1. What are your recommendations on how to trade Forex this summer? What should be the trader's tasks in August? What should we prepare before leaving for holidays?
High volatility poses a threat to the carry trades. Since market volatility has declined and investors’ sentiment has improved in June/July, the carry trade has made a comeback. If this continues to be the environment in August, the higher-yielding currencies could remain well bid and the USD could continue to be used as a funding currency for the carry trades. Traders should watch throughout the month of August if the current market environment remains the same. The recent bullish breakouts of all major currencies against the USD are not a coincidence, but if sentiment turns sour, risk aversion could quickly hit the markets. Whether you are leaving on a holiday or just leaving your trading desk for a few minutes, make sure to manage your risk and always place protective stops.
2. What book do you recommend us to read this summer?
I would recommend “Reminiscences of a Stock Operator” by Edwin Lefevre. It is a biography of legendary trader Jesse Livermore. The book is a classic and a must-read for every trader!
3. What should we do when returning to the markets in September and what is your forecast for the major currencies in Q4?
In my Q3 2010 outlook webinar for FXstreet.com, I discussed the potential for the markets to punish the USD for the lack of urgency from the Fed to raise rates in 2010 and for the lack of fiscal austerity in the U.S. This has been the trend so far and could continue for the rest of the third quarter, provided that risk appetite remains strong. However, I wouldn’t be surprised if, at some point in Q4, the forward-looking markets begin to price in expectations of a Fed rate hike in Q1 2011, which if coupled with potential signs of economic slowdown in countries other than the U.S., could become a formula for renewed strengthening of the U.S. dollar. Q4 will be an interesting one as traders will also keep an eye on the sovereign debt situation in Europe, as well as on the outcome of the U.S. House of Representatives and Senate elections in November.--
Ilian Yotov is the founder of AllThingsForex.com and TraderTape.com, and the host of the popular daily All Things Forex broadcast. He authored the book “The Quarters Theory”. [More about Ilian Yotov]
