Anyways on to the topic of this post, Identifying market swings in the medium

and long term. The reason why I wanted to discuss this is because this is the key
to low risk / high rewards opportunities and has been the key to my success so
far.
OK, so how do we identify market swings?
1. Show me the money! Understanding where money is flowing in different
market conditions and why. Is there risk appetite or risk aversion? And why is
money flowing into one market / direction and not the other.
2. Identifying what conditions need to change to change the money flow and
what the new direction will be.
Simple as that.
Case in point: The USD carry trade
Here is a huge trading opportunity for those that know what they're doing. Carry
trades have been traditionally funded using JPY when there is risk appetite in the
markets. But after the financial crisis interest rates in the US have been at near
0%, in effect making USD, the preferred currency for funding carry trades. This
has caused it to weaken against all currencies, commodities, etc. and one of the
major reasons we've seen record prices in gold, oil and other commodities as well
as big gains in AUD, NZD, CAD, Brazilian Real, etc.
1. So the money has been flowing out of the US into AUD, NZD, CAD, gold, oil,
etc. The reason why is because of low interest rates near 0% in the US.
2. So what needs to change in order to change the flow of money? Simple! The
interest rates in the US need to rise higher than the country with the next lowest
rates, Japan at 0.1%. In order for this to happen we need to see inflation in the US
high enough for the Fed to hike rates by 25 basis points.
Now keep in mind that the markets factor in future events before they happen so
we don't need to wait for the Fed to actually hike rates,(CE INDICATORI
ECONOMICI TREBUIE SA URMARIM CA SA VEDEM CAND VA MARII RATELE
DOBANZII!!!!) only that it can be anticipated by the market via improved
economic data. So what we're seeing is that the JP economy is in serious trouble
with record low interest rates, national deficit of nearly 200% GDP and the most
telling fact: while all other countries are winding down QE, Japan is looking inject
more ..... there are estimation that it will push the deficit to 250% GDP! It will
take Japan at least 15-20 years to recover from this!
So this means that there is a very good chance that the US economy will recover
faster than JP and that the Fed will hike rates before the BoJ. Anticipation of this
will cause the USD funded carry trades to unwind and the JPY to dramatically

weaken against all other currencies.

And for those that have done their homework, the USD has turned around after
hitting bottom and is starting to reverse the down trend.
So what does this mean for traders?
To get an idea of what this means, look at AUDUSD, NZDUSD or USDCAD daily
charts from March / April 09 to Nov 09. We're seeing the end of the 1st leg of the
bull run. Now when the carry trade funding currency shifts then we'll see the next
leg of the bull run move the JPY crosses more than any other pairs.
Whew! I guess what I wanted to show was how trend changes can be identified
before they happen.
Sometimes I jump the gun a bit early and can often get in a few days before a
trend change.
Does anyone else ever do this sort of analysis to get in on trends before they
happen? And if so, how do you trade it?
-Razorjack
We observed that a monetary policy designed to
encourage the extension of credit will tend to generate a business expansion. but only at the
expense of an unavoidable recession.
Deci trebuie sa stim ce incurajeaza monetary policy daca incurajeaza extensia de credit atunci va fii
un bussines expansion(bull market) sau invers
Maybe this will help. Once you get an idea of the fundamentals, follow this method to help you
identify new opportunities. You start with the big picture and work your way down:
1. First figure out what the global long term economic conditions are: Is the global economy in a
state of risk appetite or risk aversion. Remember to start with the long term, it's the easiest to
figure out. Right now, it's in a state of risk appetite and expected to be there for some time.
2. Then figure what these conditions are in the medium term and short term. Are they aligned or
are they diverging? For instance right now we have long term risk appetite, but we're seeing
medium term risk aversion, with the short term fluctuating between the two.
3. Then if you've done your homework on macro economic and inter-market analysis, you should
know which way the money flows in times of risk aversion and risk appetite. This will tell you in
which direction you should consider investing in long term and medium term.
4. Then you move down to the next level, if the global economy is in a state of risk appetite, then
what is the dominant force moving the markets? Is it the carry trade or are economies in a good
enough state to make equities more profitable? I don't think I need to tell you that the economies
have been dismal so it's been the carry trade.
5. Then you should have done your homework on the carry trade, look for countries with the lowest

and highest interest rates. That is where you've had the major portion of the carry trade, if we look
at only the majors then it would be AUDUSD, and to a slight lesser extent NZDUSD, if we want to
include exotics then consider the Russian Ruble and Brazilian Real.
6. Now that we know this is the way the money is flowing, then we can identify new opportunities.
What needs to change in order to shift the current conditions in the carry trade or current
conditions in risk appetite?
7. Once you listed what changes in economic conditions will cause market shifts, then you need to
look at how these different possible changes will have different impacts.
For instance in the current conditions:
a) if the US economic recovery will accelerate then we will see a shift in carry trade funding from
USD to JPY: Go long on the USD in the medium term and short the JPY in long term.
b) if a) doesn't occur and the USD remains weak, there is a possibility of a coordinated global
central bank intervention at the next G7/8 in February. If b) doesn't occur then it's because the
global central banks believe that a) is certain to occur soon, so be a bit patient, wait for the
opportunity then strike when the economic calendar indicators line up.
c) if we have another sovereign debt crisis or another 9/11 or housing markets collapse, etc then
we could see global risk aversion: go long USD on all the USD pairs except USDJPY and USDCHF,
short USDJPY, and all the JPY crosses except CHFJPY (basically go long on USD and JPY, except
against CHF )
So I just gave you a step by step process, with my analysis of the current global economic
conditions. The first 2 opportunities have very good probabilities of occurring soon with 1000s of
pips in profit potential.
This is where all the hard work on studying this stuff pays off. Once you can create a list off
opportunities like the one above, then guess what?
YOU ARE AHEAD OF THE MARKET! YOU ARE ANTICIPATING MAJOR MARKET SHIFTS BEFORE THEY
HAPPEN!
You can anticipate market crashes or shift from a bear market to bull market before it happens.
Just imagine how much profit you could have made if you anticipated the US housing market
collapse would be followed by the credit crisis in 2007, look at how much the markets dropped!
Then not only that, you could also anticipate when the markets were likely to turn around and head
back up again in April 2008!
I still don't understand WHY so many traders focus ONLY on short term technical based trading.
Technicals are good, I also use technical analysis BUT I use it to time trades to what the
fundamentals are telling me.
So I hope I opened up your eyes a bit. Understanding the fundamentals is a lot of work, but there
is so much profit potential once you know what, where, why and when markets are moving or are
going to move.
Any questions?
-Razorjack+++++++++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

You're definitely making progress, however you're trying to make predictions.

A proper analysis doesn't make predictions, a proper analysis makes anticipations. There's a
difference.
You missed several important parts from my previous reply:
1. First I told you, that you need to look at a longer period at least 6 months. If you look at
only the previous week, then you will get a very limited picture.
2. What you want is a list of scenarios, each with different economic conditions and how the
currencies will react in those situations. You only listed one outcome from one scenario.
Let me see if I can give you an example, instead of looking at a specific pair, look at the
overall economy and what it is telling you. What are the biggest events happening right now?
The biggest event is the credit tightening happening in China. Then you need to an analysis
based on how the tightening of credit will effect the different economies.
Which countries will be impacted by this?
This is where you need to understand the kind of economy China has and how it is linked in to
the global economy. I'll give you a couple of hints, but you need to do your own research on
this to get a full understanding.
China is in the midst of a credit fueled boom since early 2009 and has been a major consumer
of commodities. Tightening of credit may have an impact on the demand in commodities and
thus currency pairs like AUD, NZD and CAD.
Instead of looking at the economic data this week, you need look at the big picture. The big
picture tells us that this event in China will either cause risk aversion or risk appetite. We've
seen risk appetite through out most of 2009, with China's booming economy clearly a driver
of risk appetite.
So there's a good chance that this will cause continued risk aversion until it is clear to
investors that credit tightening will not have a major impact on economic growth.
Note that I am not predicting this will happen, I am anticipating both risk appetite and risk
aversion, I will be ready to trade both ways. However I believe that risk aversion is the more
likely scenario.
What you need now is some more research on how money flows in times of risk aversion and
in times of risk appetite.
Here's a little clue: The last time we had risk aversion was around Nov 25-27 '09 during the
Dubai debt crisis, take a look at your charts to see how the different markets reacted. Then
ask yourself why the different currencies reacted the way they did.
We had risk appetite through the majority of the time between March and Nov '09. Look at
how the currencies reacted and research why.
Now based on what I wrote, why don't you reply with what will happen to EURUSD if we have
risk aversion and what will happen if we have risk appetite.
China's development and progress has been pulling the rest of the world out of the financial
crisis and China will therefore exert a great influence over the next few years. Anticipating
what will happen with China and it's economy will go you a major advantage in trading.
This seems like a lot of complicated work, but necessary as the different economies will be

impacted differently in different market conditions. For example economies have reacted the
way the have after the financial crisis due to the global conditions, once these conditions
change so will the impact on different economies.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++
I would first recommend that you start reading books by Victor Sperandeo, he gives fantastic
explanations of how economies work and an in depth explanation of how the Fed works. Once you
understand how the Fed works, then you'll understand how every central bank works
Next find a book called Currency Trading and Intermarket Analysis, this will help you tie together
the global economy and how it's impacted by oil, commodities, bonds, carry trades, etc.
Then do a study of how the different economies react in conditions of risk aversion and risk
appetite. For instance how does the US economy react during risk aversion and risk appetite. Then
look at Japan, then Europe, UK, Australia, New Zeeland, etc.
You'll see similarities and differences and this will help you foresee economic changes and their
impacts in advance.
After doing this, then you should start to look at different news websites. Studying the above will
help you filter through all of the bullsh*t.
As to the websites I look at:
1.
2.
3.
4.

