Europe’s never-ending debt saga has investors girding for volatile, unsteady currency markets for years to come.
This debt crisis has also boosted bullish bets on the world’s safe havens—the U.S. dollar and yen — well into the next 24 months in the options market, reflecting fears that problems in the euro zone could linger for years.

“There’s enough uncertainty surrounding Europe and the global economic picture that higher volatility will likely become a feature of this market for some time. And it’s more or less across the board,” said Aroop Chatterjee, senior currency strategist at Barclays Capital in New York.

This is the second time in four years that the options market has signaled such a high level of anxiety. Right after U.S. investment bank Lehman Brothers collapsed in September 2008, currency option prices options spiked as investors paid a high premium for protection against the market’s big moves.

Now the same scenario is playing out. And it’s anyone’s guess as to when it ends.

Implied volatility on one-month euro/dollar options surged to 18.35 percent on Monday—the highest in at least 2 1/2 years. That 18 percent figure is equivalent to expectations for a roughly 5.2 percent move in the euro over the next 30 days, options strategists said.

Implied volatility, or “vol,” is a measure of the options market’s expectations of price movements.

Tuesday’s speculation about plans to boost the euro-zone bailout fund did little to ease fears that the fiscal crisis could drag on, especially after Germany and Spain poured cold water on the idea.

Euro vols did retreat on Tuesday, but have generally traded above the 50-day moving average since early September.

One- to two-year euro/dollar vols were also elevated at nearly 17 percent, generally an indication of stress.

Heightened volatility in the one- to two-year time frame is unusual, analysts said. Normally, investors tend to sell long-term volatility even as short-term volatility spikes.

The fact that volatility is heightened down the road suggests worry that markets will remain unsettled.

“You have basically entered a period where front-end vols have really gone up and the long end has sort of tracked the front end, which is a function of risk aversion,” said Aditya Bagaria, FX options strategist at Credit Suisse in London.

Emerging Markets Also See Worry

In a clear sign that European contagion is spooking investors, option hedges against some of the best-performing emerging market currencies have soared as well.

The rise in volatility there underscores the vulnerability of these assets in times of stress despite their strong economic fundamentals. Already, these markets are experiencing capital outflows, similar to 2008.

Vols on one-month U.S. dollar/Mexican peso pair exploded to 28.4 percent on Friday, a roughly 2 1/2 year high from as low as 8 percent in July.

Traders said one-week Mexican vols had traded as high as 45 percent.

The peso’s one-month vols, though, slipped to 24.8 percent on Tuesday, but the increase in volatility is consistent with the peso’s 8 percent drop against the dollar this year.

Vols in the Brazilian real, the Turkish lira and the South African rand have also surged, just as they did three years ago.

“Investors have realized that, if more than half of the world is to have (stalling) growth, emerging markets will not likely have an easy time,” said Stephen Jen, managing partner at hedge fund SLJ Macro Partners in London.

“I think (emerging market weakness) will continue, even if large interventions slow down the pace of the prospective dollar rally. Too many long-term real money investors are still in these long-EM trades for the dollar rally to be over.”

Risk Reversal Skews
Further signs of stress are evident in risk reversals, a key indicator of risk sentiment in the options market. Risk reversals in major currencies are all showing a strong bias to hold U.S. dollars — still considered a bet on safety.

One-month Australian dollar/U.S. dollar risk reversals, for instance, showed a “put” bias of -7.60 vols on Monday, the most extreme skew since at least 2007, but slipped on Tuesday. In general, put options suggest more investors are betting on a decline in the Aussie than a rise. The higher the number, the more bearish investors are on the currency.

Risk reversal skews favoring the greenback are further supported by positioning among hedge funds, such as Quaesta Capital in Zurich, Switzerland, which has increased long U.S. dollar positions in the last week in its $3 billion currency fund of funds.

Extreme long positioning in the Australian dollar also contributed to the negative bias. Real money accounts, Japanese retail investors and speculators are still clinging to Aussie net longs, though short-term investors are paring positions.

Copyright 2011 Thomson Reuters.

The first real million dollar forex robot. Uses a unique scalping strategy to bring in quick pips with literally less than 5 pip stop loss! Click Here!

