Technical analysis in forex trading is like solving a puzzle using historical price data. It helps us understand the past and make predictions about the future.

What is Technical Analysis?

By studying these puzzle pieces—patterns, trends, support and resistance, and using indicators—we can make predictions about future price movements. But remember, technical analysis is not foolproof. It’s like a game of probabilities, where we use historical clues to make educated guesses about what might happen next. It’s important to combine technical analysis with other forms of analysis, like understanding economic news and managing risks.

By learning technical analysis, people can develop a better understanding of how prices move in the forex market and use this knowledge to make more informed trading decisions. It’s like being a detective, solving puzzles and making predictions based on the clues we find in the charts. Just like any skill, practice and continuous learning are key to becoming better at technical analysis.

Key Components of Technical Analysis

As we mentioned above, traders rely on various clues from the past to predict the future. And here are some key clues frequently used to make predictions:

• Price charts:

Price charts show the historical prices of a currency pair, like a line graph or candlestick chart. These charts display the ups and downs in currency prices over time.

• Patterns and trends:

Traders look for patterns and trends in the price charts. They observe how prices have moved in the past to identify similar patterns that might happen in the future. For example, they might notice that every time the price goes up a certain amount, it tends to come back down, or vice versa. These patterns are used to predict when the price might go up or down next.

• Indicators:

Traders use indicators, which are special calculations based on price data, to obtain more market information. For example, they might use moving averages, which show the average price over a certain period, to identify trends. They can also use oscillators, which help determine if a currency is overbought or oversold.

Summary

• Traders can make predictions about future price movements by relying on technical analysis.
• Technical analysis consists of many key components, such as price charts, patterns and trends, and indicators.

If you have read our article “Introduction to Technical Analysis”, then you must be aware of the significance of technical analysis, which is used by master traders to predict the ups and downs of the financial markets. In this article, we are going to lift the curtain on the myth of technical analysis: Charts!

• Line charts:

Let’s start with the most beginner-friendly chart: the line chart. Line charts display the closing prices of a currency pair, stock, crypto, or any other type of financial asset, over a specific time frame, and these price dots are connected with a line.

This straightforward chart gives a clear picture of price movements, convenient for you to take a quick glance at the market’s overall trend.

• Candlestick charts:

Candlestick charts are like little rectangles with wicks on top and bottom. These candles stand for price movements within a specific time period (maybe an hour or a day). The body of the candle indicates the opening and closing prices, while the wicks reveal the highest and lowest prices during that time. By taking advantage of candlestick charts, you can access more details about the magnitude of price movements.

• Bar charts:

Bar charts resemble vertical lines with small dashes on each side. The top dash represents the highest price, the bottom dash the lowest price, and the vertical line the opening and closing prices. Sounds like candlestick charts? That’s right. Bar charts are just like cousins of candlestick charts, providing similar information with just a slightly different look.

Summary

Charts help us unravel patterns, trends, and potential price movements. By analyzing these charts, you can make reasonable predictions about where prices might head next, giving you a competitive edge in CFD trading. Charts are your trusty companions to embark on the thrilling journey of trading.

First things first, FOMC stands for the Federal Open Market Committee. Think of it as the mastermind behind the scenes, making decisions that can send shockwaves through the financial markets. In this article, we are going to walk you through the FOMC Meeting, and explain why it is a big deal for you.

• Interest rate decision:

Imagine you are at an amusement park, and the FOMC is controlling the speed of the roller coaster. Interest rates are just like the gas pedal for the economy. When the FOMC decides to raise interest rate, borrowing money becomes more costly. This can cool down an overheated economy and tame inflation. On the other hand, when they lower interest rates, borrowing money becomes cheaper, thereby boosting spending and investment. These rate decisions can jolt the values of currency pairs, stocks, or commodities.

• Market mood:

Experienced traders tend to analyze every word the FOMC utters during the meeting to predict what’s coming next. If the FOMC hints at rate hikes, traders might expect currency values to rise. If they signal rate cuts, stock prices might skyrocket. You may grab a competitive edge by hunting for clues from their statement.

• Volatility swing:

FOMC meetings can feel just like a roller coaster. Currencies might leap, stocks can soar or plummet, and commodities might go on a wild ride. The thrilling volatility may catch inexperienced traders off guard. That’s why knowing when the FOMC is meeting and preparing for their announcements is a savvy move.

