Carry Trade Criteria

It’s pretty simple to find a suitable pair to do a carry trade. Look for two things:

  1. Find a high interest differential.
  2. Find a pair that has been in an uptrend – where the currency you are long has been gaining value against the currency you are short.

Pretty simple, huh? Let’s take a real life example of the carry trade in action:

Carry Trade

This is a weekly chart of GBP/JPY. Up until recently, the Bank of Japan has maintained a Zero Interest Rate Policy (current interest rate is 0.25% as of this writing - 11/01/2006). With the Bank of England touting one of the higher interest rates among the major currencies (currently at 4.75% as of this writing), many traders have flocked to this pair (one of the factors creating a nice little uptrend in the pair). From the end of 2000 to mid-2006, this pair moved from a price of 150.00 to 223.00 – that’s 7300 pips! If you couple that with interest payments from the interest rate differential of the two currencies, this pair has been a nice long term play for many investors and traders able to weather the volatile up and down movements of the currency market.

Of course, economic and political factors are changing the world daily. The interest rates and interest rate differentials between currencies may change as well, bringing popular carry trades (such as the Yen carry trade) out of favor with investors.

Carry Trade Risk

Being that you are a professional trader, you already know what the first question you should ask before entering a trade is, right?

“What is my risk?”

Correct! Before entering a trade you must always asses your max risk and whether or not it is acceptable according to your risk management rules.

In the previous example with Joe the Newbie Trader, his maximum risk would have been $9000. His position would be automatically closed out once his losses hit $9000.


That doesn’t sound very good, does it?

Remember, this is the worst possible scenario and Joe is a newbie, so he hasn’t fully appreciated the value of stop losses.

When doing a carry trade, you can still limit your losses like a regular directional trade. For instance, if Joe decided that he wanted to limit his risk to $1000, he could set a stop order to close his position at whatever the price level would be for that $1000 loss. He would still keep any interest payments he received while holding onto the position.

The Carry Trade

Did you know there is a trading system that can make money if price stayed exactly the same for long periods of time?

Well there is and it’s one the most popular ways of making money by many of the biggest and baddest money manager mamajamas in the financial universe!

It's called the Carry Trade.

A carry trade involves borrowing or selling a financial instrument with a low interest rate, then using it to purchase a financial instrument with a higher interest rate. While you are paying the low interest rate on the financial instrument you borrowed/sold, you are collecting higher interest on the financial instrument you purchased. Thus your profit is the money you collect from the interest rate differential. For example:

Let's say you go to a bank and borrow $10,000. Their lending fee is 1% of the $10,000 every year. With that borrowed money, you turn around and purchase a $10,000 bond that pays 5% a year.

What's your profit?
You got it! It's 4% a year! The difference between interest rates!

By now you're probably thinking, "That doesn't sound as exciting or profitable as catching swings in the market." However, when you apply it to the spot forex market, with its higher leverage and daily interest payments, sitting back and watching your account grow daily can get pretty sexy.

How Does the Carry Trade Work for Forex?

In the forex market, currencies are traded in pairs (for example, if you buy the USDCHF pair, you are actually buying the US dollar and selling Swiss Francs at the same time). Just like the example above, you pay interest on the currency position you sell, and collect interest on the currency position you buy.

What makes the carry trade special in the spot forex market is that interest payments happen every trading day based on your position. Technically, all positions are closed at the end of the day in the spot forex market - you just don't see it happen if you hold a position to the next day.

Brokers close and reopen your position, and then they debit/credit you the overnight interest rate difference between the two currencies. This is the cost of "carrying" (also known as “rolling over”) a position to the next day.

The amount of leverage available from forex brokers has made the carry trade very popular in the spot forex market. Forex trading is completely margin based, meaning you only have to put up a small amount of the position and you broker will put up the rest. Many brokers ask as little as 1% - 2% of a position - what a deal, eh?

Let's take a look at a generic example to show how awesome this can be.

For this example we'll take a look at Joe the newbie forex trader. It's Joe's birthday and his grandparents, being the sweet and generous people they are, give him $10,000. Schweeeet!

Now, instead of going out and blowing his birthday present on video games and posters of bubble gum pop stars, he decides to save it for a rainy day. Joe goes to the local bank to open up a savings account and the bank manager tells him, "Joe, your savings account will pay 1% a year on your account balance. Isn't that fantastic?" Joe pauses and thinks to himself, "At 1%, my $10,000 will earn me $100 in a year. Man, that sucks!"

