How to Identify and Trade Bullish and Bearish Divergences

Economic

Summary:

Learn how to trade bullish and bearish divergences in the financial markets. Discover key strategies, tips, and techniques for identifying these signals to improve your trading success.

Divergence trading is a powerful technical analysis strategy that helps traders predict potential price reversals in the market. By identifying and trading bullish and bearish divergences, traders can spot opportunities where the price of an asset is moving in the opposite direction of an underlying momentum indicator, such as the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), or Stochastic Oscillator.

This article will explain the concept of bullish and bearish divergences, how to spot them, and strategies for trading these signals.

What is Divergence in Trading?

Divergence occurs when the price of an asset moves in the opposite direction to an indicator that tracks momentum or volume. Traders use divergence to identify potential trend reversals or continuation signals, as the discrepancy between price action and the indicator suggests that the current trend may be weakening.

There are two main types of divergence:

Bullish Divergence: This occurs when the price forms a lower low, but the momentum indicator forms a higher low. It signals that the selling pressure is weakening, and a potential reversal to the upside may be on the horizon.

Bearish Divergence: This happens when the price forms a higher high, but the momentum indicator forms a lower high. It suggests that buying pressure is fading, and a price reversal to the downside may be imminent.

How to Identify Bullish Divergence

Bullish divergence is typically found during a downtrend and is seen as a signal that the trend may soon reverse to the upside. It is a sign that the bears (sellers) are losing strength and the bulls (buyers) could be gaining control.

Steps to Identify Bullish Divergence:

Price Action: Look for a lower low in the price chart. This suggests that the downward movement is continuing.

Momentum Indicator: Check the momentum indicator (RSI, MACD, etc.). Look for a higher low in the indicator. Even though the price is making a new low, the momentum indicator is showing less bearish strength.

Confirmation: Once you spot the bullish divergence, wait for confirmation. A price move above a recent resistance level or a bullish candlestick pattern can provide additional confirmation that a reversal may be occurring.

Example of Bullish Divergence in Action:

Imagine a stock that has been in a downtrend, and the price falls to a new low. However, when you check the RSI (or any other momentum indicator), it has only reached a higher low, indicating that downward momentum is weakening. This divergence suggests that the selling pressure is losing strength, and the price may soon start to move upward.

How to Identify Bearish Divergence

Bearish divergence is typically observed during an uptrend and can signal that the price may reverse to the downside. It indicates that the buying pressure is weakening, and sellers may soon take control of the market.

Steps to Identify Bearish Divergence:

Price Action: Look for a higher high in the price chart. This suggests that the upward trend is continuing.

Momentum Indicator: Check the momentum indicator for a lower high. Even though the price is making a new high, the momentum indicator is showing less bullish strength.

Confirmation: After identifying bearish divergence, wait for additional confirmation such as a breakdown below a recent support level or a bearish candlestick pattern (like a shooting star or engulfing pattern) to confirm the reversal.

Example of Bearish Divergence in Action:

Consider a stock in an uptrend where the price reaches a new high. However, when you look at the RSI, you see that it has formed a lower high, signaling a weakening of buying momentum. This suggests that the uptrend may soon reverse, and a downward price move could be coming.

Strategies for Trading Divergences

Trading bullish and bearish divergences can be highly effective if used correctly. Here are some strategies to maximize the potential of divergence signals:

Wait for Confirmation: While divergence is a strong indication of a potential trend reversal, it’s essential to wait for confirmation. This could include a break of a key support or resistance level, a candlestick pattern, or a trendline break.

Use Stop-Loss Orders: As with any trading strategy, managing risk is crucial. If trading bullish or bearish divergence, always set a stop-loss order to protect your capital in case the market doesn’t behave as expected.

Combine Divergence with Other Indicators: To increase the accuracy of your trades, combine divergence signals with other technical analysis tools like trendlines, moving averages, or Fibonacci retracement levels. This multi-layered approach helps to filter out false signals.

