Tag Archives: Sean Hyman

How to Make a Killing as the World’s Strongest Currencies Topple

Who says you can’t have the “best of both worlds?”

I say you can – at least when it comes to trading foreign currencies.

For years, traders have debated about whether fundamentals or technicals drive foreign currencies. The “fundamental guys” say you should just watch fundamental data like a country’s unemployment, GDP numbers, and overall debt to choose the best currency plays.

The “technical guys” say you can learn everything you need to know about a currency by watching the charts.

Traders on both sides act like you have to choose one or the other. However, I’ve always said that there are benefits to both, so why not use both in your trading?

In my own analysis, I’ve always found that I make better trading decisions when I have more information. So I study fundamental data and technical charts to pick my best trades.

But I’ve found technical analysis really shines in times like these, when markets start to topple…

How Technical Analysis Has Saved Me Through the Years

Technical analysis has saved me for the past 20 years. It’s the reason I’ve never taken a huge dent in my stock or my currency portfolios – even during the recession in 2008.

Why? Simple. Several indications on the charts tell you when the market may have far more downside potential than upside potential.

(And remember, stocks and currencies fall faster than they rise. So if you catch those huge down moves, you can rack up some decent profits.)

I’ve found that technicals reign during these downturns because no one focuses on fundamentals when everything seems to be crashing and burning.

You see, logic tends to disappear when markets start to fall. Fear takes over and investors simply react. Fear will trump fundamentals every time because fear is a much stronger emotion.

That leaves most “fundamental traders” scratching their heads.

Fortunately, currency traders who check charts (or “technical traders”) have several tools at their disposal that can tell you when it’s time to sell your stocks. That’s a simple way to avoid all bear markets.

Coincidentally, it’s also an easy way to make a killing off foreign currencies as they fall, because you can lock-in profits and start buying up more defensive currency positions.

Even better, they’re all pretty easy to spot…

Secret #1: Draw a Trend Line

The first tool is extremely easy to use. You simply draw a trend line on any chart.

Once that trend line notably breaks and you see a currency pair close below that trend line, you know it’s time to sell. You can see that on the chart below.

Trend Line Breaks show the Change of Control
from the Buyers to the Sellers!

This works with both stocks and currencies. With stocks, you can tell when the whole market is about to turn, if you look at big stock indexes. Take the real-time snapshot of the Dow Jones Industrial Average below for instance…

This Technical Tool Tells Me The Market is About to Fall

Secret #2: Here’s One Even New Traders Can’t Screw Up

Besides drawing trend lines on your charts, one of the easiest things that even new traders can do is place two major moving averages on your chart.

These averages are called the 50 day Simple Moving Average (the blue line) and the 200 day Simple Moving Average (the red line on the chart above).

When the blue 50-day SMA is above the red 200 day SMA, then stocks are climbing. When stock prices fall below the 50 and 200 day SMAs and the two averages cross over, it’s a big flashing “sell” signal. It tells you to take your profits and go sit in cash for a while because a downturn is coming.

All of these things are a foreign language to some currency traders. It’s why pure fundamentalists struggle during downturns.

It’s that Time Again…When the “Strong” Currencies Are Falling

You should know that Dow chart is from earlier this week. This means we’re already approaching another downturn.

This stock index has broken an uptrend and has ceased to produce “higher highs and higher lows” anymore. The major moving averages have crossed and the index is now getting very volatile. In other words, look out below stock traders.

As I have written here before, the “fundamentally strong” Australian dollar will be one of the first currencies to fall when stocks fall apart again.

So I recommend taking evasive action right now. If you own the Aussie, take your profits now. If you’re a trader, look to short the AUD/USD pair in your Forex account.

While I can’t say that the huge sell-off starts tomorrow, it’s probably very close. Make sure you’re prepared.

Have a Nice Day,

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Sean Hyman, Editor
Currency Cross Trader

The Currency to Own this Decade

(Hint: It’s Not the Iraqi Dinar)

By Sean Hyman, Editor, Currency Cross Trader

It’s a strange currency world we live in.

The two most traded currencies – the dollar and euro – are both suffering. The euro is fighting an uphill battle with a sovereign debt crisis, while the dollar is paying the price for all the Fed’s currency meddling over the last few years.

At the same time, other currencies have the exact opposite problem – they’re too strong. The Japanese yen has gained so much in value that the Bank of Japan had to intervene several times over the past year to drag down its value.

With all these currency crises in full swing, it’s no surprise that investors are looking for alternative currencies to buy and hold.

But unfortunately, some are finding the Iraqi dinar…

Thanks to some slick marketing campaigns, first-time currency investors are pouring their savings into the Iraqi dinar because they believe it “will revalue and hand them a fortune” a few years down the line.

Personally, I don’t buy into this dinar story.