Joe, being the smart guy he is, has been studying and knows of a better way to invest his money. So, Joe kindly responds to the bank manager, "Thank you sir, but I think I’ll invest my money somewhere else yo.”

Joe has been demo trading several systems, including the carry trade, for over a year, so he has a pretty good understanding of how forex trading works. He opens up a real account, deposits his $10,000 birthday gift, and puts his plan into action. Joe finds a currency pair whose interest rate differential is +5% a year and he purchases $100,000 worth of that pair. Since his broker only requires a 1% deposit of the position, they hold $1,000 in margin (100:1 leverage). So, Joe now controls $100,000 worth of a currency pair that is receiving 5% a year in interest.

What will happen to Joe’s account if he does nothing for a year?

Well, here are 3 possibilities.Let’s take a look at each one:

  1. Currency position loses value. The currency pair Joe buys drops like a rock in value. If the loss brings the account down to the amount set aside for margin, then the position is closed and all that’s left in the account is the margin - $1000.
  2. The pair ends up at the same rate at the end of the year. In this case, Joe did not gain or lose any value on his position, but he collected 5% interest on the $100,000. That means on interest alone, Joe made $5,000 off of his $10,000. That’s a 50% gain! Sweet!
  3. Currency position gains value. Joe’s pair shoots up like a rocket! So, not only does Joe collect $5000 in interest on his position, but he also takes home any gains! That would be a nice present to himself for his next birthday!

Because of 100:1 leverage, Joe has the potential to earn around 50% a year from his initial $10,000.

Here is an example of a currency pair that offers a 5% differential rate based on current interest rates:

Positive Carry Trade

If you buy USD/JPY and held it for a year, you earn a "positive carry" of 5%.

Of course, if you sell USD/JPY, it works the opposite way:

Negative Carry Trade

If you sold USD/JPY and held it for a year, you would earn a "negative carry" of 5%.

Again, this is a generic example of how the carry trade works. Any questions on the concepts? No? I knew you could catch on quick! So, now it’s time to move on to the most important part of this lesson: Carry Trade Risk

Trade-Weighted U.S. Dollar Index

There is also another kind of dollar index used by the Federal Reserve. It is called the “trade-weighted U.S. dollar index”.

The Fed wanted to create an index that could more accurately reflect the dollar’s value against foreign currencies based on how competitive U.S. goods are compared against other countries.

The main difference between the USDX and the trade-weighted dollar index is the basket of currencies used and their relative weights. The weights are based on annual trade data.

Currencies and Weights

Here is the current weighting of the index:

Euro area 18.08
Canada 16.293
Japan 10.035
Mexico 9.823
China 13.377
United Kingdom 4.822
Taiwan 2.755
Korea 4.047
Singapore 2.061
Hong Kong 2.035
Malaysia 2.11
Brazil 1.955
Switzerland 1.412
Thailand 1.416
Philippines 0.825
Australia 1.212
Indonesia 0.878
India 1.145
Israel 1.039
Saudi Arabia 0.665
Russia 0.924
Sweden 1.167
Argentina 0.46
Venezuela 0.451
Chile 0.591
Colombia 0.423
Total 100
*Weights as of December 15, 2005

For more information on exchange rate indexes for the U.S. dollar, see "Indexes of the Foreign Exchange Value of the Dollar"

Weights for the broad index can be found at

If you’d like to see historical data, check out

How to Read the U.S. Dollar Index

Here’s a chart of the U.S. Holler at the Dollar Index:


First, notice that the index is calculated 24 hours a day, seven days a week. The USDX measures the dollar’s general value relative to a base of 100.000. Huh?!

Okay. For example, the current reading says 86.212. This means that the dollar has fallen 13.788% since the start of the index. (86.212 - 100.000).

If the reading was 120.650, it means the dollar’s value has risen 20.650% since the start of the index. (120.650 – 100.00)

The start of the index is March 1973. This is when the world’s biggest nations met in Washington D.C. and all agreed to allow their currencies to float freely against each. The start of the index is also known as the “base period”.

The U.S. Dollar Index Formula

This is strictly for the grown and geeky. Here is the formula to calculating USDX:

USDX = 50.14348112 × EURUSD^(-0.576) × USDJPY^(0.136) × GBPUSD^(-0.119) × USDCAD^(0.091) × USDSEK^(0.042) × USDCHF^(0.036)

"The key to everything is patience. You get the chicken by hatching the egg, not by smashing it open."

