Can the Markets Rise, When Economies Dive?

During the course of an economic cycle, interest rate increases are used to restrain rapid inflation or growth during a bullish market, while rate cuts are used during market mayhem (a bearish market), in hope that the declining rates will encourage consumer consumption, returning the economy to a normal and healthy state.Throughout this cycle 2003-2009, the Fed has used numerous methods apart from its standard rate cuts to propel the economy. The recent one has been quantitative easing, where central banks have participated in the bond market, while injecting money into the financial system.

Over a year and a half ago, analysts thought the claim that a market recession reaching the scales of the 1930’s depression is ‘farfetched’. To date those investor’s thoughts are quite different as exploitation of the housing sector has caused a snow-ball affect throughout the world economy, forcing government officials to make coordinate efforts to redeem the world’s economy.Over the last couple of months government interference in the markets has intensified as numerous banks and large caps have been nationalized, to help prevent further loses across the globe. In addition, economic data continues to pour out showing a deteriorating economy, forcing officials to come out with new creative methods.

Despite the negative data and gloomy outlook the markets have recently increased, making investors question as to whether the recent rally is a change in trend or just a simply a bullish rally in a bearish market.While it is too early to determine any change of trend, one must take into consideration the following:

) Interest rates reductions or increases can take up to 9 months to leak through the system, affecting the economy.

2) The markets work on expectations; therefore if government officials are aiming for a market turnaround towards the end of this year, the indices will price it in beforehand.

3) Once the indices retrace a fair part of their losses, demand will increase on positive sentiment, driving the markets even higher.

4) Low interest rates will eventually spark demand across the board as consumers will take advantage of the low rates, especially as rates like these might not last.

Last week’s trading session presented mixed signals as the U.S housing sector suddenly showed signs of slight improvement. According to the National Association of Homebuilders, single family homes increased for the first time in seven months, adding an increase of 4.7% to new-home sales. In addition, over the last two weeks of trading the U.S government has addressed the market, stating that it intends to buy back government bonds and the far end of the curve, in an effort to reduce the costs of home purchasing. By taking a look at the homebuilder’s index one can see the recent increase, caused by the improving data and overall market momentum.

Will the Market Rally Continue?

While there is quite a lot of market moving data coming out this week, including the G20 meeting and unemployment results from the U.S on Friday, one must not steer away from the housing sector (the cause of the current economic situation).Following this week’s U.S manufacturing data, housing figures are expected to be released and could show a further improvement in the sector. In addition unemployment data is expected to show another 656,000 job losses in the month of March. While one might think that the figures are devastating, the markets could react in a completely different way.

During the U.S ‘s last recession (2003-2003) the U.S unemployment rate continued to rise and Non-farm Payrolls decreased, while the markets were forming a bottom. The unemployment rate peaked during the middle of 2003, when the U.S indices were far off their lows.With the G20 meeting coming up, an interest rate decision from Europe and employment data coming out, the markets could see some profit taking around current levels, accompanied by an increase in market volatility. Just keep in mind that the markets could surprise, especially when investors are already expecting further bad news. A ‘higher-low’ will give confirmation like in 2003.

Found Support on it 50 Day Moving Average

After Monday's massive drop, due to fears that the Auto-Industry is heading for bankruptcy, the major U.S stock indices bounced back during yesterday's session, closing with gains of approximately 1.5%. Many analysts classed yesterday’s rally as a “buy-up rally”, something that normally happens towards the last few days of the quarter, in order to show profits on balance sheets.The closely watched financial sector soared compared to the other sectors, increasing by over 5.51%. The sector that weighed on the intraday bullish momentum was the Energy sector, closing the session down by -0.85%.

Economic data didn’t really have much of an impact during yesterday’s stock session, even though the released data continued to show a deteriorating economy. Consumer confidence for the month of March dropped further than expected, showing a result of 26.0, while the S&P/Case Shiller 20-city Composite Home Price Index showed a worse than expected result of 19%, exceeding analysts’ estimate of 18.6%.Tension should increase across the board today as President Obama is scheduled to attend the G20 summit in England. While many topics will be discussed regarding the economy, including further stimulus actions to restore the world’s economy back onto a healthy track, China will also have it say, especially as officials from China are now suggesting that the U.S Dollar should no longer be classed as the world’s reserve currency.

