Weighing FX Strategies

Written by Research | 26 May 2010

Fundamental vs. Technical 3

USDX Remains Strong
http://www.youtube.com/watch?v=EDbjkOBNOGw
Every trader and analyst gets a kick in anticipating where a pivotal point, trend or price reversal may take place. To a certain point that it is anticipated too early or too late. There are many technical tools that could be use as references to predict such reversal.

Although, the most common is from a candlestick formation or a reversal bar, convergence / divergence of a moving average, a breakout from a channel and or a resistance / support prices. With all these tools; it really depends on the traders choice which is most reliable and dependable where they are most comfortable with. To balance technical analysis and fundamentals may be approached in several ways. However, the current market conditions that the market is experiencing now from several months have weighed more in line with fundamentals rather than the technical. Only the formation after the fact would justify supporting any reports either derived from the economic reports or any politically motivated policies affecting the exchange rate.

The psychological fear factor of long running trend reaching an assumed bottom making the EURUSD just as an example or even the GBPUSD has been a battle for traders and analysts whether to call " nearing a bottom price " or vise verse. Each major pair has their own characteristics and intricacies of behavioral price formations based on historical configurations. Making it a " No one size fits all " as the correlations of exchange rates needs to be considered in the equation. for the time being, trend following strategies are best suited in any trading activity until such time a real occurrence of a reversal could be identified. One of the best guide to follow is the simple rule of reversal pattern which is ; ..." until a new high or bottom has been established it can not be called a reversal is in the making. "

The current market conditions are of exceptional proportions as evidenced in the directional movements of the US Dollar's strength nearing the equilibrium price levels near the 88.80 hwere the June contract month topped at the 87.57 high and the Gold prices registering new high prices closest to the $1250.00/oz both financial instruments have become the obvious choice to quality investment portfolio due to the Sovereign debt problems in the Euro Zone.

Strategic trading hedges are in play rather than focusing on bottom line prices. As the fundamentals are outweighing any technical market analysis of the major currencies as no one can actually predict or specualte when such resolution could take effect in spite of the package deal to bring relief to the ailing debt communities. The central banks exposure to the package deal already shows how the market has been affected with positions established by particpating banks, institutions and hedge funds that make up the majority not to mention the forward swaps that has been now in place resulting to more volatility on forex prices identified in the price ranges for the past month alone. As these EU communities themselves have taken up the responsibility of austerity measures to address all these fundamentally related issues.

In the absence of any other related news, only whenever there are no real issues around the current situations is where technical and program trading takes over the market. So it is quite important to take note of the volumes and open interest on the futures market as a primary indicator where investors and money flow could at least be monitored by regular traders who happens to only have limited access to market information.

The irony of the matter, is that every one's eagerness to be the first one to call it as " bragging rights " is what makes the difference between a trader and a strategist who has been in the market place for quite sometime. A word of advise : " Do not be an eager beaver in the market place. "

Pls. choose wisely!