With the glory seriously fading in the cryptocurrency market, the focus of most traders is finally back on more traditional and regulated assets like forex, metals, and stocks.
Before we dive into the currencies, let’s take a quick look at how the US stock market has performed over the past month. The reason why we do this is that it’s a good practice for forex traders to also keep an eye on the stock market, as it can provide some insight into the global economy and where capital is flowing.
Just as traders need to follow the news that effect markets, getting a first-hand look at the major stock markets can also provide us some important information that we can use in our own trading.
Volatility on the rise in the stock market
As you probably already know, the US S&P500 stock index crashed in a big way back in early February, declining by nearly 8% over only two days. Since then, we have seen a recovery that lasted until the beginning of March, bringing the index about half-way back to its all-time high.
However, just as everyone thought the market had recovered and was going back to normal, the bears hit again with full force. The S&P plunged down another 7% before it found some support at the 50-day moving average line, as shown the chart below.
Take a look at the size of those candlestick bars in the chart above. It says everything about just how much volatility has increased since back in January and February. What we are seeing now is an extremely nervous stock market, reacting to worrisome international news like Trump’s attempts to start a trade war, higher US deficits, and new lows in relations between Russia and the West.
Gold still stuck in trading range
With the negative news from the stock market out of the way, let’s take a look at some ways we can potentially turn a profit in this challenging market. This is one of the great things about being a forex trader; no matter how much blood there is in the streets elsewhere, there are always opportunities in the forex market for those who know how to take advantage of them.
Gold is an asset many traders turn to when stocks are down. In fact, this is something we have seen in all of 2018, with a rise of 7-8% so far this year. As you can see from the chart, gold had a nice run-up in the beginning of the year, but has now been stuck in a trading range between the $1,320 and $1,350 levels for the past few months.
We are now close to the lower end of this trading range, which indicates that the first week or so of April may be a good time to go long in the gold market. From a technical analysis point-of-view, a break up through the $1,350 level would signal even higher gold prices going forward. Also, continued turmoil in the stock market will strengthen the fundamental case for gold even more.
Aussie dollar extends decline
When we looked at the Aussie dollar back in the beginning of March, we noted that risk:reward of a USD/AUD trade was not very attractive anymore. Since then, the trend of a strengthening US dollar and declining Aussie dollar has indeed continued, but with much more “choppy” price action, making life difficult for traders.
At the current levels, the USD/AUD pair is still too close to resistance levels to try a long trade. One interesting trade would instead be to look for short opportunities if the price breaks down through the red trend-line on the chart above.
When the reversal happens in this trading pair, a decline of about 5% all the way back to the 1.24 area is within reach.
Economic events in April
When it comes to important economic news in April, the first thing we should mention is the Reserve Bank of Australia’s (RBA) interest rate statement on Tuesday April 3. It is expected that the RBA will keep its rate unchanged at this meeting. However, if they decide to hike the rate, expect the Aussie dollar to get a boost compared to other currencies.
Rate statements are always high-impact events for currencies, and it provides guidance for further price direction for forex traders. Unless your trading style is based around taking advantage of the movements around these news announcements, you are advised to stay away from trading the related currency during these events.
Another important event to keep an eye on would be Fed chair Jerome Powell’s address to the Economic Club of Chicago on April 6. Powell is still very new to the job, so traders will watch closely for any signs of what his future policies might be like. Strong volatility in any USD-related forex pair is expected during the speech, and a more hawkish tone would likely boost the US dollar.
Lastly, European Central Bank (ECB) President Mario Draghi is expected to speak at a press conference on April 26. These press conferences are the ECB’s primary way of communicating with the market, and forex traders playing any currency pairs involving the euro are always watching closely. In particular, the second half of the press conference where Draghi answers questions fro the press often leads to huge movements in the forex markets, creating opportunities for news traders who knows how to take advantage of them.
As always, stick to your trading rules and a strategy you trust, and trading becomes much more enjoyable and less of an emotional roller-coaster ride!