in short term trading fundamentals are mostly in play and even those to whome traders are not aware and a point of entry is many times criss crossed befor it goes in the direction of long term frame. in long term charts a point once entered will take time to reach again and that is why it is profitable. in short term term trading you can only trade few currency pairs while in long term you can trade as amny as you have the ability
my comments someone may differ please
I think you mean that the other way around. In the short term the market is mostly technically driven, not fundamentally so. It’s about order flow. Fundamentals have a longer-term influence.
If you are referring to data releases, interest rate announcements, etc. I wouldn’t necessarily refer to those things as fundamentals. What the market does in reaction to that stuff is more psychological than anything else.
I held some of my trade for just 3 days, and the rollover fee was just scary : i.e for 3/100k lots of USD/JPY :
opened Jan 9 noon, closed Jan 11 3.04 am, interest was $ 205.50
Does somebody know exactly how they come to that number? How is the calculation for that particular example?
Does the profit/loss of the trade effect the interest?
On that USD/JPY I profitted 159 pips worthed $ 1,325
but on other transaction:
3/10k lots of EUR/CAD,
opened Jan 10 morning, closed Jan 10 evening (that’s one night)
interest was only $ 36.00
Loss 201 pips, worthed $ 1,711.88
Again, how is the calculation for that??
I trade medium term (holding positions for a couple of days on average), which works for me as I like to base my trading decisions off the long term fundamentals.
For example, one of the components that I like to think of my edge is that the US dollar is weakening. It might be a slow, gradual weakening (with the occasional resurgence by the dollar bulls), but the only place the US dollar is going long term is down.
Why fight that? I look to make the most of it and only trade against the dollar when the other currency in the pair is showing strength.
When you say the dollar is weakening, what do you mean? To me that doesn’t necessarily sound like a fundamental statement. It’s mearly a statement of how the USD has lost value against other currencies. That’s reflected in the exchange rates, which you could say makes your statement a type of technical analysis. What fundamental basis do you have for your view?
The market “thinks” that Fed will start to cut interest rates in March, that’s why the market is prepared to sell dollar into any currency strength. But I am not convinced yet. There is no fundamental sign that the housing slowdown is affecting the broader economy, even strong Nonfarm payrolls released.
So until we see some downside in coming fundamental releases, I do not think Fed will cut rates any time soon.
When I say that the dollar is weakening I’m refering to a weakening of the US econonmy relative to some of its main trading partners (Europe, China, etc.)
There is some pretty conflicting and divided opinion out there about how the US economy is going to do this year. My own view is that there is a good chance for a small recession. My main basis for this is the slowdown in housing in the US. Some think the bottom has been reached. I don’t. I can still walk out my door and see houses that have been on the market six months or more. A continued slowdown in housing means less mortgage equity withdrawals which puts pressure on consumer spending. It will also have a continued effect on unemployment, which also impacts consumer spending. If housing has hit bottom then obviously my outlook is all wrong.
This quote from a recent report from Comstock Partners sums up my view quite well:
“In addition our own studies indicate that a serious economic slowdown in the period ahead is more likely to end in recession rather than a soft landing. Not only have soft landings been extremely rare in U.S. financial history, but expansionary cycles featuring a series of fed rate hikes, an inverted yield curve and a sharp drop in the growth rate of the leading indicators have almost always been followed by a recession and bear market. Note that the soft landing in 1995 was not associated with an inverted yield curve or a 20% drop in commodity prices, while the soft landing in 1985 was not preceded by a series of fed tightening moves. Every recession starts out looking like a soft landing in the period of transition between economic expansion and contraction that we are probably in today. In the current instance the unusual housing boom and subsequent collapse make the prospects for recession seem even more likely.”
I’m not blown away by the supposedly ‘good’ data coming out of the US the past two weeks. I’m only too aware of the fudging that is done on the numbers. For example, this month’s non-farm payroll headline number of 167k new jobs looks great on the surface. When you realise that 55k of those supposed new jobs are just the result of the Bureau of Labor Statistics ‘birth/death’ model it makes you think.