For my money, there are much stronger alternative currencies to buy and hold for the long-run. I’ll introduce you to one in just a second. First, let’s take a closer look at the dinar…

The “Big Boys” Steer Clear of the Dinar

The short answer is, as a currency investment, the Iraqi dinar is sorely lacking in the fundamentals that you want when you buy a currency for the long-term.

Besides being an oil nation (and let’s face it, there are plenty more desirable oil nations out there), Iraq is not what we would classify as a politically sound country. After all, they just put their new constitution together in 2005.

And long-term growth? Stability? That’s all debatable in Iraq.

But all that aside, what’s more important is you can’t trade the Iraqi dinar. The dinar is NOT one of the 60 tradable currency pairs in the $4 trillion Forex market.

That means the big institutional players don’t want anything to do with this currency. If they did, you would be able to trade it.

Instead, only the most speculative retail, individual investors are buying into this Iraqi dinar theory. That’s a bit concerning. It tells me that these retail investors have been sold a bill of goods – not a real asset with long-term value.

In fact, I look at this currency more like a penny stock than anything else. It’s extremely risky, more like a shot in the dark than a long-term currency play. That’s why none of my currency colleagues recommend it.

Just Because It Revalues,
Doesn’t Mean You Profit

As a currency, most speculators have been buying the Iraqi dinar because they are hanging their hats on a potential revaluation. Various websites have been claiming this revaluation will happen since 2004.

But let’s assume for a second that Iraq did revalue their currency. That does NOT mean the currency will necessarily leap in value compared to the U.S. dollar.

After all, “revaluing the currency” didn’t help anyone holding the Turkish lira a few years back.

In 2005, the Turkish government revalued the lira from 1,350,000 lira to 1.35 lira.

In other words, the government slashed six zeroes off the price of the lira. But in reality, the “new lira” was still worth the same amount as the old lira in dollar terms. Before the revaluation, one dollar bought you 1.3 million lira. After the revaluation, one dollar bought you 1.35 lira.

But whether it was a million lira or a single lira, this revalued currency was still worth the same in dollars.

Now could the same thing happen in Iraq? Absolutely.

That’s why I would much rather focus on more stable emerging markets with currencies that have a much higher statistical probability of rising in value.

For instance, the Chinese renminbi…

Forget the Dinar, Buy This Instead…

At this year’s Global Currency Expo, five different currency experts recommended you buy and hold the Chinese renminbi for the next 10 years (that includes yours truly).

(By the way, not one expert at our sold-out currency conference recommended you buy the Iraqi dinar – and these guys are the top of their fields.)

So why buy the renminbi? It’s more than just the real possibility the Chinese will revalue their renminbi once again, or even let it free-float.

The most respected financial minds in the industry are saying that the Chinese renminbi will eventually replace the U.S. dollar as either the next, or one of the next reserve currencies of the world.

That means central banks which currently hold dollars, euros, and gold in their coffers will be able to stockpile tradable Chinese renminbi instead. Scary thought, right? It would be a devastating blow to the U.S. dollar, and would force the dollar/renminbi exchange rate to plummet.

More importantly, it also means the dollar will have some competition for pricing of the world’s commodities.

If commodities were priced in anything but dollars, everything you buy on a daily basis would skyrocket in price. As a country, we would be forced to pay for real commodities with real assets (not just more printed dollars), like all other countries in the world do now.

Buying the Iraqi dinar wouldn’t help you there. But buying the currency that commodities could potentially be priced in (like the renminbi) would offer some protection.

Again, no “revaluation” necessary… just the steady moving hand of the market.

Bottom line: there are plenty of reasons NOT to buy the Iraqi dinar this year, and plenty of great reasons to buy renminbi instead. So I say stick to the currencies that have value, and leave the dinar for the speculators who don’t know any better.

Have a Nice Day!

Sean Hyman
Editor, Currency Cross Trader

Celebrating 40 Years of Dollar Destruction

By Sean Hyman, Editor, Currency Cross Trader

This week, we’re celebrating the anniversary of the greatest heist in recorded history.

Exactly 40 years ago yesterday, President Nixon severed the dollar’s ties to gold forever.

It was a government game so the politicians could easily pay off their debts with “cheaper dollars” for the foreseeable future.

In reality, this one decision effectively stole all our dollars’ value for decades to come. And you and I are the ones still paying for this mistake.

Strangely this decision also created the $4 trillion Forex market…and eventually sent gold racing above $1,800 an ounce.

But these profitable side effects were not Nixon’s intention…

You see, up until 1971, each dollar was physically backed by gold.

Gold was $35 an ounce and every dollar in circulation could be redeemed for gold. So every dollar was backed by the power and security of gold.

But when Nixon removed us from the gold standard, that responsibility flew out the window – along with the dollar’s long-term value.

It’s the reason the dollar has lost massive purchasing power against other currencies in the last four decades (and gold has risen 51-fold against the buck).