Now that online trading is on the pick of its popularity more and more robotic software are emerging on the market. Actually, it can be rather complicated to choose the robotic trading software to suite all your needs. Maybe, a number of tips concerning this issue, can help you to make the right selection.

First of all, we are going to look through the significant types of programs for different Forex trading strategies.

For your information automated software is a program which serves as robot. Usually, such robotic software is used to start and end trades on your behalf in the foreign exchange market. In order to use such software, it’s important have a good internet connection. When the program has an access to the internet it can market information an look for high and profitable trading opportunities for you to invest in. Then, when the software finds a profitable trading opportunity with low risk, the trading process begins. As a rule, on this level the program starts the trade, operating the amount of money you have let her to.

Once the program finds a profitable trading opportunity with low risk, the process of trade begins. In the course of the trade, the program tracks the trades performance. Its task is to make sure that you are not losing and the trend continues. If it happens so that the trend alters, the program should trades the now bad investment away. By doing so, the program protects the trader from debt and loss. Indeed, this type of robotic software will do everything itself, so the trade will be out of your hand. Even though this can be rather convenient for some traders who don’t want to worry about the market trends, some people are not ready to give the program the total control of the situation. There are some people who, like more freedom rather them being just a viewer.

The next well known Forex trading software is signal generator. The main target of this program is to keep constant watch on the market behavior 24 hours a day 7 days a week. It should also pick the reliable trends. The main thing that differs this program from the previous one, is that it doesn’t perform trading activity like automated Forex trader does. This means that this program will not perform your trade and will not invest for you either. Instead, it will generate and send the pick to you if it finds a reliable trend. Then you are free to trade the way you assume it’s better to. I want to admit that in order to use this type of robotic trading software, you have to know how to trade and put information you get from the software into action. Finally, it should be noted that this software is usually recommended for traders who want to control their online trading.

In fact, these days there are numerous Forex trading mechanisms. This implies that, you have a wide choice of Forex trading methods to find the one that works the best for you. In this article, we not only will give you some tips that can help you to select an appropriate Forex trading strategy, what’s more, we will give you an example of an effective Forex trading method.

Definitely there is a wide selection of Forex trading methods available today, but not all of them are effective enough. As a matter of fact, you can choose any of the methods available on the market now, but the one enclosed is simply the best in terms of making the biggest profits in the least amount of time. In addition, this method is not only effective, it is also really simple in use, so that everyone can easily trade using it.

For your information, the majority of Forex traders assume, that in Forex to get an outcome it’s necessary to predict where prices might go. In fact, a prediction or a guess in other words, is not a reliable thing. Besides, you need to remember that nobody knows what millions and millions of traders will do in this or that moments, and this will influence Forex trading trends. This suggests that the method of predictions or guess is not at all effective, and you should keep this detail in mind when selecting forex trading method.

We assume that the best way to trade Forex is to trade a high odds confirmation of a trend being confirmed. This means that in order to become successful in Forex and get high profits you should to look for the powerful breakouts. In fact, the main thing with buying breakouts is to look for strong levels of resistance. What’s more, you should test this levels for a couple of times in order to make sure that you are making the right investment. As a matter of fact, the more times a level has been tested and held before the break, the better the chances of a continuation of the break when it finally occurs.

In order to be completely sure in the breakout, it’s necessary to make at least six tests. Additionally, it’s important that two of them were held with the interval of at least six weeks. As a matter of fact, you need to understand that breakouts are high reward low risk way of trading and stops are always close. The biggest advantage of this strategy, is that when you manage to find high odds breakouts you will trade a few times per month and be able triple your profits within a short period of time when online trading.

by ProAct Traders (Scott Barkley)

Cross finally took out the strong resistance @ 1.3695 and is now squaring up for the run at the 1.3774. Cross was detained from any follow through by the .618 retracement from the day chart. It should find support for another run at the R7 (1.3855) or the former resistance (1.3695). Expect sellers or stalling at the 1.3775. A break down targets the support at 1.3578.

By Adrian Lowery

What will happen in 2011?

The pound’s fortunes will be tied closely to expectations of a first rate hike from the long-standing record low of 0.5%. And they in turn will be tied to the progress of the UK’s economic recovery and the course of inflation data.

Most economists and the markets are pricing in a small rate hike late in the year – but unexpectedly high growth and / or inflation could see a move before then.