Bloomberg, CNBC, and Reuters for news

fx360 for Kathy Lien's comments
CME for Fed Funds Rate - provides market sentiment for Fed rate hikes
I also look at the VIX and Bond Spreads once every 2-4 weeks to monitor economic "health".

Hope this helps.

1. how you measure risk aversion if any ?

This is always done on a case by case basis. And this is where fundamentals and a study of history
will help.
You have to look at what has been driving risk appetite and once this changes then you have risk
aversion. For instance, China's economic expansion has been driving the global recovery and this
expansion has been driving the demand in commodities in particular. So now that China is taking
measures towards tightening credit and monetary and fiscal policies, this impacts the "engine"
behind the uptrend we saw from March - Nov '09.
That is why we are seeing the long term correction. Once prices are low enough to warrant
investors to take risks, we'll see risk appetite back in the markets again.
I believe the engine behind the 2nd leg, we'll be different from the 1st leg. It won't be just China,
but will probably include the US as well as European economy.

2. is it mkt is waiting for gd news to push up aud/usd, eur/usd, etc ?

If depends on what you mean by good news. If you mean good numbers on the economic calendar,
then no, it will take more than this before the markets turn upwards again in the long term.
Remember that the economic calendar only shows the SHORT TERM fundamentals.
Instead I believe it will happen when things have settled down after the fallout of China's monetary
tightening. And prices need to fall low enough for investors to feel that risk is warranted.
3. are you using mkt action to news to time your enter and exit ?
Yes, that's part of it. I still use technical analysis to time entries and exits, but I look at the
fundamentals (and thus the news) to tell me which instrument to invest in and WHEN I should look
to the technicals to enter, add on, or exit positions.
For instance, fundamentals guide as to where the big trends will be and roughly when they would
start / correct / end. Once I get the fundamental signal then I look for a technical set up.
Then there are occasions where the markets are waiting for a particular news item to show
directions. For instance NFP is big because employment is seen to be very important to the US
recovery. So on these occasions, I will plan for the different reactions from economic data releases.
Hope this made sense
-Razorjack

M
+++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++
Do you pick a trending pair first and then look at how fundies support it?
The exact opposite. I look at the current market conditions as well as the individual countries'
economies and this will tell me where the biggest trends will be.
For instance I explained above that current conditions are pointing to risk appetite with the carry
trade as the most dominant force moving the markets. This tells me exactly which currency pairs I
should be looking at, those countries with the highest and lowest interest rates.
This is exactly what the financial institutions, hedge funds, banks and all the other big boys will be
looking at.
Learn this stuff, do the analysis, get in slightly ahead of the big boys and make a killing!
++++++++++++++++++++++++++++++++++++++++++++++++++++++++
If you had read about how I analyze the markets, you would see that I do an analysis of the global
economy first and that points me to the best trending currencies for the best opportunities.
I can tell you that after doing my analysis, EURAUD and GBPAUD didn't even register on the radar,
there are MUCH better opportunities in other currency pairs, such as AUDUSD, NZDUSD and
USDCAD.
Ok, now let's take a look at your statement:

because the AU fundamentals are better then any other major economy including EU and UK
Are you sure about this? What do you mean by "better fundamentals"?
Yes, Australia's economy has done much better than other major economies, but it's fragile. You
need to look deeper into this.
Why has the Australian economy done so well? This is the real question you need to ask.
The answer is China. China's economic boom created huge demands in commodities that benefited
Australia: Coal, copper, etc
Now that China is looking to tighten it's monetary policy, what will that do Australia in the short to
medium term?
So basically AUD is heading down.
Then look at the EUR, it's burdened by large deficits in Greece, Portugal, Ireland and Spain. So EUR
is also looking weak.
So you have a weak economy against another weak economy, how do you invest? You don't! You
look for better opportunities else where.
Actually, let me rephrase this. There are better opportunities in other currency pairs, RIGHT NOW
and the immediate future. Remember the analysis I told you to do? What would change the current
situation and turn it into an opportunity?
Here is one example: There could be an opportunity in the intermediate term, IF the markets shift
over to risk appetite, China's monetary policy encourages economic expansion and the debt threat
in the Euro Zone worsens. Then we can see the AUD take off against EUR.
This is just one scenario, there could be many others.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Hi guys,
I'm sure everybody on this forum knows who George Soros is, but does anybody really understand
how he trades?
BTW, in case you've been in a coma for the last 2 decades and don't know about George Soros, I
suggest you do some research.
George Soros has a very complex way of looking at the economy, however you can break it down
into one simple method.
Here is the idea, first determine what kind of state economy is in and then likely scenarios that
may occur in the near future. From this, you can determine how the markets "should react" in each
of these likely scenarios.
The reasons why I say "should", is that markets don't always react rationally.
And this is exactly what George Soros looks for. He will look for irrationalities in the markets,
exploit it and then wait for the economical forces to move the markets back into the "correct"
direction.

One example of this was the great IT bubble that burst in 2000-2001. There was so much euphoria
around tech stocks and options, there was a feeling of no end to the uptrend in sight. However the
shrewd trader would have realized that tech stocks for companies showing no profits at all were
being pushed up to record levels and eventually it will be time to pay the piper.
So in this particular case, George Soros would have ridden the trend upward along with everyone
else, but the whole time being aware and prepared for the recoil. So not only did he make money
in the uptrend, but he made a killing in the crash that came afterwards.
Here's an example of how I use this knowledge in my trading.
In the beginning of Oct '09, we saw major weakness in the USD and at the same time alot of
strength in AUD. Commodities were in a strong uptrend, with China leading the world in economic
expansion. The market consensus was that the RBA would raise interest rates in November or
December '09. Two days before the RBA rate announcement, the department of labor was releasing
NFP numbers. The market consensus for NFP was at -179k.
AUDUSD was hanging just underneath the long term trend line that started in March '09, so I knew
there was a good opportunity depending on what the NFP numbers were and if the RBA decided on
an interest rate hike.
So what happens? NFP numbers were at -263k, much worse than expected and AUDUSD shoots
down over a 100 pips in a matter of minutes! I knew that this was an "irrational" reaction. I
assume that this was a tactic by large institutions initiating hedge programs and/or creating a
market to unload shorts and / or to load up on longs.
So what did I do? I went to town! While AUDUSD was dropping like a rock, I put on as many long
orders as I could get in! Then 25-30 minutes later the AUDUSD stalls on the down swing and I'm
still loading on more orders, then starts to slowly head upwards.
AUDUSD then takes off more than 200 pips upwards picking up all my orders along the way. I had
planned to hang on to my orders over the weekend, anticipating RBA rate hikes.
I had already made a substantial profit from NFP, but I knew that there was still another
opportunity coming. Basically I had nothing to lose and everything to gain. There was very little
chance of the RBA lowering rates. If the RBA left rates alone then it's what the market was
expecting, no negative reaction. But if the RBA did raise rates then AUDUSD would make a
substantial move upwards.
So on the big day, 30 min before the RBA rate announcement, my orders from the week before are
already in profit and I put on more long orders above the price, leveraging my open profits, in case
the news was good.
So what happens? There is a rate hike of 25 basis points! The market picks up my orders and I
wait. The best part? I'm in with my orders 4 hours before the London session and 10 hours before
the New York session!
This is what I mean by getting in at the beginning of a new swing slightly "ahead" of the market.
Anyways, AUDUSD continued in an upward trend for another 8 weeks. Even though I left quite a bit
on the table, I still managed to make more on this trade alone that most make over several years.
Comments, questions and feedback please!
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Quoting peter lee

i am still far away from you ...

