On earlier posts we looked to ranking of the Currency ETF’s (Exchange Traded Funds) as an alternative for trading currencies for hedging or speculation.

The ETF’s are traded like stocks and most are quoted in US Dollars.

The chart below is the comparison chart for the major currency ETF’s and it’s simple to see that the Yen/USD (Yellow line) is at a different level compared with the other major currency ETF’s.

Zoom in on the chart to see the percent change in value. during the last 6 months.

Easy ranking can be done on:

http://etfscreen.com/cchart.php?sl=212&cl=FXA+FXE+FXF+FXY+FXM+FXC+FXB

Interesting charts about the present US economy and so not to good for the US Dollar.

http://leavittbrothers.com/stocks-options-futures-trading-charts/2009/01/unemployment-state-budgets-foreclosures.cfm

On the tabel below we are looking to the ranking of the Currency ETF’s (Exchange Traded Funds).

Each column is a week and 99 (green) means it’s the strongest in the selected basket while 10 (red) is the weakest in the basket of selected currency ETF’s.

So 99 means not a buy signal and 10 means not a sell signal but you see the ranking per week (column) and also all ETF’s are quoted in US Dollar while in Spot trading some currencies are quoted in their home currency.

In the next table we see the real strength/weaknest picture, with on top the Yen ETF with a closing price of $ 112.13  and a daily change of minus 17 cents while the weekly trend (green) was up for the last 18 trading days with a weekly trend change of  1.9% and a 3-month change of 9.1%.

On the weak side we see Pound Sterling with a last close of 138.07 which is -0.85 daily change and it’s weekly trend is down, but more important it’s long-term 3-month change is -14.6% !!  (What a dive).

Checking out that weak Pound Sterling on a weekly chart below, another important indication is the weekly RSI which is below 50 since December 2007  and even more since August 2008 !

RSI below 50 means there is more dowward pressure then upward pressure on a weekly basis.

Long term investors like to see at least the weekly RSI above 50 before thinking about long positions.

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A very unique event.

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Today a different story and I hope you all like it as it has not to much about Forex this time.

I have not only 25 years experience in trading but also 30 years in aviation keeping my license valid with training all the time.

My trading started in a time before the PC was around, so just a phone and we draw most commodity and Forex charts by hand each day, while the ticker came up with endless news on paper.

Today all is computerized and orders are done in seconds, so the same development like flying airplanes manully up to fly-by-wire with and a sidestick, like Airbus.  Some call it the flying computer !

Have a look: http://www.gillesvidal.com/blogpano/cockpit1.htm 

We have several clients from the aviation world and one of my best clients from the USA was flying today a new route for his airline from the USA to South-America and I followed him real-time with flight-tracking.

In one of the screens on our PC’s we was  real-time on radar screen while on the other screen we traded his Forex account, also in real-time !

I think this was a very special day, seeing him moving on radar heading south and trading his Forex Basket on the other screen at the same time. 

What a great combination of technology, both in trading and aviation, compared to the day’s  I started to trade and earlier to fly.

Flying these planes and training in the simulator is the same discipline we need in trading.

Only this way we survive in trading. 

In this post I like to answer the question I got about the earlier post of Oil in EUR http://blogs.fxstreet.com/forexhedge/2009/01/15/oil-in-euro/ 

The blue line, on the chart below, is the price of the oil ETF USO which is traded in US Dollars, but how can manage currency risk for non US Dollar traders, for example trading in Euro’s ?

In the middle pane we see the EUR ETF representing EUR/USD rate while at the bottom we show the difference between the price of USO in US Dollars and Euro’s.

The question was how are we going to hedge our USO ETF, quoted in US Dollars, for a possible currency risk, so not the risk of the USO price itself !

Looking to the difference at the bottom of the chart we add two long moving average on the difference.

We hedge USO ETF, quoted in US Dollars, for currency risk to go short EUR/USD for the same amount at the crossing point of the two moving averages.

Of course there are many different ways to hedge, so have a look at our website www.2hedge.com and go to the link FX_Hedge which shows some examples of currencies hedge in percent.

This time a more fundamental view on the US Dollar.

Foreign Governments dumping US Assets during November last years according the TIC (Treasury International Capital).

Net foreign purchases of long-term US securities were negative $ 56 billion.

Of this net purchases by private foreign investors were negative $ 18.9 billion and net purchases by foreign official institutions were negative $ 37.1 billion !

This is the third time in four months that foreign governments and institutions sold US Long Term securities, these are defined as treasury bonds, agency bonds, corporate bonds and equities.

Foreign entities dumped $ 92,6 billion of US long term securities in the last two months and foreign governments sold US long term assets in everyone of the last 4 months for a combined $ 69,3 billion.

In become clear that foreign goverments may not be intrested in continue to finance US deficits.

Watch these number carefully if you have Dollar assets.

Oil futures are normally priced in US Dollars.

The chart below is the ETF (Exchange Traded Fund) USO and it’s underlying value are several US oil futures.

USO is a great product for those who can’t take the risk trading futures, but another problem for non-US Dollar trades is the currency risk if you trade the USO ETF in US Dollars.

Below we see the price of USO (red line) US Dollars and the price of USO in EUR/USD (blue line) while at the bottom the exchange rate of the EUR/USD.

Of course the difference between the lines is the currency risk for non-US Dollar traders and it shows the importance to hedge US Dollar assets for non US Dollar traders.

I come back again on the basic strategy of looking to two time frames on the same chart.

While on this chart we are looking to daily and weekly (blue boxes) bars, it is of course also possible to trade this strategy intraday, let’s say hourly and 4 or 5 hour bars (boxes).

In this strategy we buy when the close is above the previous weekly high (blue box), which will color the daily bars green and we sell when the close is below the previous weekly low, which will color the bars red.

Doing this on a daily/weekly basis I advice to use at least 100 pips stop, in case you like to put in a stop, and use minimum leverage.

All major currencies have big volatility these days which pays off in the EUR/USD with just two trades since November 2008.

It’s clear that trading a number of currency pairs this way will most of the time spread the risk as well.

Of course you can use an extra indicator to confirm the buy or sell signal, like RSI crossing the 50 level, MACD and other short term indicators.

Only a close this week above the previous weekly high (1.3475) will produce a buy signal and will change the trend otherwise we stay short since 1.3905.

This is a short message but with a lot of value !

In 2008 the volatility in the markets was record breaking, not only for the stock markets but also for the Forex markets as we all know.

There was a very interesting article today from RealMoney:

http://finance.yahoo.com/news/Yes-the-Volatility-of-2008-tsmp-13977173.html

Please take a minute to read it.