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Fundamentals Rule!

  • #121
  • Nov 12, 2006 7:48pm Nov 12, 2006 7:48pm
Thanks RBS, much appreciated!


Will be getting back to explaining the fundamental factors this week with regards to economic reports.

After that we'll be trying to pull everything together to see how economists get the bigger picture rather than looking at reports in isolation. We should get round to this in the next week or two. I think thats the major difference between news traders and fundamental traders (Asides from the time frame for trading).
  • #122
  • Nov 13, 2006 8:36am Nov 13, 2006 8:36am
Well there's no major economic reports out today so you get to listen to me blathering on again about anything that takes my fancy. And if you don't like it....you can always pretend to like it and nod head wisely in agreement




Gold is dipping at the moment, may be a daily thing. I'm waiting for it to bottom out and I'll be jumping in again.

Whats really taken my fancy over the last few days is the comments from the Chinese about diversifying their reserves. Granted the amount itself is small in terms of the overall market scale but the comment is noteworth only because it is a flexing of muscle. Be in no doubt, China knows the position it has over dollars due to the trade deficits and it can inflict pain on the bush administrations strong dollar policy (hehehe, even if only a lip service to the strong dollar). Were China to actually follow through on this action we could see some interesting numbers in the TIC report in the months ahead.

Of course in the more immediate term the chinese comments have served to fuel another bout of dollar selling. I'd expect some consolidation around the 1.282-1.285 level for the start of the week with further pushes to the upside later on in the week or early next week.

Oil. Hmm, oil we're having a great old game with. I say up. Market says down. Thats the thing with being right...You gotta wait for everyone else to realise you were right all along before you get your due. And if that isn't a self serving statement then I dont know what is

All jokes aside I'm looking for oil to rise off its test of the 58.75'ish level earlier today. We may see another test of the 58.50 level later in the day but I'd be expecting a close higher to keep the mini bull rally on. Wires late yest evening had saudi arabia notifying suppliers of cuts to dec supplies in line with the november cuts its already made, though the market seems to have shrugged off this and concentrated on policitical EIA comments and weather patterns.

If it breaks the 58 level I'll be closing out my short term trades. I'm still sitting on longs for 2009 and a serious break of the 58 level I'll be looking to establish further longs for the years ahead.
  • #123
  • Nov 13, 2006 1:48pm Nov 13, 2006 1:48pm
Quoting ratherbesailing
G'Day MT,

just read the whole thread so far and have found it very informative.Hope to see it continued.

Regards

RBS
I am following this thread for a while now, and consider it as very informative and most refreshing thinking.

Thanks, Money Talks.
  • #124
  • Nov 13, 2006 5:15pm Nov 13, 2006 5:15pm
Thanks Lietuve, always good to know someone is reading this drivel :



We've a slew of data for the rest of the week so lets get down to business. the indicators that'll be most closely watched for the week are as follows;

Tuesday;
USD: Core PPI & Retail sales excl. auto.
Eur: GDP q/q

Wed;
USD: Empire Index & FOMC meeting minutes. Crude oil inventories.

Thur;
USD: CPI, TIC report and manufacturing production

Fri:
USD: housing starts

So from the above its very much the USD thats setting the tone for the week rather than the Euro.

Unless Tue's figures are way out of estimates range we'll range trading until wed and the release of the FOMC minutes. In my own humble opinion I'm expecting more of the same as last time...concern about housing market, oil prices but warnings of inflation. A great time for a bit of whipsawing around the place. EIA inventories won't affect the currencies much but I'll be playing close attention. Negative crude inventory data could break us out of the 57-61 dollar range we've been in so i;ll be all jacked up for this one.

I must admit its the TIC report on THur I'm looking forward to. We've had some whoppers of deviations the last two reports so this may point us back to normality in a sense. if there' s any wiff of a decrease in dollar purchasing in the report expect more market panic as stories of Chinese diversification resurface. Whether it'll actually have anything to do with the TIC figures will be irrellevant on the day until we being retracing our steps.

Even though the FED is making no mention of umemployment at the moment its worth taking increased note of this figure and charting it. Its a weekly one so any trend will be easily spotted. I'll try post my own graph before the figure comes out later in the week.


With such a slew of important data get ready to break ranges. A week of Consistent negative data for the USD and we'll easily see the 1.29 and beyond. The more in line with expectations the reports are the more focus will drift back to the minor reports and the EUR reports so thinking caps on.