can i assume that you have deep pockets?
can you comment on this:
for coming monday,
probably, asian equity will go dwn and eur/usd will go dwn too
in far east time
probably, GfK German Consumer Climate
forecasted 3.2previous 3.3
and DAX decline
will force the eur/usd dwn too.
after which,
the Existing Home Sales
forecasted 5.98Mprevious 6.54M
will give support to mkt till it released
after which , eur/usd will go in opposite direction to what happen to
the...
Hi Peter,
You're definitely making progress, however you're trying to make predictions.
A proper analysis doesn't make predictions, a proper analysis makes anticipations. There's a
difference.
You missed several important parts from my previous reply:
1. First I told you, that you need to look at a longer period at least 6 months. If you look at
only the previous week, then you will get a very limited picture.
2. What you want is a list of scenarios, each with different economic conditions and how the
currencies will react in those situations. You only listed one outcome from one scenario.
Let me see if I can give you an example, instead of looking at a specific pair, look at the
overall economy and what it is telling you. What are the biggest events happening right now?
The biggest event is the credit tightening happening in China. Then you need to an analysis
based on how the tightening of credit will effect the different economies.
Which countries will be impacted by this?
This is where you need to understand the kind of economy China has and how it is linked in to
the global economy. I'll give you a couple of hints, but you need to do your own research on
this to get a full understanding.
China is in the midst of a credit fueled boom since early 2009 and has been a major consumer
of commodities. Tightening of credit may have an impact on the demand in commodities and
thus currency pairs like AUD, NZD and CAD.
Instead of looking at the economic data this week, you need look at the big picture. The big
picture tells us that this event in China will either cause risk aversion or risk appetite. We've
seen risk appetite through out most of 2009, with China's booming economy clearly a driver
of risk appetite.

So there's a good chance that this will cause continued risk aversion until it is clear to
investors that credit tightening will not have a major impact on economic growth.
Note that I am not predicting this will happen, I am anticipating both risk appetite and risk
aversion, I will be ready to trade both ways. However I believe that risk aversion is the more
likely scenario.
What you need now is some more research on how money flows in times of risk aversion and
in times of risk appetite.
Here's a little clue: The last time we had risk aversion was around Nov 25-27 '09 during the
Dubai debt crisis, take a look at your charts to see how the different markets reacted. Then
ask yourself why the different currencies reacted the way they did.
We had risk appetite through the majority of the time between March and Nov '09. Look at
how the currencies reacted and research why.
Now based on what I wrote, why don't you reply with what will happen to EURUSD if we have
risk aversion and what will happen if we have risk appetite.
China's development and progress has been pulling the rest of the world out of the financial
crisis and China will therefore exert a great influence over the next few years. Anticipating
what will happen with China and it's economy will go you a major advantage in trading.
This seems like a lot of complicated work, but necessary as the different economies will be
impacted differently in different market conditions. For example economies have reacted the
way the have after the financial crisis due to the global conditions, once these conditions
change so will the impact on different economies.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Gentlemen and ladies,
Please allow me to rant a bit, I need to get my thoughts clarified and organized.
This is my plan for getting in on the next major long term trend.
We're now seeing the end of the 1st leg of the long term uptrend that started in March '09 and
continued until Oct/Nov '09. I believe that the markets are in a correction of the 1st leg and I am
anticipating a swing back to the upside to continue the 2nd leg of the long term uptrend.
However before the swing back to the upside, I believe several developments need to occur before
investors will push prices back up again.
First I believe that clarity will be needed regarding changes China's fiscal and monetary policy.
Investors will probably need to see that these changes will not impact economic growth.
Second I believe that we're going to need to see further evidence of recovery in the US
accelerating. Japan, Europe, UK and China all need a stronger USD to help their economies. Right
now, USD is on the border of "acceptability", if we see a weaker USD (i.e. USDJPY below 90), then
there may be indications of central bank intervention at the next G7/8 to strengthen the USD.
In the case of central bank intervention, this will help the economies of Europe, China and Japan,
but it could dampen economic inflation in the US and thus delay interest rate hikes by the Fed.
Then we can expect the carry trade into commodities and commodity based economies (AUD, NZD,

CAD, etc) to continue to be financed by the USD.

If there is no central bank intervention at the next G7/8, then it's because economic leaders are
anticipating an accelerating recovery in the US and thus interest rate hikes by the Fed. In this case
we should look for a shift in carry trade funding from the USD to JPY.
So what does this all mean?
Let me see if I can summarize all this to clarify my strategy.
The 2 economies that will have the greatest impact on the 2nd leg of the long term uptrend are US
and China.
If we see USD strength, then I'm looking to short JPY throughout the 2nd leg. If we see USD
weakness then we could see central bank intervention, with a quick burst of USD strength, but it
will delay the recovery in the US.
Having said this, I believe the mostly likely scenario (and the favored scenario by global central
banks) is US recovery accelerating, no central bank intervention and indications of interest rate
hikes by the Fed in 2010.
At the same time, I'll be monitoring the situation in China. China can be seen as the "engine"
behind the global economic recovery.
This means that once things have calmed down regarding China's fiscal and monetary policies, I
am anticipating a swing to the upside once this current correction is finished. I will be looking for a
swing to the upside if AUDUSD hits 0.87 and USDCAD hits 1.0850 within the next 2 months.
Whether the strongest trends for the 2nd leg of the long term uptrend will be in the USD pairs or
JPY crosses will depend on the US recovery in the upcoming weeks.
BTW, this is not a recommendation for anyone to take trades based on what I wrote. This is mostly
for me to clarify my thoughts so I can verify the robustness of my strategy.
P.S. Does anyone else see the MASSIVE opportunity in China's credit fueled expansion could bring
in the next few years?
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Here are some recent developments:
1. Bank of China has said that they will keep an "appropriately lose" monetary policy, while it is
tightening credit. If this holds true, we could see a move towards risk appetite.
2. Japan just approved a budget increase of over 1 trillion JPY to stimulate the economy. This could
mean weakening of the JPY should the markets move towards risk appetite.
From my previous posts, this was part of the news I was looking for.
I am now looking to start building my long term positions. However I'm still going to keep an eye
on China and the fallout of it's credit tightening.
The last piece of the puzzle will be the US economy. If we start to see good numbers in eco data,
then I will look to increase the size of my positions.
Basically if the China monetary policy holds and we start to see better numbers in the US, then I

believe we COULD start to see the beginning of a long term uptrend in the JPY crosses.
However, I believe the move upwards won't accelerate and really take off until we see AUDUSD,
NZDUSD, USDCAD complete their corrections.
If there are no other major shocks to the global markets like sovereign debts, I believe that the JPY
crosses are now only waiting for the US economic numbers to confirm a rate hike this year. So keep
a close watch over the inflation and employment numbers.
Also remember that this turn around will take several days to weeks, and trading the long term
market swings takes an entirely different approach then intraday trading. Building long term
positions should be done over several days to weeks and on occasion even small losses can occur.
But playing it right can keep you on the right side of the market for months to years and more than
make up for any losses.
Again, I don't recommend anyone take trades based on what I wrote, you will only end up losing if
you don't know what you're doing.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
I don't see how the US economy can continue to grow while burdened by so much debt. If I owe
tens of thousands of dollars then I am going to have to change something about my life (better
job, start saving to repay debt). What is the US going to change to deal with its debt? Print more
money? Inflation?
The deficit is a major obstacle, however the deficit is still manageable in my opinion. If we don't
start to see any reform for addressing the deficit from the US gov't within this business cycle (up
trend) before the next bear market, then there is real cause for concern and it will be even more
difficult to recover from a bear market.
I believe that Japan is in actually much worse shape than the US, with a deficit of nearly 200%
GDP and growing.
I flat out do not believe in this recovery. Our government and it's costs are just too big. To deal
with it's debt it has to print more money which destroys the economy as consumer prices rise and
rise. Where are new jobs going to come from? I do not believe in this rally in equities. It's
speculation driven by cheap money.
You may be right, maybe it won't be a lasting recovery. In which case, we'll see a pretty
spectacular crash in a few years.
Speculation driven? Maybe with some companies, but then at the same time there are companies
making good profits, i.e Goldman Sachs, Apple, etc.
But I completely agree, the debt burden is a heavy ball and chain.
Ofcourse I'm talking about the US economy but they are all much one of the same these days.
Atleast to a certain degree.
I agree to the extent that most of the economies around the world use the same Keynesian style of
central banks and gov'ts intervening and trying to "control" the economy via credit expansions and
interest rates.
This in my opinion is the main cause behind the boom and bust cycle. This of course does gives us
markets to make profit from.

