Canada's Central Bank Sparks Concern

On January 21, the Canadian dollar (CAD) hit a four-year low against the U.S. dollar (USD) amid concerns over the Bank of Canada and the U.S. Federal Reserve. The CAD broke through the C$1.10 mark, which has long been considered a psychological barrier that can have a drastic effect on future forex trading. However, the CAD did gain slightly before the close of the day in the North American market.

The fall of the CAD was said to originate the night before when the USD unexpected rose after news broke of possible cutbacks in the Federal Reserve’s program designed to stimulate the U.S. economy and domestic investing. No official announcement was ever made, but the article published in the Wall Street Journal stated that the Fed may drop its bond purchases to $65 billion per month from its current monthly purchases of $75 billion.

The reason why the CAD dropped from the news concerning the Fed is that investors are expected to start purchasing U.S. currency instead of Canadian. However, concerns about the Bank of Canada have been in play for some time and may come to a head in only a few days.

Late last year, the Bank of Canada dropped discussions about rate hikes after it had been suggesting they were on the horizon for nearly 18 months. This event immediately caused the CAD to waver on the market, which has appreciated the USD against the pair by more than 6 percent. A full 3 percent of this increase came in January 2014.

The executive director of foreign exchange sales at CIBC World Markets in Toronto, Don Mikolich, has agreed that CAD trading is at a downturn, stating, “The sentiment does continue to be quite firmly against Canada.” Mikolich continued by discussing the fact that the Bank of Canada is comfortable in the weakening of the currency. “It’s hard to say what levels they have in mind, ultimately, but I don’t think we’re there yet,” Mikolich said.

At the close of the trading day on January 21, the CAD was at C$1.0972 against the USD. The last time the currency pair had been this low was in September 2009 when the CAD fell to C$1.1019 against the USD.

The Bank of Canada is due to release two important updates later in the week that may also affect the CAD: its annual Monetary Policy Report and a decision on interest rates. However, interest rates are expected to stay fixed at 1 percent. 

Impact of EU's Credit Rating Downgrade

On Friday, Standard & Poor’s (S&P) downgraded the credit rating of the European Union by one notch, from AAA (its highest rating) to AA+. The S&P believes that the EU’s overall creditworthiness has started to decline as tensions rise during budget negotiations between 28 member states. Credit ratings measure confidence in the group's ability to repay its debt. When S&P lowers its ratings, it means the agency believes it has become harder for a group to repay its debt. This, in turn, can affect a country’s ability to borrow money. Essentially, a lower credit rating translates into a higher interest rate which means its cost more to borrow money!


This is not the only negative news for the eurozone. Growth is expected at 1.1% and the unemployment rate at 12.2% for 2014. Despite the news, price action in the Euro has remained relatively muted. EUR/USD saw a small decline on the weekly chart. A reversal of EUR/USD could be in store if budget negotiations continue to stall.  

Dollar Weaker Than Expected Due To Slow Start To US Holiday Season

The amount of of shoppers over the Black Friday weekend saw record highs, however, the amount of spending showed the first decline since 2009. American consumer spending has dropped almost 2.9% this season. What does this mean for the dollar? It does not have the strength that many think it does. This can be seen in the futures prices for the USD. It is in a down trend since the initial spike after Black Friday weekend!

The Pros of Trading Currencies vs Stocks

When the everyday person comes across the topic of investing or trading in the markets, the first thing that comes to mind is the Stock Market. Why? Because it is the mainstream asset we see in commercials, movies, advertising, and what most people talk about. Therefore its normal to have a bias towards starting in this market since it is what you have been exposed to the most. If you are someone who is or looking to start trading and investing yourself (a "Retail Trader"), I'm here to tell you that the stock market is not the way to go unless you are looking for long term plays.
I have been on wall street and seen how large banks and hedge funds make it extremely difficult for the Retail Traders (us) to turn a profit. I have also experienced it myself. Large banks compete each day, buying and selling different stocks in the with hundreds of thousands of dollars per trade. They do this to be the largest holders of these specified stocks to help make the stock liquid to route to hedge funds. Because of these constant high end purchases, high price swings occur, creating higher volatility and risk for the retail trader in the short term (intraday, weekly). The Forex Market allows retail traders to avoid this manipulation of prices.
The foreign exchange market, commonly known as the Forex Market, is the largest financial market in the world. The Forex market has an average daily trading volume of over $5 trillion compared to the largest stock exchange in the world, the New York Stock Exchange (NYSE), which has a daily trading volume of $60 billion. The Forex Market offers many advantages that other markets don't, or may not on a consistent basis:


1) No Commissions  
2) Trade in any direction of the market without special capital requirements
3) 24 Hour Market
4) Leverage
5) High Liquidity 
6) Globally Connected
7) Low Capital requirements to open an account. 

To the right you can see a comparison of the some of the differences in trading Stocks vs. Forex.