And get this: the worst is still yet to come for the dollar.

I’ll explain how to protect your savings in just a moment. First, let’s take a closer look at how our dollar has lost that much in value.

The Greenback Is Backed By the
“Hot Air” of Washington, D.C.

Given that the dollar has lost so much value, backing dollars with gold simply wouldn’t fly today.

As of July 2011 our “reported” gold reserves was 8,133.5 tonnes. Multiple that by the current price of gold ($1,746 as of this writing), and you can see we have a little over $454 billion bucks in gold.

In just the last year, we have had over $1 trillion dollars in circulation. So obviously we don’t have enough gold to cover all that.

But of course, that was the point of taking us off the gold standard. Otherwise, how else would we be able to write blank checks for everything we need?

Back in the Good Ole Days,
All These Dollars Would Have Had Value

In fact, it’s estimated that if you took all of the gold that has ever been mined in the world, it would only come up to about $5 trillion.Well we print trillions of dollars and run up over $14.6 trillion in debt all by ourselves in the U.S. (and that’s just one country of the world).

All these dollars are only worth something if the U.S. government says so. It’s backed by the U.S. government promise, “we’re good for it.” In other words, our dollars are basically backed by hot air straight from Washington.

But the harsh truth is they couldn’t back all of the dollars in circulation right now even if they wanted to.

Even worse, the more investors realize how shaky our currency is, the more they start looking elsewhere for more fundamentally sound currencies.

That’s one reason why the U.S. just raised our debt ceiling for the 75th time in 50 years. It’s also why the Standard & Poor’s just downgraded our debt.

Toss in the Fed’s nasty habit of creating money out of thin air anytime we need extra resources, bailouts and stimulus packages – and the dollar is in serious trouble.

The Government has Two Choices and Both are Bad… But Here’s What They Will Choose

Our economy is in shambles, and our currency is losing clout every single day. And we are no longer competitive with the rest of the world in terms of exports. We really only have two choices left to stay competitive with the rest of the world.

Either the government can allow “wage devaluation” or “currency devaluation.” In other words, they can let wages fall or let the currency drop in value.

Do you really think Americans will elect politicians that force them to take pay cuts? Heck no! So if the guys in Washington want to keep their jobs, they really only have one choice – devalue our dollars further.

As you can imagine, voters pay closer attention to how many dollars are in their paycheck than how much those dollars buy. (In fact, most Americans don’t even understand the concept of the dollar losing purchasing power anyway.)

That’s why it’s almost too easy for Washington to dilute our currency and accomplish their “cheap dollar” agenda.

A Glimpse Into the Future…

So here’s how all of this is going to play out. The U.S. will continue to stack on more debt and dilute the dollar by creating more money. Call it QEIII or just ridiculously low interest rates until 2013, but either way, this can only end one way.

The dollar is sinking in value, and central bankers around the world know it.

Therefore, they are “ever so quietly” shifting their central bank reserves slowly away from dollars and into currencies that aren’t being diluted, that have superior fundamentals.

Some, like China and India, are even buying up commodities for their reserves (like gold, silver, iron ore, etc.).

This practically guarantees there will be a constant shift away from dollars through the years – especially as our politicians believe the quick solution is “dollar dilution.” But no country in history ever brought themselves to prosperity by continually diluting their currency.

Therefore, you won’t really be able to “protect your dollars” because of the government’s overall agenda.

So what can you do? Well, you can protect your money – your wealth – by taking your money (dollars) and investing them in other currencies that aren’t playing the debt-stacking, currency dilution game.

You can also buy the traditional forms of “hard money” including gold.

Dollars…On Sale…50% Off!

Now remember when I said that our currency will have to be diluted even further?

One well-respected hedge fund manager ran the numbers and said that the dollar would have to be devalued by another 50% to make us competitive with the world again.

That means, if you’re paying $5 for your Starbucks coffee…you’ll be paying $10 in just a few short years. If you’re paying $400 for your car payment now, better get used to $800 payments.

Do you think “wage growth” is going to keep up with that? Hardly!

In fact, Ben Bernanke flat-out admitted last year that it will likely take five years or more to get our unemployment rate back down to 5-6%.

So if there is a glut of unemployed people, there’s no need for employers to raise wages when there’s an everlasting supply of employees willing to work for peanuts.

So the bottom line is: you’ve got to get positioned into currencies that aren’t “singing the same tune” as America.

That includes places like Switzerland, Norway and Singapore. All three have stronger currencies that can shield you from the dollar’s long-term destruction, and even provide some measure of safety as stocks drop.

So before the greenback devalues another 50% over the upcoming years…shift into something that will retain its value and grow through the years. And do it while the buck is still worth something!

Have a Nice Day,

Sean Hyman
Editor, Currency Cross Trader

Predicting the Next Breakout in Currencies

This One U.S. Stock Can “Predict” the Next Breakout in Currencies

By Sean Hyman, Editor, Currency Cross Trader

Back in my stock broker days, I learned a neat Wall Street trick.