However as far as long term sustainable growth, I don't believe the current systems take into
account the human factor. Namely that when you have economic stimulation by means of a credit
expansion, the idea is to invest now but that investment needs to pay off to cover the cost of
credit. Unfortunately the human factor tends to make everyone think that easy, cheap money is
available to everyone and there tends to be a lot of reckless spending that can never be recovered
when it comes time to reign in credit.
Then when it comes time to pay the piper, we all know what happens.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Quoting silverheat

to me it looks like AUDUSD is the trade with the biggest advantage

who says giving back all the gains from 09 is where price should be?
Exactly!
The AUDUSD has been the strongest performer of the major currencies.
Here's a guideline I use when looking for downside "potential":
The strongest performers will not drop a whole lot due to strong fundamentals, unless of course the
fundamentals change.
The lowest performing instruments don't have very far to fall, because they never really took off.
So the best pairs to ride to the downside are the medium performing pairs like EUR or GBP.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
1.

how you measure risk aversion if any ?

This is always done on a case by case basis. And this is where fundamentals and a study of
history will help.
You have to look at what has been driving risk appetite and once this changes then you
have risk aversion. For instance, China's economic expansion has been driving the global
recovery and this expansion has been driving the demand in commodities in particular. So
now that China is taking measures towards tightening credit and monetary and fiscal
policies, this impacts the "engine" behind the uptrend we saw from March - Nov '09.
That is why we are seeing the long term correction. Once prices are low enough to warrant
investors to take risks, we'll see risk appetite back in the markets again.
I believe the engine behind the 2nd leg, we'll be different from the 1st leg. It won't be just
China, but will probably include the US as well as European economy.
2. is it mkt is waiting for gd news to push up aud/usd, eur/usd, etc ?
If depends on what you mean by good news. If you mean good numbers on the economic
calendar, then no, it will take more than this before the markets turn upwards again in the
long term.
Remember that the economic calendar only shows the SHORT TERM fundamentals.
Instead I believe it will happen when things have settled down after the fallout of China's

monetary tightening. And prices need to fall low enough for investors to feel that risk is
warranted.
3. are you using mkt action to news to time your enter and exit ?
Yes, that's part of it. I still use technical analysis to time entries and exits, but I look at the
fundamentals (and thus the news) to tell me which instrument to invest in and WHEN I
should look to the technicals to enter, add on, or exit positions.
For instance, fundamentals guide as to where the big trends will be and roughly when they
would start / correct / end. Once I get the fundamental signal then I look for a technical set
up.
Then there are occasions where the markets are waiting for a particular news item to show
directions. For instance NFP is big because employment is seen to be very important to the
US recovery. So on these occasions, I will plan for the different reactions from economic
data releases.
Hope this made sense
++++++++++++++++++++++++++++++++++++++++++++++++++++++
I'm beginning to see signs that GBP has hit bottom and is waiting for an event to trigger the
upwards trend.
There was almost no change in price on GBPUSD, after a worse than expected GDP yesterday
and as well as terrible realized sales numbers today. And to top it off, the markets were in risk
aversion mode, where all other currencies lost considerably against USD and JPY. Just compare
GBPUSD with EURUSD and GBPJPY with EURJPY and see for yourself.
In my opinion, this is the best indicator of market sentiment, and this to me points to bear
exhaustion.
Right now, BoE is winding back quantitative easing, so keep an eye on how the economy will
react over the next few weeks.
It may not take off until after risk appetite has taken hold, but there's a chance that it could
start moving before the other currencies.

+++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++
Quoting myfx

Hello Razor,
On Thursday we expecting few market news including:

More than 50 earnings reports

New Home Sales

The FOMC decision

Geithner/Paulson testimony

The Apple Tablet

Last but not least, President Obama's first State of the Union address.

We know you are a medium and long term trader, but I am curious how you deal with these
kinds of situation. If you have an open trade, do you close it? or let it run? If no trade is open,
but you notice very nice setup is forming, will you enter considering...
Excellent questions, myfx. These are exactly the questions I wish I had the answers to when I
first started.
This can get a bit complicated, because it's very discretionary, so I will try to explain it using
some examples.
We know you are a medium and long term trader, but I am curious how you deal with these
kinds of situation. If you have an open trade, do you close it? or let it run?
This would depend where the markets are at, economical conditions and the market news.
First you need to understand how I trade. My goals as a trader are:
1. To get in at the beginning of the long term trend
2. unload part of my position on medium term swing highs for uptrends / swing lows for
downtrends
3. To add to my overall position on dips / rallies
4. To unload my entire position once the long term trend is exhausted.
Let's say I've got some open long positions, the trend has been going for some time but it
hasn't reached long term exhaustion yet, the overall market conditions are bullish and we
have some market news coming out.
Remember when I mentioned that most market news and economic calendar releases are
SHORT TERM impacting. But some times you'll have items that impact more long term like
interest rate changes, indications of interest rate changes, central bank intervention,
indications of central bank intervention, etc
So first I determine how much impact the announcement could have and anticipate the
different outcomes. If for instance the market is at a medium term uptrend exhaustion where
good news won't push the markets much higher, but bad news can send the market
plummeting then I will unload part of my position then look to add more after the dip. If I'm
long and the markets is at a medium term DOWNTREND exhaustion point (meaning the
market won't move down much on bad news, but can take a significant boost upwards on
good news) then I will look to add to my position.
If the market is not near any exhaustion point and the news is only short term impacting,
then I'll just ride it out.
If no trade is open, but you notice very nice setup is forming, will you enter considering the
given situation?
Oh yes, definitely. Sometimes these market news releases can be the turning point in a trend
reversal. Take a look at post #35, where I describe how I loaded up on orders during NFP and
then added on more when the RBA was releasing an interest rate statement.
Hope this answers your questions. If not just go ahead ask.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Hi Rac,
I'm learning how to trade "conservative" currencies (JPY, USD, and CHF) vs "liberal" currencies AUD
(and NZD), CAD, and EUR.
In general they what we call "conservative" currencies, as a whole group gain strenght when the
"liberal" currencies loose it, creating cicles with opportunities.
What you call "conservative" is what most people call "safe haven" currencies and "liberal" is
referred to as "riskier" currencies. But yes, you have the right idea.

Fundamentals and Intermarket Analysis: I found two books with the same name, one of them
is Louis B. Mendelsohn and the other is Asraf Laidi Which one is the one that you recommend?
I have the one by Asraf Laidi and it is EXCELLENT. I haven't read the one by Louis B. Mendelsohn,
but I'll look into it.
I look for the opportunities in the short term.
Would you cuncurr that in this week what we call "liberal" currencies AUD, NZD, CAD and EUR will
get strenght agains the conservative (JPY, USD, CHF) creating opportunities to sell AUD/JPY;
AUD/USD; NZD/JPY; NZD/USD; CAD/JPY; CAD/USD etc...?
Sorry about my english.
In the last post I meant opportunities to BUY AUDJPY, AUDUSD, AUDCHF, NZDJPY, NZDUSD,
CADJPY, etc
Thanks
No problem, there is a button where you can edit your posts, just click on the "edit" button at the
bottom of the post you want to change.
Ok, now to your question:
There are many trends that are happening right now. I focus on 3 of them, Short Term (Days to
weeks), Medium Term (Weeks to months) and Long Term (Months to years).
The Long Term is pointing upwards. The Medium Term is currently down, this is what I would call a
correction of the Long Term. Then there is the short term.
The Short Term MIGHT head up for a few days because the current correction will need to take a
breather before continuing further.
However, I do not trade the short term, so I'm not making any recommendations.
What I'm looking for is the Medium Term down trend (Long Term correction) to swing back upwards
and so I can get in at the start of the 2nd leg of the Long Term. Before this will happen, I'm looking
for AUDUSD to get below 0.87 and USDCAD to get above 1.0750. Once these 2 pairs reach these
levels then I will look for SIGNS and INDICATIONS of a reversal.
Hope this made sense.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

how to determine the major turning point with precision.

