Fundamentals Rule!

Okay, Thought I'd start this to keep myself on track.

Im more of a fundamental trader than a technical one, though lately I've been dipping more and more into technicals to get a better all round approach to my trading.


My major fault is that I often take a position without having thought it through (implulse trading...arhghhghgh! ) so I thought i'd write in public to try keep myself honest.

The average length I could hold a trade runs into days if not weeks. I'll be posting my arguments here for why Im taking a trade and all feedback is more than appreciated.

Mostly I trade the Eur/usd, Eur/Jpy and Eur/GBP.

nice to finally see a fundies journal!!

Yes I agree...

Welcome and I look forward to reading your thoughts and methods of trading fundies

Dave

Hello Money Talks

Looking forward to your non impulsive trade reasons. Happy trading until then.

MM

Lets hope this thread does not degenerate into 'trading the news releases'.

True, news releases are fundamental catalysts, but releases are only a part of fundamentals.

Lou

OK, so take me out to the barn and wallop me...

I know from reading books such as BWILC that fundy-trading is a very important ingredient and should be included in the arsenal . . . but, but, there ain't no knobs to twiddle, turn, or tweak!

: ) Thom

On a serious note, best wishes MT ! I know i need to get a life and look beyond price and TA, but it ain't easy for me to do so.

Thanks everyone for the comments. Hopefully you all wont be falling around the place laughing when i try explain my decisions, espically when the conflict with the technicals! Just bear with me.

Okay I'm currently long on Eur/Usd I'l give my reasons for that later. At the moment I'm shorting the Euro/yen taking only small positions at present. I'm hoping that when my position is fully taken I will be somewhere in the region of 149.60 My target is the 148's at least. I don't want to hold this trade for more than a few days as I suspect that we may see the 150's or higher soon if the figures for Japan keep coming out weak. I'll take new positions when that does happen.

Its a short term trade that I hope to be out of in the next couple of days (Monday/Tue).

here are the two main reasons. I haven't been trading this pair long so I'm still only getting to grips with it.

1. inflation seems to be on the rise slowly after years of stagflation. Core
Consumer prices (taking out the smelly fish portion) are at 0.2%. It seems that producers are taking a hit on their profits and absorbing rising raw material costs rather than passing it onto the consumer. For instance the Jpy Central bank has a weighted average of Commodities and this rose 20.4% over a year. The worrying side of the inflation figure is low consumer confidence (released today the figure is 47.6 (down 1 point) which could translate into less spending.
2. Growth shows signs of increasing (which should lead to higher inflation).
Machinery orders are up (even though core machinery orders fell yest - a fact Im choosing to put down to an abberation, if anyone can explain this I'd love to hear!!)(bloomberg do a little piece on this which explains further)
3. Any comment from the G7 could lead to a fall. hehe fundamanetals gone out the window!
4. The pace of growth at the moment is slow. There's some controversy over whether the Bank of Japan will raise rates again this year. Any kind of data that shows a stronger japan will be siezed on by yen bulls. Reverse and weak data wont see the same volatilitly as we near year highs again.

Again, im only holding this for a few days at most. I still think that those who tout the japanese recovery story are over doing it. Yes, I think japan is recovering but the pace will be slow, slow, slow. Think of trying to stop a large tanker...it won't respond straight away. I imagine early next year we might see another 0.25%. At the moment my trade feels like Im taking advantage of those who tout the recovery story to keep the yen strong. Over the next few weeks I think there will be more of a consensus that the yen won't be going anywhere anytime soon. I'm bolstered in this trade my news that japanese banks sold off the highs and agriculatural banks bought back around the 149's.

Okay I’m long on the Euro/Usd and am considering adding to my position. Here’s my reasoning,




1. American can’t build a decent car.
2. The housing market in America is a slight slump at the moment. Whether this turns worse or improves remains to be seen. I’m erring on the side of caution at the moment and assuming that it will remain depressed for the time being. I believe that the Fed will find it harder to raise rates (or maintain them at their current level) if the situation continues, given that a slowing housing market could feed into personal consumption (Americans using tied up equity in their homes to fund personal consumption). Even if inflation continues I don‘t believe that the Fed will be as pro-active in raising rates as long as the housing market is depressed.
3. Consumer Confidence is down in most surveys. The Michigan consumer sentiment survey registered a drop to 78.7 against a forecast of 83.6 (and previous of 84.7). This could feed into personal spending and hence onto demand for products. Self fuelling cycles can be particularly nasty.

Whilst many would agree the usa economy is slowing the issue of fed rates seems to be an entirely different matter. Most of us have become pre occupied with inflation and rates lately with the markets jumping around on the latest bit of data. The confusion with fed rates I think is occurring because we could be facing into a situation where the economy is slowing but inflation is refusing to budge off its stubborn high level. This leaves the Fed in a bit of a quandary. I believe that they would raise rates in this regard, possibly 0.25%, and if needed another 0.25% mid summer next year. I think the economy could be able to take those raises. There have been rates of 6% not so long ago, but for many new to this a rate of 5.75% is unheard of.