The wise, old traders taught me to watch the financial stocks (particularly the bank stocks), to get clues about the overall stock market.

For instance, if all stocks were in a nice healthy bull market, then you could bet the banking stocks would be climbing too.

On the other hand, when stocks are heading higher but banks are NOT climbing, then you know something fishy is going on. Usually, that stock market rally won’t last.

As a currency trader, I’ve taken this rule of thumb one step further. I’ve boiled all the financial stocks down to a single stock that can help me gauge the overall stock market.

By watching this one U.S. stock, I can also time the currency market – and predict which currencies will rise next. I’ll tell you how in a second. First, let’s take a closer look at the banks.

Why Banking Stocks Can Tell You
“What’s Really Going On”

If you think about it, it makes sense that bank stocks can give you an accurate picture of an economy’s (and stock market’s) health.

When an economy has real growth, businesses generally perform well. When business is good, corporations secure capital to make improvements. Capital comes first, and then you get expansions, mergers and acquisitions, etc.

That capital doesn’t come from excess profits. It usually comes from bank loans. When a company is doing well, banks are happy to lend them additional capital for expansion.

Since the capital/loans come first, banks often benefit first from an economic expansion. Banks earn interest off these loans. As a result, bank stocks shoot higher.

On the flipside, when an economy overheats, banks tend to cut-off funding to the major corporations. Banks do this when they feel risks are rising. As a result, banks earn less interest, and their stocks correct.

That’s why bank stocks tend to head lower first, and then the rest of the stock market follows. In this way, bank stocks can “predict” a stock market correction.

To make this concept even simpler, I like to hone in on one bank stock, to gauge the economy’s overall health. I’m talking about J.P. Morgan Chase (JPM).

Who Knew a Banking Stock
Was So Intelligent?

Why J.P. Morgan? Two reasons…

First, it’s the Fed’s “bank of choice” for corporate bailouts. The Federal Reserve used J.P. Morgan to bailout Bear Stearns back in the day and more recently AIG and Fannie Mae. So this gives J.P. Morgan a lot of clout in the banking industry.

The other reason is J.P. Morgan’s CEO, Jamie Dimon. Many investors believe Dimon is the smartest bank president in the entire industry. So when Dimon speaks, the whole world listens.

All this makes JP Morgan Chase the heart of the financial industry.

JP Morgan Goes Nowhere for Two Years

As you can see above, J.P. Morgan has traded in a range for the past two years – between $35 and $47 a share.

As I’ve mentioned here before, several currencies follow the stock market up and down on a daily basis – while another handful of currencies buck against the trend and tend to do the exact opposite of stocks.

So knowing which way stocks are heading is important for a currency trader.

Since J.P. Morgan has been trading in a range between $35 and $47, I know that if this stock breaks below $35 or above $47, it will set the tone for stocks for the next six months at least.

If J.P. Morgan drops below $35, it will likely pull down the rest of the stock market too. That will give currency traders an excuse to buy “risk-off” defensive currencies, like gold, the Swiss franc, Japanese yen and U.S. dollar. All four are likely to profit then.

However if JP Morgan climbs above $47 and holds above that, then stock traders will be licking their lips to load up on stocks. At the same time, currency traders will be buying the “risk-on” offensive currencies.

That’s when currencies like the Aussie dollar, Canadian dollar and New Zealand dollar would dominate the scene.

This Cycle will Lead You to Your Next
Round of Currency Profits

Just remember: so goes JP Morgan, so goes banking stocks – and so goes the rest of the stock market.

Once the stock market starts moving, it will tell you which pack of currencies will prevail over the following 6-12 months minimally.

Again, you can learn all this by watching J.P. Morgan’s price.

Even better, J.P. Morgan is about to breakout out of a sideways range. Once any stock breaks out of a long sideways range, it creates long-and-strong trends – either to the upside or downside.

That means once this stock starts trending, it will likely move the entire stock market (and currencies by extension) for months on end.

Let’s all hope, for the global economy’s sake, that the breakout is to the upside. But either way, you can gain profits in the currency market.

So keep an eye on J.P. Morgan. It can tell you when this important breakout is finally coming. You can be sure I’ll be watching it, and I’ll let you know if we reach a crucial tipping point in this stock.

Have a Nice Day!

Sean Hyman
Editor, Currency Cross Trader

How to Make a Killing in the Yen

Japan Is About to Cry “Uncle!”

Make a Killing as Japan
Intervenes in the Yen Once Again

By Sean Hyman, Editor, Currency Cross Trader

Everyone wants to stay competitive.

Target wants to keep their prices somewhat in line with Wal-Mart. Burger King wants to keep their pricing somewhat in line with McDonalds. Otherwise, they lose customers to their competitors.

