Forex traders should be shouting to the clouds. Up and down, down and up. The dollar and Mr. Crude Oil are playing teeter-totter. Both have been trading in a pretty definable range for quite some time. Astute forex traders have played the dollar both ways.
What am I talking about? Take a look at a daily chart and look at the range of the EUR/USD. Since late August it has been confined to a 500 pip range testing each extreme numerous times. GBP/USD, yup, USD/CHF-yes sir.
So how does a forex trader trade something like this? To much risk? Not much risk at all if you trade it the grail way. We traded all 3 currency pairs plus a few more and never used more than 75 pip s/l. Situations like this do not happen all the time. A good forex trader is prepared for them when they do. Are you prepared? Does your "system" make you prepared for these currency honey holes? If not you may want to rethink your strategy.
Oil, where's it going. I really have no idea although I have a hunch that it will retreat a bit. The Saudi's are understandably concerned with the high prices. Although they are making huge profits now they understand that continued skyrocketing oil prices will leave the rest of the world with no choice but to get moving on some alternative methods. This in turn will ultimately lead to less consumption. The end result of these extreme oil prices will be less of a demand for oil and that is something that OPEC surely doesn't want. Oil is essential to us, to them, to everyone, so I see a softening in the price of crude soon. How much remains to be seen.
In the short term, play the bounces. Forex traders should be rejoicing as there is much currency to be made. As I prepare to re-launch the new and improved The FXGrail website there will be many articles and options to learn more about forex, commodities, and all things economy! Stay tuned, its coming soon.
Friday, June 20, 2008
Tuesday, June 10, 2008
Paulson Vs Saudi Arabia
Watching CNN today I had the pleasure of hearing another of our wonderful Feds. Mr. Paulson apparently has decided he knows more about oil than the Saudi bunch. The middle east boys have said that the oil price is not being set by supply and demand and that current oil prices are not justified. Do you believe that the middle east wants the world to slow down oil consumption? Not hardly, less oil reliance equals less profits for them.
Mr. Arrogant, er, Paulson chimed in with his wisdom that the price is indeed being set by supply and demand. Hum, exactly how does a suite in Washington have a better understanding about the oil supply and demand than the ones actually have the oil? The correct answer is he doesn't, he is as full of hot air as the rest of our fine Fed leadership. Imagine what one of their meetings is like, arrogance unlimited.
The good news for us forex traders, there is none. If you are trading currency correctly it really doesn't matter who is telling the truth. Trade what the forex market gives you not what you want it to give. It is quite simple, let the charts do the talking, not a bunch of windbags in Washington.
Mr. Arrogant, er, Paulson chimed in with his wisdom that the price is indeed being set by supply and demand. Hum, exactly how does a suite in Washington have a better understanding about the oil supply and demand than the ones actually have the oil? The correct answer is he doesn't, he is as full of hot air as the rest of our fine Fed leadership. Imagine what one of their meetings is like, arrogance unlimited.
The good news for us forex traders, there is none. If you are trading currency correctly it really doesn't matter who is telling the truth. Trade what the forex market gives you not what you want it to give. It is quite simple, let the charts do the talking, not a bunch of windbags in Washington.
Friday, June 6, 2008
Commodity Investors Drive Oil
Here is another good read for all that missed it. As we know, all things affect the currency market. Forex is a profession of knowledge, more knowledge=better trader.
Commodity Fund Investors Help Drive Oil Prices Higher
By Adam Shell, USA TODAY
Commodity Fund Investors Help Drive Oil Prices Higher
By Adam Shell, USA TODAY
NEW YORK — The list of culprits to blame for $4 gas and $125 oil keeps getting longer.
Oil-thirsty China and India get most of the blame. The declining U.S. dollar, tight supplies, geopolitics and hurricanes also are on the villains list.
Last week, the Commodity Futures Trading Commission (CFTC) alleged that market "manipulators" may be partly responsible for the spike in crude oil and that an investigation is underway.
