Counter Intuitive Fundamental Impacts

[DummyRun]

"...Given the current market sentiment though, a positive reading may spark a risk rally and be bearish for the dollar. On the other hand, a negative NFP report could highlight the dollar’s safe haven reputation.... "
Pipnoculars posted this comment on 2Dec (today) in reference to the fundamentals effecting USD over the past couple of days.

What I don't get is if the US economy has positive impacts (employment up, maufacturing sectors growing, house sales up, etc), how can that be BEARISH for the dollar? And conversely, how can a negative NFP report do anything to positively impact perceptions of the dollar as the Go To Guy?

I keep coming back to this mental brick wall on this stuff, because it is just completely counter intuitive. Can someone give me an idiot proof mantra for such contradictions in market behaviour? (Perhaps other than 'markets are not always right / logical'?)

Thanks. My head hurts...

[Master Tang]

Good news for the work force, and economy in general, encourages a "risk on" environment. Money flows out of bank accounts, and into equities, and investments that aren't considered cash. That drives demand for the dollar down.

Bad news for the economy encourages flight to safety or "risk off" of readily spendable cash, driving demand for the dollar up.

It's not always an inverse relationship between the dollar and the markets though. We are seeing that play out right now. The dollar AND the US markets are going up. The reason for that is capital flight out of Europe, and repatriation of those dollars.

It's an odd game, and often, the market is COMPLETELY illogical. But that's because we don't see all the pieces to the puzzle as a rule. The money amounts that truly move the markets are astronomical in comparison to even a sizable retail forex account. And those guys operate in the shadows. They use a variety of tools to move money around, and it has an effect on the day's moves we see on our charts.

However, they DO leave some large footprints, and once you get in tune with those, it's fairly easy to follow them.

[ruilima22]

market makers use news releases to hit stops... that´s why price act funny at those times :

i don´t know if that´s true or not but fundmentals usually only acelerate technical moves and corrections

[Pip Grip]

It's an odd game, and often, the market is COMPLETELY illogical. But that's because we don't see all the pieces to the puzzle as a rule.

So true! When I first began playing this game I was convinced that keeping an eye on fundamentals could give me an edge, but the more I now learn about the markets, the more cautiously I evaluate fundamental information.

[Jezzode]

Like they always say, don't believe everything you read in the papers....take more notice of what you can see for fact, such as your pretty little chart with your flashing lights

[pandras82]

it is just completely counter intuitive

You got it right. This is why trading is a very difficult business for humans.

[Buckscoder]

My 2 pips:

Intraday trading based on fundamentals is imho worse than throwing a dice regarding edges.

There are two "animals" who buy and sell:

- Traders

- Investors

Sure there are also hedgers etc. But for the sake of simplicity let them out of our simple fx model.

The latter animal trades extraday and based on fundamentals plus technical analysis.

The first animal trades intraday and extraday, but mostly based on technical analysis. Some might be profitable also with other information, but that might be the class with insider relationships.

Everybody else sits in the loser class, imho. People who panic on intraday news, guess how it moves after news, etc.

So, how pretty is your edge trading on fundamentals intraday without insider relationships?

We are trading currencies and currencies are macro economic liquidity vehicles. If it comes to macro economic fundamentals, almost everything has a lag of days/weeks/months. An interest rate decision for instance might have a fundamental permanent impact 6 months or later after the news came out! Rumors before the event might have an impact on it, but it is usually just temporary and definitely not related to the fundamental logic. Same goes with price spikes after the news. That's all a lot of panic without any real big pockets involved. Big pockets buy if it is a bargain on the weekly, monthly or yearly chart and sell if it's rather expensive there. I doubt most of them even look below a daily chart.

[DummyRun]

Good news for the work force, and economy in general, encourages a "risk on" environment. Money flows out of bank accounts, and into equities, and investments that aren't considered cash. That drives demand for the dollar down.

Bad news for the economy encourages flight to safety or "risk off" of readily spendable cash, driving demand for the dollar up.

It's not always an inverse relationship between the dollar and the markets though. We are seeing that play out right now. The dollar AND the US markets are going up. The reason for that is capital flight out of Europe, and repatriation of those dollars.

It's an odd game, and often, the market is COMPLETELY illogical. But that's because we don't see all the pieces to the puzzle as a rule. The money amounts that truly move the markets are astronomical in comparison to even a sizable retail forex account. And those guys operate in the shadows. They use a variety of tools to move money around, and it has an effect on the day's moves we see on our charts.

However, they DO leave some large footprints, and once you get in tune with those, it's fairly easy to follow them.

Oh So that is how it works!!! OK! That makes sense. Now I gotta learn some tracking skills, hunting the wolves... Start with Futures in terms of the big dogs?
Thanks Tang

[DummyRun]

market makers use news releases to hit stops... that´s why price act funny at those times :

i don´t know if that´s true or not but fundmentals usually only acelerate technical moves and corrections

When you say "to hit stops". I'm wondering if you are talking about stopping out us newbie retailers or something else? Perhaps push towards their targets? Thanks D

[DummyRun]

My 2 pips:

Intraday trading based on fundamentals is imho worse than throwing a dice regarding edges.

There are two "animals" who buy and sell...

The first animal trades intraday and extraday, but mostly based on technical analysis. Some might be profitable also with other information, but that might be the class with insider relationships.

So, how pretty is your edge trading on fundamentals intraday without insider relationships?

...Big pockets buy if it is a bargain on the weekly, monthly or yearly chart and sell if it's rather expensive there. I doubt most of them even look below a daily chart.

1. What is "imho"
2. Interesting comment about the time scales the big dogs move on
3. The traders who do well because of connections? Does that mean us newbies should pack up our dreams and go back to the 9-5 because we are not party to insider knowledge? That is what a broker told me and to be frank I was so ticked off with him for taking the wind outa my sales...