The eurozone debt crisis is a double-edged sword for sterling: it will keep the euro weak but also dampens European demand for UK exports and therefore endangers the British economic recovery.

It would also disturb the financial markets and continue the flight of investors to the safety of the dollar. But a third round of quantitative easing from the Fed would limit the dollar’s strength.

In a survey of City analysts by Hargreaves Lansdowne, forecasts for the pound at the end of 2011 ranged from €1.05 to €1.35, with the majority predicting the pound would rise above €1.25.

Versus the dollar, forecasts ranged from $1.40 to $1.80, with 36% predicting the pound will make progress above US$1.60 and an equal proportion expecting sterling to slip back below US$1.50. The remaining 27% predict sterling will stay in the $1.50-$1.60 range.

What the economists think

PHILIP SHAW, INVESTEC

We are looking probably at a small hike in the fourth quarter to 0.75% by the end of 2011 and are generally positive on sterling next year.

The pound hit a trough in the first month of 2009 and if you look at the charts it’s been on a strengthening trend ever since – with some volatility. But we expect that to continue as the UK economy contues to recover.

We are not confident on the euro and see an average rate next year of €1.23, with a rate of €1.30 by year-end.

We see the pound at around $1.60 for most of next year.

JONATHAN LOYNES, CAPITAL ECONOMICS

We think monetary policy should be – and will be – kept loose. There is a small possibility of a return to QE next year, and we see no rate rise. Inflation will not come down very fast but we think the MPC will hold its nerve.

We see the pound strengthening a bit veruss the euro – as the UK economy improves faster than the continent – and flattish or weakening a bit versus the dollar.

PETER DIXON, COMMERZBANK

We see the first rate hike coming early 2012, maybe late 2011. Likely turmoil in the eurzone will see the euro weaken against sterling, probably to below 80p. Against the dollar, we see the pound in much the same range as it has spent the last few weeks – $1.50-$1.60.

MDM Partners Forex Signal Service: Just issued sell signal of the pair USDCAD @ 1.0145, Take Profit @ 1.0100, Stop Loss @ 1.0180.

Trade with confidence!

by Sean Hyman, Currency Cross Trader

I can’t tell you how many times colleagues in the industry have called me an “idiot” for correctly predicting what’s coming next in the markets. Take oil for instance.

Back in 2005, my buddy Greg and I were both working at a Forex firm. At the time, we told some of our friends at work that oil would hit at least $80 a barrel.

This was long before the world had seen $147 oil. In fact, the world had never seen $75 oil. And oil’s current price – $50 – seemed “high” to my friends.
So everyone thought we were insane for even suggesting $80 oil.

We tried to explain that we saw fundamental reasons for higher oil. Namely we saw a worldwide demand that was about to outstrip supply. But on top of that, I had my eye on a specific chart pattern that told me oil would hit at least $80. They still didn’t believe us.

Of course, I don’t have to tell you we were right. In fact, as oil climbed to its all-time high of $147 in 2008, our $80 estimate seemed conservative.

But when oil hit $140 in June 2008, Greg and I started saying oil was too expensive. Once again, my friends in the industry gave us a tough time for suggesting oil might drop. Once more we tried to explain…

No One Believed Oil Would Plummet Either

From a fundamental perspective, we knew the incredibly high oil price would drag down the U.S. economy. After all $4 gas makes a dent in a consumer-driven economy. You can’t spend as much on everything else if you’re shelling out $70 for a gas each week.

From the charts, I saw oil was heading lower too.

For the Past Two Years, the Canadian Dollar &
Mexican Peso Tracked Oil Exactly

Again, we were right. I watched as oil dropped all the way to the high 30s – and we got in.

At $33, the same Nay-Sayers called me an idiot for buying. They just assumed oil was going to $10 or $15 a barrel because once something starts falling it doesn’t stop, right?

Why Oil Will Pass $100 a Barrel in 2011

1. The Charts Say So. Looking at oil’s chart, oil is already making “higher highs and higher lows” as the recessions around the world come to an end. So oil is already trending higher.

2. Demand Is Growing Again. Even though there has been meager growth, it’s been enough to push up oil’s price as global demand for the “black gold” increases again.

