Friday, 23 August 2019

Scalping: Small Quick Profits Can Add Up

An Educational Article

Scalping is a trading style specializing in taking profits on small price changes, generally soon after a trade has been entered and has become profitable. It requires a trader to have a strict exit strategy because one large loss could eliminate the many small gains that the trader has worked to obtain. Having the right tools, such as a live feed, a direct-access broker and the stamina to place many trades is required for this strategy to be successful.

Scalping is based on an assumption that most stocks will complete the first stage of a movement (a stock will move in the desired direction for a brief time but where it goes from there is uncertain); some of the stocks will cease to advance and others will continue. A scalper intends to take as many small profits as possible, not allowing them to evaporate. Such an approach is the opposite of the "let your profits run" mind-set, which attempts to optimize positive trading results by increasing the size of winning trades while letting others reverse.

 Scalping achieves results by increasing the number of winners and sacrificing the size of the wins. It's not uncommon for a trader of a longer time frame to achieve positive results by winning only half or even less of his or her trades - it's just that the wins are much bigger than the losses. A successful scalper, however, will have a much higher ratio of winning trades versus losing while keeping profits roughly equal or slightly bigger than losses.

The main premises of scalping are:
Lessened exposure limits risk - A brief exposure to the market diminishes the probability of running into an adverse event.
Smaller moves are easier to obtain - A bigger imbalance of supply and demand is needed to warrant bigger price changes. It is easier for a stock to make a 10 cents move than it is to make a $1 move.
Smaller moves are more frequent than larger ones - Even during relatively quiet markets there are many small movements that a scalper can exploit.
Scalping can be adopted as a primary or supplementary style of trading.

Primary Style
A pure scalper will make a number of trades a day, between five and 10 to hundreds. A scalper will mostly utilize one-minute charts since the time frame is small and he or she needs to see the setups as they shape up as close to real time as possible. Quote systems Nasdaq Level II, Total View and/or Times and Sales are essential tools for this type of trading. Automatic instant execution of orders is crucial to a scalper, so a direct-access broker is the preferred weapon of choice.

Supplementary Style
Traders of other time frames can use scalping as a supplementary approach in several ways. The most obvious way is to use it when the market is choppy or locked in a narrow range. When there are no trends in a longer time frame, going to a shorter time frame can reveal visible and exploitable trends, which can lead a trader to scalp.

Another way to add scalping to longer time-frame trades is through the so-called "umbrella" concept. This approach allows a trader to improve his or her cost basis and maximize a profit. 

Umbrella trades are done in the following way:
A trader initiates a position for a longer time-frame trade.
While the main trade develops, a trader identifies new setups in a shorter time frame in the direction of the main trade, entering and exiting them by the principles of scalping.

Practically any trading system, based on particular setups, can be used for the purposes of scalping. In this regard, scalping can be seen as a kind of method of risk management. Basically, any trade can be turned into a scalp by taking a profit near the 1:1 risk/reward ratio. This means that the size of the profit taken equals the size of a stop dictated by the setup. If, for instance, a trader enters his or her position for a scalp trade at $20 with an initial stop at $19.90, then the risk is 10 cents; this means a 1:1 risk/reward ratio will be reached at $20.10.

Scalp trades can be executed on both long and short sides. They can be done on breakouts or in range-bound trading. Many traditional chart formations, such as a cups and handles or triangles, can be used for scalping. The same can be said about technical indicators if a trader bases decisions on them.

Three Types of Scalping
The first type of scalping is referred to as "market making," whereby a scalper tries to capitalize on the spread by simultaneously posting a bid and an offer for a specific stock. Obviously, this strategy can succeed only on mostly immobile stocks that trade big volumes without any real price changes. This kind of scalping is immensely hard to do successfully as a trader must compete with market makers for the shares on both bids and offers. Also, the profit is so small that any stock movement against the trader's position warrants a loss exceeding his or her original profit target.

The other two styles are based on a more traditional approach and require a moving stock where prices change rapidly. These two styles also require a sound strategy and method of reading the movement.