Summary

In a nutshell, FOMC decisions about interest rates will impact economies and market expectations, and send waves around the globe. For CFD traders, knowing these meetings and how they can shape the markets will give you an upper hand.

Fundamental factors are like puzzle pieces that shape the big picture of the financial world. These factors can influence the value of assets such as currency pairs, stocks, commodities, and even cryptos. In this article, we will uncover such key factors, which often create opportunities for intelligent investors and traders.

• Geopolitical events:

Geopolitical factors like wars, elections, trade deals, or conflicts can cause ripples in the markets. Positive events can boost investor confidence, while negative news can trigger uncertainty. You are highly recommended to stay updated on global affairs to anticipate how they might impact your trades.

• Economic indicators:

Economic indicators are like the scoreboard, showing the health of a country’s economy. When GDP (Gross Domestic Product) goes up, it’s a sign of economic strength. Low unemployment rates mean people have jobs and money to spend. Inflation, the rise in prices, affects consumers’ buying power. And interest rates set by central banks can make borrowing cheaper or pricier. These indicators affect market sentiment, and understanding them gives you an edge.

• Corporate earnings:

Corporate earnings can reveal how well a company is doing. Strong earnings mean the company is making money, which can lead to higher stock prices. Keep an eye on quarterly reports and profit margins – they’re your insider’s ticket to predicting movements of stocks and indices.

• Natural disaster or climate events:

Imagine you’re a scientist observing nature’s forces. Natural disasters like hurricanes, earthquakes, or droughts can disrupt supply chains and affect commodity prices. Climate events, like changing weather patterns, impact agricultural products. Keeping an eye on these factors helps you anticipate potential market shifts.

• Market sentiment:

Imagine you’re a scientist observing nature’s forces. Natural disasters like hurricanes, earthquakes, or droughts can disrupt supply chains and affect commodity prices. Climate events, like changing weather patterns, impact agricultural products. Keeping an eye on these factors helps you anticipate potential market shifts.

Summary

By understanding fundamental factors, you can predict how the market might change. For example, if an economic indicator suggests a strong economy, you might expect stock prices to rise. If geopolitical tensions increase, currencies might fluctuate.

In a word, fundamental factors are the driving forces behind price movements. Understanding them will give you a competitive edge.

If you are eager to understand the magic behind the financial markets, look no further than fundamental analysis! It’s time to unlock this exciting aspect of CFD trading and show you how to take advantage of it like a pro.

What Is Fundamental Analysis?

Fundamental analysis is all about exploring the real factors that drive the prices of financial assets like currency pairs, stocks, commodities, or cryptos. Unlike technical analysis, fundamental analysis focuses on the big picture, considering economic, financial, and geopolitical factors that influence an asset’s value.

Key Factors in Fundamental Analysis

• Geopolitical Events:

Geopolitical events, like elections, trade deals, or conflicts, can cause turbulence in the financial markets. They play a role in shaping investors’ confidence and affecting asset prices. Keep an eye on global news and how it impacts the markets.

• Economic Indicators:

Economic indicators are like clues that help you understand the health of a country’s economy. Key indicators include GDP (Gross Domestic Product), employment rates, inflation, and interest rates. When these indicators show a strong economic signal, asset prices might rise. But if they reveal weakness, prices could fall.

• Company Performance:

If you’re trading CFDs on individual stocks, it’s essential to investigate the companies behind them. Look into their financial reports, earnings, and growth prospects. A company with solid earnings and exciting projects may attract more investors, boosting its stock price. But beware of companies facing challenges, their stock prices might take a dip.

Summary

Fundamental analysis is key to revealing the hidden treasures of the financial markets. It can help you understand the true value of assets and the factors that drive their prices. By combining fundamental analysis with technical analysis, you will be well-equipped to tackle the thrilling world of CFD trading.

Focus on gold.

Fundamentally speaking, the US released retail sales in July increased by 0.7% mom. The figure for June was also revised up to 0.3% from 0.2%, suggesting the U.S. economy continued to expand in 3Q and avoid recession. Consequently, inflation stays still in the short run.  With demand remaining resilient and labor market tightening, curbing inflation has become a tricky problem for the FED. We believe gold is heading for a bounce.

