Forex – Yen, Swiss Franc Higher in Risk off Trade; Aussie Hits 1-Month Lows

© Reuters.  © Reuters.

Investing.com – The yen and the Swiss franc pushed higher against the U.S. dollar on Thursday as weak Chinese economic data and doubts over whether the U.S. and China will be able to reach a preliminary trade deal underpinned demand for safe haven assets.

Against the , the dollar was down 0.2% at 108.58 by 04:16 AM ET (09:16 GMT). The greenback was down 0.2% against the at 0.9873.

U.S.-China trade negotiations have ‘hit a snag’ over farm purchases, with Beijing not wanting a deal that looks one-sided in favor of the U.S., the Wall Street Journal reported on Wednesday.

Adding to pressure on risk appetite, Chinese retail sales, industrial output and investment data were weaker than expected, sending the , already knocked by soft local employment data, to a one-month low of 0.6793.

The unexpectedly downbeat China data highlighted continued pressure on the world’s second-largest economy and subsequent risks to global growth.

The yen showed little reaction after data overnight showing that Japan’s economy slowed sharply in the third quarter, growing just 0.2% as exports fell amid ongoing trade tensions.

The was little changed at 1.004 after hitting a one month low of 1.0995 in U.S. trade.

In the Eurozone, data showed that Germany escaped a recession in the third quarter, as the economy grew 0.1%, but a global slowdown, Brexit uncertainty, and fallout from the U.S.-China trade war continued to cloud the outlook.

The edged down to 98.18 from a one month high of 98.30 reached in the previous session.

Federal Reserve Chair Jerome Powell on Wednesday told Congress that the negative interest rates sought by Trump aren’t appropriate for a U.S. economy with ongoing growth, a strong labor market and steady inflation.

Meanwhile, was little moved at 1.2852, stuck in a tight range this week, in a limbo ahead of a Dec. 12 election.

–Reuters contributed to this report

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Why is risk tone mixed this am after rollback tariffs agreed?

Risk is in the balance…again

Risk is in the balance...again

Ok, so we have had news from China and the US that rollback tariffs will be in play? So everything should be hunky dory, right?

wrong.

There are reports of fierce internal opposition from the US regarding tariff rollbacks. This is an uneasy agreement, hence the jitters.

The US-China ‘trade war’ is taking on similar proportions to the US-Russia ‘Cold War’. Any talks of ‘Phase 1’ deals are truce’s and not resolution. Who knows which way risk will flip today – just keep your eyes and ears alert. 

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Risk trades continue to tilt towards deeper worries

Except stock markets

Here’s a quick rundown:

  • Yen crosses are the lows, including USD/JPY down 42 pips to 107.60
  • Gold at the highs, up $ 16 to $ 1515
  • US 10-year yields down 5.4 bps to 1.73%

Those are all session extremes in a sign that the market is increasingly worried about China-US talks falling apart.

The caveat is that the S&P 500 is at 2996, well off the 2984 session low. That could a combination of the Powell put and quadruple witching providing support.

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A risk management plan to follow

Risk management 101

risk management

This article is for you if you want a starter on risk management that is practical and simple to follow. I have written recently on the attitude required to manage money. See this article here on talking about the M-word. I have also written previously on the use of leverage and how using too much leverage is the bane of many traders accounts: 5 trading mistakes to avoid: Mistake#1 over leveraging. This article combines those two principles into a practical guide to follow. In order to get the most of this article it will help if you have read the first two. This article is primarily aimed at those starting FX trading or those who have never laid out a risk management plan. I will make three points in this article all of which are designed to help you preserve your capital:

  1. Decide to trade with little leverage
  2. Decide when you will stop trading: The 10% rule
  3. Decide how to use your FX funds for the maximum benefit.

Some starting assumptions

Before we get into the point above, I want to outline two assumptions I have made.

Assumption #1

I am assuming that you want to manage your account in a way that allows you to grow that account so that you are trading a significant sum for yourself.

Assumption #2

I am assuming that you are wanting to responsibly manage your risk, so that you can make changes to your trading once certain parameters have been hit

With those two assumptions aside, let us look at a hypothetical example of a trader who has 10,000 units of currency in their account.

1. Decide to trade with little leverage

Leverage is simply the ability to trade a position sizes larger than your account size. Think of your account size vs your account size.If you have a 10,000 size account then trading without leverage will involve trading a lot size that is equivalent to your account size. So, if your account size is 10000 then trading without leverage will involve trading a mini lot of 0.10 See screenshot below for an example of a non-leveraged trade on a 10,000 account.

trading pyschology

The less leverage you use, the easier it is on your trading psychology. So, do yourself a massive favour and de-leverage. I personally trade without leverage and only leverage up on the highest conviction trades, e.g interest rate surprises on major central banks. Furthermore, I rarely have more than two positions open at the same time on different pairs.

