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Syrian Conflict and The U.S. Dollar

August 29, 2013 in Forex Fundamentals and News, Historical and Research

If we search for “Syrian conflict and EUR/USD” or such search terms, we will find a lot of news items and predictions. Most of those would indicate a rise in dollar strength because it is considered to be a safe haven currency. Would you like to sell buy dollars against other currencies e.g. sell EUR/USD because of this reason?

EUR/USD – Unaffected of Syria

EUR/USD against the resistances
Well, I would not do that. If we really see the recent price action and today’s weakness in EUR/USD we can easily see that the drop is not really significant. From price action and psychological perspective the pair has been finding resistance below the psychological level of 1.3500 and that is quite natural. This psychological resistance is also finding strength from the 50% retracement level of the fall from 1.4940 to 1.2042, which is at 1.3491.

History of American attacks and the U.S. dollar strength

Let’s check on the previous two wars i.e. Afghanistan and Iraq to analyze how the dollar was affected during the time of first attacks.

Afghanistan war

After the 9/11 terrorist attack in the U.S., the attack on Afghanistan by the name of Operation Enduring Freedom was launched on 7 October 2001. The U.S. dollar, which was falling against the euro prior to the strike, gained immediate strength. The EUR/USD fell strongly with the start of the war.

Rise of USD with the start of Afghan attack

EURU/SD at the time of Afghanistan war

Invasion of Iraq

Now let’s see how the U.S. dollar moved at the time of Iraq strike.

EUR/USD during the start of Iraq war

EUR/USD during the start of Iraq invasion

Invasion of Iraq started on March 20th, 2003. The following chart shows the EUR/USD price action from the beginning of March 2003 to June 2003.

It is clear that the U.S. dollar sell strongly with the strike on the Iraq and that was completely against the safe haven theories of USD.

EUR/USD outlook with Syrian conflict

I would not recommend a buy or sell decision based solely on the safe haven characteristics with the Syrian conflict. The above two historical examples also make it clear. At the time of Afghanistan attacks a lot of sentiments were pro American strike after a terrible terrorist attack. The attack brought a confidence back in the U.S. dollar and USD started rising. Exactly opposite was the case with the attack on Iraq. There was a lot of opposition against the actions of America. The current situation is not very different from the attack on Iraq. General sentiments are not pro America and there is quite a lot opposition against any upcoming strikes. There are good chances that USD may fail to move as a safe haven currency and fall against the euro.

Other currencies

Japanese Yen

JPY may find strength as safe haven currency and USD/JPY, GBP/JPY and EUR/JPY may fall further.

British Pound

GBP has a very strong correlation with the euro and hence GBP/USD would be expected in the same direction as EUR/USD.

Australian Dollar

Being a commodity currency the Aussie suffers with any negative sentiments on international level. Considering the ongoing weakness, further weakness may be expected.

Please do leave your comments in the comment box below to discuss this further.

Fundamental Analysis and Technical Analysis

August 28, 2013 in Forex Articles

A forex trader needs to learn a lot of things in order to grow as a trader and be able to formulate sound forex trading strategies.

One of the things he needs to learn from the get-go is fundamental analysis and technical analysis – and what their differences are. Many traders use both of these types of analyses at different points in order to gain more knowledge that will help them in making new strategies for their forex trades.

Fundamental analysis involves study and interpretation of various economic data and fundamentals. This includes studying interest rates, inflation rate, economic indicators, and employment rates.

Technical analysis involves the study and interpretation of technical data and charts.

But what are the differences between the two? Here they are:

Fundamental Analysis

Fundamental analysis is seen by many successful traders as one of the best ways to determine market movements. The aim of using fundamental analysis is to be able to gain a deeper understanding of a country’s performance. Being able to gauge how a country performs will help them determine if the value of their currency will rise or fall. The very center of this research is the economic performance of the country. Traders will pore through various economic data and economic indicators – and from there they can build a picture of how the country is fairing economically.

Fundamental analysis is a very holistic way of using information and data. It is not uncommon for traders to not just look at a country’s specific economic performance. They will also look at the global economic climate because these worldwide economic sentiments can also have a serious effect on a country’s economy. Fundamental analysis is also grounded more on long-term investments. If a country has been doing well economically and posting good economic numbers then the prospects for its currency to increase in value over time is quite high and most traders will usually ride that sentiment for the long-term.

