Value Exchange

FOREX SIGNALS – MACROECONOMIC INDICATORS

Not all FOREX signals are directly related to currency exchanges. However, the macroeconomic indicators are a particular type of FOREX signals that are very useful as part of analysing the health and well-being of a particular country’s currency in relation to their economy.

There are twelve main FOREX signals that are included as macroeconomic indicators. Each FOREX signal gives different information about the sectors concerned and can determine potential trends in the FOREX market. These indicators include:

GDP (Gross Domestic Product) – major FOREX signal that reflects a country’s economic state, measuring its expenditure totals on recently made goods/services, plus any profits made by their production (foreign or otherwise)
GNP (Gross National Product) – major FOREX signal showing a country’s total permanent residents’ income, measuring goods/services made only within that country by its residents across the planet
new durable goods orders – major FOREX signal, measuring a country’s manufacturing strength in durable types of goods (life of 3+ years). Can include appliances, cars, cranes, buses, factory made parts and airplanes
retail sales indicator – a major seasonal FOREX signal that is released monthly only, measuring a country’s retail stores’ successes and consumer spending strength
building permit indicator – a major FOREX signal that is released monthly only, measuring how much construction is occurring in a country
construction spending indicator – a major FOREX signal that is released monthly only, measuring how much construction is occurring in a country
housing starts indicator – a major, monthly issued FOREX signal, measuring how many new homes are planned to be built within a country
new home sales indicator – a major, monthly issued FOREX signal, measuring how many new homes have been sold within a country
existing home sales indicator – a major, monthly issued FOREX signal, measuring how many existing homes have been sold within a country
home price data indicator – a major, monthly issued FOREX signal, measuring the values of homes within a country
home sales data indicator – a major, monthly issued FOREX signal, measuring the overall sales of all types of homes within a country
stock prices – a huge FOREX signal, measuring the movements of prices within a country and the overall total value of a country’s combined corporations and businesses

EUROPEAN DEBT SENDS CANADIAN DOLLAR TUMBLING IN FIRST WEEK OF MAY 2010

European debt has everyone on the edge of their seats, watching the chaotic demonstrations held in Greece this week and the amazing tumble that the Canadian dollar has taken in the first week of May 2010. In fact, the chaos is as intriguing as it is disturbing. Greece, a country so far away from Canada, has spiralled into violence and chaos, its economy crashing around its ears as the decision for the bailout package for its huge debt is debated, leaving little room as the day of reckoning closes in.

The CAD loonie has hit the lowest level in the past two months as Europeans hurriedly buy US dollars to booster their finances. Not that this is doing much for the Euro either, which is wavering like a top on the edge of a very high table. This week, the CAD loonie moved down to $0.9658 US, dropping just about 1 cent US from its Tuesday closing price of $0.9756. In contrast to the Canadian dollar, the Euro has been dropping so much against dollar (US) that fears of Greece’s sufferings spreading to other nations with debts has caused a contagious fear across most of the EU, even some other parts of the world. In fact, the Euro dropped to a fourteen month low.

The CAD had been in parity with the US dollar over the past month, gaining as much as fourteen cents on the US dollar during the last year. However, its weakening trend in the last couple of weeks has encouraged Europeans to run to the US dollar for safe haven.

It is apparent that many Europeans are dumping any Euros that they have, fearing that all will be lost. This fear has shown that clearly many Europeans do not have the faith or loyalty to the Euro as once believed. However, the switch to buy US dollars in preference to CAD dollars has hurt the CAD dollar somewhat, though it is believed that the CAD will eventually reach parity again with its American neighbour.

What is the greatest irony in the debt threatened European Community is that everyone is running to the US dollar which itself has been part of a very shaky American economy. One has to ask politely of course, why the Europeans chose a currency that was once a major benchmark for world currencies in preference to more stable Canadian dollar? Is this why European debts in Greece and other debt ridden countries have occurred in the first place?

THE IMPORTANCE OF FOREIGN CURRENCY EXCHANGE PAIRS

You are no doubt aware of the foreign currency exchange pairs, two sets of currencies set against each other on the FOREX market. However, you may not be familiar with the vital role that they play in FOREX trading.

As you know, the FOREX market gives you a series of pairs with exchange rates beneath them with indicators to sell or buy for FOREX trades. These FOREX currency pairs can be sold or bought depending on which way the rates are going or which one is gaining strength against the other. If you do not look at it just as gaining strength, but learn to do FOREX trading even if a currency is getting weaker, you will soon discover why the most successful FOREX brokers make money whether you lose or make funds yourself.

