No change in market conditions. The Stress Tests in Europe were relatively uneventful last week and there was no follow through of any kind so far this week. We continue to make up for some of the recent losses while investors who recently joined the fund continue to enjoy additional profits. The last investors who activated their accounts were on Thursday July 22, 2010.  As of the date and time of this update (Wednesday July 28, 2010 - 13:00 GMT) they are currently up 10.6% as we have recently been averaging approximately 2% per day. 

Clearly the new normal in Forex is complete ‘Chaos’, but this is why the Correlation strategy will continue to provide the best avenue for profits.  This past week saw constant swings back and forth from ‘Risk Appetite’ to ‘Risk Aversion’ with a new twist. In recent weeks and months the EURUSD weakened when Risk Aversion was the flavor of the hour as money flowed into the USD; and when Risk Appetite was the flavor of the hour the EURUSD strengthened as traders dumped the USD. This past week saw just the opposite as concerns surfaced over the weak USD data and the Fed’s statement giving doubt that there will be any rate change in the near future. It appears that there is little hope for an increase in USD rates as long as the data continues to print poorly and as a result there is little desire to buy the USD.  The EURUSD climb is still a result of a short squeeze and there is no fundamental news backing the climb so we continue to hold back on our directional trades.  At the end of this post is a paragraph from John Kicklighter (dailyfx) that gives a good explanation of the crazy moves. 

We did have a rough week do to a couple of technical issues.  Dukascopy allows investors to set their own Stop Losses which is new to us and we are not used to keeping an eye on this so we had to make a couple of adjustments.  Part of the draw down of this last week was due to the fact that some Stop Losses were too close and got tagged.  This was our fault because we are new to the stop loss set up with Dukascopy and have since adjusted the platform so we will not have this problem again.   We took an unnecessary hit on the trade because shortly after those same trades made a substantial swing that would have resulted in an attractive profit. No worries all is adjusted and Dukascopy has made the necessary changes for us.  The current system is working great in these market conditions and we are looking to make a couple more changes that will increase our Risk to Reward ratios.  Many of you have noticed we have been taking smaller profits per trade yet we have experienced larger draw down compared to the profits.  We are looking to make the necessary adjustments this coming week to capture the swings on the profit side.  That might not make too much sense to many of you but it is a good thing and it will be beneficial to everyones accounts.
 

Despite the aforementioned, this is Forex. What holds true today can certainly change tomorrow. All markets have increased in complexity, unpredictability and uncertainty and this will not change any time soon.  We love the markets and will be back trading when the Asia Market opens on Monday.  We look to end the Month of July in profits so expect a good week out of us next week.

An additional Market Update will be posted on the weekend after I have an opportunity to further analyze the markets and review the economic releases from this past week in detail.

John Kicklighter (Dailyfx) writes:

Price action is often deceiving. While there is little arguing that the market defines what is fair value for an asset or underlying risk premium itself; this is an assessment that is valid for only that particular point in time. While speculative interests are prevalent in the capital markets, their influence is biased and highly reactive. This is why there are periods of remarkable volatility and aggressive trends. It is important to keep this truism in mind when evaluating the performance of the market’s this past week. It would seem that investor sentiment has improved markedly over this period. Indeed, the Dow Jones Industrial Average, the S&P 500, Europe’s benchmark indexes and others climbed for six consecutive days (a trend broken today). Looking at other risk and growth-sensitive markets, the same advance in yield and increased tolerance for risk was noted. Furthermore, the statistics that are derived from this underlying price action would offer self-fulfilling support. For example, the risk premium priced into volatility indicators and other derivative readings similarly point to a reduction in the threat of future losses.

It should be clear to those traders that have survived the market swings of the past couple of years that trends are not permanently set and that speculative interests can turn rather quickly. If we were to trust what price action is telling us now, we could find the evidence for why this progress is able to develop. One of the most readily available explanations for strength is that the fear of an imminent collapse of the European Union’s financial ties and currency are on the verge of collapse has dissipated. A correction under these bearings is not unusual. In fact, it is a strong sign that speculators were overzealous in pricing in a disaster for the euro; when the full breadth of the problem would not be realized for many months and through many governmental efforts to redefine the rules of the game. This natural correction therefore can be taken as a sign that risk appetite is recovering in earnest across the board; when in fact, it is a reversal of positioning that is natural for capital flows. On the other hand, that does not mean that the capital markets are returning to a structural bull trends. Instead, this can be termed a correction in a larger trend until fundamentals and investor commitment confirms otherwise. We can see this argument in price action itself. Setting the upswing of the past week into context, we can see with both the Dow and DailyFX Carry Trade Index that we could still easily establish another lower peak.