as far i can remember three major events happened in sequence:
1. china increases bank reserve ratio
2. Dubai debt problem
3. Obama proposed financial reform
Dubai debt crisis started Nov 25, 2009. China increased reserve ratios over the weekend of 23-24
Jan 2010 and Obama proposed financial reform last week.
EUR/USD turned after event 2.
Yes, EUR, AUD, NZD, CAD, etc turned downward after the Dubai crisis not only against the USD but
also against JPY.
if we short EUR/USD after event 3,
is there a possibility we only can only catch a small part of the big move ?
The market reaction from this announcement is already over.
It will take several weeks/months before we see what the actual reformations are. How the
markets will react to that will depend on the what the reforms look like and the market conditions.
I personally would not look for shorting EURUSD after this event alone. I think there are much
better opportunities.
For instance, if I were tell you that after the fall out of China tightening monetary policy and
commodity prices fall to a low enough level, then we can expect to see demand for commodities
surge again. We're also starting to see the UK and US economy pick up momentum with the US
possibly raising interest rates later this year. And we can expect the Japanese economy struggle for
a while longer, with very low inflation and thus low interest rates for year to come.
These are the LARGEST market forces out there right now that we can be sure of. What happens
after the bank reforms is not certain.
So what does this tell you? What should we be looking for? And which currency pairs should we
look at for the best opportunities?
furthermore, i think the down move is a correction
- may not be the long term trend.
Excellent observation!
The way I look at it is, that it is a down trend in the MEDIUM TERM or long term CORRECTION.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Quoting peter lee

sorry. i have the sequence of the 3 events mixed up.

based on your described scenario,
since US economy will pick up, commodities price will go up,
equity will go up too.

this means eur/usd, gbpusd, aud/usd will go up.

with jpy interest rate remains low,
gbp interest rate and US interest rate on up trend
i think it is better to long gbp/jpy on dips,
which is also in line with carry trade.
pse comment the above.
OK, you're getting closer but you're misinterpreting some information. I think you will learn much
more if I guide you and you figure out the answers.
So let's try again:
since US economy will pick up, commodities price will go up,
equity will go up too.
Yes, I believe this is true, but your reasoning is a bit off.
Commodities prices will not go up because the US economy is picking up. In my opinion,
commodities had a huge uptrend in 2009 because of 2 main reasons:
1. The weak USD. The value of USD is driven by supply and demand just like every thing else.
Commodity prices are denominated in USD and a weaker USD means more dollars are required to
by the same amount of commodities.
2. China's credit fueled economic boom. China's massive credit expansion has fueled an economic
boom that drove up demand for commodities especially metals.
So commodities prices won't go up because the US economy is picking up. Commodities prices will
go up again if we see increased demand from US, China, Europe, etc and if we see the USD
appreciate at a SLOWER pace than commodities prices.
And if commodities will go up, then which countries will benefit from this?
this means eur/usd, gbpusd, aud/usd will go up.
AUDUSD, yes.
EURUSD will depend upon how well the European economy does while being dragged down by the
PIGS (Portugal, Ireland, Greece and Spain).
GBPUSD looks like it's close to the bottom, but it depends on how quickly the UK economy will
accelerate in comparison to the US.
But one of the most important things here is that right now the US economy SEEMS to be
accelerating faster than the EZ and the UK.
with jpy interest rate remains low,
gbp interest rate and US interest rate on up trend
i think it is better to long gbp/jpy on dips,

which is also in line with carry trade.

Close but not quite.
1. Think about how the carry trade works, what should you be looking for in currency pairs when
considering the carry trade? If you don't have this then the carry trade won't be profitable.
2. JP interest rates (0.1%) will be low for quite some time and US interest rates are likely to be
raised this year to 0.5%. Based on this, which currency will be used for the carry trade in 2010?
3. Remember that carry trades are not only for currencies, but carry trades can be used for
commodities, investments in to developing countries, etc. We saw this with alot cheap USD to fund
investments into gold, oil, copper, etc as well as equities in developing countries like Brazil, China,
Russia, etc.
OK, now give it another try. Based on all of the above, which currency pairs can we expect to make
the biggest gains in 2010?

Quoting rac

Hi Razor, Thank you for your kind answer, I already ordered the books, I'm looking forward to
read them soon.
It seems that the "riskier" currencies are definetilly gaining strenght against the "safe heaven"
currencies....
It seems that the "riskier" currencies are definetilly gaining strenght against the "safe heaven"
currencies. I cannot tell if this is the actual begining of an upward mid term cicle yet, but my
indicators show gain.
Yes, it looks like this but there is a tricky part here. We may see the uptrend sooner in
currencies like AUD, NZD and CAD against the JPY before they gain on the USD. I don't trade
CHF. The reason is that the US economy is accelerating and I don't think that AUDUSD and
USDCAD have completed their corrections yet.
This you can see if you look at USDJPY, if it breaks upward out of the down trend then it's a
good sign that the JPY crosses are appreciating.
They might be raising the AUD interest rate today, that will give the AUD even more strenght
against JPY, USD and CHF.
Not quite, an RBA interest rate hike was already factored into AUD prices. That's why we saw
it drop when the RBA didn't raise rates.
However there are much bigger economic forces than interest rates in Australia. For instance
the RBA tightening monetary policy won't impact the global economy as much as China
tightening monetary policy.
This means that in the current situation China's monetary policy has a bigger influence on the
global economy, including AUD, NZD, etc then Australia's monetary policy. And it looks like
investors are interpreting no further monetary tightening in China.
This is why I don't expect the AUD to fall much further, right now the Aussie economy is
influenced more by China than what happens in Australia.
Can I ask what kind of technical analysis you use to decide your enter points that show signs
of reversal?

Once I have my fundamental views clear then I look at price action around major Support /
Resistance levels, long term fib levels, round numbers, "psych" numbers, trend lines and
volume. I also compare the latest short, medium and long term swings and compare them to
historical swings for getting an idea of price exhaustion.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++
Quoting dre3029

I notice you said Aud won't fall much further because of the china monetary tightening. Are you
sure that is correct?
Hi Dre,
Did I write that? I couldn't find it. Could you please copy and paste the text you're referring to?
I meant the exact opposite.
What I meant was that China's monetary policy will have a much bigger impact on the global
economy than Australia's monetary policy, simply because China is a much larger economy which
trades with every major economy in the world. That's all. Nothing about how this will impact the
AUD.
The point I was trying to make was to look at the BIGGER picture, focus on the engine behind the
global economic recovery (China) instead of one of the benefiters (Australia). This will make it
easier to see which way the markets will move.
Also the reason why I don't think AUD will fall much further because the JPY crosses look like they
have reached short and medium term exhaustion and there are signs of accumulation into carry
trade positions. And this could be due to investors believing that we've seen the end of China's
monetary tightening for the moment.
Hope this made more sense.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++
So you're saying that a pair like audjpy will appreciate because of the carry trade
Yes, when the markets move towards risk appetite.
and people buying AUD is gonna push the audusd up?
This depends on how fast the USD strengthens, when we move towards risk appetite. Right
now it looks like AUD will strengthen faster than USD in 2010.
However I think the biggest gains will be in the JPY crosses, not in the USD pairs. As the US
economy looks like it will recover faster than JP economy. So I am not really even looking at
the USD pairs unless there is major risk aversion.
I forgot to mention, that it's not ONLY because of the carry trade, but AUD is a commodities
currency. So an uptrend in commodities will push up AUD, NZD and/or CAD, depending on
the commodity. So there are several fundamental indicators pointing to AUD, which in my
opinion makes it a very good opportunity.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++
Quoting dre3029

Sorry!! It was post #90. I looked and the wrong number. But this is what you wrote:
However there are much bigger economic forces than interest rates in Australia. For instance
the RBA tightening monetary policy won't impact the global economy as much as China
tightening monetary policy.
This is why I don't expect the AUD to fall much further, the Aussie economy is more
dependent on China than what happens in Australia.
Ah, I see how this can be misinterpreted. I'll go back and correct this.
It should read like this:
However there are much bigger economic forces than interest rates in Australia. For instance
the RBA tightening monetary policy won't impact the global economy as much as China
tightening monetary policy.
This means that in the current situation China's monetary policy has a bigger influence on the
global economy, including AUD, NZD, etc then Australia's monetary policy. And it looks like
investors are interpreting no further monetary tightening in China.
This is why I don't expect the AUD to fall much further, right now the Aussie economy is
influenced more by China than what happens in Australia.
Thanks for pointing that out.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
do market differeniate inflation-related and growth-related econ data ?
Depends on what you mean by inflation-related and growth related. Could you give some examples
of what you are referring to?
do you look at the market sentiment? if yes, how to recognise it?
Yes.
There are several ways:
1. COT (Commitment of Traders) reports, there is 1 week delay so it doesn't give the latest info
and should be used for medium to long term
2. Bond Yield Curves, this gives me a long term view and changes very slowly over time
3. I combine fundamental developments with price action on the charts. For instance, there was a
market "shock" when the RBA didn't raise interest rates, but it AUDJPY didn't make a new low and
AUDUSD barely went lower than the previous day's low. This tells me that the market isn't too keen
on shorting the Aussie in the short term.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Quoting Astellas