The USDX Components

Now that we know what the basket of currencies are, let’s get back to that “geometric weighted average” part. Because not every country is the same size, it’s only fair that each is given appropriate weights when calculating the U.S. Dollar Index. Check out the current weights:

U.S. Dollar Index Weights

As you can see, with its 12 countries, euros make up a big chunk of the U.S. Dollar Index. The other five make up less than 43 percent.

Here's something interesting: When the euro falls, which way does the U.S Dollar Index move?

The euro makes up such a huge portion of the U.S. Dollar Index, they might as well call this index the "Anti-Euro Index". Because the USDX is so heavily influenced by the euro, people have looked for a more "balanced" dollar index. More on that later though. First, let's go to the charts!

"I know the price of success: dedication, hard work, and an unremitting devotion to the things you want to see happen."
Frank Lloyd Wright

What is the U.S. Dollar Index?

If you’ve traded stocks, you’re familiar with all the indices available such as the Dow Jones Industrial Average (DJIA), NASDAQ Composite Index, Russell 2000, S&P 500, Wilshire 5000, and the Nimbus 2001. Oh wait, the last one is actually Harry Potter’s broomstick.

Well if U.S. stocks have an index, the U.S. dollar can’t be outdone. For currency traders like us, we have the U.S. Dollar Index (USDX).

The U.S. Dollar Index consists of a geometric weighted average of a basket of foreign currencies against the dollar.

Come again?! Okay before you fall asleep on us after that super geeky definition, let’s break it down.

It’s very similar to how the stock indices work in that it provides a general indication of the value of a basket of securities. Of course, the “securities” we’re talking about here are other major world currencies.

The Basket

The U.S. Dollar Index consists of six foreign currencies. They are the:

  1. Euro (EUR)
  2. Yen (JPY
  3. Cable (GBP)
  4. Loonie (CAD)
  5. Kronas (SEK)
  6. Francs (CHF)

Here’s a trick question. If the index is made up of 6 currencies, how many countries are included?

If you answered “6”, you’re wrong. If you answered “17”, you’re a genius.

There are 17 countries total because there are 12 members of the European Union plus the other five (Japan, Great Britain, Canada, Sweden, and Switzerland).

It’s obvious that 17 countries make up a small portion of the world but many other currencies follow the U.S. Dollar index very closely. This makes the USDX a pretty good tool for measuring the U.S. dollar’s global strength.

"When you go in search of honey you must expect to be stung by bees."

What is the U.S. Dollar Index?

If you’ve traded stocks, you’re familiar with all the indices available such as the Dow Jones Industrial Average (DJIA), NASDAQ Composite Index, Russell 2000, S&P 500, Wilshire 5000, and the Nimbus 2001. Oh wait, the last one is actually Harry Potter’s broomstick.

Well if U.S. stocks have an index, the U.S. dollar can’t be outdone. For currency traders like us, we have the U.S. Dollar Index (USDX).

The U.S. Dollar Index consists of a geometric weighted average of a basket of foreign currencies against the dollar.

Come again?! Okay before you fall asleep on us after that super geeky definition, let’s break it down.

It’s very similar to how the stock indices work in that it provides a general indication of the value of a basket of securities. Of course, the “securities” we’re talking about here are other major world currencies.

The Basket

The U.S. Dollar Index consists of six foreign currencies. They are the:

  1. Euro (EUR)
  2. Yen (JPY
  3. Cable (GBP)
  4. Loonie (CAD)
  5. Kronas (SEK)
  6. Francs (CHF)

Here’s a trick question. If the index is made up of 6 currencies, how many countries are included?

If you answered “6”, you’re wrong. If you answered “17”, you’re a genius.

There are 17 countries total because there are 12 members of the European Union plus the other five (Japan, Great Britain, Canada, Sweden, and Switzerland).

It’s obvious that 17 countries make up a small portion of the world but many other currencies follow the U.S. Dollar index very closely. This makes the USDX a pretty good tool for measuring the U.S. dollar’s global strength.

"When you go in search of honey you must expect to be stung by bees."

