EUR/USD Continues to Fall for Whole Week

EUR/USD continued to fall today. If the currency pair closes below the opening level, that will mean that it was falling for every single day of the week. US macroeconomic indicators released during the trading session were mixed but that did not prevent the dollar from gaining on the euro.

Personal income and spending rose in July. Personal income increased by 0.1%, trailing analysts’ projections of a 0.3% increase. The gain in June got a positive revision from 0.4% to 0.5%. Personal spending rose 0.6%, exceeding the consensus forecast of 0.5% and the previous month’s rise of 0.3%. Core PCE inflation remained unchanged at 0.2%, while economists had predicted a small increase to 0.3%. (Event A on the chart.)

Chicago PMI climbed to 50.4 in August after falling to 44.4 in July. Experts had predicted a smaller increase to 48.1. (Event B on the chart.)

Michigan Sentiment Index dropped to 89.8 in August from 98.4 in July according to the revised estimate. That is compared to the analysts’ median forecast of 92.5 and the preliminary reading of 92.1. (Event C on the chart.)

If you have any comments on the recent EUR/USD action, please reply using the form below.

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Book Review: The Quarters Theory by Ilian Yotov

The Quarters Theory by Ilian YotovThis is not a new book, so the chances are you have probably already read it or at least read about it. The Quarters Theory: The Revolutionary New Foreign Currencies Trading Method was written by Ilian Yotov and published back in 2010, but I have got my hands on it only recently and it took me quite some time to read. It isn’t difficult to read in a sense that it isn’t a complex book with lots of science in it; it was difficult for me to read because it didn’t make much sense and was completely bonkers, with the exception of some sections.

Ilian Yotov is an FX strategist and educator. He also appears on TV and YouTube videos as an expert in trading. Additionally, Ilian is a founder of a trading website — AllThingsForex.com. The Quarters Theory is the author’s only published book so far.

 

Why is it bad?

After struggling through it, I consider The Quarters Theory a really bad book on trading. The main problem is that it presents its main subject, which is the Quarters Theory, as a real deal without providing any evidence. The book just postulates something like this:

The Quarters Theory proposes that every significant price move in currency exchange rates takes place from one Large Quarter Point to another, in gradual increments of 250 PIPs, the range between two Large Quarter Points.

Then it simply goes on explaining how orderly are the markets when viewed through the prism of the Quarters Theory and offers neither empirical proof nor theoretical grounds to support the claims.

And since the entire book is based purely on assumptions, and rather bold ones, going through it makes you think that you are just wasting your time. The book isn’t fun, there is no value as a work of literature, and it doesn’t offer an interesting story to follow — there is no compensation for the lack of trading theory coherence.

Which parts are good?

Still, it was possible to find some good parts in The Quarters Theory. The Chapter 3 (Preparing The Quarters Theory Trades) has two useful sections — Discovering The Fundamental Edge and Identifying The Technical Edge. They both do great job at providing you with the basics on fundamental and technical analysis. They are really good, but that doesn’t mean that you should seek this book to read those sections — the information is not exclusive and is available in other books and in free learning content online.

Why is it OK to try?

Despite the lack of statistical evidence for the method presented in the books, it does not seem completely unbelievable, given the predisposition of traders to respect psychologically important levels of whole numbers. So, creating an EA that would exploit this tendency and backtesting it to see if the idea has an edge would be an interesting project. Forward-testing the whole concept of the Quarters Theory Trades on demo account might also be worthwhile, but it would take too much efforts and time in my opinion.

Should you buy it?

My recommendation is not to bother with this book. There are better books on nearly all of the aspects of trading addressed in The Quarters Theory.

If you have any questions or comments, or if you want to express your own opinion regarding The Quarters Theory by Ilian Yotov, please use the commentary form below.

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Japanese Yen In "No Man's Land." When will the BOJ Intervene to stop its rise?

This, according to a hedge fund manager that has decided to cancel all of his fund’s bearish bets on the Japanese Yen. The reason: the yen is rising, and it’s unclear when – or even if – the government will intervene to push it back down. Even though the yen’s strength is fundamentally illogical, it seems that investors are growing increasingly wary of betting against it.