Technically speaking, the gold daily has come to a key support zone – the 240-day moving average .

(Gold daily cycle, Ultima Markets MT4)

The 240-day moving average has been a supportive position for gold since 2022. The gold price made small fluctuations in the supportive zone during the past week, nevertheless, the stochastic oscillator signaled a golden cross yesterday.

(Gold in 1- hour period, Ultima Markets MT4)

In 1-hour period, the gold price went down again after stepping back on the 65 – period moving average yesterday, but it did not fall below the previous low. Looking at the overall structure, the gold price has a probability of forming a bottom structure. After the price breaks through the previous suppressed position, please make sure if the ATR combination indicator shows an effective breakthrough.

(Gold in 1- hour cycle, Ultima Markets MT4)

According to the pivot indicator in Ultima Markets MT4, the central price is 1902.54,

Bullish above 1902.54, the first target is 1909.10, and the second target 1917.99.

Bearish below 1902.54, the first target is 1893.94, and the second target 1887.37.

Disclaimer Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided.

3 Basic Concepts in Forex Trading Key to Beginners

Forex trading can be complex for beginner investors if they don’t understand some basic concepts or elements. Except for margin and leverage mentioned in our previous article, “Understanding Margin and Leverage: Why Forex Trading May Boost Your Profits”, we are going to walk through another 3 basic elements key to forex trading in this article.

Pips & Spread

Pips are a way to measure the price movement of currency pairs in the forex market, while spread refers to the difference between the buying price and selling price of a currency pair.

Think of pips as the small units that represent changes in the value of a currency pair. Pips are usually displayed as the last decimal place in the exchange rate. For example, if the exchange rate of the EUR/USD currency pair moves from 1.2000 to 1.2010, it means it has moved 10 pips.

As for the spread, it’s the cost you pay to enter a trade. When you see a currency pair quote, it will show two prices: the higher ask or offer price and the lower bid price. The difference between these two prices is the spread.

Imagine you want to trade the USD/JPY currency pair, and the current quote is 110.50/110.55. In this case:

• The bid price is 110.50, which means if you want to sell the currency pair, you will receive 110.50 Japanese yen for every US dollar.
• The ask price is 110.55, which means if you want to buy the currency pair, you will have to pay 110.55 Japanese yen for every US dollar.

In this example, the spread is 5 pips, as the difference between the bid price (110.50) and the ask or offer price (110.55) is 5 pips.

Take Profit

Take profit and stop loss are two important tools used in forex trading to manage risk and protect trading positions. Let’s explain take profit first.

Take profit is a predetermined level at which you decide to close a trade and secure your profits. It’s like setting a target for your amount of profit you want to achieve from a trade. When the market reaches your specified take profit level, your trade is automatically closed to realize the profit.

Imagine you bought the EUR/USD currency pair at 1.2010, and you set your take profit at 1.2110. This means you aim to capture a profit of 100 pips. If the market moves up and reaches 1.2110, your trade will be closed automatically, limiting your profit to 100 pips.

Stop Loss

Stop loss is a predetermined level at which you decide to exit a trade to limit your potential losses. It’s like a bottom-line that protects your trades from significant drawdowns. When the market moves against your position and reaches your specified stop loss level, your trade is automatically closed to prevent further losses.

Continuing from the previous example, let’s say you also set a stop loss at 1.2050. This means you are willing to accept a maximum loss of 50 pips. If the market moves down and reaches 1.2050, your trade will be closed automatically, limiting your loss to 50 pips.

By using take profit and stop loss orders, you can manage your risks effectively, protect your investment, and maintain a consistent and disciplined approach to forex trading.

Summary

• Pips are a way to measure the price movement of currency pairs in the forex market, while spread refers to the difference between the buying price and selling price of a currency pair.
• Take profit is a predetermined level at which you decide to close a trade and secure your profits, resembling a target for your amount of profit you want to achieve from a trade.
• Stop loss is a predetermined level at which you decide to exit a trade to limit your potential losses, resembling a bottom-line that protects your trades from significant drawdowns.

Focus on EUR/USD.

Fundamentally speaking, although Fed’s rate hike coming to an end, the U.S. dollar index continues to rise. According to data released by the CFTC last week, the short positions fell to the lowest level in eight weeks. Short-covering is fueling a rebound in the U.S. dollar index as hedge funds continue to trim their short positions.