2. Decide when to stop trading: The 10% rule

Take this rule from me, it will save you money. So, let’s say you take this lesson on board that you are trading without leverage on your account and your account keeps going down. When do you stop trading and realise that you are not quite ready to trade? Don’t wait until you have lost 50%+ of your account. You can know that something is wrong when you have lost 10% of your account. This is the point where you say, ‘Ok, I am trading without leverage and I have lost 10%, so I need to reassess what I am doing’. Take an FX trading course, pay someone to mentor you, just stop doing what you are doing as you need more practise.

3. Decide how to use your FX funds for the maximum benefit.

This is when you can make leverage work for you. Say you have put aside 10,000 units of currency for trading and you are trading without leverage. In this instance there is no need to put all of your trading balance in with your broker. Instead, why don’t you put aside some of the money into another investment. A good example in the UK would be to invest in premium bonds. You could put 8,000 units in premium bonds with no risk of devaluation (aside from inflation) of your investment and a chance of outperforming, but you can access your funds quickly if you needed to pull them across into your trading account. It is a good balance between offering a chance of growth vs safety and accessibility. I have bought premium bonds as a place to put my annual tax contributions before I have to hand them over to HMRC and had two winning bonds since April this year. Including one while I was on holiday, nice bonus on money that would otherwise be doing nothing.

can I make money trading forex

Answering some common objections.

Objection #1 : But I won’t make much money trading without leverage?

This may be true in the short term, but medium to longer term you will make money. If you can generate double digit returns over the course of a year you will be right up there with the best of them. Also, if you can prove to yourself that you can manage money responsibly you will have much more confidence adding extra capital into your trading account. You don’t want huge equity swings in large accounts as they are not acceptable or practical for your trading psychology.

Objection #2 : But I don’t want to stop trading if I lose 10% of my account?

Trading can be addictive, so don’t get hooked. Why not take 3 months out of your trading to stick to demo trading. Then, after 3 months of profitable demo trading, get back onto your live account

Objection #3 : But I like the thrill of the market by using high leverage

The 90/90/90 rule is that 90% of new traders lose 90% of their account in 90 days. Even experienced traders can succumb to the pull of the markets. You are never above needing to manage risk. The moment you think you are above the ‘rest of them’ is often the final thought before a fall. The number one cause of trading disasters is using too much leverage. If you want to keep enjoying the thrill of the market in an irresponsible way you need to budget for it in the way that you would budget for a holiday or household expense. In other words, it is money that you should already considered as spent. You are also establishingterrible habits that will prevent trading ever becoming a full time business for you as you will be unable to either attract investors or safely manage larger personal funds. Finally, the thrill can be addictive and may end up in you losing way too much money and that impact will overspill in other areas of your life impacting your relationships which you cherish and your own mental well being.

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New traders learning point: Risk and the Yen

The Japanese Yen is a risk haven currency

The Japanese Yen is a safe haven currency which investors rotate into during times of uncertainty. The Yen is most probably the largest risk sentiment mover and is the go to currency of choice for risk on and risk off moves.

So, the next time there is a big shift in risk sentiment, remember that you are likely to see strong movements in the JPY.

Falling equity markets=Risk off= YEN strength

Rising equity markets=Risk on= YEN weakness

Look at the reaction to the latest Trump news on an interim China deal to delay tariffs to see how the JPY reacts to positive risk sentiment. It serves as a useful lesson.

Trump tweets positive US-China trade news, the S&P500 ticks up and the Yen ticks down (AUDJPY strength, see below). Risk sentiment is now remaining supported with 10 year yields up 2.72%  S&P500 up 0.59% and the Dow up 0.52% too.

The Japanese Yen is a risk haven currency

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ForexLive European morning FX news wrap: Risk recovers on China trade remarks

Forex news from the European morning session – 29 August 2019

Headlines:

Markets:

  • AUD leads, JPY lags on the day
  • European equities higher; E-minis up 0.9%
  • US 10-year yields up 0.7 bps to 1.486%
  • Gold down 0.2% to $ 1,535.82
  • WTI up 0.7% to $ 56.16
  • Bitcoin down 2.0% to $ 9,475

EOD 29-08
The market focus switched to risk again in the European morning as hope springs eternal. China made somewhat softer remarks on the trade front while offering up hope of a meeting next month, allowing risk assets to rebound after a weaker start to the day.