How to Use the COT Report

Because the COT report is published weekly, it would be more suitable for longer term traders to use as a market sentiment indicator. So, how do we do that? Well, besides using the changes in open interest and changes in the number of long and short contracts as a volume indicator, my favorite way to use the COT report is to find extreme net long and net short positions. This can be great indicator that a market reversal is around the corner because if everyone is long a currency, who is left to buy? No one. And if everyone is short a currency, who is left to sell? Again, no one. The only thing a market can do is go the other direction. Here’s a chart example:


This is an example chart of the US Dollar Index from In the top half of the chart we have the price action of the USD index futures with each bar representing weekly data. On the bottom half of the chart we have data on the net long/short positions broken down into three categories: Commercial (Blue), Large Non-commercial (Green), and Small Non-commercial (Red). We will pay attention to the Large Non-commercial positions since commercial positions are for hedging and small retail traders aren’t really a factor.

Let’s examine this chart and see what it can tell us. We can see that the US Dollar began a nice little bull run at the start of 2005. As the value of the net long positions of large speculative traders (green line) rose, so did the price of the USD futures index. In the first week of July 2005, net long positions grew to over 20K contracts. This was an extreme area of longs and soon after the market began to sell off USD index futures. The USD index price dropped from 91 to 86, but it only proved to be a retracement as the index rallied to a new high of about 93.16 and higher level of 29K net long contracts.

As you have probably already asked yourself, “with this many longs who is left to buy?” Not too many traders really. With the market appearing overbought in November 2005, we began to see the number of long USD index futures contracts decline and a drop in the index price from 93 all the way down to about 84. Wow, can you imagine if you positioned yourself before this move?

By now I bet you’re asking, “I trade the spot forex market not futures. How does this apply to my trading?” Great question! Since we’re already taking a look at the US Dollar, let’s look at one of the best vehicles to trade the Greenback in the spot forex market: EUR/USD.

Here’s a weekly chart of EUR/USD:


If we had applied what we learned in the previous section by positioning ourselves for market reversals, we could have caught two significant moves from July 2005 to May 2006 in EUR/USD.

First, in July 2005, if a trader saw the extreme levels of net longs in the USD index futures, this trader would catch the possible upcoming selloff of the Greenback by buying EUR/USD. This trader would’ve been proven right, and paid off handsomely as this position could have caught a maximum of 700 pips. Again, if this trader were so astute to catch the extreme level of long USD index futures contracts in November 2005, buying EUR/USD would have been the best bet as the pair rallied from about 1.1650 to almost 1.3000….wowzers!!! That’s over 1300 pips gained! So, from July 2005 to May 2006, a trader could have caught almost 2000 pips just using the COT report as a market reversal indicator. Pretty good, eh??

"Obstacles are those frightful things you see when you take your eyes off your goals."
Henry Ford

Commitment of Traders Report

The Commodity Futures Trading Commission publishes the Commitment of Traders report (COT) every Friday, and it measures the net long and short positions taken by traders in the futures market. It is a great resource to gauge market sentiment from the “big players” because of their large positions they are required to report to the government. Of course, it is very important to see what the “smart money” is up to because they move the markets and it may have an impact on your positions.

Below, we have an example of the Swiss Franc COT report taken from August 22, 2006 Check it out:

COT report

The report is pretty straight forward, but here’s a quick run down of what each category is.

  • Non-Commercial - This is a mixture of individual traders, hedge funds, and financial institutions. For the most part, these are traders who looking to trade for speculative gains.
  • Commercial - These are the big businesses that use currency futures to hedge.
  • Long - number of long contracts reported to the Commodity Futures Trading Commission (CFTC).
  • Short - number of short contracts reported to the CFTC.
  • Open interest- this column represents the number of contracts out there that have not been exercised or delivered.
  • Non-reportable positions;- These are the open interest positions of traders that do not meet the reportable requirements of the CFTC.
  • Number of traders- total number of traders who are required to report positions to the CFTC.
  • Reportable positions;- the number of options and futures positions that required to report according to CFTC regulations.

In the center of the report we see “CHANGES FROM 08/15/06.” This section shows the change in Open Interest and the changes in the Long and Short positions from the previous week.

"A superior man is modest in his speech, but exceeds in his actions."

Getting Sentimental with Forex Trading

Sentimental analysis is what it sounds like – gauging the market sentiment. What does that mean? Well, as traders, a part of our job is to determine if a market is bullish, bearish, overbought, oversold, and to plan a trade for those market conditions – basically putting all of the things we’ve learned up until this point all together.

