Hello all. Im trying to better learn using fundies in my trades. Just can’t get the concepts on how they affect price movement.
I wanted to ask if this is an example of fundemental analysis.
I been reading up and hearing that the speech from Bernanke today will say that the FED is looking to the possibility of raising rates. Would this cause the dollar to gain strength through out the day on most majors?
Say you were intra-day on EUR/USD. Would you look for just short trades before the speech and if it coomes out true would this mean a bullish dollar. Thanks to all for the help
Hey. Thank you for that information. I am still confused because to me it seems to be the same thing but just in different views. THis quote from that piece says for a fundamental analysis
“looking at the things like GDP growth rates, interest rate policy, government spending, inflation, consumer action, and many other factors. The idea is to develop an expectation of where the economy and/or interest rates and other elements are heading in order to extrapolate a direction for the market.”
Wouldnt the expectation of the FED to increase interest rates make the dollar strong? So this woould make a bullish market? I am not talking about making a trade right before a report, trying to make a quick profit from the deviation of the expected and realized but more of the overall trend? Sorry if I do not make any sense but I hope you can see what I am trying to say/ask.
Anyway, thank you for your response and helpfulness. Reps to ya.
Remember there are two currencies at hand. Just because there is inflation in one there may be stronger in the other. The difference between fundamental and news trading is - you need an economic calender, fundamental - you need to study business cycles, past charts of the economic data, commodities that coincide with the currency, inflation with both currencies. To be honest, fundamental trading is quite tough, but that is not to say that it isn’t profitable. anyways hope that clears up the difference between the two.
You talked about intraday trading in your initial query. That, to me, implies news trading. If you were talking about a weeks to months projection, then you’re talking fundamental analysis and trading.
As to the expectation of a Fed rate hike making the USD stronger, the answer is maybe at best. It assumes such a rate move has not already been factored in, and that other factors (such as interest rates abroad) do not offset the move in some fashion. If you really want to twist your mind in a knot, you could say that a rate hike could hamper the economy, which might be USD negative.
[I]“There�s one other side of this discussion that should also be mentioned, which is taking positions ahead of data releases, etc. That is neither fundamental analysis nor trading on fundamentals. That�s basically gambling.”[/I]
I am guilty of doing this and I wish I knew how to break the habbit .
Hey. Love the quick repsonses.
But what you said in the above quote. Don’t a lot of traders (not sure) look at a higher time frame so to speak to get the overall trend and trade the lower time frames with that trend? So I’m asking wouldnt the speculation of interest rate hike (everything else held contant) want to make traders buy into the dollar, making long positions in the smaller time frames more optimal if you did not want to go against the trend? I get confused as to when observing people trade on smaller time frames they will say something like " Well, I have a long setup and the Fundamentals are looking good." So wouldnt they be saying since they are going long, use USD as example, that the USD is strong, hence higher interest rates make/could the USD stronger?
Don’t get frustrated with me, Im just trying to get or understand the connection with trading. Thanks again!
Usually you would just look at a longer time frame to see the strength of the trend, but if your unsure stay out, believe me. If you can somehow find charts of the economic indicators, they can ususlly show which currency is greater, where one will usually be doing better than another. I used to just record it straight off the economic calenders and make my own charts, but it got too strenuous. Now, I get the idea that you trade intraday. In fact if you trade intraday it is tough to trade economic data unless they are the rate statements. Those are a pretty good indication of where the short term trend will go. Or, if things like the chinese market collapse occur, then you can get some cash from that. However, the fact that that market basically already adjusts to the fundamentals makes it even harder. Sorry, I’m not helping eh, I don’t mean to discourage you, if you are comfortable with trading that way stick to it (in fact me telling you that it is tough should motivate you to rise above my statement). Ok, but in you example, raising interest rates right, sometimes you have to look beyond the indicator. For instance, the yen raised interest rates(ok, it was a litlle while ago, but still), but the statement during the annoucement was not bullish at all. All it did was put a dent in the other currencies which had a strong trend against it, and they went up a couple hours after the data was released. So, in this case, after all this occured , it would be a pretty good move to sell the yen. Waiting to see what happens after the fact sometimes is better than getting in before. Ask Questions like these:
What news/events came out today? How did the markets react?
What news/events are coming out tomorrow? This week?
How does the market feel about interest rates and monetary policy?
What does the market think the numbers will come out at? What will happen if the market is right or wrong?
(actually the “pick of the day” is determined through these)
Anyways I’m trying to help you out as much as possible, and I’m sorry if I failed to do so, if you have any other questions, just ask eh. Best trading to you and I hope you get something out of this post.
You sound like you are asking about the current situation. Am I correct? Without getting too long winded I think I can get you up to speed on some fundamentals here.