Coming back to my previous point I think that the Fed would seriously be in a quandry were they to reach 5.75%, with growth still slowing. I don’t think the Fed would be in hurry to be blamed for putting America into recession. These are people too and I think no one wants to live with the legacy of getting it wrong and forcing recession. I would speculate that they would wait for past increase to feed into the system and reduce inflation over the longer term rather than raising rates again to 6% in that case. Recent Fed speakers have hinted at such moves in my view.

Crossing over the Atlantic its seems nearly certain that the ECB will be raising rates soon (I‘ll post my rationale that Europe is expaning soon). Looking far ahead into the end of 2007 I can see us up another 1% at least. The divergence between American and European rates would be closing and I think that if the European economy is still doing well this time next year we’ll start seeing more euro buying as a safer bet for high yields over the long term. I’m confident that by January we’ll be looking at the 1.3 mark for the Euro/Usd. If the data out of American shows weakness we could hit it sooner.

On the downside there is the view that an American slowdown will drag the European economy with it (and possibly world economy). In this case (unlikely in the near term maybe give it 4-5 years) I’d imagine that the rates would fall pro rata - I couldn’t see the dollar rampaging against the Euro if both economies are slowing.

The near term (say sept - Oct) brings some difficulties with it. Increase volatility with the return of traders to their desks, the G7 meeting, Opec and the price of oil, along with yen weakness are all going to feed into the exchange rate. I’d expect dips to the 1.26’s possibly the high 1.25’s but I think that the overall trend will be upwards.

just an opinion but you really cant trade fundamentals and expect them to work for daily or weekly trading when you trade fundamentals your time frame for profit or loss is 6-12 months out and we wont even get into govts manipulating currencys to their advantage no matter what the fundamentals say just ask warren buffet about americas house of cards in 2005

Hi Pipster

I wouldn't stricly trade fundamentals. I have no intention of holding onto to trades for months on end. I can understand what you're saying, but I'm nervous about the yen at the moment given the G7 meeting and I won't consider holding it long past that meeting. My Eur/dollar trades often last months but for the ones Im building at the moment Im only looking at a timescale of 3-4 weeks (due to cash commitments ). If the fundamentals point me in say a Euro bull direction I'll take that position even if only for a few weeks or days as I a firm believer that irregardless what technicals can tell us about the trend today, tomorrow next week I find it hard to understand what they can tell us about this time next year or 18 months away. Economic and political indicators on the other hand can. I suppose the point im making is that if the data starts changing your trade must change. I can't just sit there for 12 months just because I took a position and called myself a fundamental trader

Hello

I wanna ask simple question... how do u here trading using Fundamentals analysis !
is Fundamentals analysis ! Means trade the news ? staddle, hedge or what !!!

i heard Fundamentals analysis traded after news release !

Please explain what means of Fundamentals analysis trading
Thanx.

Okay
i suppose fundamental analysis at its simplest is taking all the data from the news releases and compiling them, along with say the effects of the pirces of oil and comodities, political stability etc and coming up with a view as to how the whole lot will affect a currency. You then take a position based on that. Fundamentals will alter their positions based on news trades as the news will affect their outlook on the market and where their belief their currency is heading.

I always think a good way to learn this is to gather two months of data for a currency and its pair, eg. Eur/usd. Assume at the start that the pair traded at 1Eur = 1 Usd, Then go through each news release for the (eg unemployment figures, inflation, political comments etc) and say what the effect of that would be. At the end if you end up with 40 'ups' and 20' downs' you know the overall trend will be up.

usd trade balance came out 2.5BILLION more then projected and what does the dollar do it rallys go figure america is now 68 billion in the hole to other countrys on trade alone let alone our budget deficit with a war with no end in sight with iraq and the dollar rallys please just like in real estate its location location location in the forex its price charts nothing more

Hmmm Pipster, maybe you have me confused with the the great superhero 'FDH' (Fundamental Defender Hero').

Im not here to defend fundamental trading against technical trading, price charts or any other kind of trading. Im simply putting down what my opinions are based on what i call fundamental data whether that be economic data, political data, or my own dreams that I had last night (for those curious to know it involved a ham sandwich and a dog. I couldn't make sense of it...)

I hope that what I write helps people understand why charts move the way the do, the same way that I find it helpful when someone points out technical resistance and supports, or EMA's or whatever. I suspect you will see the Eur rally against the dollar very shortly as it should based on the trade balance. I would add that speeches later by Fed members may alter this as would any comments from politicians about the G7 meeting. Please dont jump to conculsions on a one minute price hike (the dollar rally) and point to this as proof that fundamental trading is useless and your system is the only one that possibly works. As i said thats not why im here.

don't worrie about it I think its great your here.

its often people don't like what they don't understand.

I am always open to learning something.

your mind probly processes fundies like ours process chart data. Its all a matter of perspective.

Dave

Just my opinion, but a 2.5B deviation from a 65billionish expected report number is not a big enough deviation from the expected to generate a sustained move for any of the currency pairs.
Price charts do not drive the market anymore that a cars GPS system drive the car. The charts may motivate some traders to establish positions but all of them.
Look for your edge. Discounting others opinions may close some opportunities to make money for you. Especially if the "other opinions" are active traders in your market.

