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USD/CAD Rally to Face Canada GDP- Support at 1.2965

Talking Points

USDCAD 240min

USD/CAD Rally to Face Canada GDP- Support at 1.2965

Chart Created Using TradingView

Technical Outlook: We’ve been tracking this USDCAD setup for the past few weeks on SB Trade Desk and the pair is now eyeing near-term resistance head of tomorrow’s 2Q GDP release. The pair is trading within the confines of a newly identified ascending pitchfork formation extending off the monthly lows with the immediate long-bias vulnerable near-term while below the upper median-line parallel extending off the monthly high (grey).

Initial support is eyed at 1.3067 backed by the monthly open at 1.3029 & the weekly open at 1.2991. Key support & broader bullish invalidation rests at the highlighted 1.2965 confluence zone. Bottom line: the trade remains constructive while within this formation (looking to buy pullbacks) with a breach above median-line resistance targeting 1.3149/57 & the July high-day close at 1.3186.

Consensus estimates are calling for an annualized contraction of 1.5% following the 2.4% expansion in the first-quarter of 2016. With markets already anticipating a weak print on account of the Alberta fires, a better-than-expected GDP figure may spark a bullish reaction in the Canadian dollar, which could offer favorable USD/CAD long entries. Keep in mind we have Non-Farm Payrolls on tap ahead of an extended holiday weekend in the U.S. For the complete setup and to continue tracking this trade & more throughout the week- Subscribe to SB Trade Desk.

Avoid the pitfalls of near-term trading strategies by steering clear of classic mistakes. Review these principles in the “Traits of SuccessfulTraders” series.

USD/CAD Rally to Face Canada GDP- Support at 1.2965

  • A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are net long USDCAD- the ratio stands at +1.04 (51% of traders are long)- weak bearish reading
  • Yesterday the ratio was at 1.17% – Short positions are 7.8% higher than yesterday and 32.2% above levels seen last week
  • Open interest is 1.3% higher than yesterday and 9.0% above its monthly average.
  • Although SSI will offer limited guidance within the current price range, there appears to be a broader shift in retail positioning with long positions 12.6% lower from the previous week (suggesting profit taking) while shorts are 32.2% higher during the same period.
  • Looking back over the last few months, it’s worth noting that retail crowds have actually been pretty decent in calling the turns within this range so use caution and don’t chase this into the monthly close.

Help fine-tune you entries, click here to learn more about the DailyFX Grid Sight Index (GSI)

Relevant Data Releases This Week

USD/CAD Rally to Face Canada GDP- Support at 1.2965

Other Setups in Play:

Looking for more trade ideas? Review DailyFX’s Top Trading Opportunity of 2016

—Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex contact him at mboutros@dailyfx.com or Click Here to be added to his email distribution list

Join Michael for Live Scalping Webinars on Mondays on DailyFX and Tuesday, Wednesday & Thursday’s on SB Trade Desk at 12:30 GMT (8:30ET)

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EUR/USD Risks Further Losses as Shift in Retail Positioning Continues

Talking Points:

- EUR/USD Vulnerable to Further Losses as Shift in Retail Positioning Continues.

- USDOLLAR Extends Advance Following More Fed Rhetoric, Upbeat Consumer Confidence.

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the Traits of Successful Traders series.

EUR/USD

EUR/USD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • EUR/USD stands at risk for further losses as it breaks down from the upward trend carried over from the previous month, with the Relative Strength Index (RSI) highlighting a similar dynamic; may see the euro-dollar continue to give back the rebound from the July low (1.0951) as it carves a near-term series of lower highs & lows following the Fed Economic Symposium in Jackson Hole, Wyoming.
  • Positive developments out of Germany accompanied by an uptick in the Euro-Zone’s Consumer Price Index (CPI) may spark a bullish reaction in the single-currency, but the market reaction may be short-lived as there appears to be a material shift in positioning going into the end of the month.
  • Need a break/close below 1.1100 (50% retracement) to favor a test of the key Fibonacci overlap around 1.0950 (23.6% retracement) to 1.0960 (38.2% retracement).

