Fundamentals Rule!

Sorry, I know next to nothing about the CHF. but yes you're right. the CPI should start things moving either way.

I've been glued to the screen all morning watching the Eur/usd. I can't help but feel that we're approaching a rally or a divebomb (no help to anyone there hehehe). Since last fri we've been stuck in, what i like to call, a reactionary position where Eurusd is just reacting to all the other currencies. For the past few hours the currency has started showing some signs of being traded on its own merits. perhaps the CPI's being released on Fri are starting to drift into focus...

Im also wary of news reports that U.S. Treasury Secretary Henry Paulson, who is giving a speech later may emphasise a strong dollar policy while expressing the need for structural reforms in Asian currencies. Beware anyone shorting dollars (like me )

*Edit*

Read bloomberg article on ECB rates going to 4%. It seems this could explain all the speeches being given by ECB members. Could the raft of speeches being given by Fed members be preparing the market for another rise? I suspect the Japanese are only talking bluff ahead of the G7 meeting.

Don't mind all the bashers, keep it up! =) I'll be reading your posts closely =)

Keep it up guys. This is the right/only way to get around.

Thanks guys. Good to know people are watching. I must admit I find it kinda scary to be writing what I think....so let me dig a hole just that little bit deeper for myself;

Normally one of the good things about being a fundamental trader is that after the trade is ‘established’ you can get on with the rest of the useless things you do while the money sits there and beavers away for you. At least that’s the plan. Tomorrow I’m travelling and I’m still ‘scaling’ into my long position on the Eurousd. It doesn’t particularly suit me to travel tomorrow and this G7 meeting keeps cropping into my mind as causing the unexpected. There’s a lot of headlines floating around about what could happen, and I must say a lot of it is without any depth or substance. Almost as if someone is putting out one liners to the media. I’m nearly certain that most of the trading at the moment is being done on technicals. It must be particularly frustrating for the techies to see the eurusd continually refusing to drop to the 1.255 mark. I wonder how tired their eyes are of staring at the trend lines? It'd be interesting to know if any technicals are giving signals to go long Eur USd.

I’m in two minds about what will happen with the CPI’s being released this Friday. I expect the European one to confirm the inflationary trends. But it may be overshadowed by the American CPI At least we may get to enjoy the European rally before the American CPI comes out…hehe. A reading over the expected (or even in line with the expected) CPI for American could just see a dollar bull run to the 1.255 mark. I can already see the Technicals flooding the email with ‘I told You so’.

Assuming this does happen (and I don’t think it will. I’m 60:40 convinced that American CPI will reflect an easing and even if at the expected traders may well factor in the recent drop in oil prices to future CPI reports). I’m still not convinced that we are in the midst of a dollar resurgence. The reason ties back to the reports of the technical trading that’s been done at the moment. Some commentators are saying a lot of the funds are staying out of the market until the G7 is over. I’ve a sneaking suspicion that the may well wait until the CPI figures are out. How many of us have noted the unusally quiet American sessions? If The American CPI drops they’ll wade in and we’ll resume the Euro rally. If the American CPI rises they’ll let the technicals do their business, we’ll hit the 1.255 and then they will move. We should see the Euro rally take hold then. I’m nearly inclined to join them in their thinking. Fundamentals should have one eye on the long term. I'm eyeing up ECB rate increases of at least 1% this time next year, a wobbly American Economy (even if it does find an even keel who is predicting a FED rate of 6% in a year???). The divergence will close even if the FED does do another 0.25%. I cannot see the reason for 1.255.

Of course I may be just getting paranoid in my old age. Delusional even. Let me know!

**edit**
At the risk of second guessing myself I wonder will any fund jump the gun are start hoovering up Euro before the CPI? After all the early bird...Once one jumps in they all have little choice but to follow??

What moved price at 9:30 a.m. central US time on September 13 ? Was it Crude Oil Inventories. That was the only news I was aware of during that time. Was not able to view charts from 8:30 to 12:30 so was surprised to see that move. It wasnt Paulson's statements because that came later, maybe helped to continue move but did not start it. I saw some analysis that said his statements had little effect on price anyway.