The second type of scalping is done by purchasing a large number of shares that are sold for a gain on a very small price movement. A trader of this style will enter into positions for several thousand shares and wait for a small move, which is usually measured in cents. Such an approach requires highly liquid stock to allow for entering and exiting 3,000 to 10,000 shares easily.

The third type of scalping is the closest to the traditional methods of trading. A trader enters an amount of shares on any setup or signal from his or her system, and closes the position as soon as the first exit signal is generated near the 1:1 risk/reward ratio, calculated as described earlier.

The Bottom Line
Scalping can be very profitable for traders who decide to use it as a primary strategy, or even those who use it to supplement other types of trading. Adhering to the strict exit strategy is the key to making small profits compound into large gains. The brief amount of market exposure and the frequency of small moves are key attributes that are the reasons why this strategy is popular among many types of traders.

Reference:  Vadim Graifer

Oil up 1 percent, buoyed by U.S. stock drawdown

LONDON (Reuters) - Crude oil futures rose on Wednesday after industry data showed a larger than expected drop in U.S. crude inventories, but gains were capped by lingering worries about a possible global recession.

Brent crude had gained 90 cents, or 1.5%, to $60.93 a barrel by 1110 GMT, after settling 0.5% higher on Tuesday, while U.S. was up 56 cents, or 1%, at $56.69 a barrel.

U.S. crude oil stocks fell by 3.5 million barrels in the week to Aug. 16, data from industry group the American Petroleum Institute (API) showed on Tuesday. Analysts polled by Reuters had expected a fall of 1.9 million barrels.

“Crude prices should see support from a bullish API stockpile report that could signal the largest Cushing draw since February 2018, if the EIA validates it,” said Edward Moya, senior market analyst at OANDA in New York, referring to the draw on inventories at Cushing, Oklahoma, the delivery point for U.S. crude futures.

Inventory numbers from the government’s Energy Information Administration (EIA) are due at 10:30 a.m. EDT (1430 GMT) and will be more closely watched than usual given the nearing of the end of peak U.S. driving season, analysts said.

Tensions in the Middle East remained in the spotlight as U.S. Secretary of State Mike Pompeo said on Tuesday the United States would take every action it can to prevent an Iranian tanker in the Mediterranean from delivering oil to Syria in contravention of U.S. sanctions.

Oil prices were also supported by data showing lower exports in June from Saudi Arabia, the world’s top oil exporter.

Saudi Arabia plans to keep its crude exports below 7 million barrels per day (bpd) in August and September despite strong demand from customers to bring the market back to balance, a Saudi oil official told Reuters earlier this month.

But uncertainty over the global economic outlook amid the U.S.-China trade war capped gains in the oil markets.

“Crude oil remains stuck, with the relief rally in recent days not removing the fear that recession risks could still send the market lower again,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Traders are also awaiting this week’s annual U.S. central bank seminar in Jackson Hole, where comments from Federal Reserve Chief Jerome Powell will be in focus.

“Market players continued to fret over recession fears and sluggish oil demand forecasts,” said Stephen Brennock of oil broker PVM.

“A reprieve, however, may be on the cards tomorrow ... expectations are running high that hints of impending monetary stimulus will be plentiful”.

Reference: Noah Browning

Thursday, 22 August 2019

10 Reasons You’re Not Making Money Trading

An Educational Article

If you aren’t making money trading yet, the good news is that you can easily diagnose what you’re doing wrong. The reasons traders don’t make money are fairly predictable and common. Once you have figured out why you are failing to make money in the market, then you can move on to the all-important task of correcting what you’re doing wrong so that you can hopefully start profiting.
Don’t get discouraged if you’re at a bad place in your trading right now. It takes time, effort and an ability to make mistakes, correct them and move on, in order to make money trading. Hopefully, as you improve and move on you will get better and better at trading and eventually start profiting consistently.
Here are 10 of the most likely reasons you may not be making money yet as a trader and some tips on how you can overcome them…

