Forex June Seasonality – Negative Dollar Bias

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May was a very strong month for the U.S. dollar and that was no surprise to our readers because we shared this chart at the beginning of the month showing how well the dollar performs in May.  With last month’s gains, the positive seasonal bias continued for 7 straight years but on this first day of June, we are more interested in how seasonality affects currencies in the new month.

Which is why we updated our seasonality tables --

As you can see, there’s a negative bias for the Dollar Index in June.  After strong performance in May, profit taking tends to drive the greenback lower in June.  The seasonal trends are strongest for GBP/USD, EUR/USD and AUD/USD.  However the gains in general are relatively modest with the dollar giving back only part of the past month’s moves.

Seasonal trends are important but with the Federal Reserve poised to make a major decision in June and the U.K. holding a referendum on E.U. membership -- this year’s unique factors could easily overshadow seasonal trends. With that in mind, if the U.K. votes to remain in the European Union (and we think they will), the corresponding relief rally could drive the dollar lower against sterling and other high beta currencies.

June_Seasonality

Forex: 10 Events to Watch Next Week

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Forex: 10 Events to Watch Next Week

In order of release

1. UK Consumer Price Index (Aug 19)
2. New Zealand Dairy Auction (Aug 19)
3. RBA Semi-Annual Testimony (Aug 19)
4. Bank of England Minutes (Aug 20)
5. FOMC Minutes (Aug 20)
6. HSBC China Manufacturing PMI Aug Flash (Aug 20)
7. Eurozone PMIs (Aug 21)
8. Jackson Hole Summit (Aug 21)
9. Canadian Retail Sales (Aug 21)
10. US Philadelphia Fed Index (Aug 22)

Forex: 10 Events to Watch Next Week

Australian Dollar British Pound Canadian Dollar euro forex blog Japanese Yen Kathy Lien US Dollar

Forex: 10 Events to Watch Next Week

In order of release

1. UK Consumer Price Index (Aug 19)
2. New Zealand Dairy Auction (Aug 19)
3. RBA Semi-Annual Testimony (Aug 19)
4. Bank of England Minutes (Aug 20)
5. FOMC Minutes (Aug 20)
6. HSBC China Manufacturing PMI Aug Flash (Aug 20)
7. Eurozone PMIs (Aug 21)
8. Jackson Hole Summit (Aug 21)
9. Canadian Retail Sales (Aug 21)
10. US Philadelphia Fed Index (Aug 22)

Forex – What I Like / Dislike 01.25.13

British Pound CNBC eur/usd forex blog Japanese Yen Kathy Lien

Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:

I like EUR and AUD

For EUR:
-- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
-- Strong German data means IMF and others could be underestimating EZ growth
-- ECB begins taking back liquidity with LTRO repayments

AUD
-- Sharp move lower not warranted
-- Chinese data consistently surprising to upside
-- RBA will leave rates on hold

I dislike

GBP
-- Triple Dip Recession Risks
-- Investors and central banks dumping GBP
-- Talk of EU Referendum weighing on currency

JPY
-- BoJ Easing, need I say more?
-- Yen weakness not helping trade much give territorial dispute with China
-- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
-- Incoming BoJ Gov in April could speed up open ended asset purchases

Forex – What I Like / Dislike 01.25.13

British Pound CNBC eur/usd forex blog Japanese Yen Kathy Lien

Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:

I like EUR and AUD

For EUR:
-- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
-- Strong German data means IMF and others could be underestimating EZ growth
-- ECB begins taking back liquidity with LTRO repayments

AUD
-- Sharp move lower not warranted
-- Chinese data consistently surprising to upside
-- RBA will leave rates on hold

I dislike

GBP
-- Triple Dip Recession Risks
-- Investors and central banks dumping GBP
-- Talk of EU Referendum weighing on currency

JPY
-- BoJ Easing, need I say more?
-- Yen weakness not helping trade much give territorial dispute with China
-- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
-- Incoming BoJ Gov in April could speed up open ended asset purchases

Forex – What I Like / Dislike 01.25.13

British Pound CNBC eur/usd forex blog Japanese Yen Kathy Lien

Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:

I like EUR and AUD

For EUR:
-- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
-- Strong German data means IMF and others could be underestimating EZ growth
-- ECB begins taking back liquidity with LTRO repayments

AUD
-- Sharp move lower not warranted
-- Chinese data consistently surprising to upside
-- RBA will leave rates on hold

I dislike

GBP
-- Triple Dip Recession Risks
-- Investors and central banks dumping GBP
-- Talk of EU Referendum weighing on currency

JPY
-- BoJ Easing, need I say more?
-- Yen weakness not helping trade much give territorial dispute with China
-- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
-- Incoming BoJ Gov in April could speed up open ended asset purchases

Forex – What I Like / Dislike 01.25.13

British Pound CNBC eur/usd forex blog Japanese Yen Kathy Lien

Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:

I like EUR and AUD

For EUR:
-- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
-- Strong German data means IMF and others could be underestimating EZ growth
-- ECB begins taking back liquidity with LTRO repayments

AUD
-- Sharp move lower not warranted
-- Chinese data consistently surprising to upside
-- RBA will leave rates on hold

I dislike

GBP
-- Triple Dip Recession Risks
-- Investors and central banks dumping GBP
-- Talk of EU Referendum weighing on currency