Trading with the Trend: Some traders prefer to trade divergences in the direction of the primary trend. For example, in a strong uptrend, they may look for bearish divergences as potential signals for profit-taking or trend exhaustion, while in a downtrend, they may focus on bullish divergences as possible entry points for a reversal.

The Role of Timeframes in Divergence Trading

Divergence can appear on any timeframe, from minutes to months, but the significance of the divergence signal often increases with the timeframe. A divergence on a daily or weekly chart is generally more reliable than one on a 5-minute chart because it represents a broader market sentiment.

Traders should always consider the timeframe they are using when evaluating divergence signals. Short-term traders might use smaller timeframes (e.g., 1-hour or 4-hour charts), while long-term traders might focus on daily or weekly charts.

Common Mistakes to Avoid When Trading Divergences

Ignoring Market Context: Divergence signals can be misleading in strong trending markets. In some cases, the divergence may just be a short-term pullback in an ongoing trend rather than a sign of an imminent reversal. Always consider the broader market context.

Trading Divergence Too Early: Traders often jump into trades at the first sign of divergence, only to see the price continue in the direction of the trend for a while before reversing. Patience is crucial, and waiting for additional confirmation is essential.

Over-Reliance on Divergence: While divergence is a powerful tool, it should not be relied upon as the sole basis for a trade. Use other indicators and technical analysis tools to improve your chances of success.

Conclusion

Trading bullish and bearish divergences is an effective method for identifying potential trend reversals in the market. By learning how to spot these divergences and using them in combination with other technical analysis tools, traders can improve their ability to anticipate price movements and make more informed trading decisions. Remember to practice patience, confirm divergence signals, and always manage risk when incorporating these strategies into your trading plan.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Glendon

Economic

When traveling to Vietnam or doing business in the country, one of the first things you'll need to consider is how to exchange your foreign currency to the Vietnamese Dong (VND). Vietnam is a predominantly cash-based economy, and while credit cards are accepted in some larger cities, cash is still king in most transactions. Understanding the pros and cons of exchanging foreign currency to Vietnamese Dong can help you make informed decisions, avoid costly mistakes, and ensure a smoother experience when managing money in the country.

The Pros of Exchanging Foreign Currency to Vietnamese Dong

1. Convenient for Daily Transactions

In Vietnam, almost all transactions, from purchasing local goods at markets to dining in restaurants or paying for public transport, require the use of Vietnamese Dong. While some hotels, airlines, and large businesses accept U.S. dollars (USD), it's still much easier to use the local currency in day-to-day interactions. Having Dong on hand allows you to avoid issues with change, as smaller shops often cannot process foreign currencies.

2. Avoiding Exchange Rate Fluctuations

Exchanging your foreign currency to Vietnamese Dong allows you to lock in an exchange rate before embarking on your trip. Vietnam's currency can experience volatility, so exchanging money in advance can help you avoid unfavorable fluctuations in exchange rates. By exchanging currency at a favorable rate, you can ensure you are getting a better deal than if you waited until the last minute or relied on ATMs.

3. Better Rates at Local Exchange Services

Vietnam offers various exchange services, from banks to currency exchange booths, where you can convert foreign currency to Dong. These services often offer better rates than international airports or hotels, where exchange rates tend to be higher and fees more pronounced. Many local banks or exchange services offer competitive rates, especially for major currencies like the U.S. Dollar, Euro, or British Pound.

4. Control Over Your Money

By exchanging your foreign currency for Vietnamese Dong, you avoid unnecessary fees associated with credit cards or foreign transactions. Using local currency can also help you control your spending better, as you're less likely to overspend when you physically handle cash. It can also save you from ATM withdrawal fees, which may apply when using international cards.

The Cons of Exchanging Foreign Currency to Vietnamese Dong

1. Exchange Rate and Fees

The most significant downside of exchanging foreign currency to Vietnamese Dong is the exchange rate and the associated fees. While you may find good rates in some locations, others, such as airports, currency exchange counters, or hotels, often offer lower rates and higher service fees. This means you may end up losing out on a considerable amount when exchanging money in less favorable settings.