If it was Crude Oil then I think it might be interesting to take a look back for the past 6 months or more to see what happened after this announcement. If I recall correctly there was movement on this earlier in the summer or late spring months as well.

Lou

Hmm getting abit confused trying to chart that time on my charts. It could have been the oil. There was also reports of a bomb scare at an American Airport I think. It could have been reacting to the stock market open too with traders positioning themselves. The only other reason I can come up with is at the end of the european trading session there is usually a whip saw as the technicals close out positions for the day. The same is happening now with the close of the NY session - 1.2735 to 1.2720.

I’ve literally been inundated with one email asking how I pick my entry points, trade length and exit points so thought I’d run through it, both as some sort of answer and to help confirm my ‘rules’ for a trade.

Entry Point

I suppose you could enter at any point based on what you believe will happen to the currency you are trading. My own personal preference though is patiently waiting. The two biggest downfalls in my humble opinion of any trader are impulse trading and jumping on board a trend without thinking. 80% of the time I’m buying when everyone else is selling. Its not easy. Everybody predicting gloom and there you are trying to snatch trades against the trend. You must have lost your marbles somewhere. The reason (and this probably applies to technicals more so than fundamental traders) everybody is selling is that once a daily/hourly/weekly trend starts, they do not have the margin to carry or support the trade they have placed if it continues against them. They’ll cut their losses. Those who called the trend correct will be profit taking. So you have this mass movement of people. I on the other hand am looking months or at the very least weeks down the line. And key to this is placing a trade that you can carry. For two traders with the same amount (one technical trader and one fundamental trader) the fundamental trader should always be placing smaller trades. I often check to see that I can carry a trade if it drops to its highest/lowest level in three or four months. It’s a substantial commitment to the trade you’ve placed to not get itchy fingers and exit. Instead if my belief is that I’m correct I will add to my position. I’m not entirely sure that such practise is correct, or even if other fundamental traders do it, but it’s the way I do it. I should add the reason I can add to my position is that I ‘scale’ into a trade. I build a position over a month or so. Sometimes longer. So if the technical trader places say a 200k trade in a second, it takes me weeks to reach the same amount. Patience, discipline. Knowledge. Repeat. I’ve rarely taken a position based on one trade. You won’t get the absolute best price (as compared to a technical trader) but for me being able to carry the trade is more important than exposing myself to a very uncomfortable month or two.
Returning to the initial point of entry it’s an open book. It again depends on your outlook. A good point to have been building a euro bull position was this time last year. Yes, yes I know, hindsight is perfect. I suppose a better example is the position I’m taking on the euro/yen. I’m building into it at the moment. It could possibly go to 160 yen yet so I’m taking my time. If it turns around right now and I only have my small position taken then so be it. Better have a small position profitable than risk a large position now and not be able to afford carry it to 160. Support/resistance levels are always a good indicator of where to enter a trade. For instance when Euro/yen hit the 150 mark I opened my position. I could have closed it since and taken my profit and here I find myself staring at the likely hood that we’ll surpass the 150 mark again.


Trade Length.

I think I’ve said this already but for me personally trade lengths vary from weeks to a month. I’m not a pure fundamental trader, I do take short term trades. For a long term trade I suppose the trade length is determined by my opinion. I won’t close a position until my viewpoint on the economy changes. I’ve held positions through week highs, month highs, year highs and crazy highs. I continue to do that until the data I’m seeing changes my view on where the economy is heading. I’ve sweated over worrying that I’ve missed the exit point. And you will. You rarely will have a perfect exit. Getting the entry right is the key and unless you enter right, and this could take months, then you will find yourself pressured at exit point.

Target price/Exit point.

I don’t have one. I let the market determine the price I get when I choose to close the position. I will have some idea, which is primarily determined by support/resistance levels, past price action. I suppose the key is that when the data has changed my mind about a currency I’ll revert to basic technicals to try inch the last few pennies from the trade.




