A well done Wall Street Journal article about US currency fundamentals. This is a tiny excerpt:

“The Fed took a gamble on inflation to ward off what was perceived as a deflationary threat in 2001-02. The inflationary consequences of that gamble are now here, with the petrodollar monetary merry-go-round fueled by the weaker dollar. Those consequences will be much easier to deal with now, rather than later. Unlike Japan, where the capital-markets risk was concentrated in a handful of thinly capitalized large banks, the very growth of the credit-derivatives market that is the source of the current crisis in the U.S. has also resulted in a wide dispersion of risk in the financial system, and any recession will likely be mild and short.” Read more…

Smart Scan Chart Analysis shows the current downward trend is at a crossroads and has possibly ended. Look for choppy trading action in the near term Very Weak Downtrend with very tight stops.

Based on a pre-defined weighted trend formula for chart analysis, DX scored -60 on a scale from -100 (strong downtrend) to +100 (strong uptrend):

Get a Trend Analysis on any symbol from MarketClub.

Unless the world is coming to end we know two things (nearly) for certain:

(1) No trend continues forever
(2) The USD is not going to zero

Where the USD will stop its multi-year slide and begin to rally remains uncertain. The info and chart above are from MarketClub’s Trend Analysis and show that the buck is not likely to stop its skid anytime soon. For many of us who trade Forex a “long term” trend is about an hour in duration, but perhaps now is the time to also start focusing on the macro level. We showed an earlier chart relating the USD to the price of Oil. The inverse relationship also applies to Gold and every other commodity priced for international trade in USD so the value of the buck does have an immediate impact on our lives.

First starting in 2003, and repeated thereafter, the NFA issued another Investor Alert discussing the risks of trading in the retail off-exchange foreign currency (forex) market. Since that time, participation in forex trading by retail investors has increased dramatically. There are current 37 active Forex Dealer Members registered with NFA. These 37 firms hold over $800 million in customer funds.

Unfortunately, the amount of forex fraud has also increased dramatically. Since 2001, the Commodity Futures Trading Commission (CFTC) has filed 93 enforcement actions in federal court against hundreds of firms, owners and employees for defrauding over 25,000 customers who lost over $395 million in forex schemes. In addition, NFA has taken enforcement actions against a number of its Forex Dealer Members.

It is critical, therefore, that individuals who are considering participating in the forex market understand the risks associated with this product and conduct due diligence before making any investment decisions.

* Although forex dealers must be regulated, firms and individuals can solicit retail accounts for forex dealers and manage those accounts without being subject to any regulatory requirements. There are currently more than 2,000 such firms and individuals. If you are contacted by one of them, either through a telephone call, an e-mail message or a Web site, find out if they are regulated. If they are not, you may be exposed to additional risks.

* Be aware of investment schemes that promise significant returns with little risk. Be very cautious and closely monitor any investment you do make.

* Because the forex market is volatile, fluctuations in the foreign exchange rate between the time you place the trade and the time you attempt to liquidate it will affect the price of your forex contract and the potential profit and losses relating to it.

* Only a relatively small amount of money can enable you to hold a forex position for much more than the account value. This is referred to as leverage or gearing. If the price moves in an unfavorable direction, high leverage can produce large losses in relation to your initial deposit. In fact, even a small move against your position may result in a large loss, including the loss of your entire initial deposit and the liability for additional losses. For more on forex gearing see our article How To Prosper At Forex Trading - Leverage & The K-Factor

* Forex transactions are not traded on an exchange. Therefore, under the U.S. Bankruptcy Code, your funds may not receive the same protections as funds used to margin or guarantee exchange-traded futures and options contracts, which receive a priority in bankruptcy.

For additional information on retail forex trading, you should visit the National Futures Association (NFA) website.

This chart exemplifies the technique we teach in our ebook Hurst Cycle Trading Without the Rocket Math. We loaded daily data into the training software, ran the cycle finder, multiplied the shortest cycle by 10 and the chart was done. The price projection was made with the “E” tool which we explain in the ebook. The Hurst cycle trading technique can be as easily applied in almost every commercial trading platform or in Excel.

A few days ago we ran a chart demonstrating a technique from our Fibonacci ebook, also with the EURO.

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By Vadim Pokhlebkin
9/25/2007 9:24:24 PM
Elliott Wave International

“Today, the euro hit another new all-time high against the U.S. dollar.”

If this is starting to sound as routine as another report of a Baghdad car bombing, get used to it. Or, at least, that’s the consensus out there: The euro’s Daily Sentiment Index, a popular measure of forex traders’ expectations, is at 92%. Only 8% of traders expect the dollar to get stronger from here.

Why? Simple. Blame the “mounting fears over the health of the US economy, exacerbated by the housing crisis and the subsequent interest rate cut by the US Federal Reserve last week.” (The EU Observer)

It sounds like a perfectly good explanation. Until you think about it, that is – because there is one part that just doesn’t fit. Remember last month, when global financial markets – starting with the DJIA – were all but crashing? Right then, the dollar saw a surprising appreciation against the euro. Yes, in the midst of an unfolding U.S. subprime mortgage crisis – a severe economic threat – the buck rebounded. If “bad fundamentals” are really driving the dollar’s trends, how could that “worldwide rush for dollars” have taken place? (Bloomberg).

Well, it did. And the real explanation here, I think, is not in the dollar’s “fundamentals.” Because the world’s perception of the dollar as a safe-haven currency is not a rational, calculated assessment. It’s an emotional one. How else do you explain last month’s rebound, despite real prospects of a U.S. recession (or worse)?

