Tuesday March 16, 2010 - 23:26:14 GMT
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Forex Blog - The Simple Truth
Technical traders will tell you the news is reflected in the numbers. Those who follow fundamentals say you need to know what is behind the numbers. I am a hybrid trader and use both technicals and fundamentals. In this news headline driven market, it pays to know what is behind the price action. GVI John is an expert on interpreting the fundamentals and if anyone is interested in learning about how to relate fundamentals to forex trading. I suggest contacting him.
I use fundamentals not only to help form a macro view but to figure out what theme the market is trading on. Knowing the theme helps me to interpret the news. Take the first two days of this week. On Monday, the correction lower in the eur/usd was attributed to Eurozone finance ministers not coming out with an explicit bailout plan for Greece. On Tuesday, the eur/usd got a lift after S&P took Greece off negative watch. Knowing Mondayâ€™s theme helped to interpret Tuesdayâ€™s Greece news and explain the eur/usd reaction to the S&P headlines.
In reality, the eur/usd retreat on Monday was also helped by a failure to test the pivotal 1.38 level after a firm finish to last week. Tuesdayâ€™s rebound was helped by a pause above some key technical levels (i.e. 20 day mva and daily channel bottom) and a rise in risk appetite. So, it was a combination of technicals and supporting fundamental news that helped fuel a eur/usd recovery ahead of the FOMC decision.
Now this brings up some other issues:
1) Ask yourself why the fx market reacted with such volatility on a Fed decision that was widely expected. The fact that only one FOMC member dissented (same as last time) was taken as a dovish sign but there were no surprises in the decision. The market should have taken it with a yawn. As always, the reaction to news is more important than the news itself.
2) Why are the markets reacting to credit rating agency news? The simple truth is these agencies should have no credibility given their track records both prior and during the recent financial crisis. Yet, markets seem to be giving them even more credibility than before, reacting to what they say as if it is the gospel. I have no clue why but you have to work with the hand you are dealt. In this case, assume markets will react to rating agency headlines and donâ€™t fight the tape.
This finishes up the first installment of The Simple Truth. My approach is to keep it simple and say it like it is. I hope you found this useful and keep an eye out for the next report.
Jay Meisler has been trading the forex market for more than 30 years, as an interbank dealer, fund manager and independent trader. He is a co-founder of Global-View.com the leading forex discussion site and home of the original forex forum. Global-View is a place where traders come for forex trading ideas, latest rumors, flows and breaking news.
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