Greenback On The Move!

Wow, oil takes a nice dip and the greenback makes a pretty good run. We knew it was coming, just didn't expect it quite so soon. The FXGrail traders were rewarded quite nicely on this greenback rally just by trading the modules. More than one module triggered trades and if you kept to the program you should have made a small fortune from this currency rally. It's as I have always stated when it comes to The FXGrail, trade what the charts show you. In a nutshell it really is that easy. Find a system and stick with it and you will be rewarded.

We talk a lot at the Grail about risk free trading, this rally was the perfect example of what we are talking about. The recent EUR/USD and USD/JPY trades are the prime example of what the Grail is about. Keep trading people, lots of money to be made.

Could It Be?

Is this the end of the bear market? I doubt it. This seems to me to be more of a bear market bounce, better known as a suckers rally. I don't believe we have seen the bottom yet. Watch the dollar in the coming weeks, I think we will continue to see it trade in the same range it has for most of the summer. We will see another run at Eur 1.60 which would be a great opportunity to add some long term EUR/USD shorts and make some money this fall/winter. I believe black gold (oil) will also tease us a bit. Beware of the false bottom!

Forex, Oil, Banks, & The Dollar

What a web we (the US) weave. This is a most interesting time in the currency world. Has the oil bubble burst? Is the US economy hit rock bottom? Will the dollar regain its place in world economics? I do not pretend to know the answers to any of these questions, I really do not care. As a forex trader I just trade what I see. All traders should trade what they see. The fundamentals behind all of these questions are fascinating and do play a part in my overall strategy. Notice in a previous post I recommended to be careful of any long term dollar short. I still hold that view. I do believe we will see the greenback start to gain back some of it's prestige. The thing you must remember is it's in the best interest of almost everybody to have a strong dollar. Notice recent reports out of the Eurozone, they want a stronger dollar. China wants a stronger dollar as they have a fortune in dollars and a weak buck makes no sense for them, it lessens there holdings.

Has the oil bubble burst? I believe what you are seeing is a technical pull back. I do believe we are near the top of the range for oil but I don't believe we'll see any kind of burst. Remember where oil was last year at this time and give it some thought. Is this recent pullback the bubble bursting? No, oil would have to fall quite a bit more for any talk of bubble bursting to make any sense. What will be the downfall of oil is the renewed efforts to lessen the dependence on oil. This is what the Saudi's are worried about. I see it in everyday conversation with ordinary people.

There is still much pain to be felt in the US economy as more banks will fail because of the mortgage mess and unemployment will remain high. However, the worst may be over for the US economy. Now it's time for other world economies to feel the pain. We(USA)are already dealing with these issues, the rest of the world will have to deal with them too.

Fannie And Freddie

Will Fanny and Freddie fail? We all better hope not. Freddie and Fanny have about half the mortgages in the USA to a tune of almost 6 trillion dollars. If these should fail the US will plunge into a depression. No recession, straight into a depression. The government is already taking steps to ensure this doesn't happen. The Federal Reserve Bank of New York has been granted authority (by the Federal Reserve) to lend to the two companies should the need arise. The government will do whatever it takes, even if it requires a takeover.

The failure of IndyMac has everyone waiting for the next shoe to drop. What caused the failure? It was another classic run on the bank. With customers pulling out their funds, the bank simply ran out of money. Will more fail? I am under the assumption that there will be more bank failures. I don't believe that any big names will go down although there has been some speculation that WAMU is in some trouble.

How does this affect the greenback? It is hard to say. I think there will be a bit more pressure on the dollar in the short term, but we should see the dollar start to strengthen as we get into the third quarter barring any huge failures(Freddie, Frannie). Play it as you see it, I would however be wary of any long term dollar shorts at these levels.

Forex Traders Rejoice!

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.

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.

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

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 years