1) You’re over-trading
I have listed over-trading first because in my opinion it is the most common mistake made amongst traders and is the biggest reason they fail.
I have found that most people don’t even realize they are over-trading, so this problem can be difficult to diagnose at first. Over-trading can be caused by a number of different catalysts, but typically it comes about either from not knowing what your trading edge / strategy really is, not being disciplined enough to follow it, or becoming over-confident. Let’s break down each one of these problems so you can figure out which are afflicting you…
If you don’t know for sure what you’re looking for in the market, meaning you haven’t really learned a solid trading method, you are essentially going to be gambling with no real edge in the market. This causes over-trading because most people trading without a strategy are going to ‘manifest’ trade signals that aren’t actually high-probability events. Essentially, we (humans) have innate tendency to see ‘patterns’ or meaning that isn’t actually meaningful at all. Bottom line, you need to actually learn how to trade, and of course, I recommend you learn my price action method.
If you aren’t disciplined enough to follow your strategy and only trade when a trade signal is present that is in-line with that strategy, you’re going to fall victim to over-trading. So, you can see, it’s not enough to have learned a strategy, you also have to really master a trading strategy and have the discipline to stick to it like glue.
Finally, for those traders who do have a strategy and do follow it for a while with discipline, the last big hurdle to jump over is over-confidence. Over-confidence typically creeps in very quietly, like a thief in the night, ‘stealing’ your trading profits by influencing your behaviour in the market. You have to be EXTREMELY VIGILENT to make sure you aren’t jumping back in the market too soon (over-trading) simply because you have become de-sensitized to the risk in the market as a result of the positive feelings induced by a winning trade or series of winners.

2) You are not managing risk properly
This one is pretty obvious but it’s important to discuss because so many traders don’t manage risk properly. Not managing risk on every trade you take is a sure-fire way to lose money in the market.
If you need more ‘proof’ other than my opinions on this matter, check out a recent article I wrote called 28 motivational trading quotes, in that article you will find many quotes from other professional traders on the importance of risk management in trading.
To put it simply, if you don’t know your personal risk tolerance per trade, which is the amount you are personally OK with potentially losing per trade, you are never going to make money. Furthermore, even if you DO know that amount but you don’t stick to it on EVERY trade you take, you aren’t going to make money trading either.

3) You aren’t preserving trading capital for good trades
How often do you currently think about capital preservation? Do you even know everything capital preservation entails? If your answer to these questions isn’t “Often” and “Yes”, you have a serious problem on your hands.
When I talk about capital preservation, I am basically talking about patience. Having the patience to ‘sit’ on your trading money until a very obvious price action setup forms is essentially what I mean by capital preservation.
Think about the sniper metaphor for a minute. If a sniper in the military went about shooting all his ammo aimlessly, he would not be in a position to take advantage of an ideal situation where the enemy is in his crosshairs perfectly. He would be out of position likely and probably out of ammo. This is a good metaphor for trading because as a trader if you are trading all the time and wasting your ‘ammo’ / trading capital, you will not be in the right trading mind-set to properly take advantage of good trade setups when they form NOR will you have enough trading capital to reap a big reward from them.
If you aren’t preserving your trading capital, you aren’t going to make money as a trader.

4) You always trade the news
If you’ve been following my blog for any length of time you probably already know my views on news trading and why I don’t trade the news. But, let me explain briefly how I think trading the news causes traders to lose money.

Let’s look at an example to make this easier…
You are considering taking a perfectly good pin bar trade on the daily chart time frame that is in-line with the daily chart trend. The only thing giving you any hesitation is that a big economic news release that is scheduled to come out tomorrow. You sit there, stewing about, trying to decide if you should take the trade or not, over-thinking, over-analysing because you’re reading everything you can about the expected impact of this news event. After much deliberation (and wasted time and mental energy) you decide to sit this trade out because everything you read says the market may move the opposite direction from the direction implied by the price action and technical analysis you’ve done.
Tomorrow comes, the trade is already working out as you expected before the news event is released. Then, the news comes out, BAM, the market is off to the races, screaming 150 pips in the direction you were going to trade, completely opposite to what everything you read said. You feel like someone just punched you in the gut, you feel angry, stupid and frustrated that you didn’t take that trade because you listened to all those outside opinions.
This is just one example of how news trading and fundamental analysis negatively affects trading performance. I have learned through my experience to avoid news like the plague.