The same thing happens in the currency world.

All throughout Asia, many countries do tons of business with the U.S. and Europe. These Asian exporters have to keep their pricing somewhat in-line with each other.

Otherwise, their big export customers in Europe and the U.S. will do their shopping elsewhere.

How does a whole country keep their pricing competitive? Easy. They keep their currencies valued about the same.

An Overly Strong Currency
Can Destroy an Economy

If a country doesn’t manage their currency, their major export goods will start looking “expensive” to the rest of the world. If that happens, their best export customers will look elsewhere for cheaper goods.

This wreaks havoc on export countries.

Businesses slow down. Companies lay off workers. Unemployment levels eventually rise. It also slows down that nation’s overall growth.

So there’s a lot riding on these countries to “get it right” and keep their exchanges rates somewhat in-line with one another. Otherwise, they lose business to another exporting country who managed their exchange rates more effectively.

Japan is one of the Asian exporters that occasionally loses its competitive edge in the global market.

It’s all because of the Japanese yen.

The Japanese yen is seen as a “safe haven” currency. So when stock markets drop, or disaster strikes in some part of the world, traders pile into the yen and force it to climb against the dollar. Suddenly Japan loses its competitive advantage.

To make matters worse, Japan is a big export country. Japan has big-name exporters like Toyota, Sony, and Panasonic. Each of these exporters stands to lose billions in business as the yen strengthens in value.

So it’s no surprise that these companies scream at the Bank of Japan to do something when the yen gains in value.

They demand the Bank of Japan (BOJ) “intervene” in the currency market to force the dollar to rise against the yen. They want to push the USD/JPY exchange rate up enough to get the U.S. to buy Japanese goods again.

What Intervention Looks Like

To intervene in the markets, the BOJ must sell the Japanese yen aggressively in the market to try to manipulate the yen’s price.

The Bank of Japan did this back in 2004 for instance. They were very successful in the short-term. Check out the chart below, and you’ll see what a “currency intervention” looks like.

Japan Intervened Twice in 2004!

Click here to view larger image

As USD/JPY goes lower on the chart, it means the dollar is dropping like a rock, while the yen gets even stronger.

So when the central bank intervenes, the Bank of Japan dumps Japanese yen and buys up dollars as quickly as possible. That tends to shoot the USD/JPY higher on the chart, at least in the short-term.

For example, in February 2004, the Bank of Japan intervened in the markets and pushed the dollar up 6.71% against the yen in just 12 days. That’s an unleveraged return.

However, even with a modest 100-to-1 leverage, you could have made over six times your money in the Forex market.

Even without doing the math, you can see Forex traders made a killing in 2004, simply by buying the USD/JPY. (In effect, just following the BOJ’s lead.)

For the Forex traders out there… that was a move of over 700 pips. So if you were trading five mini-lots, you would have made $3,500. Trading 10 mini-lots, you would have made $7,000.

In April of 2004, the central bank dug their heels in and really taught the USD/JPY short sellers another lesson.

They intervened in the market and forced the USD/JPY pair to climb over 1,100 pips or 11.05% in under two months. So if you had bought the pair, you would have potentially made $1,100 per mini lot traded in the Forex market.

Now the Bank of Japan doesn’t intervene in the market very often. In fact, they didn’t intervene again until September 2010. Then they did again in March of this year.

The Bank of Japan is at it Again!

Please click here to view larger image

As you can see from the chart above, the Bank of Japan has intervened twice in the past year. The Bank of Japan intervened by themselves in Sept. 2010 as they typically do.

But in March, earthquakes, tsunami and a nuclear incident made the yen stronger than ever, as traders rushed for the safe haven. That caused many G-7 central banks to join in on the party…and all intervene in the yen at the same time.

That forced a much larger leap in the USD/JPY as you can see above.

The Strong Yen is Back in
the “Intervention Zone” Yet Again

Well, that “stubborn yen” has continued to strengthen yet again. Right now, we’re right in the middle of the intervention zone (the green area), where the Bank of Japan typically intervenes in the currency.

That means it’s very possible the Bank of Japan will intervene again to push up the yen’s value. Now there’s no way to know if they will intervene tomorrow, or next month, or later this year.

But as a trader, I know those Japanese exporters must be crying uncle now. That means I’m watching and listening for any whisper of another intervention.

I know it’s coming. It’s just a matter of when.

They could intervene tomorrow, considering the USD/JPY exchange rate has hit the 78-79s (as of this writing). Or they may wait until the USD/JPY hits the 76 level like last time. Or they could even wait for a new all-time low before they act.

But honestly, I don’t care when they intervene. It’s more of a question of reacting when they do.

Once you hear about an intervention happening, there are some serious profits to be made, simply by buying the USD/JPY pair in the Forex market.

And as a long-term investor, you can short the yen in the short-term with a simple ETF.  Again, it’s as easy as shorting the yen at the proper time.