What are the technicals pointing to at the moment??
  • #125
  • Nov 14, 2006 5:06am Nov 14, 2006 5:06am
PPI

USD PPI out today. Most countries publish a PPI in some form or shape. So lets get down to brass tacks about it.

PPI stands for Producers Price Index. It is to producers what CPI (see previous posts) is to consumers. In other words its a measure of Inflation that producers experience. (for an explanation of Index's in economic reports see previous posts also). So basically the PPI measures inflation for producers of goods.

Why is is important? A rising inflationary trend in the PPI can be taken to mean that Producers will raise prices for their goods. In other words the goods that you and me buy will become more expensive. So what? Well if you and me are paying more for goods it means the CPI will increase...Which means higher inflation meaning higher interest rates meaning currency appreciates.

Delving into this a bit more the PPI report is actually broken down into a number of different sections;

Finished goods section - Most often cited in the media as the headline figure. (This is the finished article that is bought by a business from a producer to sell to the consumer)
Intermediate suppies, materials and Goods section - the bits in the middle (bits making up the goods)
Raw materials - Anyone trading comodities futures will pay close attentaion to this.

You are more likely to see large deviations in the PPI than in the CPI mostly because prices adjust faster e.g. commodity prices.
  • #126
  • Nov 15, 2006 6:28am Nov 15, 2006 6:28am
Well today will mostly be about the FOMC minutes. These can have an immediate effect or drag on well into the night. As before Im expecting more of the same blather from them about housing and risks to inflation blah blah blah.

I'll mention this again as I think its important. Keep an eye on anything labor related - Umemployment claims, new claims, labor inflation etc. This is what will guide interest rate policy. The FED will put up with a slowing housing market if they can bring inflation into line. However when Americans start loosing jobs, inflation will be off the table and the core issue will be to give the economy a boost , i.e. interest rate cuts.

EIA oil inventory reports out today. Always good for a bit of a laugh. Personally Im hoping for a larger decline in Crude oil stocks than anticpated. I'm glad we haven't broken the 58$ mark, we failed yesterday. If it breaks today we'll be heading straight down to the 57$ mark so hold on. If you're looking for me I'll be lurking around down there buying :

Gold is already after taking a nose dive today so I'm debating when to re establish my longs. The closer it gets to 612 the more attracted I am. If it hits 600$ over the coming days I may well even marry it at that level.
  • #127
  • Nov 16, 2006 6:04am Nov 16, 2006 6:04am
Tic tic tic tic tic...boom!


TIC report out today. At last. I'm drooling to see it.Lets see if anyone is diversifying! Though it'll be too early to tell regarding the Chinese (And we'd need a rather larger amount too...) but I am getting ever more keen to find out if USD can keep financing its spending.

It'll be overshadowed today by the CPI figures though. Remember the figures from the PPI? Well it may just be too early for them to have fed into CPI. IN any Ive my feet firmly planted on a soft figure for the CPI.

There are also reports the the Deputy governor of the bank of china has said they are buying JPY and Euro. Are we just seeing more posturing from the Chinese or are we about to see some serious flexing of power?


Oil. We failed to break the 58$ mark. I'm not so sure we're range bound between 56-61 anymore as most commentators would have you believe. I'm seeing a more 'higher highs, higher lows' scenario. For future reference when we do close over the 61$ expect a strong rally as those on the sidelines jump in.

Gold.....I'm looking for a rise today, but I'll be watching closely to make sure it doesn't reverse.
  • #128
  • Nov 16, 2006 6:56am Nov 16, 2006 6:56am
1 question about CPI

in first page of forexfactory wrote this about cpi " rising trend has a positive effect on the nation's currency" but GBP fall when cpi was high, how we can explain this event ?

Today if cpi will -0.3% from -0.5% is it good for $ or bad ?
  • #129
  • Nov 16, 2006 8:09am Nov 16, 2006 8:09am
Hi Fotovat,

I dont trade GBP much but I'll take a shot. I know very little about the economy there. Here are the figures; Please note this would be the immediate aftermath rather than an explanation for the sustained drop throughout the week (which presumably could be due to inflation and rate outlook and the economic outlook)

GBP CPI m/m 0.2% V 0.2%E (prev 0.1%)

GBP CPI Y/Y Core 1.4% V 1.6%E (Prev 1.4%)

Ignore the CPI headline rate. Central banks at the moment have it in their feather caps to judge inflation by the core rate (i.e. the rate that excludes volatile items such as food and energy).

A core rate of 1.6% was expected. However the actual rate was 1.4% hence the GBP was sold to compensate for the fact that maybe inflation was easing and there would not be a rate rise in the future (or that there would not be so many rate rises).