There has been a lot written lately about the price of oil and commodities on the market and I wanted to try distill it all into the effect it is having on currencies at the moment. I’ve started trading the yen and as its sensitive to the price of oil I thought I’d better get a grip on the effects of oil price. Anyone trading oil is more than welcome to correct anything I’ve written below as I could be heading off on wrong tangents with some of my thoughts.

As its most basic level countries who are heavily dependent on oil (I.e. countries who produce very little and have to import most of there oil supply), suffer when the price of oil increases. Higher oil prices means harder times for the economy leading to slower growth. At the consumer level it means you and me paying higher prices for heating oil, gas, fuel etc. leaving less in our pockets to spend on other goods. The overall effect is a slowing of the economy. This should mean that interest rates fall to spur the economy on..

At least in theory. The other effect of higher oil prices is higher inflation as the high cost of oil filters down into everyday goods. So with higher oil prices you have two effects in motion - higher inflation and slower economic growth (Though not necessarily slower growth). Which one wins?

The yen is a good example of a currency that is particularly sensitive to the price of oil. It imports nearly 98% or thereabouts of its oil. America imports in the region of half its oil needs. Rising oil prices means bad news for the Japanese economy. However as with all things Forex it does not mean that the Yen will depreciate. The more expensive oil gets, the more inflation will fester in Japans economy meaning a rise in interest rates = = The Yen appreciates.

Perhaps Japan is rather an exception at present. Suppose there was a country called Gregola. In Gregola the economy is expanding at a moderate rate and inflation is well within bounds. Gregola is heavily dependent on oil and imports most of it. Its people thrive on oil, using it to create everything from cars, to little solid oil blocks that they dance about on Saturdays. Some of Gregol’s inhabitants have been know to secretly stash oil in strange places in their homes and consume it when no one is looking. One fine Monday morning a dreary news reporter lazily brings the bit at the end of the news that OPEC has decided to cut production. Invariably price of oil will rise. Given that most central banks have inflation firmly as their first aim (with growth a cautious second place) Gregola’s currency will appreciate on the market as all us players anticipate higher inflation in the months to come and hence higher interest rates as the central bank raises to curb the inflation.


With all things being equal, in a perfect economy who imports their oil it is relatively safe to assume that rising oil prices are an indicator of higher inflation to come. With all the bad news out of Japan lately though the effects of higher oil prices have been somewhat diminished as years of stagflation absorb the recent highs of oil. Its interesting to note though the recent Yen rally and the lower price of oil. I think at the moment though the lousy readings out of Japan are overshadowing the effect of oil on the economy. Its corporate goods price index measuring inflation experience by companies has remained flat at 0.2% month on month. I’m not sure if this includes oil. Its import inflation gauge rose to 2.1% however.

All in all I think I’ll have to be paying better attention to the price of oil and do some more research into future trends and oils impact.

I hope the bashers are done so we can get on with this important thread.

Money Talks: Thank you for getting this thread started.

It certainly has been interesting how the dollar has been resilient in the face of 'bad news'. I am not sure what to contribute this to? In two months there will be 'mid term elections'. A number of senate seats, house seats and governerships are up for re election. It will be interesting to see what the sentiment politically of the country (I am a US citizen) will be. Even more interesting will be the effect on the dollar.

Over the years of the FFForum I have subscibed to only a couple of threads, and only for a very short time.

This one is worth starting a new subscription.

I appreciate what you are doing.

Lou

Thanks Lou for the encouragement and hope you stick around for longer than a few days

I can put dollar strength down to a few things. Its puzzling a good few people and this is my take on it.

- G7 meeting (so far the focus has been on Yen weakness and 'Euro Strength'. The dollar has been left unmentioned. Are people getting into relatively safe pairs - Eurusd for example?
- Price of commodoties tumbling. I know it might be counter-normal but maybe the effect of low prices feeding into the economy might spur growth and allow Fed more room to raise rates?
- There have been reports of large selling of Yen from Japan Banks. Nervousness (from G7 meeting)?? or closing positions??
- Technical Trading. I think a lot of the momentum in certain pairs (eurusd) is being driven by technical trading rather than any fundamental reason. Its been a week devoid of any oustanding data leaving us second guessing ourselves. I should imagine the effects of the current account will start to weigh on the dollar, and the CPI (euro and usd!!!) out Fri will see the start of rallies. High CPI's on both sides and then it gets very interesting!
- I don't know about this but it seems to me that the eur/usd at the moment is in 'reactionary' phase where its just constantly reactioning to euro/yen or usd/yen etc. I think this, coupled with say japan banks buying euro at present is prehaps why we are seeing the dollar failing to break the 1.265 mark.

My guess is it'll languish around here until Thur and then we'll see traders turn attention proper to the pair.

Any thoughts anyone??

I think the US CPI report is the key right now. Any thoughts about the CHF? GBP/CHF is at highs of 2.3500 once again.