Technical Analysis

Technical analysis deals with the historical prices and milestones of a currency’s value. Among traders who use technical analysis, their belief is that the currency’s past performance is the best indicator of how it will perform. Technical analysts do not really believe in looking at economic indicators. To them how a currency performs is a better gauge for their strategies. Their attention is solely focused on charts that indicate price movements based on hours, days or weeks. They use their analysis to determine the best entry point for a trade and where is the best exit point. Also, because of this perspective, they are not really concerned about long-term commitments to their position. They will make more frequent trades and will enter and exit the market a number of times.

So which one between fundamental analysis and technical analysis is a better direction to take? If you will look at how the big brokers and companies do their analysis you will see that they use a combination of fundamental analysis and technical analysis to better understand market movements and formulate better forex strategies. Doing both kinds of analysis is the best option since you get to see market movements from both perspectives. But your trading style is a big factor in the kind of analysis you should use. If you are more committed to long-term positions then fundamental analysis should be your focus. If you want more frequent trades and want to know when is the best time to enter and exit the market then you should use technical analysis.

Threat of war in Syria giving a boost to the US dollar

August 27, 2013 in Forex Articles

Geo-political concerns in the Middle East and rising tensions in Syria have given a boost to the US dollar against Sterling this morning. Sterling was trading above 1.57 USD last Wednesday and is now nearer the 1.55 USD level as the “flight to safety” has given a boost to the greenback. Continued weakness in emerging market currencies such as the Turkish Lira (due to its proximity to Syria) and Indian rupee is also giving a boost to the US dollar.

With the crisis in Syria getting worse and worse and the veiled threat from the US Secretary of State, John Kerry yesterday the threat of war seems to be increasing. With the US and UK on one side and the Russian and Chinese on the other, this is extremely serious.

The US dollar has been unloved and neglected since the beginning of July and perhaps  the US Secretary of State John Kerry’s quote, in the most forceful reaction yet to the August 21 gas attack outside Damascus, said President Barack Obama “believes there must be accountability for those who would use the world’s most heinous weapons against the world’s most vulnerable people.”

The Euro has been remarkably strong but the European single currency has also begun to show some weakness today from the fundamentally over-valued position it currently holds. With the Euro still above 1.3350 against the US dollar, there is plenty of room for a further correction not just due to the threat of war in Syria but also nervousness ahead of the German elections next month and the extremely high unemployment rate in Southern Europe.

Is this the turning point for the US dollar?

Time for the US dollar to recover from recent weakness?

August 23, 2013 in Forex Articles

On Wednesday 14th August,  Sterling was trading above 1.57 USD and the Euro was trading above 1.34 USD. On fundamentals, there seems to be disparity between the economic situation in the UK and Europe to justify the strength in their respective currencies. No doubt economic data in the UK recently has exceeded expectations with GDP figures revised upwards this morning, PMI Services figures at their best levels for more than 6 years and glimpses of recovery in employment figures. In Europe, Germany has started to show signs of recovery with data out this morning exceeding expectations. German export figures were better than expected for the second quarter, capital investment and construction investment exceeded expectations thus showing recovery in Germany. Eurozone PMI figures out yesterday were stronger than expected but France continues to disappoint with data out yesterday showing their PMI figures below 50 (<50 in contraction) and lower than expected.


Germany is the powerhouse of Europe with their strong sense of work ethic and efficiency as well as their excellent manufactured products from Mercedes to Miele and BMW to Bosch. Their products and reliability are the envy of the world. However, Germany is not Europe! There are countries in southern Europe were productivity is poor and the relaxed attitude of long lunches and “siestas” are still common. With unemployment amongst the 18-30 year olds in Greece, Portugal and Spain above 50%, finding a job is extremely difficult for this disheartened group of young adults. Austerity measures in parts of Europe has resulted in many people being extremely unhappy and thus lowering productivity and resulting in depression and illness.


Things will no doubt get better for Europe but with an exchange rate of 1.34USD against the Euro, exporting goods to the rest of the world (countries pegged to the US dollar) is not easy. This level cannot be justified on fundamentals. Sterling, too is at a level against the US dollar where exports are not competitive and from a purchasing power point of view goods in the US are far cheaper than the UK. The difference in the price of goods between Europe and the US is even greater. Upcoming elections in Germany in the next few weeks is going to make the currency markets nervous as there is no clear leader. Perhaps this will be the catalyst for prolonged weakness in the Euro and strength in the US dollar? Continued geo-political concerns in the Middle East will further enhance the credentials of the US dollar and this will put downward pressure on the Euro and Sterling.

