Your forex questions answered

Welcome Everyone,

I want to start this weeks forex market forecast with a couple of Q&A's I received from Brisa and Ricardo..

Hi Jeff, The reason for my letter is because I have two questions regarding the movement of the USD.

Question 1) How is the USD movement related to that of Gold, do they move in the same direction or opposite from each other?

Answer 1) Brisa, it actually has very little correlation ever since gold the gold standard was removed in 1971. Until it was removed, there was a big correlation between the value of gold and the US dollar.

Question 2) If the stock market goes down making the USD weaker, so we buy EUR/USD or USD/CAD

Answer 2) If the dollar was weaker then the EUR/USD would go up and you would buy it. With a weak US dollar however, you wouldn't buy the USD/CAD as that pair would go down.

Another way to look at is… IF the USD is strong then any currency pair in which the USD shows up on the left side of the pair then that would tend to go up. A few examples are: USD/CAD, USD/CHF. One exception is the USD/JPY. Even though the UD dollar has been really strong over the past few months, it has been steadily declining against the Yen.

IF the USD is weak then any currency pair in which the USD shows up on the right side of the pair then that would tend to go up. A few examples are: AUD/USD EUR/USD, GBP/USD

IMPORTANT: Another thing to consider is that the US stock market has been getting pummeled and yet the dollar has been getting stronger and stronger. This doesn't seem logical, but it just the way things have played out.

Hi Jeff

Question 1) How do I calculate the daily range for a particular currency pair?

Answer 1) Ricardo, that is easy. You simply look for the high of the day and then low of the day and then you see how may pips the market moved that trading day from the low to the high.

Question 2) Is the daily range the amount of pips movement from the opening level of a currency pair to the closing level of that particular currency pair?

Answer 2) No its not, please see answer 1.

Question 3) Is there an indicator I can use to calculate the daily range for a particular currency pair?

Answer 3) I am not familiar with one, but be honest I have never looked for an indicator like this. I wouldn't be surprised that is you did a search on Google that you find one.

Question 4) How can I use daily ranges to calculate stop loss amounts according to the volatility of various currency pairs?

Answer 4) Quite a few traders use the previous days high or low to place their protective stops. For example, if they are going short, then they place their stop a certain amount of pips above the previous days high. If they are going long in the market then they place their stop a certain amount of pips below the previous days low. The amount varies depending on a traders tolerance to risk and their money management plan,