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Friday, 30 October 2015

Fundamental Forex Factors


Primary Fundamental Information Types


When it comes to forecasting forex rates, the science of fundamental analysis involves taking into account a variety of relevant economic and political factors for one currency relative to the other currency in each currency pair considered.

A fundamental analyst will review as many of these items as possible on a regular basis for each currency and then compare the two to obtain a forecast. Generally, such forecasts are not specific objective numbers for the exchange rate, but instead an overall directional outlook on the currency pair.

For example, their outlook might be positive, negative or neutral after the analysis. This would mean that the analyst expects the exchange rate for the currency pair to rise, fall or stay roughly constant respectively.

Furthermore, when some new fundamental information enters the forex market in a sudden way, it can prompt significant market moves and volatility as traders react to the new information. At such times, one of the most basic assumptions of technical analysis - the idea that "price discounts all" - breaks down until the new information has been duly assimilated.

If you have a trading system based on purely technical indicators this is really important, as a number of key fundamental factors can and often do influence market moves, which may produce unexpected results when trading using systems based on technical analysis.

As a result, it really pays to know what the likely effects of such key fundamental information could be so that a quick assessment of probably future direction can be made.


The types of fundamental data items which will most impact a country's currency along with a brief description of its likely effect include the following:

•Growth: Changes in the country's Gross Domestic Product or GDP that gives a useful measure of growth. A growing economy tends to strengthen a currency.

•Rates: The level of short term interest rates, such as the Fed Funds rate, in the currency's country of origin affect forex rates because higher rates provide an investment incentive that should strengthen the currency.

•Trade: The country's trade and current account balance can have an impact on forex rates since persistent trade or current account deficits will tend to depreciate that country's currency.

•Economy: The general economic outlook for one country in relation to that of the other country can affect forex rates. The forex market tends to value currencies of peaceful countries with growing economies and stable politics over the currencies of less stable countries that are at war or having their national security threatened in some other way.

 •Key Economic Factors: Many forex traders perform a daily review of economic calendars for the currency pairs they maintain positions in. They do so since the release of such key information can often result in considerable short term volatility in the currency market, as well as prompt shifts in market sentiment.

A list of key economic factors that are routinely covered in the current news and which can move the market when they are released includes the following:

•Interest Rates: a key element in evaluating one currency against another. If interest rates are increased, the currency of the country becomes more attractive against other currencies offering lower interest rates.

•Inflation: If the country is in an inflationary economic cycle indicated by the Consumer and Producer Price Indexes, CPI and PPI, this would make it more likely that the central bank of that country would tighten interest rates in order to stem the increase in inflation. An increase in rates would tend to make the currency appreciate.

•Trade or Currency Account Balance: A trade or current account surplus or deficit will either favour the currency rate for the country with a surplus or weaken the rate for the country with a trade deficit.

•Credit: Another economic factor that will influence exchange rates directly. If a country has borrowed excessively large sums of money from other nations or from the IMF, its currency will surely reflect the serious level of debt the country is in.

•Gross Domestic Product (GDP): Represents the total of goods and services a country produces and reflects the level of growth in the economy.


•Commodity Prices: Can affect exchange rates when the country is a producer and net exporter of commodities and if the country imports commodities.

•Employment Data: If a country has an increasing percentage of its citizens employed that will tend to strengthen its currency. This key data typically comes in the form of jobless claims, payrolls statistics or the unemployment rate for a country.

•Industrial Production: A strong industrial base will tend to strengthen a nation's currency.

•Retail Sales: A strong retail sales figure is generally favourable for a currency and the country's overall economy.

•Consumer Price Index (CPI): A measure of inflation. Rising inflation in a country indicates that interest rates may soon be tightened by the national central bank and so will tend to make its currency appreciate.

Other factors


•Supply and Demand Effects: Substantial flows of capital into one currency and out of another currency, perhaps as a result of large corporate transactions or managed portfolio shifts, can shift the exchange rate for the currency pair to favour whichever currency sees the higher demand.

•Monetary Policy: Because of the effect of monetary policy on interest rates, this makes up an important element in the valuation of a currency. Tighter monetary policy implying higher interest rates, while dovish or looser monetary policy indicating lower interest rates.

•Political Influences: Countries with stable governments tend to have their currencies favoured over those of countries with less favourable political situations. Greater fiscal responsibility also tends to support a country's currency, while excessive government spending will tend to depreciate its currency.

•Commodity Price: The prices of key commodities like gold and oil tend to affect the valuation of the currencies of their primary exporters and importers. For example, higher oil prices help the British Pound and the Canadian Dollar, while they hurt the U.S. Dollar and the Japanese Yen, whose countries net import oil. Furthermore, higher gold prices tend to favourably impact the Australian Dollar, and by close association the New Zealand Dollar, since Australia exports that precious metal and so its currency will benefit from a rise in gold's value.

Fundamental Information and Technical Trading


Combining fundamental news analysis along with technical analysis offers the trader the best of both worlds and will minimize surprises while trading.

Some traders purposefully avoid trading on days with economic releases because the market may become temporarily volatile only to settle back towards the original trend.

Also, technical forex traders might avoid known risk events like major economic data releases since one of the key assumptions of technical analysis: "Price Discounts All" tends to break down during the period immediately after the announcement as the new information is assimilated into the price.


Reference: Forextraders

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Fed puts December rate hike firmly on the agenda



The U.S. Federal Reserve kept interest rates unchanged on Wednesday and in a direct reference to its next policy meeting put a December rate hike firmly in play.

Investors had expected the Fed to remain pat on rates, but the overt reference to December came as a surprise.

The central bank also downplayed recent global financial market turmoil and said the U.S. labor market was still healing despite a slower pace of job growth.

"In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress - both realized and expected - toward its objectives of maximum employment and 2 percent inflation," the Fed said in a statement after its latest two-day policy meeting.

Investors quickly placed bets reflecting a higher chance the U.S. central bank will raise rates in December, with futures contracts implying a 43 percent possibility compared to 34 percent prior to the statement.

"The Fed is seriously considering a December rate hike," said Harm Bandholz, an economist at UniCredit in New York.

Going into the Fed meeting this week, the market had viewed March as the most likely time for the central bank to begin its rates "liftoff," but it now sees a greater chance of that happening in late January.

The U.S. dollar rose sharply and yields for U.S. government debt soared in anticipation of higher rates. U.S. stock prices initially fell but regained momentum and closed sharply higher.

Michael Feroli, a former Fed economist now at JPMorgan, said the Fed statement was the first since 1999 in which policymakers pointed to a possible rate increase at the next meeting.

"By specifically referring to that meeting they are basically testing the waters a bit," said Aneta Markowska, an economist at Societe Generale in New York. She described it as a "subtle attempt" to gently nudge the market in that direction.