To date the U.S deficit is reaching enormous levels, on GDP terms. Many economies are now questioning whether the U.S will be able to repay its debt. China is especially concerned, as they are currently holding $740 billion worth of government bonds.

Dollar at 50% Fibonacci Trading level

On the Forex market the Dollar index failed to break resistance of 86 points. The recent surge in the Dollar occurred after the index touched major trend line support. From a fundamental point of view, further economic problems have recently surfaced, justifying the recent rally, sending investors rushing back into the Dollar Safe Haven. When observing the following chart one can see that the Dollar is now fighting with its 50% Fibonacci level, a price that could act as minor resistance.

On individual pairs the major mover of the day was the USD/JPY jumping higher, breaking minor trend line resistance. Japan’s Tankan index plummeted in the first quarter, showing investors that the gloomy economy is far from a turnaround. The index came out at -58, exceeding analysts’ expectations of -55. In addition Australia’s Retail Sales sparked movement on the AUD crosses, as the retail sector showed further contraction coming out at -2.00%.

Gold is Converging

After breaking its major trend line, Gold has been presenting lackluster sessions, hanging around the $920 level, when observing the chart carefully one can see that the precious metal is coming close to a break out. With the G20 meeting coming up and important employment data being released towards the end of the week, traders should observe the breakout.

Market Data to Watch Out For

Even though Europe is scheduled to release its unemployment rate later today, major movement will circle around the U.S’s ADP employment survey. The report is expected to show another 660k job losses in the month of March. In addition the ISM Manufacturing Prices are expected to show an increase, while housing data could show signs of further stability. Construction Spending is expected to shrink by only 1.7%, while pending home sales could show an increase of 0.3%

Fundamental & Technical Analysis in Forex Trading

Forex trading over the years has become popular among the investing public. After the recent stock market crash, people are turning towards forex trading in droves. Forex Brokers are also marketing aggressively to increase the number of their clients.

These gurus will tell you that forex trading is very easy. Anyone can do it from the comfort of their homes. You only need a computer and an internet connection. No doubt, the internet revolution has made it possible for anyone to trade forex from anywhere in the world.But these gurus are never going to tell you that 95% of the new traders do not survive more than six months. Only 5% will ever become winning traders. 95% will take the plunge on the advice of these gurus, lose their hard earned money and give up. Forex markets are unforgiving. It slaughters inexperienced traders.

Why so many new traders get slaughtered by the forex market? Simply; they were not prepared. By simply reading one or two eBooks on forex trading, you will never succeed at forex trading until and unless you start living and start breathing forex.If you really want to succeed at forex trading than learn it properly. Understand how the forex markets functions. What is the role of underlying economic factors like interest rate, GDP growth rate, unemployment figures, fiscal deficit etc in moving the currency markets? As long as you wont get the feel of the markets, you wont succeed.

The best method to understand forex markets is learning what fundamental and technical analysis is. Fundamental analysis tells you how economic factors affect currency markets. What is the role of interest rates, GDP growth, unemployment figures, housing slump and host of other factors in moving the forex markets? Fundamental analysis can predict the medium to long term trend in the forex markets.Technical analysis studies the past behavior of prices to predict the future behavior of prices. You need to master technical analysis if you are thinking of becoming a day trader. Technical analysis is ideally suited to forex markets.

Technical analysis depends on the proper use of a number of indicators that you need to understand and master. These indicators can provide you will information regarding the market whether it is trending or ranging. This will help you devise your strategy. It can also tell you about the entry/exit for each trade.If you have been previously trading stocks than you can switch to forex trading much faster. But always remember as long as you dont make forex trading passion of your life, you wont succeed at it. Learn everything about forex, make it a passion and you will develop into a winning trader.