All About Forex Orders

August 22, 2013 in Forex Articles

The instructions you make to enter and exit a trade in the forex market are called orders. There are different types of orders you can enter and while some orders are basic, other orders depend on the kind of forex trading strategy you have formulated.

Following are the basic order types you can place in the forex market:

Market order

This is the order you make if you want to buy or sell at the best price. For example, if you see that the ask price of the USD/JPY is 100.20, then you will be sold the currency at that price when you make a market order.

Limit Entry Order

With a limit entry order you can buy below or sell above the market at a specified price.

Following the USD/JPY currency pair stated above as an example, if it is trading at 100.20 but you want to sell when it reaches 100.40, you can either wait in front of your PC and click on the sell market order when you see it hit 100.40 or you can use a sell limit order that will automatically put a sell order for you when trading reaches 100.40. With the sell limit order, your trading platform will issue the order for you. Basically, you use the limit entry order if you think the price will reverse when it reaches the price you’ve earmarked.

Stop-Entry Order

This is the reverse of the limit entry order. With this order you can buy above or sell below the market at your specified price. If the USD/JPY price is at 100.20 and the value is moving up. You think that when it reaches the resistance of 100.40 it will continue to move up. All you need to do is to issue a stop-entry order at 100.40 and an automatic buy will be made at that value. You use stop-entry orders when you think the price is going to continuously move in one direction.

Stop-Loss Order

A stop-loss order is what you place if you want to minimize or prevent additional losses if the price does not go your way. If the USD/JPY value is at 100.20 and you had a long position. But instead of it rising, the value started falling, you can issue a stop-loss order 100.00 that will automatically institute a sell order at that value to close your position and minimize your loss.

A stop-loss order is extremely important because it means you won’t have to diligently look at your computer to monitor the value of your chosen currency pair in order to protect yourself from additional losses. The order will do it for you.

Trailing Stop

Trailing Stop can be seen as a kind of stop-loss order but the difference is that it moves as the price fluctuates.

If you’ve decided that you want to go short on USD/JPY at 100.50 with  trailing stop of 20 pips, it means your stop loss is at 100.70. If the value goes down to 100.20 this means the trailing stop will now move to 100.40.

Do remember that the stop will remain at this price. It will not widen if the price suddenly goes up and counter to your position. So, to add to the example above if the price is at 100.20, and the trailing stop is now at 100.40, and the price then moves back up to 100.35, the stop remains at 100.40. The trade remains open up until the price goes up and hits the 20 pips that you’ve set. When this happens a stop-loss order is automatically triggered and your trade is closed.

You may check for Further Forex trading resources.

Is the Indian Rupee near the bottom?

August 21, 2013 in Forex Articles

When there is blood on the streets, that’s the time to invest or as Warren Buffett says “Buy fear, sell greed” well perhaps it is time to take a closer look at the Indian Rupee. The currency has been in free fall since the start of the year as concerns about their budget deficit and inflation have spooked the currency. There is also political uncertainty with the government very unpopular ahead of elections next year and predictions of a hung parliament not doing any favours for the economy.

Last week, restrictions were imposed on how much its citizens and companies can invest abroad. This is supposed to have reduced pressure on the Rupee but the  currency has fallen further since with the Indian Rupee comfortably above the 100 level against Sterling. This morning the Indian Rupee was trading above 101 against the pound and nearly 65 against the US dollar. This level was unthinkable even a few months ago. Capital restrictions will adversely impact company profits and tightening capital restrictions will discourage foreign investment which is obviously not good for the economy.


India’s main concern is the huge current account deficit which is 4.8 per cent of its gross domestic product. The plunging Rupee has raised concerns that the country may have its sovereign credit rating downgraded to “junk” thus encouraging even further falls in the currency. With sentiment weak and business financing conditions and investment growth expected to weaken further, the likelihood of a downgrade increases.  A downgrade in its rating would mean higher borrowing costs for Indian companies and thus impact margins and profitability. The falling Rupee has made imports much more expensive and inflation an even greater concern with higher import prices for day to day essentials like onions! Remember the high price of essential food items will cause civil unrest where the majority can barely afford to eat.  This in turn will cause further political instability – not the best reasons to invest in a country.

