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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
Economics of Forex (I) - Purchasing Price Parity.
Purchasing price parity is arguably the largest component when valuing currencies. Thought this is an extremely involved topic, which most only receive a precursory view in most collegiate economic classes, we will only teach the principle and how it ties into the forex markets.
Simply put, a currency's value is tied directly to what it can purchase. This is to say when a currency can buy more goods than another currency it is more valuable. When a currency diminishes in its ability to purchase goods, the value relative to other currencies diminishes as well. There may be some that will argue future expectations and the safety of individual currencies comes into play. Though this is true, the domineering trait still is, and will ever be, the ability to buy stuff.
So how can we determine which currencies are going to be able to buy more than others in the future? We can't of course, but we can improve the odds of being able to estimate future values. One of the ways we can estimate future purchasing values is by watching the inflationary numbers that are derived from Consumer Price Index and Purchasers Price Index. As CPI and PPI rise, this is an indication of inflation and dependant on the relative rise or fall of the inflationary numbers, we can derive from past trends and changes in the CPI and PPI numbers, the current relative Purchasing Power as well as estimate whether the changes will continue or not.
See you at the Pip Academy next week for Economics of Forex (II) where we will discuss Consumer Price Index.
All FX Weekly Pip Academy lessons are always archived here.
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ShadowTraderPro FX Live Call of the Week
The trade we are calling the trade of the week was not a highly profitable trade, rather it was a well placed trade and demonstrates the ability to be agile and flexible in our views.
The GBP/USD set up was a breakout of a bearish pull back in an overall bullish trend. We entered our long trade at 1.5160 on May 13th and felt we had a pretty good trade opportunity. Volatility pushed us well in to profitability but also set us up for a fall. We tightened our stops at a key support level and waited. Instead of being ecstatic about a highly profitable trade, we were OK with being stopped out with a 30 pip profit only to flip our sentiment and take the trade short on Friday, May 15th at 1.5225.
The extra great thing about the reversal is we timed it well and entered the short position higher than where we were stopped out of the long position, making our current short position more profitable than it would have been in a simple stop and reverse type of trade.
As of today, our trade is up 78 pips and our target is still a strong possibility.
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Things You Should Give a Pip About
As discussed in last week's edition and will be discussed further in next week's discussion of CPI and PPI, inflationary data is key to watching the fundamentals of the forex market. Add productivity into the stew and you basically have the complete picture.
This week further CPI and PPI reports are coming out as well as gross domestic product, the measure of overall production for each country.
Inflation with rises in production is acceptable and even workable. Inflation without production is dangerous and can crush a country for years and years. Gold is the number one hedge against inflation and has been since the advent of fiat currencies. Looking at past 3 years on the gold futures chart, you can see the pressure is building and bullish for gold. In fact, it appears we may be looking at an inverted head and shoulders or a double bottom, depending on how you view it. Regardless of which price pattern is seen, the potential move in gold could be upwards of $250 an ounce. Though this may be a great opportunity for the gold traders out there, it still provides opportunity for the forex traders.
USD/CAD is showing inflationary pressures as well. As inflation drives commodity prices up, the Canadian dollar strengthens as well. If gold breaks through its resistance, the Canadian dollar will likely be able to push the U.S. dollar through support. A break below support at 1.15 could see the pair drop back to parity (1 to 1) within the next 6 months to a year.
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