Hi Razor
Are you referring to taking profits from the x/jpy position mentioned in post 92. If so, please
could you tell me how you came to the conclusion quoted above, and that it was time to close
your longs ? Was it based on a fundamental, technical or a mixed view ? At time of your post
the USD/JPY pair was making a strong run north and from a technical point of view I would
probably have stayed with it (only to probably give back profits later).
This thread is being of IMMENSE help in trying to put all the pieces of the puzzle together....
Hi Astellas,
Yes, it's referring to my positions taken from post #92.
It was based on both fundamentals and technicals. I'll go into a bit more detail.
Fundamental reasoning:
I first thought that there was a chance that we'd seen the fallout out from China's monetary
policy and that the markets were back in risk appetite mode after seeing all the positive
earnings reports and economic acceleration in the US.
As I mentioned, patience is not a virtue I possess and I tend to get in very early.
Anyways, it looks like we're still in RISK AVERSION mode in the MEDIUM TERM, with what's
happening in Europe (PIGS) and China. It's still not over yet.
Technical reasoning:
At time of your post the USD/JPY pair was making a strong run north and from a technical
point of view I would probably have stayed with it (only to probably give back profits later).
Yes, true but price action in the JPY crosses didn't react the way markets react when you have
a trend change.
Take a look at the USDCAD trade in post #18 and the AUDUSD trade in post #19.
Do you see how the prices explode in the new direction? Compare that to the price action in
the AUDJPY, CADJPY, NZDJPY and USDJPY today. When we see the reversal upwards, believe
me you will know it!
Now the markets could be waiting for NFP this coming friday, but some more clues are:
AUDJPY failed to sustain new highs above 85 and it's knocking on the door of the major
support level 80.
CADJPY failed to sustain new highs above 90
NZDJPY broke the key support level at 63, then failed to make a new high above 70 and now
looks like it will break 63 again.
EURJPY broke through the major support level 127.
We could see the JPY crosses drift upward in the SHORT TERM, but there isn't much
momentum, it's very slow, showing that there aren't very many buyers.
If traders felt that prices were low enough to warrant taking risks in the carry trade, we would
have seen dramatic JPY weakening. This isn't the case, so we need to wait a bit longer. More
than likely a few more weeks.

Patience, patience .....

I think there are better trades in holding USD longs against EUR, AUD, NZD and CAD and
shorting the JPY crosses in the MEDIUM TERM.
This thread is being of IMMENSE help in trying to put all the pieces of the puzzle together.
Many thanks.
No problem, I'll continue to post my thoughts and trades until I feel that I've done enough to
relieve my karma.
In the meantime, keep asking questions on things that don't seem very clear and I'll do my
best to explain it.
Hope this post made sense.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++
It looks like the uncertainty regarding China's monetary policy will continue for a little longer.
Inflationary pressures are increasing and China will need to let the Yuan appreciate. Not to
mention that developed economies like Japan, US and EuroZone could threaten to impose
import tariffs, if the Yuan doesn't appreciate.
This development over the MEDIUM TERM, looks like risk aversion is here to stay for a while
longer.
If there is a sudden change or an announcement of further tightening in China's economic
policy, which I believe is inevitable, look for another "shock" to the market and to further risk
aversion.
I write "shock" because when things like this happen, most investors and economic analysts,
are surprised by the event rather than anticipating it in advance.
Anyways, I'll continue to go long on USD and JPY until I see a break of the MEDIUM TERM
downtrend and a break of major resistance (support for USDCAD) levels.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Im not quite clear here. Wouldnt all the positive earnings reports and economic acceleration
coming from the US only strengthen the USDJPY ?
Yes, but only if the markets were in Risk Appetite. Positive earnings and economic acceleration
won't matter if everyone is running towards safer investments.
Or are you implying that the settling of Chinas monetary policy would lead to risk appetite, which
in turn would weaken the $ as investors leave safe-haven US assets in search of riskier non-US
assets.
Yes, exactly! And not only US assets, but JP assets are seen as "safer" havens than US assets.
So risk appetite would weaken both the USD and JPY against currencies like AUD, NZD as well as
exotics like the Brazilian Real.

Therefore, the risk appetite will outweigh the good numbers coming out of the US, and the USDJPY
pair will weaken.
Here's where you have to be a bit careful with USDJPY.
RISK AVERSION is currently outweighing the good numbers coming out of the US, basically
equities, commodities and riskier assets heading down with USD and JPY heading up.
Now in regards to the USDJPY, you have to be aware of the economic conditions when interpreting
this currency pair.
Think of it this way, the JPY is probably the "safest" currency, with the USD in 2nd. CHF can also
apply, but the fundamentals aren't as clear cut as it is with USD and JPY, so that's why I don't trade
CHF.
Now let's look at risk aversion. You will see different degrees of risk aversion. You will have
dramatic or MAJOR risk aversion like a housing market collapse, credit crisis, etc. This sort of risk
aversion impacts the LONG TERM.
Then you will have risk aversion of a lesser degree like China tightening it's monetary policy. This
will have an impact on the MEDIUM TERM.
Then you can have SHORT TERM risk aversion like bad numbers in economic data releases.
With dramatic risk aversion you will see USDJPY drop like a stone. When there is milder forms of
risk aversion you won't see USDJPY affected as much.
Now the exception has been the USDJPY down trend since June/July 2007. It started off as MAJOR
LONG TERM RISK AVERSION triggered by the financial crisis. But then at around March 2009, the
down trend was due to record low interest rates in the US, which led to the USD preferred for
funding carry trades.
This is one of the reasons, why Japan has been so vocal about JPY appreciating towards the USD.
It's put the Japanese economy in a difficult position, as usually it's the JPY, with low JP interest
rates that's preferred for funding carry trades, which leads to a weakening of the JPY during times
of risk appetite.
Did this clear things up?
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
I'm trying to fit it all into place but think I need a little help to clarify one of the basic relationships.
Have you had a chance to look at the Intermarket analysis book I recommended earlier in this
thread?
That book can explain this in much more detail than I can.
But I'll try to answer your questions in more general terms.
But what else is it about these currencies that make them low risk ? Are there low-risk assets that
investors are putting their money in ? And if so, what are they ? I cant think that investors are
simply placing their money in US or JPY interest-paying bank accounts as the interest rates are so
low, or in times of risk aversion perhaps they are ?

The low risk in USD and JPY has to do with the US and JP economies.
Low risk assets can be just keeping the money in cash in an account like you mentioned or bonds,
money markets, etc. There are lots of them, do a bit of research in low risk investments and you'll
find a ton of info.
And also, why is the JPY considered safer than the USD ? In fact, what makes a currency
considered to be one of the safer ones to start with ? My understanding is that these countries are
more financially and politically stable, and therefore are less likely to default on paying out. But is
there more to it ?
Think of a scale. On one end you have export based economies, on the other end you have
consumption based economies. One side produces, the other side consumes.
Countries with higher interest rates tend to be higher risk, that's why they have higher interest
rates: to attract money into the country and the higher interest rates are to justify the risk
investors will take. These countries need foreign money to invest in their economies and usually
are consumption based economies.
Where as countries with lower interest rates tend to be export based economies, like Japan.
Consumption based economies are higher risk because when there is risk aversion or economic
downturns, people lose jobs and don't have money to consume and and if they don't consume the
driving force behind the economy weakens.
Where as export based economies still have investments (export production) and can continue to
produce during risk aversion or economic downturns albeit less than during times of economic
expansion.
Now no country is strictly export based or strictly consumption based, they all have different
combinations of both with some closer to export and others closer to consumption based. JP is
closest to the export based side that is why it is considered "safe".
US is an exception, it is closer to consumption based than export based but still has quite a bit of
exports. However the USD is the world's reserve currency and all commodities are denominated in
USD. This gives it a "safe haven" status but after JPY.
Hope this made sense, it can get complicated. Which is why I suggest that you first go through the
Sperandeo book and go through the Intermarket Analysis book. Those 2 can explain it in much
better detail than I ever could.++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++
Hi Diogo,
Welcome to the thread.
what i do not understand is if china is going down and that influences a lot in usd currency why
that usd is gaining power against the euro??
First of all, China is not going down. China is tightening it's monetary and fiscal policies, this is a
GOOD sign, it means there is plenty of economic strength that is driving inflation. So China is
trying to keep it's economy from overheating.
Second, the USD currency is not gaining strength from China going down. The USD is gaining
strength because:

1.

Sovereign debt problems in Europe: Portugal, Spain, Greece and Ireland triggering
investors to flee to safe havens

2.

US economic recovery is accelerating and the possibility of the Fed hiking rates this year
looks promising

3.

China's monetary tightening has caused a slow down in demand for commodities, which
triggered an unwinding of the USD funded carry trades and is moving investor money from
commodities, AUD, NZD, CAD, etc back to the USD.