(US 10 -Year Treasury Yield vs EU 10 -Year Treasury Yield)

During the tightening monetary cycle, the spread of long-term bonds between the United States and Europe drives arbitrage funds to buy dollar and sell euro. In the short term, the spread deliveries adjustments to the exchange rate.

Technically speaking, the EUR/USD daily cycle completed a breakout of last Friday’s low yesterday. The market has a high probability of ushering in a downward trend in the next two days.

(EUR/USD daily cycle, Ultima Markets MT4)

The exchange rate fell below multiple moving averages and was blocked by the 61.8% golden ratio Fibonacci retracement position yesterday. Today there is a certain probability of stepping back on the moving average or consolidating prices, but if today’s market continues to fall below yesterday’s low, the euro will remain weak against the dollar.

(EUR/USD daily cycle, Ultima Markets MT4 )

From the perspective of daily structure, there are two key support positions below the level, 1.0836 is the potential target, and 1.0639 is the extremely critical long-short boundary. If all supportive levels are crushed, a deep correction will come along.

(EUR/USD in 4 -hour cycle, Ultima Markets MT4)

In 4- hour cycle, bull and bear are in entanglement. The Stochastic Oscillator displays a golden cross to indicate the bull, but the exchange rate maintains a downward trend. It means that the decline is not firm enough, and the rebound is still strong.

(EUR/USD in 1- hour cycle, Ultima Markets MT4)

In 1- hour cycle, the price still has the probability of stepping back on the moving average and resistance level. If Stochastic Oscillator shows a dead cross later on, please look for short trading opportunities.

According to the pivot indicator in Ultima Markets MT4, the central price is 1.09147,

Bullish above 1.09147, the first target is 1.09537, and the second target 1.09993.

Bearish below 1.09147, the first target is 1.08680, and the second target 1.08284.

Disclaimer

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided.

RBNZ might hold rates unchanged while institutions short on NZD

The Federal Reserve Bank of New Zealand will announce the latest interest rate decision on Wednesday, and the market expects to keep the OCR official cash rate unchanged at 5.50%.

At the moment, global economics are cooling, while the figures released by RBNZ are not strong enough.

Consequently, RBNZ gains space to keep interest rates unchanged and time to observe the inflation situation further.

The Intricacies of the New Zealand Economy

NZ economic data displays a mixed picture, with inflation data tapering off despite resilient demand, leaving investors conflicting signals. NZ economic conditions have not weakened as badly as previously expected.

(NZ inflation rates in one year)

Although inflation has started to fall, it has remained high. The strong labor market has prompted RBNZ to postpone an expected rate cut originally scheduled for the fourth quarter of 2023 until the second quarter of 2024.

The wage growth has declined, however, stayed at an elevated level, hampering RBNZ to reach its inflation goal. NZ’s GDP growth rate is expected to pick up slightly in 2023, showing some resilience in its economy.

(NZ job vacancies decreased since July 2022）

The Uncertainty Surrounding OCR

A ‘watch, worry, and wait’ stance seems the most likely outcome of the OCR review. However, some institutions believe it is possible to see rates go up to 5.75% in the future. The divergence reflects market uncertainty toward inflation and the economic outlook.

(Institutional short positions increased on NZD/USD)

The positions held by Institutional investors last week showed bearish sentiments on NZD/USD. If RBNZ unexpectedly raises interest rates, NZ’s exchange rate will rise rapidly in the short run.

（NZD/USD weekly chart, Ultima Markets MT4）

Institutional Sentiments on NZD/USD

From a technical standpoint, the NZD /USD weekly cycle has fallen into short-term weakness, and the bottom is about to look at the Fibonacci 61.8% retracement position of the upward trend since September 2022.

The Crucial Role of Data and Monetary Policy

In conclusion, the outcome of the RBNZ’s decision hinges significantly on a blend of mixed economic data, inflation trends, and the broader economic outlook.

Investors are well-advised to keep a keen ear out for the central bank’s commentary on inflation and the overall state of the economy during the review.

Furthermore, observing the subsequent market response will provide invaluable insights into the trajectory of New Zealand’s monetary policy.

Disclaimer

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided.