Fundamentals Rule!

I was just wondering if you knew any online sources that a beginner to fundies could get a good grip on the factors involved.

No belief in technicals:surprised.....you speak heresy money_talks!!!! Blasphemer!!!! Quick....everyone else....pray to the technical gods for forgiveness before they notice.

@ Rincewind - lol, well I did say I'd great admiration for those that were profitable with technicals. I know I wouldn't be!

@ minute - Actually I don't, sorry. Its basically a matter of looking up all the indicators (I think the USA has about 28 major indicators) and going through them with a fine comb...draw graphs for them, see if you can predict where they are heading. Look behind the headline figures, anything there? Look up reports that are not usually monitored by forex - foreclosures, bad debts, profit warnings by companies. After you've done all this you'll understand everything. Then do the same for the 2nd currency you plan to trade...eg. Euro.
*Edit* I should have added if you are at the stage when your unsure of what even the PPI is or how CPI will affect the interest rate pick up any basic economics book and learn it back to front.

For anyone trading $ today keep an eye on the tics report. A variation with the 70bln forecast might see a strong movement particularly if the the variation is negative (i.e. less than 70bln). Report due at 2pm (GMT+1)...lets see if the American structural economy is still standing on solid support There have been reports on bloomberg (i think it was bloomberg anyway) that there was a lot of foreign interest so maybe the Tics report might stay stable?

Ok, thanks. I will ponder this for a while.

Insite to technicals...

I am also amazed how they work. But they do.

The best technicals...fibonacci #'s and the golden ratio: .618 are found in every thing through out the universe. From sea shells, to constilations, leaves, even charistics of the human body. The market is a reflection of human behavior. Feer, greed ect. People are creatures of habbit.

All these things are found in technical analisys.

Also the law of the universe is that for every action there is an equal and opposite reaction. There must be a ballance in every thing there is. Moving averages and the way the price moves around them is a reflection of this. When a certian cross of certian moving averages occure it is an indacation that the ballance will shift for at least a short time. Depending on the averages of a greater time frame.

Peoples views shift and fundimentals shift just like moving averages. Good mood, bad mood, happy, sad, and so on.

I could go into more depth on the psycological ballances of human nature but I think you get the picture.

All this can be found in the price on the charts.

Dave

Dont you mean technicals rule! fundamentals are news and world events as i am sure you know.

I need to get more sleep! - i thought you were the initiator of this post sorry bud.

lol was you refering to me?

every one is a critic.

Just to make sure there is no confusion. My post was not to put technicals above fundimentals. Just to shed some light on why techies work. Fundies work just as well. Just depends on how one persons brain processes information vs. anothers. If a person can understand and apply both techies and fundies, this person would indeed be a well rounded more profitable trader.

I am here in this thread because I wannt to learn how fundies work. I am hoping to broaden my perspective. Definatly not to put any one above or below another.


Any ways..Money, what was the resulting affect of the 9 am est news realese this morning? Any views? I wasn't expecting anything that would make the market jump like it did. I blinked and the candle was taking off.

thanks and keep up the good work.

Dave

Just a few thoughts that have been running around about recent <st1:country-region><st1lace>USA</st1lace></st1:country-region> data;

<o> </o>

The NAHB showed a decline to 30 from 32 in August. Expectations were around the 31 mark. This indicator has been declining for the last 10 months. It is closely correlated with the GDP. It could be a sign that the <st1:country-region><st1lace>US</st1lace></st1:country-region> will slip into recession rather than the soft landing.

<o> </o>

GDP is the broadest indicator of the state of a nation. Quarter on quarter it is at 2.9% versus 3% expectation.

<o> </o>

Secondly the recent trade balance deficit of 68bln. We’ve become so used to seeing record trade deficits out of the <st1:country-region><st1lace>US</st1lace></st1:country-region> that we’ve almost become immune to it. It’s normally not as worrisome as it is financed by foreigners buying USD to purchase dollar denominated assets. However this time around we saw the TIC report drop to 33Bln. That’s from an expected of 70bln. Though admittedly I’m not an expert on this it leaves quiet a gap in Financing for the Trade balance. The next TIC report will be closely watched. Without Foreign buying of dollars the trade deficit CANNOT be sustained.

<o> </o>

US producer prices are due tomorrow. Forecast at 0.2%. German CPI remained at -0.1% last week, Eur CPI was in line with expectations while US CPI showed a decrease to 0.2%...Maybe commodity prices, notably oil, had a slowing effect on inflation (Along with past increases in the interest rates). We could see the same happening in <st1:country-region><st1lace>America</st1lace></st1:country-region> with the PPI. If so it may suggest that inflation is moderating and the FED may be inclined to adopt a further wait and see approach.

<o> </o>

Tomorrow should set the tone for the week as regards the Eurusd. A slew of data from the <st1:country-region><st1lace>US</st1lace></st1:country-region> before Wednesday Fed’s meeting provide the final clues. I’d be inclined to suggest they will adopt a wait and see approach to inflation and keep rates on hold. The data tomorrow if better than expectations should confirm this. Of interest will be the housing data and if it confirms the downward trend…Again this should give the FED pause for thought before they go off with inflation as their sole target, ignoring the risks of hiking rates to the economy.

<o> </o>

Incidentally be wary of Bernake’s push to set an inflation target for the FED. Such a course removes the FED’s leeway to pause rates in the event of a continuing slowdown. By setting a target, the FED is trying itself to a target ignoring the economy. Such a scenario means hiking rates irregardless of their effect. Great for immediate currency gain, bad for long term health. Also the comments from Paulson about the strong dollar. I’m not sure if the market has become immune to powers that be waffling on about strong dollar policies but seeing as he’s relatively new I’ll pay attention to further comments from him.

