Sunday, May 26, 2024

US Dollar: Quickly Becoming a Low Yielder



The surprise 75bp interest rate cut delivered by the Federal Reserve this morning brought US interest rates down to 3.50 percent, making the US dollar the third lowest yielding currency in the developed world. More specifically, US rates are now 50bp less than Eurozone and Canadian Rates, 200bp less than UK rates, 325bp less than Australian interest rates and 475bp less than New Zealand’s interest rates.

The futures curve suggests that we could realistically see another 100bp of easing by the end of the year, which would put US interest rates below Switzerland’s.  At that point, the only currency that would yield less than the dollar would be the Japanese Yen

British Pound: Ready for a Sharp Rally?

According to our Technical Analyst Jamie Saettele, the funded forex has fallen over 1,500 pips in the last few months.  No market moves in a straight line, so is it time for a sizeable Cable rally?  We think that sentiment indicators along with the patterns on the chart indicate yes…and we know exactly when we would be wrong.

Keep your expectations realistic.

Many times I hear from new traders who state that their goal is to make a certain number of pips every day. While it is important to establish goals in any endeavor, any benchmarks should be geared around your improvement as a trader and not about what you expect the market to give you. I have seen many new traders who while looking for at least 20 pips a day, end up losing big in an effort to reach this plateau. The problem is that the market environment changes to the point where there are many days where solid trading opportunities just cannot be found.

So the new trader puts on a trade that they normally would not even think about. If that trade becomes a loser, they now have to win that loss back and then another 20 pips before the end of the day. You can see how this can turn into a nightmare after a couple of questionable setups end up as losing trades in the same day. I think a better goal is to strive to be profitable every month. If you end up with $1 more in your account at the end of the month from the beginning of the month, give yourself a pat on the back for being profitable. It is a series of monthly gains that can result in big returns. But you must treat trading as a business instead of a get rich quick scheme and keep your expectations realistic.

Get in while the getting is good.

In our FX Power Courses, we always ask new traders to tell us about any potential trades they see setting up in the market.  An example would be when a currency pair, being in a strong uptrend, pulls back down to a good support level, offering a solid buying opportunity.  But too often when this happens, new traders will say that they want “to see what happens next” instead of jumping into the trade.  Naturally, we ask new traders to place these trades in a demo account, so this hesitation is not about risk.

This is about new traders who have little confidence in their trading approach.  But practicing is about identifying a good trading opportunity and aggressively getting into that trade when the setup is complete.  Don’t worry about how the trade will play out, as we are practicing how to trade, not how to be a spectator.  As the market pulls back to a support level, it is offering us a good place to buy and to keep our risk reasonable.  Since we would be placing our initial protective stop below that support level, the closer we buy to support, the closer our stop is to our entry price which means less risk.

So we want to buy as the market is testing that level instead of hesitating.  If the market rallies off of that support as you suspected and then you decide to get into the trade, your risk will be larger.  So practice identifying a trading opportunity and then get into that trade as it sets up.  Waiting to see what happens next is much more educational when you have a trade open, even a practice trade.  So don’t hesitate getting in when the getting is good.



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