DailyFX SSI

  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-short EUR/USD since July 27, but the ratio appears to have marked a failed test of the 2016 extreme (-2.67) as it narrows from a recent low of -2.66.
  • The ratio currently sits at -1.30 as 44% of traders are long, with long positions 44.0% higher from the previous week, while open interest stands 9.9% above the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

EUR/USD Risks Further Losses as Shift in Retail Positioning ContinuesUSDOLLAR Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • Fresh rhetoric from Fed Vice-Chair Stanley Fischer accompanied by the better-than-expected U.S. Consumer Confidence survey appear to be giving the USDOLLAR a boost especially as the voting-member argues against a ‘one and done’ approach for normalizing monetary policy; may see the greenback continue to trade on a firmer footing as market participants price a greater probability for a 2016 rate-hike.
  • With a number of Fed officials still scheduled to speak ahead of the highly anticipated U.S. Non-Farm Payrolls (NFP) report, another batch of hawkish rhetoric may highlight a growing dissent within the Federal Open Market Committee (FOMC) as the U.S. economy approaches ‘full-employment.’
  • A closing price above 11,989 (50% retracement) may generate a further advance in the USDOLLAR, with the next region of interest coming in around 12,049 (78.6% retracement) to 12,064 (61.8% retracement).

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Read More:

S&P 500: Yellen Sparks Volatility, Market Starts Week at Pivotal Area

USD/JPY Technical Analysis: Implied Vol Shows Trader’s Nerves

EUR/JPY Technical Analysis: Sticking to the Range

EURUSD: Waiting for the Dip & Rip- Key Resistance at 1.1400

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David’s e-mail distribution list, please follow this link.

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China’s Market News: Mid-Year Reports Reveal Financial Sectors Outlook

This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.

- Bank stocks took up the most in government-led purchases despite slow growth in banks’ profits.

- Securities companies reported sharp drops in profits amid weakness in Chinese equity markets.

- High leverage in real estate firms raises concerns on the housing market over the second half of 2016.

To receive reports from this analyst,sign up for Renee Mu’ distribution list.

Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active usersmonthly.

- The profits of Chinese securities companies in the first half of 2016 dropped 59.22% to 62.472 billion Yuan from a year ago, mainly driven by shrinking trading volume, according to Securities Associate of China. Securities companies’ commission income fell by the most: 24 out of the 25 listed securities companies have reported an over 50% drop in this business from a year ago. The weakness in the securities companies indicates that China’s equity markets are still not fully recovered; some capitals may have been returning to the stock markets but not improved to the level before the equity plunge beginning in July, 2015.

- Industrial & Commercial Bank of China, the second largest bank in the world and the largest in China by market cap (as of March, 2016), reported continued slow growth in profit over the first months of 2016. The leading bank’s profit grew 0.8% from a year ago, slightly better than the annual growth of 0.5% in 2015 but far less than the double digital growth before 2013. The other three leading state-owned banks revealed slow growth as well: the profit growth of Agricultural Bank of China, China Construction Bank and Bank of China in the first half of 2016 was 0.80%, 1.25% and 2.52% respectively. Amid increasing non-performing loans and the slowing economy, Chinese commercial banks may continue to face downward pressure in the second half of 2016.

Hexun News: Chinese leading online media of financial news.

- Bank stocks have taken up the largest proportion of government-led purchases, according to listed companies’ semi-annual reports. As of August 29th, state-owned investment institutions and platforms, also called ‘the national team’ by Chinese, have held 222.801 billion shares of 1091 listed companies; this means that the government has invested into 39.0% of listed companies in A-shares market. The total value of the government-led holdings is worth 1.23 trillion Yuan and bank stocks have accounted for 48.11% of all investments. This shows strong government support to the banking sector despite the challenges that banks are facing. Also, the national purchase team have significantly increased shares of non-bank financial institutions, healthcare and bio-tech industries and tele-communication and electrical equipment companies. Value investors may want to look into these equities, as with government support they may have sustainable growth in the long-run.