JPY
-- BoJ Easing, need I say more?
-- Yen weakness not helping trade much give territorial dispute with China
-- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
-- Incoming BoJ Gov in April could speed up open ended asset purchases

Forex – What I Like / Dislike 01.25.13

British Pound CNBC eur/usd forex blog Japanese Yen Kathy Lien

Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:

I like EUR and AUD

For EUR:
-- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
-- Strong German data means IMF and others could be underestimating EZ growth
-- ECB begins taking back liquidity with LTRO repayments

AUD
-- Sharp move lower not warranted
-- Chinese data consistently surprising to upside
-- RBA will leave rates on hold

I dislike

GBP
-- Triple Dip Recession Risks
-- Investors and central banks dumping GBP
-- Talk of EU Referendum weighing on currency

JPY
-- BoJ Easing, need I say more?
-- Yen weakness not helping trade much give territorial dispute with China
-- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
-- Incoming BoJ Gov in April could speed up open ended asset purchases

Forex – What I Like / Dislike 01.25.13

British Pound CNBC eur/usd forex blog Japanese Yen Kathy Lien

Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:

I like EUR and AUD

For EUR:
-- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
-- Strong German data means IMF and others could be underestimating EZ growth
-- ECB begins taking back liquidity with LTRO repayments

AUD
-- Sharp move lower not warranted
-- Chinese data consistently surprising to upside
-- RBA will leave rates on hold

I dislike

GBP
-- Triple Dip Recession Risks
-- Investors and central banks dumping GBP
-- Talk of EU Referendum weighing on currency

JPY
-- BoJ Easing, need I say more?
-- Yen weakness not helping trade much give territorial dispute with China
-- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
-- Incoming BoJ Gov in April could speed up open ended asset purchases

Three Simple Rules For Trading FX

British Pound

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1. Never Trade Large

In the world of FX nothing is easier than overleveraging your account. At 50:1 lever factor you are guaranteed to blow up sooner or later. In fact the whole dealing desk model, just like the casino model rests on the assumption that you will run out of money before getting lucky. The high lever factor is just like a stimulant to insure that you will crash and burn. If you day trade like me, you should never risk more than 1% of your money on a trade. So to use me as an example on a $15,000 account if I trade with a 50 pip stop then I only trade $30,000 notional per trade risking 150 bucks. Typically I trade 2 times day or about 500 times per year. If I hit 65%of my trade then I should expect to make about $3900 on $15000 basis at the end of the year. That is reality trading. Or you can always fantasize about making a million dollars from $5000 and set your dollar bills on fire every time.

2. Stay on One Side of the Market

There are only two things to do in trading -- believe in the trend or fade it. You are either a momentum trader or a mean reversion trader. Decide which one you will be from the outset. Understand the limitations of each approach, and accept the inevitable drawdowns. If you try to jump from one side to another you will inevitably get caught in a bad position, will add more money to a losing trade and will blow up your account. Guaranteed. There are only two trades to ever make -- take your setup or if you are not confident step aside. Changing your setup to chase the market is inevitably a sucker bet.

3. Be Informed by Fundamentals but Pay Attention to Technicals

Trading is all about information which is why trading on technicals or fundamentals alone is a supremely stupid thing to do. Contrary to popular perception amongst the retail traders little wiggles on a chart do not tell you where the price will go. They only tell you where the price has been. If you do not understand the big themes of the market, the key economic or political drivers of trade, if you rely solely on price action you will lose. Similarly if you trade off headline alone without paying attention to price action action you also will lose. Trading is all about being informed, which is why it is hard but also extremely rewarding.

Forex: Major Changes to Rate Hike Expectations

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Over the past 3 weeks, central banks around the world have made a number of comments that have affected rate hike expectations. On Jan 27th, I showed where rate hike expectations were at the time and since then a number of interesting changes have occurred.

First, the market is now pricing in a 25bp rate hike by the Fed in Dec. Last month, no rate hike was expected. Close to 70bp of tightening is now expected from the Bank of England, up from 50bp. The market went from pricing in 2 rate hikes from the Reserve Bank of New Zealand to one. The European Central Bank and the Bank of Canada are now expected to tighten by 75bp this year instead of 50bp. A lot can change in 3 weeks =)



Chart: BoE Inflation Report Rarely a Nonevent for GBP

2009 gbpusd forecast 2011 british pound forecast Bank of England British Pound Kathy Lien

The Bank of England’s Quarterly Inflation Report is one of the most important pieces of documents released by the central bank. The Inflation Report includes the central bank’s latest growth and inflation forecasts and frequently telegraphs their plans for monetary policy. Although the Monetary Policy Committee has not changed interest rates in nearly 2 years, they getting close to raising rates and because of that, investors are watching their every move.

The publication of the Inflation Report is rarely a nonevent for the GBP/USD. The following chart from Barclays Capital shows the rollercoaster like reaction in the currency pair days after the report is released. With the Bank of England upgrading its inflation forecast and downgrading its growth forecasts, sterling traders are as confused as ever and this confusion could turn into volatility for the British pound. The sell-off in the GBP/USD today indicates that the Quarterly Inflation Report was not nearly as hawkish as investors had hoped but many economists are still looking for the BoE to raise rates this year. In the short term, the less hawkish tone of the report could lead to additional position adjustments in the GBP but in the long term, the GBP is still headed higher because the BoE remains at the verge of raising interest rates. There is no question that the U.K. central bank will tighten before the Federal Reserve.