As an example what is causing Euro weakness versus the dollar at the moment? It could be the G7, lack of a firm trend, uncertainty over the direction of the US economy. I think the Euro economy is set to strengthen and the US to weaken. Hence I’m bullish on the Euro. Or maybe we’re in the midst of a turn a bout for the USA economy and I’ve got it wrong. Of course I keep a close eye on the everyday reports. I track them all. If you don’t your trading blind. The US could turn around and boom. And I’ll exit. The point I’m trying to make is that my trade is over months. Unless there is fundamental change in the data (or more correctly the way I interpret that data) then I’m not overly concerned with a weeks stagnation, or a daily dip. So long as I can provide a reason for the dip and square it with my long term view I’m happy to continue in the trade. Have your homework done is the best advice I can give anyone. Then interpret that data. Relying on someone else to give you a direction is useless, more so relying on commentators. They will have long exited their position by the time you hear you should also do so.

In reply to Exit Point.

If when you make a trade you are actually taking several positions over a course of time, then you could scale out of these positions as they reached a designated % of your fund balance (or some other type of similar measurement).

If you use a platform offering fractional pips you could take off fractions of 1 lot over time.

Lou

Still of view Euro CPI up,
American CPI static or down.

5:10 am est...nothing as far as movement. Guess were waiting for US cpi?

Dave

Just a non event. Unless it was outrageously outside expectations we were always going to be left waiting for it. At last some excitement after a dreary dreary week!! Any ideas Yourself where we heading?

Not a clue really. I expected euro$ to go higher than it did this week. The other euro pairs did. Now I am waiting for next week to trade probly.

I think its a 50/50 fight between bulls and bears. I need to see a large distinctive move with a distinctive retrace to get a good idea of wave count.

Dave

Keepin' everyone honest....just reminds me that trying to trade technical and ignoring the fundamental could lead to ruin (read: has lead to ruin....but I'll get it back ).

the market is crazy. Cann't belive the dive it took this morning when it just sat there idle right after news....talk about delayed reaction. Probly bounce back up on US cpi. and end up right back where it started. Making us all scratch our heads even more.


Thats why I am not trading untill next week

Dave

actually my system was giving a sell signal. But I won't enter right befor news.
Cann't trust it. Even though its usually right, if theres a wipsaw befor taking direction it will stop me out.

Dave

Hi Guys,

Well sold my yen today. Got greedy and took the short term profit. I'll wait until the G7 meeting is over and start building my position slowly. Looks like it'll go over the 150 mark so I'll start somewhere there.

The bad news is Im sitting on a loss for the Eur/usd. I'm long on the position. There seems to be no momemtum for any euro buying I'm still upbeat on the data that was released today. I think it still points to a slowing US economy though admittedly I haven't gone through the data much bar the headline rates. I was too busy hopping in and out of the news thread The slight dip in the Euro inflation is worrysome, is could be due to oil or maybe the warnings about the US dragging Europe with it are correct. Either way if the price dips to 1.255 I'll add to my position. If it drops below that I'll have to seriously consider if I have my outlook correct. *Sigh*


I'll go back over the data during the weekend and write my outlook on it. Have a great weekend everyone

oil prices dropped so that is probly the reason for the stronger $. But OPEC said they won't allow it to go below 60$ a barral.
Housing market is slowing too. Housing market has trends that last years So we won't see a speed up in housing again for a while.

This should push the $ down more. Seems to be in an upward correction to an over all down trend. So the euro should rise against the $ again. But cann't sustain a break above 1.3000 for long as it will be in an extreame. Europe will have to push it down again or it will cost too much for U.S. to trade with them and we'll begin to seek other vinues.

Does this sound correct or should I just stick to technicals?

Dave

I'm braodly thinking the same way. I saw that comment from OPEC also. Good news

I'm hoping that the NAHB figures out 6pm (GMT +1) will show further slowdown in sales. We've the ZEW reports for Europe tomorrow and the PPI for USA tomorrow as well. Once we have all these we should see where the dollar is heading. I'd don't know about the 1.30 though. I can see us at 1.29 alright, but I think there will be have to be more belief in the market that the FED is finished before we start breaking thought the 1.30 barrier??

hehe Technicals...I must admit I've great admiration for people who are profitable for technicals. It fails me to understand how a technical can judge which way a market will move when its fundamentals that move the market. I only ever see technicals moving market when fundies are all gone home. Amazing stuff.

it's overseas investing by US mutuals and hedge-funds that'll drive the USD down, IMO.