Xinhua News: theChinese government’s official news agency.

- The news agency issued headline commentary on Tuesday criticizing high leverage in real estate firms. As of August 29th, 101 real estate firms have released their semi-annual reports: the total earnings of these firms in the first half of 2016 increased +37% to 522.8 billion Yuan from a year ago. However, the average debt-to-asset ratio has jumped to 65.68% and the total debt of these companies hit 3.74 trillion Yuan.

Chinese capitals are lacking investment opportunities and therefore have flooded into the housing sector that seems to have relatively high return: The home sales of 30 listed real estate firms in the first seven months of 2016 increased +72.2% on an annualized basis, an all-time high level. This fueled borrowing in the housing market. Calxon Group, a local government-led property company, reported a debt-to-asset ratio of 93.55%. Vanke, the giant real estate developer, revealed a debt-to-asset ratio of over 80%, and so as other 17 leading real estate companies. The news agency warned against elevated risks driven by the soaring housing prices and high leverage over the second half of 2016.

China Finance Information: a finance online media administrated by Xinhua Agency.

- The Shenzhen-Hong Kong Stock Connect will be introduced sooner-than-expected, according to the agenda released by China Securities Regulatory Commission on Tuesday. The securities regulator told that they plan to launch the system in mid to late November, with less than four-month preparations as they stated earlier.

To receive reports from this analyst,sign up for Renee Mu’ distribution list.

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Fedspeak Drives Dollar Higher, but Will FOMC Actually Hike in 2016?

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Talking Points:

- The U.S. Dollar continues to drive higher after Friday’s FOMC comments began to stoke rate expectations higher for the remainder of the year out of the United States.

- This isn’t the first time that the Fed has taken a hawkish stance to talk up near-term rate hikes, even in 2016. But does this mean that the bank will actually hike?

- If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator. If you’re looking for an even shorter-term indicator, check out our recently-unveiled GSI indicator.

One of the most pervasive themes in capital markets this year has been the shifting of market expectations around the Federal Reserve’s rate-hike plans. Coming into the year after the bank spent much of 2015 trying to prepare markets for a single interest rate hike, the Federal Reserve said that they expected to hike a full four times in 2016 in the effort of normalizing interest rate policy after 7+ years of ‘emergency like’ monetary structure.

This hasn’t worked out so well… Within weeks of that first interest rate hike in nine years, global markets began to collapse. And to be sure, this likely wasn’t entirely FOMC-related, as the confluence of pressure points in the global economy appeared to become exacerbated by these ebullient rate hike plans. But the Fed had an easy pathway to try to assuage the situation by adjusting those aggressive rate hike expectations lower in order to pacify risk aversion being seen around-the-world. So the Fed decreased expectations for rate hikes in 2016, and in short order, risk markets began bubbling higher, again.

This thickens a plot that’s been rather pronounced over the past 18 months as the Fed has continually attempted to embark on the process of ‘normalization.’ As risk assets like the S&P 500 have run higher, the Fed has attempted to talk up interest rate hikes. When markets have responded by turning lower, the Fed then alters those expectations to become more dovish and passive, and strength in risk markets then returns. We’re referring to what’s become known as the ‘Fed Feedback Loop,’ in which the bank is apparently adjusting expectations for interest rate hikes with consideration of the ‘wealth effect,’ while using a subjective interpretation of the ‘dual mandate’ to support their thesis in either direction. On the chart below, we look at a visual illustration of the Fed Feedback Loop with annotations to denote key moves from the FOMC over the past year.

Fedspeak Drives Dollar Higher, but Will FOMC Actually Hike in 2016?