LEAVING DOOR OPEN

The Fed has been struggling to convince investors a rate hike was imminent in the wake of data this month that showed U.S. employers slammed the brakes on hiring in August and September.

But it countered the skepticism on Wednesday by saying even slower hiring was still enough to get it closer to its goal of maximum employment.

Central bank policymakers also pointed to "solid rates" of growth in consumer spending and business investment, while eliminating a reference from their previous statement warning a global economic slowdown could sap U.S. economic strength.

Fed Chair Janet Yellen has been saying for much of this year that a rate hike would likely be needed in 2015 to keep the economy from eventually overheating.

More recently two Fed governors urged caution over rate hikes while questioning Yellen's views on inflation, though such doubts appeared muted in Wednesday's statement.

The Fed now has several important economic readings to parse, including two monthly employment reports, before it makes up its mind on whether to tighten policy at its Dec. 15-16 meeting.

It will also get a chance to see how monetary policy easing in Europe, Japan and China plays out in financial markets. Easy money policies abroad push the dollar higher, hurting U.S. exporters and making it harder for the Fed to get inflation back up to its 2 percent target. That may explain why the Fed sought to leave the door open for a rate hike rather than paint the economy as fully ready for a monetary policy tightening.

"The Fed has dialed down its anxiety over international developments, but it's best to play it safe," said Brian Jacobsen, a portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

Reference: LINDSAY DUNSMUIR

Thursday, 29 October 2015

Trend Lines, Real Live Forex Trading


Today we focus on solving potential problems that could occur when using trend lines in real live Forex trading. There is a difference between the “perfect theory” and real live, this part tries to bridge the gap.

NOT ALL PRICE ACTION FITS IN CHANNELS

At times markets move very harmonious in a trend or channel, but there are examples where price does not fit in a (trend) channel. In those cases Forex traders can either skip the pair or accommodate their lines to the ‘imperfections’ of the price movement. In this Using trend lines for connecting tops and bottoms or impulses still could be a useful practice.

CHANNEL UNDER & OVER THROWS

In other cases the trend could be great but the channel does not fit perfectly on price action. A Forex trader can decide to ‘ignore’ part of the price movements that do not fit in the channel and place it outside of the channel. When price is outside of the channel, traders call it an over or under throw (an over throw is when price is above a channel; an under throw is when price is below a channel). The reason is that markets are riding on emotions and price can therefore extend past expected support or resistance zones. For instance, in this GBPUSD example price had one under throw and several over throws. Despite these imperfections the trend and the trend channel were in balance.


COUNTING HITS ON CHANNELS

As shown above, it is possible for price to extend past a channel. The opposite is also a realistic scenario. A hit on the channel is valid even when price just misses the top or bottom of a channel. As explained in the previous articles, channels must have 3 or more hits to be a confirmed channel. A hit can be counted even if price makes an over throw, under throw or barely misses either side of the channel. The border should be around 30 pips, which means that if price is within 30 pips of the channel it can be counted as a hit. If price is 30+ pips shy of either side of the channel, then it is not counted as a hit.

EXPANDING, CHANGING & MULTIPLE CHANNELS

At certain occasions price does not only make an under or over throw, but price accelerates in the trend and ‘expands’ the channel. In a down trend price breaks through the bottom of the channel line; in an uptrend price breaks through the top of the channel line. A channel can be narrow especially at the start of the trend. Forex traders can certainly change the channel to accommodate an expansion of a channel. In fact Forex traders can continuously evaluate and compare channels to check which one is the best (according to the rules mentioned in previous parts of the series). In some cases leaving 2 or 3 channels on the chart is OK as well. That way, Forex traders can keep an eye on multiple versions and see which one works best. 

REAL LIVE TRADING

Trend lines are great for various reasons such as: filtering out trades, support and resistance, taking break out trades, taking bounce trades, and using them as a trigger.  Forex traders can extensively use them in their trading: the sky is the limit on how trend lines can be combined in these various roles as well. For this particular part I would like to focus on the trading itself.
Trend lines are a great tool but for discretionary technical traders I recommend adding support and resistance analysis, chart patterns and candle stick patterns to any trading plan in order to make it more robust. Trading trend lines in a non-discretionary method is difficult because the trader must always draw the trend line on the chart themselves.



Reference: Chris Svorcik

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Fed seen holding rates steady as investor skepticism swirls



The Federal Reserve is expected to keep interest rates unchanged on Wednesday and may struggle to convince skeptical investors it can tighten monetary policy before the end of the year in the face of U.S. and global economic headwinds.

The world's most powerful central bank hasn't hiked rates in about a decade and markets see virtually no chance it will do so at the end of this week's two-day policy meeting. Fed officials resumed their deliberations Wednesday morning as scheduled, a Fed spokeswoman said.

The rate decision will be announced at 2 p.m. ET.

A spate of dismal data on the U.S. and global economies has fueled a public row between Fed Chair Janet Yellen and fellow policymakers, igniting speculation the central bank will wait until 2016 to begin its "liftoff" from near-zero rates.

Forty-six economists polled by Reuters unanimously expect the Fed on Wednesday to keep its target rate for overnight lending between banks steady at 0 percent to 0.25 percent, as it has since 2008 when it embarked on an effort to nurse the economy back from a severe recession.

A narrow majority of the economists expect a rate increase in December. Financial markets assign only a 34 percent chance for a December hike and a 59 percent chance for such a move in March.

Signaling that a rate hike is coming will be difficult in part because Yellen, who has said higher rates will be "appropriate" this year, is not scheduled to hold a news conference after the end of the policy meeting.

The Fed could lay some of the tightening groundwork by using its policy statement to signal it has fewer concerns about global growth. Recent U.S. economic reports, however, have raised doubts about the strength of the world's largest economy, and it could be weeks before central bankers have enough new data to feel comfortable lifting rates.

That means the statement on Wednesday could resemble the one from last month's policy meeting. But September's disappointing employment report - non-farm payrolls grew by only 142,000 - has cast doubt on the sustainability of the jobs recovery and undercut the argument for hiking rates.

"It pays for them to take the low-risk path of least resistance and not really change things in a big way, and then see how the data is," said Michael Feroli, an economist at JPMorgan.

U.S. stocks opened higher on Wednesday, while the prices of U.S. Treasuries fell. The U.S. dollar was slightly weaker against a basket of currencies.

'NOT-THIS-YEAR CAMP'

Most Fed policymakers have said they expect to raise rates in 2015, but two broke ranks with Yellen this month, questioning her view that labor market tightness will fuel inflation and overheat the economy.

Fed Governors Lael Brainard and Daniel Tarullo urged caution, arguing slower growth abroad could sap U.S. economic strength and keep inflation too low. With Chicago Fed President Charles Evans, that puts three members of the rate-setting Federal Open Market Committee in the "not-this-year camp".