Additionally, there are often hidden fees in exchange transactions, such as commissions charged by currency exchange services or service charges at banks. These additional costs can add up quickly and make the exchange process more expensive than it initially seems.

2. Carrying Large Amounts of Cash

When exchanging foreign currency for Vietnamese Dong, you're likely to receive large amounts of cash due to the relatively low value of the Vietnamese Dong. This can be cumbersome, particularly when you're traveling with limited storage space or need to carry the cash for extended periods. Carrying large sums of cash also comes with the risk of theft or loss, which can be a concern, especially in crowded areas or during long travels.

3. Difficulties with Currency Conversion in Remote Areas

In large cities like Hanoi or Ho Chi Minh City, finding currency exchange services is relatively easy. However, in rural areas or less-developed regions of Vietnam, the availability of foreign exchange services may be limited. In such cases, you might find it challenging to convert foreign currency into Vietnamese Dong, which can leave you in a difficult situation if you're not prepared.

4. Exchange Rate Variability

While exchanging foreign currency in advance might seem like a good strategy, you also have to consider the potential for exchange rate fluctuations over time. The Vietnamese Dong can experience periods of depreciation or appreciation against foreign currencies, meaning the rate you locked in initially may not be as favorable when you actually use it. You could end up losing money on the conversion, particularly if the exchange rate moves in the opposite direction after you’ve exchanged your funds.

Factors to Consider When Exchanging Currency

Before exchanging foreign currency to Vietnamese Dong, there are several important factors to consider:

Check Current Exchange Rates: Stay informed about the latest exchange rates by consulting reputable sources or financial websites. This will help you get an idea of the going rate and avoid unfavorable deals.

Use Trusted Currency Exchange Services: Stick to reputable banks or official exchange booths to avoid scams or poor rates. Be cautious of street vendors offering "too good to be true" rates, as they may be engaging in fraudulent practices.

Avoid Airport Currency Exchanges: Airport exchange booths often offer the worst rates due to their captive customer base. If possible, try to exchange currency at a local bank or exchange office after you’ve arrived in Vietnam.

Consider Using ATMs: ATMs can be a convenient way to withdraw Vietnamese Dong directly from your bank account. However, be aware of any foreign transaction fees or withdrawal limits that may apply.

Conclusion

Exchanging foreign currency to Vietnamese Dong can offer several advantages, such as convenience, better rates, and control over your spending. However, it also comes with some notable drawbacks, including unfavorable exchange rates, high fees, and the challenge of handling large amounts of cash. To make the most of your currency exchange experience in Vietnam, it’s important to carefully research rates, choose reputable services, and stay mindful of potential hidden fees. By understanding both the pros and cons of currency exchange, you can ensure that your financial dealings in Vietnam are smooth and cost-effective.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Glendon

Economic

For anyone interested in trading, whether in the stock, forex, or commodities markets, understanding the difference between demo accounts and live trading accounts is crucial. Both offer valuable experiences, but they serve different purposes in a trader's journey. While demo accounts are primarily used for practice, live accounts involve real money transactions and introduce a whole new set of challenges and emotions. In this article, we will explore the key differences between trading on demo accounts and live accounts, the advantages and disadvantages of each, and how to transition from one to the other effectively.

What Is a Demo Account?

A demo trading account is a simulated account offered by most online brokers, designed to mimic real trading conditions without the risk of losing actual money. Traders can use demo accounts to practice executing trades, test strategies, and become familiar with the trading platform.

Demo accounts typically come with virtual funds (usually thousands of dollars) and provide access to the same market data as a live account. This allows beginners to hone their skills, experiment with different trading strategies, and familiarize themselves with the mechanics of trading.

Advantages of a Demo Account:

Risk-Free Learning: The most significant benefit of a demo account is that it allows traders to practice without any financial risk. This is perfect for beginners who are still learning the basics of trading or for experienced traders testing new strategies.

Familiarization with Platforms: Demo accounts allow traders to get comfortable with the trading platforms they plan to use for live trading. This includes navigating charting tools, placing trades, and setting stop-loss or take-profit levels.

