Forex – USD/JPY gains on weak U.S. data, talk of Japanese easing

32pips – The dollar strengthened against the yen on Friday after soft industrial production figures published in the U.S., wiping out demand for riskier assets and sent investors chasing the safe-haven dollar.
In U.S. trading on Friday, USD/JPY was trading at 81.23, up 0.08%, up from a session low of 80.90 and off a high of 81.44.
The pair was likely to find support at 80.90, the earlier low, and resistance at 81.44, the earlier high.
U.S. industrial production fell unexpectedly in October, the Federal Reserve reported Friday.
Industrial production fell 0.4% following a gain of 0.2% in September, whose figure was revised down from 0.4%.
Analysts had expected industrial production to rise 0.2% in October, and the disappointment sparked a risk-off trading session that fueled dollar demand.
Superstorm Sandy disrupted business for a good chunk of the northeastern U.S. last month, which reflected in the numbers.

A separate report showed that the U.S. capacity utilization rate declined to 77.8% in October from 78.2% in September, missing expectations for an increase to 78.3%.
Weak U.S. indicators often send the dollar gaining as investors sell stocks for profits.
Meanwhile in Japan, sentiments that opposition leader Shinzo Abe may become the country’s next prime minister weakened the yen.
Shinzo has said he favors more monetary stimulus to jolt the Japanese economy.
The yen, meanwhile was down against the pound and up against the euro, with GBP/JPY up 0.20% and trading at 129.04 and EUR/JPY trading down 0.33% at 103.39.

Forex Analysis: Dollar Forecast to Strengthen on Fiscal Cliff, Israel Conflict

he US Dollar (ticker: USDOLLAR) matched its largest single-week advance since July as financial market uncertainty and a 2 percent drop in the US S&P 500 boosted demand for the safe-haven currency.

A disappointing week for risky assets sets the stage for further US Dollar strength—especially as we see uncertainty surrounding the so-called Fiscal Cliff negotiations and renewed arm conflict in Israel and the Gaza Strip weigh on sentiment. Earlier hints that the US Federal Reserve would enact further Quantitative Easing initially sent the Greenback lower. Yet even the prospect of further monetary policy easing was not enough to offset a renewed wave of pessimism as the S&P finished near multi-month lows.

A holiday-shortened trading week ahead offers relatively little in terms of foreseeable economic event risk, but that doesn’t rule out Dollar volatility through the days ahead. We’ll pay particularly close attention to Fed Chairman Ben Bernanke’s Tuesday address at the Economic Club in New York—that which will give further clues on the Fed’s next steps for monetary policy.

The recently-released minutes from the Federal Open Market Committee’s October decision made it fairly clear that officials were likely to enact further easing at next month’s meeting. The expiration of “Operation Twist” comes at a time when FOMC officials likely believe they should be doing more—not less—to boost the sagging labor market and broader economy. Indeed, officials showed little fear over price pressures despite open-ended Quantitative Easing measures and a slightly above-forecast Consumer Price Index inflation number for October.

Yet markets proved ultimately unimpressed at the prospect of further QE, and the combination of worries over the US Fiscal Cliff and escalating violence in Israel and the Gaza strip pushed US stock markets to their lowest levels in months. Now past the highly-anticipated US Presidential elections, politicians once again take center-stage as the threat of sizeable tax increases and spending cuts threatens to pull the US back into recession through early 2013.

The facts remain clear: if nothing is done, the combination of tax increases and spending cuts could cost the United States up to 4 percentage points in GDP growth in the New Year. Given that the damage would essentially be self-inflicted, one would assume that the US Congress and President would seek a resolution as quickly as possible.

Yet the Democratic party controls the presidency and Senate while the Republicans control the house; there must be compromise between parties to get a deal done. Early rhetoric from Republican and Democratic leaders suggests this round could be different than the last. But it may take nothing short of a miracle for a breakthrough to occur before the soft deadline of January, 2013.

Expect to hear the term “Fiscal Cliff” frequently in the next two months as financial markets grapple with this fairly significant risk to the global economy. And though we won’t get clarity on a potential deal for some time, be mindful of volatility when President Obama or House of Representatives Speaker Boehner speak on the status of negotiations.

We could be in for more uncertainty and dour sentiment across the S&P 500 and broader risky asset classes. Clear deterioration in armed conflict between Israel and the Gaza Strip could likewise keep a lid on optimism and further benefit the safe-haven US Dollar.

Currency trading and Gambling: Five Reasons They Are not the same.