It may be hard to comprehend, but FOREX currency pairs are in fact one unit. They are paired up as competitors to be sold or bought as a pair, not separately. The most important FOREX currency pairs on the foreign currency exchange market include:

EUR/USD
GBP/USD
USD/JPY
USD/CHF

On the foreign currency exchange market, within each FOREX currency pair, the first currency or base currency always equals 1 and the second currency, quote or counter currency shows the FOREX rate that indicates how many of the single base currency units you can buy. In actual fact, all FOREX currency pairs are quoted and/or traded with ask and bid prices. The bid price is the one that the FOREX broker is willing to purchase that currency at. The ask price is the one that the FOREX broker is ok with selling it at.

The base currency is also called the primary currency in any FOREX pair. If you see CAD/USD, then the CAD is the base currency, equalling 1 and the USD is the quoted currency with a rate set for exchange. In fact, the major currencies used for base currency positions include the Euro, British Pound and US Dollar. The major quoted currencies include the US dollar, British pound, Euro, Japanese yen, Swiss franc and the Canadian dollar.

If you want to be successful with your FOREX trading, you have to know which currency pairs to select. You will also have to have experience to understand whether to sell, buy and even play one currency pair or more.

FOREX INDICATORS – THE NUMBER THEORY

FOREX indicators come in many forms, but the most famous and widely used are those based on the number theory. In fact, you will find that most FOREX traders refer to the number theory on a regular basis, enabling them some chance of success with their FOREX trades.

There are two types of number theory type FOREX indicators, including the Fibonacci numbers and the Bollinger Bands. You will need to learn how to read them and analyse them to have any chance of understanding how they work.

The Bollinger Bands refer to prices found inside of the space between the upper and lower types of bands on FOREX charts. The spacing is a volatile place where price rates can fluctuate. During high volatility times, FOREX traders widen the bands to allow a bit of breathing space. FOREX currencies are sold when the FOREX prices move above the upper band and are sold when they move below the lower band. These are sometimes combined with other analytical tools such as the rate of change, CCI, MACD and RSI indicators.

The Fibonacci numbers are levels of sequenced numbers that refer to cycles of pullbacks appear in the FOREX market. These are some of the most effective FOREX indicators which can allow you to see further ahead. You can anticipate trend and price changes on the FOREX market. Usually, after moving up or down, the price concerned will go over its old route. As this is retraced, resistance and support levels usually appear near the Fibonacci levels. However, FOREX trading with these levels is very different from other types of FOREX trades.

Though both the Bollinger Bands and the Fibonacci numbers are used commonly by beginner to expert traders, they are not to be just taken lightly. It takes plenty of practice to understand how to read them and most critically how to analyse the information that you are seeing as a result of them being there.

If you are going to do FOREX trading, learning how to use these two FOREX indicators will benefit you greatly. Understanding how to use them and being able to apply them may take time to learn, but in the end you can master these incredibly good FOREX signal indicators.

HOW DO FOREX PIPS HELP YOU MAKE PROFITS?

FOREX pips can help you make FOREX profits whilst trading on the FOREX market. In fact, many people are unaware when they use automated FOREX robots that these robots are in fact programmed to evaluate pips as part of their analysis and make decisions not based on profit potential, but the pips themselves. In a sense, FOREX trading ignores the financial gains which is ultimately the main goal of FOREX trading, but focuses instead on the technical aspects of trading, including how FOREX pips can and will eventually make them nice profits.

You should not be fooled by the firms that claim to give you ridiculously high pips when everyone else is offering far less than this. Frankly you should just walk away and find another FOREX broker. The reality is that you have to get a FOREX account that is designed differently from other FOREX trading accounts in order to trade in pips. In fact, you will find that you will also be faced with leverages that are very different from what you may be used to and will have a much different type of margin.

FOREX pips or FOREX price interest points affect your losses and profits. When your FOREX trade goes the wrong way and your pip value is about $5 US, if your leverage is high then you might be able to regain back any losses. Plus you have to remember that your FOREX broker is supposed to help you make profits. As many FOREX brokers came to understand, that offering leverages that were high actually drew in more clients, but for you, you do not necessarily have to use this.

If you are new to FOREX trading, you will be wise to figure out what margin of capital you can safely lose for a trade to begin FOREX trading. You should really only deal with leverage that is 5:1 to begin with as your experience is not good enough to handle the usual 100:1 and other high leverages that many FOREX brokers will offer you.