Of course, if you accept this point of view, you must also concede that the dollar’s latest slide to new lows has also had a lot more to do with emotions than reason. And you know as well as I do that the minute the USD gets stronger, analysts will come out of the woodworks explaining how positive, in fact, the Fed’s recent interest rate cut was for the dollar – because see, lower interest rates help boost the U.S. economy in the long run. Spin it, baby.

Elliott wave traders say that probably the one thing they appreciate the most about the method is its objectivity. Unlike the Fed’s interest rate policy, the same Elliott wave pattern can never be bullish AND bearish at once. That rids your trading of an enormous amount of clutter. For example, take a look a this chart from EWI’s Currency Specialty Service daily analysis of the euro/dollar (published Sept. 25):

Tradingfives, Oct 2, 2007

The chart on the right is a price projection of the Focuser Tool from our Fibonacci training software. The price projection of where to look for resistance was made more than one month ago and may be right on target. That the Focuser is consistent with Elliott Wave results is very often significant.

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Filled with in-depth insights and practical advice, this book introduces you to a dozen successful traders-some who focus on equities, others who deal in futures or foreign exchange-and examines the paths they’ve taken to capture considerable profits.

With this book as your guide, you’ll quickly become familiar with a variety of strategies that can be used to make money in today’s financial markets. Those that will help you achieve this goal include:

Tyrone Ball: trades Nasdaq stocks almost exclusively, and his ability to change with the times has enabled him to prosper during some of the most treacherous market environments in recent history

AShkan Bolour: one of the earliest entrants into the retail forex market, he trades in the direction of the major trend, rather than trying to find reversals

Frank Law: a technician at heart, identifies a trading zone, commits to it, and scales down as long as the zone holds

Paul Willette: has mastered a method that allows him to harvest some profits right away, while ensuring that he can still benefit from an occasional extension run in his favor

Technorati Tags: Millionaire Traders, forex market

I am seeing ads for forex option trading from the Philadelphia Stock Exchange fairly frequently lately. As much as I would like to be able to trade forex options (and interest rate options) out of my regular stock brokerage account the dismal lack of volume and liquidity makes it a dangerous proposition for the small speculator. If you have ever traded XAU options on PHLX then you probably know what I mean about getting your stops run as blatantly as if by an ambulance chasing lawyer.

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At EWI’s Message Board, readers often ask us to explain various “inter-market correlations.” Here’s a recent question: “If stocks and interest rates are going down, then why would the dollar rise [as you are forecasting]? Surely, if the first two events occur, the overseas investment in the dollar will reduce, not go up, which will drag it down?” When trying to answer a question like that, you could go a couple of routes. You could consider the “fundamentals” described in the question – or, you could take a look at a couple of charts.

Elliott Wave theory is much richer than deciphering charts. In the same way that numerals are descriptive symbols of how physical things relate to each other through mathematics, Elliott Wave charts are descriptive symbols of how markets relate to the social mood of the many participants. Robert Prechter and his talented team at Elliott Wave International are the best in the business at explaining how and why markets and people fit together to shape the patterns we call the Elliott Wave.

Many forex traders, stock traders and futures traders are aware of Elliott Wave analysis but think it too difficult and time consuming to learn and integrate into their regular pattern of technical analysis. Nobody who has been trading for a living for a while has to be told that there is no such thing as a free lunch. Everything worthwhile takes time and effort and Elliott Wave analysis is not the exception. However, applying the Elliott Wave is not as difficult as you may think. There are only a few rules and guidelines to learn. Many people make it more difficult than it has to be, or expect too much from a simple technical tool. Who doesn’t want the magic bullet that is unambiguously correct 100% of the time - even when we all know that it does not exist?

Elliott Wave International (EWI) has since its inception been a tremendous education resource for the technical trader. Their educational programs are administered through Club EWI which offers free technical analysis videos, ebooks, and articles about Elliott Wave, of course, and also several other technical methods and disciplines. Both the newbie and the experienced trader looking for continuing education will benefit from Club EWI’s illuminating Elliott Wave tutorial.

At the date of this writing Club EWI is offering a free 8-minute video on Forex trading, EWI’s Chief Currency Strategist Jim Martens walks you step-by-step from identifying a possible trade setup to executing the trade, PLUS shows you how to spot one of the basic Elliott wave patterns in forex charts, and one of the ways Elliott helps you to limit your risk while trading.

Another free report teaches you how to identify trading opportunities by utilizing Fibonacci techniques and the Elliott Wave Principle. With their illustrative examples, you’ll see why knowing where a corrective move is likely to end often identifies high probability trade setups.

A free 75 page eBook promises to show you a whole new way of thinking about investing. The authors handpick five of the most groundbreaking reports EWI has ever published in the 27 year history of Elliott Wave International and compiled them into this eBook. The hard facts and price charts in these reports challenge conventional beliefs and offer explanations for market behaviors that have always been considered “inexplicable.” Normally, you’d pay over $100 for the reports contained in the Independent Investor eBook, but today you can download them free from Club EWI.

This small sample of stimulating offerings from Club EWI should inspire you. EWI’s talented writers take pride in outdoing themselves, and as much as you liked this weeks materials, next weeks will ignite as much interest and information.

It is free to join Club EWI and get unlimited access all Club EWI material. You never have to pay anything or subscribe to any of Elliott Wave International’s paid subscriptions.

Technorati Tags: Elliott Wave theory, forex traders