Friday March 24, 2017 - 21:12:38 GMT
Share This Story
Global-View - www.global-view.com
When Trading, Avoid The Herd
John M. Bland, MBA
Stay Away From Conventional Wisdom Often in the financial markets things things just don't work out as planned. This is not just true in forex. Most of the financial markets, such as equities, got set up long for the Trump Presidency on the promise that he would pursue policies more supportive of economic growth than previous administrations in the recent past. There was also a widespread expectation that a strong USD would ensue and would ultimately see the EURUSD fall to "parity" vs. the USD. Hopes for EURUSD "parity" are now in the rear-view mirror after Treasury Secretary Mnuchin made clear the new Administration's opposition to USD strength against selected major currencies.
This obvious risk is why I regularly warn against trading on "conventional wisdom". Following "conventional wisdom" is not a reliable trading strategy. In trading, it is usually not a good idea to be a member of the "pack". I know because I have fallen into this trap much too often. Two weeks ago markets were universally expecting a strong U.S. employment report based on several reliable advance indicators. As expected, the data proved to be very solid, however, it was not the blockbuster report that many had been expecting. So despite the strong data, the USD fell rather sharply. The lesson is to beware trading with the the crowd. That strategy can often end in tears.
My expertise is in forex and not equities, but given the correlations in financial markets, we have to keep track of how all markets are trading. I have become increasingly worried recently about the lack of a significant correction in the value major stock indices. This suggests to me that there might now be too many traders positioned the same way in stocks. This could be setting the stage for an eventual price correction.
"Carry Trades" In the Japanese Yen? Recently there appear to have been a large flows out of the JPY into the EUR. In the latest week flows have reversed and gone the other direction. Be alert to see if these flows resume in the future. With the European economy expected to recover next year, investors are already to buying European stocks. Some tell us these investments European stocks might be financed "cheaply" in JPY. This is called a carry trade. You borrow funds in a depreseed low interest rate currency to buy assets in a stable to strong currencies and hope to make money on both sides of the transaction. Keep a close eye on the EURJPY cross as interest in the strong USD trade wanes.
WEEKLY Forex Economic Calendar:
27 Mar Mon
08:00 DE- IFO
28 Mar Tue
14:00 US- CB Confidence
29 Mar Wed
GB- Invokes EU Article 50 to start Brexit process
14:00 US- Pending Homes Sales
14:30 US- EIA Crude
30 Mar Thu
12:30 US- Weekly Jobless
12:30 US- GDP
23:30 JP- CPI
31 Mar Fri
7:55 DE- Jobless
8:30 GB- GDP
9:00 EZ- flash HICP
12:30 US- Core PCE Deflator
14:00 US- final Univ of Mich
2 Apr Sun
00:00 AU/NZ- Clocks "Fall Back"
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland co-founding partner www.global-view.com
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."