So how do we do that? What tools can we use? And how do we react to certain conditions? Well, that’s what we’re going to find out today – we’re going to take a look into sentiment analysis in forex trading.

Now there are a couple of ways to gauge different market conditions. Does anyone know what those two things are? You guessed it: technical and fundamental analysis. Now, in the School of Pipsology, we’ve covered most of the commonly used technical indicators out there for forex trading, so you should be an expert at that already right?

But how about the fundamental tools? What fundamental tools are available to gauge sentiment?

Well, in stocks and options, sentiment is measured using volume data. For instance, if a declining stock suddenly reversed on high volume that means the market sentiment may have changed from bearish to bullish. Or if a stock price was rising on gradually declining volume, then that may be a sign of an overbought market.

But have you ever seen volume data on any forex charts?

Probably not.

Being that the foreign exchange does not have a centralized market, volume data cannot be accurately calculated. So, where’s a trader to go to get such valuable data? That’s where the COT report comes in.

News Trading Methods


Straddles are really easy to set up and require very little thinking, but it is probably the riskiest method of trading the news. To set up a straddle, you basically put a limit order to go long a few pips above the market before a news report, and simultaneously put in a limit order to go short a few pips below the market. If the report creates enough volatility your orders will be automatically triggered, and your stops and profit levels will also be automatically executed if hit. Simple as that.

Again, it sounds easy, but be very cautious with this method in that both long and short orders can be triggered, and if profit targets and stops are set incorrectly, you can be stopped out for maximum loss on both orders. Also, you run the inherent risks of slippage.

"Trading the Numbers"

This seems to be a more preferred method by many, in that you determine whether or not the news report is worth trading at all – a lot less risky than straddles.

First, you must determine the significance of the news report being released. Not every news report release is tradable; either it wouldn’t cause a stir in the market, or that the initial volatility would be so crazy that it would be too dangerous to enter a trade.

Ask yourself what kind of environment the market has been in recently. In other words, what has been affecting the market lately?

For example, maybe the Federal Reserve has been concerned with inflation. In this scenario, any inflation-related data (consumer price index, hints on future monetary policy) would be closely watched by the Fed – and what the Fed is watching, traders are watching. Any news reports of this level may be great opportunities to trade, as long as you are conscious of the risks.

The second step is to watch the news release and see if the report or economic number being released is inline with what the market is expecting. Obviously, if the report or number was a good one and/or a good surprise for a country, then you would go long its currency, and vice versa.

For example, in the next U.S. employment report, the market was expecting 200K new jobs, and the number came out at 300K. It’s a surprise to the upside, and more jobs signal strength and growth in the U.S. You would go long as soon as the report is released and hope to catch a portion of the move. If the report came in pretty much as expected, then there would be no trade.

Trade at Your Own Risk!

Before I pursue anything, I like to know exactly what I’m getting into. The same especially goes for trading. We’ve heard the benefits and why we should “trade the news,” but more importantly we should know the risks.


Market volatility can increase geometrically during news releases, which means the price can move as little as 5 pips to 20 pips (or even 50 pips and more during major news releases) in the matter of seconds. If you try to get your order filled during this type of volatility, you will probably get filled at a much different price than you anticipated. This is especially risky with limit entry orders.

For example, I once placed an order with a broker (one that guaranteed fixed spreads, but not execution) 15 minutes before a major news release on EUR/USD. Right before the release, the market was at 1.2320. I set my limit order to go long at 1.2360, with a profit level of 1.2383. The news came out bad for the U.S. dollar, which caused the market to shoot up 80 pips as soon as it was released. My long order was triggered, but unfortunately, I got filled in at 1.2390 – 30 pips above my limit price!! After the market settled for a bit, my profit target price was executed at a loss because it was set below the price at which I got filled in. Fortunately, it was only a 7 pips loss, but it was a costly lesson learned.

Order Freeze

Some brokers prevent limit and market orders right before a major news release (some up to 30 minutes to an hour beforehand). This usually occurs with brokers who guarantee fixed spreads.The reason your trading platform “locks up” is not because the platform “crashed”, it’s because the spread is too wide and if the brokers offered them with their fixed spreads, they would lose money.

Volatility/ Whipsaws

During major news reports and economic releases the market can swing 20 to 50 pips in a second! News volatility can be very dangerous, even for experienced traders. You may catch the strong initial move, but like so many times in these situations, it can turn against you into a losing trade just as fast.


