risen to match the January 1998 high of 8.8 percent from 8.6 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to weigh on the currency and an unexpected positive result likely to push it higher.At 8:30 ET when US non-farm payrolls (NFPs) is forecasted to show job losses for the twentieth straight month in August, though the rate of decline is anticipated to slow further. At the time of writing, Bloomberg News was calling for NFPs to decline by 227,000, which would be the smallest drop in a year. Meanwhile, the unemployment rate is projected to edge up to 9.5 percent from 9.4 percent, but ultimately, the NFP result will be the event to watch as it is extremely volatile and is one of the sole reports that impacts the US dollar from a pure fundamental point of view. A better-than-anticipated result is likely to provide a boost to the US dollar, but it will be interesting to see the impact of disappointing results as weak US data tends to weigh on risky assets and push the greenback higher amidst flight-to-quality.

Traders on the Foreign Exchange market, Forex market for short, can potentially make thousands of dollars based on the volatility and fluctuations of a country’s currency. To better themselves and have a leading advantage over other traders, some Forex traders and investors participate in a practice known as news trading. The risks are very high, but the potential gains can be worth thousands of dollars and many traders and investors use this technique.
The technique of news trading is quite simple. It is the trading of foreign currency immediately before or after an important economic news announcement. After such announcements, there is a high possibility that market prices will fluctuate, either for the better or worse, depending on the announcement. For example, if the U. S. Federal Reserve announces another increase of the interest rate, many traders might invest in the U.S. dollar as it is expected that its value will appreciate. The main advantage of news trading is the potential for a country’s currency to make huge gains or losses in very little time. Within minutes of an economic announcement, a country’s currency can gain or lose one hundred points almost instantly. The potential of huge profits attracts Foreign Exchange traders and investors, however there are various risks associated with news trading.
Like any investment, there is always a risk, and news trading on the Forex market is no different. Though the potential profits are huge, the losses are also equally as large. The dangers of news trading come from the fact that a trade must be made quickly or else you are going to lose. If you are caught on the bad side of a trade, your money will be gone quicker than you can blink your eye. You will lose money so fast that there won’t even be time for you to manually close your trades, leaving you with nothing. Stop-loss orders are also potentially dangerous as there is a high probability of slippage because of the sudden price fluctuation.
Though some investors and traders might get lucky trading news, there is only a small probability that you will make a profit. Even if you are an expert news trader, you should still be very, very cautious when participating in this practice. Successful news trading depends solely on how you get your news. The most successful news traders are the ones with the fastest news feeds and those that are able to quickly place their trades immediately after an announcement has been made. Even using other forms of news trading, such as placing orders above or below the market price is still a guessing game, and those traders in the market who base their trades on guesses, won’t have much money after a short time.
For many Forex traders and investors, their trades are dictated by technical indicators and price indexes. Hours are spent researching every indicator, taking every risk into account and then making a decision based on everything they have studied. However, for a Forex news trader, none of this matter, and the only thing they take into account is economical news announcements.
News trading is possible because the Forex market is always open, unlike many financial markets. In a financial market, securities trades of certain stocks are suspended when an important company announcement is being made. These announcements are usually made after the market has closed for the day. However, because the Foreign Exchange market is open 24 hours, any economic announcement will have direct affects on the currency of that country, and maybe others as well. In the Forex market, there are eight major currencies that are traded, as well as over seventeen derivatives to be traded as well. This means that on any given day, there will always be economic announcements from any of the major traded currencies. The major trader currencies are as follows:
U.S. Dollar (USD) ,Great British Pound (GBP) ,Euro (EUR) ,Japanese Yen (JPY) ,Australian Dollar (AUD) ,Swiss Franc (CHF) ,Canadian Dollar (CAD) ,New Zealand Dollar (NZD)
Because of the availability of each currency, currency pairs, and its derivatives, such as USD/JPY, EUR/USD, AUD/USD, as well as several others, each currency can be traded at any given time because these currencies are globally traded.
Any Forex news trader or news investor will have to have the latest most up to the moment news announcements. Even if the news announcements are only a couple of minutes old, this can have devastating effects for any trader who has risked any sum of money. Most news traders like to keep an eagle eye on any news regarding economical activity, but most importantly news dealing with interest rates changes, FOMC rate decisions, retail sales figures, inflation indicators such as the consumer price index (CPI), producer price index (PPI), unemployment figures, industrial production announcements, boost in business and consumer confidence, as well as business sentiment surveys. Manufacturing sector surveys, trade balance release details, and foreign purchases of U.S. Treasuries may also prove useful for a news trader to better make decisions regarding when or when not to trade.
However, it should be remembered that these news announcements can have ranging impacts on a country’s currency, and after an announcement, the volatility of a currency may greatly fluctuate. It is important to take advantage of news that creates movements in volatility that will last for a few minutes or even hours. Trading on the Forex market based solely on news is a difficult and sometimes dangerous practice. However, there are some indicators that can make a news trader’s job easier, such as breakout indicators (Bollinger bands, breakout of a candlestick bar, or a price bar). Research has proved that news announcements can impact a currency’s value quite severely, in some cases it can gain or lose anywhere from 33 pips to 124 pips, opening up the ideal trading opportunity looked for by news traders. If a news trader is able to act quickly enough, even the smallest news release can be turned into a potential profit of thousands of dollars. However, it is important to remember the volatility of such announcements, and although the profits seem endless, the losses can happen too.
