My Forex Blog says....The Shift from Fundmantals is Coming....

Thursday, July 23, 2009

This week has been a strange one on the Forex. Typically, when the US or Japanese stock markets are up, the Dollar and Yen are down and when they are down, the Dollar and Yen are up.

The equity markets are a marker for risk appetite, and the dollar and Yen usually suffers as investors flock to stocks to quench their hunger. But this week has seen the reverse happen alongside puzzling comments from US Federal Reserve Chairman Bernanke, ECB President Trichet and to some degree, the Japanese Finance Minister as well.

As the US stock index, the Dow Jones Industrial Average raced towards 9,000, a level unseen since October 2008, the Dollar too made gains, albeit not as dramatic. The Nikkei Index was also up this week while the Yen as well did not suffer for the excitement of it all.

Patterns like this are rare, and make trading difficult, especially for fundamental traders who rely on hard data, not theoretical formulas and exotically named technical achievements (no offense Fibonacci…).

Yesterday saw Ben Bernanke, AKA helicopter Ben, give a second round of testimony to congress, this time in front of the Senate Banking committee. And while he pretty much towed the party line that he established the day before, he made one alteration which sent the Dollar on a roller coaster as Forex traders tried to figure out what he was saying.

He spoke of positive signs out of the housing market one day after putting part blame for the woes of the country on the depressed housing market. It is inconsistencies like this that can cause panic, and for a while with the Dollar it seemed as if it had.

I trade on fact, things I read, things I hear, things I piece together like a jigsaw puzzle – and for the most part it has worked out well for me. The stock market is not the same kind of market as the Forex, it is a market where emotions and psychology can rule the day.

The Forex market is too large for that, Online Forex traders know this to be true, sentiment cannot move a currency – but hard data, good or bad can. But what I witnessed this week has made me reconsider this. What I saw this week was pattern trading based on emotional instinct, not fact and numbers.

The US is in a bind, and while the Chairman of the Central Bank might allude to positive signs, the warning signs are large and in our faces. With swelling debt, with an administration bent on “fundamentally changing the United States of America” (Obama’s words, not mine) by redistributing wealth and socializing private industry at an enormous cost to not only the current taxpayer, but future ones as well – I do not see a strong Dollar right now. And I might not ever again if this continues.

It would be comforting to know that I am wrong, I would want nothing more than that. But seeing how the game of politics has consumed every inch of what is supposed to be objective and non-partisan departments – I do not believe I am.

Trichet wants to keep his job. Bernanke does too. Is it fair that their impartiality can lead to their dismissal (or non re-upping of their contracts)?

But, unfortunately, this is what we have – and in the long run it will ruin the trust that the markets have in any data that come out– and lead to the equitization of the Forex – we saw the beginning this week.


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