Fundamental Analysis

The main purpose of this thread is to organize and keep track of my own analysis. Feel free to join in but please observe the following thread rules:


1. Fundamentals only - no TA, no discussion of entries/exits, trading styles or money management.

- There are plenty of other threads dedicated to those subjects. FA is only one piece of a complete trading system - we all have different ways of entering and exiting positions, so I prefer this thread to stay dedicated to a broader analysis of fundies/global macro themes which affect the value of each currency. How you use that information in your own trading is up to you.


2. This thread is for rational analysis of facts, figures and important speeches/events.

- I don't care if you think the USA is doomed, Israel is the devil, brokers are hunting your socks and central bankers are all liars - I've heard it all before, kindly take your opinions elsewhere.


3. I am a swing/longer term trader.

- I am looking for themes which may affect the value of a currency over a course of weeks/months or even years - if you are trading intraday timeframes, or trading the immediate reaction to news events, this isn't the place for you.

USD, Jan 4

- GDP Growth has pulled back from 2.9 to 2.1, but is still strong
- Unemployment has trended down for 6 years, from 10% to 5%
- Inflation has hit the fed's 2% target, with growth and unemployment threatening to push it higher




"FOMC feels that in 2016, the jobless rate will dip below 5% as part of the process that will correct inflation" - Currency Thoughts, Dec 16

"The economic recovery has clearly come a long way, although it is not yet complete" - Yellen, Dec 17
Dec 2015 hike will be followed by "Gradual tightening as we watch for signs of higher inflation" - Yellen, Dec 17
" We expect that, with gradual adjustments in monetary policy, growth will continue at a moderate pace and labor market indicators will continue to strengthen" - Yellen, Dec 17

"We suspect the US Dollar will be off to a positive start in 2016 ... plenty of scope remains for markets to price in more hikes" - BNP Paribas, Dec 24

UK, Jan 4

- GDP Growth pulled back from 3% to 2.1% in the second half of 2015, but is still stronger than most
- Unemployment has trended down for four years, from 8.5% to 5.2%
- Inflation remains far below target




"BOE highlighted a levelling off in wage growth, which is central in its decision on when to raise rates" - reuters, Dec 10
"With inflation not expected to reach its target until well into 2017, there is no need for BOE to change tack" - British Chamber of Commerce, Dec 10

Lower wages "likely to reverse in due course, as inflation increases" - BOE, Dec 10
"We expect headline inflation to remain below 1% until the second half of 2016" - BOE, Dec 10

"I need to see sustained wage growth before I back a rate hike" - BOE deputy gov. Shafik, Dec 14
"Rates could then rise faster than the market expects" - Shafik, Dec 14
"A future bank rate of 2% would allow for a reduction in loosening of monetary policy" - shafik, Dec 14

"We believe the market is underestimating the UK economy, 2016 should be a year of strong growth" - BK Asset Management, Dec 24

EU, Jan 4

- GDP growth slowly increasing toward 2%
- Unemployment trending lower but still very high at 10.7%
- Headline inflation starting to tick higher but still far below target




"These latest measures should be enough to see inflation reach our objective without due delay" - Draghi, Dec 14
"At the same time there is no doubt that, should we need to expand those measures to achieve price stability, we would do so" - Draghi, Dec 14

"Whether they will need to add stimulus is a close call .... if the current scenario holds: Fed tightening, Euro weakening and recovery continuing, it shouldn't need to" - Bloomberg, Dec 14

"If inflation and growth do not make significant upside progress, ECB will need to expand QE in 2016" - BK Asset Management, Dec 24

JPY, Jan 4

- GDP Growth ticking higher to 1.6%
- Unemployment low - 3.3% - but wage growth consistently below 1%
- Inflation far below target and not improving




"December restructuring of QQE will allow us to sustain or expand stimulus more easily if needed" - Kuroda, Dec 18
"Kuroda again stressed his resolve to take 'bold action' if needed to achieve price stability target" - reuters, Dec 18

"Subdued growth and low inflation could push BOJ to increase stimulus in the first half of 2016" - BK Asset Management, Dec 30

"BOJ's own surveys show a clear drop in inflation expectations" - Nikkei Asian Review, Jan 1

Sorry for the rudimentary 'spot' analyses - these are just a starting point, as the thread evolves I'll be adding more detail, looking more closely at leading economic indicators and other macro factors.



