How to use Fundamentals to make Money
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Thread: How to use Fundamentals to make Money

  1. #1
    Hi Guys,

    I have not been a round here in while still studying alot of the threads it seems as though the majority of people commerce technically. I am not against this in the slightest and am not a man who says this works and that really doesn't.

    What I'd like to do however is provide a different way of trading Forex.

    I exchange based on Fundamentals. That's to say that it is my belief that every true transfer in the market is driven by an inherent fundamental element. This might be an Economic Indior, the news of another Bank Failing or just generally anything that seems to be news worthy.

    I do not exchange the news!

    What I will do in this thread is only post some daily thoughts on the markets and try to provoke some interesting meaningful discussions from which we could all learn and ideally in the process that you will see a different aspect to trading Forex.

    I expect you all take part!!!!





    DISCLAIMER:
    NOTHING HEREIN SHOULD BE CONSTRUED AS INVESTMENT ADVICE OR SOLICITATIONS TO PURCHASE ANY OF THE PRODUCTS DISCUSSED HEREIN.

  2. #2
    Great article sccz. Although I don't personally like to exchange short term based on news, I completely agree with your insight on the connection between technicals and fundamentals. It's one of the best explanations I have learned on this forum on why a fantastic trader should always look at both sides.

    On an other note, I just read that European countries are beginning to carry out protectionist policies to better their trade equilibrium. This would indie that government policies will prefer domestic manufacturers, basically reducing imports. In the long term, this SHOULD fortify the Euro, but of course, risk aversion is still a major player in the markets. On the other side, talk was stirring from the US govt. About similar protectionist measures. If something like that goes through, we may see further strength in the dollar.

    In the end, I guess it all is dependent upon the number of governments actually start implementing protectionist policies. In terms of currency effects, we may see quite tiny effects on currency pairs with both nations taking protectionist steps while currencies of nations with no demand for protectionist measures (net exports) tanking.

  3. #3
    Quote Originally Posted by ;
    Hi Andrie,

    Yes this is certainly a factor for me... but in the long-term someof what I have stated in this thread would be my long-term motives for dollar weakness but may not play out in the markets in the upcoming few weeks for those particular factors.

    What I do is look at underlying fundamentals to find my motive to be bullish or bearish a currency in the long run (trade deficit, interest rate differentials, etc etc), this lets me make sure that I am never over exposed to which I think to be the wrong side of this transaction. However it doesn't...
    Hello

    Micardo

    Can you clarify

    negative data = risk aversion = dollar strength
    positive data = risk appetite = dollar weakness

    Risk appetite and Risk Aversion

    It'd also be great if you can advise of
    situations of where currency's will probably be more bullish and at which currency will be bearish perhaps employing the currency you exchange.

    Matters like politics, interest rates, gdp - basically what chief aspects drive the fundamentals.


    Perhaps stacking the news against a currency

    ie

    USD

    Interst cuts
    unemployment large
    trade equilibrium

    equals - bearish for USD expected downfall

    Euro

    Unemployment low
    homes buying increasing - shows economy boost
    Interest set up by 0.5percent

    equals - bullish for Euro expected uprise

    With EU you expect a rally up as the economics of the EURO are more bullish than the USD

    USD/CHF since the USD is bearish and CHF is over the eurozone you'd expect a Bearish move

    The above just example - would you say that is a good Method of translating

    GAME

    Continue the good job, and thanks to your wealth of infomration

  4. #4
    Thank you guys for the support. I'll definitely be happy to stay around in this thread and provide my comprehension.

    Fugly - I am really a real economics major in college so I learned most of what I understand about macro-econ variables out of classes. But, I would certainly recommend you reading a few macro-economics textbooks as they will provide you with a solid macro-economic background which you can use to use to pretty much everything else you read both online and offline. As to that one, I'm not sure. It's been a while since my intro to macro class, therefore I don't recall which one I used, but I do recall the name Besanko.

    Malstrom - I'm not certain where or if you read that the ECB is thinking about taking a break in its rate reductions. When it's anytime in the previous 48 hours, then I must have missed it. But from what I understand, the ECB is currently considered to be behind the curve in contrast to the rest of the planet in its own rate reductions. Look at just how Spain and Greece and possibly Portugal were receiving their credit ratings cut by SP. You know things is getting F-ed up if nations have lower credit ratings than many big businesses. The only way I can really see the ECB tackling the current economic scenario would be to reduce rates - or risk the collapse of the entire european union.

    The reason the ECB is behind the curve is because the ECB is a lot less effective compared to US Fed. Whenever you've got a central bank which needs to think about the well-being of an entire slew of states, decisions are going to be made in a much slower pace than if it merely has to think about the well-being of a single nation.

    And one final point I have to make concerning the future health of the EU. An overwhelmingly large proportion of emerging market loans (oriental nations, etc.) are held by european banks. These emerging markets required out these loans anticipating their incredible rates of growth to keep on for longer than they anticipated. Thus, when their savings become hauled down with the collapse of the US economy, we might see a worldwide defaults much like the subprime defaults of the United States (although potentially on a more detrimental scale into european banking system that's already worried by the current crisis). But of course, this is only a concept and I think that we should all hope that this doesn't occur.

