Forex Crunch 50:1 Leverage Limit – Industry is Growing Up

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• 50:1 Leverage Limit – Industry is Growing Up
• Forex Daily Outlook – September 22 2010
• Fundamental Overview – Market Movers Last Week – 9/20/2010

50:1 Leverage Limit – Industry is Growing Up Posted: 21 Sep 2010 11:35 PM PDT In less than a month, the new CFTC rule regarding foreign exchange will be in effect – a maximum leverage limit of 50:1 on majors and 20:1 on others. This might be frustrating for some traders, but in the long run, I believe this is a good step for industry. I believe that a leverage limit of 50:1 should be sufficient for most traders. While the desired leverage for most traders is 100:1, 50:1 is good enough. For traders that were used to 100:1, this can help them with money management – they will risk a smaller portion of their account on every trade. The original proposal was for a 10:1 limit. While serious traders can settle for this leverage, changing the limit from 100:1 to 10:1 in one day would be too drastic – a step that would definitely damage the industry and send traders elsewhere. And if they would have nowhere to go to, US traders would just abandon the industry. The CFTC found a good compromise between the will to distance forex from gambling and the understanding that a harsh 10:1 limit will create more damage. Together with a 50:1 limit in Japan (25:1 next year), regulation is slowly limiting the high leverage. Leverage in forex is still high, but slowly becoming more acceptable for mainstream stock traders. Some “gamblers” might quit the forex, but tougher regulation can open the door to traders that saw foreign exchange as the “Wild West”. I believe that this move by the CFTC is just part of the industry’s evolution.  I think that the majority of American traders will prefer to give up on higher leverage and stay with local and regulated brokers. It will be interesting to see if other regulatory bodies, such as the British, Swiss and Australian bodies, will follow with this limit. If more Western countries apply such rules, traders will have two options: trusted but limited trading, or unregulated distant brokers. Currently, the US and Japan lead the pack. Leverage is limited in the “safe haven” countries… Want to see what other traders are doing in real accounts? Check out Currensee. It's free..

Forex Daily Outlook – September 22 2010 Posted: 21 Sep 2010 03:00 PM PDT U.S. crude oil inventories, Canada’s retail sales data, Bank of England MPC Meeting Minutes and New Zealand GDP are the main market mover events on our menu today. Here is an outlook on all the coming events. In the US, Crude Oil Inventories released weekly decreased by 2.5M last week an increase is expected after a pipeline which had been closed for repairs all week is re-opened in the US Midwest. Later in the US, House Price Index a leading indicator of the housing industry’s health  released monthly is expected a smaller drop of 0.1% compared to 0.3% in the previous month. In Canada, Core Retail Sales a major gauge of spending trends released monthly predicted to recover following three months of drops forecasted to rise by 0.5% and Retail sales are also predicted to climb 0.4% following 0.1% in June. More in Canada, Leading Index a Combined reading of 10 economic indicators released monthly predicted 0.6% increase 0.2% better than in the previous month leaves room for optimism in the Canadian market. For more on USD/CAD, read the Canadian dollar forecast. In Europe, Industrial New Orders a leading indicator of production in the Euro-Zone expected to decrease by 1.2% following a better than expected rise of 2.5% in June. Also in Europe, Consumer Confidence released monthly continues its’ steady improvement forecasted to reach -10 points following -11 in the previous month. Finally in Europe, Belgium NBB Business Climate a leading indicator of economic health released monthly expected to reach -4.9 points following -5.1 points in the previous month getting closer to the 0.0 line. For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis. In Great Britain, Bank of England Monetary Policy Committee Meeting Minutes, a detailed record of the BOE MPC’s most recent meeting where 8 members voted to hold rates, provides in-depth insights into the economic conditions that influenced their vote on where to set interest rates, and offering clues on the outcome of future votes. Read more about the Pound in the GBP/USD forecast. In Australia, MI Leading Index Combined reading of 9 economic indicators designed to predict the direction of the economy decreased from 0.3% to 0.0% in the previous month a small rise is expected now. For more on the Aussie, read the AUD/USD forecast. In New Zealand, Gross Domestic Product the broadest measure of economic activity released quarterly expected 0.5% increase 0.1% lower than in the previous quarter. In Japan, All Industries Activity a leading indicator of economic health released monthly forecasted 1.1% increase after only 0.1% in the previous month. That’s it for today. Happy forex trading! Want to see what other traders are doing in real accounts? Check out Currensee. It's free.

