The dollar’s strongest year since 2008 is a source of growing concern among some Fed policy makers, who say further gains have the potential to curb economic growth and keep inflation too low. A strong dollar tends to restrain exports by making them more expensive, holding back growth, while reducing the cost of imported goods. Fed will be taking this into account , the way its affecting the economy in terms of net exports and GDP growth and what that means for Feds inflationary developments. Some Fed officials argue that Fed can afford to be patient on raising rates and that tightening prematurely poses a greater risk than waiting too long.
But before we jump to any conclusion how about we look back into history when dollar index was at its peak /91.54/ when it was even higher than where it stands now and compare it to the historical total export , GDP annual growth graph chart covering years prior the dollar index peak during and after periods to see if there was any significant impact from strong dollar on net exports and GDP growth.
Dollar index line chart
Lets see how total exports and GDP looked like prior - during and after the dollar index peak
If you look at the chart above total exports was climbing up gradually prior during and after the dollar index peak where it was at 91.54 until global financial crisis hit in 2008. That was a long term chart now lets zoom in to year from 2003-2008 in case if we have missed anything.
I zoomed in to year 2004-2005 just in case…
From what I can see if there wasn’t much of a significant slump in total exports during and after the dollar index peak if you compare the slump downward curve to the one that of 2004 you’ll see what I mean. I don’t have the numbers on this but I think the graph - the comparison speaks for itself.
If you look at the chart even after dollar index was down to 80.52 in 2011 from 91.54 in 2005 there wasn’t any significant change on GDP annual growth rate in fact soon after the slump GDP growth headed down quite the contrary to what some Fed officials are concerned of. I’m sure there was some other confluence US was probably in the recovery phase so I went one step further until year 2014 as I didn’t want to come off biased but the drop in GDP annual growth rate in 2005 where dollar index was at 91.54 looks pretty much within range - there’s always going to be fluctuations in between nothing goes straight up without any corrections or breaks in between so that leads me to believe that its not just strong dollar and that there’re other factors that has an affect on GDP growth and total exports therefore the probability of strong dollar index alone currently standing at 85.73 far from 91.54 having significant impact on GDP growth rate and total exports is pretty much on the low side.
I wanted to cover this for the longest I’ve had a thought and it all went from there. If there’s any loopholes or if it sounds biased bring on the challenges guys!
well, if I should learn only one thing from you, it would be discipline. Congrats on that. I wish I would have waited for retracements like you. Besides the JPY I should have waited for retracements. I say besides JPY because the geopolitical risks are sudden, it is hard to get ready on that one. Now I will punish myself and do not scale into losers. This way I try to remember that next time if I want to get in for better price then I will have to wait. I still want you one issue to discuss with us. I think with rookie we agreed last time when you shared these trade ideas that we like the perspective but we do not really get why you choose weak opponents. It is the same in this situation. I do not really know if you make so great analysis, how did you come up with the idea to long JPY or AUD? (CAD is ok I think even if not best). It is not a critic, I want to understand your thinking. Well I think NZD and EUR are way weaker than all others so in this sense the 200 pips goal should still be reached easily.
rookie,
wow, I am speechless. Great! I like it. And your first paragraph you can easily change “I” to “FE”. I am exactly in the same shoes but just like you said, that is exactly why it is extremely important to see the big picture. Please keep in mind though my exotic pairs scale into losers. Here the chance is a lot less to have a negative outcome as we look in the big picture I hope right but still do not overtrade yourself to get margin called. After all, forex is speculation. That all said, I think that is why it is important to discuss all issues here, after good discussions and analysis, just like you, I also get confidence and avoid 10 heart attacks/day.
I read also what Philip said, it can be the banks, it is a good explanation, but maybe not. We should remember that technical analysis is everything about price action, no fundamentals, still they get it right. So we also do not have to explain every small movement, it is just the way it works. Banks or trend following EAs, what is important something happened there against us, we have to adjust ourselves to this situation.
On volume. Well, as they say there are no measurements for volume in forex. I have seen and read about brokers who do have such measurements, mine does not have it. So here I cannot help so much. I do tend to think though that these measurements have to be accurate for the largest brokers as they should have a huge sample size. What I know about is volatility measurement. I do not know if you watched the Kleopiptra video I attached the last days. There is a link. I do find that one interesting, never used it though. It shows for every pair in which our is there high volatility for the pair. That should also mean in which hours are the big volume in it. I do not know how it can exactly help us, that is why I did not look after it. For sure in high liquidity times we might get a bit better spread, but the 1 pip is no argument on longer term trades like what we do.
And this time even if I think I cannot challenge you…
Well, I’m in the same boat as you guys are. We see it moved up a lot.
When I first opened up everything and checked what happened over night (Asia), I pretty much was shocked.
Yep, took a big hit. I got stopped out of the AUD/NZD trade. Lost 97 pips. Then opened up our thread and heard from you guys. Then I started to feel better. Doc…that was just an awesome write up!
So anyway…at least I only have 2 going. NZD with JPY and CAD. FE…I do hear you (and have heard you) concerning those weak ones. But, as I see it they all are technically trending high against NZD. Sure, weak vs. weak but wanted the possibilities to be there. Looks like this will take longer.
Been checking back to the charts from time to time, and it does look like their retreating. I do believe there is some kind of game going on with them. If we can just hold out a little longer, it’ll pay off.
Doc. I remember reading much about volume analysis. It didn’t quite take with me. Sure, I think it’s a very good thing in regards to getting in at the right time. But in the longer term sense, I don’t think it matters much. But you are the smart one. I would love to see what you can come up with if you think it will make a difference. I think that’s more along the lines of technical trading. And particularly when to enter trades.
