EarnForex.com Monthly Newsletter
| | | | Welcome to the latest issue of EarnForex.com newsletter — June 2016. In this issue of EarnForex.com newsletter, I will remind you about the most important Forex-related events of the last month and will also show you the list of the site's latest updates. | | EDITORIAL: Correlation in Currency Trading | | It is inevitable that sometime during your first days in Forex, you would start noticing or hearing about correlation between various currency pairs. In FX market, currencies are traded one against another so it is naturally prone to correlations. However, there is no magic about these correlations and they can rarely lead to some trading signal generation. Still, it is quite important to understand the basics of the correlations: - Correlation between pairs with one common currency. For example, EUR/USD is correlated with GBP/USD. Similarly, EUR/CHF is correlated with EUR/JPY. There is nothing surprising in this fact as the first two pairs have USD in them, and the second two pairs have EUR as their base currency. The strength and weakness factors that influence the common currency of two pairs will manifest their effect in both. It does not mean that EUR/USD will be always going up and down simultaneously with GBP/USD, but with stable EUR/GBP, the two pairs will depend heavily on the US dollar's moves.
- Correlation of completely different currency pairs. For example, USD/JPY could get correlated with CAD/CHF. At a first glance, both pairs are very different and should trade unrelatedly. Looking better, you would notice that both base currencies are heavily dependent on the health of the US economy while JPY and CHF are both seen as the safe haven currencies favored in times of uncertainty. Obviously, USD/JPY and CAD/CHF can move in sync when something significant happens to the US economy while global risk aversion hits either its peak or its bottom.
- Triangular correlation. For example, EUR/USD, GBP/USD, and EUR/GBP. New traders might be surprised, but those three currency pairs are perfectly correlated. If EUR/USD goes down while GBP/USD goes up, EUR/GBP is going down even faster. The trick here is that EUR/USD rate = EUR/GBP × GBP/USD. The only time when this equation might come out wrong is when your broker is experiencing some data feed issues. So, profitable arbitrage of this correlation is not possible unless your broker allows you to exploit its technical problems.
- Correlation with other assets. Currencies do correlate with other assets, particularly commodities and bonds. For example, CAD is believed to be highly correlated with crude oil, and AUD correlates with the gold price. This kind of correlation can be shifted in time — meaning that there is a potential for using it in trading. However, traders need to remember that such correlations are unreliable and might unexpectedly stop working.
The important thing is to be aware of all these types of correlation. Although it might be tempting to start using them in trading for direct buy and sell signals, you ought to remember that they are not too reliable and that they also change quite often. | | Overview of the major currency pairs' performance in May | | EUR/USD — was in a steady decline during the whole month. It was at the maximum at 1.1616 on May 3, at its minimum at 1.1097 on May 30, finishing the month at 1.1130. GBP/USD — fell initially, but then recovered to the opening levels before falling down again near the end of May. The highest monthly rate was at 1.4769 on May 3, while the lowest — at 1.4332 on May 16. GBP/USD finished May trading at 1.4479. USD/JPY — was in a strong uptrend. The pair rose to as high as 111.44 on May 30, reaching a bottom at 105.54 on May 3 and closing the month with the 110.69 rate. EUR/JPY — demonstrated a sideways movement in May. The monthly high was at 124.64 on May 12, the monthly low — at 121.48 on May 6. Trading ended at 123.18 for this currency pair. GBP/JPY — was rising in a classic uptrend. The maximum level for this pair was 163.88 on May 31, while the minimum — 153.62 on May 6. The month's trading ended at 160.24 for GBP/JPY. | | Fundamental background of the past month | | The US dollar demonstrated an amazing performance in May, chiefly due to the interest rate hike speculations. Such talks intensified after Fed chief Janet Yellen signaled that a rate hike may indeed happen in summer. The euro showed a decent, though not great, performance as well, considering all the circumstances: the ongoing issue of Greece, prospects for economic slowdown and the threat of the Brexit. Talking about the Brexit, it remains the main factor for moves of the Great Britain pound. Though now it is a positive one in a sense because the threat of Britain leaving the European Union has waned. The Japanese yen remained under the influence of prospects for interventions and monetary easing. The Canadian dollar remained relatively firm due to the continuing rally of oil prices and the neutral tone of the Bank of Canada's policy statement. The Australian dollar was strongly hurt by the surprise interest rate cut and speculations that another cut may follow. Gold had an awful month due to the Fed rate hike speculations. Even the move of George Soros towards the metal was unable to help gold in extending its rally from the previous month. | | Interest rate changes in May | | Australia | 2.00% | -0.25% | 1.75% | | Hungary | 1.05% | -0.15% | 0.90% | | Turkey | 10.00% | -0.50% | 9.50% | You can see the current interest rates by the world's central banks in our interest rate table. | | Top 5 Forex brokers of the last month | | Four new Forex articles have been published on EarnForex.com since the last issue of the newsletter: You can always browse the previously uploaded articles. | | Four new Forex brokers have been added to EarnForex.com since the last issue of the newsletter: - Hadwins — a British FCA-regulated broker with MetaTrader 4 platform, $50 minimum account size and 1:100 leverage. Only Forex instruments are available for trading.
- Xtrade — a regulated Cypriot broker with proprietary trading platform, fixed spreads, $100 minimum to start trading, and up to 1:400 leverage on Forex instruments.
- AAATrade — another regulated Cypriot broker but with MetaTrader 4 platform. The minimum account size is rather high — $1,000. Their maximum leverage and fixed spreads are nothing special.
- TraderNovo — a rather new company with an offshore registration on Marshall Islands. It offers ECN Forex accounts starting from $100, but the spreads are rather high for ECN. The maximum leverage is $100.
You can always view our full list of Forex brokers. | | There were the following important Forex industry news since the last issue of the newsletter: - France's market regulator AMF issued a public letter to the President of France, François Hollande urging him to sign a bill, which is restricting Forex and binary options advertisements, into a law. If made into a law, it will effectively ban advertisement of Forex related investment and trading products in France.
- XTB broker has completed its initial public offering (IPO) on the Warsaw Stock Exchange, securing a valuation of $349 million.
- XForex broker has merged with Xtrade.
- SEC announced that starting from July 31, the SEC-regulated brokers will be forbidden to offer retail Forex trading services to the general public. Although it may sound scary to the US traders, the fact is that almost all US brokers are regulated by CFTC and NFA only and are not affected by this decision of the Securities and Exchange Commission.
- Bank for International Settlements (BIS) released its first phase of FX Global Code — a code of conduct for wholesale foreign exchange markets.
- RoboForex became ActivTrades are of the first brokers to offer live MT5 hedging accounts.
- EarnForex Blog celebrated its 10th anniversary, and we have launched a new online tool for traders: Gain/Loss Percentage Calculator.
| | Until the next newsletter issue! | | That is all for the June issue of the EarnForex.com newsletter. If you have questions, comments or just want to see something else in the next monthly issue, please let us know. | | |
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