So inflation down = Currency down because central bank will not keep raising interest rates on the back of falling inflation.

For the dollar anything better than the expected will be immediately good for the dollar. In the event it turned out that the inflation (by this i mean core inflation) eased hence the dollar was sold. It retraced on the back of concerns about the upcoming TIC report.

Over the next few hours as these reports are read over we'll see where the dollar will end up.

Hope this is of help.
  • #130
  • Nov 16, 2006 2:16pm Nov 16, 2006 2:16pm
This is in the nature of a general comment/question.

I had always assumed that it was economic news primarily and secondarily other news which was responsible for the relative values of the currencies and therefore for market movement. In fact, in the 80's when I first traded forex, I strictly did news trading based on major economic shifts and it was extremely profitable--more so than similar trading today.

Lstely I have been somewhat confused by what I have been seeing. A few months ago it did not seem to matter how good the economic news was for the USD or how much good news there was, the USD just kept falling. It seemed to be in freefall without a net. Now we are seeing all sorts of bad economic news for the USD and it does not fall as one would logiacally expect.

This may be a totally erroneous view, but I have the impression that, at least now, the market is moving because it is moving and because it is "destined" to move in a particular direction and news, apart from very transitory spikes seems to be totally unrelated to the movements. In other words, I am not certain whether news trading (I do not mean news release trading) is a viable way of trading at the moment.
  • #131
  • Nov 16, 2006 3:58pm Nov 16, 2006 3:58pm
Quoting moonchild
This is in the nature of a general comment/question.

I had always assumed that it was economic news primarily and secondarily other news which was responsible for the relative values of the currencies and therefore for market movement. In fact, in the 80's when I first traded forex, I strictly did news trading based on major economic shifts and it was extremely profitable--more so than similar trading today.

Lstely I have been somewhat confused by what I have been seeing. A few months ago it did not seem to matter how good the economic news was for the USD or how much good news there was, the USD just kept falling. It seemed to be in freefall without a net. Now we are seeing all sorts of bad economic news for the USD and it does not fall as one would logiacally expect.

This may be a totally erroneous view, but I have the impression that, at least now, the market is moving because it is moving and because it is "destined" to move in a particular direction and news, apart from very transitory spikes seems to be totally unrelated to the movements. In other words, I am not certain whether news trading (I do not mean news release trading) is a viable way of trading at the moment.
I think you should treat fundamental analysis like you treat technical analysis.
For example, when price falls below an upward trend line, people might assume that the trend is over, but then the price reverses quickly and resumes it's previous path. Everybody thought that was 'illogical' for the market to behave like that.
Similarly, fundamental analysis has its down days, meaning some things cannot be explained. I don't think anybody in the world has ALL the information that comes into fundamental analysis. Even when all economic news point to a certain direction, you may have missed critical information that is just not known to the general public....
  • #132
  • Edited Nov 17, 2006 1:37am Nov 16, 2006 6:16pm | Edited Nov 17, 2006 1:37am
Thanks, Money Talks, for your ongoing fundamental commentary.

What I would like to see is a dashpot arrangement that represents the current sentiments of the investment community, based purely on economic fundamentals, in relation to all the major currencies - on a scale of minus 10 to plus 10.

As new data and events unfold, the guages will adjust so that both technical and fundamental traders can monitor the fundamental sentiments and factor them into their trading system if they so choose.

We could call it the Guage of Fundamental Sentiments.

Does such a thing exist somewhere?
  • #133
  • Nov 16, 2006 6:28pm Nov 16, 2006 6:28pm
Quoting itme
Thanks, Money Talks, for your ongoing fundamental commentary.

What I would like to see is a dashpot arrangement that represents the current sentiments of the investment community, based purely on economic fundamentals, in relation to all the major currencies - on a scale of minus 1 to plus 10.

As new data and events unfold, the guages will adjust so that both technical and fundamental traders can monitor the fundamental sentiments and factor them into their trading system if they so choose.

We could call it the Guage of Fundamental Sentiments.

Does such a thing exist somewhere?
There is a signal provider which is closely associated with FX Sol, in the sense that FX Sol offered a free subscription if you had a certain size of account. This had to be in the spring when I was looking for a new broker. Anyway this signal provider included in the information they provided a gauge of trader sentiment. I am not sure how they determined this but they did include it in the information they provided.