As I pointed out in my previous post on the Yen (“Japanese Yen Strength is Illogical, but Does it Matter?“), the yen has actually fallen over the last twelve months, on a correlation weighted basis (though to be fair, it has staged a pretty impressive comeback since the beginning of April). Unfortunately, investors mainly care about how it is performing against a handful of key currencies, namely the US Dollar. Simply, the yen continues to rise against the dollar, and it is unclear when it will stop.

Japanese government analysis has indeed confirmed that “speculators” are behind the strong yen, as the alleged wide-scale repatriation of yen by Japanese insurance companies has yet to materialize. Of course, there isn’t really much doubt: Japan’s economy is contracting, due to decrease in output spurred by the tsunami. In May, it recorded its second largest monthly trade deficit ever.

Meanwhile, interest rates and bond yields are pathetically low, and the Bank of Japan is being urged to expand its asset buying program, which would theoretically result in a devaluation of the yen. As  a result, retail Japanese forex traders (nicknamed “Mrs. Watanabes“) have resumed shorting the Yen as part of a carry trade strategy.

Alas, speculators either don’t share their pessimism or are running out of patience. While everyone continues to assume that the BOJ will intervene if the Yen rises to 80 against the dollar, no one can be sure whether the line in the sand might not be 78 or even 75. At this point, intervention seems to hinge more on politics than on economics, which means predicting it is beyond the scope of this post. In other words, “There is too much uncertainty and volatility in markets right now to make that yen trade appealing.” And sure enough, the most recent Commitments of Traders data shows that speculators have been re-building their yen long positions over the last month.


In the end, the speculators are probably right. The Bank of Japan has intervened twice over the last twelve months, and the impact has always been short-lived. Besides, given that many speculators still remain committed to shorting the yen, it remains extraordinarily vulnerable to the kind of short squeeze that sent it soaring 5% in a single session en route to the record high it touched in March.

I’m personally still bearish on the yen, but I also think it’s too risky to short it against the dollar, which seems to be declining for its own reasons. As you can see from the chart below, the yen has fallen against virtually every other major currency. Yen shorters, then, might be wise to avoid the dollar altogether and focus instead on any number of other currencies.

http://www.bloomberg.com/news/2011-06-17/japan-recovery-means-boj-can-avoid-adding-stimulus-muto-says.html

http://cdn.socialtwist.com/2009021910542/script.jsSocialTwist Tell-a-Friend

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Japanese Yen In "No Man's Land." When will the BOJ Intervene to stop its rise?

This, according to a hedge fund manager that has decided to cancel all of his fund’s bearish bets on the Japanese Yen. The reason: the yen is rising, and it’s unclear when – or even if – the government will intervene to push it back down. Even though the yen’s strength is fundamentally illogical, it seems that investors are growing increasingly wary of betting against it.


As I pointed out in my previous post on the Yen (“Japanese Yen Strength is Illogical, but Does it Matter?“), the yen has actually fallen over the last twelve months, on a correlation weighted basis (though to be fair, it has staged a pretty impressive comeback since the beginning of April). Unfortunately, investors mainly care about how it is performing against a handful of key currencies, namely the US Dollar. Simply, the yen continues to rise against the dollar, and it is unclear when it will stop.

Japanese government analysis has indeed confirmed that “speculators” are behind the strong yen, as the alleged wide-scale repatriation of yen by Japanese insurance companies has yet to materialize. Of course, there isn’t really much doubt: Japan’s economy is contracting, due to decrease in output spurred by the tsunami. In May, it recorded its second largest monthly trade deficit ever.

Meanwhile, interest rates and bond yields are pathetically low, and the Bank of Japan is being urged to expand its asset buying program, which would theoretically result in a devaluation of the yen. As  a result, retail Japanese forex traders (nicknamed “Mrs. Watanabes“) have resumed shorting the Yen as part of a carry trade strategy.

Alas, speculators either don’t share their pessimism or are running out of patience. While everyone continues to assume that the BOJ will intervene if the Yen rises to 80 against the dollar, no one can be sure whether the line in the sand might not be 78 or even 75. At this point, intervention seems to hinge more on politics than on economics, which means predicting it is beyond the scope of this post. In other words, “There is too much uncertainty and volatility in markets right now to make that yen trade appealing.” And sure enough, the most recent Commitments of Traders data shows that speculators have been re-building their yen long positions over the last month.


