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ShadowTrader FX Weekly is a your weekly scoop on all things Forex, with fresh content catering to both the experienced F/X trader and those just starting to get their feet wet.
Every Sunday, the FX Weekly provides you with three unique and important pieces of information in an easy to read, newspaper type format. ShadowTrader Pip Academy is a weekly online lesson where traders will learn the basics of the Forex market, technical analysis, and fundamental analysis as it applies to trading currency.
ShadowTraderPro FX Trader Live Call of the Week will highlight an actual trade taken in the newsletter over the past week and recap the setup and successful execution of the trade from start to finish.
Things You Should Give a Pip About is a look at ahead at news and markets that you should be paying attention to in the coming week to improve your chances of success.
We hope you will enjoy and benefit from this free, weekly newsletter. If you are not yet subscribed to our daily report, the ShadowTraderPro FX Trader, you may subscribe here for $20 per month.
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ShadowTrader Pip Academy
Basics of Forex (VI) - Major Market Correlations.
Every one of the major economies have a specialty or something unique that sets them apart. As an example, a country like Japan depends on exporting goods, has very little in natural resources, and is specialized in electronics and automobiles. Because of this correlation, we can link some of the yen's strength to the Nikkei (the Japanese equivalent to the S&P). When exports are high and there is high demand for the countries goods and services, the yen strengthens and so does the stock market reflecting the successful businesses providing those goods and services.
The other major market correlations we are going to focus on in our reports are listed here:
The British pound and oil: British Petroleum (BP) accounts for 10% of the country's GDP. When BP is doing well, so does the country and the demand for pounds rises, increasing the strength and price of the pound.
The Australian dollar and gold: Australia is one of the world's largest gold mining countries. Gold accounts for 11% of the country's commodity exports. When gold rises so does the demand for Australian dollars and the value of the aussie rises.
The Canadian dollar and commodities: Canada is a commodity rich country, selling almost half of its goods to the U.S., Japan, China, and Mexico. When commodity prices rise, the currencies of purchasing countries are converted to Canadian dollars more and this increases demand and price of the Canadian dollar.
The Swiss franc and the banking sector: Estimates show that 60% of the worlds wealth touches a Swiss bank at one point or another. The more money that moves to Swiss banks the stronger the banks and in turn the stronger the Swiss franc.
There are other correlations that we will discuss in the weeks and months to come. Correlations move in and out of favor and understanding this allows a trader to be more prepared for the next move.
See you at the Pip Academy next week for Economics of Forex (I) where we discuss Purchasing Power Parity.
All FX Weekly Pip Academy lessons are always archived here.
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ShadowTraderPro FX Live Call of the Week
The trade of the week is one that is not closed yet. This trade may even look like we missed a better entry but we don't see it that way. Going into nonfarm payroll, we had anticipated a lot of volatility both Thursday and Friday. We looked at daily charts and calculated the potential target for a break out of the wedge pattern that had formed over the past few months. Rather than be faked out and caught in a bull trap on Friday, we put our entry point at 10% of the potential 800 pip target, above our resistance level. Our subscribers were triggered long on this trade at 1.3485 on May 8th. This requires us to be patient in the days to come; it could take over a week for this trade to reach the target. If it doesn't reach that height, we will manage our way out of the trade. If it does, it will be well worth the wait.
As of today, our trade is up 147 pips and our target is still on the horizon.
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Things You Should Give a Pip About
If you were willing to drill continually down deeper and deeper to the core of what drives the value of currencies, you would probably find purchasing power parity at the core of it. We are going to discuss purchasing power parity next week in ShadowTrader Pip Academy. Without spending too much time in the content this weekend, it is enough to say that Purchasers Price Index (PPI) and Consumer Price Index (CPI) can help us as traders to know the real strength behind each currency as currencies gain and lose purchasing power as reflected in CPI and PPI.
This week there are a number of CPI and PPI reports. The trick here is to watch for longer term shifts in CPI and PPI values. You will see in the following 2 charts, some significant shifts of CPI in the past decade being reflected in price action.
If you look at these charts (both 10 year/monthly charts), you will see inflation hurts the dollars and inflation benefits commodity rich countries such as Canada.
A shift towards those commodity rich countries is happening currently.
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