- Coronavirus Crisis Still in Focus for Many Currencies
- USD Remains Strong on Risk-Off Attitude
- Asian Markets Open Lower Amid Negative Sentiment
Risk Aversion has been the key word of the week so far as the coronavirus pandemic continues to dominate both headlines and market movements across the globe. The forex market remains very much impacted by the virus as rising case numbers tempt traders toward the safety of the US Dollar once again. Today’s opening in Asia looks to be following along a similar pattern as markets fall once again amid rising case numbers and an all-round uncertain outlook.
Virus Concerns Persist Across US and Globally
Coronavirus cases continued to rise on Thursday with more than 60,000 cases again reported in the US in figures that were similar to record daily numbers reported in the previous days. This has undoubtedly hampered the economic recovery which had been taking place in previous weeks and this was felt on a largely difficult day for American Markets.
Many currencies around the world suffered from the uptake in US cases. None more so than the Euro. The EUR/USD took a sharp dive on Thursday to finish the day trading below 1.13 and with little sign of a bounce back coming up. More positive economic data in the UK too was largely offset as the GBP/USD also fell. Both will be hoping for better news to come from the US today, though that looks unlikely.
Dollar and Yen Return to Safe-Haven Strength
The wild market movements of recent days, particularly Thursday, combined with a general concern over a possible second wave of the virus as case numbers accelerate, has driven traders back toward the dollar. Forex brokers have noted a strong move back to what is considered a global safe-haven in times of difficulty.
The Japanese Yen has been another beneficiary of the risk averse mood among forex traders. The USD/JPY market fell below the 107 level to mark a new ten-day low for the pair. Historically, like the Greenback, the JPY has also been viewed as a very safe choice when there is a risk-off mood as is currently the case. With the release of US inflation figures set for later today, there would appear to be no move away from either currency forthcoming before the end of the week.
Asian Market Opening Continues Downward Trend
Markets across Asia opened with further falls on Friday. These are likely a continuation of the difficult prior trading day on Wall Street, and an indicator of concern on the rampantly rising COVID-19 case numbers in the US. Markets in Australia, Japan, Korea, and China all fell to start the session.
Oil prices have also continued their slump in the Asian session, falling a further 0.5% at the time of writing as traders around the world express concern at how reopening of economies could be impacted. With a quiet economic calendar in many regions, expect case numbers to be a key driver again today.
Forex Market Majors Boosted by Positive Data
- US Jobless Numbers Drop as Euro Reach Highs
- Interest Rate Hold Helps GBP/USD
- Markets Wait on Stimulus Bill Update
Both the Euro and the Pound were given a timely boost against the US Dollar as unemployment numbers in the US came in much lower than expected. The number of new claims filed dropped almost 250,000. Sterling has been boosted further by the news that the Bank of England will leave interest rates unchanged for now. This positive news has not though impacted the opening on Wall Street as traders hold out for more news on the proposed stimulus deal.
Better Than Expected Unemployment Data Provides Confidence
Although unemployment numbers are still easily at record-setting numbers, there are continuing signs of movement in the right direction as the number of weekly claims has continued to trend downward, albeit against the expectations of analysts. They had forecast a figure above 1.4 million, though the number which came in is far below that at 1.186 million.
Continuing claims have also dropped by more than 800,000 and while there is still a great distance to go, traders and the forex market alike have been quick to take the positives from the situation. The EUR/USD market quickly moved to a new two-year high above 1.19 though this has since dropped back closer to 1.185 as many forex trading the pair await the outcome of the proposed second stimulus package for the US economy.
Pound Receives Boost from BoE
The Pound has been trading well in recent days, shaking off concerns over the stalling Brexit negotiations and a step back in the UK lockdown reopening process to gain further against a weakened US Dollar. It was further aided today by news that the bank will not move to negative interest rates at any time in the near future.