In the end, the speculators are probably right. The Bank of Japan has intervened twice over the last twelve months, and the impact has always been short-lived. Besides, given that many speculators still remain committed to shorting the yen, it remains extraordinarily vulnerable to the kind of short squeeze that sent it soaring 5% in a single session en route to the record high it touched in March.

I’m personally still bearish on the yen, but I also think it’s too risky to short it against the dollar, which seems to be declining for its own reasons. As you can see from the chart below, the yen has fallen against virtually every other major currency. Yen shorters, then, might be wise to avoid the dollar altogether and focus instead on any number of other currencies.

http://www.bloomberg.com/news/2011-06-17/japan-recovery-means-boj-can-avoid-adding-stimulus-muto-says.html

http://cdn.socialtwist.com/2009021910542/script.jsSocialTwist Tell-a-Friend

Read More

Japanese Yen In "No Man's Land." When will the BOJ Intervene to stop its rise?

This, according to a hedge fund manager that has decided to cancel all of his fund’s bearish bets on the Japanese Yen. The reason: the yen is rising, and it’s unclear when – or even if – the government will intervene to push it back down. Even though the yen’s strength is fundamentally illogical, it seems that investors are growing increasingly wary of betting against it.


As I pointed out in my previous post on the Yen (“Japanese Yen Strength is Illogical, but Does it Matter?“), the yen has actually fallen over the last twelve months, on a correlation weighted basis (though to be fair, it has staged a pretty impressive comeback since the beginning of April). Unfortunately, investors mainly care about how it is performing against a handful of key currencies, namely the US Dollar. Simply, the yen continues to rise against the dollar, and it is unclear when it will stop.

Japanese government analysis has indeed confirmed that “speculators” are behind the strong yen, as the alleged wide-scale repatriation of yen by Japanese insurance companies has yet to materialize. Of course, there isn’t really much doubt: Japan’s economy is contracting, due to decrease in output spurred by the tsunami. In May, it recorded its second largest monthly trade deficit ever.

Meanwhile, interest rates and bond yields are pathetically low, and the Bank of Japan is being urged to expand its asset buying program, which would theoretically result in a devaluation of the yen. As  a result, retail Japanese forex traders (nicknamed “Mrs. Watanabes“) have resumed shorting the Yen as part of a carry trade strategy.

Alas, speculators either don’t share their pessimism or are running out of patience. While everyone continues to assume that the BOJ will intervene if the Yen rises to 80 against the dollar, no one can be sure whether the line in the sand might not be 78 or even 75. At this point, intervention seems to hinge more on politics than on economics, which means predicting it is beyond the scope of this post. In other words, “There is too much uncertainty and volatility in markets right now to make that yen trade appealing.” And sure enough, the most recent Commitments of Traders data shows that speculators have been re-building their yen long positions over the last month.


In the end, the speculators are probably right. The Bank of Japan has intervened twice over the last twelve months, and the impact has always been short-lived. Besides, given that many speculators still remain committed to shorting the yen, it remains extraordinarily vulnerable to the kind of short squeeze that sent it soaring 5% in a single session en route to the record high it touched in March.

I’m personally still bearish on the yen, but I also think it’s too risky to short it against the dollar, which seems to be declining for its own reasons. As you can see from the chart below, the yen has fallen against virtually every other major currency. Yen shorters, then, might be wise to avoid the dollar altogether and focus instead on any number of other currencies.

http://www.bloomberg.com/news/2011-06-17/japan-recovery-means-boj-can-avoid-adding-stimulus-muto-says.html

http://cdn.socialtwist.com/2009021910542/script.jsSocialTwist Tell-a-Friend

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EUR/USD Starts Week with Gains

EUR/USD started the week with gains. Monday’s session was quiet, without major events, and markets were driven largely by persisting concerns about the US-China trade conflict.

Treasury budget widened to $119.7 billion in July from $8.5 billion in June, matching forecasts. (Event A on the chart.)

On Friday, a report on PPI was released, showing an increase of 0.2% in July, matching market expectations. The index rose 0.1% the month before. (Not shown on the chart.)

If you have any comments on the recent EUR/USD action, please reply using the form below.

Posted on Forex blog.

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