Online Stockmarket Trading Update

The Australian dollar has long been viewed as a risky, commodity backed currency dictated to by the demand for raw materials around the world while the US dollar has traditionally been considered as a relative safe haven. A large number of global funds are dominated in US dollars and as equity markets began to decline in September of 2007, we saw fund outflows reverting to their base currency – that being the US dollar. This provided support to the greenback as the global financial system unwound.  At the same time, the Aussie was trading higher before a final spurt towards parity in July of 2008.  But alas, it was not to be as the outlook for global growth slowed, dragging down the demand for Australian resources and ultimately our currency suffered. It was sold off aggressively to a low of just over 60c in October last year before consolidation while equity markets bottomed in March.

We are now seeing significant strength in the Aussie while the greenback is suffering from the governments need to embrace quantitative easing, near zero interest rates and headwinds for corporate growth.  Contrast this with the Australian economy that has avoided a recession, has relatively high interest rates with further room to cut as unemployment rises and signs that the demand for our raw materials are improving particularly from China.

These are no doubt positives for our economy but by no means are we out of the woods yet. The pessimist would suggest the rise in commodity prices is a US dollar story. That the greenback has fundamental weaknesses largely due to George W’s huge spending program that has caused unprecedented Government debt that could ultimately lead to the US losing their AAA credit rating, and with it the ability to raise cash cheaply…not to mention the possibility that the greenback may lose its status as the worlds benchmark currency.

There are a lot of “ifs” or “maybes” in all scenario’s relating to currency valuation, but here’s what we know.

1. A weak US dollar will lead to strength in US denominated commodities
2. Increasing demand for commodities, will improve the outlook for the Australian Dollar
3. A rising Australian dollar is positive for importers, but a negative for exporters.
4. When our exports become less competitive, growth suffers as does our outlook for a swift economic recovery.

So a rising Aussie dollar is not necessarily great for our chances of a swift economic recovery, but as shorter term traders, we need to take a shorter time view and can alleviate much of the “ifs” and “maybes”.

The simplest way to have a view on commodities, the US dollar or commodity producers such as BHP or Rio is to monitor the US dollar index, which measures the US dollar against a basket of 6 other major currencies.

Looking at the chart, we see that it’s trading at very critical level around 79c.

It has formed a head and shoulders pattern. This suggests that a break of the neckline will see further declines triggering further strength in commodity prices. If it holds the neckline, this could provide a degree of support. The more probable outcome from this pattern is a move to the downside. This can be used as a trigger to buy raw commodities, commodity producers or short the US dollar. Alternatively, if the US dollar finds support and edges higher, this could trigger a sell signal in commodities and commodity related stocks.  All of these trades can be taken from the one account using CFDs – soon available through Trader Dealer Online.  �

The Australian dollar has long been viewed as a risky, commodity backed currency dictated to by the demand for raw materials around the world while the US dollar has traditionally been considered as a relative safe haven. A large number of global funds are dominated in US dollars and as equity markets began to decline in September of 2007, we saw fund outflows reverting to their base currency that being the US dollar. This provided support to the greenback as the global financial system unwound. At the same time, the Aussie was trading higher before a final spurt towards parity in July of 2008. But alas, it was not to be as the outlook for global growth slowed, dragging down the demand for Australian resources and ultimately our currency suffered. It was sold off aggressively to a low of just over 60c in October last year before consolidation while equity markets bottomed in March.

We are now seeing significant strength in the Aussie while the greenback is suffering from the governments need to embrace quantitative easing, near zero interest rates and headwinds for corporate growth. Contrast this with the Australian economy that has avoided a recession, has relatively high interest rates with further room to cut as unemployment rises and signs that the demand for our raw materials are improving particularly from China.

These are no doubt positives for our economy but by no means are we out of the woods yet. The pessimist would suggest the rise in commodity prices is a US dollar story. That the greenback has fundamental weaknesses largely due to George W s huge spending program that has caused unprecedented Government debt that could ultimately lead to the US losing their AAA credit rating, and with it the ability to raise cash cheaply not to mention the possibility that the greenback may lose its status as the worlds benchmark currency.

There are a lot of ifs or maybes in all scenario s relating to currency valuation, but here s what we know.

1. A weak US dollar will lead to strength in US denominated commodities
2. Increasing demand for commodities, will improve the outlook for the Australian Dollar
3. A rising Australian dollar is positive for importers, but a negative for exporters.
4. When our exports become less competitive, growth suffers as does our outlook for a swift economic recovery.

So a rising Aussie dollar is not necessarily great for our chances of a swift economic recovery, but as shorter term traders, we need to take a shorter time view and can alleviate much of the ifs and maybes .

The simplest way to have a view on commodities, the US dollar or commodity producers such as BHP or Rio is to monitor the US dollar index, which measures the US dollar against a basket of 6 other major currencies.

Looking at the chart, we see that it s trading at very critical level around 79c.

It has formed a head and shoulders pattern. This suggests that a break of the neckline will see further declines triggering further strength in commodity prices. If it holds the neckline, this could provide a degree of support. The more probable outcome from this pattern is a move to the downside. This can be used as a trigger to buy raw commodities, commodity producers or short the US dollar. Alternatively, if the US dollar finds support and edges higher, this could trigger a sell signal in commodities and commodity related stocks. All of these trades can be taken from the one account using CFDs soon available through Trader Dealer Online.

Trading a resistance break can be a profitable trading strategy and by utilizing CFDs, you can place a premptive order in the market to catch the initial velocity of the break to the upside (or downside). This is called a buy on stop order and essentially means that the order will be placed at market once the stock trades at a predetermined level.

An ascedning triangle is a price pattern that can flag a potential break of resistance. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs. you can enter into long positions when the price of the asset breaks above the top resistance. A couople of ascedning triangles that have broken to the upside today are below.

ABB had resistance at $6.20 (which was also a previous support area).

MAP provides another example. Resistance was broken around $1.90 however there is significant resistance in the stock at $2.00 (view market depth)

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Market depth – resistance around $2.00