Ameba PRO Strategy -|Trading as Investing|- 3 birds of wisdom

Alright, we'll see what Old lady will say today, every Tom, Dick and Harry

out there expecting Rate hike soon, and I'm expecting QE4 ones

music stops ))

You bad bearish CAT!

How dare you to say that!
Basically I think that QE4 already started, I mean YEAH ,European fellas

They lower yesterday projections for both GDP and inflation.

One more from "RAW MATERIALS" but they are all under commodities.
After this,before financial correlations, you will be able to get clue about one cycle and I will connect the dots and expain it here that.

So next is our precious metal GOLD ! And his negative correlation with USD.

You all know about gold ,it is shiney and wonderful.
As well gold is like safe investment in the period of big volatility and uncertinity.

It is as well hedge against inflation (big inflation oscilations) for big investors.
However ,regardless, it is different KIND OF ANIMAL than typical currencies.
Because it have SOMEHOW bigger hedge in physical value, than todays currencies,which are in good part electronic.

For negative correlation among usd and gold most people know but about history ,much less.
Starting from gold standard ( GOLD STANDARD ) and to the today.

But about history you have GOOGLE and books,right.

This big negative correlation (more than 90% negative correlation) is mostly because gold is quoted in US dollars.
USD is world reserves currency,keep that in the mind.
And as gold is traded primarily in dollars, a weaker dollar makes gold cheaper for other nations to purchase.
So it is an increase in foreign demand that drives up the dollar price of gold and causes the negative relationship between gold and the U.S. dollar.
This relationship will be easily understood if we realize that a significant part of demand for gold comes from outside the USA.
When the trust in dollar or whole dollar-denominated-system falls, the price of gold rises and when the confidence in greenbacks is restored, the price of the yellow metal decreases.

Gold have as well dual nature , it is not just commodity it is also a currency in some way.
It is traded continuously in a well-organized spot and futures markets with daily trading volumes comparable to major currency pairs such as the US dollar-pound sterling.

And it is also held as a reserve currency by the central banks.
Here is picture from World Bank , about current gold reserves.
In such a way to have that picture in head , who hold the gold the most.



But let's look at USD dollar index chart and gold futures and later on XAU/USD.



and XAU/USd
I marked with vertical lines same periods as on previous picture.



For today that much ,next is the descripton of cycle move.

Stay tuned ...

I will describe now one cycle in the FX.

That is the cycle USD vs commodities.

On one side we have commodities like oil,gold,copper,agriculturs ,etc and on the other side we have usd.
We have that negative correlation commodities VS USD.
On forex that means AUD,CAD and NZD (XAU as well) vs USD.
When dollar is going to appreciate commodities are going downard and vice versa.
I have draw this scarce weighing machine but it is anyway good to illustrate this cycles.



The good trading opportunity was back, starting from middle of last year (when oil starts to fall) all the way till today.
AUD/USD sell
USD/CAD buy
NZD/USD sell
and XAU/USD sell.
I will keep with this but we have important inflation data now from USA so I need to monitor that.
More to come..

Now it is time to ask if there is anything unclear

Let's continue then if everything is clear.

FINANCIAL CORRELATIONS

Here we have various correlations.

From currencies,stock market,bonds and etc.

Today I will focus on negative correlation among JPY (japanesse jen) and Nikkei 225 (japanesse stock market index).

The most important lesson ,which I think all forex trader must know about correlation among economic performance and
exchange rates (currency) are that weaker currency helps export and vise versa ,too strong currency doing opposite,put
downward pressure on exports.

Same thing is happening here , among there two very important financial asset , currency and stock market.

Lets simplify this:

If one country have just one product (lets say it produce cars) and it export it to other countries.
Currency of that country plays a big role for the price of export.
Because if we have a weaker domestic currency ,cars of that country could be bought for less money from foreign buyer
(importer) and it automatic make more attractive to foreign buyers than on the local market.

I use example of cars ,because that is just the case for Nikkei and Japan's economy.

Large share of Nikkei coming from automobile industry (I mean you know Toyota,Honda,Misthubushi,Mazda,Nissan and
so on).
Nikkei 225 contains largest and most important Japan's companies.
So because of this export - currency relation ,Nikkei 225 tends to rise when yen is down.
Same is for all export countries.

The best example of it is when for example central bank start to print money (or some easing) stock market tend to rise
and currency goes down.
That was the case in recent Bank of Japan quantitative easing actions,yen drops hardly but stock market reached new
highs.
And same you are able to see current in the Euorope.When ECB entered the QE ,DAX (german stock index rise but
euro falls really massive).

DAX


EUR/USD

I didn't counted how many points and pips it falls and rises but bear in the mind that this is H4 (240 minutes) chart.
I will post one more chart about this export to currency relationship.

You know that China is biggest worlds exporter and it exports most to USA.
So we have situation where Chinese currency YUAN was pegged with US dollar.
That is because of this export reason (trade ,investment reason).

You can check this page for this . http://www.investopedia.com/articles...the-dollar.asp
Also on wiki http://en.wikipedia.org/wiki/Renminbi

" Until 2005, the value of the renminbi was pegged to the U.S. dollar. As China pursued its historical transition from
central planning to a market economy, and increased its participation in foreign trade, the renminbi was DEVALUED to
increase the COMPETITIVENESS of Chinese industry"

The bad thing about pegs are they tend to break apart on the long run,you could see that recently when Swiss remove
peg with Europe (EUR/CHF).

On the long run pegs are expensive to manage,because you need to much money to deffened levels and if one economy is near big slump,it is better to remove it.
But let's back on the Nikkei and JPY and let's see USD/JPY with Nikkei futures.



You see how Nikkei perfectly match with USD/JPY (so Nikkei have negative correlation with JPY)

More to come , I hope that you got this .

I m not to often able to write but I give my best and I hope that you find this things useful .

I was on vacation and that was a reason for posting delay

Salute to all