Compounding the situation, central banks from the euro zone to China are easing policy, keeping upward pressure on the dollar. A stronger dollar hurts American exporters and acts as a brake on inflation.

That, in turn, is complicating Yellen's job to guide the Fed and seek consensus within the FOMC.

The Fed's struggle to communicate clearly under Yellen, who took the reins of the central bank less than two years ago, raises the risk investors will be overly surprised by policy changes, leading to financial market volatility and further straining the global economy. It also raises the risk of greater splits and miscommunication that could derail the rates liftoff.

Economists expect Yellen's scheduled public appearances in December, which will come after hiring data for October is released, could offer a better idea as to whether a hike will come at the Dec. 15-16 policy meeting, the last of the year.

"We look for very minimal changes in the statement and ... for verbal communications after the meeting, in speeches and interviews, to say, 'Yes, December remains a possibility,'" said Michael Gapen, Barclays' chief U.S. economist.

Reference: Reuters

Wednesday, 28 October 2015

Draghi's compromise with doves heralds ECB policy easing in December

European Central Bank (ECB) president Mario Draghi addresses a news conference after a meeting of the ECB Governing Council in St Julian's, outside Valletta, Malta, October 22, 2015.  REUTERS/Darrin Zammit

With some rate-setters advocating immediate policy easing last week, European Central Bank President Mario Draghi struck a compromise to keep the doves on side and set up expectations for action in December, central banking sources said.

Several influential Governing Council members argued that the ECB's balance sheet was still relatively small, especially compared to the U.S. Federal Reserve while Denmark's deeply negative deposit rate illustrated that there was still room to reduce rates, one source with knowledge of the discussion said.

Instead of delivering the wait and see message the market expected, Draghi opted for one that was more dovish and crystal clear, keeping with the ECB's tradition of building a consensus and putting to shame the Fed, which has fumbled with its communication at a critical juncture.

"It needs to be understood: there is consensus at the ECB Governing Council," a rate-setter, who asked not to be named, said. "A move in December is likely."

"Inflation is just not moving higher, there is a risk of falling into a Japanese-style liquidity trap," the Governing Council member said.

With inflation in negative territory, the ECB is far from its target of getting price growth to near 2 percent and its 60 billion euros (43 billion pounds) a month asset buys have proven insufficient as lower energy prices and slower growth in emerging economies have worked against it.

Meeting in Malta, the Governing Council discussed a wide range of possible measures and the general view was that instead of one or the other, a combination may be effective, the sources said.

With the Fed postponing its rate hike, Draghi's comments also had the desired effect of weakening the euro, a key result as the exchange rate is an important channel for policy transmission, another Governing Council member said.

Although increased asset buys could further squeeze liquidity in the market, one source with direct knowledge said concerns over market supplies were overdone as the ECB could move into new instruments and had plenty of room to manoeuvre even with government bonds.

The ECB could consider corporate debt or equities while there was also room to buy more supranational instruments. Sovereign debt was plentiful due to high net issuance and the ECB could always release debt to be held until maturity, the source said.

There is a constraint about having to buy national instruments in proportion to how much share each country has in the ECB, but substitution rules also provide some flexibility.

› ECB almost certain to ease in Dec by boosting QE, cutting deposit rate - Reuters poll
Still, another insider warned that the market may have overreacted to Draghi's words and waiting until December, when the ECB releases fresh inflation forecasts, was normal.

And with monetary policy already ultra-accommodative, room to do more may be limited.

"It’s hard to do much more monetary stimulus than this," said French Finance Minister Michel Sapin, who has no direct say in policy but who less than a year ago was one of the loudest voices urging the bank to do more.

"Draghi said there is still scope to respond to certain situations if needed, so there is still a possibility to do more but we’ve already come a long way."

The consensus from almost 60 economists in a poll conducted by Reuters after Thursday's meeting shows there is an 80 percent probability of the ECB easing at the next policy review on Dec. 3.

COMMUNICATOR

Draghi has been a masterful communicator, repairing the reputation of the ECB, which is run by a 25-member Governing Council that sometimes speaks with as many different voices, leaving the market guessing.

From promising to do "whatever it takes" to save the euro at the height of the bloc's crisis in 2012 to delivering an unexpectedly large 1 trillion euro plus quantitative easing (QE) programme this year, Draghi has become an expert in understanding what the market needs to hear and delivering more.

"The ECB really has become masters of communication: leading the market along, and then over-delivering," UniCredit chief economist Erik Nielsen said in a note. "I think Draghi more or less gave it away on Thursday: QE2 (in size, composition, duration) and (unfortunately) a rate cut. Remember, they are not in the habit of under-delivering."

Draghi's clear stance is now in stark contrast to the Fed, which meets on Tuesday and Wednesday.

Reference: BALAZS KORANYI 

Wall St. ends down slightly on rate uncertainty

Traders gather at the post that trades Intercontinental Exchange Inc. on the floor of the New York Stock Exchange October 26, 2015.  REUTERS/Brendan McDermid

U.S. stocks slipped on Tuesday on uncertainty over the U.S. rate outlook and disappointing results from Ford and other companies.

Based on the latest available data, the Dow Jones industrial average .DJI fell 40.69 points, or 0.23 percent, to 17,582.36, the S&P 500 .SPX lost 5.25 points, or 0.25 percent, to 2,065.93 and the Nasdaq Composite .IXIC dropped 4.56 points, or 0.09 percent, to 5,030.15.

Global equity markets retreated for a second straight session on Tuesday as investors were cautious ahead of earnings from Apple and a U.S. Federal Reserve policy statement, while crude prices slumped to multi-week lows on growing oversupply concerns.

The S&P 500 .SPX closed lower as investors awaited Apple earnings after the closing bell in an effort to gauge global demand. Investors were also bracing for the conclusion of the Fed's two-day meeting on Wednesday for signs on the timing of an interest rate hike.

"It’s an incredibly busy week, with the Fed tomorrow followed by GDP on Thursday. We are right in the heart of earnings and the market has just run 10 percent uninterrupted," said Patrick Schaffer, global investment specialist at JP Morgan Private Bank in Los Angeles.

"So ahead of a bellwether reporting tonight, why buy it?"

Prior to declines this week, the benchmark index had rallied more than 10 percent from the end of September.

European shares fell following a profit warning from BASF (BASFn.DE). The world's largest chemicals firm blamed struggling emerging markets like China and Brazil.

The Dow Jones industrial average .DJI fell 41.62 points, or 0.24 percent, to 17,581.43, the S&P 500 .SPX lost 5.29 points, or 0.26 percent, to 2,065.89 and the Nasdaq Composite .IXIC dropped 4.56 points, or 0.09 percent, to 5,030.15.

