Euro Forecast Remains Bearish – Watch for Test of Key Support

Fundamental Forecast for Euro: Bearish

- The German economy expands at its fastest pace on record in the second quarter

- Spain’s Prime Minister hints at relaxing austerity, Slovakia breaks the unity in stabilizing the region

- EURUSD posts a remarkable reversal; but is this correction destined to develop into a trend?

The Euro finished the week at fresh monthly lows against the US Dollar, briefly breaking below the psychologically significant 1.2700 mark before recovering marginally into Friday’s close. A relatively uneventful week of trading left the EURUSD in a tight range until the very end; a near-2 percent decline in the Japanese Nikkei 225 sparked similar declines in European equity indices and took the EURUSD lower on a broad-based US Dollar advance. The week ahead promises a pickup in economic event risk, and the recent EURUSD downtrend leaves it at clear risk of breaking below key support at 1.27. It will be critical to watch whether economic data will be enough to deep the European currency aloft against its US counterpart.

A mid-week German IFO business confidence report dominates the relatively busy week of regional economic event risk, while earlier European PMI results may likewise translate into shifts in sentiment across EUR. Financial markets have recently honed in on disappointments in US economic data and often punished the US currency accordingly. Yet markets are fickle, and similar signs of weakness out of the Euro Zone could elicit similar declines in the EUR.

It will be important to watch for signs of continued strength out of Purchasing Managers Index (PMI) data out of various Euro Zone member states on Monday, while German IFO business confidence trends are similarly seen as a leading indicator for economic growth. Though the PMI releases are not known for forcing sharp short-term price moves, they are seen as good barometers for underlying industrial trends and as such carry a good deal of weight in forecasts. Given the relative unease across European and global equity market indices, any noteworthy disappointments could force sharp pullbacks.

Euro traders will otherwise monitor any and all surprises out of the US economy in what promises to be an exciting week of price action. The month of August is not known for producing large price moves across major currency pairs, but the past two weeks of price action have made it clear that sharp volatility can occur at a moment’s notice. Thus it will be important to keep an eye out for sudden deterioration in financial market risk sentiment. Given the Euro’s sharp turn lower through the past two weeks of price action, short-term momentum favors continued declines through upcoming trade. – DR

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US Dollar on the Verge of Rally as Sentiment Threatens Collapse

Fundamental Outlook for US Dollar: Bullish

• Pessimism surrounding risk appetite trends keeps the dollar from a deeper correction
• Fading growth trends and the Fed’s effort to buy Treasuries undermines the dollar’s fundamental future
• The dollar makes an end-of-the-week drive to set up a possible rally come next week

The dollar stood up surprisingly well this past week because pessimism remained an indelible part of the speculative crowd’s psyche. Given the aggressive correction in favor of the greenback in the trading week through the 13th and lack of viable event risk in this most recent week; a correction was to be expected. However, the resulting pullback was far smaller than would have been expected. In fact, the dollar would mark a few tentative but critical breakout with a few very important pairs (EURUSD, GBPUSD and AUDUSD). However, where the dollar would test multi-week highs; it did not fully follow through with a true breakout. As we move forward to a new trading week, we have all the necessary elements to revive the single currency’s August revival. Yet, further progress for many pairs would move the dollar beyond the realm of correction and into a true trend. Such a development would carry sign cant weight; so the catalyst required to jump start such a move may need to hit a critical vein.

Pound for pound, the most influential and consistent fundamental driver for the dollar is investor sentiment (the dollar’s liquidity is difficult to dispute even if traders want to argue the fundamentals of the greenback’s safe haven appeal). On that front, we have seen the more sensitive and less complex speculative asset classes come to the verge of continuation on burgeoning bear trends. In all likelihood, pessimism will feed itself; but there are more than enough scheduled threats to push things along. One of the most concentrated factors in the coming week is the fear that the global economy will stall in the second half of the year. If that that indeed is to be the case, we will surely see early signs of it in the range of GDP revisions due for Germany, the UK and the US. Why are revisions so important; because they are perfectly positioned to disappoint. The German reading will be particularly influential as the initial reading was a record high and therefore a hold out for those still hoping for a bullish outcome. If the details to this report undermine expectations for the future health of the economy, a highly unstable region could be facing a true financial crisis.

The US GDP reading itself represents a major fundamental driver for the dollar. Certainly the performance of the economy is essential to the assessment of relative strength; but the outlook for the global economy is generally pointing lower. Therefore the real impact through this data will be the general impression investors will be left with after the release. There is speculation that the revision could pull the reading to a sub-one percent level. If that is the case, the hope for returns and yield will dissipate quickly – thereby making the dollar more valuable as a safe haven. On a side note, this data is scheduled for release on a Friday; so its impact could be limited by liquidity.