The currency is undoubtedly undervalued at current levels and a great place for tourists to visit and stay in its beautiful hotels which are at least 20% cheaper than a few months ago due to the sharp depreciation  but there is always an overshoot in the FX markets and the currency could continue to fall a little more but surely we are near the bottom. With all the problems in the Indian economy it is no surprise that it is the worst performing currency in Asia. The country has a very strong domestic economy and has potential to recover from its current state but the record current deficit and slow growth needs to be addressed.


Yesterday, the Reserve Bank of India said it would buy long-dated government bonds worth  Rs 8000 crore (£800 bn/ $1.25bn) through an open market operation on Friday. Perhaps, this will give the currency some stability and act as the catalyst in the Rupee recovering. We wait with bated breath.

Euro Strength – how long will it last?

August 19, 2013 in Forex Analysis

The strength in the Euro over the last few weeks has surprised many. Euro strength has certainly defied the bears but for how much longer? The euro is currently trading at 1.3340 just 3 cents below its 52 week high against the US dollar. Even as political crises have intensified in Greece, Portugal and Spain, the Euro has edged higher against the US dollar. Economic data in Europe has started to show some green shoots of recovery with powerhouse Germany leading the way but the continent is far behind the US yet the currency remains strong and has been getting stronger over the last few weeks. Mario Draghi, the President of the ECB (European Central Bank) has recently introduced “forward guidance” saying that interest rates would remain at current or lower levels for an extended period of time. Yet the currency has strengthened since!

However, there is some explanation of the strength – the Eurozone has a current account surplus due to fiscal austerity hitting domestic demand. The Euro has benefited from the sell-off in emerging markets and the fall in currencies of deficit countries – India for example. Amongst the majors, Sterling and the Australian dollar have weakened due to their deficits. There is increased confidence in the Eurozone when compared with a year ago but with unemployment at record highs in  number of countries and with more than 50% of under 30 year olds in Greece, Portugal and Spain without jobs, the economic situation is still in a weak position. The Euro has been seen as a safe haven currency rather than the US dollar and that is another reason why there has been strength recently. The Euro’s relative strength has also been due to the challenges being priced in.


However, from a purchasing power point of view the Euro does seem rather over-valued compared with the US dollar and no doubt the market will take notice but when?

Fibonacci Signal following Kumo Break

August 16, 2013 in Forex Strategies

The MT4 chart below displays the EURUSD daily chart, with the Ichimoku indicator displayed.


As you can see on the left, after the Kumo support breakout, prices started to retrace. Traders who are looking to re-enter this well established bearish trend can draw a Fibonacci retracement on the last swing low, and we see here prices retrace to the 38.2 line, before resuming the down trend.

Note on the right how the 50% retracement line sits on top of a flat orange Kumo top. If prices had broken above this line, through a bullish Kumo break out, the downtrend would be void. While Fibonacci lines do not always pin point exact reversal points, prices tend to hover around Fibonacci levels, and these can be helpful for those employing the Ichimoku forex indicator.

Sterling approaching 1.56 USD as recovery continues in the UK economy

August 15, 2013 in Forex Articles

Economic data out earlier this morning from the UK at 930am highlighted the strength of the UK economy. Better than expected retail sales for July figures came out at 3.0% versus expectations of 2.7% year on year. Retail sales in the UK jumped by 1.1% in July, according to the Office for National Statistics (ONS).

The rise was significantly larger than expected and means sales are up 3% compared with last year – the fastest annual rise since January 2011. The positive sentiment on the High Street adds to indications that the UK’s economy is beginning to recover from its deep recession. The retail industry accounts for about 5.7% of the economy.

Food sales increased by 2.1%, their largest rise since April 2011 as sunny weather saw customers buy more food, alcohol and clothing. The better than expected figures gave a boost to Sterling with the pound extending yesterday’s gains and fast approaching the 1.56 USD level.


Falling mortgage rates and rising consumer confidence is driving a consumer led recovery with strong retail sales but there needs to be caution as inflation concerns will start to weigh on the currency after the strong run from 1.48 USD to the current level.