Bloomberg's currency strength forecast for the first quarter of 2016:

AUD, Jan 4

- GDP growth rising to 2.5%
- Unemployment has been trending upwards, recently pulled back to 5.8%
- Inflation is 1.5%, below target range of 2 - 3%
- AU economy is particularly sensitive to changes in the chinese economy affecting exports




"RBA notes that exports provided a huge lift to the economy, offset by the huge hole left by business investment" - reuters, Dec 1
"Low inflation means there is room for a rate cut if signs of recovery disappoint in the coming months" - RBA, Dec 1

"Recent data has been positive, although there is still spare capacity in the economy" - RBA, Dec 15
"The inflation outlook still provides scope for further easing should that be appropriate" - RBA, Dec 15

"Policy makers have signaled they don't want to cut the record low 2% cash rate" - Bloomberg, Jan 3
"The next RBA move is still more likely a cut than a rise, and there is plenty of room for the market to speculate on further easing" - Goldman Sachs, Jan 3

NZD, Jan 4

- GDP growth strong, but pulled back in 2015 from 3.5% to 2.3%
- Unemployment rose in second half of 2015 from 5.4% to 6%
- Inflation is 0.4%, below target range of 1 - 3%
- NZ economy is particularly sensitive to changes in commodity prices, especially dairy prices




"Growth has softened in 2015, mainly due to lower terms of trade" - Wheeler, Dec 10
"The inflation rate is expected to move inside the target range from early 2016" - Wheeler, Dec 10

CAD, Jan 4

- GDP growth has pulled back in the last 2 years from 3% to 1.2%
- Unemployment climbing, currently 7.1%
- Inflation is 1.4%, near the bottom of BOC's target range of 1 - 3%
- Canada's economy is particularly sensitive to changes in oil prices




Canada "Quite far from needing QE to stimulate economy" - Poloz, Dec 8
"We believe that two years from now we'll be back at 2% inflation, the economy at full capacity" - Poloz, Dec 8
"If something pushes us significantly outside that zone, we will look at our options" - Poloz, Dec 8

"Disappointing data in the early part of 2016 should force BOC to cut interest rates again" - BK Asset Management, Dec 28

There always seems to be a debate going somewhere in FF about whether price is random or non-random, usually argued by people looking at lower timeframes.

These are just a few of the major fundamental trend drivers of the past few years:



- In December 2012, Shinzo Abe won the Japanese election and announced he would do "whatever it takes" to re-inflate the economy. Over the next two years, JPY lost a third of its value, with UJ falling 4,000 pips.

- The Global Financial Crisis, caused gold to double in value over three years. During the recovery, it gave back half of those gains.

- The feds QE program, beginning in November 2008, caused the US stock indices to triple in value over a period of six years, taking other risk assets with them.

- Steady growth in the UK combined with contraction in the EU economy, caused EUR/GBP to fall 1,500 pips from mid 2013 to mid 2015.

- In the second half of 2014, WTI crude oil halved in value - causing CAD to start sliding - it has fallen 3,000 pips and still going.

- In May 2015 global dairy prices collapsed. NZD/USD fell 1,500 pips over the next four months. (New Zealand is a major producer of dairy products).



These aren't sudden, unexpected moves - they are slow, steady and (somewhat) predictable trends, unfolding over long periods of time. While it is difficult to catch whole moves, it doesn't take a genius to figure that when major moves like this are happening, price action on the lower timeframes is definitely NOT random - it clearly is subjected to a consistent directional bias which is generated by fundamental forces. If you can accurately filter out trades which go against the fundamentals, and only take trades in the direction of them, in theory almost any system will be profitable.

People have asked me how to learn the fundamentals, which books to read etc.. I don't really know how to answer that ... I don't think you can just read a book from start to finish and "learn" it, because "it" is always changing. Best approach is probably find a couple of regular blogs you like and start reading, keep reading the same blog day in and day out until it makes sense.


All the economic indicator charts i post here are from Trading Economics:
http://www.tradingeconomics.com/

This guy, Jarratt Davis, every Monday posts a currency update detailing which currencies he feels are fundamentally strong and which are weak. I suggest you make a habit of reading them:
http://www.jarrattdavis.com/blog/

The 'Piponomics' blog at Babypips is pretty cool, this guy doesn't take himself too seriously but he is extremely sharp and I have found he isn't often wrong:
http://www.babypips.com/blogs/piponomics

FX Insights, from BK Asset Management is another one I read every day:
http://www.bkassetmanagement.com/fx-insights/

Bloomberg Currency News:
http://www.bloomberg.com/topics/currency

Central Bank News:
http://www.centralbanknews.info/

Love your blog!
You are right, it is not a rocket science to see those major trends you have mentioned at #post 11!