Testing Strategies: Traders can use demo accounts to test out new strategies and refine them before applying them with real capital. This is a crucial step in developing a profitable trading strategy.

No Pressure or Emotional Impact: Since demo accounts involve no real money, traders can execute trades without the emotional stress that often accompanies live trading. This allows them to focus solely on learning and refining their skills.

Disadvantages of a Demo Account:

Lack of Emotional Involvement: One of the biggest disadvantages of demo trading is that it does not replicate the emotions of live trading. Since there's no real money at stake, traders do not experience the psychological pressures that come with risk, such as fear of loss or excitement from a win. These emotions can significantly affect a trader’s decision-making process in real trading.

False Sense of Confidence: Because there are no real consequences to losing in a demo account, traders may develop unrealistic expectations about their trading abilities. Some might think they can effortlessly transition to live accounts, only to realize they struggle when actual money is involved.

What Is a Live Account?

A live trading account involves real money and real market conditions. Traders open these accounts with brokers, deposit funds, and trade using actual capital. Live accounts offer real-time market data, and profits or losses from trades directly impact the trader’s financial standing.

Advantages of a Live Account:

Real Market Experience: The biggest advantage of trading on a live account is that it provides real market experience. Traders learn how the markets behave when money is at stake, and they experience firsthand the psychological aspects of trading.

Actual Profits and Losses: In a live account, profits and losses have tangible consequences. Winning trades increase your account balance, while losing trades deplete it. This can help traders develop discipline, emotional control, and risk management skills.

Real-Time Market Conditions: Live accounts provide access to live market data, which is crucial for making informed decisions. Traders can track price movements, volatility, and trends in real time, and this information is invaluable for executing successful trades.

Opportunity for Growth: Live trading accounts provide the opportunity to earn actual profits. Over time, traders can grow their capital by consistently making profitable trades, which is the ultimate goal of most traders.

Disadvantages of a Live Account:

Risk of Losing Money: The primary downside of a live account is the real risk of losing money. Traders must be prepared for the emotional challenges that come with the possibility of financial loss. Unlike demo accounts, where losses are purely theoretical, live account losses are actual.

Psychological Pressure: Trading with real money can create psychological pressure, which may impact decision-making. Fear of loss, greed, and overconfidence can lead to poor trading choices. Emotions often lead traders to deviate from their planned strategies, causing them to take excessive risks or abandon profitable positions too early.

Increased Costs and Fees: Depending on the broker, live accounts may come with additional fees such as commissions, spreads, and withdrawal charges. These costs can eat into your profits, especially if your trading strategy is not well-optimized.

How to Transition from Demo to Live Trading

For many traders, the goal is to transition from a demo account to a live account. Here are some tips to make the switch successfully:

Start Small:When moving to a live account, start with a small deposit. This will allow you to get a feel for real trading without risking too much capital.

Apply What You’ve Learned:Use the strategies and techniques you tested in your demo account. Don’t try to jump into more complex strategies immediately.

Manage Your Emotions:Be prepared for the emotional challenges of live trading. Stick to your trading plan, and avoid making impulsive decisions based on fear or greed.

Practice Risk Management:One of the most important aspects of live trading is risk management. Always use stop-loss orders and never risk more than a small percentage of your account balance on a single trade.

Conclusion

Both demo and live trading accounts have their advantages and disadvantages. While demo accounts provide a risk-free environment for learning and practicing, live accounts offer real-world experience, the chance for profit, and the emotional challenges that come with real-money trading. Understanding the differences between the two and transitioning from one to the other effectively is crucial for any trader's success.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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JPMorgan

Economic

The notion of “correct” portfolio construction has been challenged and diversification has become unpopular. This is because certain assets have outperformed their counterparts: stocks over bonds, growth over value and U.S. over “international.” As a result, many investors may find themselves “offsides,” over-allocated to past winners and underweight laggards.

When thinking about portfolio construction in 2025, investors must determine what problems they are solving for: are they looking for income, capital preservation or growth? Are they tolerant of volatility or risk-averse? And is liquidity important? The answers to those questions will inform asset allocation, and both traditional and alternative assets can play a role.