The latest scapegoat: institutional investors that are pouring billions into index funds pegged to a broad basket of commodities, including crude oil, exacerbating the price gains.
Tuesday, financier George Soros told Congress that commodity index funds contributed to the oil "bubble" and caused "harmful economic consequences." His remarks echoed those of Michael Masters, a hedge fund manager, who testified on May 20 before a Senate panel. Masters said oil's rise directly correlates to the cash that pension funds and endowments are pouring into commodities futures markets. Assets allocated to all commodity index trading strategies by "index speculators," he said, have risen from $13 billion in 2003 to $260 billion through March.
"These trading strategies amount to 'virtual hoarding' via the commodities futures markets," Masters testified.
Soros urged regulators to improve market oversight and place limits on the size of commodity-specific positions. The CFTC last Thursday said it will require monthly reports from traders on their index trading to better "identify the impact of this type of trading."
Blaming the indexers for the rise in oil or branding them as speculators is unfair, says Michael McGlone, director of commodity indexing at Standard & Poor's. S&P GSCI is a popular commodity index. Investing in an index fund that provides broad exposure to commodities is no different than an investor buying an S&P 500-stock index fund to diversify a stock portfolio, he says.
Don Luskin, chief investment officer at Trend Macro, says index investors are just easy scapegoats. "The evidence against commodity index funds is circumstantial at best," he says.
After falling $3.45 to $124.31 a barrel on Tuesday, oil is still up 30% for 2008. The drop came after Federal Reserve Chairman Ben Bernanke said more interest rate cuts are unlikely. That helped boost the dollar, which depressed oil, because oil is denominated in dollars.
Five years ago, big investors were tiny players in commodities. But after the 2000 stock bust, they sought out the asset class to diversify. Greenwich Associates says that a third of investors in commodities have been active in these markets for less than three yearsOil Prices-Good Read
This is a good read from fortune regarding the oil price spike.
Arguments that $4-a-gallon gas (or even higher) is here to stay are dead wrong. Housing's boom-and-bust cycle tells you why.
By Shawn Tully, editor at large
NEW YORK (Fortune) -- High-flying tech stocks crashed. The roaring housing market crumbled. And oil, rest assured, will follow the same path down.
Not everyone agrees. In an echo of our most recent market frenzies, some experts pronounce that the "world has changed," and that the demand spikes, supply disruptions, and government bungling we face now will saddle us with a future of $4, $5 or even $10 a gallon gasoline.
But if you stick to basic economics, it's clear that the only question is when - not if - prices will succumb.
The oil bulls are correct in their explanations of why prices have jumped. It's indisputable that worldwide demand has surged, chiefly driven by strong growth in China, India and the Middle East. It's also true that most of the world's reserves are controlled by governments in places like Russia and Venezuela that mismanage production, thus curtailing supply growth.
But rather than forming a permanent new plateau for prices - as the bulls contend - those forces are causing a classically unstable market that's destined for a steep fall.
In a normal oil market, the cost of producing the last, most expensive barrel of oil needed to satisfy worldwide demand sets the price for every barrel the world over. Other auction commodity markets work much the same way.
So even if Saudi Arabia produces at $4 a barrel, if the final, multi-millionth barrel required to heat houses and run cars costs $50, and is produced, for argument's sake, at a flagging field in West Texas, the world price is $50. That's what economists call the equilibrium price: It's where the price that customers are willing to pay meets the production cost, including a cushion, naturally, for profit or "the cost of capital."
But today, the sudden surge in demand and the production bottlenecks have thrown the market radically out of balance.
Almost exactly the same thing happened in the housing market. And both housing and oil supply react to a surge in demand with a long lag. In housing, the lag is caused by restrictive zoning and development laws, especially in coastal markets like California and Florida.
So when the economy roared back in 2002 and 2003, builders couldn't turn out homes fast enough for buyers armed with those cheap mortgages. As a result, prices spiked. They no longer bore any relation to the actual cost of buying and improving land, or constructing and marketing a new house (at some reasonable profit margin). Instead, frenzied buyers were setting the price.
