Here’s How to Trade Forex Like a Veteran Trader!
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How to Trade Forex Like a Veteran Trader – Market Update
The dollar gained on Monday as investors looked for direction ahead of policy decisions due from the Federal Reserve and Bank of Japan this week, while the yen held steady after posting its best weekly gain since late April as shifting interest rate expectations and a sell-off in stock markets lifted it off multi-decade lows.
The dollar index, which measures the currency against the yen and five other major peers, added 0.22% to 104.59. The euro was down 0.35% to $1.08175, and the pound dipped 0.31% to $1.2827.
The dollar last stood flat at 153.80 yen after losing as much as 0.49% to the cusp of 153 earlier.
Markets have been closely watching the upsurge in the yen since the beginning of the week, with soaring bets of Bank of Japan rate hike this week helping to prop up the currency. The U.S. Federal Open Market Committee (FOMC), as widely expected, will keep rates on hold this week but is likely to cut them by a quarter point next meeting in September.
The Fed calls would be a risk for the dollar/yen pair, said Kristina Clifton, senior economist and chief currency strategist at Commonwealth Bank of Australia. ‘Hawkish comments from the Fed will have little impact on USD/JPY Fed loosening will likely pull the pair down quite a bit,’ she added.
Data released on Friday showed that investors had pulled back sharply on their bets against the yen, which was at a 38-year low at the start of the month. “Sentiment remains fragile,” said Shinichiro Kadota, a currency and rates strategist at Barclays in Tokyo.
“Ultimately, U.S equities are still the key,” Kadota said, referring to the scramble for safe-haven currencies such as the yen seen during last week’s stock market rout. “Market moves have been led by US equities, and we need to see if things stabilize there.
The US earnings calendar this week is full of heavyweights, from Amazon to Apple, Meta to Microsoft. Investors were on tenterhooks about further geopolitical shocks too, with Israel mulling a response to a rocket strike that killed two people in the Israeli-occupied Golan Heights, which Israel and the United States blamed on the Lebanese armed group Hezbollah.
Currency traders have not just the BOJ and the Fed to contend with on Wednesday, but the Bank of England a day later.
Sterling fell ahead of the BoE meeting with traders pricing in a roughly 50/50 chance that the Bank will implement the first rate cut in 11 years. British bond yields fell on Monday, dragging down the pound.
Meanwhile, the Australian dollar fell slightly to $0.6542 away from the previous day’s low of $0.65105, a level not seen since the beginning of May.
The leading cryptocurrency, bitcoin, rose 3% to $69,540, helped by comments from the Republican presidential contender Donald Trump, who told a Bitcoin conference on Saturday that the US should dominate the sector or risk China doing it.
Hundreds of economists polled by Reuters are becoming more optimistic about the global growth outlook this year and next, though they continue to tilt risks toward higher inflation even as they cling to their interest rate-cut forecasts.
Most of the world’s major central banks last year brought soaring price pressures back down with a burst of rapid rate hikes, though those moves were accompanied by a strong global economy and a nearly 30-year high in employment.
That, and continuing tight labour markets, have kept the risks for a resurgence of price pressures alive.
Overall, a 56% majority of economists – 114 of 202 who responded to a question about inflation in the global poll of nearly 50 leading economies taken July 8-25 – said they thought that prices were more likely than not to be more than they forecast for the rest of the year. Same with rates.
The world economy is forecast to expand 3.1% this year and next, up from 2.9% and 3.0% respectively, in an April poll and about in line with the International Monetary Fund’s latest forecast. Still, with that upgrade, some 19 of 26 central banks are seen by economists polled by Reuters cutting rates at least twice by the end of the year.
‘I think, the big story here, is that growth globally has sort of managed to keep grinding ahead … the global economy has managed to hang in there in the face of a lot of stresses and strains and of course the major tightening cycle of the past two years,’ Douglas Porter, chief economist at BMO Capital Markets, said. ‘It’s still growing a little faster than 3% despite a very wide variety of challenges … Our call is for growth to hang in there in the neighborhood of 3% through the second half.
That optimism contrasts with fears as recently as this spring that the US economy wouldn’t be able to withstand such an aggressive season of tightening without a downturn – though concerns about No 2 economy China continue.
The growth projections for 24 of the 48 economies surveyed were higher than they were three months ago, with 13 of those coming from developed economies – where growth has been hamstrung by fears of stalling demand – and the other 11 in emerging ones.
Seventeen economies had their growth projections marked down and six were left unchanged. Nonetheless, among the surveyed central banks, economists say they expect the Federal Reserve to lower rates twice this year and the Bank of England two times.
The European Central Bank is set for three rate cuts, the survey shows.
Meanwhile, forecasters have been more consistent than financial traders and investors. Very aggressive market pricing for rate cuts at the start of the year retreated from six Fed cuts to one or two most recently and is now back up to three.
With growth holding up for now, inflation will still likely be the main driver of how low rates can go and when. Even now, a clear majority of central banks – 19 of 27 with an inflation target – were not expected to hit it by end-2024. ‘Risks are building … in global core goods prices, where shipping costs are now nearing 2021/22 highs,’ said James Rossiter, head of global macro strategy at TD Securities.
