The British pound depreciated vis-à-vis the U.S. dollar last week as cable tested bids around the US$ 1.9145 level and was capped around the $1.9760 level. The pair lost about 540 pips last week. Chancellor Darling defended the BoE’s inflation remit. BoE’s MPC kept the repo rate unchanged at 5.0%.

Data released in the U.K. last week saw July PMI services improved to 47.4; Q1 mortgage repossessions were up 40% y/y; June manufacturing output fell 0.5% m/m and 1.3% y/y; July construction PMI fell to 36.7; Halifax house prices were off 1.7% m/m and 8.8% y/y; Nationwide July consumer confidence fell to +51; the BRC July shop price index was up 3.2% y/y; July REC permanent staff placements fell to 44.1; NIESR sees Q1 GDP slowing to 0.1% in the three months to July; and CML mortgage repossessions jumped 18,900.

The yen depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the ¥110.35 level and was supported around the ¥107.45 level. The pair gained about 250 pips last week. The Nikkei 225 stock index gained 0.33% on Friday to close at ¥13,168.41. New finance chief Ibuki said “it’s hard to move now” on interest rates. LDP’s Aso said the Japanese economy is in recession. Economic minister Yosano foresees a supplementary budget to stimulate the economy. Ibuki sees cost-push stagflation. The government downgraded its assessment of the economy and removed the word “recovery” for the first time in 56 months. April – June GDP will be released next week. Swaps are signaling a slight chance that rates could be higher this fiscal year.

Data released in Japan this week saw June machinery orders were off 2.6% m/m; the June composite index of leading economic indicators fell 1.7 points to 91.2 in June; the July economy watchers’ survey fell to 30.8; and July bank lending was up 2.0%.
In Chinese news, the Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8588 in the over-the-counter market, up from CNY 6.8425. Goldman Sachs sees July CPI growth moderating to 6.6% y/y. China loosened capital controls significantly. The government sees Q3 GDP growth around 10.2% y/y with CPI up 6.6% y/y.
Data released in China last week saw Q3 CPI was up 5.5%.

The euro depreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.5005 level and was capped around the $1.5630 level. The pair lost about 530 pips last week. The FOMC kept rates unchanged with Dallas Fed’s Fisher dissenting in favour of higher rates. Most traders viewed the Fed’s statement as dovish.

Traders were disappointed with Trichet’s hawkishness following the ECB’s decision to keep rates steady. ECB’s Wellink sees monetary policy useless if inflation is above 5%. The ECB’s bank lending survey evidenced tighter lending standards.

Data released in the U.S. last week saw June core PCE up 0.3% m/m and 2.3% y/y; June factory orders were up 1.7% with ex-transportation up 2.3%; June personal spending was up 0.6%; June personal income was up 0.1%; weekly initial jobless claims rose 7,000 to 455,000 with continuing claims up 31,000 to 3.311 million; U.S. pending home sales rose 5.3% in June; the July non-manufacturing ISM index climbed to 49.5; Q2 non-farm productivity grew an annualized 2.2% in Q2 with unit labour costs up 1.3%; and June wholesale inventories were up 1.1% with wholesale sales up 2.8%.

Data released in the eurozone last week saw June retail sales off 0.6% m/m and 3.1% y/y; EMU-15 services PMI fell to 48.3; German GDP fell 1% in Q2; EMU-15 PPI was up 0.9% m/m and 8.0% y/y; German industrial production rose 0.2% m/m; and German June manufacturing orders were off 2.9% m/m and 6.1% y/y.

Why do hundreds of thousands online traders and investors trade the forex market every day, and how do they make money doing it?

This two-part report clearly and simply details essential tips on how to avoid typical pitfalls and start making more money in your forex trading.

1. Trade pairs, not currencies - Like any relationship, you have to know both sides. Success or failure in forex trading depends upon being right about both currencies and how they impact one another, not just one.

2. Knowledge is Power - When starting out trading forex online, it is essential that you understand the basics of this market if you want to make the most of your investments.
The main forex influencer is global news and events. For example, say an ECB statement is released on European interest rates which typically will cause a flurry of activity. Most newcomers react violently to news like this and close their positions and subsequently miss out on some of the best trading opportunities by waiting until the market calms down. The potential in the forex market is in the volatility, not in its tranquility.

3. Unambitious trading - Many new traders will place very tight orders in order to take very small profits. This is not a sustainable approach because although you may be profitable in the short run (if you are lucky), you risk losing in the longer term as you have to recover the difference between the bid and the ask price before you can make any profit and this is much more difficult when you make small trades than when you make larger ones.