Because builders were reaping huge windfall profits, they rushed to buy and develop land. And sure enough, those new houses were ready just as buyers were retreating to the sidelines because they could no longer afford to buy a home. That vast overhang of unsold homes is what's driving down prices today.
The story is much the same with oil, with a twist. A big swath of the market isn't really paying that $125 a barrel number you hear about seemingly every hour. In China, India and the Middle East, governments are heavily subsidizing oil for their consumers and corporations, leading to rampant over-consumption - and driving up prices even more.
But sooner or later the world won't keep paying those prices: Eventually, the price must fall back to the cost of that last barrel to clear the market.
So what does that barrel cost today? According to Stephen Brown, an economist at the Dallas Federal Reserve, that final barrel costs just $50 to produce. And when the price is $125, the incentive to pour out more oil, like homebuilders' incentive to build more two years ago, is irresistible.
It takes a while to develop new supplies of oil, but the signs of a surge are already in place. Shale oil costing around $70 a barrel is now being produced in the Dakotas. Tar sands are attracting investment in Canada, also at around $70. New technology could soon minimize the pollution caused by producing oil from our super-plentiful supplies of coal.
"History suggests that when there's this much money to be made, new supplies do get developed," says Brown.
That's just the supply side of the equation. Demand should start to decline as well, albeit gradually.
"Historically, the oil market has under-anticipated the amount of conservation brought on by high prices," says Brown. Sales of big cars are collapsing; Americans are cutting down on driving. The airlines are scaling back flights.
We've learned another important lesson from the housing market: The longer prices stay stratospheric, the worse the eventual crash - simply because the higher the prices and bigger the profit margins, the bigger the incentive to over-produce.
It's even possible that, a few years hence, we could see a sustained period of plentiful oil supplies and low prices, meaning $50 or below.
A similar scenario occurred following the price explosion in the 1970s and early 1980s. The price spike caused the world to cut back sharply on oil consumption. By the mid-80s, oil prices had fallen from almost $40 to around $15. They remained extremely low for two decades.
It's impossible to predict how the adjustment this time will take shape, just as it was in housing. There the surge in supply came in places the experts swore there was "no supply," and wouldn't be any. Builders found a way to extend vast tracts of homes into California's Inland Empire and Central Valley, and even build "in-fill" projects near the densely-populated coasts.
An earlier bubble is also instructive. In the early 1980s silver prices jumped from $10 to $50 on the theory that the world was facing a permanent shortage of silver. Suddenly ads appeared asking homeowners to bring their tea sets and jewelry to Holiday Inns for a big price. Silver supplies poured from seemingly nowhere, out of America's cupboards, of all places.
And so it will be with oil. We don't know where the new abundance will come from, from shale, or tar sands or coal or an OPEC desperate to regain market share. We just know that it will appear. With prices like these, it always does.
Arguments that $4-a-gallon gas (or even higher) is here to stay are dead wrong. Housing's boom-and-bust cycle tells you why.
By Shawn Tully, editor at large
NEW YORK (Fortune) -- High-flying tech stocks crashed. The roaring housing market crumbled. And oil, rest assured, will follow the same path down.
Not everyone agrees. In an echo of our most recent market frenzies, some experts pronounce that the "world has changed," and that the demand spikes, supply disruptions, and government bungling we face now will saddle us with a future of $4, $5 or even $10 a gallon gasoline.
But if you stick to basic economics, it's clear that the only question is when - not if - prices will succumb.
The oil bulls are correct in their explanations of why prices have jumped. It's indisputable that worldwide demand has surged, chiefly driven by strong growth in China, India and the Middle East. It's also true that most of the world's reserves are controlled by governments in places like Russia and Venezuela that mismanage production, thus curtailing supply growth.
But rather than forming a permanent new plateau for prices - as the bulls contend - those forces are causing a classically unstable market that's destined for a steep fall.