I hope that this helps. Anyway the signal provider should be easy to find through FX Sol/
  • #134
  • Nov 16, 2006 7:11pm Nov 16, 2006 7:11pm
Hi Moonchild,


Yes I can agree with you. The market often moves against the latest economic report and I can hazard a guess why;

1. headline rates determine an immediate effect. But reports often run into pages and can take some time to go through. I think overall the rate of exchange does reflect the differences in the economic state of two countries and where interest rates are economies are heading. However dare I say it...
2. 20 years ago anyone using technicals were considered batty in the head. The sheer volume of traders using technical analysis now can affect the market but only after the fact of economic state is taken into account. If an economy is doing well there are two factors at play that mean its currency should be doing better vis a vis another economy...

a. A booming economy is likely to have inflation, meaning higher interest rates. So an exchange rate will take into account where where interest rates are heading. Take for example the Eur/yen and the huge carry trades at the moment.
b. a booming economy will mean more demand for that currency as investors demand currency to buy bonds/stocks/equity/land etc. This can be negated by simply printing more money
(cough cough USD) meaning a dampening of the effect of the appreciation of that currency. i think the market has become too focused on (a) above and often overlooks this one.

Overall though I think once all the technical moves have been completed we can still see fundamentals at play..The recent string of negative USD reports have taken us from 1.25 to bouncing around the 1.28. Similarly before that a string of positive USD reports brought us from 1.29 down to 1.25. So even though I can agree with you that fundamental trading is harder and probably not as lucrative as a good technical trader, over the longer term I think the market does reflect the economic base of a country.

Good comment too about markets moving because they are moving. Momentum is a strong mover and I personally would never buy in the middle of a fall...I'll wait until its based and then purchase if I think the currency is set to appreciate.
  • #135
  • Nov 16, 2006 7:21pm Nov 16, 2006 7:21pm
Hi Hilm83,


Good comments. of course us fundies don't get it right all the time. being wrong is part of trading and i've gotten it wrong more times than I care to admit

Just as one persons technical signal is to buy when anothers is to sell so too with fundamental opinions on economics. Zero sum game for everyone.

Hi Itme,

Thanks for reading and great thread you have.

I presume what you mean is a rating based on a weighting of the various economic fundamentals so that when say when CPI increases it would affect the overall rating for that particular currency vis a vis other currencies. Of course any such rating system would have to have a fixed timeframe of say 6 months or a year.

Never seen one. The closest I've come is simply market surveys of traders or a target price for currencies with say a standard deviation of 2 but I don't know what they base predictions on (will post link tomorrow, travelling at moment).
  • #136
  • Nov 17, 2006 12:02am Nov 17, 2006 12:02am
For many months I have enjoyed the comments on the fundamentals at Dismally.com. Now it is gone. Anyone know what happened?

Lou
  • #137
  • Nov 17, 2006 1:21am Nov 17, 2006 1:21am
Quoting Lou
For many months I have enjoyed the comments on the fundamentals at Dismally.com. Now it is gone. Anyone know what happened?

Lou
perhaps he forgot to pay for his domain name and it got expired. I lost a domain name like that before ... what was his name again so I can look him up
  • #138
  • Nov 17, 2006 8:22am Nov 17, 2006 8:22am
Yup sounds like you called that one right nitman.


Just a quick thought on the dow, nasdaq etc. We've seen these push through record after record recently and I'd expect it to continue through year end. What to watch for is housing and unemployment reports. If housing continues its slowdown it will feed into the wider USD economy in the sense of corporate earnings. If the housing reports keep coming out bad, at the very least we'll see money taken off the table as investors sit and wait to see if the economy gets its much touted soft landing. I can't emphasise enough to keep an eye on labor reports. I'm making a note to check these (Equity Indices) on a weekly basis starting end of jan 2007 and I'll be hoping to begin shorting it at some stage then.

Oil? I'm surprised at the drop but not overly concerned. Still holding my longs for 2009, immediate term I closed my longs yesterday at a loss unfortunately. Must remmber not to trade front running contract when its closing out soon

I'd be expecting some gain today on profit taking more than anything.

Gold is bouncing around the place as it decides what to do. If it breaks 612 $ I'll be shorting until the 600$ mark. In the interim I'm only placing small trades and watching it like a hawk. I'm still bullish on the overall trend.
  • #139
  • Nov 17, 2006 12:49pm Nov 17, 2006 12:49pm
Quoting nitman
perhaps he forgot to pay for his domain name and it got expired. I lost a domain name like that before ... what was his name again so I can look him up

Quite possible since I think he could be in China.
  • #140
  • Nov 18, 2006 8:51pm Nov 18, 2006 8:51pm
Its back now.
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