Fundamental Overview – Market Movers Last Week – 9/20/2010 Posted: 21 Sep 2010 08:50 AM PDT Guest post by ForexTraders.com The U.S. Dollar turned in a dismal performance last week against the most of the major currencies. Nevertheless, the Greenback managed to rise slightly against the New Zealand Dollar in the wake of the RBNZ's decision to leave their benchmark Official Cash Rate unchanged at 3.00% and more so against the Japanese Yen which appreciated thanks to the first round of official forex intervention by the Bank of Japan seen in years. The most significant price action was seen last week against the Euro which gained considerably versus the Greenback after the previous weekend's Basel III agreement was tentatively finalized, although it awaits ratification by the G-20 in November. Along with the Euro, the Japanese Yen was also in the spotlight, dropping significantly against the Greenback after the Bank of Japan stepped in as the Yen reached new 15 year lows in the wake of the Japanese presidential election results that confirmed Prime Minister Kan. The Euro and Pound Sterling were the best overall performers against the Greenback last week. The Euro gained 2.5%, Sterling was up by 1.7%, the Australian Dollar was 1% higher and the Canadian Dollar managed to eek out a more modest 0.3% gain. The two major currencies to decline against the U.S. Dollar were the New Zealand Dollar, which declined by a mere 0.3% and the Japanese Yen which fell by 1.9%. U.S. Dollar's Performance Was Weak at Best The largest fall in the Greenback last week against the other majors was seen against the Euro and Sterling, where the U.S. Dollar lost -2.5% and -1.7% respectively. Furthermore, the price of gold making a new all time high of 1,282.75 on Friday also buoyed the Aussie and the Loonie, in addition to preventing the Kiwi from declining further. The New Zealand Dollar — the only loser besides the Yen among the majors against the U.S. Dollar last week — was severely hampered by the dovish comments made by RBNZ Governor Bollard in a statement accompanying the RBNZ's Rate Decision announced last Wednesday to keep rates stable. Bank of Japan Intervenes for the First Time Since 2004 The BOJ's first official currency intervention since 2004 was also instrumental in weakening the Japanese Yen, with the Greenback rising almost 3.00% against the Yen on Wednesday and then holding on to most of it gains. The rate went from a 15 year low of 82.87 on Wednesday to 85.73, where it closed on Friday. USDJPY has since held above the 85.50 level after the intervention last Wednesday and now appears to have stabilized around the 85.70 level. The BOJ has apparently now drawn their line in the sand at the 82.00 level on the Yen. The BOJ intervention last week came without the concerted effort of either the European Union's or the United States' central banks, so that had a dampening effect on its efforts. Euro Stronger on New Basel III Bank Requirements and Spanish Debt Auction For its part, the Euro gained considerably against the Greenback, rising by +2.5% largely on the back of news out last Monday that the new Basel III agreements would give banks ample time to come up with additional reserves. The new international bank requirements will obligate banks to maintain 4.5% of their assets in reserve in the event of additional economic stress. In addition, a 2.5% buffer amount will also be maintained. Nevertheless, the regulations will only partially go into effect starting January 1st, 2011, and they will be gradually phased in with the full force of its requirements not scheduled for final implementation until 2019. Also contributing to the rally in the Euro were the results of a Spanish debt auction on Thursday which showed the country had raised a total of 4B Euros of 10 and 30 year bonds, meeting the auction's maximum subscription target. The average yield on the 10-year bond was 4.144%, which was lower than the 4.864% paid on Spanish bonds auctioned in June. In addition, the 30 year Spanish bond sold at an average yield of 5.077%, which was also considerably lower than the previous yield of 5.908% paid in the previous auction. Forex Market Implications The forex market is beginning to let reality sink in. With mixed economic numbers out of the United States and Europe which continue signaling weakness in both economies, the commodity currencies continue to be favored over both the Greenback and the Euro. Basically, with the price of gold reaching new all time highs along with other commodities such as silver and oil continuing to appreciate, being long either the Euro or the U.S. Dollar will eventually catch up to investors and bite them hard. The day of reckoning will arrive maybe sooner than later for both EUR and USD. With respect to the Yen, BOJ intervention has been notoriously ineffective in stemming the Yen's rise in the past. Although the forex market has reacted significantly to this bout of intervention, until the underlying bearish sentiment for USDJPY reverses, this could merely be a smoothing event that could provide traders with better levels to buy Yen at. Weekly Recap and Outlook for the U.S. Financial Markets and Dollar – 9/20/2010 The U.S. Dollar weakened considerably against almost all the major currencies last week, with the exception of the Yen and the Kiwi against which it gained 1.9% and 0.3% respectively. The Yen was supported by unsterilized BOJ intervention in the forex market, while the Kiwi fell against the Greenback on news indicating that the RBNZ would likely not hike interest rates further in the near term.     