FX trading with City Index's Alex Douglas

An Exclusive Interview with Alex Douglas, Market Strategist, City Index

Alex Douglas is City Index's Market Strategist for the Asia Pacific region and Head of Business Development at City Index Australia. We spoke with him while he was in Singapore last month, and asked him for his thoughts on FX trading and technical analysis.





1. What is your currency outlook for the rest of the year?

No matter what happens in other markets, the currency market will continue to swing back and forth in reaction to a wide range of external influences and the expectations of investors and traders. If the "green shoots" of June actually turn out to be "brown weeds", the US dollar may again benefit from a flight to safety. However, in the longer-term, all the trillions of dollars that have been created by the Fed will have to be accounted for. Surely, this will have to be reflected in the value of the US dollar in time.

2. What indicators should investors look at?

At the end of the day, it is price that will determine whether your trade results in a profit or a loss. Therefore, price is the number one area to focus on. Beyond this, investors should select half a dozen different indicators that they are comfortable with and learn how to use them properly. And always remember, a more complex indicator is not necessarily a better indicator.

3. Based on the technical charts, which currencies are worth the attention of the investors in the next six months?

A lot will depend on the sustainability of the recent rebound in global equity markets. If the gains are sustained and global economic data starts to improve, commodity based currencies such as the Australian dollar are likely to benefit.

4. How can investors use technical analysis to complement fundamental analysis?

While fundamental analysis can help you determine the overall direction of a security, technical analysis is a valuable tool for determining the timing of trades. In addition, technical analysis can provide a clear indication of levels at which a trader should accept that he/she has been wrong. When this information is acted upon through the use of a stop-loss order, technical analysis plays an important role in risk management.

5. Can investor rely solely on technical analysis?

It depends on the individual investors objectives, but it certainly is possible to rely solely on technical analysis. However, investment decisions that are supported by both technical analysis and fundamental analysis are likely to result in better results in the longer term.

6. How FX trading help in diversifying short-term risk of an investment portfolio?

Adding an extra asset class to your investment portfolio will in itself help to diversify risk. For people that invest in securities that lie beyond their home country, currency fluctuations will have an impact on the returns provided by those investments. A proper currency overlay (hedging) strategy will help investors to manage the impact of these fluctuations.

7. What should investors look out for to avoid common pitfalls in FX investment?

As with any financial instrument, investors should ensure that they fully understand the product and the potential for both positive and negative returns. It is also important to develop and adhere to a robust risk management plan. The foreign exchange market can move rapidly and deliver trading results in a very short time but investors should be wary of the temptation to over-trade.

8. What is the best investment strategy in the current volatile market?

Times of turmoil deliver huge opportunity, so it is a great time to be active in the markets. The key is to ensure that downside risks are adequately managed.





The information provided in this publication may contain projections or other forward looking statements regarding future events or future financial performance. Such forecast is not necessarily indicative of the future or likely performance of the product. Investors must make their own assessment of the relevance, accuracy, adequacy and reliability of the information provided in this publication and make such independent investigations as they may consider necessary or appropriate for the purpose of such assessment. Any opinion or estimate provided in this publication is made on a general basis and is not to be relied on by investors as advice.

Disclaimer
CFD and leveraged FX trading is not suitable for all investors. If in doubt, please seek independent expert advice. When considering the benefits, you should also consider the risks. CFD and leveraged FX trading requires the deposit of a small percentage of the total trading value (margin). The leverage associated with CFD and leveraged FX trading facilitates trading in larger size compared to traditional full value trading. An adverse movement in the underlying instrument can quickly expose you to losses in excess of the initial deposit. See Risk Disclosure Statement for more complete information.

More

Mining for the years ahead
Moving up the mining value chain is what commodities trader and mining stock Abterra is now working towards for sustainable future growth, now that the dust is slowly settling on the economic crisis over the past year, says its executive director Mahesh Mehta.

Investing in the global recovery through ETFs
Barclays Capital has launched a fund that gives investors a chance at participating in the global recovery pie by riding on the wave of fiscal stimulus packages announced in the last year by various governments around the world.

Q&A with Andrew Robinson, FX Strategist at Saxo Capital Markets
With more headlines seemingly reporting of improving manufacturing, export, trade numbers and now some central banks looking to hike interest rates – what is Saxo's view of the outlook for the global economy?

Q&A with Aaron Smith of Superfund Financial Singapore
With more news headlines reporting improving manufacturing, export, trade numbers and with now some central banks looking to hike interest rates, what is Superfund's view of the outlook for the global economy?

Market Outlook by OCBC Research
In the past few days, there were softness and consolidation in the market. We view this favourably as the STI has already gained about 80% from the low in March (vs. 54% for the S&P 500).

DMG: Bearish on Singapore Market
Having risen to 2686, the STI P/B of 1.65x is already back to the 12-year (we use the period commencing Asian Financial Crisis to cover one full cycle) average of 1.61x.

High-end gains traction despite slowdown in overall sales
The pick-up in high-end transactions despite the slowdown in overall sales volumes should benefit high-end developers such as SC Global, Ho Bee, Wheelock Properties and Wing Tai. Maintain OVERWEIGHT. By UOB Kay Hian

Stock Pick
CNA: Buy (DMG, 18 Nov), Kian Ann Engineering: Neutral (DMG, 18 Nov), SPH: Buy (UOB Kay Hian, 17 Nov), Singapore Airlines: Buy (Kim Eng, 17 Nov), Oceanus Group: Buy (OCBC Research, 17 Nov), Swiber Holdings: Hold (OCBC Research, 17 Nov)