Relationships are A-Changing

Tuesday, Apr 10, 2012

Good Afternoon,

Right off the bat, we aren't seeing the normal equity/forex relationships that we are used to. Let me explain:

I title my webinar series at IBFX "Trading in the New Economy" for a reason. Due to the central banks around the world intervening with the financial markets, they are putting us in a position where each and every trading entity is its own ball of wax. Meaning, each forex pair, no matter where in the world it is situated, is its own beast. Each sector, stock, commodity, etc... is its own beast as well. You must know what is affecting the market you are trading to trade it well.

Take for example the relationships that we are used to between forex markets and equities. When equities go down, the USD goes up. When equities go up, the USD goes down (see equity rally and AUD/USD and USD/CAD where equity prices and commodity prices (and commodity currencies)) move in tandem.

Now, as we get closer to the "possiblity" of the end of quantative easing measures, each currency is in its own "special place". I say "possiblity" because if you paid attention to the Fed last week (and if you aren't paying attention to the Federal Reserve's around the world shame on you), the Fed said if data worsens, we (the Fed) could be back in play. So is a bad job number enough to get the Fed back in play with QE measures?

That's right, I said jobs data. When you get an overbought equity market and poor data, the markets can go only one way and that is down (if the Fed is not in play), which apparently, they are in play until 2014 with low rates and they "possibly" could be in play at any time if data weakens, but for right now, we have poor data and "no Fed easing", so the markets that are frothy, high, overbought, rich, etc... go down.

This is fun, isn't it??!!!

But seriously, I hope you are understanding this as it will all lead to very volatile markets and very interesting trading opportunities.

I think the SPX at 1350 could provide some support. As for forex, I am a little perplexed at today's action, where it is quite uneventful and muted during the American equity session.

With an understanding of what is needed from the markets to get you into a trade (a trading plan), you probably saved a lot of your gun powder yesterday and today and now are ready to mentally go ahead into tomorro's trade with a clear mindset.

Link to tomorrow's IBFX "Long Term Trading Opportunities" Webinar

Happy Trading and Be Environmentally Cool

Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.

Coach Brian

Posted By: 

Brian Kahn

Brian provides regular commentary focusing on the relationships between various financial markets. An experienced trader and portfolio manager with over 15 years in the markets, Brian relies on fundamental and technical analysis to create trading plans for each and every market entry.