5) You read too many websites and opinions
As I mentioned in the last point, reading too many opinions from other people or websites, etc., can be very detrimental to your trading. Trust me when I say the most frustrating feeling is losing money on a trade because you decided to listen to someone else rather than yourself. Never ignore your gut feel in trading because gut feel comes from trading experience and education.

6) You’re trading with too small of an account
I find that most beginning traders start trading live with too little money. It’s extremely hard to even have a chance at profiting if you are trading with a very small trading account. Anything under $500 is really pointless in my opinion because you will have to risk so little per trade that you won’t really be properly vested in your trading and even if you do hit a winner you won’t make that much to positively reinforce good trading habits.
You don’t want to be that guy who funds his account with $100 every time he blows it out. Be patient, save your money until you have at least $500 to $1,000 or more to fund your account with. In the meantime, learn how to trade properly and demo trade.

7) You aren’t placing stop losses properly
A big, big reason why so many traders lose money is because they don’t understand proper stop loss placement. They are placing stops based on greed rather than on what’s best for the trade. Read that last sentence again.
If you don’t know the difference between a stop placed from greed and one placed from logic and the best thing for the trade, then listen up…
If you say to yourself, “I want to trade 5 lots because that will allow me to make $5,000 on this trade, so I need to use a 50 pips stop loss”, you are placing your stop based on GREED and you probably will lose $2,500 rather than making $5,000.
Placing your stop loss based on logic so that you give the trade the best chance to work out, goes something like this: “I will place my stop loss below this nearby key support level even though its slightly beyond the low of the pin bar I am trading, because that will give the trade the best chance of working out in my favour without prematurely stopping me out”. Now, this line of thinking might mean you have to reduce your position size from 5 lots to 2 or 3, but you have to decide what’s better, making some money although perhaps less than you want and WINNING or losing as you would in the first scenario?
Let’s not forget, placing your stop properly as in the second scenario above, will work to reinforce proper trading habits through positive reinforcement. This builds long-term sustainable trading success.

8) You aren’t disciplined enough
This point is fairly self-explanatory and I did touch on it already. But, to stress its importance let’s cover it briefly.
Basically, how can you possibly expect to make money trading if you are an undisciplined trader who cannot follow a trading strategy or trading plan? You need to be disciplined in following your trading strategy and also in sticking to proper risk management as discussed above. If you don’t do both of those things, you will never make money trading.

9) You aren’t patient enough
I like to think of patience as the best way to understand what it means to be a disciplined trader. We are told from when we are kids we need patience and taught all the value being patient brings us. No doubt from an objective standpoint we all understand patience. Then why as adults trading the markets is it so hard for us to be patient?
Well, the answer is simple as you probably already know; we want to make money, fast. But, unfortunately, the market doesn’t give a crap what you or I want, it’s going to do what it wants regardless of your trades. So, we have to have the PATIENCE to only trade the market when it’s giving us the low hanging fruit trades that are ripe for the picking, and it takes a lot of patience to wait for them.

10) You don’t know what you’re doing
Finally, and perhaps most obviously, how can you expect to make money trading if you don’t have any clue or just aren’t sure of what you’re doing in the market? Do you know what your trading approach is for sure? Are you totally confident in it and in your ability to trade it and its effectiveness? If you aren’t sure of these things, you are never going to make money trading.
The best way to be sure you know what you’re doing in the market is by learning how to trade properly. This is where I come in and where I can help you. By taking my advanced price action trading course you will not only learn how to trade properly, but I will help you avoid making the above trading mistake.

Reference: Nial Fuller

Wednesday, 21 August 2019

European stocks recover before Fed minutes

LONDON (Reuters) - European stocks opened higher on Wednesday as hopes for more monetary and fiscal stimulus helped assuage worries about global recession, political turmoil in Italy and endless trade wars.

Traders are waiting for the Federal Reserve’s annual JacksonHole symposium later this week and a Group of Seven summit this weekend for clues on what steps policymakers will take to boost economic growth.