Some brokers may guarantee execution but do not guarantee spreads, and during news events you’ll see spreads widen dramatically (I’ve seen a 3-pip spread turn into a 14-pip spread during a report). If you like to take small profits like 5 to 10 pips, this will hurt your chances of profitability and possibly keep you in a potentially losing trade.

Tradeable Reports

With all of these countries to choose from, there are easily five to ten economic news releases almost every day! Also, the great thing about focusing on news releases is that they are scheduled in advance, so you know exactly when you can schedule your trading hours.

You may be thinking that five to ten news releases per day may be a lot to keep up with, but you really do not have to pay attention to every single report – you can pick and choose. There are a few key reports, most of which come out every month, that produce a significant amount of pip movement.

For this lesson, we will focus on U.S. news and economic reports, mostly because the U.S. dollar is involved in a majority of currency trades, and therefore tends to have the most significant impact on the currency markets. Here is a list of some of the top U.S. market moving reports:

  • Employment Growth
  • Interest Rate decisions
  • Trade Balance
  • Gross Domestic Product
  • Retail Sales
  • Durable Goods
  • Inflation reports (Consumer Price Index and Producer Price Index)
  • Foreign Purchases report (TIC Data)

Every country has a set of major reports similar to this list and can be as potentially volatile. Again, since these reports are scheduled in advance there are plenty of websites on the Internet with schedules and potential volatility rankings.

Things to Know When Trading News Reports

Now that we know “how” and “when” you can trade news reports, there are a few key concepts you should know before placing your first news trade.

  • While the actual news number or report is essential to the long-term movement of a currency pair, in the short-term the difference between the market expectations and the actual release is what causes potential breakout opportunities. This means economic numbers and reports that come out as the market expected generally do not cause a strong market reaction.
  • The quieter the market is before a news release, the more the market is poised for a significant move. Think about it: In a quiet market, less and less traders are buying and selling, possibly waiting for some sort of catalyst (like a news report maybe?). When this “catalyst” takes place, all of these traders waiting on the sidelines jump in at the same time causing a huge move in the market. So, the more traders wait (the quieter the market), the more will jump in after a news report (huge pips and a new Ferrari, right?).
  • Depending on the significance of the economic report, and the amount of deviation of the actual to the forecasted number, news breakout opportunities are generally short-lived and may last for only a few minutes or even a few seconds. Trading news releases may be better suited for scalpers and day traders.

Trading the News

Trading the news is becoming a popular technique to trade the forex markets … and why shouldn’t it be? Time and time again you see currency pairs move 50 to 100 pips within minutes or even seconds after a major news release. When you see that, I bet you’re thinking, “50 to 100 pips!? That’s easy money!” Maybe it is, and maybe it isn’t. It all depends on how prepared you are to trade a news release.

The goal of this lesson isn’t to give you a specific “Trading the News” strategy. The goal is to point you in the right direction and show some of the risks involved with trading these events, because here at, we want to help you help yourself in developing your own methods that fit YOU best.

Why Trade the News?

Trading news releases can be a significant tool in your trading arsenal. If you want, it can be your only weapon altogether. Economic news reports often spur strong short-term moves in the market, which are great trading opportunities for breakout traders. And with the forex being open 24 hours a day and a true worldwide market, there are plenty of opportunities almost every trading day to catch market volatility (aka a lot of pips!) kicked off by an economic news report.

hich Pairs Should I Trade?

Here is a list of the top currencies and countries in which you should focus on for news trading:

Symbol Country Currency Nickname
USD United States Dollar Buck
EUR European Union Euro Fiber
JPY Japan Yen Yen
GBP Great Britain Pound Cable
CHF Switzerland Franc Swissy
CAD Canada Dollar Loonie
AUD Australia Dollar Aussie
NZD New Zealand Dollar Kiwi

Now, there are plenty more currencies available to trade, but this list is based on the size of each country’s economy, frequency of news releases and the trading liquidity of their currency.

When are News Releases uh Released?