MSCI's all-country world index .MIWD00000PUS of the equity performance of 46 countries lost 0.57 percent, its second straight decline, while the pan-regional FTSEurofirst 300 .FTEU3 index, tracking Europe's 300 largest companies, closed down 1 percent.

Markets are pricing in only around a 7 percent chance the U.S. central bank will raise rates this week and many market participants believe the Fed will hold off until 2016, but investors will be watching for signals the central bank might act at its next meeting in December.

APPLE ON DECK

Apple (AAPL.O) dipped 0.6 percent to $114.55 ahead of its results, with investors anxious to hear how many new phones it has been selling after supplier Manz (M5ZG.DE) cut its guidance.

Alibaba (BABA.N) shares climbed 4 percent to $79.44 after the China-focused e-commerce giant reported better-than-expected revenue.

But BASF, whose products range from car coatings to mining acids, blamed the pressures facing major emerging markets like China and Brazil for the profit warning that knocked its shares 5 percent lower.

Prices of 10-year Treasuries US10YT=RR were up 8/32 to yield 2.0317 percent after a drop in durable goods orders for September was the latest data point to indicate the economy slowed in the third quarter.

Oil prices fell for a third straight day, with Brent touching a six-week low, as worries over persistent oversupply grew ahead of U.S. data that was expected to show another increase in crude inventories. Brent crude settled down 1.5 percent to $46.81 a barrel while U.S. crude settled 2.8 percent lower at $43.20.

Against a basket of currencies, the dollar was up 0.06 percent at 96.915 .DXY. The greenback had briefly dipped into negative territory after a private gauge of U.S. consumer confidence unexpectedly fell in October.

Reference: Reuters

Tuesday, 27 October 2015

Dollar droops as equities come under pressure before Fed meeting

An employee of a money changer holds a stack of U.S.  Dollar notes before giving it to a customer in Jakarta, October 8, 2015.  REUTERS/Beawiharta

The dollar was mostly lower in Asia on Tuesday, taking its cue from a broad move lower in regional equities and caution ahead of the U.S. Federal Reserve's two-day meeting that begins later in the session.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS skidded 0.7 percent, as China's key share indexes gave up more than 1 percent.

Adding to the risk-off mood, the U.S. Navy sent a destroyer within 12 nautical miles of artificial islands built by China in the South China Sea, in a challenge to Beijing's territorial claims there.

"It looks like a traditional risk-off move, with Asian stock markets down," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong, who added that safe-haven currencies like the yen were outperforming the risk-proxy currencies like the Australian dollar.

"The Aussie in particular is underperforming, so the U.S. dollar is stronger against the Aussie."

Frequently used as a China play because of Australia's significant trade with that country, the Aussie slipped about 0.1 percent to $0.7235 AUD=D4, and also shed about 0.6 percent on the 87.23 yen AUDJPY.

The greenback began the Asian session already on the back foot, after disappointing U.S. home sales data pushed down Treasury yields and prompted investors to pare bets that the Fed would opt to hike interest rates before year-end.

Data released on Monday showed new U.S. single-family home sales fell to near a one-year low in September after gaining for two straight months.

The disappointing figures backed expectations that the U.S. central bank will leave rates near zero on Wednesday, at the close of a two-day meeting beginning later in the session.

"The arguments for a 2015 rate hike are fading," Kathy Lien, managing director of BK Asset Management, wrote in a note to clients.

"More specifically, while we are long-term dollar bulls, the 'trader' in us sees a greater chance of dollar weakness going into and after this week's FOMC meeting," she said.

Against its Japanese counterpart, the dollar gave up about 0.4 percent to 120.58 yen JPY=, moving away from a 2-month high of 121.60 yen touched on Monday ahead of a Bank of Japan meeting on Friday.

While Japan's central bank is set to cut its price forecasts in a semi-annual report also due out Friday, many BOJ officials would prefer to hold off on expanding the bank's massive stimulus program.

Divergent monetary policy expectations underpinned the greenback against the euro, which was buying $1.1064 EUR=, up about 0.1 percent from late U.S. trading. Investors expect the European Central Bank to eventually expand or extend its asset purchase program to support the euro zone economy.

The dollar index, which tracks the U.S. unit against a basket of six rival currencies, was down about 0.2 percent at 96.691 .DXY.

The yield on benchmark 10-year Treasuries notes US10YT=RR stood at 2.040 percent in Asian trading, down from its U.S. close of 2.058 percent. The yield scaled a two-week peak of 2.099 percent on Friday.

The futures market implied traders see only a 7 percent chance of a rate hike on Wednesday and a 34 percent probability of a rate increase at its next meeting in December, according to the CME FedWatch program. [FED/DIARY]

Fed officials have been sending mixed messages to markets in recent weeks. Analysts say that Federal Reserve Chair Janet Yellen needs to adopt a stronger tone after this week's policy meeting if she expects to convince markets that a December interest rate rise is still a real possibility.

Reference: Reuters

Asian shares consolidate gains after rally; Fed, BOJ awaited

Businessmen look at their mobile phones in front of an electronic stock quotation board outside a brokerage in Tokyo, Japan, October 23, 2015. REUTERS/Toru Hanai

Asian shares fell on Tuesday after a four-week rally ran out of steam as investors took cover ahead of central bank meetings in the United States and Japan later in the week, while disappointing U.S. home sales weighed on the dollar.

European markets were set to open flat to lower, with earnings from major companies such as Deutsche Bank < DBKGn.DE> and Novartis (NOVN.VX) in focus.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.7 percent.

China's main indexes .CSI300.SSEC slid more than 2 percent at one point, pressured by concerns about weak bank profits and growing bad loans, but pared losses by early afternoon. [.SS]

Japan's Nikkei .N225 eased 0.8 percent, though it remained near a two-month high.

Even as investors moved to the sidelines after a rally that has seen regional stocks rise more than 12 percent in a month, market strategists are becoming more optimistic over the outlook for equity markets in the near term.

"We have gone overweight on equities and our top pick in emerging markets is the Hong Kong-listed shares of Chinese companies because of the aggressive easing by China and likely more stimulus from Europe," said Benjamin Pedley, head of investment strategy for Asia at HSBC's private bank.

Risk sentiment has been supported by China's rate cut last week -- its sixth in less than a year -- and the prospect of more easing from the European Central Bank in December.

There has been speculation the Bank of Japan might expand its asset buying campaign at a policy meeting on Friday, though recent reports make it less likely.

Dealers said there was no obvious news behind the Asian stock weakness on Tuesday, though some noted tensions in South China Sea as the U.S. Navy sent a destroyer close to artificial islands built by China, drawing an angry rebuke from Beijing.

Still, some players were likely squaring positions ahead of the U.S. Federal Reserve meeting on Tuesday and Wednesday.

Investors are pricing in no chance of a rate hike this week, but could react to how the Fed's statement interprets recent soft U.S. economic data and events in global financial markets.