Much depends on what the Fed does with U.S. interest rates, making markets hyper-sensitive to the minutes - due later on Wednesday - of its last meeting.

“People are looking ahead to Jackson Hole later this week and the message that [Fed Chairman] Jerome Powell may or may not give us on the direction of monetary policy. That is the highlight of the week and we are waiting with baited breath,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

Futures <0#FF:> are fully priced for a quarter-point cut in rates next month and cuts of more than 100 basis points by the end of next year.

Morgan Stanley economist Ellen Zentner advised clients to watch for the use of the word “somewhat” when Powell describes future policy.

“Acknowledgment that downside risks have increased with no characterization of ‘somewhat’ could be taken as confirmation that it is likely the Fed makes a larger cut in September,”Zentner wrote in a note.

With so much riding on the Fed, investors were cautious and volumes subdued. The Euro STOXX 600 was 0.6% higher, with Italy outperforming after a rout yesterday following the resignation of Italian Prime Minister Giuseppe Conte.

Shares in Milan-listed Fiat Chrysler climbed 3.1% after Italian media reported that talks between Fiat and Renault never stopped. That put the STOXX 600 Autos Index on track for its best day in a month.

GEA Group, a German food-processing-machinery company, and outsourcing group Capita gained more than 5% after Goldman Sachs upgraded its rating on the stocks.

President Donald Trump showed no signs of backing down in his tussle with China, declaring on Tuesday a confrontation was necessary even if it hurt the U.S. economy in the short term.

Shortly afterward, the U.S. government approved an $8 billion sale of Lockheed Martin F-16 fighter jets to Taiwan, a move sure to draw Beijing’s ire and further dim prospects for a trade deal.

Political turmoil in Italy, Britain and Hong Kong has also heightened uncertainties.

Italian bond yields steadied after falling on Tuesday, as Italian President Sergio Mattarella begins two days of talks that will lead either to formation of the country’s 67th government since World War Two or to early elections.

Germany bond yields rose before the sale of new 30-year government bonds that could test investor demand for deeply negative bond yields. Germany plans to sell 2 billion euros of the new bond, with a 0% coupon.

Alarm bells started ringing last week when yields on U.S.10-year notes fell below two-year yields for the first time since 2007, an inversion that has preceded previous recessions. That was enough to prompt Trump’s administration to look for ways to stimulate the U.S. economy.

In addition, the central banks of the euro zone, Australia and China are all expected loosen monetary policy some more this year. Germany is considering fiscal stimulus.

Those prospects have driven yields lower. Benchmark U.S.10-year Treasury yields stood at 1.57% on Wednesday, down from a high of 1.625% on Monday.

Currency markets were mostly subdued. The euro struggled was last down 0.1% at $1.1092. The dollar, measured against a basket of currencies, rose 0.1% to 98.265.

Sterling was down 0.3% at $1.2134 and 0.2% against the euro at 91.405 pence.

In commodities markets, U.S. crude rose 17 cents to$56.30 per barrel. Brent added 23 cents to $60.26.

Spot gold was weaker at $1,498.15 an ounce.

Reference: Tom Arnold

Caution grips Asian shares as Fed events loom large

SYDNEY (Reuters) - Asian shares flatlined on Wednesday as worries about global recession and endless trade wars wrestled with hopes for more monetary and fiscal stimulus to keep growth going.

Much depends on what the Federal Reserve does with U.S. interest rates, making markets hyper-sensitive to the minutes - due later on Wednesday - of its most recent meeting.

Traders are also awaiting the central bank’s annual Jackson Hole seminar later this week and a Group of Seven summit this weekend for clues on what additional steps policymakers will take to boost economic growth.

Morgan Stanley economist Ellen Zentner advised clients to watch for the use of the word “somewhat” when Fed Chair Powell describes further policy adjustments.

“Acknowledgment that downside risks have increased with no characterization of ‘somewhat’ could be taken as confirmation that it is likely the Fed makes a larger cut in September,” Zentner wrote in a note.