As we wait for risk trends and the US GDP data to take control, there are a number of top tier indicators to keep track of. Watch the Chicago Fed National Activity index, durable goods, existing and new home sales figures for potential volatility boosters. – JK

How far do you think the dollar will rally? Discuss the dollar’s future in the DailyFX Forum.

For more timely FX market analysis, take advantage of the DailyFX Real Time News service.

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The North American economic calendar was light for the day, consisting of Canada’s June building permits and the US initial jobless claims reading. Building permits in Canada improved by well over consensus estimates, printing at 6.5% in June versus an upwardly revised 8.2% decline in May. Weekly jobless claims in the US missed estimates for a slight improvement, instead increasing to 479k from an upwardly revised 460k in the previous week.

Rounding out this week’s dataflow will be the key jobs reports from the US and Canada. At 7:00 AM will be Canada’s July labor report, with consensus estimates looking for the unemployment rate to remain unchanged at 7.9%. The net change in employment is seen adding 12.5k jobs in July compared with the 93.2k surge in June. The Loonie rallied sharply following the June labor data, rallying by 1.25% versus the greenback following the release.

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Tip 1. Gamblers go to casino. All unproved, spontaneous actions in Forex trading — are a part of pure gambling.

Any attempt to trade without analysis and studying the market is equal to a game. Games are fun except when you lose real money…

Tip 2. Never invest money into a real Forex account until you practice on a Forex Demo account!
Allow at least 2 months for demo trading. Consider this: 90% of beginners fail to succeed in the real money market due to lack of knowledge, practice and discipline. Those remaining 10% of successful traders had been sharpening and shaping their skills on demo accounts for years before entering the real market.
A good demo account to start practicing with could be, for example, FXGame from Oanda.

Tip 3. Go with the trend!
Trend is your friend. Trade with the trend to maximize your chances to succeed. Trading against the trend won’t “kill” a trader, but will definitely require more attention, nerves and sharp skills to rich trading goals.

When a trend is up you don’t want to be selling.

When a trend is down, you don’t want to be buying.

Tip 4. Always take a look at the time frame larger than the one you’ve chosen to trade with.
It gives the bigger picture of market price movements and thus helps to clearly define the trend. For example, when trading with 15 minute time frame, take a look at 1 hour charts.
In the same way: trading with 1 hour charts would require obtaining a picture of daily, weekly price movements.

If a trend in Forex is hard to spot — choose a bigger time frame. Up and down market patterns are always present. Make sure you know the dominant trend, unless you are a scalper. Scalpers have no need to spend their time studying large trends, instead what’s happening in the market here and now (on 1-5 minute time frame) is their main concern.

Tip 5. Never risk more than 2-3% of the total trading account.
One important difference between a successful and an unsuccessful trader is that the first is able to survive under unfavorable market conditions, while an unsuccessful trader will lose his account after 10-15 unprofitable trades in a row.

Even with the same trading system 2 traders can get opposite results in the long run. The difference will be again in the money management approach. A quick fact to get your mind thinking about money management: losing just 50% of you account balance requires making 100% return only to restore the original balance.
Tip 6. Put emotions down. Trade calm.
Don’t try to revenge after losing a trade. Don’t be greedy by adding lots of positions when winning.
Overreaction blocks clear thinking and as a result will cost you money. Overtrading can shake your money management and dramatically increase trading risks.

Tip 7. Choose the time frame that is right for you.
Choosing wisely means that you are comfortable and have enough time to analyze the market, place and close orders etc. Some people can’t wait for hours for the price to make a move, they like action and therefore prefer smaller time frames. On the contrary, for others 10-15 minutes is a hustle to be able to make the right decision.

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In many ways, the Forex trading software has made forex markets carry out the trades with efficiency and ease. The ability of software to integrate different currencies in their respective markets worldwide has made it possible for forex traders to do business 24 hours a day.

Two kinds of forex trading software are available today. The first is known as service side software. This software is an online version of software program in which the users log in using their forex market accounts’ user ids and passwords and connect to the trading portal or platform. Then they can execute any operation associated with the accounts that they wanted.

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One advantage of forex trading software is that it can embed charting software and provide access to various charts and graphs that assist the traders in making decisions about their transactions. With the complete background information, the traders get the correct details they need in making the best possible decision.

