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Tuesday, February 5, 2019

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EarnForex.com Monthly Newsletter
February 5th, 2019

Hello traders! Welcome to the latest issue of EarnForex.com newsletter — February 2019.

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: Market Efficiency — Forex vs. Stocks 🎲

Many traders compare Forex and stocks wondering what to trade — is trading stocks easier than currencies?

Assuming that both Forex and stock price movements are non-random, the question of market efficiency is crucial for traders to consider before choosing a venue of operation. Some argue that due to a large share of passive broad-index investors, the stock markets (at least in the United States) are extremely efficient. High level of efficiency is making it difficult for retail speculators to trade actively for profit.

On the other hand, Forex lacks a passive investment choice and cannot be made more efficient by an inflow of index funds. Forex is used by a large variety of different participants for non-speculative activities:

  • non-financial companies exchange currencies to buy supplies, pay salaries, handle taxes, and convert profit;
  • central banks and other government institutions operate in Forex to fulfill their mandate and to control their currency's value;
  • institutional investors use the foreign exchange market to hedge currency risks due to exposure via other financial markets;
  • smaller banks and financial institutions execute their customers' exchange orders.

Non-speculative nature of the above-mentioned activities results in reduced market efficiency. This happens because they are performed without seeking to buy and sell currencies at the perceived fair price but rather to pursue other goals.

As a result, active trading can be performed much easier in Forex compared to the US stock markets. This does not mean that currency trading is an easy way to profit. It only means that there are many participants who are less interested in earning profit with their transactions than active traders are. This leaves the opportunity for us, retail traders, to grab that profit.

Overview of the major currency pairs' performance in January

EUR/USD — after an initial rally, it declined significantly but then recovered significantly above the monthly open level. It was at the maximum at 1.1570 on January 10, at its minimum at 1.1289 on January 24, finishing the month at 1.1446.

GBP/USD — trended strongly upwards with a minor correction near the end of January. The highest monthly rate was at 1.3217 on January 25, while the lowest — at 1.2396 on January 3. GBP/USD finished January trading at 1.3110.

USD/JPY — like all JPY pairs, it spiked down abruptly but then entered an uptrend, which ended with a minor correction. The pair rose to as high as 109.99 on January 23, reaching a bottom at 105.05 on January 3 and closing the month with the 108.87 rate.

AUD/USD — despite a significant spike down on the first trading day of the year, the pair was in a stable uptrend with a sequence of higher highs and higher lows. The monthly high was at 0.7295 on January 31, the monthly low — at 0.6765 on January 3. Trading ended at 0.7271 for this currency pair.

USD/CAD — fell precipitously during the first few days of the month and, after a correction, followed with the downtrend. The maximum level for this pair was 1.3661 on January 2, while the minimum — 1.3118 on January 30. The month's trading ended at 1.3124 for USD/CAD.

Fundamental background of the past month

January was an extremely bad month for the US dollar mainly due to the dovish Federal Reserve. The Fed mentioned in the minutes of the December monetary policy meeting that it "could afford to be patient about further policy firming" - a sentiment that Fed Chairman Jerome Powell echoed in his comments and the central bank repeated in the statement of the January monetary policy meeting. The government shutdown was hurting the currency as well, and the temporary end of the shutdown did not help the currency that much. Among few supportive factors for the dollar were hopes for improvement in relationships between the United States and China.

The euro started the year poorly, with a flash crash caused by the Apple's profit warning, and continued to trade soft due to poor macroeconomic data. The shared 19-nation currency tried to rally on the back of the dovish Fed but retreated afterwards. The theme of weak macroeconomic reports continued with German's slowing growth. PMIs released by the end of the month were weak as well, though the balanced speech of European Central Bank Governor Mario Draghi helped the currency to stabilize.

The Great Britain pound continued to be driven largely by Brexit news. Surprisingly, the currency rallied after UK Prime Minister Theresa May suffered a historic defeat in the parliament with her Brexit plans. Afterwards, opposition Labor Party leader Jeremy Corbyn initiated a confidence vote, which May's government survived, bringing the sterling to new highs. The main issue remained the Irish backstop plan, which Britain's politicians wanted to renegotiate - an idea categorically opposed by the European Union.

The Japanese yen started January strong on the positive outlook for Japan's economy, but that changed after the Bank of Japan slashed its economic forecasts. Risk appetite and poor macroeconomic reports made the currency end the month with losses.

Commodity currencies demonstrated the best performance in January due to risk appetite caused by hopes for improving Sino-US relations.

The Australian dollar got support from better-than-expected economic reports from both China and Australia itself, though the currency slid after a Markit report showed the slowest expansion of China's manufacturing sector since February 2016.

The Canadian dollar started the year strong thanks to rising prices for crude oil and positive employment data both in Canada and the United States. The currency continued to follow moves of crude throughout the month, rising when oil was moving up and falling when it was going down. The loonie weakened after the Bank of Canada downgraded its growth forecast, but positive economic reports allowed the currency to rebound. Positive inflation data boosted the loonie further, and the signal from the central bank that it took a wait-and-see approach regarding interest rate changes did not weaken the currency.

New Zealand's inflation data was good as well, helping the New Zealand dollar to rally.

As it usually happens, gold was trading inversely to the US dollar, suffering when the currency was rising and profiting when the greenback was falling.

Interest rate changes in January
Chile 2.75% +0.25% 3.00%

You can see the current interest rates by the world's central banks in our interest rates table.

Forex brokers

Three new Forex brokers have been added to EarnForex.com since the last issue of the newsletter:

  • One Global Market — an FCA-regulated direct market access broker with low variable spreads. They offer accounts with as little as $100 and provide 1:30 maximum leverage.
  • SquaredDirect — a CySEC-regulated broker with a wide range of account types aiming at different type of Forex traders. Both classic and raw spread accounts are available via this DMA/STP brokerage.
  • FX Trading Pro — a US introducing broker (for OANDA) registered with CFTC and NFA. It offers multiple trading platforms and $20 minimum account size.

You can always view our full list of Forex brokers.

Top five Forex brokers of the last month

The top five Forex brokers, as reviewed by the visitors of EarnForex.com are the following:

  1. GAINSY — 9.2
  2. ForexChief — 9.1
  3. Turnkey Forex — 9.0
  4. TenkoFX — 9.0
  5. Trade Fintech — 8.9

To qualify for a placement in this list, a Forex broker should have at least three valid reviews. Do not forget to review your favorite broker if you have not done so already.

Forex poll

One new poll has been posted in the EarnForex blog:

You can also browse the full list of Forex polls from EarnForex.com.

Forum

Top five hot topics on EarnForex Forum in January:

  1. Position Size Calculator
  2. Market Profile
  3. high leverage high risk ?
  4. Do you think Forex trading is safe?
  5. Risk Management checker EA
Forex industry news

There was the following important Forex industry news since the last issue of the newsletter:

  • IG has launched a US retail brokerage (becoming a third one active in the USA) after gaining the necessary authorization.
  • European Forex brokers have updated their percentage of unprofitable traders for the year 2018. The data analysis is available in our report.
  • The US District Court of Utah issues a permanent injunction order against JAFX broker for unlawfully soliciting US traders.
  • 1Broker's domain name has been seized by FBI due to money laundering and running an unregistered securities brokerage service.
Until the next newsletter issue!

That is all for the February 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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