Although a positive message was taken by traders, and forex brokers noted an uptick in trading of the Pound, Bank of England Governor Andrew Bailey was also quick to warn that this should not be perceived as an optimistic outlook, and that the bank will continue to monitor developments closely. In other positive developments though, they also revised GDP projections to predict a 2020 contraction of 9.5% instead of the previously estimated 14%. This has all left the GBP/USD trading above 1.315, having hit a multi-month high.
Quiet Market Opening as Stimulus News is Awaited
Despite the drop in unemployment numbers, markets on Wall Street opened quietly on Thursday. This follows recent days of strong gains with the S&P 500 ending yesterday within 2% of its all-time high level.
Many traders are poised and waiting for further news on the new coronavirus stimulus package which has so far failed to overcome an impasse with lawmakers in Washington. It seems that several concessions have been made in a bid to get the package passed, though there still appears to be a gap between what is being proposed, and what some feel is appropriate.
GBP/USD Forex Market Eases Off Amid Continuing Virus and Trade Concerns
- Pound Fails to Further Capitalize on Weak US Dollar
- EUR/USD Also Trading Sideways as PMIs Improve
- American Markets Continue to Improve
Having rallied well in recent days and weeks, the GBP/USD market is now trading back at reasonable numbers previously seen before the COVID-19 pandemic. The pair has dropped back slightly though on Tuesday as concerns continue on a number of fronts. The Euro is also following a similar pattern as the US yesterday released rebounding PMI figures. The major US indices are bouncing back too. They opened with a third consecutive daily gain.
Traders Worried About Possible Pound Retreat
The Pound has been making significant gains as the US Dollar weaknesses have been highlighted in recent days and weeks. That looks set to end today though as the currency slipped back to $1.30 on the charts. Those forex trading in the market are concerned as trading patterns indicate a ‘dead cat bounce’. Namely this is a heavy drop, followed by a short recovery, before another large fall.
This would appear slightly pessimistic, though forex brokers too have noted that the UK in particular faces many challenges on the horizon. These include not only a rising number of coronavirus cases as PM Boris Johnson has moved to scale back reopening processes, but also some ongoing, and increasing tensions between the UK and China, particularly over Hong Kong related issues. These combined with a lack of movement in regard to Brexit talks, could really work to stop the Pound in its tracks.
Euro Market Remains Unchanged After Opening Boost
The EUR/USD had started the day off strongly, but it too has been pegged back to around its opening mark. There are a couple of factors likely at play here. The move is more related to increasing US Dollar strength, than any Euro weakness.
US manufacturing sector PMIs yesterday rebounded to a 16 month high when numbers were released. The figure of 54.2 was impressively higher than predicted, while the new orders index also continued to surge in the right direction at 61.5. This will have strengthened the Greenback in a positive sense, while the continuing talks on another economic stimulus plan in the US have also worked to drive many traders back to the safety of the Dollar for the time being.
Continuing Talks Help Boost US Markets
These same continuing talks have given a sense of hope to the stock markets as all major US indices opened higher on Wall Street for the third consecutive day. This comes as news continues to filter out about ongoing discussions for further stimulus which have been described as productive.
Both sides at the moment would appear to have agreed on another $1200 stimulus, though there remains some stumbling blocks to overcome. This would surely boost the market at least in the short term and the optimism has been reflected in trading over recent days with gains in many hard hit sectors of the stock market such as airline travel as investors regain hope.
What is Algorithmic Trading in Forex?
Trading in the forex market has been steadily evolving over decades since it first began. This has particularly been evident in recent years with the continuing emergence of new trading strategies and methods. These have generally advanced trading to become both more convenient, and more efficient.
One such method which has experienced a sharp growth in popularity of late, is algorithmic trading. Here we will examine what exactly algorithmic trading in forex is, the methods available, and how it could be an effective tool in your trading arsenal moving forward.
