DislikedWell, anyway, you only had one bad day. But for me, it is a different story.
........
However when E/U went down to 1.4820, since it retraced 100 pips and with idea that FED will lower interest rate by 50 points at the end of this month, I thouht I could long first, and close them around 1.49. But the market didn't go as I expected.
.......Ignored
Allow me to recommend you a book:
"The way of the Dollar", John Percival.
When reading it you will understand because it is not advisable to trade
on the expectations of higher/lower interest rate.
An extract of the book:
You will have spotted that when interest rates are leading a currency,
the key to their effect on the currency lies in the way rate changes pan out in
relation to expectations. This does give us something to go on, because we
can often gauge expectations. And if we work on the rule of thumb that
expectations will be confounded, we shall be right much more often than
wrong. If you spot a time when everyone is expecting US interest rates to
fall, for example, buy the dollar, and you’ll make out OK. A few people
did, all the way from 1980 to 1985- when US rates did indeed fall.
So the fortunate truth is: we don’t even need to forecast interest rates.
All we have to do is monitor crowd expectations (in order to go contrary,
on occasions ). Interest rates spend their time fluctuating, and much of
the time they are confounding existing expectations. People expect rates
to fall and they don’t: they expect them to stay steady and they move
down. Rates shift, and people think they will revert to earlier levels. For
these reasons or otherwise, the fact is that when interest rates do lead
currencies, they usually do so with a long lead time. The currency movement
tends to lag by months, often 6 months or more (see chart opposite).
Once again, what we are looking for is the set-up conditions* for a
movement in a currency. The “key” lies in the background, not in the
foreground where everyone is looking. Here are some rules which seem
to govern the relationship between interest rate shifts and currency
movements.
1) Interest rate shifts prompted by domestic pressures (an over-heating
economy, for example) tend to lead currency movements. The lead time is
measured in months rather than days (e.g. the rise in the DM and SF in late
1989, and the dollar in 1981-5).
2) Interest rate shifts prompted by international (and currency) pressures
tend to follow currency movements and go in the opposite direction ( e.g.
the Yen in 1989, and the pound in 1988-9).
3) Following rule 2), a currency will tend to turn round and follow the
lead of interest rates up: a) if/when they have risen around 4 points and
especially, b) when the currency is perceived to have stabilised over several
months (e.g. sterling in Spring 1985, and in 1990).
4) In this event, interest rates will peak when the currency troughs; and
falling interest rates will coincide with a rising currency. Why? Because by
this time everyone is expecting interest rates to fall tomorrow and they
stay up longer than expected -i.e. rate cuts tend to lag expectations in these
circumstances (e.g. Pound, Can $ and Aus $ in 1990-91). In other words,
interest rates are higher than expected and this supports the currency.
5) When currencies are led by interest rates, their movement is directly
related to the unexpectedness of interest rate levels, rather than to their
rate of change (e.g. $ in 1983-4, pound and SF in 1990).
Rule 4) is an exception to rule 1) and there are others. For example
falling interest yields call for rising bond prices. The result, in the case of
the major investment currencies, can be a tug-of-war, when falling interest
rates might discourage international investors but rising bond prices attract
them -as they did in the case of the dollar in summer 1984 to spring
1985.Finally rules) is a cardinal rule. It is often the acid test of whether any
given interest rate will lead a currency: it only does so when unexpected
or unseen. When observers are ignoring an important shift in interest rates
for any reason -because they expected it to be short-lived or because they
are preoccupied with other things -you can bet it will only be a matter of
time before the currency is led inexorably in the direction of the interest
rate shift. What matters, as I say, is the background, not the foreground -
because the foreground is where everyone is looking. What matters in
financial markets -and in life? -is not what you see straight ahead but
what you glimpse out of the corner of your eye.........
By the way, I enjoy to read this thread, but it would be more understandable
if the people would not use so many metaphors and poetic images.
It is better to use trading language instead of so many
"army", "armament", "attack", "defense", and so on...
Rgs,
Textor