Created with Marketscope/Trading Station II; prepared by James Stanley

As risk assets began running higher again on the morning of February 11th, fresh on the heels of Chair Janet Yellen’s twice-annual Congressional testimony, fear began to abate as expectations ran-higher for the Federal Reserve to relent on their rate hike plans. This came to fruition in March, when the FOMC adjusted their rate hike expectations for 2016 from ‘four’ to ‘two.’ This brought more air in the sails for risk markets, and by the time we got to the FOMC meeting in April, the Fed was feeling as though markets were ‘underpricing’ the probability of a hike in June. This brought strength into USD and lower prices in Gold and Stocks throughout the month of May as various Federal Reserve members were continuing to talk up the prospect of higher rates at their next meeting.

These rate hike plans came crashing down on June 3rd when Non-Farm Payrolls came in considerably-below expectations. As NFP came in so far below expectations, markets began to price-in ‘looser for longer,’ as few expected the Fed to pose a hike in the face of slowing employment data, especially after the passive pattern that they’ve become well-known for. This implied loose monetary backdrop provided fuel for risk markets to run to even fresher near-term highs, and even the widely-panned Brexit referendum couldn’t provide a lasting dent to stock prices, as markets have come to expect Central Banks to backstop whichever risk factors may flare in the global economy.

But this just brought even higher prices to stocks, which means that the Fed may have just gotten some wiggle room to try to adjust-higher rate expectations for the remainder of the year.

The July FOMC meeting was very, very similar to the April meeting in which the Federal Reserve posed a ‘less dovish’ statement to markets. And initially, in both cases, markets weren’t listening as the U.S. Dollar continued to sell-off on the expectation that the Fed would stay loose and passive despite their hawkish claims. But in both scenarios, persistent ‘Fedspeak’ eventually prodded the Dollar higher as markets began to listen to the persistent warnings from the Fed. In this most recent iteration, the driver has been Fedspeak emanating from the Jackson Hole Economic Symposium, and as of now, the U.S. Dollar is continuing to move higher as Federal Reserve commentary continues to prod near-term rate expectations higher.

On the chart below, we look at the rollercoaster in the U.S. Dollar this year as driven by expectations around Federal Reserve rate hike policy.

Fedspeak Drives Dollar Higher, but Will FOMC Actually Hike in 2016?

Created with Marketscope/Trading Station II; prepared by James Stanley

Does this mean that the Fed will hike in September?

No. While the ‘case may be strengthening’ for a rate hike, this has been a strategy of the bank for the past year-plus in an apparent attempt to stem the risk of ‘bubbles’ building in asset markets as driven by continuously loose monetary policy from Global Central Banks. Because when the Fed tells markets that they’re going to stay loose and passive, this exacerbates the problems being seen of extremely low yields in debt markets and even larger valuations of equity prices. Investors have little choice other than to chase equity returns, as long-term debt investments are downright threatening with the prospect of ‘normalization’ on the horizon.

So, despite the rampant strength being seen in the U.S. Dollar after Fridays speeches from Janet Yellen and Stanley Fischer, don’t be surprised if those rate-hike expectations come crashing down in the event of a bad data print, such as Non-Farm Payrolls later in the week. So despite the Fed’s hawkish claims of the past, they’ve shown a continual pattern of relenting in the face of market sell-offs. So, this may not be the best time to load-up on stocks, at least until the Fed reverses their stance towards near-term rate hikes again.

For those that do want to trade on the theme of a continuation of strength in the Greenback, the USD/JPY may continue to be one of the more attractive venues to voice that theme. If we do, in fact, get a continuation of hawkish Fed commentary, and if data comes in strong enough not to derail those plans as we move towards the September FOMC decision, the divergence between FOMC and BoJ expectations could continue to climb.

And for those that do want to look for a reversal of this USD strength with the expectation that the Fed will eventually relent from rate hike plans, watch Gold prices as USD weakness driven by dovish expectations for the Federal Reserve could continue the +20% run that Gold prices have been on this year.

