LET’S CONSIDER CURRENCY PRICE BUBBLES
A Currency valuation has a great deal of “inertia” and a tendency
to remain fairly constant, unless there is some “fundamental”
re-valuation in the Currency, which does not happen very often.
So, one good way to think of things, is that there is a general
“true valuation” for a Currency, and that much of Market Maker
activity in Trading is “local distortion” of that true valuation, by creating
a “bubble” and then “bursting the bubble” so we then return
to the true valuation. The catalyst is the News Event.
Consider that these distortions are possible within some
limited range, and that a great deal of “financial muscle” needs
to be applied, in order to create these “bubbles”.
To up-value the CAD Currency, it would be necessary to influence
these pairs: CAD cluster: AUDCAD CADCHF CADJPY EURCAD GBPCAD NZDCAD USDCAD (which I call the Currency Cluster) such that
CAD/xxx is moved UP; and xxx/CAD is moved DOWN. In effect, as
CAD is moved upwards, Market Makers are taking a SHORT position
in CAD, against what is predominantly a Trend Following Retail
public, in the 7 Currency Pairs noted.
In general (an extreme oversimplification) the Retail public Buys into
a Currency Pair up-trend; and Sells into a Currency Pair down-trend.
This is what needs to be achieved for a Currency (CAD in this example)
to have its trading valuation moved in one direction or another. One
can only marvel at the resources needed to coordinate such a
movement, but that is exactly what we are trying to use as a
trading signal.
Our view, in line with this thread topic, is that Market Makers
“invest” or “create a position against the retail market” by
moving a Currency valuation in a particular direction over
a period of time… [edit] in anticipation of an upcoming News
Event.
And that this can be understood as “taking a position”
against the entire Retail Market. So let’s consider how that
might work (without having to explain too much how it is done)
and assume that this is the phenomenon we seek to profit
from.
Not forgetting that it is the special role of the “News Event” to
reverse the (artificially manipulated) Currency Trend, in the
“setup” to the News Event; and return what we are calling
“a bubble” or distortion in the Currency Valuation, in most
cases, back to its original “true value”.
I’ll be showing examples of these “bubbles” in future posts.
[edit] Oh, what the heck, here’s a snapshot example as it
relates to a USD “bubble” being resolved (RED line). But
also CAD (YELLOW) may show a “tandem double bubble”
where 2 Currencies are manipulated simultaneously.
[edit] Note that the snapshot covers 72 hours (3 days),
so the “bubbles” or distortions in valuations were held
for at least 1.5 days in advance of the News Event.
hyperscalper