I think you are looking at economics one dimensionally, you are not the only one. You have to
understand things like economic cycles and fair value. I will make a post on this soon to give you a
better idea of this.

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Great questions, Astellas. This is exactly what you should be asking in order to start anticipating
market swings.
From post 107 above you mention that youll be looking for AUDUSD to reach 0.87, or possibly
0.85 or lower before looking for a long in AUDJPY and possibly AUDUSD, but that this will depend
on fundamental development and the presence of medium term [technical] exhaustion points. May
I ask you to elaborate a little on how you will know when you see these two line up.
Let me start by saying that, right now I can only speculate as to what will happen and it's
impossible to know a lot of these things ahead of time.
For instance it can be one event, like the sovereign debt problems in Europe, that trigger risk
aversion and a completely different unrelated development that triggers risk appetite. So we have
to keep up with current events to see what is happening. The good news is that these develop over
time so there are never really any quick sudden changes.
For example, with regards to the fundamentals I believe youll be looking for China to settle its
monetary tightening policy,
Yes, I think everyone would like to see the fallout of China's monetary tightening to make sure that
the "engine" behind the global recovery will be just as strong when the global economy moves from
recovery to expansion.
and that this, combined with what investors will consider to be bargain commodity prices, will lead
to risk appetitive.
Yes, don't forget the European sovereign debt problems. I think many investors would like to see
that these deficits are under control and aren't going to weigh down economic developments.
But most definitely, when commodity prices get low enough, it will mean low inflation, which will
mean the economy has cooled down enough to continue economic expansion and thus to warrant
risk taking again.
But how will you derive fundamentally that this might be about to occur ? Will you be monitoring
for news announcements coming out of China that suggest easing, and then combined with the fact
that AUDUSD isnt making lower lows (exhaustion at major support) consider that its time to start

placing long orders ?

We shouldn't limit ourselves only to the developments in China. Instead we need to look at the
bigger picture and look at the different scenarios that can develop over time. By doing this, we can
see all possible outcomes and anticipate likely events and how they will impact the currency
markets.
What if AUDUSD starts going up before AUDJPY ? Will you look for evidence that the carry-trade
isnt shifting over to the JPY just yet and therefore go long AUDUSD until there is such evidence of
JPY becoming the preferred carry trade ?
This is good and exactly what I was going to suggest.
Let's play the "What if" game and see what would need to happen in the different scenarios.
I can give you all of my opinions, but let's do this interactively. I'll ask some questions and you give
me your opinions and together we can come up with some likely scenarios.
First some basics. Australia has the highest interest rates of the major economies, so it will attract
a lot of foreign money into the country. Australia is also highly exposed to developments in China,
so the Aussie economy can not expand without demand for it's commodities, if it doesn't come
from China it needs to come from somewhere else.
OK, so we have several different outcomes that can happen at the end of the current correction
when risk appetite comes back in again.
Scenario 1: AUDJPY and AUDUSD continue downwards. This is the situation we are in now during
risk aversion. But let's assume that the markets move back into risk appetite and that all the other
currencies are strengthening against the USD and JPY.
How would we get into a situation like this? What would need to happen in Australia? What would
need to happen with China's demand for commodities from Australia?
Scenario 2: AUDUSD and AUDJPY both turn upwards. This can only happen if the markets move
into risk appetite, right?
How would the economies in Australia and China need to develop compared to the US? compared
to Japan?
For instance, would the Australian economy need to expand faster or slower than US? Japan?
Scenario 3: AUDUSD heads up, AUDJPY continues down. Would this be risk appetite or risk
aversion? If you said risk appetite then you are correct, AUDUSD can't appreciate in risk aversion.
How would the economies in Australia and China need to develop compared to the US? compared
to Japan?
Then US compared to Japan?
Scenario4: AUDUSD continues down, AUDJPY heads upwards. Would this be risk appetite or risk
aversion? If you said risk appetite then you are correct, AUDJPY can't appreciate in risk aversion.
How would the economies in Australia and China need to develop compared to the US? compared
to Japan?

Then US compared to Japan?

If we can answer these questions, then we can see what developments will be the most probable
and what we should be watching for.
So go ahead, I'll wait for your answers to continue ......
-Razorjack

RASPUNSUL MAI JOS!!!!!!!!!!!!!!!!

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Hi guys, I realy like this thread and especially Razorjack's posts. I learn lot's of new stuff. I
even read books that were recommended here.
I'll try to help to solve your scenarios :]
Scenario 1: AUDJPY and AUDUSD continue downwards. But markets move back into risk
appetite and all the other currencies are strengthening against the USD and JPY.
So I think it must something bad to happen in Australia with regard to it's economy (or they
have to lower interest rates rapidly). China has finished with monetary tightening and has the
demand for commodities, except from Australia (for some reason).
Scenario 2: AUDUSD and AUDJPY both turn upwards.
China has finished with monetary tightening and has the demand for commodities. China's
economy improves -> also Australia's economy improves. Economies of US and Japan expand
much slower.
Scenario 3: AUDUSD heads up, AUDJPY continues down.
Risk appetite has raised, economies of China, Australia and Japan improve and exapand. On
the other side, US economy expands much slower, or it retrogrades. Expanding Japanese
economy raises the value of JPY and because of that, USD is the preferable currency for carry
trades.
Japanese economy expand as fast or faster then economies of China and Australia.
Scenario4: AUDUSD continues down, AUDJPY heads upwards.
It's the same as in the scenario #3, but the position of US and Japan is switched.
Well, I think that Japanese economy won't change much. US economy is starting to expand,
but pretty slowly. China will finish with monetary tightening, and it's economy will continue to
expand pretty fast. I have no idea about Australia and it's economy, but I think, it will copy
the situation in China. In the view of these facts, I'll tip the scenario #2 as the most feasible.
Don't touch, just look...
Quoting Aqw3R

Hi guys, I realy like this thread and especially Razorjack's posts. I learn lot's of new stuff. I
even read books that were recommended here.
I'll try to help to solve your scenarios :]
Scenario 1: AUDJPY and AUDUSD continue downwards. But markets move back into risk
appetite and all the other currencies are strengthening against the USD and JPY.
So I think it must something bad to happen in Australia with regard to it's economy (or they
have to lower...
Well done Aqw3R!
Move to the head of the class!
Just remember that China's economy has been cooling off for the past few weeks and this has
reduced the pressure for further monetary tightening. There may be further tightening, but

the pressure will continue to ease the further the economy cools.
The real pressing matter is the sovereign debt problems in Europe that is fueling the MEDIUM
TERM risk aversion.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Well done, Astellas! I give you an A-.
You have most of it, just a couple of things that are being overlooked.
If all other currencies start showing strength, but not AUD, then I would assume the appetite is not
for commodities, but elsewhere (eg. US stocks). I would also infer that until China are happy that
their inflation rate reflects steady growth then the demand for Australias commodities will not be
as great, and therefore investors will be wary of the AUD. This condition is subject to change
though so I will keep watching the events in China, and also keep an eye on other economies that
are returning to growth, and may soon have commodity demands (eg. The US). I would also be
aware of the Australian interest rate as expectations are built in that it will rise later in the year, but
if China is not importing, then Australia will have to reconsider.
Almost, there could be a demand for commodities because currencies like NZD, CAD and the
Brazilian Real are also dependent on commodities. If all other currencies other than AUD went up
against USD and JPY, then there would be something seriously wrong with the Aussie economy, like
out of control sovereign debts or extremely high interest rates strangling the economy.
If AUDUSD and AUDJPY both turn up then this must mean there is a demand for the AUD, and this
will come from either increased demand for its commodities, or investors wishing to invest in its
higher risk asset classes. So yes, I would expect markets to move back to risk appetite before this
can happen.
Yes, exactly. Well done.
Actually, heres something I dont quite understand. Australian bonds are guaranteed by the
government, and will offer a high rate of interest (if they are derived from the Countrys national
interest rate). So therefore, why does money flow out of the AUD in times of Risk Aversion. I would
have thought these products would give it some protection.
I'll let you conclude this one with some guidance.
If you BORROW money in a low interest currency to invest in higher risk currencies or assets, you
have to make sure that the profits you make from your higher risk investments are enough to
cover interest rate payments at the MINIMUM otherwise you will end up losing money. Of course
you would want more to make the reward worth the risk you're taking.
So in the above scenario, WHEN will you decide to move your money from the higher risk
investment to a safer investment or convert to cash to pay back the loan?
If this doesn't turn on the light bulb, think a bit more about how the carry trade works.
If the US economy grows at a slower rate than expected, and/or China returns to steady growth
before the US gets going, then this would lead to AUD strength. Id also be aware of changes to the
carry trade once the US strengthens though.
Just one correction, it would lead to AUD strength AGAINST USD. And the carry trade would shift if