Bottom line: an intervention is coming soon. When it comes, you can make a killing simply by following the Bank of Japan’s lead and shorting the yen.

Have a Nice Day!

Sean Hyman
Editor, Currency Cross Trader

Time to Short the Japanese Yen

A Crash Course in Trading the Japanese Yen

(…And Why Now is Perfect Time
to Short this Currency)

Sean Hyman, Editor, Currency Cross Trader

When I first came over from the stock market to currencies, let’s just say I needed a lot of help. I didn’t know the first thing about trading currencies.

So I needed something that would give a “stock guy” an edge in the currency market.

After a little digging and some testing, I found a strategy that has worked for me for over a decade now. This strategy helped jumpstart my career in the currency world.

Even better, this strategy helped me overcome the hesitations some traders have about trading the confusing “odd currency pairs” that involve the Japanese yen.

Right now, the stars are aligning that will make this Japanese yen strategy even more profitable than usual.

To put this technique to work for yourself, you have to know a few things about Japan’s economy first. Let me explain…

The Secret to Trading the Japanese Yen

As a trader, the first thing you need to know is Japan is a major exporter. Some of the more famous Japanese exports include Toyotas, Hondas, Nissans, and Sony electronics.

As a major exporter, Japan’s overall stock market does well whenever Japanese companies sell lots of cars, electronics, cameras, etc. On the flipside, stocks tend to slump when these companies are selling less.

The cost of these goods determines how much these exporters sell on a daily basis. But the cost is a bit relative – it’s really how foreigners perceive the cost.

Much of this boils down to exchange rates. In other words, if the Japanese yen seems cheap compared to your home currency, then Japanese goods seem cheap because your money goes a long way in buying Japanese goods.

However if the yen is strong, then these goods appear to be very expensive. As a foreign buyer, you’re likely to buy less.

This is why the Japanese yen and Japan’s Nikkei Stock Index have an inverse correlation to each other. When the Japanese stocks drop in value, the yen tends to rise against the dollar and vice versa.

We are seeing this exact set-up right now in Japan. As you can see below, the Nikkei just broke out higher. That means now is the time to be shorting the yen pairs. Check it out below.

Japanese Stocks Break Higher…So the Yen is Starting to Fall Again

To make this even simpler, the Japanese yen tends to be listed second in currency pairs. For instance, if you trade the dollar vs. the yen, you use the symbol USD/JPY. The euro vs. the yen is EUR/JPY, and the Aussie dollar vs. the yen is AUD/JPY.

Therefore, as the yen goes down, it pushes these pairs up. That means as the Nikkei goes up these pairs will tend to rise overall too!

As I mentioned, I first caught on to this stock/currency correlation as a young currency trader. Ever since, it’s been much easier to trade the Japanese yen pairs.

You can see how this correlation is working below. As Japanese stocks fall, the Aussie dollar is dropping at the exact same time compared to the Japanese yen. In other words, the yen is rising in value against the Aussie as Japanese stocks fall. Take a look…

As the Nikkei Breaks its Downward Correction…So Does AUD/JPY!

This tip can take you a long ways in your currency trading before you know anything about the macro economics of any of these nations.

You really don’t have to know too much about currency trading to pick up on this correlation. You just need to recognize that when Japanese stocks pick up steam and trend higher the Japanese yen is likely to fall.

That’s all you need to know in order to profit!

Here’s Why NOW is the Best Time to Get Started

I’ve found this to be an easy “bridge” to help beginning traders get started in the currency market.

Right now is truly the best time to try this out for yourself.

With Japan’s disasters earlier this year, they have never had more incentive to help their economy recover. As they are pushing for a recovery, Japanese stocks should rise once again.

Also, central bankers are still on the warpath about the incredibly strong Japanese yen. Back in March, several central banks in the G-7 (including the Fed) coordinated a massive intervention to push down the yen’s value.

So far, it has not succeeded, but they are likely to keep at it. Eventually, I see these central bankers dragging the yen’s price lower.

All of these dynamics make NOW a great time to check out this simple strategy.

There are so many “yen pairs” out there to choose from that you’ll have plenty to trade just off of this one tip alone.

Bottom line: With the Nikkei breaking higher, it looks like its open season to short the Japanese yen pairs. But going forward, just watching Japanese stocks can easily tell you where the yen is headed next.

Have a Nice Day!

Sean Hyman
Editor, Currency Cross Trader

The Rebel Currency Trade of 2011

British Pound Symbol

Sean Hyman, Editor, Currency Cross Trader

I’ve always been a pretty independent thinker.

It used to get me into trouble in school. Needless to say, my principals knew me on a first name basis. I was always being called down to the office for one reason or another.

The irony is I did okay in school – as I talked back to my teachers. I just never believed in the system.