Markets are currently pricing in only a modest chance of a tightening in December.

"We continue to believe that ongoing uncertainty - and also liquidity concerns at the year-end - will keep this extremely risk-averse Fed on hold until the March 2016 meeting," says Michelle Girard, chief U.S. economist at RBSM.

On Wall Street, the Dow .DJI ended on Monday with a minor loss of 0.1 percent, while the S&P 500 .SPX eased 0.2 percent and the Nasdaq .IXIC added 0.1 percent. US stock index futures ESc1 were pointing to a weak start. [.N]

All eyes will be on Apple's (AAPL.O) results later Tuesday with investors anxious to hear how many new phones were sold by the world's most profitable company, and its guidance for the current quarter.

The U.S. dollar lost some of its recent gains following disappointing U.S. new home sales and a dip in Treasury yields. Against a basket of currencies, the dollar was off 0.2 percent at 96.692 .DXY.

The euro regained a little ground to $1.1065 EUR=, having touched an 11-week trough of $1.0987 on Monday. Against the yen, the dollar lapsed back to 120.55 JPY= from Monday's top around 121.51.

Commodity markets continued to be dogged by concerns over plentiful supplies and weak demand. Three-month copper CMCU3 was broadly flat at $5,206 a metric ton.

Crude oil stayed under pressure after two straight weeks of losses, on worries that the oversupply in oil products would swell from unseasonably warm weather and the waning maintenance cycle for U.S. refineries. [O/R]

U.S. crude CLc1 was down a percent at $43.45 a barrel, while Brent LCOc1 eased to $47.17 a barrel.

Reference: SAIKAT CHATTERJEE

Monday, 26 October 2015

Oil prices weak as demand seen sagging toward year-end

A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Oklahoma September 15, 2015. REUTERS/Nick Oxford

Crude oil prices remained weak on Monday as a slowing demand outlook implied oversupply will remain in place for months, prompting speculators to cut their bets on rising prices.

Front-month U.S. crude futures were trading at $44.62 per barrel at 2.59 a.m. ET, a mere 2 cents above their last close but more than 12 percent below their October peak.

International benchmark Brent was down 1 cent at $47.98 a barrel, and over 11 percent below this month's high.

Goldman Sachs said that oil prices could drop "sharply lower" as refined product storage sites come close to filling, stoking a glut that has already seen crude prices fall by more than half since June 2014.

ANZ said it expected prices to remain low for the rest of this year, due to slowing demand and as speculators were cutting bets on higher prices.

On the demand side, Energy Aspects said that it "forecast a sharp slowdown in global oil demand across Q4 15 at 0.8 million barrels per day, which marks the slowest pace of growth in five quarters."

Energy Aspects said ongoing oversupply in crude oil was starting to spill into the market for refined products, with a product stock-build of 0.6 million barrels per day seen in the third quarter.

Rising inventories as well as a mild winter expected for Europe and North America as a result of an El Nino weather event would likely lead to reduced refinery production and lower use of crude oil by refiners, it said.

Global oil markets were "still some way from rebalancing", the research agency added.

Due to the low oil prices, investment in the sector in 2016 will likely decline further after sliding this year by more than a fifth, Fatih Birol, the executive director of the International Energy Agency (IEA), said on Monday.

"If it comes true, this will be the first time in two decades we will see oil investments declining for two consecutive years and may be an indication for future oil markets," he said at the Singapore International Energy Week.

Swift Worldwide Resources estimates that more than 200,000 jobs in the oil and gas industry have been cut worldwide since prices collapsed last year.

Yet not all analysts are entirely bearish in their outlook. "We see support for underlying demand growth, and we view any product-related oversupply as temporary. Global refining margins are off highs, but the details are more positive," Morgan Stanley said.

Reference: HENNING GLOYSTEIN

Asian stocks advance on China rate cut, U.S. tech earnings

Businessmen look at their mobile phones in front of an electronic stock quotation board outside a brokerage in Tokyo, Japan, October 23, 2015. REUTERS/Toru Hanai

Asian stocks on Monday were close to wiping out all their losses since China's shock currency devaluation in August, as global equities rallied after the Chinese central bank cut rates and U.S. tech giants provided upbeat earning guidance.

MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5 percent to hit its highest since Aug. 12, led by 1.2 percent gains in Honk Kong .HSI. Japan's Nikkei .N225 rose 1.1 percent to a two-month high.

The surprise move by China lifted risk assets that had been already boosted by Thursday's message from the European Central Bank that it stood ready to enhance quantitative easing and cut interest rates to even deeper negative levels.

"These moves by the ECB and China are raising speculation that the Bank of Japan will act later on this week as well," Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. The BOJ will hold its next policy review on Friday.

The U.S. Federal Reserve is also widely expected to refrain from raising rates at its two-day policy meeting on Tuesday and Wednesday.

Against these backdrop, the MSCI's index of the world's share markets .MIWD00000PUS shot up to its highest level since Aug. 20, having risen more than 10 percent from its two-year low hit less than a month ago.

It has recovered most of the losses since Aug. 11, when China's sudden devaluation of the yuan sparked worries its economy may be in deeper trouble than many had thought.

On Wall Street, S&P 500 Index .SPX rose 1.1 percent to turn positive on the year, while the tech-heavy Nasdaq jumped 2.3 percent .IXIC.

Technology shares led the way, thanks to gains in Alphabet (GOOGL.O), Amazon (AMZN.O) and Microsoft (MSFT.O), after the three companies reported earnings results. The former two hit record highs, while Microsoft rose to a 15-year high.

Mainland Chinese shares rose on Monday after China cut the benchmark one-year lending rate - for the sixth time in less than a year - by 25 basis points to 4.35 percent, and lowered big banks' reserve requirement ratio late.

Gains were fairly limited, however, with Shanghai composite index .SSEC up just 0.5 percent.

Naoki Tashiro, the president of TS China Research, noted that in the week following each of the past year's five rate mainland shares rose three times but fell twice.

"Mainland investors are cautious. The market has been rallying so far this month, so some investors could may well take profits into rally," he said.

One big focus is Chinese Communist party's central committee meeting from Monday to Thursday to set out a new five-year plan, while investors attempt to gauge how much China's growth is likely to slow in coming years.

Ahead of the central committee meeting, Premier Li Keqiang said that China has never stated the economy must grow seven percent this year, coinciding with remarks by a top central bank official on Saturday that China would be able to keep annual economic growth at around 6-7 percent over that period.

Risk sentiment supported by Thursday's message from European Central Bank President Mario Draghi that the bank stood ready to enhance quantitative easing.

That saw the Italian IT2YT=TWEB and Spanish ES2YT=TWEB two-year government bond yields both turn negative for the first time, meaning investors effectively pay to hold them.

The benchmark German two-year yield fell further to minus 0.345 percent DE2YT=TWEB.

