A few more minutes before the market close, and last day for trading for this year. Our account is in a drawdown when carrys unwind today, dragging the bleeding US dollar after the previous recovery. Not a nice way to end the year. Well... thats part of trading.
Big thanks to everyone who has read this blog and supported our advertisers this year. wishing you all a
merry cristmas and a happy new year!
hope to see you all back here after the holidays.
Down and Out
Investment Banks Expand into Retail Forex
Forex is becoming hot! Average daily volume has surged past $3.2 Trillion, as the credit crunch has increased volatility and the Dollar has collapsed. In fact, Saxo Bank, one of the most prominent acts in retail forex trading, may record $500 million in revenue this year. As a result, several of the world's largest investment banks have announced plans to enter the burgeoning retail forex market. Citigroup is teaming up with a Danish bank to offer online currency trading. Deutsche Bank is stepping up marketing of its proprietary retail trading platform. Even Goldman Sachs is entering the fray, via a 10% investment stake in a British retail forex company.
Read More: Global banks compete for growing forex business
Thin Holiday Trading
Yesterday Foreign Exchange trading volume shrank to around a quarter of normal levels due to holiday in Japan and Christmas Eve in US, Canada, and European countries. The yen fell against high-yielding currencies as rising Asian and European stocks encouraged investors back into carry trades. The dollar reached as high as 114.46 versus the yen, and the euro climbed around 100 pips to 164.87.
The euro climbed to a fresh all-time high at 0.7288 versus the sterling on concern that UK economy is slowing down and the Bank of England may continue to cut interest rates next year. In contrast, the European Central Bank is likely to keep rates unchanged in 2008.
EUR/CHF Up or Down?
Will EURCHF trend up or down next week? Fundamental views is up while the daily chart shows mixed signal.
Carry Trade Gains Favor
It's been rough sailing for the Yen carry trade of late; the technique had been sagging in popularity due to the credit crunch and the associated trend towards risk aversion.
Over the last few weeks, however, the Yen has fallen, which is to say the Yen Carry Trade is making a comeback. First, came the announcement that the world's leading Central Banks would be injecting hundreds of billions of dollars in the banking system, in order to ease growing liquidity concerns. Next, the Bank of Japan hinted that it would hold rates at .5%, the lowest in the industrialized world. Finally, a continued surge in commodity prices virtually ensures that countries rich in natural resources, such as Canada and Australia, remain viable "targets" for carry traders.
Overall, the story remains focused around volatility. In fact, one investment bank discovered an inverse correlation between the S&P 500 and the Japanese Yen. In other words, the appetite for risk appears closely correlated with the strength of global capital markets and the popularity of the Yen carry trade.
GBP/JPY surge the whole day yesterday, while EUR/CHF trended up and made a slight corretion after hitting the upper channel that I mentioned yesterday.
EUR/CHF 12.21 Analysis
Zooming in to the 1h chart, EURCHF caught in a range within a channel. Break of the lower channel will test the previous strong support at 1.6550, thats the 61.8 fib of the 12/05/07 low to 12/14/07 hi swing. Breaking the upper channel will test the major trendline I mentioned on my earlier post.
Right now, 1h and 4h are in bear bias with 72EMA so flat showing to clear direction. Daily chart showing a possible bull forming, but Stoch and CCI curved up at the middle of OB & OS, which makes me hesitate to conclude a bull. 1h to daily ADX shows no (low) momentum since monday. I will still stay aside while holding some drawdown positions.
This next analysis has nothing to do with true north hedge trade. Just pointing out how to use the template I sent out to our members. 
NZDUSD dailies is also within a uptrend channel. Stoch & CCI about to crossed up. Price having a hard time breaking the lower channel. If broke, target would be the 50% fib (.7290). Enter at 0.7420 confirmation, set SL at the lower channel.
However, if price bounced from the lower channel. Set entry at 0.7640 with TP at the upper channel, SL at 0.7420. This is a long term trade which moght take days to reach the target. Trade it at your own risk. Not recommended to included this trade with your hedge trade account.
ECB Pumps Record Liquidity into Market
The ECB announced that it would offer unlimited funds at below market interest rates in an effort to preempt a credit crunch heading into the end of the year. The bank confirmed it had allotted 348.6 billion euros at 4.21% to pump into the financial system, if deemed necessary. The move is another sign that last week’s coordinated intervention was deemed insufficient by the ECB to free up credit markets and deter a liquidity crisis.
The euro edged back above the 1.44-level against the dollar in a directionless session as liquidity winds down heading into the end of the year. The single currency is likely to remain under pressure as the dollar remains buoyed amid widespread position squaring and overall reassessment of the extent to which the FOMC will be able to ease rates over the coming months – given stubborn inflationary pressure in the US.
Trading conditions will likely remain thin heading into the year-end holidays, with a bias towards a higher dollar as traders close their books. Nonetheless, volatility could also pick up given the thinning liquidity.
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