In a normal oil market, the cost of producing the last, most expensive barrel of oil needed to satisfy worldwide demand sets the price for every barrel the world over. Other auction commodity markets work much the same way.
So even if Saudi Arabia produces at $4 a barrel, if the final, multi-millionth barrel required to heat houses and run cars costs $50, and is produced, for argument's sake, at a flagging field in West Texas, the world price is $50. That's what economists call the equilibrium price: It's where the price that customers are willing to pay meets the production cost, including a cushion, naturally, for profit or "the cost of capital."
But today, the sudden surge in demand and the production bottlenecks have thrown the market radically out of balance.
Almost exactly the same thing happened in the housing market. And both housing and oil supply react to a surge in demand with a long lag. In housing, the lag is caused by restrictive zoning and development laws, especially in coastal markets like California and Florida.
So when the economy roared back in 2002 and 2003, builders couldn't turn out homes fast enough for buyers armed with those cheap mortgages. As a result, prices spiked. They no longer bore any relation to the actual cost of buying and improving land, or constructing and marketing a new house (at some reasonable profit margin). Instead, frenzied buyers were setting the price.
Because builders were reaping huge windfall profits, they rushed to buy and develop land. And sure enough, those new houses were ready just as buyers were retreating to the sidelines because they could no longer afford to buy a home. That vast overhang of unsold homes is what's driving down prices today.
The story is much the same with oil, with a twist. A big swath of the market isn't really paying that $125 a barrel number you hear about seemingly every hour. In China, India and the Middle East, governments are heavily subsidizing oil for their consumers and corporations, leading to rampant over-consumption - and driving up prices even more.
But sooner or later the world won't keep paying those prices: Eventually, the price must fall back to the cost of that last barrel to clear the market.
So what does that barrel cost today? According to Stephen Brown, an economist at the Dallas Federal Reserve, that final barrel costs just $50 to produce. And when the price is $125, the incentive to pour out more oil, like homebuilders' incentive to build more two years ago, is irresistible.
It takes a while to develop new supplies of oil, but the signs of a surge are already in place. Shale oil costing around $70 a barrel is now being produced in the Dakotas. Tar sands are attracting investment in Canada, also at around $70. New technology could soon minimize the pollution caused by producing oil from our super-plentiful supplies of coal.
"History suggests that when there's this much money to be made, new supplies do get developed," says Brown.
That's just the supply side of the equation. Demand should start to decline as well, albeit gradually.
"Historically, the oil market has under-anticipated the amount of conservation brought on by high prices," says Brown. Sales of big cars are collapsing; Americans are cutting down on driving. The airlines are scaling back flights.
We've learned another important lesson from the housing market: The longer prices stay stratospheric, the worse the eventual crash - simply because the higher the prices and bigger the profit margins, the bigger the incentive to over-produce.
It's even possible that, a few years hence, we could see a sustained period of plentiful oil supplies and low prices, meaning $50 or below.
A similar scenario occurred following the price explosion in the 1970s and early 1980s. The price spike caused the world to cut back sharply on oil consumption. By the mid-80s, oil prices had fallen from almost $40 to around $15. They remained extremely low for two decades.
It's impossible to predict how the adjustment this time will take shape, just as it was in housing. There the surge in supply came in places the experts swore there was "no supply," and wouldn't be any. Builders found a way to extend vast tracts of homes into California's Inland Empire and Central Valley, and even build "in-fill" projects near the densely-populated coasts.
An earlier bubble is also instructive. In the early 1980s silver prices jumped from $10 to $50 on the theory that the world was facing a permanent shortage of silver. Suddenly ads appeared asking homeowners to bring their tea sets and jewelry to Holiday Inns for a big price. Silver supplies poured from seemingly nowhere, out of America's cupboards, of all places.
And so it will be with oil. We don't know where the new abundance will come from, from shale, or tar sands or coal or an OPEC desperate to regain market share. We just know that it will appear. With prices like these, it always does.
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