‘We don’t expect as big a boost to inflation this time around … But the threat of higher core goods inflation could ultimately reduce any offset to sticky services inflation and slow rate cuts.
Among those asked which of the three components of core inflation will be the most sticky by the end of 2024, 56 of 104 (54%) voted for services, followed by 30 who picked shelter and rents, and 18 others.
When asked which of interest rates, services price inflation, or shelter/rent inflation will be higher by the end of 2022, 46% (131 of 220) said the interest rates, compared with 39% who said services price inflation, and 15% who said shelter/rent inflation.
Asked if the Fed has already overtightened monetary policy (and set the stage for recession), a 60% majority – 131 of 220 – said the Fed had already overtightened monetary policy (and set the stage for recession), compared with 31% who said the Fed still needs to tighten more.
Asked if the Fed should allow the unemployment rate to increase, or if it should assume that people will increase their working hours to make up for higher prices, a 61% majority – 132 of 217 – said it should allow the unemployment rate to increase, compared with 18% who said it should assume people will increase their hours worked.
Asked if the US has entered, or is about to enter, a recession, a 55% majority – 110 of 200 – said yes, the US has entered, or is about to enter, recession, compared with 18% who said no.
How to Trade Forex: Understanding Market Dynamics
If you want to trade forex like a professional, you need to understand the market. Every day, the forex market is influenced by the latest economic data, geopolitical events, and central bank policies. If you’re aware of these factors, you can make better trading decisions.
How to Trade Forex: Analyzing Economic Indicators
Whether you’re talking about GDP (gross domestic product) growth rates, employment figures, or inflation, forex trading is all about economic indicators.
Economic indicators are the best reflection of a country’s economic health or well-being, and the currency value will be influenced by economic factors. This is why forex trading is so complex.
You need to learn how to trade forex by analyzing what these indicators mean and interpreting the market movements in the right way. For example, if a country’s GDP growth rate is higher than expected, that’s likely to make the currency rise in value. If unemployment rates have gone up, then the currency is likely to depreciate.
How to Trade Forex: Utilizing Technical Analysis
One of the main tools forex traders want to use is technical analysis. By drawing lines on price charts, such as trendlines or support and resistance levels, and using technical indicators like moving averages, RSI (Relative Strength Index), Bollinger Bands, and many more, traders can spot trends and potential entry and exit points.
If you want to learn how to trade forex with technical analysis, you should learn how to combine different technical indicators to confirm a potential trade setup. This will help you avoid a so-called “false signal”.
How to Trade Forex: Implementing Risk Management
- Proper risk management is important, so make sure to place stop-losses to limit your potential loss on a trade and also use proper position sizing to control your capital without letting one trade wipe you out.
- Make sure to calculate your risk-to-reward ratio for a trade to see if the trade works for your trading plan.
- Remember, in forex trading, each trader has their own plan so there is no one-size-fits-all approach.
- Trading forex profitably is never easy, so you should never forget about cutting your losses and letting your profits run.
- Trading conditions can change unexpectedly, so it’s important to prepare for them.
- Lastly, the best traders are lifelong learners.
How to Trade Forex: Choosing the Right Broker
Another key element in knowing how to trade forex is choosing a worthy broker. Look for brokers that offer tight spreads, reliable trading platforms, and a responsive customer support team.
Your broker should also be regulated by a respected financial authority. Know how to trade forex by picking a broker that’s suited to your trading style and needs. Make sure that your broker’s leverage options, as well as the deposit and withdrawal process, sync up with your trading needs.
How to Trade Forex: Developing a Trading Plan
A trading plan is the backbone of forex trading. Your plan is a document that must contain your trading goals, risk tolerance, and trading strategies. It helps you keep your trading disciplined and prevents you from emotional trading. It is the most important step in how to trade forex.
It is better to keep a living trading plan that you update daily according to the market changes you experience.
How to Trade Forex: Staying Updated with Market News
It is essential to keep up with the latest news on the market and follow all the events that may affect the forex world. At VPTrade, you can receive free real-time news updates, analysis, and trading signals.
Trading forex means that you must be aware of all the market developments, that may influence the price of the currencies. Make sure that you follow financial TV channels, check economic calendars, and are a member of forex trading communities.
How to Trade Forex: Practicing with Demo Accounts
A good idea is to practice on a demo account. Most brokers will give you a demo account, usually for free, so you can practice trading and really get used to what you’re doing and the way the platform works.
It is possible to improve your trading skills by practicing on a demo account and using the strategies you’ve discovered.
Disclaimer:
The information presented herein have been prepared by VPTrade and does not intend to constitute Investment Advice. The Information herein is provided as a general marketing communication for information purposes only.
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and education purposes. Personal Opinion of the Author does not represent and should not be construed as a statement, or an investment advice made by. Recipients of this information should not rely solely on it and should do their own research/analysis. Indiscriminate reliance on demonstrational or informational materials may lead to losses. Past performance and forecasts are not reliable indicators of the future results
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