Friday, June 14, 2024
HomeBlogDon’t try to explain a fundamental event with technical analysis.

Don’t try to explain a fundamental event with technical analysis.

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This week we are seeing some small reversals in some of the currency pairs, particularly the USD and JPY pairs. The main reason for this is the upcoming G7 meeting this weekend in Washington DC. This meeting is for the funded forex financial representatives of the largest economies in the world, the same countries whose currencies we trade. Typically at these meetings, currency values are discussed. Most of the time it is the Japanese Yen weakness, but this time it may include the US Dollar weakness too.
This increases the risk of holding short positions in either currency, which to professional traders means unknown risk and a reason to get out of their trade. So the recent funded forex and USD strength is more because of traders exiting positions rather than putting on new positions. If all goes well, they may come back into the market after the meeting and sell the JPY and the USD, but time will tell on that one. However, I am seeing new traders trying to find a technical reason for the reversal.
There may be a couple of indicators that showed the possibility of the reversal, but this move has nothing to do with technical analysis. It is a pure fundamental move. Technical analysis does not tell us how traders will react to the fundamentals of the market. They never have and they never will. Tops and bottoms in the financial markets are determined by the fundamentals while technical analysis shows us how we get between those two points. Let my repeat that….tops and bottoms are determined by the fundamentals of the market and not the technicals. Instead of looking at a number of technical indicators to determine the end of a trend, you would be better off checking the economic calendar available at www.dailyfx.com.
Big events that result in a change in the interest rate environment or monetary policy are what will change trends, not the fact that the RSI is overbought or oversold. This explains why traders who use both styles of analysis usually have better trading results than those who concentrate on just one aspect. You don’t have to understand why the market is moving the way it is, but knowing that traders are concerned about an upcoming economic release or another event like the G7 meeting can explain current market movement. But we won’t know the extent of the reversal until we know more about the results of G7 meeting and how traders interpret those results.
LEGENDAFX Trading Range
The GPBUSD pair has been trading in a range (2.0250-2.0450) since the end of September. I’ve decided to try to profit from this trading pattern. I bought one lot at 2.0300. My upside is 150 pips (limit set at 2.0440). I set my limit price at 2.0230, 70 pips below since that is under the trading range and if the GBP reached that level it would probably mean that the range has been broken and that my earlier ”analysis” is no longer valid.
USD / CAD – Are You a Believer?
Sorry, for my unscheduled hiatus from the usual posting…fear not, trading has been tremendous the past few weeks so life is good. I hope you’ve all fared just as well if not better. With that said, let’s talk shop…
Now if you believe the USD/CAD free fall from parity the past month is bound to continue then here is how I would play that angle:
As of this writing, we have a bounce on the Daily chart that sets us up for a potential entry to short. I’d now begin searching for any signs of weakness on a smaller timeframe (my favorite, 4-hour chart) indicating when sellers might be stepping back in. The danger with any trade like this is to be aware when sellers start running for the exits en masse…this is something we’d have to keep an eye out for on the Daily and use Stops based on key levels on the chart indicating when sellers may have lost faith shorting.
Right now, I’d sit patiently on the sideline waiting for signs of the bears beginning their assault on the bulls before putting my position on. I’ll post to follow up on this idea as it develops.

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