Fundamental and News Trading

Thought I would start my musings on the FX world in journal.

Typically, I trade USDJPY.

At present fundamentally this is the strongest and weakest pair. So it makes sense to concentrate on these.

By this I mean that the Fed are more likely to raise interest rates than any other currency at the moment- and the BOJ are more likely to lower rates on the Yen

Here is roughly how I trade. I look at everything first through fundamentals (directional interest rate bias of the central banks) and what they consider important (labour, wages, inflation etc..)

Next I review recent speeches from the central bankers to gauge their views

Then obviously consider all the main events (NFP, CPI, GDP, Retail Sales etc) and how these will impact the pair

Also there are geo-political events (eg: Brexit, unexpected news items) - that can effect this pair.

Then I need to be aware of the stockmarket and how it is performing.

With USDJPY you also have to be aware of safe haven flows.

When the stock market drops- then the UJ drops

Finally, there is the bond market to consider. I will talk about this later.

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At the moment the UJ is up a lot circa 150 pips from Monday

Its also up this tonight mainly on Kuroda's talk. He has said that "he sees further room to cut negative rates"

Yellen had an interview with Time magazine - where she was quite dovish

But this did not seem to affect the dollar that much, which is a bit of a surprise.

US dollar sentiment is positive at the moment - due to positive earnings coming through

Not sure what the Bank of America's figures will be like though- so need to take care on this

CPI is due today- which I think will either match or miss expectations

Everyone is waiting to see what Kuroda will do next week

Powell is due to speak at 3pm GMT- and he is I understand a neutral - so should it not affect things too much.

I would not be surprised to see the UJ sell off before CPI figures and then rally up afterwards

Fed's anticipated interest rate decision is a mixed bag. Fed is afraid of Economic slowdown globally, especially China. Not only Fed. You hardly hear any Hawkish tone from any Banks these days. Where has last Fed's intetest rate hike landed them. It was a hasty decicion, only to realise that Global slow growth is a reality that can not be ingnored.

China's results have improved recently. Yellen's last speech sounded more hawkish to me- she even said that raising rates then was not a mistake (although to every one else it seemed to be). In December there were 4 interest rate hikes on the table. Now there are two.

However, I think we will have face facts - that Yellen wants a number of things in place before she will consider raising rates:

Full employment (which we have)

An improvement in overseas activity (which we are slowly starting to see)

Oil prices improving (which we are starting to see)

A weak dolllar

Productivity in the US improves- (not yet)

An improvement in house building (slowly improving)

She wants the economy to boom before rates get increased

However, when you compare the US with any other major currency- EURO (Draghi said that there will be no more economic stimulus), AUS - commodity based and figures have wobbled recently, CAD- can't see them raising rates (although the economy seems to be doing quite well), UK - Brexit fears, NZD- looking to reduce rates. I am struggling to find a stronger one.

Ok. We are waiting to see if it makes setup/help to close USD sellof or a just knee-jeck.

More musings on UJ

Review of today's action;

Called the drop in CPI figures. However, thought that the market would sell off before the announcement

Instead it rallied into it. Obviously lots of positive sentiment there this morning

Anyway sold it pre announcement- and then faded the drop (rallied back up after about 1 hour)

0.2% as an estimate seemed high on CPI -and retail sales and inventories were not that great yesterday.

Where are we now:

Events tonight: China's GDP figures. This is the one thing that worries me. The estimate is 6.7%. The markets are not as jittery as they were in January. If they do not meet expectations UJ will probably come off. However, I think 6.7% GDP is about right. I won't be taking a position before the announcement. But its something to watch out for.

USD:

Current sentiment - Neutral. Drop in chance of rate increases. However, this is better than a cut. Also, I do feel that we are over-reacting at the moment. The CPI estimates today seemed a bit high in my humble opinion. Retail sales figs seemed to have an explanation - and we have full employment (almost)

Fundamentally- Still two fed rate hikes. But the question is when - don't say 2020

Yen

Current sentiment - Bearish. Kuroda - I am sure will do something next week. The UJ is rallying up quite a bit at the moment. Poor data from the US will only increase
Kuroda's determination on this point next week

Fundamentally- Considering cutting rates.

Stockmarket- All seems ok

What will UK traders do in the morning - lets see what happens overnight.

Good Luck!

Thought that I would talk about bond yields and how they affect currencies.

There was an article on this on Bloomberg, which I thought was brilliant.