How these assets will perform is tied to the macro backdrop. Here, the picture is muddled: growth remains robust on the back of strong consumption and a tight labor market; core inflation is still somewhat firm; and the outcome of the U.S. election suggests significant policy changes might be in the pipeline. All of this means that the interest rate outlook may oscillate, translating into volatility across the economy and markets.

Underneath this volatility, the opportunity set is shifting. Fixed income is arguably more attractive than in recent decades, though while allocations to intermediate bonds have increased, many investors remain underweight duration relative to the Bloomberg U.S. Aggregate. That said, those changing rate expectations suggest duration should not be overextended, and ultimately investor sentiment should inform the appropriate exposure: those concerned about the economy should extend more – current rates make bonds an effective ballast against recession – and those interested in income extend less. The credit conversation follows a similar path: while a benign macro backdrop supports an overweight to credit, especially for total return seekers, recession fears would encourage a tightening-up on credit quality.

In equities, strong earnings growth from the “Magnificent 7” over the past two years has exacerbated an already powerful period of growth outperformance, leaving investors underweight other markets. While U.S. equity portfolios seem to have equal exposure to value and growth when approached at the index level, an analysis of underlying holdings shows a 10%pt overweight to growth. Interest in foreign markets seems to have stalled, with the average allocation to ex-U.S. equities at a 12-month low. This translates into a 20% average allocation within equity portfolios to international assets, roughly half of what is considered “diversified.”

These underweights are too severe: geopolitical uncertainty, currency headwinds and widening growth differentials could make strong and sustained foreign market performance illusive, though multiple expansion and improvements to earnings growth, coupled with a focus on long-term trends, should allow ex-U.S. markets to compete. Moreover, with inflation easing and borrowing costs falling, U.S. earnings growth should broaden out and will likely include value names, which as an added benefit are also attractive to income- seeking investors, especially as bond yields continue to normalize. That said, the pendulum should not swing too far: large cap U.S. growth names, including the “Magnificent 7,” still have strong secular tailwinds behind them. In other words, portfolios should be balanced.

For alternatives, the outcome-oriented approach toward portfolio construction is particularly relevant, with each major component – commodities, hedge funds, real assets and private capital – solving for one or more “problems.” This will be particularly true looking forward, with stretched valuations challenging future returns, income opportunities fading as rates fall and stock/ bond correlations remaining positive in the absence of a recession, and will complement cyclical, structural tailwinds for the asset class like a normalizing rate environment. These assets will also become increasingly approachable, as technology “democratizes” access through lower minimum investments and greater liquidity. For this reason, the traditional stock/bond framework of “60/40” may be reformed into one that also includes alternative assets: a “50/30/20” portfolio, for example, with the 20% allocation to alternatives financed to varying degrees by both stocks and bonds.

All told, while the “60/40” portfolio may not be as relevant as it once was, this is because it has evolved, not because diversification is unnecessary. In fact, as macro forces continue to shift and a bevy of potential policy changes loom on the horizon, a well-diversified long-term portfolio will be that much more important, helping to keep investors steady through turbulence and prevent them from “jumping ship.” For those worried that in today’s world, the “60/40” is dead, take comfort: reports of its death are greatly exaggerated, and the “new” diversified portfolio is alive and kicking. Asset Allocation: Reports of My Death Are Greatly Exaggerated_1

Asset Allocation: Reports of My Death Are Greatly Exaggerated_1

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Risk Warnings and Disclaimers

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Brookings Institution

Economic

Heck, few noticed. First National Bank of Lindsay Oklahoma failed on October 18, 2024, the first bank to fail with uninsured depositors taking losses since the most recent cycle of bailouts began with Silicon Valley Bank (SVB) in March 2023. Here is why we should commend the Federal Deposit Insurance Corporation (FDIC) for following the law which prioritizes protecting ordinary Americans and resolving banks in the least costly manner; why we should celebrate the return of true bank failures; and why we should resist the temptation to bail out uninsured depositors the next time a bigger bank fails.