Like many entrepreneurs, I couldn’t focus on what my teachers told me I had to study in school. They kept telling me to think like everyone else, and I kept rebelling.

Honestly, I haven’t changed much. I still challenge authority – just in a more productive way. In fact, it’s the reason I’ve been successful over the last 20 years in the markets.

More specifically, it’s why I’ve picked straight winners for my currency subscribers in 2011. Let me explain…

Why Rebels and Currrency Profits Go Together

For the past decade, I’ve used my rebellious nature to stubbornly challenge what everyone tells me “must be” right in the currency market.

When the masses have been selling, I’ve been buying. That’s one characteristic of a successful trader. You have to be willing to dive in when everyone else is running for the exits.

As I mentioned, my Currency Cross Trader subscribers have enjoyed all winners this year (four in a row). When we first entered these positions, even my own subscribers balked at these trades.

No one agreed with me. But you see, I recommended they buy when seemingly “no one” wanted to buy. In other words, I was buying at a discount. And it paid off – we grabbed two 100 pip winners right off the bat in 2011. (That’s two 70% winners for you non-currency traders.)

Again, this is where independent thinking can save you – it helps you buy the most “hated” positions out there and grab the most profits.

That brings me to the latest currency that’s starting to pop up on my radar. It’s the British pound (or GBP in the currency market). I can’t find hardly anyone who likes the British pound right now…and honestly for good reason.

First of all, traders believe the problems in Europe will devastate the fragile economy of the U.K.

The U.K. also has too much debt…too much Quantitative Easing, too high taxes, many major political mistakes in my opinion, etc. However, what you have to remember is that the “best buys” are always when things are still looking dark and sentiment is still very ugly.

Why the Most Hated Currency Is
Making a Comeback

Currency investing at the core is very simple.

As inflation rises to unacceptable levels in a particular country, then that country’s central bank raises interest rates to slow down the inflation.

Currency traders love collecting higher yields on their positions. So as a central bank hikes rates, currency traders quickly buy up that country’s currency. Therefore money starts to flow into a currency as a result.

The pound has been falling compared to pretty much every currency right now. The pound has been dropping against the yen, Swiss franc, Australian dollar, etc.

So almost no one is expecting this picture to change. But it’s about to – thanks to inflation.

In the U.K., inflation is getting out of hand. The central bankers at the Bank of England have sat on their hands as long as they possibly can. Now they must act and hike rates to battle this inflation.

I’m not the only one who thinks so either.

Recently both the Bank of England and the European Central Bank have been talking about fighting inflation in the area. In fact, Mervyn King, Governor of the Bank of England, just sent out an Inflation Report on February 16th to explain why inflation is this high.

Anytime U.K. inflation grows above 3%, Governor King gets out his pen and starts explaining. You see, the U.K.’s annual year over year inflation target is 2%. But right now, it’s literally double that at 4%.

Governor King predicts it could go as high as 4.4% this year alone. That’s a problem that the central bank will have to solve.

A Lesson from the Middle East:
You Can’t Let Inflation Run Wild

You can’t play around with inflation. If you let it get out of hand, you can have rioting in the streets like we’re seeing in the Middle East right now.

That’s an example of “inflation gone wild” and the social unrest that comes from people when they spend most of their money on the basics.

So if you want to remain in power and not have a revolt on your hands…rule number one is “control inflation.” And that’s what the Bank of England will be forced to do at some point this year.

When that happens, the pound will rally regardless if it’s the most “hated” currency (outside the U.S. dollar) or not.

Even before that happens, the “smart money” at the major financial institutions will start buying up the British pound unannounced. As usual, they will want to quietly accumulate this currency before everyone notices. That will force the pound to rally ahead of time.

I believe it’s going to catch many off guard, as the masses are still pouring out of the pound. I’m just waiting patiently as the crowds run franticly away from the pound…for the “right time” to buy up the pound.

Mark my words: It won’t be too long before I’m buying.

Thanks for reading!

Sean Hyman
Editor, Currency Cross Trader

The Quick-Start Guide to Trading Currencies

forex trading

By Sean Hyman, Editor, Currency Cross Trader

Imagine for a moment you own and race thoroughbred horses.

Your pride and joy thoroughbred has been training for the past two years for the race of a lifetime – and now your horse will soon be racing for a million-dollar prize.

Naturally, in any race, there are winners and there are losers. Typically, you think about betting on the winning horse.

But what if you could place a bet when that losing horse will … well … lose?

This is where it gets interesting. And, in a moment, you’ll see how it’s possible to win on both bets. And even better, fix the horse-race in your favor.

A Stable of Opportunities

Think about it. What if you could choose your opponent for this million-dollar race? The best part: You can assign your opponent any horse you want.

Now, would you give your opponent the second-fastest horse in the world? Or would you instead give him a broken-down old donkey that could hardly run?

Yeah, I’d give him the donkey, too.