Recent data from the UK has been very good with GDP coming in at double expectations of 0.6% and PMI services at the highest level since 2006. On Wednesday, official unemployment figures showed that the number of those out of work is also continuing to fall thus once again highlighting the recovery in the economy in the UK.  The UK is outperforming its European peers but this has not been reflected in currency strength against the Euro, with Sterling still hovering close to a 52 week low against the single European currency. Sterling is currently trading around 1.17 Euro, less than 3 cents above its 52 week low and more than 10 cents below the 52 week high. With much better economic data it is strange that the markets have not boosted Sterling more against the Euro.


The further strength in Sterling today will put pressure on exports and with the pound at 1.56 USD exporters are having a tough time. How long will this continue?


Strength in Sterling a negative for UK Equities

August 14, 2013 in UK

Sterling has been remarkably strong in recent weeks rising from 1.48 USD to the current level of 1.55 USD. Economic data has been better than expected with PMI (Purchasing Manager’s index) figures the best for 6 years, GDP second quarter figures double the 0.3% expected growth surprising the market with 0.6% and subsequently increased growth forecasts for 2014. The UK economy is performing much better than expected as recent economic data shows and this has led to a stronger pound especially against the US dollar. However, there are inflation concerns and unemployment is still very high. Carney’s comments on forward guidance stating that interest rates will remain at 0.5% for the next 3 years has also acted as a catalyst in supporting Sterling. However, figures out today show that unemployment is still at 7.8% which is much better than much of Europe but is still on the historic high side.

With Sterling above $1.55 and a number of UK blue chip companies major dollar earners, strength in the pound is going to have a detrimental impact on profits for  a number of major dollar earner companies such as BAE Systems, Barclays, BP, Glaxo, HSBC,  Rio Tinto and Vodafone. In recent weeks both Barclays and BP have underperformed the FTSE 100 and are barely changed from the level at the start of the year.

If Sterling continues to strengthen this is going to make it difficult for the FTSE 100 to make much further headway as a number of the UK’s largest companies (especially heavyweight mining and oil companies) derive a majority of their profits in US dollars.

Harami Leads GBPUSD Reversal

August 14, 2013 in Forex Analysis

In the following daily GBP/USD chart, we see the Ichimoku indicator accompanied by Candlestick Patterns. Prices have been on a strong uptrend, beginning from below the Ichimoku cloud since early July 2013’s low of 1.4818.

gbpusd g12 14.8.13

GBPUSD Daily Chart from Bloomberg

We draw your attention to the Candlestick pattern shaded in Green:

Harami (HR): Second real body is relatively small and contained within the prior session’s real body.

Note how the bullish Harami signalled a bullish reversal, which was confirmed by a Tenken Sen (green line)/ Kijun Sen (red line) bullish crossover in the middle of July, and finally a bullish Kumo resistance breakout in early August. This is an example of how the Ichimoku indicator reinforces candlesticks price action.

The bulls seem to have exhausted with consecutive bearish candles in the past 3 days. This is not surprising as the flat Kumo support indicates a sideways market consolidation, and prices tend to be pulled back to a flat Kumo equilibrium.

While Tenkan Sen is still above Kijun Sen, the bulls will look for an upward sloping future Kumo. If not, prices will most likely head down towards the Kumo.

EUR/USD: Federal budget balance can weaken USD

August 12, 2013 in Forex Analysis

EUR/USD: Federal budget balance can weaken USD

1. Current trend

On the last trading day last week the American dollar slightly regained its positions: quotes of the pair EUR/USD fell by 60 points. This decline was caused by positive US macro-economic statistics. It became known that inventories at the warehouses of the wholesale companies have declined, which did not agree with experts’ expectations, thus indicating stability in this sector.

Technically, this movement is a part of decline to the lower limit of the channel. Attention today should be focused on a very important economic indicator– US Federal budget report. According to experts deficit can amount to 95.3 billion US dollar, which is worse than the previous data. This news can trigger further rise in the pair to the upper limit of the channel.

2. Levels of support and resistance

The nearest support level is 1.3265, which is near the lower line of the indicator “Bollinger bands”. Resistance levels are 1.3346 and 1.3400.

3. Trading tips

In advance of the expected news it is recommended to open long positions at the current price. It also makes sense to place pending buy orders near the level of 1.3265.

Kamil Avad
Analyst of LiteForex Group of Companies

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