Just remember when using pips to do FOREX trading for profits, leverage is your real key to making the entire process work successfully. Starting with a high level of leverage as a new FOREX trader is highly risky and usually the main reason for a novice to fail. If you are using a FOREX robot trading system, you are scalping for pips which is actually a safer method of FOREX pip trading. Therefore, you should take it slowly and get used to building you leverage slowly as well until you can safely do your FOREX trading without losing everything you have.

WHICH MARKETS DOES THE FOREIGN EXCHANGE RATE APPLY TO?

There are three main markets that the foreign exchange rate applies to. In fact, the FOREX market’s ties into this enable businesses, governments and countries to import and export, as well as carry out trade across the world.

These markets that use foreign exchange rates for currencies trades in the FOREX market include:

the spot market – fastest currency transactions in worldwide markets, involving immediate FOREX payments at the foreign exchange rate at that very second; this rate is also known as the spot rate; the FOREX spot market involves about 1/3 of all FOREX currency exchanges and FOREX trades
the futures market – slowest currency transactions in worldwide markets, involving the FOREX foreign exchange rate agreed to apply to payments to be made at a future agreed to date; agreement elements for contracts are non-negotiable and set in stone
the forward market – fairly slow currency transactions in worldwide markets, that involve negotiated terms between two FOREX parties to suit the requirements of both; very flexible, involving currency swaps for agreed upon time periods and then swapped back once the contract ends

The type of people that get involved with these include foreign exchanges, commercial banks, market leaders, centralized banks, FOREX brokers, FOREX speculators and FOREX traders. In fact, all of the trades made for these markets using foreign exchange rates in varied stock exchange buildings around the world. Many of them are in fact located within the major financial cities of each world country. There is no single governing stock exchange and trading on all the markets is estimated to be around one hundred and eighty billion US dollars per day with most of the FOREX transactions taking place via computer or by phone.

Though exchanges run on business hours, closing at the end of a day, FOREX transactions with foreign exchange rates for the varied markets keeps going 24 hours a day. Major stock exchanges that handle these transactions are found in New York, Hong Kong, Frankfurt, Singapore, Tokyo, Paris and London.

FOREX RATES – EFFECTIVE EXCHANGE RATE

There are many different FOREX rates that can affect the overall value of a currency. One such FOREX rate is the effective exchange rate.

The effective exchange rate is also known as the trade weighted index. This FOREX rate is multilateral and measures averages for the combination of FOREX currencies and home exchange rates in relation to each country’s share of this in relation to trade. It takes your average home price relative to your average trading partner’s goods price. This is then divided up into the relevant portions that relate to an individual country.

This type of FOREX rate is an instrument used economically for the comparison of exchange rates against other trading partners’ exchange rates. In essence, the portion belonging to trading partners constitutes a huge section of any country’s economical imports and exports. It is also used in the FOREX market for comparisons between one currency and another. It provides better analytical information about currency pairs.

Basically what these FOREX rates do for you is allow you to see when a currency is becoming more popular and valuable. Therefore the general rule is that as the effective exchange rate rises for a currency, the more that currency is able to buy from another trading partner. If this FOREX rate goes down, then the currency concerned loses value and cannot buy as much from another trading partner.

Using FOREX rates like these can enable you to make better and more concrete decisions about which currency pairs to buy and sell. Though the effective exchange rate is not a guarantee of you making any profits on the FOREX market, it can help you decide whether to buy or sell and which currency pairs to focus on.

HOW TO CALCULATE THE FORWARD FOREX EXCHANGE RATE

Learning everything you can about the FOREX market and FOREX trading involves being able to calculate the forward FOREX exchange rate. Though you may rarely use this calculation, it is useful to know as it will give you another edge on successfully planning your FOREX trades.

Firstly, you need to understand that the forward FOREX exchange rate is the rate by which you are able to exchange your chosen currency for another one at a predetermined date in the future for a specific price. Basically future refers to a transaction’s date of maturity. A comparable example can be found if you apply for a mortgage to buy a house and when everything has been calculated by your bank, or alternative lender, you will be given agreed to rates on your principal loan that will be payable in the future for a certain agreed to price, whether it is next week or in 40 years from now.

If you are able to do FOREX futures trading, you will find that understanding this calculation is essential for planning your agreed to trades. In fact, you will get involved in using a FOREX forward exchange contract or FEC. This will allow you to keep the FOREX rate agreed to now for until your allotted time finishes, whereby you will have to deliver on the payment at that rate on the prescribed date.