If bonds aren't your bag - then when you read it at first it may sound a bit confusing, but its really interesting

http://www.bloomberg.com/news/articl...stanley-theory

News items that affect this pair overnight- and current sentiment

Right US unwilling to support Japan's wish to lower Yen from the G20 meeting.

http://www.reuters.com/article/imf-g...-idUSL3N17I1N9

This is obviously bullish on the Yen

Notice - this was released at 4am GMT. Then this pair started to come off. Unfortunately, I am based in the UK- so missed it

In addition - poorish figures from the US, over the last two days, plus one of the Fed members has said that he will not be voting for a hike in interest rates in April

Not looking good for UJ at the moment- going to take a while for this to play out

Thought I would do a review of today

Obviously UJ dropped heavily - following G20 comments this morning.

I think the fact that the US told Japan - you are on your own and we will not support your currency is huge.

Its like open season on the Yen.

Coupled with poor retail sales and poor CPI figs and Fed member saying that he won't vote in April for a increase.

What more do you need

Ok so where do we stand

Monday is usually a quiet day- but the sentiment of the dollar is bearish- particularly on the UJ

Also we do have Dudley giving a speech in NY

Asian Session

Will there be a retracement during the Asian session

If there is a statement from Japan there will be.

So we need to keep our eyes and ears peeled

London Session

Will the current sell off carry through to this session?

I cannot see any reason why it should rally during the London session - and if the Asian session rallies, I would definitely look to sell this pair

There is still bearish sentiment- the only thing that is slightly holding me back a bit is that its a Monday

New York Session

Dudley has a speech to do. He is a hawk (wants to raise rates).

However, after the recent poor figures I would not be surprised if he softens his tone a bit. I think Yellen has reined in a few of them

Last month - 5 members were more hawish than the FOMC statement that was issued the week before. Then Yellen came out an put the ball firmly back towards the doves. Also the latest Fed member to give a speech - turned more dovish.

Can I see anything changing - not at the moment.

So for me at the moment - I am going to be selling any rallies

Also I have done a very rough chart on how I see Monday shaping up- its a general guide

Have a good weekend!

Thank you so much for the strong/powerful fundamental analyses. My USDCAD short & USDJPY short still running with profit; I ran away with profit on USDCHF after the strong bullish retracement, hope to get in again if it reacts and makes continuation bearish setup using Fibanacci.

Hi you are welcome

Glad things are going well

For me the reason that I got into fundamentals is because technical analysis was just not reliable enough

Also I wanted to know why a market moved and where it was headed

Previous prices on a chart did not give the answer so I started to look at fudamentals and sentiment

Then I could see that if something happened ( eg change in central bank interest biase) this would have an immediate and substantial change in the direction of a currency over days, weeks and months

Jarratt Davis runs a course on fundamental trading and I believe its still free I would recomend

These days I very rarely lose

I firmly believe that if retail traders thought the way hedge funds do and spent more time researching and reviewing news items they would make a lot more money

I know this trader who is worth circa £60 million and asked him abou Elliots wave. He said that he had never even heard of it.

He takes a much more practical approach to trading

It's a shame that we have thousands of traders here but so few even consider fundamentals, yet that is where it all starts

If everybody researched the markets we would make a lot more money

I love this your post. We cannot underestimate the value of Fundsmentals. Combination of both Fundamental and Technical analyses give good trade setup. Many of us are too lazy to be online to know what's currently going on in the market or to constantly research and read. That's why many doubt that forex is profitable. It's so impossible to convince them. We cannot be taking setup alone because you see strong bearish/bullish move. Sometimes the good setup is made in wrong place which often fail. It might jist be a knee-jeck reaction to sentiment. Daily am hooked on good webs for current event - Central Banks announcements, GDP, Interest rate decision, CPI, MPI etc. And it's really working. Currently GBP pairs are falling like rock. There is so much fear among investor bout British Exit ( Brexit ) from the EU. This is couple by their dovish tone and willingness to hike interest rate because domestic economic data and fear of slow global economic growth, especially China. Do combination and see how your trades turn out

Have just recovered from a really bad bout of influenza. Lasted a good week. I need to move to a warmer climate

Looking at my last post - got the initial drop - but should have recognized that it was a news piece and would revert to fundamentals

By this I mean UJ going up (as Fed will eventually raise rates and BOJ will cut them)

Last night the Chinese stock market came off- and this caused the UJ to come off in safe haven flows.

But from 9am GMT, the UJ basically rallied most the the day- easy trade getting in on the dips

Tomorrow we have unemployment claims in the US, 265K is the estimate. This figure is issued weekly.

If its bad it could cause a sell off in the UJ

Next week is a busy week - on Wednesday we have an FOMC statement (expect it to be dovish). I expect the UJ to drop going into the announcement

Then on 28 April - we have the BOJ press conference

Current thinking is that Kuroda favours ETFs.

http://www.cnbc.com/2016/04/20/bank-...purchases.html

However, no doubt he will consider what the FOMC say.

But hopefully, he will come out with something that will totally shock the market

Should be a great week next week!