After working in the Forex industry for some time now, I have been met with one common question countless times. “Isn’t Forex trading just like Forex gambling”? Before I completely negate that question and explain why they are totally different, let me first explain that there is something to that question.

It is true that there is some percentage of a gamble when opening up a Forex position. No expert, no matter how long they have been trading and analyzing the Forex market, can tell you in full certainty what the US Dollar will do today. There are many tools that can be used in order to help you make a more educated decision, but do not be fooled by so called Forex experts when they tell you they have it figured out. In fact, it is simple math. If they have a 3 trillion dollar a day market figured out, why are they not billionaires? If they really knew the key to eliminating the Forex risk, they would not be wasting their time trying to convert you into a Forex trader. Even in their trading, there is a certain element of Forex gambling.

No one knows “The Forex Secret”. You know why? Because there is no such thing. You can familiarize yourself with all the technical indicators, study fundamental analysis from dusk till dawn, and there still is some sort of a risk when trading Forex. You are still going to be met with a certain factor of Forex gambling.

It is for this reason that a very high percentage of Forex traders end up losing more than they gain. For this exact reason, it is crucial when first opening up a Forex trading account that you only use money that you can afford to lose. Call it vacation money, designate it for your Forex account, and face the fact that you might lose it.

If you are still reading, you know that while there is great risk in Forex, the possible reward is something you cannot ignore. The potential for making money in Forex trading is as close to endless as any market on the globe. While the Forex gambling/Forex trading comparison is not totally baseless, it is also not accurate and the following is a list of five attributes that differentiate the two industries.

: Before I get into morals, ethics, legal issues, and legitimacy, let’s just focus on the reason anyone gambles or trades Forex; money. There is absolutely no comparing the amount of money traded daily in the Forex market to that of the gambling arena. In fact, I am not aware of any industry (ok maybe there are a few exceptions) that handles so much money on a daily basis. Depending on who you ask, there are anywhere between 2 and 5 trillion dollars traded daily in the Forex market. I could not find exact statistics about how much money passes through the casinos daily, but I am pretty sure the numbers do not compare.
: The Forex market is backed by the biggest and most important financial institutions on the globe. It is true that traders do not trade with the banks, but rather on the retail market, even so, the fact that the market is supported by such organization provides a much higher level of legitimacy than the gambling world. While gambling always faces challenges on the legal front, Forex is as legitimate as any other market, such as stocks or commodities. So if you are interested in spending your hard earned money and taking a risk, wouldn’t you be better off putting it where you know the law and morals are on your side?
: While there is a risk factor involved in Forex trading, you are not totally in the dark when opening a position. There are various schools of thought that dedicate much time and resources trying to eliminate as much of that risk as possible. Whether you are a believer in technical analysis, and the famous saying “The trend is your friend” or you trade with your face glued to the Forex news since you think fundamental analysis is the way to go, Forex is not about luck. You can watch and analyze the Forex market for days before opening a trade, as well as keep a close eye on the currency you are looking to buy, and only then, based on your studies, make your move. I am pretty sure such tools do not exist in the gambling world, which leaves you in the hands of luck or fate. Either way I would not want to depend on chance with my hard earned money. How about you?
: One of the main issues with gambling, as we all know, is that it causes addiction. If we think about this for a second, we will understand that the reason this is, is because people let their emotions get the best of them. People step into casinos with nothing but their desire to make money. When they do not fulfill this desire, they try again and it is not long before they have lost all their money, which usually leads them to gamble even more, and often more aggressively. This is of course a big problem. In forex trading, on the other hand, the first rule any trader knows is to leave their emotion out of the equation. Trade objectively and scientifically. Set your trading goals, and stick to them. This of course prevents overcompensating with trades, when you have lost money, or letting your greed take over when you are profitable. However, the obvious question is “Is it really possible to leave your emotion out of the picture”? This leads me to my next point, use trading strategies.
: It is true that a very high percentage of traders end up losing, and if you ask me why this is, I will tell you it is because they trade blindly and with no strategy. This is the biggest mistake a trader can make. Before you trade a penny, you need to make some serious decisions about your trading goals and limits. Once you have make those decisions, you must implement them using your trading platform. Use Stop Losses to prevent your emotion and your inner voice from telling you to stay in the trade because it has to go up eventually. Use Take Profits to prevent your natural human greed from telling you not to get out now since your currency will continue to increase in value. Stop your losses and take your profits based on trading strategies and not weak human emotions.

Many other differences exist between the casino/gambling industry and the Forex market. These are just some examples.