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Unlocking the Secrets ofCurrency Movements
Brian Dolan Chief Currency Strategist
November 17, 2007
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Disclosures
This seminar is a service offered to existing and prospective FOREX.com clients. It will discuss riskmanagement concepts and strategies and does not include the recommendation or endorsement of anyparticular security, chart pattern or investment strategy by FOREX.com.
The concepts and strategies discussed may not be suitable for all investors. It is important that investorsconsider the information presented in light of their individual circumstances and objectives, includingpersonal risk tolerances and investment goals.
Currency symbols shown herein are for illustrative purposes only. FOREX.com and/or its employees and/ordirectors may have positions in currencies referenced herein, and may, as principal or agent, buy from orsell to clients.
Please note that the price and volume data, screen samples, and chart patterns illustrated in this seminarare for illustrative purposes only. The discussions or illustrations of particular currencies herein should notbe construed as an offer to sell or a solicitation of an offer to buy any currency.
FOREX.com does not recommend the use of technical analysis as a sole means of investmentresearch. At FOREX.com we recommend that investors define their goals, risk tolerance, time horizon, andinvestment objectives in addition to researching possible investment choices through multiplechannels. Use of technical analysis may result in increased frequency of trading and, therefore,significantly higher transaction costs than a fundamental approach.
Short selling is an advanced trading strategy involving significant risks, and must be done in a marginaccount. Increasing leverage increases risk. For more information please refer to your AccountAgreement.
Forex trading carries a high level of risk and is not suitable for all investors. Placing Contingent orders (such as stop or limit) might not necessarily limit the risk of loss.
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
Currency Pairs: EUR/USD USD/JPY GBP/USD USD/CHF
Fundamental factors behind trading behavior Price action characteristics Tailoring the use of technical approaches Tactical trading considerations
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
EUR/USD Fundamentals:
Liquidity--Most actively traded currency pair 27% of dailyglobal volume (source: 2007 BIS Survey of Forex Markets)
Global asset allocation--Eurozone 2nd largest economicbloc, EUR as a reserve currency
Anti-dollarPrimary foil to the US dollar
Liquidity improved by cross-currency flows (EUR/JPY,EUR/CHF, EUR/GBP)
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
EUR/USD Price action:
Tendency to trade tick-by-tick; price gaps are rare, usuallynews/data driven
Cross-currency flows are typically counter-trend in dollar-basedmoves
Prolonged, seemingly inconclusive tests of technical levels
Well-suited for very short-term trading around a core position
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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EUR/USD Price Action
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
EUR/USD
Technical approaches:
Deep liquidity favors use of momentum oscillators (MACD)
Longer-term studies are preferred due to plodding price action
Divergences between price and momentum are frequent; check DMI
Trendline analysis to confirm breakouts and divergences
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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8/2/2019 Unlocking the Secrets
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Understanding Currency Movements
USD/JPY
Fundamentals:
JPY is the third major currency bloc 13% of daily globalvolume (source: 2007 BIS Survey of Forex Markets)
Politically sensitive to trade, proxy for Asia
MOF routinely involved in currency markets
Massive savings/investment pool; asset managers tend tomove as a group
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
8/2/2019 Unlocking the Secrets
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Understanding Currency Movements
USD/JPY
Price action:
Prone to trends or sideways movements, then rapidadjustments
Highly directional on breakouts, minimal pullbacks orbacking-and-filling
Tends to respect technical levels with fewer false breaks
Resting orders from asset managers frequently definehighs/lows, reversals
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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USD/JPY respecting technical levels
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
USD/JPY
Technical approaches:
Trending behavior suggests trend following tools instead ofmomentum:
DMIMoving averages (21 & 55 period)Parabolic SAR
Ichimoku analysis Candlestick patterns critical to spotting reversals/breakouts Trendline analysis is very effective, channels form frequently
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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USD/JPY technical approaches-Candlesticks
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Ichimoku-One Glance Cloud Chart
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
Understanding Currency Movements
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Understanding Currency Movements
USD/JPY
Tactical trading considerations:
Trendline break-outs can be actively traded
Stop losses* can be kept tight to technical levels
Favor a 30-point reversal for stop loss on breakouts
Be aware of EUR/JPY levels and JPY-cross flows, look forsimilar tech levels
*Placing contingent orders will not necessarily limit your losses
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
GBP/USD
Fundamentals:
2nd largest economy in Europe, 12% of daily globalvolume (source: 2007 BIS Survey of Forex Markets)
Acts as a volatile USD-alternative, explosive reactions toUK-based data/news
Bank of England monetary policy; MPC minutes andconsumer/housing data
Higher leverage cost for margin trading
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
USD/CHF
Fundamentals:
Extremely illiquid only 5% of daily global volume(source: 2007 BIS Survey of Forex Markets)
Reputation for safe-haven status in times of geo-politicaltension
Highly dependent on cross-border trade with EU
SNB active in currency, mostly concerned with EUR/CHF
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
GBP/USD & USD/CHF
Price action:
Prices tend to be jumpy even in normal markets
One-way traffic in highly directional markets, minimalbacking and filling
False breaks of technical levels, stop loss zones arecommon
Frequently forms spike reversals of 30-40 points
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
GBP/USD l ili l d f l b k
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GBP/USD volatility leads to false breaks
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
8/2/2019 Unlocking the Secrets
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Understanding Currency Movements
GBP/USD & USD/CHF
Technical approaches:
Trendline analysis favors using longer time frames (> hourly)
Momentum useful, but need to filter with DMI when overdone
Look for spike reversals and breaks of parabolic support and
resistance
Williams %R to identify potential reversal areas
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
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Understanding Currency Movements
GBP/USD & USD/CHF
Tactical trading considerations:
Reduce position size and adjust stop loss* levels due togreater volatility
Allow a greater margin of error for breakouts
Leading indicator for EUR/USD and overall dollar direction
Quick on the trigger resting stop loss* entry orders; trailingstops
*Placing contingent orders will not necessarily limit your lossesForex trading involves a substantial risk of loss and is not suitable for all investors.
Past results are not indicative of future results.
EUR/USD tends to lag in breakouts
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EUR/USD tends to lag in breakouts
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
GBP/USD d l d h i b k
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GBP/USD tends to lead the way in breakouts
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
C bl l d b h i t
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Cable can lead by hours or minutes
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
EUR/USD following Cable on a breakout
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EUR/USD following Cable on a breakout
Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.