As negative yields undermine the attraction of holding the euro, traders pushed it to a 2 1/2-month low of $1.0989 EUR= in early Asian trade. It last stood at $1.1031, bouncing back on profit-taking.

The yen dipped to 121.60 to the dollar JPY=, its lowest since late August as traders speculated the Bank of Japan might unleash additional easing on Friday, before bouncing back to 121.16 on profit-taking,

"The Japanese economy is weaker than in August and there's no sign of a rebound. Markets are now expecting easing from the BOJ," said Takeru Ogihara, chief strategist at Mizuho Trust Bank.

Despite a recovery in global equity prices, oil prices were softer, pressured by ongoing oversupply worries.

U.S. crude futures CLc1 stood at $44.68, hardly recovering after a fall of 5.6 percent last week, not far from three-week low of $44.20 touched on Friday.

Reference: HIDEYUKI SANO

Friday, 23 October 2015

Basic Trading Concepts Defined

forex-pdf-trading 3

How to Scalp Forex

Forex scalping is a popular method involving the quick opening and liquidation of positions. The term “quick” is imprecise, but it is generally meant to define a timeframe of about 3-5 minutes at most, while most scalpers will maintain their positions for as little as one minute
The popularity of scalping is born of its perceived safety as a trading style. Many traders argue that since scalpers maintain their positions for a brief time period in comparison to regular traders, market exposure of a scalper is much shorter than that of a trend follower, or even a day trader, and consequently, the risk of large losses resulting from strong market moves is smaller. Indeed, it is possible to claim that the typical scalper cares only about the bid-ask spread, while concepts like trend or range are not very significant to him. Although scalpers need ignore these market phenomena, they are under no obligation to trade them, because they concern themselves only with the brief periods of volatility created by them.
 

Is Forex Scalping for you?

Forex scalping is not a suitable strategy for every type of trader. The returns generated in each position opened by the scalper are usually small; but great profits are made as gains from each closed small position are combined. Scalpers do not like to take large risks, which mean that they are willing to forgo great profit opportunities in return for the safety of small, but frequent gains. Consequently, the scalper needs to be a patient, diligent individual who is willing to wait as the fruits of his labours translate to great profits over time. An impulsive, excited character who seeks instant gratification and aims to “make it big” with each consecutive trade is unlikely to achieve anything but frustration while using this strategy.
 

Attention is essential for the Forex scalper

Scalping also demands a lot more attention from the trader in comparison to other styles such as swing-trading, or trend following. A typical scalper will open and close tens, and in some cases, more than a hundred positions in an ordinary trading day, and since none of the positions can be allowed to suffer great losses (so that we can protect the bottom line), the scalper cannot afford to be careful about some, and negligent about some of his positions. It may appear to be a formidable task at first sight, but scalping can be an involving, even fun trading style once the trader is comfortable with his practices and habits. Still, it is clear that attentiveness and strong concentration skills are necessary for the successful forex scalper. One does not need to be born equipped with such talents, but practice and commitment to achieve them are indispensable if a trader has any serious intention of becoming a real scalper.
 

Automated trading systems

Scalping can be demanding and time-consuming for those who are not full-time traders. Many of us pursue trading merely as an additional income source, and would not like to dedicate five six hours every day to the practice. In order to deal with this problem, automated trading systems have been developed, and they are being sold with rather incredible claims all over the web. We do not advise our readers to waste their time trying to make such strategies work for them; at best you will lose some money while having some lessons about not trusting anyone’s word so easily. However, if you design your own automated systems for trading (with some guidance from seasoned experts and self-education through practice) it may be that you shorten the time which must be dedicated to trading while still being able to use scalping techniques. And an automated forex scalping technique does not need to be fully automatic; you may hand over the routine and systematic tasks such as stop-loss and take-profit orders to the automated system, while assuming the analytical side of the task yourself. This approach, to be sure, is not for everyone, but it is certainly a worthy option.
 

Some words on trade sizes and Forex scalping

Finally, scalpers should always keep the importance of consistency in trade sizes while using their favoured method. Using erratic trade sizes while scalping is the safest way to ensure that you will have a wiped-out forex account in no time, unless you stop practicing scalping before the inevitable end. Scalping is based on the principle that profitable trades will cover the losses of failing ones in due time, but if you pick position sizes randomly, the rules of probability dictate that sooner or later an oversized, leveraged loss will crash all the hard work of a whole day, if not longer. Thus, the scalper must make sure that he pursues a predefined strategy with attention, patience and consistent trade sizes. This is just the beginning of course, but without a good beginning we would diminish our odds of success, or at least reduce our profit potential.

Reference: Tom Cleveland ©

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Euro edges up but top-heavy as investors await ECB meeting

Euro coins are seen in front of displayed flag and map of European Union in this picture illustration taken in Zenica, May 28 2015. REUTERS/Dado Ruvic

The dollar edged slightly down against the euro on Thursday, but its losses were limited ahead of a European Central Bank meeting later in the day that could pave the way for further quantitative easing.

The ECB is likely to stop short of actually taking new policy steps at the meeting as it awaits fresh indications about the outlook for flagging euro zone inflation.

"The consensus view is that we won't see additional stimulus, but the door will be left open," Chris Weston, chief market strategist at IG Ltd in Melbourne, said in a note to clients.

"It seems Mario Draghi will try and keep a lid on EUR moves so it may be really hard and risky to be long EUR/USD," he added.

The median probability of the ECB extending its 1 trillion euro ($1.13 trillion) asset purchase program beyond its current end date of September 2016 was 70 percent, according to a recent Reuters poll of economists. The same poll saw a 40 percent chance that the ECB would increase its monthly purchases over the next six months.

The euro was up about 0.1 percent on the day at $1.1345 EUR=, holding above a 10-day low of $1.1306 touched on Monday but still shy of last week's levels above $1.400.

Against its Japanese counterpart, the dollar inched down about 0.2 percent to 119.69 yen JPY=, mired in a familiar range ahead of next week's policy meetings by both the U.S. Federal Reserve and the Bank of Japan.

"Volatility is down, so everyone is trying to decrease their dollar call options, but the downside should be limited as well," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

One-month dollar/yen implied volatility JPY1MO=, which measures the cost of hedging against sharp swings in the yen, stood at 8.250 percent on Thursday.

That was its lowest level since Aug. 21, and well under two-year highs above 13 percent hit as recently as late August.

The Australian dollar, meanwhile, picked itself up from one-week lows plumbed in the wake of Wednesday's sharp fall in Chinese equities markets and a steep drop in crude oil prices. The commodity-linked Aussie is often used as a proxy for China, Australia's main export market.

China's benchmark indexes edged higher on Thursday a day after marking their worst daily performance in five weeks in the previous session, which most traders attributed to profit taking.

