EUR/USD pls help

Beginner Questions
1

Hi, I have a question about the recent news that came out for the EUR/USD yesterday I’m pretty new to trading and I was wondering why the market headed bullish instead of bearish. I thought that when the numbers came out in terms of unemployment and GDP which unemployment was decreasing and GDP was growing I thought that you would sell the pair because you are betting/predicting that the USD will become stronger than the EURO.

PLEASE help me Im so confused I rlly need help understanding why the market went bullish instead bearish

2

Hi @tomo22, trading a news is not simple. There are many factors to be considered.

Remember, market always anticipate the prediction before. If you look an EURUSD, in price action, the structure has been weakening since almost a week. So the result wouldn’t shake the market.

Furthermore , others fundamental data was also reducing the positive impact of the “good” news. Ability to read the impact of a news is not simple. You need to relate all things together. For example, inflation rate is still high, so the growing unemployment rate can increase the inflation. It makes the fed less likely to reduce interest rate. This sentiment will give USD a stronger bargaining power.

Learn macro economic to know how economic’s indicators work.

3

Hi thank you for your reply I really appreciate it. I am abit confused with the inflation part as wouldnt a growing inflation rate make the value of the $ greater? Also in terms of forex trading wouldnt a higher interest rate be better for traders because if there is a higher interest rate then you can gain more interest?

At the time I assuming because of the recent news and the improvements to the US economy of a growing economy and less unemployed people that it would significantly increase the value of the $ (USD) that’s why I sold because I thought usd>euro

I’m pretty new to trading and overall fundamental analysis btw

1 Like
4

If I tell too much about inflation, it will be lecturing in this forum, all may fall a sleep. :joy:

Let me give you a summary.

Inflation is one of the indicators of growing economic. That means demand of something increase compare to supply. But it’s also can be happened by crisis, making supply low. Both scenarios will make pump up price, that means higher living cost, also means life is getting harder.

All of us love money. When we are seeing demand is increasing, we want to take a chance to make money. This will pour more money into market. Market becomes more liquid, inflation will grow faster, rich people becomes richer, less fortunate people will suffer more. On certain point, the balance of a country will be put on a stake.

Government wont be stupid enough to let it happens. So one of the trick is to adsorb market liquidity by rising interest rate. This will attract people to put money into the bank. Rich people will think, why do I need to take risk with business, when there are a risk free way to make money (bank interest), while moderate people will also think, the interest rate is too high, I can’t borrow money from bank as it will be harder to pay the interest.

This will give pressure to the less fortune people. They may got unemployment and the government will have to give compensation, such as unemployment’s claim.

This condition will weaken USD if uncontrollable. This happens to every country. It’s just comparing two countries, which one has worse condition will be fallen.

In reality, things get more complicated. Like the element of growing household, manufacturing and consumption index, also population growth also get involvement.

The world is like ant and sugar. Ants will come to place where there is a lot of sugar. When USD is attractive, everyone will hunt USD, abandoning others. When USD is no more attractive, they will betray it shamelessly to satisfy their greed, avoiding fear.

The story can be like, USD is a girl. She is beautiful, smart and cute. Lots of boys are attracted and try to get close her by lust. Then, there are another girl is passing by, all boys leave the first girl, abandoning her heartlessly. :smiling_face_with_tear:

5

Okay I understand now thank you very much

1 Like
6

Price movement is unpredictable. No way to know where it’s going. News makes the move more pronounced due to lower liquidity during that time.

7

No tools can be used to predict market as tarot alike. It’s method to identify probabilities.
You need to have your trading stats as reference. Otherwise, it will be no use.

This apply to every method, such as SMC. None method is superior without trading stats. Its accuracy is about 50%-55% only (the best).

8

Hi i also have another question to ask. this week the CPI for AUS increased to 4.0% how come when you look at the market it went bullish at that point? Wouldn’t an increase in cpi mean that the RBA would use a tightening Monetary policy and not cut rates at all which would mean the economy would start slow down? Im really confused with fundamental analysis because there so many different aspects to consider.

pls help

9

Hi @tomo22. CPI is the most interesting news to trade. One of my favorites, for quantitative news.