Last December US Treasury Secretary Henry Paulson talks up a strong US currency the day he’s heading off to China to ask them, pretty please, to make the Chinese remnimbi appreciate ASAP (which obviously equates to a weaker dollar).
Europe had a much stronger growth year in 2006 than many expected, and looks to continue on that path into 2007 (more ECB rate hikes are widely expected). The Fed is in wait and see mode. Inflation looks like it still has a hold, but growth is easing off. Will it ease off just enough, and we end up with the goldilocks so hoped for? Or will it go too far, and inflation says just above desired levels? I wouldn’t like to wager which way the Fed will go next at this point in time.
The fact that the dollar is the reserve currency of the world isn’t in too much jeopardy at the moment, but it is being quietly questioned. Several countries are looking (well their central banks are looking) to shift some dollar reserves over into euros, just in case. The UAE announced this publicly, which can surely on mean that several others are doing it in private.
The US deficits are widely out of control, with no real end in sight. Only a weakened US dollar has any hope of boosting exports and cutting imports to stem the badness of the trade deficit. A weakening dollar also helps to ease the burden of other debts held by the US.
Of course in the world of forex everything is relative. If I thought that the US economy was going down the tubes, but that I also thought the EU ecomony was also hosed but worse than the US one, I would be a dollar bull.
Obviouly my firmness in this view shifts with time, and is constantly open to scrutiny to hopefully capture any long term change in trend.
Well argued in general terms, though this particular sentence is incorrect.
A weakening dollar has no impact on USD demonminated debts held by the US since the interest and principal payments are in USD. It would, however, make repayment of non-USD debts more expensive (if there were any) as more USD would be required to make the payments.
Personally, I do not care much for fundamental concerns. I’ll keep an eye on interest rates, but that’s about it. For me the more interesting element is the viewpoints being expressed by market participants. Neither side of the debate (good economy vs bad economy) seems to be the more dominant at the moment.
Ah, but what you’re forgetting about here is inflation. Take my house mortgage as a common example. It is a US denominated debt. In 20 years my monthly payments will be the same as they are today in the number of dollars I have to pay. Inflation is going to have eroded the value of those dollars over the years, which means that it won’t seem like I’m paying the same each month. In real (inflation adjusted) terms I’ll be paying less in 20 years than I am now.
It can seem pretty crazy but the value of today’s dollar is only 5% of what it was when the Fed first came into existance.
I’m trying to read and take into account market sentiment more. I’m in the early stages of seeing what information is out there, but it seems much harder to come across this sort of data in the forex world as compared to stocks or futures (no surprise there really). I even posted a request in another thread on this forum for any info that people might have, but no luck yet.
Inflation is definitely a fair point. My impression, though, had been that you were talking about the relative value of the USD against other currencies, not the buying power of the USD.
Can’t help you there. I don’t know of any specific studies, surveys, or anything like that. I just listen to the talking heads.
For me the buying power of any currency is inextricably linked to any valuation of that currency against other currencies. This is probably why I didn’t break it out so obviously in my list of big list of fundamentals.
With fractional reserve banking and fiat currencies all the rage, the buying powers of other major currencies such as the euro and yuan have only one direction to head in too. How well inflation is managed by the various central banks feeds back into changing the relative value of that nation’s currency against others.
For me buying power can be broken out from exchange rates for one simple reason. As you’ve noted, other countries have inflation too. If they are basically the same in those terms (and most of the industrial countries are pretty close to each other), then it’s a non-factor in the exchange rates. That doesn’t mean inflation isn’t still eroding buying power. Just means it’s doing so for everyone in all currencies, which really it is.
That’s why I think you can seperate buying power from exchange rates.
Agreed. Lots of pet theories here. Thanks Rhody for keeping everyone honest. Have enjoyed the point-counterpoint b/n you and Colin. Keep the fires burning gents.