To calculate the forward FOREX exchange rate, you will have to adjust the existing FOREX rate or spot rate into forward type points. You will account for the maturity time length and the interest rate differences between the currencies within a pair that you have chosen. The forward type points are calculated based on a FOREX industry standard formula. In essence the forward points are the difference between the spot FOREX rate and the forward FOREX rate.

Forward FOREX Exchange Rate Calculations

Legend:

F = forward rate

S = spot rate

r1 = simple interest rate of the term currency

r2 = simple interest rate of the base currency

T = tenor (calculated according to the appropriate day count convention)

To calculate the forward FOREX exchange rate, use this calculation:

F= s [(1 + r1) ÷ (1 + r2)]^T

Then, use this calculation to find the forward points:

F – S = S {[(1 + r1) ÷ (1 + r2)]^T – 1} ? S (e^{((r1 – r2) T)} – 1)

HOW TO CALCULATE FOREX RATES

To learn how to calculate FOREX rates, you need to understand first that currencies are the bread and butter, the spinal chord of the FOREX market. They float freely, but are influenced by demand and supply, providing a unique type of investment for FOREX traders and investors who speculate about currencies’ exchange rate movements.

Each currency on the FOREX market comes in groups or pairs. Each country’s currency get measured up against that of another. The FOREX exchange rates can affect both producers and consumers of goods within a country as each one trades goods and services with other countries. Usually, most people get involved in the FOREX market by daily foreign exchanges whereby the current FOREX rates are used when they make simple store purchases on goods that were made overseas.

You can learn to calculate FOREX rates very simply. For example, if you are a Canadian and you are planning to do business with an American firm, once you get paid by that firm, that firm will pay you in US dollars. However, in order for you to receive your money, you have to have that money sent to you, converted into Canadian dollars and then deposited in a bank, for example. However, this entire series of FOREX transactions do not just magically take care of themselves. Careful FOREX calculations have to take place.

First, if the US firm pays you $10 US and the rate of exchange for selling the US dollars to get Canadian dollars is 1.3400 for example, then you must take that rate and multiply it by the amount of US dollars:

1.3400 x 10 = $13.40 CAD

However, you have to also consider that even if you have established what you will get in Canadian dollars after using the FOREX rates available, that other fees are applied as the FOREX transactions take place. Normally, the FOREX rates quoted by a country’s main bank are based on the average FOREX rate for that day of FOREX trading with that currency pair. Then, in order to make money themselves, your bank would take off up to 4% in fees. Therefore, you would take the $13.40 CAD and multiply that by 4%, which would equal $0.54 CAD. You then subtract that fee from your total and this would give you $12.86 CAD.

Though learning to calculate FOREX rates is useful in some cases, really it is better to leave it up to a FOREX rates calculator. You can find one on most major banking and FOREX websites.

FOREX SIGNAL BREACHES

When you start learning about FOREX trading, one of the things that you must become familiar with as a FOREX trader is FOREX signals. In fact, you need to learn to recognize what FOREX signal breaches are.

FOREX signal breaches are produced when certain FOREX signals price patterns that are found on FOREX charts begin to develop over a period of time in a price type of action. Varied examples of such FOREX signal breaches include:

breaching the head neckline of a formation
breaching the shoulders of a formation
breaching the double top of a formation
exceeding range defined consolidation lines
exceeding triangle defined consolidation lines
exceeding flag pattern defined consolidation lines
exceeding pennant pattern defined consolidation lines
breaching trend lines

When a trend line is breached, the resulting object of the price related to a FOREX trading signal are clear-cut. Normally, the price action that is found inside of a FOREX trend can be found between 2 parallel type lines that are seen between the peaks and troughs of that action, showing a clear channel. If the price action breaches that channel in a direction that is clearly opposite to that of the FOREX trend, then the FOREX trend is ended. As a result, the breaks prompt eventual range type FOREX trading as the price action begins to consolidate a reversal of that FOREX trend or new directional type movements. Thus the object of the price in the FOREX trading signal equals that of the channel’s width that the price action was formerly traded within.

These FOREX signal breaches can be analysed in many ways. They can identify given areas on your price chart whereby you will find that selling and emerging trends will being to emerge. These are commonly known as resistance lines and support lines. Normally, as a FOREX trader, you would put in FOREX trading orders that are ahead of any support lines and any selling type orders in a position that is ahead of any resistance lines. This would be a key component of any FOREX trading strategy.