Hey, if you can somehow correlate volume with the COT reporting, that would something! It just seems impossible. The time periods would need to match. Meaning if we could see a volume difference when we have a sentiment change or just a notable increase or decrease in volume to the direction of the sentiment. Or how about using it as a confirmation to our sentiment?
Ok guys. I see we have GBP news coming out momentarily.
FE… thanks for reminding a margin call! That was totally out of my mind. I scaled into losing NZDUSD positions as if there was no margin call. While I’m hoping for NZD to give way to dollar bulls, like you said its a speculation and we just never know in the short to medium term. If I do get a margin call , this is going to be a big lesson. Scaling into losers and not being patient now I see technical levels are there for a reason I think I might have overlooked price action , made some hasty mistakes there. I think I better continue with my trade journal that kept me disciplined. Anyways lets hope for the best ! hopefully its about time NZD to turnaround and give way to dollar bulls.
ECB Draghi is coming soon I’m going to watch it live on bloomberg and tomorrow I’ll do a write up on that as well.
To be honest guys, from a technical point of view there is no reason to buy the dollar or think that its drop will turn around soon. I’m considering closing some positions and not trade at all again this week. I will first see how the market reacts to the ECB first.
Of course this is a retracement, but I think its a longer term one.
quite a hit. GBP came out good but still it is falling like a knife. Rookie, how do you sort Bloomberg TV videos? Do you click on Video and then on Markets? or Futures? And does it show Draghi’s speech live? I watched it earlier on the ECB site but had problems sometimes. I will also watch it and like Philip said I also decide then to make decisions after that and after the NFP tomorrow. The week is not over yet but we will have a difficult time from now on to save this week. (The Australia video was good by the way). Maybe we were too greedy with entering on Monday. Next time after such a rally like last week, we will wait longer with those entries. And Philip, the pain is already quite big, so please share only positive technical news! (just joking). I think this is the first week which really goes against us.
I feel you FE … I just closed my NZDUSD short positions all of them and my last months gains are gone completely.
I don’t feel that bad about this it was going to happen anyways sooner the better before I put more money at stake. That was a big lesson. And I’ve realized that I need to do some calculation on margin call close outs, and fine tune my entry techniques. I don’t know about you guys but for me I lack the most in the technical analysis department. Got to do some serious working on that…
As for Draghi’s live speech click on ‘playing on live tv now’ and you’ll be forwarded to London segment they will broadcast Draghis speech live
thanks for the pictures. Wow… that was a fast close. May I ask how did you decide about closing all of them at once and not only a part of it?
It was funny about the Technical Department. We really think on the same things. Why do you think I started to read a 600 pages book on Technical Analsysis some days ago?
I hope Draghi makes a very bearsih speech, breaks through the EUR/GBP support mentioned by Peter and then finally GBP rises again. BTW Peter. Where are you in these critical times? I guess you sensed the problem a bit earlier than we did
I’ve got some questions on entry techniques that Philip illustrated earlier last week regarding Williams %R which range should I be looking at for “a buy” and “a sell” I’ve thought about incorporating RSI14 I’m sorry guys that I’ve been asking this the second time, I must have been occupied with something else when there was a response , FE ? Philip ? Guys ?
By the way I’ll take a peek at another thread where they discuss volume analysis and will report back my findings to you guys… thinking something that Mike has suggested there might be a way where we could make use of volume analysis. I mean if only we’d known that this correction was going to be long term /Philip might well be right/ we would have waited I’m thinking besides volume analysis what else could tell us ? When I say volume analysis I’m thinking the volume behind price actions lets say for example NZD is a short term uptrend /correction/ if had any volume indicator or a way to measure the volume /demand/ behind this NZD correction we would that its about time for a turnaround if there’s significant decrease in volume wouldn’t it ? I don’t want to rely on technicals and reading candlesticks as they often prove to be unreliable.
Thanks for the encouragement to hold on to my trades. I watched how my 200 gains turned to 100 just before the news, and I felt the urge to close all trades even more when I saw the positive number. I’m glad I stick with my rules as now price go south. This is indeed a volatile week. Stay safe everyone.
I had a bad feeling and I thought I might get a margin call alert if US prints disappointing data that gave me the instant affirmation that I should close them now before I get a margin call. I mean I can always get back on a better price. And they might go even higher. We just never know. Look how NZD ignored dairy price slump. Because no ones buying dollar. Well done to the banks! Who ever they were driving up the price of NZD. You’ve flushed me out of the game. But I’ll be getting back in. And we will know better the next time!.. guys
Mike by the way that was encouraging
*I need a break now I’m going to stay on the sidelines until things do settle
Hey guys.
You know, I’ve been thinking. If we were smart we would try to find a reason why this is happening, or happened. And then we can remember the situation for a similar one in the future and be more prepared. Like when the whole world is getting ready for something to dive, and then we can know that the possibility is real for the market to just go the other way.
I know Philip has given us a possible reason. FE, you alluded to that also. I mean, it could be technical, fundamental, sentimental, or even the banks playing a game. So, what I see is technically speaking, if you look at the charts across the board, the NZD retraced more than 100% from the big drop last week, the swing high (low). And that would be only against the Majors. Now if you look at them against the Comms, they retraced just about 100% from the big drop. I’m not into fib’s, but visually you can see it. That’s the only technically thing I can think about (a reason). What about fundamentally? I mean, FE…you mentioned about the dairy prices (or was that the Doc who mentioned it). Anyway, that didn’t go the way it should go. So…I’m just throwing out these things so we can remember this for the future. Maybe we should just chalk it up to the reason being if someone (or a collective group) wants this to go the opposite way, we should remember this as a real possibility, for the future.
hopefully its about time NZD to turnaround and give way to dollar bulls.