The list below displays the times when the most important economic data are released for each of the countries. Make sure you know them or go broke.
Symbol Country Time (GMT)
USD United States 13:30 - 15:00
EUR Germany 07:00 - 11:00
EUR France 07:45 - 09:00
EUR Italy 08:45 - 10:00
JPY Japan 23:50 - 04:30
GBP Great Britain 07:00 - 09:30
CHF Switzerland 06:45 - 10:30
CAD Canada 12:00 - 13:30
AUD Australia 22:30 - 00:30
NZD New Zealand 21:45 - 02:00

Pigs Make Money, Hogs Get Slaughtered

IG = A pig is a well rounded animal who is happy with the life style it has created for itself. A pig understands the importance of “money management”, “goal setting”, and how to "following the system" for it is the system that has given the pig its profits.

HOG = A hog looks like a pig, however, is so very different. A hog runs over all rules to be the first in line. A hog has no concept of the system or money management therefore fails time and time again. The only thing a hog really accomplishes is being the first one to lose.........or should I say, the first one in line to be slaughtered. yummmmmm, I do love bacon.

Forex trading is awesome. The skills you are about to learn are essential to long term successful trading and when these skills are combined with our complete trading system you will then have a clear advantage over the average trader and the opportunity to change your life forever as it has done mine. You, have the potential, right now, to create great wealth through the Forex market, HOWEVER, there are some very specific situations that you need to be aware of when you trade, as well as, very special personal traits that are needed to become profitable. Please read the following information slowly, and then, read it again. THEN – READ IT AGAIN!!! You may even want to read it weekly as your mind-set must be “IN THE ZONE” to become profitable. DO NOT take any of the following information for granted.

When you put your hard earned cash in a trade, it is difficult not to get emotional. Beginning traders might experience a roller-coaster ride of emotions, feeling glee after a good streak of trades and disappointed after a group of losses. To become a profitable trader you must control your emotions and not let your emotions control you.

Quote from a young trader named Dustin from the e-newsletter Innerworth:
"To make me realize whether or not I was emotional, I had to go through hard times with trading. I think it's crazy how the market can take you from a high to a low, and back to a high and then back to a low. You think you've got it all worked out, and then six months later, you're thinking of finding a new job. What I realized is that when I'm doing okay, I'm totally unemotional when it comes to trading, like when a new trading strategy has been working. I just sit there and have a good time. Even if I have a bad trade, it doesn't bother me. But when I was having trouble, like earlier this year and late last year, when I was only able to keep my head barely above water, it was really frustrating. I guess that's when you learn more about how emotional you are when it comes to the market. I'm not the kind of guy who is going to throw my keyboard around, but it definitely has a psychological impact on the rest of my day."

Thinking, "losses are to be expected" can help you become a better trader. Just thinking to yourself about taking losses in stride can be quite consoling. By expecting losses from time to time, you are being realistic with yourself. We are all in the same boat, so why beat yourself up over a loss? Our emotions can be overpowering when we are caught off guard. However, if we go in fully expecting the possibility of failure, we can mobilize our psychological resources more quickly and fight back immediately before our mood worsens. That doesn't mean going into a trade pessimistically expecting it to be a failure. What it does mean is preparing to take a loss. Before the trading day begins, you should mentally rehearse how you'll deal with the loss. You might think, "I'm not going to be caught off guard. The trade may go wrong, and when it does, I'm going to just close it out and move on". Through a combination of monitoring your internal dialog and mentally visualizing what can go wrong, you can get ready to take a loss, so that when it happens, it won't hurt so bad and knock you off balance.

Part 6 to follow in a few days. If you would like to be notified when it is posted email me at

Thanks for your time,

Chart Of The Day - 1/03/2008 - EUR/USD

1/03/2008 – EUR/USD – A close look at the EUR/USD daily chart (as displayed) shows that an inverted head-and-shoulders pattern has just formed (the neckline of which is represented on the chart by the yellow line labeled “1”). This follows closely on the heels of a right-side-up head-and-shoulders pattern (the neckline of which is represented on the chart by the yellow line labeled “2”) that formed and completed late last year. In fact, these two patterns actually share a shoulder. At this writing, price action is toying with the inverted neckline at “1”. It should be kept in mind that a head-and-shoulders pattern cannot be considered complete unless there is actually a decisive break of the neckline. Therefore, price is currently at a critical support/resistance juncture. A decisive breakout above the neckline should target strong resistance at the historical high of around 1.4960. If, however, the current neckline resistance holds, and price turns back down, the first major support on the downside resides around the most recent shoulder level in the 1.4600 region. This level, incidentally, also coincides with the 23.6% Fibonacci retracement level (the low-to-high span being measured from the low on 8/16/2007 to the historical high on 11/23/2007). Further below this, additional major support resides at the inverted head level of around 1.4300.