CPI indicates the change of price/cost of consumer good in a country. When it is going up:

  • it means economic is improving, buying power is strong, people in a country has money to buy things.
  • It can also means the disruption of distribution of good and services. One of them is inflation. We need to analyze all data comprehensively.

The other side of the story, it will boost inflation rate, if it’s uncontrollable (spiral effect). When there is buying power (demand), market will try to satisfy by increasing production and distribution, it’s a chain reaction from manufacture, distributor and retailer. Any sectors will get involved by providing support, services and good from head to tail. The government will just sit down and enjoy the collectible tax.

Above scenario looks good. Does everyone feel happy?

Rich people will surely feeling joy? Everyone who has participation in the economic process will be “partying” with the growing demand. But what is happening with the middle to low income people? It will cut their buying power, the increase of CPI will reduce their saving amount, increase burden to pay any loans. Mostly you can see the increase of productivity of the citizen by taking more side hustles.

There are a lot more things to consider, I can’t explain everything, I will got flagged by everyone here :joy:

In short, when inflation is low, the increase of CPI will be favorable. Since covid, the economic in Kangaroo’s country hasn’t been recovered yet. Australia’s inflation rate normally between 1-2%, it’s now 3-4%. So government will do something to smack it down. All fundamentalists surely know, it will be increasing interest rate. Even it hasn’t done yet, market will anticipate early (FOMO), this is why we call it speculation market.

The rise of interest rate will gives AUD a stronger position.

I was living in Australia before (15 years ago). When you compare the living cost there, it has increased quite significant. Can you imagine, how big the risk to establish a business in a high living cost area? If there is no good calculation, everyone will stay away. Economic will down. :cold_face:

1 Like
10

i understand that but, why were people buying AUD against CAD (AUD/CAD) when the inflation data came out? can you explain that please?

I’m confused about how data impacts markets I know that increasing inflation can be bad for some countries if out of that 3-4% range. However, I don’t understand how that impacts buyers and sellers for instance the inflation rate going up isn’t good for the Australian economy however, how come it went up still?
@TYGMedia

11

Markets are forward-looking. The CPI data was already priced in at 3.8%. An outcome of 4.0% is 5% higher than the general consensus. The RBA has an inflation target of 2-3%. Rising inflation can only be combated with a interest rate hike, thus strengthening the Aud.

The Cad does not matter during these times. Aud/Cad should strengthen similarly to Aud/Usd, Aud/Chf, or the inverse in Eur/Aud.

12

All true… But the RBA has lost track of the market here in Australia… Economists are unsure what is really happening in the economy… 1+1 no longer = 2…

I suggest the AUDUSD’s real level is ~$0.66… I expect the dollar to be back at this level by the end of August or maybe even sooner…

On the ground… The economy is slowing fast… Business failures are rocketing … Inflation is holding at 4%… Yet unemployment remains relatively low at 3.9%… If unemployment moves above 4.5% and starts to head toward 5% the RBA will be forced to look at cuts to the rate…

The Australian economy is teetering on Recession with activity coming in at 0.1% for the first quarter of 2024… Another 25 basis point Interest Rate rise by the RBA will destroy the already very weak sentiment …

I’d be very surprised to see a rate increase in Australia before the weakening economy drags us back into a downward rate cycle… The RBA has form for always overshooting the target with their reactionary rate calls…

13

yeah, but I don’t understand why people buy the currency when the economic inflation rate is going up in Australia. the only understanding I get from this that they push the AUD up to increase the likelihood of a rate increase to thus reduce inflation??

@EmeraldEyes I cant reply to ur msg cos I’m a new member and I can reply to links pls answer this

14

Similar to our Fed. They honestly need to increase more and in doing so, break a market. Be it equities or housing. Our Fed has a dual-mandate to keep employment at its maximum possible & maintain price stability.
With the rate of inflation starting to rise around the world again, rates are still too low relative to the market. This is why US equities, Gold, BTC are at all time highs.