Futures are fully priced for a quarter-point cut in rates next month, and over 100 basis points of easing by the end of next year.

With so much riding on the Fed, investors were understandably anxious. MSCI’s broadest index of Asia-Pacific shares outside Japan dithered either side of flat after three straight days of gains.

Japan’s Nikkei slipped 0.3%, while Shanghai blue chips added a slim 0.06%. Faring a bit better were E-Mini futures for the S&P 500, which firmed 0.3%, while EUROSTOXX 50 futures edged up 0.1%.

Political turmoil in Hong Kong, Britain and Italy has also heightened uncertainties for investors. The prospect of new elections in Italy after the resignation of Prime Minister Giuseppe Conte added to jitters, sending Italian sovereign bond yields sliding.

China’s biggest e-commerce company Alibaba Group Holding has delayed its up to $15 billion listing in Hong Kong amid the political unrest, two people with knowledge of the matter told Reuters.

President Donald Trump again showed no signs of backing down in his tussle with China, declaring on Tuesday a confrontation was necessary even if it caused short-term harm to the U.S. economy.

His strongly-worded remarks came hours before his government announced approval of an $8 billion sale of Lockheed Martin F-16 fighter jets to Taiwan, a move sure to draw Beijing’s ire and further dim prospects for a quick trade deal.

Alarm bells started ringing last week when yields on U.S. 10-year notes fell below two-year yields for the first time since 2007, an inversion that has presaged previous recessions and is widely watched by markets.

That was enough to prompt Trump and his advisers to examine ways to provide a fiscal boost to the U.S. economy, should it be deemed necessary.

In addition, the central banks of the euro zone, Australia and China are all expected open the monetary spigot further this year, while Germany is considering fiscal stimulus.

Those prospects have driven yields lower. Benchmark U.S. 10-year Treasury yields stood at 1.57% on Wednesday from a high of 1.625% on Monday.

Currency markets have been mostly subdued ahead of the Jackson Hole meeting and Fed minutes. The dollar was a shade firmer on the yen at 106.48 after losing 0.4% on Tuesday, while sterling was last trading at $1.2150.

The euro eased to $1.1090, just off the week’s top of $0.1113. The dollar index was a fraction firmer at 98.213 and not far from a three-week high.

In commodities markets, U.S. crude firmed 25 cents to $56.38 per barrel while Brent added 32 cents to $60.35.

Spot gold slipped 0.3% to $1,502.12 an ounce.

Reference: Swati Pandey, Wayne Cole

Euro struggles vs dollar as attention turns to Fed

LONDON (Reuters) - The euro struggled to make headway against a resilient dollar on Wednesday and was stuck near $1.11, with forex markets mostly calm ahead of a crucial meeting of central bankers later this week.

With markets rushing to price significant easing from central banks in the United States and Europe, the outlook for euro/dollar will depend largely on whether or not policymakers live up to those expectations.

Officials from major central banks will gather at Jackson Hole, Wyoming, on Friday with markets focused on a scheduled speech by Federal Reserve Chair Jerome Powell.

His comments are of particular interest after last week’s inversion of the U.S. yield curve - widely regarded as a recession signal - boosted expectations the Fed would lower interest rates at its September policy meeting. Faced with rising risks to the U.S. economy, the central bank in July cut rates for the first time since the financial crisis.

“In the big scheme of things, markets are relatively range-bound, with the focus on Jackson Hole later this week,” said Manuel Oliveri, a strategist at Credit Agricole.

The euro was last down 0.1% at $1.1092 EUR=EBS. The dollar, measured against a basket of currencies, rose 0.1% to 98.265 .DXY.

Oliveri expects the euro to strengthen toward $1.12 by September, even though the European Central Bank will struggle to exceed investor expectations for cutting rates.

Talk of more fiscal spending in Germany, and the hit to the U.S. yield advantage from falling interest rates, should support the euro, he added.

“Fiscal stimulus is a positive for the currency,” he said.

The dollar has also been supported by talk of more spending - President Donald Trump said on Tuesday his administration was considering potential tax cuts on wages as well as profits from asset sales.