Another important aspect of Forex trading software is the security it provides to traders. The software usually operates at various security layers that would be difficult for hackers to crack into. Due to the exposure of forex trading all over the world, this security is much needed when huge traffic volumes occur in the forex market. The general security of the forex trading software ensures that the personal data of the traders are also protected.

Security in the software works at 2 levels- data integrity and privacy. This prevents the hackers from getting into the trader’s account or change currency rates during a high amount transaction.

Forex trading software also allows the traders to see the entire forex market conditions at once. This is necessary because without the overall knowledge of the forex market, one can not decide the best time to perform transactions.

It also helps in increasing forex sales volumes in the market. Take note, forex market can be sometimes difficult to determine. You need to understand every detail to select the best to make it work for you. As much as possible, learn the latest forex trading software and apply it. Most of the software available today is a two-in-one. They include both the trading software and useful charting software. You can gain a lot if you are able to interpret and use the charts correctly.

Although forex trading is very popular today, make sure that you employ the right software in order to reach your goal. The advantages of software programs that were mentioned above are useless if it is not properly reviewed. Remember that web technology continuously increases in popularity becoming the latest trading avenue.

There are numerous internet sites which are providing different software programs that can allow the traders to do forex trading. However, make sure that the software has accuracy. When you acquire certain software as your tool, try it first. Allow dry runs or testing especially when decision making is concerned. There are lots of forex trading sites that are offering trial runs of their products. The software can determine the currency rates each day.

Besides such useful tools, some software contains some other intelligent features. It helps the traders analyze data and predict market behaviors. It can also involve graph utilization which shows the rising and falling of currencies.

Most forex trading sites allow the users to conduct secure transactions in a number of international markets. The sellers and buyers worldwide use this flexibility to participate in the trading regardless of time as long as it is still market hours.

A special note to novice traders: do not worry if you are not sure. You can avail services such as accessing the expertís sites for advice. These experts help the newcomers in analyzing and understanding the behavior of the market. As the new traders become more mature and knowledgeable, they make wiser decisions regarding the best currency to trade and become successful. You can see why the trading software is so useful and important for all types of traders.

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Aroon Up & Down (MT4, MT5) — this MetaTrader indicator is based on finding the maximums/minimums of the period and doesn’t use any standard MT4/MT5 indicators. It is a separate window indicator with 2 charting lines. I find it useful to determine the trend changes.

BB MACD (MT4, MT5) — a MACD variation custom MT indicator, based on moving averages and standard deviation indicator. It can be used to determine trend starts/ends as well as the trend strength (the broader is the gap between two bands, the stronger is the current trend).

Beginner (MT4, MT5) — this one shows up trend extremes (max and min) which can be treated as the support and resistance points and help you understand current trend channels. It is a simple indicator that uses some period to find the highest and the lowest points and mark them with the dots. It can be a good base for your own range breakout expert advisor.

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Fisher (MT4, MT5) — finds the maximum and minimum levels on the given period, applies custom calculations to the relation of the current price to those levels and draws a histogram of the trend. Marks uptrend with green lines and downtrend — with red lines.

Float (MT4, MT5) — this MetaTrader indicator scans the latest trends and tries to apply the data to the current rate, showing a trend start/end in a separate window. It also shows Fibonacci retracement levels on the main chart window.

Laguerre (MT4, MT5) — a separate window indicator with one line signaling short and long positions, when it crosses the upper band from above or lower band from below, respectively.

Market Profile (MT4, MT5) — a classic market profile indicator created specifically for Forex daily trading session.

Murrey Math Line X (MT4, MT5) — another kind of pivot points given in form of lines displayed on the main chart. It uses Murrey Math rules to calculate the lines’ position. Lines are shown for the current period and represent the support and resistance levels.

Not So Squeezy (MT4) — a set of indicators for the Not So Squeezy trading strategy.

Pattern Recognition Master (MT4, MT5) — an indicator for the automatic Japanese candlestick patterns recognition. It marks each candle, which fits any pattern, with the special code that represents the appropriate candlestick pattern. The legend for the patterns and the corresponding symbols is also attached to the chart with this indicator.

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RSIOMA (MT4) — this indicator is composed of the RSI (Relative Strength Index) of two moving averages and moving average of this RSI. The cross of them means the change of the trend — when the bold line is above it is an uptrend, when the thin one is above it is a downtrend.

Spread (MT4, MT5) — an indicator that can display current spread for the given currency pair directly in the main window of the chart. Useful when dealing with variable spreads.

Support and Resistance (MT4, MT5) — as the name suggests, this indicators shows the levels of support and resistance directly on the chart. It uses standard MT4/MT5 Fractal indicator and does quite well in depicting the good levels for the next stop-loss and target-profit prices.