James Chen
Chief Technical Analyst
FX Solutions

IMPORTANT NOTICE: These comments are for information purposes only. The information contained on this document does not constitute a solicitation to buy or sell by FX Solutions, LLC., and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law. Opinions, market data, and recommendations are subject to change at any time. Forex trading involves substantial risk of loss and is not suitable for all investors.

(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; uptrend lines in green; horizontal support/resistance lines in yellow; 200-period simple moving average in light blue.)

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The markets calmed down a bit on Thursday after the Commerce Department said new factory orders increased 1.5 per cent in November, much greater than the expected 0.4 percent rise and the ADP reported the economy created 40,000 new jobs in December. Some traders had feared the number would be negative. ADP also revised down its October-November payroll growth to 173,000 from the initially reported 189,000.

Weekly jobless claims fell 21,000 to 336,000, below an expected level of 345,000 and the four-week moving average decreased slightly. Claims fell from an upwardly revised 357,000 the prior week, which was a high for 2007 and the highest level since October 2005. For the week ending December 22, the number of people continuing to receive unemployment insurance increased 46,000 to 2.761M, the highest level since October 2005. Economists were expecting 2.675M.

The Equity/Carry Trade markets are likely to be extremely sensitive to the NFP. The expectations are that slump in the housing sector may continue thru 2008-therefore jobs will be the key indicator of whether the US consumer will continue to spend at a level which will prevent the economy from falling into recession. The problem is that job creation is been weakening over a long period of time. For example, average monthly job creation in 20007 was down over 60 percent from 2006. As far as I'm concerned, the economy will go into recession by Q2, however, that's not the current market expectation.

On to the mechanics of the trade. The first thing you need to do is to get all the numbers-headline and revision. When you get the revision numbers, you need to do the math and see if jobs were added or subtracted from the covered period. The markets do tend to trade more off the revised numbers then the headline, but they can be put together for an even better trade.

If the headline beats the consensus and the prior period is revised up that will be very supportive for the Equity/Carry Trade markets, which means the Yen will depreciate while all of the JPY crosses appreciate. The opposite is equally true as well. Should the headline number disappoint while the prior period is revised down, the Equity/Carry Trade markets will take a big hit and could go into a downward trend that lasts for days. The GBP/JPY carry trade is the most volatile JPY cross and tends to move the most. NZD/JPY tends to be the least volatile pair of the JPY crosses.

The above two scenarios are the best-case trade opportunities. Less certain is what happens with a mixed set of numbers, although a downward revision to previous periods has usually been taken as a net-negative. In the case where a mixed set of numbers is released, you'll want another way to gauge market reaction and you can do that by observing what happens in the futures markets after the report is released. A strong positive reaction is seen when S&P futures rise and 10 year bond futures fall, while a strong negative is just the opposite. The key here is that the JPY crosses move with the S&P 500 and inversely with bonds. And if we have data that creates a market consensus there (either good or bad), we know what will happen with the carry trade pairs as well.

While the ADP report has been not been accurate as far as the numbers are concerned, they have been pretty good with the overall direction. Their headline number disappointed and their prior number was revised down in this report and I think it highly likely to see the same result in the NFP tomorrow.

And obviously, you'll want to look at the services ISM as well. The easiest trades are always when a strong consensus exists and if the NFP and ISM both disappoint, that will be the time to take an aggressive short position. The only ways to stop the markets from falling heavily at that point are two things:

1. The Plunge Protection Team Pulls The Plug

2. Bernanke cranks up the presses and announces the Fed is "injecting" a tax-free $1,000,000.00 into everyone's bank account.

It does appear the The Presidents Working Group For Financial Markets a.k.a. the PPT HAS indeed been hard at work. Obviously, traders will need to keep an ear out for any information that's released in the press conference tomorrow.


Jan. 3 (Bloomberg) -- President George W. Bush will meet with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke tomorrow as he considers whether to announce a new economic stimulus package amid slowing growth.

Bush will speak to reporters tomorrow after a 1 p.m. meeting at the White House with members of the President's Working Group on Financial Markets, press secretary Dana Perino said today.

Full Article:

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"I'm not an economic forecaster. I'm a consumer of economic forecasts."