I can't speak for others, however I can speak for myself - the reason in the past 3 years I am not making any significant profits, even knowing those fundamental facts are going on!

1)I was addicted to the idea of "Thinking out of the box" - I am the "unique" one

2) There is actually some real skills involved, only practice can make us better in it - both Technically as well as Mentally - to filter out trades which go against the fundamentals, and only take trades in the direction of them.

I am still hanging on, thus I am seeing the lights from the other end of the tunnel

About bloody time ...

Subscribed...

Hi Nikki. It always amuses me to see people analyzing the lower TF charts and then arguing that price is "random" ... even when that pair is in the middle of a 2,000 pip move! Some people just can't see the forest for the trees .....


Welcome to the thread, hope you enjoyed the holidays

Hi Jay

While I'm reasonably happy with my results the last couple of years I've never really been happy with my FA organization/routine, It's generally been an oddly timed jumble of hand-written notes, excel files and ideas.

I consider myself pretty good at holding several thoughts in my head at once .... when I look at a price chart I generally know how various parts of both economies have been performing and how the global macros are affecting both currencies - but when I get busy with family/work commitments I've noticed my accuracy slipping.

That's one area I want to improve on in 2016, getting more organized, systematic and accurate with the fundies - I'm hoping keeping a journal here will force me to do that, and I know there are some sharp minds floating about here that can hopefully add something


Thanks for dropping in

BK Forex's 2016 forex outlook:
http://www.bkassetmanagement.com/wp-..._Forecasts.pdf


Some of their predictions:

- The first few months of the year should be good for the dollar, as long as fed officials don't backtrack on their hawkish views
- Monetary policy gaps will expand in the first half and narrow in the second
- Commodity prices will find a bottom in 2016
- 2016 should be a year of diminishing stock market returns
- At many points in the year politics will overshadow economics
( US election, UK referendum, EZ refugee crisis)
- Consumer spending and labor data should drive strong growth in the UK
- BOE is unlikely to hike rates close to the EU referendum
- Low oil prices will continue to drag Canada's economy for at least the first quarter
- USD/CAD likely to break 1.40 and head toward 1.45 in the first half of 2016
- AUD and NZD will largely be driven by Chinese growth and commodity prices
- As long as commodity prices stabilize or rise, RBA and RBNZ won't need to cut rates
- Don't expect BOJ to hit its inflation target in 2016
- One dose of easing would be the most we expect from BOJ - combined with fed hikes could push USD/JPY to multi-year highs
- SNB will continue to intervene quietly in the CHF

2 factors to watch when trading the Comdolls: (AUD, NZD and CAD)
http://www.babypips.com/blogs/pipono...-20160105.html

Middle East geopolitical tension:
- Escalating tension between Saudi Arabia and Iran, which is dragging in several other countries, is creating risk aversion which is generally bearish for comdolls

Chinese stock market blues:
- China is the biggest importer of goods produced in Australia and NZ, continuing problems in China are also bad news for the comdolls
- Another economic slump in China could be particularly bearish for AUD and NZD

- Both factors likely to keep risk-off moves in play, with safe havens benefiting


Combined with the fact that all three commodity-based economies face rising unemployment and inflation below target, contrasting with a strengthening USD, I'm looking for spots to get short all three Comdolls this week. There seems to be a lot of downside potential there right now with limited upside risk.

Bloomberg: "Exports, oil rebound no panacea for Canada"
http://www.bloomberg.com/news/articl...economists-say

- Canada's five biggest banks say Canada's 2015 troubles will continue for most of 2016
- Canada's GDP expected to grow about 1.5% in 2016
- "This country does not have the industrial capacity to recover that it had ten years ago"
- Interest rates are on a "slow boat to nowhere"

Global dairy prices fell 1.6% on the first 2016 sale, more ominous news for the Kiwi:
https://www.globaldairytrade.info/

It seems a lot of NZ economists were counting on prices increasing through the first few months of the year:
http://www.stuff.co.nz/business/farm...yTrade-auction

The next auction is Jan 20 ... I'm thinking another negative print there might really start upsetting some forecasts and putting some heat on RBNZ to talk about further rate cuts .....