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Forex is a market where exchange of one currency with another currency takes place. It’s the market which provides accessibility and liquidity to the traders to buy and sell one foreign currency in exchange of another.
Forex traders seek profit in buying currencies low and selling them high. This kind of trading became more popular with the widespread of the on-line Forex brokers. There is a lot of information available about Forex on the web. However there also many myths surrounding the foreign exchange market:
Forex trading is easy. Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex. In reality that’s just a myth. Succeeding in Forex isn’t easier than mastering any other profession — it takes time, money and a lot of practice.
"I will make money in Forex, if I can trade stocks successfully." Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.
"I can make profit whenever I want if Forex market is open 24 hours a day." Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours. You’ll have to develop automated trading software to get the advantage of 24 hours a day working schedule.
"I can be a successful Forex trader just following someone else’s signals." Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses. Learn to rely on your own knowledge and skills. Remember that there were no great signal-followers in any financial market.
No commission is to be paid in Forex market. You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment. You may end up with the major part of your profits in the broker’s hands if you plan to rely on the short-term trading.
Forex is a scam. Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard earned money. Although there are many scams that are hiding behind the "brand" of Forex, that doesn’t mean that the Forex itself is a scam. There are many institutional Forex brokers, regulated Forex account managers and other solid companies in the market to whom you can trust.
"I need to exactly predict the market outcome to be profitable in Forex." There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not the game of certainties; it’s a game of odds. One of the first things that new traders learn is to think in the terms of probabilities and risk-to-reward ratios.
"I need to use a very complex strategy to be successful in Forex." It’s a popular myth, in which many on-line sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management. There are many traders that make consistent profits with rather simple and old strategies.
"I need to have a lot of starting capital to get profit in Forex." Big capital investment won’t help you in Forex. You don’t need a lot of money to diversify in currencies and you can’t move the currency rates with your trading orders (you’d need billions of dollars to do that). Actually you can trade with a very a little capital, because Forex trading is almost always leveraged with the broker’s money.
Forex is gambling because it’s completely random. Although there is no certainty in Forex (as in any financial market) it doesn’t mean that it’s completely random. And it’s certainly not a gambling, since your success in this market depends mostly on your skills and experience, not on your luck.
Knowledge is power — so it’s better for you to learn distinguishing some stereotypical myths from the real thing. Don’t fall for the promises of getting some easy profits in Forex, but don’t be afraid of the market just because some people think it’s not possible to earn there. Be rational — this quality will help you either if you are going to trade in Forex or not.
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Stock market is the most moving branch in business development of the 21 century. Evolution of technologies in the sphere of science-intensive industries, such as computerization, communication and information are the most progressive ones.
World of finances is becoming more accessible and therefore more attractive. Speculative transaction is a stock transaction without supplying base assets. Such transactions are nearly half of overall financial turnover on the world stock markets nowadays.
Being a trader is becoming more prestigious and popular these days. Easiness and relative simplicity of making transactions and conducting operations on financial floors creates an illusion of easy money. Actually, everything is more complicated and only a professional can succeed on the financial market (just as in any other sphere).
It is not enough for a success trader to own the information. Information must be correctly interpreted.
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The dollar was mixed against the majors in the Wednesday session, largely confined within recent ranges in lackluster trading. The greenback recovered from its session lows versus the euro at 1.4350 to hover near the 1.4230-level, while pushing the Canadian dollar just shy of the 1.10-figure. New home sales posted a strong reading in July, surging by its largest figure in nearly 4-years, up by 9.6% to 433k units versus 384k units from June. Building permits were drifted by 1.1% to 564k units in July. Meanwhile, durable goods orders were sharply better than expected, posting a gain of 4.9% versus a 2.2% decline a month earlier in June. The excluding transports July durable goods orders also improved, edging higher by 0.8% compared with a 1.6% increase a month earlier. In the coming session, traders will look ahead to weekly jobless claims and more importantly, the preliminary reading for Q2 GDP. Weekly jobless claims are expected improve to 565k from 576k a week earlier. Meanwhile, economic growth in the second quarter is expected to post a 1.4% contraction, deteriorating further from a 1.0% contraction in the previous quarter. The Q2 PCE is expected to hold steady at 1.3%. Tangible signs of improvements are beginning to show up, albeit the recovery remains fragile in the United States. In July, the conference board index increased 0.6% month-on-month from + 0.8% in June. It was the fourth consecutive month of increase, giving further prove that the U.S. economy might have bottomed. In a speech at the Jackson Hole Symposium, Fed Chairman Bernanke confirmed that the worst might be over for global economies, thus indirectly anticipating a safe-haven demand’s decline for U.S. dollars and Treasuries in the coming months. Nonetheless, the Federal Reserve will keep rates low for the first part of 2010 with inflation so mild. In July, the producer price index (PPI) fell 0.9% versus the expected -0.4%. In reality, after two months of gains, 6.5% in June and 15% in May, housing starts slid by 1.0% in July to 581,000 annualized (+2.5% expected). Nevertheless, singles component (three-quarters of the market) rose 1.7%, while multiple houses declined 13.3%. Starts are still above the average of the first three months of the year, although away from the over 2 million produced in 2005.

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