*Edit*

The whole point of the rant above was just confirming my trade that Im holding - Long Eur/Usd.

*end Edit*
<o> </o>

I was thinking of trying to do a post every week explaining the fundamentals that are due out that week and how they will affect the market…In a month we should have the majority of them covered. If anyone would like to see this let me know…if enough people say AYE I’ll do it otherwise I’m just wearing down my fingerprints..

<o> </o>

Dave as regards technicals I agree with you that they work but my mind keeps coming back to this scenario:

<o> </o>

Consider two economies starting out from scratch. Country A has a slight advantage in growth.

<o> </o>

Fundamental trader sees the advantage Country A has and decides to go long on that currency pair…Time passes and Technical trader sees the trend (set by the fundamental trader) and jumps in. Time passes again and Fundamental trader sees the countries are now equal and in fact, Country B may overtake Country A..So he swaps. Time passes and Technical trader see trend has changed (due to fundamental trader changing positions) and exits the trade. Who will have the larger profit?

Don’t get me wrong, I have great admiration for technicals, but they are only ‘chasing’ the fundamental trader as regards trends. They have their uses but until currencies are about Elliot waves/indicators etc they are always going to be second best. Technicals will never move a market unless all the fundamentals have gone home to bed. Having said that, I use basic technicals and I do find them quiet useful.

I agree. Technicals do chase the market and a technical trader wil enter the market after the trend is confirmed. Placing a tight s/l (20-40 pips) incase of reversal.
A fundamental trader sees the turn comming in advance and enters the market but has a larger s/l as the turn may not happened yet and he is antisipating the turn thats comming thus a 150+ s/l.
If the turn doesnt happen the fundie suffers a much larger loss and the techie never even entered in that direction. If the turn does happen but doesn't go as far as expected and the fed does something unexpected or a hurricane hits a pipline and causes an unexpected turn the techie suffers a small loss while the fundie gets hit hard.
So you get the large profit on winners but take larger losses when they happen. Tenicals take less profit but also take less of a loss.
You see how it all balances out in the end right?

6 in one hand ....half dozen in the other.

Dave

Och Aye!

oh yes please

and great efforts for doing that because I know fundamentals can be very very complex

Okay lets start..It'll be a refresher course for me anyway...


Tomorrow is the Fed decision on rates and EIA Crude Oil Inventories. I'll concentrate on the inventories as if you don't know what the Fed rate decision is about stay out of the market
EIA Crude Oil Inventories (USA)

The Energy Information Administration (EIA) produces these figures and basically they are a running tally of the stock of oil in the USA. If the inventory produces a low figure (ie reserves are below normal levels) then it could be a sign of rising prices at petrol pumps, more cost for heating oil, higher costs for producers. This would feed into inflation figures. (and higher inflation means higher interest rates meaning the currency appreciates.) Keep an eye on this figure along with prices of oil in general. Its impact is small unless there is a larger deviation in the figure or a strong trending figure (If there was to be a strong trend in EIA inventories I'm sure it would be all over the news in some other form eg. Global Oil Shortage!!)

Great! thanks for starting this. It's easier to digest in small pieces.

[I was thinking of trying to do a post every week explaining the fundamentals that are due out that week and how they will affect the market…In a month we should have the majority of them covered. If anyone would like to see this let me know…if enough people say AYE I’ll do it otherwise I’m just wearing down my fingerprints..]

The most exciting thread. It reminds me a little about two different approaches in any market: investing and trading. I am a trader and pay a lot of attention to news, but I agree fundamentals are the base of all decisions in economy, basically without fundamentals how does one evaluate the news?
You give such a good analysis. Amazing!

Fundamentals shape the market (currency will go from A to B over the next month or so). Technicals dictate how we get from A to B. So its all about time scales and risk/reward.

In other words...keep up the good work. All technical traders should have some idea of the underlying bias....and after that...scalp like mad .

Thanks for the nice comments everyone. Much Appreciated! And indeed Rince, scalp scalp scalp!!

Looking ahead to Thursday we have the weekly unemployment claims in the USA, the leading index and the Philadelphia Fed Index. We also have the current account in Europe. Only a mediocre day for data then! I’ll cover the Unemployment claims now and the current account later.

Unemployment Claims;

Another indicator that I treat in much the same way as The EIA oil inventory - Only becomes important if there’s a strong trend or large deviation! This figure is released every week and basically it’s the running tally of NEW unemployment claims for the previous week. So a rising trend indicates a deteriorating economy (more people out of work and claiming unemployment benefit) and a decreasing trend indicates a healthy economy (which normally means higher inflation = high interest rates = currency appreciates). I haven’t paid much attention to this figure over the last two years or so but lately I’ve begun graphing it again looking for an increasing trend to support my belief that the USA economy is floundering.


Just focusing back on the FOMC decision briefly, in case anyone is interested, we'll see rates on hold. Nearly everyone agrees on that. What everyone is watching out for is the statement and if its as hawkish (i.e. hinting at future rates) or dovish (leaving rates on hold or decreasing rates). I think we'll have a statement that asserts that inflation will be closely monitored but will make note of taming inflation data recently and the drop in commodity prices. I'd expect dollar depreciation and best case for me would be a substantial amount of that depreciation to occur before the FOMC even issues its decision.

so how did fomc look? I hope it makes the euro trend some place. These wedges are killin me on the charts.

Dave

Neither here nor there to be honest..We're still where we were before the statement so I wouldn't rule out more wedges yet

I would think we'll be trending up (ie stronger Euro) but the pace will be slow going. The phil fed index tomorrow and the leading leading index will be awaited. Until then we could settle into the same old pattern!! Anything coming through on the technicals?