The single currency was little moved on Tuesday after Italy’s Prime Minister Giuseppe Conte announced his resignation, with some investors believing the move made a snap general election less likely.

Elsewhere, sterling was the big focus as Prime Minister Boris Johnson heads to Berlin to meet Chancellor Angela Merkel for talks over Brexit.

The pound jumped on Tuesday after Merkel raised the possibility of practical solutions to the so-called backstop - an insurance policy for the Irish border after Brexit -that London opposes.

With the British currency having slumped in recent weeks on concerns about a no-deal Brexit on Oct. 31, investors have built up a huge short position - analysts say that makes the currency vulnerable should any positive noises emerge from Johnson’s meeting with Merkel.

Sterling was last down 0.3% at $1.2134 GBP=D3 and 0.2% lower versus the euro at 91.405 pence EURGBP=D3.

The dollar rose against the yen, rising 0.3% to 106.55 JPY=EBS.

MUFG analysts said the dollar was rising against the yen after Trump said he wanted to introduce new tax cuts and on reports that negotiations to agree a U.S.-Japan trade deal were making progress.

“While trade talks are ongoing, it will be more difficult for Japan to express concern over a stronger yen given President Trump’s concerns over currency manipulation,” the analysts wrote.

Reference: Tommy Wilkes

Tuesday, 20 August 2019

Forex- Dollar near three-week peak as global stimulus talk lifts yields

TOKYO (Reuters) - The dollar hovered near a three-week high on Tuesday, as expectations policymakers around the world would unleash fresh stimulus drove an improvement in appetite for riskier assets and lifted U.S. government bond yields.

Yields on benchmark U.S. Treasuries pulled away from three-year lows, helped in part by the prospect of Germany ditching its balanced budget rule to boost spending and on more economic support measures by China.

China's yuan CNY= was down 0.2% at 7.0661 per dollar in onshore trade against the broadly firmer greenback.

The yuan was also modestly pressured after the People’s Bank of China (PBOC) set its new lending rate slightly lower. It was the first publication of the benchmark since the PBOC announced interest rate reforms over the weekend designed to lower corporate borrowing costs.

“The dollar is higher across the board, tracking the rebound in yields. The prospect of Germany embarking on stimulus was the turning point and the dollar has regained momentum since,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The greenback traded little changed at 106.580 yen JPY= following three straight sessions of gains, having moved away from a seven-month low near 105.000 reached last week.

Against the Swiss franc, a currency sought in times of market turmoil and political tensions along with the yen, the dollar held near a two-week high of 0.9820 franc CHF= scaled overnight.

The euro was a shade higher at $1.1086, but it still held close to a two-week trough of $1.1066 set on Friday on lingering concerns over political developments in Italy.

Italy’s opposition Democratic Party has had good, initial contacts with the ruling 5-Star Movement over the possibility of forging a coalition, a PD source with knowledge of the talks said on Monday.

The 5-Star’s current coalition partner, the far-right League, has said it will present a no-confidence motion against Prime Minister Giuseppe Conte in an attempt to trigger a snap election and cash in on its surging popularity in the polls.

“The political situation in Italy remains unstable. In addition, expectations of Germany embarking on fiscal stimulus may in turn also heighten Italian fiscal concerns,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

The Australian dollar AUD=D4 edged up 0.15% to $0.6776 after minutes of the Reserve Bank of Australia's (RBA) August meeting suggested the central bank wasn't in a hurry to cut rates again. While RBA is seen leaving the door open for further easing, analysts reckon the prospect of an immediate rate cut was limited.

Market focus will shift to the annual symposium of global central bankers starting on Friday at Jackson Hole, Wyoming.

Particular attention will center on Fed Chairman Jerome Powell’s comments on monetary policy at a time when investors widely expect the Fed to cut rates again at its next meeting in September.

“A series of further rate cuts by the Fed has already been priced into the dollar. So the currency could gain a fresh boost if Powell does not sound as dovish as expected and clouds rate cut prospects,” Ishizuki at Daiwa Securities said.

Reporting by Shinichi Saoshiro