15

The Aud increases in value when inflation is higher than expected because it increases the chance of a rate hike in the future. Interest Rate is the return on investment. If the return on investment increases, more places will add to their portfolio.

Inversely, if inflation is dropping faster than expected, rates will need to be cut sooner than expected. This would decrease the value of the currency because it will be projected to return less if/when rates are lowered.

16

Hi @tomo22, market gives always response early. It can be momentum, sentiment or in process of power balancing.

When AUD is getting weak, government will try to maintain the balance, this is the reason of currency price is moving against each others. This is not done by retail traders. Even there are billion of us, buy 1 lot of AUD, the price will not move, because we are outside the market. So, don’t mention why people buy AUD. :slight_smile: We can move market, only by making transaction inside a financial network. None of us (retail trader) can do this, we are outside financial network.

Only government and big financial firm move AUD. When a data appear, most central bank and big firm will do transaction to protect their position. Their action are done to protect their interest. They don’t care about profit.

For example, There are 2 countries, A dan B. The currency will be $A and $B.
A has 100 unit $A. B has 100 unit $B. To maintain equality, A must have 50 unit $B and B must have 50 unit $A.

When B want to increase their interest rate, people are likely to choose $B, by saving $B, you will gain more. This will render $A to be less attractive, weakening $A. So the A will try balancing their $A, by owning $B more. So, even $A less attractive compare to $B, they will have the benefit of the intrinsic value of $B.

The story above is a simplicity on how each currency moves against each others just to protect their value. The real story will be more complex, each government try to collect each other currency to protect their trading balance and ledger.

More detail you can read book about macro economic, hedging and international trading balance sheet.

Hope it can helps :slight_smile:

17

hi @tomo22, we as people buy AUD, because we want to have speculative gain. :smiley:

Most of us think of :

  • CPI is going up. We think there will be rate jump by RBS.
  • We open position to anticipate the market move. When it goes up, we smile and take profit. When it goes down, we curse ourselves and feel bad. We are the one who move the market.

The real trader should be thinking:

  • CPI is going up. What will be RBS does? Rising rate or no action.
  • While inflation is too high, government will make intervention. RBS is likely to increase rate, they may have making decision.
  • All private and government firms try to protect their finance by hedging.
  • They arrange their cash to buy government bond, or put saving in their bank.
  • Other countries that have transaction with AUD will also get more AUD for hedging.
  • This will make AUD less in the market, AUD price is increasing. (More buying power make less supply).
  • By having the understanding, we open a position. Hoping what we think will be happened for real.

Even there is no retail trader participate in the market, price will shoot up on our chart.

We are speculator. RBA will increase rate, the big firm will do action. We are not even market participant, we are only the spectator. :sweat_smile:

18

@TYGMedia
@EmeraldEyes

Thank you for helping me understand

19

I’ve got another question. How come the USD has not fallen much after the recent ISM manufacturing results were it has fallen? I’ve read a few articles stating that it has led to a more stable AUD.

Is it also because the contraction of the ISM isn’t much in terms of numbers?

Also with the ISM does it effect its own country more or it’s trading partners more?

20

Hi @tomo22, By default when PMI drop, it will weaken USD, otherwise strengthen it.

ISM is a quantitative news, so it will react precisely. It wont react fast, ISM data will usually leading market direction as temporary momentum.

In the end, market movement will be moved by institutions and government. If you observe the movement in the past, you will know their SOP on how to handle economic data, for this, you will be able to predict how they move the market.

In short ISM data is not far for prediction, so no big movement. The inflation is high, lower ISM will be good for awhile. We need to wait next data to confirm the improvement. Back again, pay attention to elements of macro economic. It’s complex to be told in here.

After we have data from US, we can compare to other country, AUD for example. From here we can conclude, which country will have better position, the price will usually slide to its favor.

I learn how to trade ISM from my mentor Kathy Lien. She is good in trading news. I met her in Singapore 2006-2007, Suntec City. Hers teachings about news trading are still valid up to now. You probably need to search youtube to know more.