Equities turned losses into solid gains while Treasury yields also rose across the curve after being pressured lower to start the session. As a result, USD/JPY climbed from 105.90 to a high of 106.36 before settling just under there currently.

The aussie and kiwi also picked up gains after a poorer start to the day – owing to weaker economic data once again – amid the shift in the risk mood. NZD/USD in particular erased losses from 0.6320 to hold around 0.6340 levels currently.

The loonie also held more firm as the risk turnaround spurred gains in oil with USD/CAD slipping back under the 1.3300 handle.

Meanwhile, the dollar maintained a more firm footing with EUR/USD lingering around 1.1070-85 for the most part; trapped in a 17 pips range only today.

The pound is a tad weaker as the Brexit saga drags on with lawmakers still in search of a way to stop Boris Johnson’s prorogation of parliament. Cable traded to a low of 1.2182 before holding near the 1.2200 handle ahead of North American trading.

Looking ahead, the risk mood remains a key factor in affecting trading sentiment today so keep an eye out on potential trade headlines to follow from the US camp. Also, the second look at US Q2 GDP may offer something if there are any notable revisions to initial estimates.

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Event risk playbook for the week beginning August 19

What’s coming next for global markets

Bonds are painting an ever-dour message on Fed policy, an end to globilsation and slower global growth. We look ahead to next week. 

As I review in the ‘Event risk playbook’, the market will trade in anticipation of Friday’s Jackson Hole Symposium, and what will be and what wont be said, and who will say it – this will be the only thing that matters. The title of the sympoeseum, and what is in effect a massive cental banker shindig, is “challenges to monetary policy”. Consider that one of the reasons we have seen buyers of gold, global bonds and JPY is that the world is questioning the central bank put. But also because many just don’t believe that monetary policy can save us if this downturn gets momentum.

A look at global markets

I am inclined to agree. Therefore the emphasis of the symposium falls not only on the level of confidence bankers can instal in the belief they have the firepower to curb any economic fallout. But on how much of a role fiscal policy needs to play in the period ahead.

The question of who represents the Fed is critical ,and after NY presdient John Williams communication mishaps a couple of weeks ago, the market will be hoping to hear from the main man on the Fed, vice chair Richard Clarida. While he may be more dovish than others voting members, the market will listern to him above all others.

Aside from the Fed, we should hear from key represwentaitves from the ECB, BoJ and other DM and EM centrals banks. With trade tnessions, flatter curves and a belief that policy isnt working or going to work, this event is going to be a possible game-changer.

If we look at my weekly implied volatility (IV) report, the IV covers FX options that expire on Friday (NY cut), so doesn’t account for the Monday open. If the Fed stay behind the curve, and continue to  lack any urgency to get in front of the cruve, Mondays (26th) open could be pretty ugly. I will update this spreadsheet on Monday to account for the event risk. 

Implied volatility

If you have a spare hour (I know, who does these days?), I have put down the link for my recent webinar on using volatility as a framework to manage risk. It breaks down this spreadsheet and how you can apply/understand risk reversals, the weekly Commitment of Traders report and have a deeper perspective on implied and realised volatility – https://youtu.be/f_12P86jUfk

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The volatility guide to key event risk in the week starting Aug 12

Chris Weston breaks down the risks for the coming week

While we continue to obsess over the ever-fractured relations between Washington and Beijing, there are a number of new big macro-related themes we should keep a beady eye on this coming week. Notably, talk of a possible snap election in Italy, with the Deputy PM Salvini due to update the nation on Monday. There has been talk that PM Conte will seek a confidence vote, which could impact the EUR, at a time when traders have been buying the single currency as carry positioning unwinds.

Chris Weston breaks down the risks for the coming week
On the other side of the ledger, and more positively, reports that Germany is eyeing a possible fiscal stimulus, which one suspects they will handsomely take advantage of the negative yield environment to borrow, and be paid to do so. The controversy is that the renowned fiscally responsible nation would negate its balanced budget, through increased government debt accumulation and spending. The talk is they would use the funds to target climate protection, which would be somewhat more palatable for a nation who has consistently demanded the likes of Italy, Portugal and Greece reign in their fiscal deficit.

It’s hard not to think this could actually be a big deal, especially if we do get Deputy PM Salvini going on to form a new, more populist government. With the Italians due to renegotiate its budget with the EU in 2020, this dynamic will become a market issue, and we’re likely to get more colour next week. All eyes on Italian BTPs and whether the spread over German bunds increases.