That a small bank can fail, uninsured depositors can lose money, and a financial panic not ensue ought to give pause to those who defend every bailout as necessary to avoid a greater financial panic. At the same time, we need to have a frank discussion about why bank regulators were OK with a handful of people and businesses in small-town Oklahoma losing money in a bank but not the billionaires and venture capitalists who were bailed out under the guise of protecting small businesses trying to meet payroll when the Federal Reserve, FDIC, and Treasury Department opened the spigots for SVB. Consumer Financial Protection Bureau (CFPB) Director Chopra’s commentary is spot on in diagnosing this problem, but in my opinion, calls for the wrong solution of extending greater deposit insurance. Instead, we need to stop bailing out the wealthy and well-connected and instead operate a banking system in which not all deposits at the bank are insured.

Banks failing is the norm. At least one bank failed every calendar year since the FDIC was created in 1933 until 2005. No bank failing in 2005 and 2006 was the signal that the financial system was dangerously unstable. After the great financial crisis, the norm returned. Fifty-four banks have failed since 2014 as shown in the chart below. It is a testament to the American financial system’s strength that banks can and do fail and we do not have a crisis.

What happened?

First the facts. Lindsay was a small national bank (about 1/200th the size of SVB) in a small town that once called itself “The broomcorn capital of the world.” The bank failed due to fraud. Fraud is a common cause of bank failures, as seen in a Kansas bank’s recent failure due to the CEO wiring millions to a crypto-scammer. Bank failures due to fraud are often proportionately expensive to resolve as compared to a bank that invested in poor-performing assets like SVB—assets can be recovered while fraud can mean the money is gone.

When a small bank fails in a small town, the options to find another bank to acquire the business are limited. The FDIC was able to offload about 20% of Lindsay’s assets and all of its insured deposits to nearby First Bank and Trust, another small community bank. This left just over $7 million in uninsured deposits from accounts with over $250,000. Those depositors may lose money.

The FDIC immediately offered half of that money to depositors, with the potential for more should the failed bank’s assets be worth more. The net loss to uninsured depositors should be no more than $3.5 million and quite possibly significantly less, or even nothing, depending on the eventual resolution of the bank’s assets.

Why we have this

Understanding why this failure, while tragic (my heart goes out to the victims of this bank fraud), is positive for the overall financial system requires going back to why the government-insured bank deposits: to protect the little guy. When FDR signed the law creating the FDIC and deposit insurance in the 1930s, the original limit was $2,500. Roosevelt’s logic is as sound today as it was in the Great Depression: Ordinary Americans need to know their money in the bank is safe, and only the Federal government can provide the ultimate guarantee.

Uncle Sam’s insurance is a massive gift to banks, but it is not free. Banks pay the premiums that fund deposit insurance. Some banks argue that deposit insurance is not taxpayer money, neglecting that the deposit insurance fund is part of the Federal government’s budget. Basic economics shows that banks pass deposit insurance costs on to customers, with some evidence that it is disproportionately passed to lower-income ones through fees.

The deposit insurance limit is not set on the basis of economics. The insurance limit was raised from $100,000 to $250,000 to build political support for the Troubled Asset Relief Program (TARP) bailout legislation after it originally failed a vote in the House of Representatives. Although the increase was written to be temporary (like TARP itself) it is hard to ever take back a government benefit, and the $250,000 limit was made permanent as part of the Dodd-Frank Act.

Checks and balances

The $250,000 limit fully insures over 99% of Americans’ bank accounts. The fortunate few who have more than $250,000 in a single bank have some risk if the bank fails. Those depositors, primarily wealthy individuals and businesses, have an incentive to keep an eye on their bank. After all, market forces are important. If bankers face no incentive from depositors to be prudent, more banks will fail and taxpayers will be on the hook again and again.

Charging bank regulators with a mandate preventing all banks from failing is a mistake for several reasons. First, it is impossible. Regulators are prone to error. SVB built up massive risk right under the Fed’s nose. Second, small banks are not examined regularly enough or closely enough to prevent fraud like what happened in Oklahoma and Kansas. And the cost of that level of continual monitoring likely exceeds the benefits, as fraudsters can lie to their regulators as well. Third, a system without bank failures is a perpetuity to existing holders of charters, a repudiation of basic capitalist principles of competition, which requires potential failure.