The Algorithmic Trading Basics
Algorithmic trading at its core, is trading based on a computer program. This computer program follows a preset collection of instructions, an algorithm, to perform a number of functions for you as a forex trader. Typically, within forex trading, this algorithm would be set to execute trades at certain points, or to follow a defined trading strategy in a certain way based on market changes. To this end then, algorithmic trading, also known as algo-trading, can do exactly that. It can automate trading based on a strategy which you desire to implement. This strategy is then made into an algorithm and put to work on your behalf.
As technology continues to advance, not only are an increasing number of traders turning to algorithmic trading methods as a means of trading, but the algorithms themselves, are becoming more and more advanced.
In the current market, there are an endless number of options available in this market space. These range from forex robot trading which you can purchase and implement directly, to community based automated trading strategies which you can take and implement yourself through many trading platforms if your forex broker allows algorithmic trading.
Different Types of Algorithmic Trading
Broadly speaking, we can break algorithmic trading into four different types based on the desired results. We will then define this further into the most common strategies used by trader who engage in algorithmic trading.
Looking at the overview when it comes to algo-trading, we can define four general strategies, or functions, that can be performed within algorithmic trading.
Statistical Algo-Trading – This type of algorithmic trading searches through historical market data in order to identify trends and opportunities based on the data it finds, versus the current market data and trends.
Algorithmic Trade Execution – This type of strategy is used to increase the speed and efficiency of trading, typically by executing trades as quickly as possible. This type of high-frequency trading is used to great effect by scalpers within the forex trading sector.
Algorithmic Hedging – The purpose of this type of algorithmic trading is to balance your exposure to certain areas of the market, under specific conditions. This type of strategy is typically engaged by many in hedging their portfolios, or in many automated portfolio rebalancing services which have become very popular.
Ways in Which You May Use Algorithmic Trading
If we take the strategies above as general functions which algorithmic trading can perform, then this enables you to implement a number of different solutions or times when you may want to use algorithmic trading. Some of the following may be made possible when you engage the strategies mentioned above.
Price Action/ Trend Following – This is one of the primary purposes for which algorithmic trading is used. It is also one of the most simple. Using the algorithm, both the previous market trend, and the current market trend can be compared and used to identify profitable trading opportunities.
Arbitrage – Particularly in forex trading, algorithms can be used to identify opportunities in various markets to exploit price differences. To employ this strategy, you will typically need to have two or more forex broker accounts. You could then potentially exploit price differentials between the two by employing algorithmic trading.
Forex Scalping – Forex scalping is the act of moving in and out of trading positions very quickly throughout the day. In doing this, scalpers aim to profit from very small market movements at any given time. These may represent tiny profits to some traders, but using algorithmic trading, it is possible to engage in thousands of these trades per day at a much faster rate that you would if trading manually.
Benefits of Algo-Trading in Forex
With a basic grounding in what algorithmic trading is, and how it functions, you may wonder what benefits it can ultimately bring to you as a trader. Here are a few of the major benefits associated with algorithmic trading in forex.
Better Trade Prices – Since algorithmic trading is preset to execute trades at certain levels, this is done almost automatically, or at least at a much faster pace than you could possible achieve through manual trading. This typically means that you have a much higher possibility of executing trades at your best desired price.
Time Saving – If you have employed an algorithmic trading strategy, then you can just set it up, and leave it to work. You do not need to be there to monitor it. This means you save yourself an untold amount of time behind the screen and executing trades.
No Emotion – Algorithmic trading is completely systematic. It is essentially a computer program which will follow the data, precisely as you instruct. This leave no room for either human error, or emotional decision making, both of which can often be costly if you are trading in any market.
When it comes to algorithmic trading, where previously you may need to have had advanced computer programming knowledge to implement some of the strategies, now that is simply not the case. Though it would be helpful, you really can get started with algorithmic trading very easily through using codes from other members of the community, or trying out some other dedicated forex robot services which can make the whole thing very easy.
Ultimately, if you want to take a more hands-off approach to forex trading which will definitely save you time, and has the potential to increase your returns, then algorithmic trading is something well worth considering.