  5. #5
    Quote Originally Posted by ;
    Hi
    negative information = risk aversion = dollar power
    favorable information = risk appetite = dollar weakness

    Risk appetite and Risk Aversion
    that I can help to explain this.

    Once the economy is bad, people no longer wish to risk in high yielding investments. For example, in good times people wish to borrow low yielding dollars (at lt;0.25percent ) for quite inexpensive in order buy high yielding currencies such as state. . .the australian dollar (4.25%) in order to make that 4% spread. That is precisely why in good times, currency pairs typically trend towards the higher yielding currency. A great historical example of this was the Carry trade (JPY pairs) which was so hot in the last decade before it fell. Therefore risk appetite.

    However, when the market is bad like today, people no longer wish to manage that risk involved in something like this and they start selling their investments and returning into the home currency. Furthermore, investors tend to flee to what they imagine to be comparatively more stable currencies, which right now are the dollar and the yen. Therefore, greater risk aversion pushes these currencies in directions which may not make ideal fundamental sense. This is the exact reason why gold tends to take up in value from recessions. And this is why EURUSD tend to experience brief periods of corrections on the long side when the dow rallies and continues to fall after the dow continues its decline.

  6. #6
    Quote Originally Posted by ;
    Currently I'm trading Using XAU USD.

    I'd like to ask what kind of fundamental that I should aware that connected with gold.

    Anyone could help me? Cause this is the first time I try to watch fundamental stuff.

    Thank you.
    I don't follow gold carefully at all, but I will tell you that gold is one of the safest shops of values out there and investors can flee to it when they are unsure. So I believe that so long as the international economy is in the gutter and is forecast to get worse, gold will maintain up its trend.

  7. #7
    Quote Originally Posted by ;
    I don't follow gold closely at all, but I can tell you that gold is one of the safest shops of values available and investors will flee to it whenever they are unsure. So I feel that so long as the global market is at the gutter and is expected to get worse, gold will maintain up its trend.
    Mmmhh... I see... so if items such as index going bad, that means great factor for gold? Is that right?

  8. #8
    Gerald celente,peter schiff,mark faber,jim rogers,etc.,were right about the meltdown and are about the coming crash.

    Stock up on gold and silver bullion coins,firearms and ammo,storage food,etc..

    What occurred in argentina was nothing compared to what happens in america.

    Thnk la riots and new orleans matches dawn of the deceased.

    I am ready.

    Obtained gold?

  9. #9
    Hey Guys,

    Sorry I have been on Vaion for the last 2 weeks Therefore no updates but I'll continue Now:-)

  10. #10
    The dollar rallied against the single currency because the markets received more negative data and triggered additional buying of the Usd due to the safe haven status. As we've mentioned before, the current trading theme sees the greenback strengthen when traders become risk averse, and the higher yielding currencies when risk appetite yields. Yesterday the Euro fell from a high of 1.2945 down to 1.2720 on the back of weak economic data. On the other hand, the dollar rally was halted as U.S equities staged a dramatic return back from the day's lows reducing the safe harbor appeal.

    Primarily the Eurozone Industrial Production output slumped in December by the largest amount since records began. The output contracted by -2.6% in December instead of the forecast -2.3%. The contraction in industrial output wasn't a surprise. On the other hand, the rate in which the deterioration has happened is worrying. The industrial output signal for the Eurozone fell and also a much faster pace than even the U.S economy during the 4th quarter of 2008. It was the risk takers running to the hills and initiated the slip from the Euro against the dollar.

    Data from the U.S wasn't any better as further deterioration in the U.S market was viewed as the Weekly Unemployment Claims which measures the amount of individuals who filed for unemployment insurance from the previous week launch a figure of 623k instead of the forecast 610k. The corrosion is still strong from the U.S and led to the disappearing of risk appetite amongst traders. The one bright spark and surprise to the upside was that retail sales in the U.S showed sales were up 1% instead of the -0.8% forecasted halting a 6 month decline. Following a brief rally in the currencies, the markets soon realised that the amount was likely due to post vaion sales encouraging consumers to spend that little bit extra. Many experts consider this level of buying to be somewhat artificial and unsustainable. Having a collapsing job market in the U.S spending it likely to deteriorate further.

    The ECB announced yesterday that growth risk remain clearly into the downside. An ECB minister, Papademos, mentioned that additional easing of the Eurozone monetary policy could be proper as risks to growth and inflation are to the downside. Then another ECB minister, Liikanen, said that at the next meeting it is possible we can proceed. These variables all points towards a much more aggressive approach towards monetary policy by the ECB at their second meeting. It has to be mentioned that lower interest rates won't necessarily devalue the euro, as we could see the dollar! During the fiscal crisis currencies have been rewarded when Central Banks have cut interest rates as investors see this as a indiion of proactive steps being taken to stimulate the market. Thus the assembly on the 5th of March will make interesting viewing as a currency trader.

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