America’s banking system needs both appropriate prudential oversight and the market forces of businesses and wealthy people afraid that they will lose their uninsured money if they put it in the wrong bank. That is the system our laws have designed. The alternative of “a system of public guarantees for bank debts as far as the eye can see will mean only pain for our economy, our financial system and, perhaps most important, our politics,” as Peter Conti-Brown correctly argued.

Bank failure is a natural, normal, and healthy part of capitalism. America has over 4,000 banks and even more credit unions. Do we really want a world where these are perpetuities, incapable of failure? Regulators would constrain all sorts of positive innovations out of fear of failure. Or they would grow complacent, believing that they alone have designed a fool-proof system. A bank failed in every single year in modern American history up until 2005. Bank regulators were so proud of the lack of failure that they came to Congress crowing that the banking system had never been safer. Three years later it all collapsed.

A safe banking system must embrace failure. Poor decision-making must have consequences. Ordinary Americans should be protected, which our system does. The siren’s song to bail out the wealthy must be resisted. The FDIC did so in Oklahoma and guess what: There was no panic, no mass runs, no destabilizing systemic crisis.

The immoral inequity of bailing out billionaire venture capitalist depositors at SVB but not individuals and small businesses in Oklahoma was justified with the logic that having SVB fail would cause risk to the financial system, but letting these Oklahomans would not. This contradicts the promise of the Dodd-Frank Wall Street Reform Act, as President Obama said when he signed the law into place: “There will be no more tax-funded bailouts—period. If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy.” Read carefully, President Obama could still be correct as the ability was given to regulators, but they chose not to use it.

I hope that instead of forgetting Lindsay Bank, financial reformers channel their outrage to prevent future bailouts of large financial institutions. I do not yet see enough strength to keep Odysseus tied to the mast the next time a larger bank fails, but I would hope that the memory of Lindsay—“broomcorn capital of the world”—Bank will be one tighter lash.

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FOREX.com

Economic

Forex

EUR/USD rises cautiously ahead of German GFK data & post-Fed minutes

EUR/USD is rising after modest losses yesterday as investors await German GFK consumer confidence and a US data dump ahead of Thanksgiving tomorrow.

German consumer confidence is expected to fall slightly to -18.6 in December from -18.3, an 18-month high reached in the previous month. The data comes after German IFO business climate data earlier in the week fell by more than expected, doing little to curb winter recession worries and amid ongoing political uncertainty.

Weak data from the eurozone’s largest economy, combined with worries over trade tariffs from Trump, sees the outlook for the region deteriorating, which could fuel outsized ECB rate cut expectations.

The ECB is expected to cut rates in December, and the market is trying to gauge whether this will be a 25- or 50-basis-point cut. Should jumbo rate cut expectations rise, the EUR could come under further pressure.

The USD is falling after the market lifted rate cut expectations, which rose following the release of the FOMC minutes yesterday and ahead of several key US data releases later today before tomorrow's Thanksgiving break.

The FOMC minutes showed that policymakers supported a gradual approach to rate cuts, given the stronger-than-expected US economic data and amid fading concerns over the health of the labour market.

The Fed meets again in December, and the market is pricing in a 66% probability of a 25 basis point rate cut, up from 59% before the minutes were released.

EUR/USD forecast – technical analysis

EUR/USD fell from a peak of 1.12 to a low of 1.0330 in under two months. The price has recovered from the 1.0330 low, rising back above 1.0450, the 2023 low, as it tests the falling trendline resistance at 1.0550, a modestly positive sign.

However, the trend remains bearish until there is more evidence that the bottom is in. Should EUR/USD hold above 1.0450 and 1.05 region, buyers could look towards resistance at 1.06.

However, a break below 1.0450 – 1.05 could open the door to 1.03 and beyond.