We discussed both setups in the article, Gold, Yen Primed for USD Volatility around Jackson Hole, and if you’d like a video-based discussion of the same themes, please check out our archived webinar from later on that day.

— Written by James Stanley, Analyst for DailyFX.com

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Contact and follow James on Twitter: @JStanleyFX

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USDOLLAR Index Technicals Turning – EUR/USD, USD/JPY Key

Talking Points:

- EUR/USD presses below the trendline from the late-July lows.

- USD/JPY advance continues on the back of Kuroda commentary.

- August is typically a bad month for risk and a good month for the US Dollar – see the August forex seasonality report.

As we trudge our way through this last unofficial week of summer, it’s inevitable that market volatility, in absence of event-driven news flow, will likely be tempered. As such, today feels like a repeat of yesterday thus far, with the USDOLLAR Index broadly, and its components individually, trading at or close to their levels from 24-hours ago.

While the slow, grinding environment may be frustrating for some, there are some important tenets to remember. First off, FX markets, more so than other asset classes, experience volatility clustering. B.B. Mandelbrot revealed this concept in 1963: “large changes tend to be followed by large changes, of either sign, and small changes tend to be followed by small changes.”

As such, the axiom, “past performance does not predict future results” is insightful: just because it is quiet now in FX markets does not mean it will be quiet tomorrow or next week. After the recent jump in Fed rate hike expectations (they’ve cooled a bit, with December 2016 pricing a 61% chance of a rate hike today), markets should be particularly attuned to US economic data, as the Fed grapples with the propsect of raising rates in September.

See the video (above) for technical considerations in EUR/USD, GBP/USD, AUD/USD, USD/JPY, and the USDOLLAR Index.

Read more: US Dollar Posture Improves as December Rate Hike Odds Jump

— Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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US Dollar Looks to Fed’s Fischer for Fuel to Resume Advance

Talking Points:

  • US Dollar resumes advance as Treasury yields rebound after pullback
  • Comments from Fed’s Fischer to guide on-coming rate hike speculation
  • Euro unlikely to find lasting directional cues in flash German CPI data

The US Dollar edged higher in otherwise quiet overnight trade as front-end bond yields rebounded following yesterday’s pullback. In turn, that move appeared corrective in the wake of the strong up-shift in Fed rate hike bets after Fed Chair Janet Yellen delivered a hawkish-sounding speech at the Jackson Hole Symposium on Friday. The central bank head said “the case for an increase in the federal funds rate has strengthened in recent months”.

Fed commentaryremains in focus in the hours ahead as Vice Chair Stanley Fischer speaks with Bloomberg TV. Fischer’s interview with CNBC after Yellen’s speech seemed to shape the markets’ hawkish interpretation of her remarks. Asked whether markets ought to take seriously the probability of a hike in September and more than one rate increase in 2016, Fischer said Yellen’s comments meant the answer on both counts is “yes”.

The greenback is likely to resume Friday’s advance if Fischer opts do double down on hawkish rhetoric. Alternatively, an attempt to soften his previous comments having had the benefit of seeing the markets’ response may weigh on the US unit. Either way however, follow-through may be limited as traders wait for the upcoming release of Augusts’ jobs data to see if policymakers’ saber-rattling finds support in concrete evidence.

The preliminary set of Augusts’ German CPI figures headlines the economic calendar in European trading hours. The headline year-on-year inflation rate is expected to rise to 0.5 percent. The Euro is unlikely to pay much heed to the outcome considering its limited implications for near-term ECB monetary policy trends. The central bank’s firmly dovish posture suggests an uptick is all but moot for now. Prices may be a bit more response to a downside surprise that bolsters recent commentary hinting at stimulus expansion.

What do retail traders’ buy and sell decisions hint about on-coming price trends? Find out here!

Asia Session

European Session

Critical Levels

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Contact and follow Ilya on Twitter: @IlyaSpivak