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Joined May 2009
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Status: Dead or Alive 300 000 000 Berrys
|192 Posts
I am usually against forecasting in trading. The reason being that I firmly believe that the place where you take or exist trades are the most important part of trading. My edge is not in predicting long or short but finding good prices.
That being said, I also like to understand the medium term trend of the pair I trade. I do not risk any capital on that as I am a daytrader, and do not like to keep overnight positions, but that understanding is very valuable in my day to day trading. Even if quotes are driven mostly by orderflow in the short term ( around 60% ), the longer the timeframe the more fundamentals and market sentiments drives them. And when medium term participants drive prices you better go along them ...
Right, so now here is my take on medium term for EUR/USD. First, looking at the option market we can see a surge in puts options against calls translating fear of market participants and the fact that a top might be in place. Implied volatility begin to rise adding to the analysis.
Interest rate differential begin to strongly decorrelate from the pair and we should see a syncronisation in the next 3 months or so. QE3 is less and less a sure bet even if economies in US and EU are closer to recession. Finally as CHF is going to be supported by SNB, the only safe even currency will again be the dollar.
To conclude, I will not be surprise if the cross go to 1.30-1.25 before the end of the year, and if that occur I will do my best to ride this medium term flow.
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Joined May 2009
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Status: Dead or Alive 300 000 000 Berrys
|192 Posts
European financial CDS are still going higher. This translate the uncertainty currently surrounding the Greek problem. But now that those CDS are at record high with extreme volatility in global market and that everyone is talking about it, I believe that stuff has now been discounted in european equity markets.
Euro did not fall with the herd mentality along with the equity market and has even recover a little bit this week. Dollar is consolidating and should resume his upward move against foreign Ccy.
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Joined May 2009
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Status: Dead or Alive 300 000 000 Berrys
|192 Posts
Interest Rate Differential is a theoretical fundemental model use by analyst to value what the exchange rate of currency versus an other one should be. It is not perfect and is best use with other type of analysis but it is intresting to follow since its basic premises are quite logical.
Well comparing German 2 Yr Yield against US one we can say that the EUR/USD should be around 1.3000.
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Joined May 2009
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Status: Dead or Alive 300 000 000 Berrys
|192 Posts
I created an index based on Equity+Oil to use it as a risk appetite indicator, and it seems clear that since May we navigate in a risk off environment.