Read full report Weekly Recap and Outlook for EURUSD – 9/20/2010 EURUSD recovered considerably in last week's trading, initially rallying from its weekly low point at 1.2703 seen on Monday. The Euro gained support from the announcement by the Basel Committee of Banking Supervision (BCBS) that it would be introducing a fresh set of regulations for international financial institutions to be known as Basel III. Basically, these new BCBS banking rules will require banks who wish to comply with them to maintain three times more capital than was previously necessary under the earlier Basel II rules. The time frame for implementation of these regulations — within which global banks will need to meet the higher minimum capital requirements — is five years. Nevertheless, banks will not have to meet the full capital requirements until 2019, when they will have to commence holding high quality capital to cover a minimum of seven percent of their risky assets. They will also need to keep a 2.5% buffer to help protect against possible financial stress. Although this extended implementation time frame will have only a minor impact on international banks in the short term, it will eventually improve their risk profile over the longer term. Read full report Weekly Recap and Outlook for GBPUSD – 9/20/2010 GBPUSD pushed higher last week, initially trading with a positive tone on Monday after U.K. Nationwide Consumer Confidence moved up to the 61 level that compared favorably with its former 56 level. This result also beat out the market's call for a 59 print. In spite of this improvement, the U.K. housing market lagged as shown by a large decline in the RICS House Price Balance of -32% compared with its previous fall of only -8%. The outcome was far worse than the market's consensus for an -11% drop. Read full report Weekly Recap and Outlook for AUDUSD – 9/20/2010 AUDUSD gained ground once again, rising for fourth straight week as fresh all time high gold prices — in combination with favorable Chinese economic data released over the previous weekend — raised both international investor risk appetite and market sentiment. This supportive scenario benefitted the commodity currencies, although the Aussie showed the most impressive gains. Last week began for the Aussie with a positive tone taking the rate off of its weekly low point of 0.9287 seen during Monday's session. AUDUSD rose in the wake of news that the Australian NAB Business Confidence index came out at 11 that was considerably above its former 2 reading. Read full report Weekly Recap and Outlook for NZDUSD – 9/20/2010 NZDUSD saw volatile trading conditions prevail last week, as the rate moved sharply within a 0.7213 to 0.7392 range. The rate began the week by trading higher in spite of news that a 7.0 earthquake had hit Christchurch — a major New Zealand city — over the former weekend. The quake prompted the declaration of an official state of emergency in the region and extensively damaged property in the city. Monday also saw New Zealand FPI show a lower than expected decline of -0.1% for the month compared with its previous reading of a gain of +1.6%. Read full report Weekly Recap and Outlook for USDJPY –  9/20/2010 USDJPY experienced considerable action in last week's trading, in spite of minimal economic data being released from Japan. The pair began last week with a soft tone during Monday's session as the Yen strengthened in advance of Japanese elections to be held the following day. Tuesday's election results showed that ruling Democratic Party of Japan Prime Minister Naoto Kan was favored over his rival Ichiro Ozawa. As a result, Kan won a full term as president of his party, and promptly reshuffled his cabinet. In doing so, he shifted over half of its positions to fresh appointees, excluding Ozawa in the process. The Yen strengthened on this news, sending USDJPY to yet another fresh 15 year low point at 82.92 on Tuesday. Read full report Weekly Recap and Outlook for USDCAD – 9/20/2010 USDCAD continued trading within its recent triangle consolidation pattern last week. The rate stayed within a fairly tight 1.0215 to 1.0349 range, with competing fundamental factors keeping the rate relatively stable. The week started off with a favorable tone for the Loonie as generally positive economic data out from China over the weekend raised international investor sentiment. Nevertheless, the rate found good support that was in part stemming from Greenback buying interest expressed by Canadian corporations. These hedge related U.S. Dollar purchases came strategically in front of a key gently upward sloping trend line that started the week at 1.0164 and then ended slightly higher at 1.0178 on Friday. Read full report Want to see what other traders are doing in real accounts? Check out Currensee. It's free..

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