4. Over-cautious trading - Like the trader who tries to take small incremental profits all the time, the trader who places tight stop losses with a retail forex broker is doomed. As we stated above, you have to give your position a fair chance to demonstrate its ability to produce. If you don't place reasonable stop losses that allow your trade to do so, you will always end up undercutting yourself and losing a small piece of your deposit with every trade.

5. Independence - If you are new to forex, you will either decide to trade your own money or to have a broker trade it for you. So far, so good. But your risk of losing increases exponentially if you either of these two things:
Interfere with what your broker is doing on your behalf (as his strategy might require a long gestation period);
Seek advice from too many sources - multiple input will only result in multiple losses. Take a position, ride with it and then analyse the outcome - by yourself, for yourself.

6. Tiny margins - Margin trading is one of the biggest advantages in trading forex as it allows you to trade amounts far larger than the total of your deposits. However, it can also be dangerous to novice traders as it can appeal to the greed factor that destroys many forex traders. The best guideline is to increase your leverage in line with your experience and success.

7. No strategy - The aim of making money is not a trading strategy. A strategy is your map for how you plan to make money. Your strategy details the approach you are going to take, which currencies you are going to trade and how you will manage your risk. Without a strategy, you may become one of the 90% of new traders that lose their money.

8. Trading Off-Peak Hours - Professional FX traders, option traders, and hedge funds posses a huge advantage over small retail traders during off-peak hours (between 2200 CET and 1000 CET) as they can hedge their positions and move them around when there is far small trade volume is going through (meaning their risk is smaller). The best advice for trading during off peak hours is simple - don't.

9. The only way is up/down - When the market is on its way up, the market is on its way up. When the market is going down, the market is going down. That's it. There are many systems which analyse past trends, but none that can accurately predict the future. But if you acknowledge to yourself that all that is happening at any time is that the market is simply moving, you'll be amazed at how hard it is to blame anyone else.

10. Trade on the news - Most of the really big market moves occur around news time. Trading volume is high and the moves are significant; this means there is no better time to trade than when news is released. This is when the big players adjust their positions and prices change resulting in a serious currency flow.

11. Exiting Trades - If you place a trade and it's not working out for you, get out. Don't compound your mistake by staying in and hoping for a reversal. If you're in a winning trade, don't talk yourself out of the position because you're bored or want to relieve stress; stress is a natural part of trading; get used to it.

12. Don't trade too short-term - If you are aiming to make less than 20 points profit, don't undertake the trade. The spread you are trading on will make the odds against you far too high.

13. Don't be smart - The most successful traders I know keep their trading simple. They don't analyse all day or research historical trends and track web logs and their results are excellent.

14. Tops and Bottoms - There are no real "bargains" in trading foreign exchange. Trade in the direction the price is going in and you're results will be almost guaranteed to improve.

15. Ignoring the technicals- Understanding whether the market is over-extended long or short is a key indicator of price action. Spikes occur in the market when it is moving all one way.

16. Emotional Trading - Without that all-important strategy, you're trades essentially are thoughts only and thoughts are emotions and a very poor foundation for trading. When most of us are upset and emotional, we don't tend to make the wisest decisions. Don't let your emotions sway you.

17. Confidence - Confidence comes from successful trading. If you lose money early in your trading career it's very difficult to regain it; the trick is not to go off half-cocked; learn the business before you trade. Remember, knowledge is power.

The greenback recovered slightly against the majors, pushing the euro back toward the 1.59-level after dropping to 1.5970 earlier in the session. Amid a dearth of US economic reports, markets digested the government’s plan to rescue Fannie Mae and Freddie Mac, which consists of opening the Fed’s discount window as well as a proposal to purchase their equity. The moves are intended to quell bourgeoning fears over the stability of the financial sector, especially following the failure over the weekend of regional bank IndyMac.

The US economic calendar picks up this week with the releases of several key reports including June retail sales, PPI, business inventories, CPI, TICS, industrial production, housing starts, building permits, and the Philadelphia Fed survey. The data this week are likely to bode poorly for the US economic outlook, with housing continuing to remain weak, inflation creeping higher, and the manufacturing sector softer. The minutes for the Fed’s June meeting, due out on Wednesday, will provide further insight into the deliberations that kept rates unchanged but offered a shift toward a more neutral stance.

by Korman Tam