EUR/USD, USD/JPY Forecast: Two Trades to Watch_1

USD/JPY falls to a 3-week low ahead of US core PCE data

USD/JPY is falling for a third straight day amid U.S. dollar weakness and as US treasury yields continue to ease, following the post-election rise to 4.50%.

Yields have eased following the announcement of Trump’s treasury secretary, Scott Bessent, earlier in the week. The market sees Bessent as a moderate hand.

The USD is also falling following the minutes of the November 3rd meeting, which showed that policymakers supported a gradual approach to cutting interest rates going to stone recent U.S. economic data. The market is pricing in the 66% chance the December rate cut up from 59% ahead of the release of the minutes.

Today, the focus is turning towards the US core PCE, the Fed's preferred gauge for inflation. Core PCE is expected to rise to 2.8%, up from 2.7%, while personal spending is expected to ease slightly to 0.3% from 0.5%.

US jobless claims, durable goods orders, and new home sales will also be released. Stronger than forecast data could lift the USD.

The yen benefited yesterday from Trump’s trade tariff threats, driving some safe-haven demand. Traditional safe-haven Gold also pushed higher. Japan's economic calendar is relatively quiet until Friday, so there has been little other news flow driving the strong gains in the yen.

USD/JPY forecast – technical analysis

USD/JPY’s rally from 139.50 ran into resistance at 156.74 before rebounding lower. The price has broken below the rising trendline dating back to 2022 and the 200 SMA at 152.00 and is approaching the November low at 151.30. A break below here creates a lower low, and the chart starts to look bearish.

Sellers, supported by the RSI below 50 and the bearish crossover on the MACD, will look to extend losses towards 150.80, the 50% Fib level of the 162 high and 139.50 low. Below here, 148.20, the 38.2% Fib level, comes into focus.

On the upside, buyers will need to retake the 200 SMA and 153.40, the 61.8% Fib level, and the rising trend resistance to bring 1555 and 156.74, the November high, into focus. EUR/USD, USD/JPY Forecast: Two Trades to Watch_2

EUR/USD, USD/JPY Forecast: Two Trades to Watch_2

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Economic

Forex

The start of the final trading week of November has been eventful. Several currency pairs experienced a “gap” or price difference between Friday’s close and Monday’s opening. For instance, the GBP/USD pair opened 60 pips lower, EUR/USD saw a 70-pip gap, and USD/JPY opened with a 50-pip difference. At the week’s outset, the USD faced a downward pullback, which in some pairs has since transitioned to a sideways trend. Analysts attribute this sharp retreat to market reactions following Trump’s selection of a Treasury Secretary. Scott Bessent recently stated that tariffs should be introduced gradually, and his supporters believe he could help curb the growth of the U.S. budget deficit.

EUR/USD

As anticipated, the EUR/USD pair has renewed last year’s lows, briefly trading below 1.0400. A sharp rebound from the 1.0330 level allowed buyers to regain momentum, pushing the pair up to 1.0540. Currently, the upward correction has shifted into a sideways movement within the 1.0500–1.0400 range. The next breakout with consolidation is likely to dictate the pair’s direction:

A move above 1.0540 could prompt a test of the 1.0700–1.0800 zone.A break below the recent low at 1.0330 might pave the way for a test of 1.0200–1.0000.

The upcoming trading sessions could be pivotal for EUR/USD, with the following key events on the calendar:

Today at 11:00 (GMT+3): European Central Bank non-monetary policy meeting;

Today at 16:30 (GMT+3): U.S. GDP data for Q3;

Today at 18:00 (GMT+3): U.S. core personal consumption expenditures price index;

Tomorrow at 16:00 (GMT+3): Germany’s November consumer price index (CPI).

GBP/USD

Technical analysis of the GBP/USD pair suggests price consolidation within the 1.2620–1.2480 range.

If buyers manage to push the pair above 1.2620 during upcoming sessions, a robust upward correction towards 1.2720–1.2840 could develop.Conversely, breaking the support at 1.2480 could renew bearish momentum, targeting 1.2350–1.2300.

Important UK economic data is expected on Friday, including mortgage lending figures and the Bank of England’s financial stability report.