The Aussie added about 0.3 percent to $0.7228 AUD=D4, moving away from the previous session's low of $0.7200, its deepest nadir since Oct. 14.

Wednesday's weaker oil prices also weighed on the Canadian dollar.

The loonie skidded more than 1 percent against its U.S. counterpart after the Bank of Canada held its key rate steady as expected and also hinted that any hikes would be in the distant future, as it lowered its growth forecasts for both 2016 and 2017.

The U.S. dollar was buying C$1.3117 CAD=D4, down about 0.2 percent from late North American trading after earlier rising as high as C$1.3149, its loftiest peak since Oct. 5.

Reference: LISA TWARONITE

Thursday, 22 October 2015

Trading Education- Which broker to choose

Newsletter 31

Basic Trading Concepts Defined

Many people have asked me how to make a choice for a broker. Hopefully this article from Jack Maverick gives some good answers. 

One of the biggest challenges facing traders is the choice of a broker. There is a wide variety and many various kinds of services—so this is not a simple decision. The choice you make will influence your profits as well as the success you have in your career.
After perusing the earlier articles in this section, you should better understand the actual role of a broker and the different types that you have to choose from. However, it is important to check out all of the brokers that you are interested in through the Broker reviews that Tradingfo offers.
 

Demo account

One of the most effective ways to give a trading platform and a broker's services a dry run is to set up a demo account with that broker. These accounts are free, and they show you the commission structure, the practices of the broker, and the services available.
The majority of brokers even offer fictitious money in demo accounts to give you some practice. These accounts pose you no risk, and the process is just the same as when you are working with a real account. This article shows you the different elements to consider when selecting a broker for your investments.
 

Regulated Status

Is the broker licensed by such relevant oversight organizations as the SEC, FSA or CNMV?. This will ensure that your broker does not commit fraudulent transactions and stays within the rules. Check if the broker is regulated under financial authorities, such as the FSA or FCA.
 

Segregated Account

Ask if the broker you are considering stores your money in an account separate from the main company account. This is the best practice, and it is what most reputable brokers do. This way, if the broker ends up bankrupt or has to close his doors, your trading money is safe in its own account. Check if the broker holds your funds in a segregated account.
 

Broker Costs

Examine the structure of costs with your broker. Common costs include commission costs, commission structure, fees for inactivity and the overnight rate of interest. Commission costs will slowly bring your account downward. All brokers have commission structures, so make sure that yours are as reasonable as possible.
Costs and commissions vary from one broker to the next. Check which commission structure the broker uses.
 

Broker Accounts

Some brokers offer margin accounts, while others only offer cash accounts. Margin accounts allow you to borrow with an investment, so find out the amount of leverage your potential broker offers, and see if his offering matches what you need for your investments.
Check what type of leverage and margin the broker offers.
Spread – Some brokers offer a fixed spread, while others offer a variable one. Find out the overall spreads for the products that you are interested in. The majority of brokers market the lowest spreads they are able to offer. The lower the spread, the higher your chance of profiting from a particular trade. Find out the overall spreads for the products that you are interested in. 
 

Market Access

Some brokers take the opposite their client's position, while others put a client trade right on the exchange. Find out which one your broker does.
Find out which type of broker it is—such as MM, STP or ECN—to find out what business model the broker uses.
 

Requirements for Deposit


Each broker has a different rule for this, so you'll want to know what your potential broker requires. Some require $20,000, while others don't require any minimums at all. You may find that commission structure is more costly with a lower minimum, so make sure to keep both of those factors in mind. Find out what the required minimum deposit is for the broker to be in line with your investment needs.
 

Paying dividends

Will the broker credit your account when companies release their dividends? When you are looking at stocks, this is an important question. The majority of brokers do offer dividend payout, and you are entitled to dividends in some cases, even if you don't actually own physical stock. Some traders look at payouts when they’re putting their whole strategies together, so make sure that you find out about this. Find out if the broker pays dividends when you are holding stocks.
 

Withdrawals and Deposits

If you’re facing a margin call, you will need to know how long it will take for a deposit to register in your account. Also, you might need money from your brokerage account, so find out the withdrawal process as well.
Find out how much time deposits and withdrawals take.
 

Customer Service

You need a broker who responds quickly to your needs. This is a good reason to set up a demo account, because it gives you a chance to use the entire organization. Review the contact information for the customer service desk, as well as the hours when you can call in. If you find that your Internet goes down when you are sitting in a big position, you will need it resolved quickly. You can look at this by calling your broker or sending a quick email. Contact the broker to test their customer service practices.
 

Types of Brokers

Retail investors have access to four different types of brokers.
Full-service brokers – These are brokerage firms that give you a whole suite of financial services, including market analysis, trading tools and investment advice. They help traders find profitable opportunities in the market. These are the most expensive brokers, but you also get the most in terms of services.
Full-service brokers offer complete financial packages. However, this is the most expensive type of broker.
Discount Service Brokers – These brokers also manage client trades, but they offer fewer services than a discount service broker does. This type of broker can save you 92% in comparison to a full-service broker.
Deep-discount brokers also manage client trades but offer fewer services and are a cheaper alternative than full-service and discount service brokers.
Online Discount Broker – This sort of broker allows you to handle all of your services online, giving you complete control over your positions.
Online discount brokers give you complete control over your investments and are the least expensive option for your investments.
Types of Accounts
As stated previously, you can have either a cash account or a margin account.
Cash account – Some brokers will require cash accounts in order for their customers to trade. They require the customer to pay—in full and on the established day—the full amount of the transaction costs. These accounts are usually required for Full-Service Brokers and Discount Service Brokers.
Discount Service Brokers – This is the most active type of account, allowing clients to borrow money from the broker to gain leverage on their trades or transactions. You will usually find Margin accounts in Online Discount Brokers. Trading on margin is risky as it allows you to trade expensive products with high amounts of leverage.
 

Bottom Line

This overview gives you a look at the various criteria you should have in mind when selecting a broker. The choices you make will influence your ability to make profits off your trades. The more experience you have with trading, the less assistance you are likely to need from your broker. Make sure that you give your investments the very best chance by choosing a combination of service, commission and security.
 

Reference: Jack Maverick

Jack Maverick is a long term trader who developed a very interesting strategy which makes him a profit “every day”. Sounds interesting?
Find out more here

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Asian shares, dollar, euro steady as markets await ECB meeting

An investor writes on papers as he sits in front of an electronic board showing stock information at a brokerage house in Fuyang, Anhui province, China, October 8, 2015. REUTERS/Stringer

The dollar held steady against a basket of six currencies .DXY at 119.90, and versus the yen JPY= at 119.88 yen.

"The most notable influence on markets recently has been the quarterly reporting in the U.S, which has shown a softening of outcomes relative to expectations," said Angus Gluskie, managing director of White Funds Management in Sydney.