3. Bernanke Likes to Print Money. The Fed will continue to print fresh dollars to keep the U.S. out of another recession. In doing so, the Fed will dilute the dollar’s value. That will force anything priced in dollars (like oil) to rise in price.

This just proves what I’ve always said. When everyone pats you on the back for buying a certain stock, commodity or currency – don’t even bother. Just sell now and get your money back while you can. Because once “everyone and their mama” is buying, you’re already too late.

But when everyone calls you a “blooming idiot” for either buying or selling a particular position, hang in there. You will be rewarded. With a little patience, you will be in good shape within a year or so.

I tell you all this, because I’m seeing the same kind of turnaround in oil. Next year, oil will blow past $100 a barrel again. Right now, you can make strategic positions in certain currencies to play off oil’s next rise.

Why Buy Currencies and Not Oil Outright?

Now you could buy oil futures or an oil ETF to play $100 oil. But in the currency market, you can play this trend by buying “oil currencies” such as the Canadian dollar and Mexican peso in the spot forex market.

Why trade these currencies instead of oil itself? First of all, you don’t have brokerage commissions with the currency trades. You have less slippage because there are higher volumes of trading in the forex market.

More importantly, the FX market trades with more leverage. This means you can earn larger profits off oil’s rise by buying the Canadian dollar or Mexican peso.

Both Canada and Mexico are major oil exporters, so their economies and currencies rise and fall with oil’s price. So just how closely do the peso and Canadian dollar track oil? Take a look at the daily, 3-year chart below.

by MDM Partners FX Team

In the next hours we expect appreciation of the CHF to 0.9835/45. Quotes are under 12 and 24 periods of MA, which signal for decrease. The last intersection of the both averages is signal for growth. MACD indicator is above the zero line and signal for Long. Stochastic indicator signal for shorts. Overall technical indicators submit mixed signals.

FX Signals by MDM Partners

by Todor Nikolov – FX Analyst at MDM Partners

Today in Australia we do not expect important news. According to our technical analyst, if the Australian dollar has successfully overcome the resistance zone of 0.8610-0.8630, the next target will be the zone of 0.8660-0.8680. If successful, the upturn will continue to 0.8700-0.8730.

In fall below the support of 0.8585-0.8565, should test support zone at 0.8540-0.8520. In a breakthrough, downward movement will continue to 0.8500-0.8475. The 12 Period Exponential Moving Average is above 24 EMA, the current price falls below 2 EMA’s, along with that RSI has reached the limit of 70 and should change the trend.

Our View for today
Entry Point: 0.8608
Position: SELL
Target: 0.8525
Stop-loss: 0.8690

by Todor Nikolov – FX Analyst at MDM Partners

Today, at 12.00 in Switzerland will be published ZEW economic expectations index for June. It was 40.5 points in May. At 14.00 in the United States will be exported Applications for mortgage loans to MBA for the Week ended on 11th of June it was -12.2% for the previous seven days. At 15.30 will be released index of producer prices for May. Expected to reach -0.5 percent on a monthly basis and 4.9% on year base. It was -0.1 percent for April and 5.5 percent in April 2009. Together with it will be published Main index of producer prices for May. Projected to grow by 0.1% monthly and 1.1% on an annual basis. The index was respectively 0.2% and 1.0% for the previous periods. At the same time will be exported initial residential in May. The forecast is to drop to 0.650 million from 0.670 million in April. With him will be announced for building permits in May. Expected to rise to 0.630 million from 0.610 million the previous period. At 16:15 pm will be released Industrial production for May which is projected to increase by 0.9% from growth of 0.8 percent in April. With it will be disclosed level of capacity utilization in May. The forecast is to reach 74.6 percent by 73.7 percent a month ago.

Short-term picture remains negative if there is a break of the 1.1315-1.1335 resistance zone, the USD will aim to overcome the 1.1355-1.1380 zone. If successful upturn will be strengthened at 1.1400-1.1425. In fall below the support of 1.1295-1.1275, the dollar will seek further support in the 1.1245-1.1220 zone. In a breakthrough it will continue downward movement towards 1.1200-1.1175. The current price is below the two Moving Averages, which indicates a downward movement in the currency pair.

Position: SELL

Entry point: 1.1302

Target: 1.1200

Stop-loss: 1.1380