The politics doesn’t stop there either, where in the UK, Boris Johnson continues to reject the Irish Backstop. That will not shock in any way, but there is growing momentum in the speculation (source: The Sun & The FT) that a General Election could be held just days after the Brexit deadline on 31 October. This plays into one of my views that we could see a vote of no confidence pulled on Bojo’s government when the Commons comes back from summer recess on 3 September.

Politics dominates markets, although I have a beady eye on the US bond market, where we could feasibly see the US Treasury 10-year ‘real’ (or inflation-adjusted) yield turn negative next week. With the UST 2s vs 10s yield curve now sitting at 9bp, we will see cries for an inverted curve next week, and this fits in with the new macro view – bad news is bad news for market, and lower bond yields will soon be negative for equity markets and see further love into the CHF and JPY. With so many rates markets already priced at either zero lower bounds, or deeply negative, we get closer and closer to the point where markets see limited or no impact from changes interest rate. Only unconventional monetary support will move the dial.

USDJPY already looks heavy, as any data miss this week, notably in CPI and retail sales will see the 105.00 level tested.

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Forex – Dollar Falls vs High-Yielders as Yuan Supports Risk Assets

© Reuters.  © Reuters.

Investing.com – The U.S. dollar fell sharply against higher-yielding currencies Thursday but rose against haven currencies as upbeat Chinese trade data and better-than-expected jobless claims went some way to restoring global risk appetite.

The , which measures the greenback’s strength against a basket of six major currencies, rose 0.1% to 97.422 by 10:12 AM ET (14:12 GMT), after reaching an earlier high of 97.507. But that modest move disguised losses of over half a percent against units such as the and emerging currencies not in the basket, such as the . The dollar gained against the partially reversing losses over the last two days.

Meanwhile, weekly fell, indicating that the slowdown in the U.S. economy still hasn’t reached at least some parts of the labor market.

Initial claims fell to 209,000 for the week ended August 3, the Labor Department said on Thursday. Data for the prior week was revised to show 2,000 more applications received than previously reported.

Overnight, new data showed that China’s exports rose 3.3% in July, the biggest jump in four months, while imports fell 5.6% on the year, which was less than expected. The data helped ease concerns over a currency war after China let its slide to its lowest in over a decade.

Market expectations for another Federal Reserve rate cut in September remain, with other central banks around the world also easing monetary policy. New Zealand, India and Thailand cut interest rates this week as the spillover from the U.S.-China trade conflict, along with more local issues, hurt their economies.

The Japanese yen, which is seen as a safe-haven in times of market turmoil, inched higher with down 0.1% to 106.10. The euro gained across the board amid reports of the German government looking favorably on a possible stimulus package, with rising 0.1% to $ 1.1200, while slipped 0.1% to $ 1.2123.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Markets underestimate risk of sterling Brexit volatility: BlackRock

LONDON (Reuters) – Currency markets are underestimating the chance of big Brexit-related swings in the value of sterling over the next 12 months, BlackRock (NYSE:), the world’s biggest asset manager, warned on Tuesday.

Risks had risen in recent months of an “extreme” Brexit outcome – either Britain leaving the European Union without a deal, or deciding to stay in the bloc, BlackRock portfolio manager Rupert Harrison said at a mid-year investment update.

“It’s even more uncertain than it has been at any point in the process,” Harrison said. “You can imagine a very, very wide range of outcomes in the next 12 months, and currently the options markets in currencies are not reflecting the scale of that potential volatility.”

Britain is due to leave the EU on Oct. 31, but parliament has repeatedly rejected the transition arrangements negotiated by outgoing Prime Minister Theresa May, and the two contenders to succeed her have both said they could leave without a deal.

Sterling slid to a six-month low against the U.S. dollar on Tuesday below $ 1.2440, but a measure of market volatility of sterling over the next 12 months remains well below the post-2016 peak it reached in December 2018.

Harrison, who advised former finance minister George Osborne from 2006 to 2015, said Brexit continued to reduce the attraction of British assets for global investors.

“The cumulative impact of the uncertainty, as well as … all the stocking and destocking that we’ve seen, has definitely had a negative impact on momentum, which has become significantly more negative over the last three months or so,” he said.

Official data due on Wednesday is likely to show economic growth slowed to 0.1% in the three months to May, according to a Reuters poll of economists. This is down from 0.5% recorded in the first quarter of the year, when demand was boosted by stockpiling ahead of the original March 29 Brexit date.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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