Kindergarden: Types of Trading

[thachp]

Hello Everyone,

I am a total noob in this business. I am reading and re-reading the tutorials. I found them very easy to understand, humorous, and very soothing. Kudos to the authors (assuming their like kudos).

Under a section Kindergarden: Types of Trading, under Fundamental Analysis … there is a picture with green and red filled U.S map. I am assuming the author is saying that … in a good economy currency rate tends to be high. For example, 1 US$ = 119.30 JPY. In a bad economy, currency rate is at the low end. For example, 1 US$ = .75 EUR. It is not necessary true. The terms “good economy” and “bad economy” need to be more specific. I.e, good economy as low inflation rate, etc. . . I prefer using RGDP to measure the effecient of an economy.

Correct me if I’m wrong. Currency rate does not reflect the whole economy. The EU economy does not necessary perform better than the American economy. Just because of the currency rate.

Higher currency rate (US$) will results in lower export, and higher import. American firms produce their goods in country with lower currency rate to reduce their costs and profits maximization (this is probably one of the reason why China always try to keep their currency low. China wants to attract foreign firms + investors. Therefore, increasing their GDP). Local consumers will purchased imported goods at the same US$. The winners are the firms that made their product in lower currency rate country and country where they produce their goods, tariff expenses is also an exception.

I do not see any correlations between currency rate and good/bad economy, with the exceptions of the Feds and their fiscal policies.

If you’re an investor, and using fundamental analysis to guide your decision . . . i would not recommend buying US$ when at the high currency rate. The economy is heading toward the bears. Instead, wait . . till the rate drop. Then, buy and wait till currency increase again.

Speculators continue doing what you’re doing.

Please correct me if I am wrong.
Patrick

[forexcranium]

The old saying used to be, when america’s economy sneezes, the rest of the world gets sick. No longer so - we are seeing a steady increase in economies worldwide. And I wouldn’t necessarily say, (just because its time in the cycle), that our economy is heading south. Personally, I think Greenspan needs to keep his mouth shut - and let Ben do his job.

[specialfx]

Higher currency rate (US$) will results in lower export, and higher import. American firms produce their goods in country with lower currency rate to reduce their costs and profits maximization (this is probably one of the reason why China always try to keep their currency low. China wants to attract foreign firms + investors. Therefore, increasing their GDP). Local consumers will purchased imported goods at the same US$. The winners are the firms that made their product in lower currency rate country and country where they produce their goods, tariff expenses is also an exception.

I think you are right but there is sooo much politics now which have huge affects on an economy and then there is the invisible hand of huge banks that support or attack currencies.

I believe unless you are on the inside you can only wait and see what happens next then jump in and out before a reversal. And I think that is why 90% alway loose out.