Trade Assistant (MT4, MT5) — a multi-timeframe indicator that analyzes the market conditions on timeframes from M5 to D1 using the Stochastic Oscillator, RSI and CCI standard indicators. The output is the set of buy or sell signalls displayed as a table below the chart. It’s very easy indicator to trade using both small and large timeframes.

Traders Dynamic Index (MT4) — indicates trend direction, market volatility and trend strength in a separate window of the MetaTrader terminal. It is handy in many trading styles — long-term and scalping. Read the commentary in the code to learn using it (very easy).

TRO MultiPair (MT4) — a multiple timeframe indicator package for multiple currency pair. It shows as a separate terminal window with 3 indicating dots for each of 4 different currency pairs for each MetaTraer time period. Dots combinations serve as the entry signals. The more timeframes show the same combination the more accurate signal is. Red, red, magenta is used to enter short; green, green, cyan is used to enter long. You can select currency pairs via the input parameters. The timeframe and the currency pair of the chart, to which you attach this indicator don’t matter.

TzPivots (MT4, MT5) — daily pivot points indicator with an accurate and informative display. Trader has to set two input parameters: LocalTimeZone — time zone of the MT4/MT5 trading server (e.g. “-5″ if it’s New York time) and DestTimeZone — time zone of the session for which you want to calculate pivot points (e.g. “+9″ for Tokyo trading session pivots).

Var Mov Avg (MT4, MT5) — indicator is based on the calculating of moving averages of the varying periods. It detects crosses that produce buy/sell signals as well as current trend indication. This indicator has a sound alert on signals, which can be turned on and off.

ZigZagOnParabolic (MT4, MT5) — improved version of the standard MetaTrader ZigZag indicator that is based on another MetaTrader standard indicator — Parabolic SAR. Detects chart extrema.

You want to share your own custom MetaTrader indicator for this page? Or do you have any comments/questions regarding any of indicators presented here? Please, visit our forum on MetaTrader Indicators.

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If you are having any problems with installing the MetaTrader expert advisors into your MetaTrader platform, pelase refer to this tutorial:

MetaTrader Expert Advisors User’s Tutorial

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MetaTrader History Data Importing and Converting Tutorial for Quality Backtesting

If you want to share your own expert advisor for this page, or want to comment on any EA presented here, please, visit our forum on MetaTrader Expert Advisors.

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Despite the fact a French-German bailout plan for Greece was unveiled towards the end of this week, the EU couldn’t revert a strong negative sentiment towards assets in the region, specially after Portugal has started to hit the headlines after it credit was downgraded by Fitch Ratings, which was expected to an extent, but the actual fact weighed on the currency’s outlook anyways. The delay among government officials in Europe and the lack of efficiency to deal with the budget gap issues is making the euro one of the most unattractive currencies in the beginning of 2010 before the end of the year’s first quarter next week, which allowed the dollar to perform well for another week versus the bloc’s single currency.

Eurozone members budget deficit is certainly affect the euro’s rate, but it’s important to remember, that several of its main trading partner, as the U.S. and U.K., have also growing budget deficits, and the consequent problems in these regions may allow the euro to pare some of its losses at some point this year, specially versus the dollar, as U.S. budget deficit concerns may rise in the following months.

EUR/USD closed at 1.3408 from an opening rate of 1.3524 in the beginning of the week.

If you want to comment on the U.S. dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

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The euro was firmer today after ECB President Jean-Claude Trichet stated that he was “extraordinarily happy that the governments of the euro area found a workable solution.” The euro had fallen to a new 10-month low on remarks made earlier by the ECB President in which he voiced his disapproval of an IMF based aid package. Trichet feared that turning to the IMF for Greek assistance would be “inappropriate” and would lead to a lack of confidence in the EU. The comments derailed a strong rally in US markets, pulling back the Dow from triple digit gains, closing only 5 points higher at 10841.21. The President’s change in tone triggered a euro based rally as traders anticipate a solution to the Greek sovereign debt crisis, boosting risk appetite. The single currency now sits just above the 1.3335 S1 daily pivot. Interim support still holds at 1.3270 with demand seen at the 1.32 handle and 1.3160. Strong support is eyed at the convergence of the S2 monthly pivot and the 61.8% Fibonacci extension, taken from the Jan 13th and March 17th highs, at the 1.31 handle. Resistance sits at 1.3375 with subsequent price ceilings emerging at the 1.34 figure, followed by 1.3450 and the 1.35 handle which sits just above the upper bound of the downward channel dating back to the Dec 3rd high.

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