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It’s been a bit more exciting today than many thought as far as the financial markets are concerned. Gold, oil and stocks are all moving higher, while the U.S. dollar weakens. It looks like it’s going to be an interesting week after all.

Gold breaks through $1,000 an ounce

Gold breached the $1,000 an ounce level today, hitting that high for the second time this year. It really isn’t much of a surprise that gold is so high. Earlier this year, when gold hit $1,000 an ounce, it was due to economic worries and a rush for a safe haven investment. Now gold is rising as a hedge against inflation as the economy begins to recover. Oh. And gold is getting help from the fact that the U.N. criticized the influence of the dollar as the global reserve currency.

Oil prices head higher

Oil prices moved higher, thanks to a sinking dollar. Because oil is traded in dollars, its prices often move inversely to the greenback’s performance on the currency market. Also helping oil a bit is the expectation that the worst of the recession is probably over.

Stocks likely to end higher today

The U.S. stock market is likely to end higher today. As the close approaches, the Dow is more than 50 points higher. Help from oil company stocks benefiting from higher oil prices is a factor. Additionally, there is hope in the form of Kraft’s determination to make things work with Cadbury. There is a great deal of speculation that this could kickstart global mergers and acquisitions.

Will the U.S. dollar weaken further?

All of the above factors contribute to a weak U.S. dollar. And that could be bad news in the long term. BloggingStocks offers this on why we should be watching the U.S. dollar:

We must keep an eye on the U.S. dollar. If it keeps dropping, it might create a psychological trigger signaling that U.S. debt is too high or that inflation is on the way. Either one of these scenarios is harmful to long-term growth.

It will, indeed, be an interesting few days. And it could, quite possibly, be a wild ride.

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Recently, the National Futures Association instituted new rules about hedging and first in first out (FIFO). This changes the way that many people will engage in forex trading in the future. For those who use stop loss orders, it might be difficult to effectively do what is needed, since the new ruling insists that the first trade open must be the first trade closed. Kirk Norwood, from Forex Strategy Secrets, explains the FIFO rule, and how to get around it in forex trading:

This means the first trade in needs to be the first trade closed if you have more than one trade on the same currency and with the same lot size.  The key here is the lot size.  If you are going to add on to a trade and want to use Stops as we teach, you can still do this but you have to change the lot size.   If you have a 1.0 lot trade on, the rest of the trades on that currency pair need to have a different lot size i.e. 1.0 lot, 1.01 lot, 1.2 lot, 1.02 lot, etc.  As long as the lot size is different you can use the stop loss principle.

This is an important distinction. The use of stop loss orders when trading forex can be a good way to limit your losses in many cases. By observing the proper method of entering positions, you can ensure that you automatically exit them as desired.

Another change is to hedging. A direct hedge can no longer be used when trading forex. However, it is possible to get around this by using a three currency method, instead of a two currency method. For example:

• Buy dollar while shorting the sterling.
• Buy sterling while shorting the euro.
• Buy the euro while shorting the dollar.

It’s a round about way of getting there, but you make it eventually.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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The stock market has been open for less than an hour, and already it’s a major bloodbath. U.S. stock futures pointed to a lower open today, but I’m not sure how many people expected this. The Dow is already down by more than 170 points and heading toward 180. (Will the Dow lose more than 200 points? The day is young enough that it might.) The Nasdaq and the S&P 500 are also lower.

After yesterday’s optimistic open to the 3rd quarter, things have turned pessimistic quickly. Even though yesterday’s disappointing ADP employment data prepared investors for today’s news, it still remains an unpleasant reality. Even the fact that unemployment is now sitting at 9.5%, instead of the expected 9.6%, is providing little in the way of hope. The bears are out for vengeance today, and they are getting it.

U.S. dollar gains on risk aversion

Normally, this sort of bad economic news would send a currency lower. But that is not how things have been working this recession. Instead, the U.S. dollar has been seen as a safe haven currency, providing investors with a place to preserve their capital in uncertain times. With stocks dropping so precipitously today, it is no surprise that the greenback is taking the upper hand against the euro and the pound. Those are two currencies that people turn to when they want higher returns and can stomach risk. In the current environment, investors are fleeing risk in return for safety.

Even though there has been talk of a decline in the value of the U.S. dollar due to future inflation and high government debt, in the short-term, the dollar is likely to remain reasonably strong. The greenback is supported by the world’s most reliable taxpayer base, and that means that it will likely remain in demand as a safe haven investment until economic recovery begins.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.