It’s kind of common sense that, if you pair the fastest against the slowest, your odds of winning will skyrocket. Or if you pair the healthiest/strongest horse against an old, weak horse that you gain an enormous edge.

After all, who wouldn’t take that bet?

Strangely, the same-exact method can work in your portfolio. It’s the secret to earning 25%…79%…even 100% more on each trade in a matter of weeks. Not months or years.

Position Yourself to Profit from Winners and Losers

When you invest in stocks, for the most part you do so with the hope that they are going up. When stocks are dropping, you can either short them (a risky endeavor) or buy put options (a much better solution).

Anyway you slice it, though, you know that some stocks are rising and falling simultaneously.

The same thing is true of currencies.

Everyone talks about the U.S. dollar and its changing value, especially in comparison to other currencies around the world. And a very savvy way to benefit from moves in the dollar is to play the currencies market.

Just like in our example of the horse race above, you would pit the dollar against another currency in the same race (or trade).

In other words, if you thought the dollar was stronger than another currency, you could buy the dollar and short another currency in the same trade. Or, you could short the dollar against a stronger-performing currency.

This takes place in the foreign-exchange market, also called the Forex or FX market.

Turn a Cracked Currency into a Portfolio Winner

Every Forex trade involves two currencies. You’re always buying one and selling another against it.

For instance, by “buying the GBP/USD,” you’re really betting the British pound will rise against the dollar – or, in effect, you are buying the pound and selling the dollar.

Now, there are about 60 tradable currency pairs worldwide. How do you choose which to trade? Well, it comes down to choosing your opponents wisely…

If you’re trading two currencies from economies that are growing at a similar pace, then you are decreasing your odds of success.

After all, if it’s a close race, and both economies are healthy, who knows which will pull ahead first?

But on the other hand, you could pair the currency from the most-pristine economy in the G-7 with the worst debt-ridden nation that can’t seem to do anything right.

After all, you can pick your opponents. You can choose any currency you want. Why not pick the “more favorable” opponent to help you win the race?

Do that and you’ve essentially got a “fixed” currency position. Just like a rigged horse race.

It’s not a gamble anymore – it’s pairing your most prized thoroughbred against an arthritic donkey.

4 Things You Need to Know to Engineer
Your Own Fixed Race

Now how to do you find the weakest and strongest countries so you can set up your own fixed currency trades?

The first thing to look at is interest rates. Currencies love higher interest rates because Forex traders are always looking for a higher yield on their trades.

As FX traders pour money into a higher-yielding currency, the currency’s price goes up. So if you’re looking for the healthiest “thoroughbred” currency, check out the one with the highest interest rates first.

On the flipside, currency traders tend to dump low-yielding currencies if there’s nothing else to bolster the price. That’s why the U.S. dollar started to sink in 2007 when the Fed first started cutting rates. So if you’re looking for the “loser” currencies, check out the ones with the lowest interest rates.

You also want to look at a country’s unemployment, and GDP growth when you’re evaluating a currency’s strength.

The healthiest currency will come from a country with low unemployment, and solid long-term GDP growth. The weakest currency will have rising unemployment, low or negative GDP growth.

So as a trader, you typically want to pair:

  • High interest rate countries with low interest rate countries.
  • Countries with low unemployment against those with high unemployment.
  • Countries with positive GDP growth against those that have a negative GDP growth (a shrinking economy) or slower GDP growth.

Here’s where it gets interesting, though…

My No. 1 Tip for “Fixed” Currency Trading

Even though there are over 60 tradable currency pairs in the world, 90% of all daily transactions involve trading the G-7 currencies (i.e., the “major currencies”).

And as I’m sure you can guess, a significant chunk of those daily trades involves the U.S. dollar. It makes sense. Traders want to pair the dollar against other currencies because the world’s reserve currency promises to be the most liquid and readily available.

However, if you’re looking to pair the weakest with the strongest, it helps to cut the U.S. dollar out of your trading.

A the most overtraded currency, it can be difficult to see where the dollar lies on any given trading day.

Also, there’s just simply more opportunity to trading non-dollar pairs (also known as “cross rates” or “crosses”).

Some of the most-commonly traded crosses include:

1. EUR/JPY (euro vs. Japanese yen)
2. EUR/CHF (euro vs. Swiss franc)
3. CAD/JPY (Canadian dollar vs. Japanese yen)
4. AUD/JPY (Aussie dollar vs. Japanese yen)
4. NZD/JPY (New Zealand dollar vs. Japanese yen)
5. GBP/JPY (British pound vs. Japanese yen)

And the best part is, any kind of “dollar-moving event” isn’t going to have much impact on these crosses. This is a great way to get portfolio diversity while spreading out your risk.

If you’re not sure whether to bet on or against the dollar, you don’t even have to go near it to participate in the currency market.

Thanks for reading,

Sean Hyman
Editor, Currency Cross Trader