The most USD negative news in the last 2-3 weeks is the subprime lending market is having trouble with defaults on mortgage loans to less than prime credit worthy individuals. That is the background to the interest rate decision by the USA Fed this week. The other news in this regard is that the Futures market is pricing in another 3 interest rate cuts by the Fed, the Fed isn’t obligated to do what the futures market is speculating that the Fed will do. However, other major currencies see the futures market speculating about 3 rate cuts and then the Fed doesn’t sound as interested in raising rates as in previous months and so that’s another reason to speculate that there may be an imminent cut as in within a month or soon. Hence you see the USD losing across the board in the last couple of weeks. Then the USD gains strength today, cause currency traders start to realize that maybe the Fed isn’t all that interested in cutting rates soon after all. Now we wait to see what further reports will show if the housing market, a key factor lately, among others, on whether people speculate whether or not the USD will gain strength or not.
Thats why I panned this blogs decision to go short the AUD/USD, even though the AUD is rarely this high against the USD, cause there maybe AUD rate increases and everyone thinks that there is reason to believe that the USD will cut rates sooner or later.
Does that help?
No you have helped a lot and many thanks to that.
What your saying though is kind of what I was trying to say or ask. I would look at the news,reports, see whats going on in the two currencies and watch the higher trend? Then I would base my trades on the overall market sentiment? Just having the support of the fundamentals to support my technicals? Thanks again. I would keep repping you but the system will not allow me.
Hey. So you say that traders realize that there will not be a rate cut, strengthening the dollar, but what about the ones that still speculate that there will be rate cuts, weakening the dollar? Would this cause most Dollar pairs to range? Thanks again. Reps.
Yep, That’s pretty much it, you got it, put periods instead of those “?” and your system is a go. If you can mix technicals with fundmentals, go for it. I tried to to do something what you are trying to do, but I used a specific signal. So what I would do was when my signal hit, I would look at the fundamentals and if they were with/against it, I would trade with/against my signal. Not a good idea! Especially if the fundamentals were not there, jeez I couldn’t click the button. Make sure whatever your system is, it helps you be decisive, that’s the worst position to be in when your trading. Have a great weekend eh!
Yeah so in this tug a war of bulls and bears, when the USD bulls and the Bears become less sure of USD weekness, then the bulls start to win the moment by moment to day to day tug o war. The currencies with the higher interest rates, like AUD and NZD will continue to drag the USD bulls through the mud until they wave the white flag, others like the EUR are somewhat expected to raise rates, the GBP has the same rate as ours but has numbers to show that inflation may be a problem, but in general the USA is still expected to lower their rates, all the reports that are interesting to financial market geeks like ourselves are part of answering the question of whether or not the USA will raise their rates.
The JPY has a mind of its own with the USD, I get so confused with the USDJPY pair cause that is the only thing the USD is showing strength against. But JPY bulls are routinely losing their tug o war against everyone else because they have the lowest interest rates of anybody at .5%
Probably the best indicator for indicating a range or a trend is the ADX indicator, anything over 25+ and increasing indicates a trend and anything below 25 and decreasing shows a range.
My two favorite books on Forex so far is Day Trading the Currency Market and Technical Analysis for Dummies.
Bloombergs currency section always has good stuff on fundamentals, also check out the commodities and bonds section cause that also may indicate whether or not more fans will pull the tug o war rope for the USD or not.
Ok guys/gals. I have another question on what prices typically do after fundamental news reports.
Say some wild news report comes out and spikes price up say EUR/USD by 100 pips. What are your typical experiences with prices after this? I mean does the pair usually trade around that area or does it usually work its way back to where it was before the shock?
How long do most of you typically wait to get back in after these reports?
I think usually when this happens and the spike is against the trend, it usually comes back, but I don’t care, and I don’t worry about it. When big news is about to come out, I just hedge my position, That way I’m still in the trade and I don’t lose money. If the trade goes against, I wait for it to come back, if it does, I eliminate my hedged position and continue to ride the trend, if it keeps going against, I cut both positions with the profit I had going in before the hedge. Best to ya!
How would you go about this hedged position? If you were long in a position and the spike is short, how would you setup up your hedge position? Thanks.
Alright, usually before some big news is coming out, the price will be erratic right. so at this time it’ll move back and forth. Just leave your position in and when it moves up a bit sell in a separate order. That way, you one order cancel’s out the other, so even though you make pips on one, you lose the exact same on the opposite one. Thus, no lost pips. You don’t even have wait for right before the news comes out because you don’t lose anything on the hedged position, only the spread, which you can make back if you take it out at break even if it comes back. It depends if you have the balls though (I sure don’t) to enter when the price is quite jittery, some people can’t pull the trigger. So I usually enter a little while before.
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Thanks again!