"Investors remain cautious on the Chinese outlook notwithstanding the uptick in a small number of indicators," he said.

The Shanghai Composite stock index .SSEC slumped 3 percent on Wednesday, its worst daily performance in five weeks after a relatively calm month, reminding investors that China's markets and economy are still far from stable.

The Shanghai index, which slipped in early trade, was little changed, while the CSI 300 index .CSI300 gained 0.3 percent. The Hang Seng index .HSI dropped 0.7 percent.

Chinese stocks' renewed weakness has put fresh pressure on commodity-linked currencies and emerging market currencies.

Emerging market currencies from the Malaysian ringgit MYR= to the Chilean peso CLP= stepped back from recent highs.

The recovery in many share markets since last month has in fact been partly supported by hopes policymakers around the world may take steps to bolster their respective economies.

Those hopes will be tested in an event-packed period toward the end of the month that starts with the European Central Bank's policy meeting on Thursday.

ECB President Mario Draghi is widely expected to keep the door open for more monetary stimulus in the face of deflation risks, but is seen stopping short of taking new policy steps at Thursday's meeting.

That meeting will be followed next week by central bank policy meetings in the U.S. and Japan, as well as four-day leadership meeting of China's Communist party.

"I think the rebound in markets is coming to an end. From now, markets will be looking to policy events later this month as well as corporate earnings," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

The euro stood at $1.1342 EUR=, barely moving this week ahead of the ECB's meeting.

The Australian dollar AUD=D4 recovered to $0.7226 after tumbling to $0.7202 on Wednesday, its lowest in a week. The Canadian dollar CAD=D4 fell to C$1.3149 per U.S. dollar on Thursday, its lowest in 2 1/2 weeks, as the Canadian central bank lowered its growth forecasts for 2016 and 2017. It has since recovered to C$1.3112.

Oil prices fell to three-week lows as the U.S. government reported a bigger than expected build-up in crude oil stockpiles.

Brent futures LCOc1 dropped to a three-week low of $47.50 per barrel on Wednesday and last stood at $48.07.

U.S. crude futures CLc1 settled at $45.55 a barrel, after slumping to $44.86 a barrel, the lowest since Oct. 2, in earlier trade.

U.S. natural gas futures NGc1 fell to a three-year low of $2.379 per million British thermal units on Wednesday on forecasts for warmer weather over the next two weeks. They were last trading at $2.396.

Reference: HIDEYUKI SANO

Wednesday, 21 October 2015

Are You Financially Stressed Enough?



This time we have an afternoon article related to personal finance. Financially stressed enough? That may sound like a strange question. But just as too much financial stress can be detrimental to your health and overall well being, not enough stress can lead to a complacency that can make it harder to achieve your financial goals. It’s a question of where that stress is coming from and how we respond to it.


For example, our recently released 2013 Year in Review report shows that 23% of employees reported high or overwhelming levels of financial stress last year, up from 18% in 2012. But unlike previous increases in financial stress, fewer attribute that stress to external factors like the economy or distrust of financial advisors and more to internal factors like not meeting future financial goals and feeling like their current financial situation is not under their control. Even more importantly, employees are responding to this stress by being more proactive about their finances. A greater percentage reported taking a risk tolerance assessment, re-balancing their investment accounts, maximizing federal tax breaks, and reviewing their insurance coverage annually.
So should you be more stressed about your finances? Here are some questions to assess your current financial situation and some steps you can take to alleviate it:
1) Are you having trouble making ends meet?
The Problem: You may be falling deeper in debt and risking your credit rating if you miss payments.
The Solution: Prioritize your spending and/or look for ways to earn additional income. If you’re struggling with debt payments, consider negotiating with your creditors or working with a credit counselor to negotiate on your behalf. If all else fails, bankruptcy can provide you with a fresh start.
2) Do you have adequate health, property and casualty, disability, and life insurance?
The Problem: Lack of insurance can put you and your family at risk if something were to happen to you. The law also requires everyone to have health insurance and auto insurance if you own a car.
The Solution: If you can’t get coverage through an employer, check out the new exchanges for health insurance. Make sure you have enough property and casualty insurance. See if your employer offers disability insurance since a group plan tends to be a lot more affordable than an individual policy. Use this calculator to see how much life insurance you need.
3) Do you have at least 3-6 months worth of necessary expenses in emergency savings?
The Problem: One emergency expense can put you in debt. A period between jobs can put you in danger of losing your home if you’re unable to make the rent or mortgage payment.
The Solution: Track your expenses and look for opportunities to save money. Even a small amount each month can really add up. Just be sure to keep your emergency savings somewhere safe and accessible.
4) Are your investments properly diversified?
The Problem: Having more than 10-15% of your portfolio in any one stock could put you in trouble if anything happened to that company, especially if it’s your employer since you could be out of a job at the same time. Being too aggressive may tempt you to bail out of stocks during the next downturn. Being too conservative could mean not earning enough to achieve your goals.
The Solution: If you like to pick your own investments, take a risk tolerance questionnaire and use the guidelines to see how your investments should be allocated. If you don’t want to choose your own investments, you can simply put your money in a target date fund for the year closest to when you plan to retire or use a software program like FutureAdvisor or Financial Engines for more personalized advice. Both of those options may be available through your employer’s retirement plan provider.
5) Are you saving enough for retirement?



The Problem: You could end up having to work longer than you want and/or be forced to dramatically reduce your standard of living in retirement.

The Solution: Run a retirement calculator and see how much you need to save. If it looks too daunting to do all at once, slowly increase your contributions over time. Your employer’s plan may offer a contribution rate escalator that can do this for you.
6) Are you taking full advantage of tax-sheltered accounts?
The Problem: You may be paying more in taxes than you need to be.
The Solution: Make sure you’re putting as much of your retirement savings as possible in your employer’s retirement plan and IRAs.  Consider funding an HSA if you have a high-deductible health insurance plan and/or FSAs for health and dependent care expenses. For education savings, consider 529 plans, a Coverdell Education Savings AccountUS Government Savings Bonds, and custodial accountsPrioritize the most tax-inefficient investments for these accounts.
7) Do you have an estate plan in place?
The Problem: Not having a proper estate plan means your wishes may not be carried out and could cost your family lots of time, stress, and money.
The Solution: Get basic estate planning documents like a will, health care directive, and durable power of attorney done. See if you can get discounted legal services through your employer. If your situation is complex, you may also want to draft a trust. Otherwise, just be sure your beneficiaries are up to date and see if your state allows you to add beneficiaries on other assets to avoid probate.
As you start looking through those questions, you may see a few areas where you may need to do some work. While they may not be costing you anything now, there’s a good chance not taking action will hurt you and/or your family in the future. Feeling a little stressed yet?
By Erik Carter, JD, CFP®