there is no clear link between fundamentals and technicals at the moment, or at least, not going forward.
The downgrading of the Lira in the first half of 2018 was accompanied by constant newsfeeds about
Turkey’s financial troubles: those troubles have not gone away, in spite of what the central bank has done.
This proves that currency markets are fickle and there can be periods where a currency breaks free
of fundamentals, such as the Lira’s 20,000-pip bull move from September to November 2018:
trying to retro-fit and shoe-horn these moves with some sort of fundamental or sentiment drive is
not very helpful when it comes to trading.
It will suffice to say that when fundamentals and the direction of trade are in conflict, and/or where
correlated assets that have up-to-date volume data do not move in a straight line, it is time to either
go down to short-term trading or to stay away completely until all things realign in a clear way.
For me, the Lira should still lose value in the sense that the country’s financial troubles are still
very much there for all to see: however, the cheap Lira in August and its carry potential were too
difficult to resist for those with serious funds and that is how we got to where we are now.
These things are beyond our control, as I learnt the hard way in 2016 with GBP/NZD and Brexit,
namely which way ‘the market’ (which is an overly simplistic news term that means nothing or everything)
decides to position itself in the wake of an economic or news announcement with regard to a particular
asset: there are logical and illogical moves, trends and trends-within-trends, all of which can wipe you
out while you still hold true to your beliefs that fundamentals should not back this asset’s behaviour at
all (and yet that is the way that asset is behaving right now, completely ignoring fundamentals).
There is also the conflict of different ‘experts’, some of whom always have an explanation for everything
but who may be analysts without any money or trading account on the line when such moves happen,
which means that they can get it wrong many times over but continue to walk away unharmed from
Given all this, I ignore fundamentals unless volume data from correlated assets to the currency
are moving in line with the spot currency price AND with fundamentals: in other words, if
big-item fundamentals (e.g. a country’s credit score or its central bank credibility or its inflation) say ‘bearish’
but the currency is bullish, then I go with the currency momentum and ignore fundamentals: if the two
coincide, then it will give me further confidence in the currency’s direction, at least until the two things
start diverging again.
I hope this explains my point of view a little more clearly!