Today it’s time to look back what the major currencies did during 2008.

Starting January 1th 2008 until today December 30th 2008.

We had the biggest moves in the Pound against the EUR and JPY which are on the right in the chart below.

Some currencies showed their highest/lowest level for the year already in the first week of 2008, so it’s important to look at their direction in the first week of 2009.

High volatility in the major currencies and cross rates as well and I can’t remember such moves since I started trading in 1983, WOW !

Hope 2009 will give us the same chances to trade.

On the EUR/USD chart below we are looking to two times frames in one chart.

Many of us are looking to Momentum as well, but there is a different way to do this.

First, the red and green bars, as mentioned in earlier posts, are indication a change of the trend, which is a close above/below the previous weekly high/low.

The weekly bars are  shown here as boxes.

The Balance Point (purple line) is simply the previous weekly High + Low + Close divided by three.

The amount this purple line is moving up and down indicate actually momentum which of course has to do with the previous weekly range.

Good to see what momentum is doing during the last week compared to the week before.

The trend change is only valid if we see a close, next week, below the previous weekly low, otherwise the uptrend will continue.

What is strong and what is weak in the major Forex and cross rates ?

Therefore you can compare the strength and weakness of each currency pair.

One way to do this is to add the standard RSI of each currency pair on top of each other to see the total picture quickly.

On the chart below we see the highest RSI level of 86 (blue) for the EUR/GBP and the EUR/USD (red) at 78 and looking at the bottom the USD/CHF (brown) at 18 followed by the USD/CAD (black) at 35.

It’s to easy to say to go short in the highest and long in the weakest as more analyses must be done to avoid unnecessary risk, but it gives you an easy and quick view where the major currencies and cross-rates are in the battle field.

Trading Forex these days is a lot of volatilty as well !

A simple calculation like ATR10/yesterday’s close at the bottom on the chart below show us how risky trading can be as volatilty is up three times the normal rate.

Leverage is a killer in this, but we all know that !

Just following the trend, red and green bars, and without high leverage keeps us in the trend.

Only a close below the previous weekly low of 1.3430 will color the bars red again and a change of the trend otherwise we are heading for the strong resistance zone 1.5500 - 1.6000.

Not all traders are using Forex Spot trading facilities to trade Forex for speculation or hedging their portfolio’s or corporate risk.

The so called ETF’s (Exchange Traded Funds) are shares traded on international stock exchanges representing Foreign Exchange Pairs, for example the list below.

Some software programs can give you an easy view about strength/weakness of those ETF’s.

The strongest is in green on the list below and the weakest are in red, just a first step in ranking.

When we see the top currency with a ranking of 99, this means the strongest in the group of selected currencies and not to go long already, v.v. for the red with a value of 10.

Looking at the chat below of the YEN/USD we see the trend indicator in the green since October, at the top of the chart, while the RSI remain above 50 indication more upward pressure then downward pressure.

Currency ETF’s using less leverage of course, but still a very valuable way to trade Forex in a different way, combining portfolio protection or speculation.

Also traders can trade smaller amounts compared to lots and mini lost in cash Forex trading.

There are a few ETF’s already which provide 2 or 3 x leverage and more to come !

This article is something different !

Not only the Forex markets are very volatile but also the price of famous football players.

FC Barcelona, the home city of FXStreet had a major change last year.

With several Dutch players/trainers in the past playing for FC Barcelona, but they are now all gone.

Today we have six Dutch players in Madrid playing for Real Madrid.

The last one was Hunterlaar moving from Ajax Amsterdam to Real Madrid.

If you look at the transactions for players there is only one direction for their prices, LONG !

Below the most expensive transactions ever:

1. Zidane (from Juventus to Real Madrid) - EUR 76 mln. (2001)

2. Figo (from Barcelona to Real madrid) - EUR 58,5 mln. (2000)

3. Crespo (from Parma to Lazio Roma) - EUR 53,6 mln. (2000)

4. Buffon (from Parma to Juventus) - EUR 49,2 mln. (2001) 

They must be happy that the sale and salary is in EURO’s  and not in US Dollars !

But don’t worry Barcelona,  as today Real Madrid has six Dutch players now ,

sooner or later Dutch players will return to Barceloana and the next Dutch trainer

(ex. Valencia)  is simply waiting for the next job, so better times are ahead.

Unannounced, quantitative easing has started last week in the USA.

The Federal Reserve  is flooding banks with reserves, most of which is not required.

Excess reserves no stand at US$ 550 bln !!

It is expected the wind-down of Supplementary Financing Program means that excess reserves will rise further over the next couple of months.

How about the US Dollar currencies and Interest rates  and is the US Dollar the new carry trade ?

The chart below is shown the difference in required reserves and the excess reserves.

WOW, what a move again today.

By seeing EUR/USD 1.3975 yesterday, you can wait for a test of EUR/USD 1.4000

I can’t remember seeing 400 pips in the EUR/USD since I started trading in 1983. Looking at 1 month interest rates we see USD around 0.6 % and the Yen at 0.7%

So what the development with those two low interest currencies?

Looking at the chart of the USD/JPY we see a steady course down.

The hedge indicator turned down at the beginning of September around 108 Yen and quickly went down to over 75% short for corporate hedging (see yesterday’s story) and it looks like it will take a long way before the hedge indicator get’s back to above zero as today’s action turned all indicators heading south again.

The Forex market is a mixture of corporate activity, hedging their corporate currency risk and speculators on the other side.

Corporations, like import/export companies etc. have to calculate each time their amount of risk when they do a deal.

They have a different view compared to the speculators.

In the chart below we calculate how much percent we like to hedge long/short.

On November 25 the EUR/USD at 1.2930 turned up and changing trend.

The bars got a green color, the percent indicator came above zero and indicate to hold 30% long.

Since then, the long EUR/USD position turned to 80% as today.

Again this is not a strategy for speculators but a defensive model to hedge corporate Forex risk.

Of course this can be done with others securities as well, like Dow Jones, Oil etc.

Important is to stay with the strategy on daily basis and so adjusting positions.

It’s all about discipline!

Hello all,

First I like to thank the people of FXStreet to have me here with the new weblog called ForexHedge and help me to get routine it updating etc.

My name is Ron Schelling and I am the owner of www.2hedge.com  which provides education on trading Forex Baskets, Spreads and Hedging.

I started in 1983 with commodities and no computers around at that time so drawing charts by hand and reading the news from the ticker, which is hard to compare with what is available today with all kind of real-time data, software, dealing stations and complex trading systems.

One thing has not changed: DISCIPLINE.

My also 30 years of pilot experience, (I am still young and current to fly) from flying small aircraft up to fast jets, helped me to maintain the same discipline used in flying, more easy to use in today’s trading.

I simply follow the checklist like in flying airplanes.

Not the complex systems but simple logic with strong discipline keeps us going.

In this weblog I try to inform readers and keep them up to date with trading Spreads, Arbitrage and mainly trading Baskets of currencies in order to reduce risk.

Blogging is new to me so I would ask you all to be kind and patient while I find how to fly this weblog on a regular basis.

Kind regards

Ron Schelling