the USD strengthens enough to warrant interest rate hikes leading to US interest rates to be
HIGHER than JP interest rates.
Faster, for the reasons above. So expect both AUDJPY and AUDUSD to be strong,
Yes.
until the picture with the carry trade becomes clearer. Then look to be long AUDJPY long-term (if
carry trade swaps).
Yes.
But how would the unwinding affect the AUDUSD ? I guess this would be a short-term shorting
opportunity ?
Are you sure about this?
We are currently in MEDIUM TERM risk aversion. Do you think that the AUDUSD carry trades have
or currently are unwinding now?
Again think about when the carry trade is profitable and when it becomes unprofitable, this will
help put the pieces in places.
If AUDUSD is heading up (meaning risk appetite) and AUDJPY is heading down then it must mean
the JPY economy is stronger than the US.
Yes.
But, if we are in a risk appetite, is it possible for the JPY to remain stronger than the AUD ? I would
of thought JPY, being the safest currency would be weaker than the AUD in times of risk appetite.
Excellent! Now are you thinking in the right direction!
In times of risk appetite, JPY can be stronger than AUD, but the Aussie economy would have to be
in very serious trouble. And in this scenario, the JP economy would have to be accelerating faster
than both the Aussie and the US, and the Aussie accelerating faster than the US.
So given the current economic situation how likely is this?
So we are seeing dollar strength against the AUD, but JPY weakness against the AUD. Well, we
cant be in a time of risk aversion as wed also expect the JPY to be strong against the AUD. So I
think we are probably in a time of risk appetite, the US economy is strengthening, which is leading
to the carry trade unwinding, and thus the AUDUSD will go down, while the AUDJPY goes up
(thanks to JPY now having the lowest interest rate).
Not exactly the AUDUSD carry trade unwinding. Think again. We are in MEDIUM TERM risk
aversion, what happened/is happening to the AUDUSD carry trade right now?
But yes, you are correct on the rest.
With regards to the carry trade unwinding, how much will the expectation of the US raising interest
rates have ? By this I mean - by the time the US has increased its rate higher do you think that the
carry trade will already have been unwound.
Again, I will let you come to the conclusion yourself with some guidance.

At the end of 2009, the markets were in risk appetite, with AUDUSD the preferred carry trade. In
order for the Fed to raise rates we would need to see much improved employment and inflation
numbers.
Take a look at the AUDUSD and AUDJPY charts when NFP was released on Dec 4th. The numbers
were very positive.
How did AUDUSD and AUDJPY react?
Now describe why they reacted the way they did and you will have your answer.
I feel like Im obsessing about the carry trade too much.
Not at all, I obsess about the carry trade all the time. The carry trade is HUGE. Most retail investors
only look at the small profits made from the interest rate differential. That's because they think
how much they would make with their own accounts NOT how much is made when 100s of millions
are thrown into carry trades.
Combine this with the fact that not only is money made on the interest rate differential but when
timed correctly on the invested currency appreciating and you can see why it is a MAJOR market
moving economic force in times of risk appetite. And not only have we seen the carry trade in
currencies, but also in commodities as well as higher risk assets in emerging markets.
And if you know where, when and why the carry trade is happening not only can you profit by
going with the flow of the carry trade, but you can also profit from the carry trade unwinding in
times of risk aversion!
Well, because of post 107 Im biased, both AUDUSD and AUDJPY will go up. However, I can see the
reasons why this is the most probable outcome. Mostly that Chinas monetary issues and Europes
debt issues are medium term, and the US recovery is long-term. Australias economy is linked to
China, and Japan isnt going anywhere soon.
The idea isn't for you to just take my word for it, but for you to learn how to do your own analysis
so you can come to your own conclusion.
This will help keep you "slightly ahead" of the market and anticipate the turns before they happen.
The best part is that when you get this right, the big boys will move the markets in your favor
AFTER you already have your positions in place and make you money!
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Quoting peter lee

Dear All ,
how we can determine when the turning point
from risk aversion to risk appetite
or when the correction is coming to an end?
for the past one week , I have not seen any major news.
is it based on price action ?
have a nice day

This is going to be individual to each trader.

For me, I would ask myself some questions:
Right now I am shorting everything except CHF, against USD and JPY. Where would prices
reach a low enough level to warrant risk taking? Are the prices there yet? Are the causes of
the current risk aversion still having an effect? What is the market sentiment? How are the
markets reacting to good news? to bad news?
This tells me to either hold my positions or look for areas to unload my current positions and
load up on positions going the other way.
What you will notice after some experience is that the markets don't shift from risk aversion
to risk appetite and vice versa in just one day, it takes place over a period of time. How long
of a time depends on how quickly the fundamentals develop.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++
i am curious to know when you will favor risk appetite.
I'll lean towards risk appetite when:
1. Clear plan from the EU that the sovereign debt problems will be contained
2. the fall out of China's monetary tightening
3. prices fall low enough to warrant risk taking again
Of course this is provided that no new major events impact the current fundamentals.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++
Hi Pilatus,
Welcome to the thread.
So, as I understood you correctly, you pay attention to find a pair which can be good for carry
trade.
This is wrong, I'm not sure where you got this from.
Please re-read post #1 and #10.
What I wrote is that I look at the overall global economy and determine what those conditions are.
Then go further down to determine where the biggest trends will be.
It could be carry trades or equities driven currencies, etc.
That is the main goal, to find a pair which can have a large trend(talking about medium and long
term trend).
Yes, that is always the goal, to figure out where the biggest trend will be.
Next, you find a currency with high interest rate versus low interest rate or two pairs on which you
pay attention.

I would do this IF and ONLY IF the carry trade will be a dominant force in the markets.
Let say that right now that is AUD versus USD. When you spot those currency you go in analysis of
those currencies in deep.
You're putting the cart before the horse. The global analysis comes first then that points me to
where I should be looking for the biggest trends. The currencies come later.
If all that I mentioned is correct here come my questions.
1. You mentioned in previous posts that for AUD you look for if the currency is in risk appetite or
risk aversion condition. Let's assume that we have risk appetite. This risk appetite will attract
investors to buy AUD and hold positons longer time to make money of differention. Now if that is
true, why we should look for AUD economies in correlation with China for example?? Ok I
understand that Chinas demand for Australian commodities will results in demand for AUD and
automatically strenght AUD against other currencies, but will currencie strenght if we have demand
because of international transaction(buying commodities), because of investors to get differential
interest or both or something else??? Which one has greater impact to strenght the currencie?
OK, you're not connecting the dots, you think these incidents are all isolated when they are
interlinked.
Australia has highest interest rates making it attractive for the carry trade.
China's high demand for commodities boosts Aussie economy -> Aussie economic expansion leads
to higher inflation -> higher inflation leads to interest rate hikes -> interest rate hikes lead to even
more interest in AUDUSD carry trade.
It's not one or the other it's all connected together.
2. Is there anything else to pay attention or we just need to look what you mentioned before?
It's not what I say that matters. You should learn how to do your own analysis so that you can
draw your own conclusions.
Looks like it is easy but I think that If analysis spread to much we can be lost in right conclusion.
It's never clear cut. There is so much information out there, your job is to figure out what the best
trades are. And it's never guaranteed, we can only play the odds.
Sorry for my bad english and please correct me and give us right path to make right analysis. You
certainly must have some spreadshit to make analysis and which you fill from time to time to get a
picture what is happening. If you have somthing like that, can you share that with us please.?!
There is no right or wrong path, it's only probabilities of what can happen. Your job as an investor
is to assess what those probabilities are, so that you can profit from it.
I don't use any spreadsheets, what you see on this thread is basically what I use to keep track of
my thoughts.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++
I think you are focusing too much on the short term and need to get a bit more familiar with the
medium and long term.

We had the AUD employment rate unveiled hour and a half ago and prices are moving like if risk of
apetite is growing.
This just means there were good numbers and the Aussie economy is getting stronger. This doesn't
mean that most investors will be willing to take on greater risk based on these numbers alone.
The RBA raised interest rates Dec 1, this should have been very good for the AUD, but take a look
at what happened the next few days. The markets were in the process of shifting from risk appetite
to risk aversion in the MEDIUM TERM.
Can you also see that the shift from risk appetite to risk aversion took nearly 2 months? (from mid
Nov to mid Jan)
That's 2 months to shift from uptrend to downtrend. It took me awhile to adjust to this longer time
perspective.
Is this reaction a small indicator that the risk of apetite is slowly taking over?
I know that there are much bigger things going on in Europe and Dubai, but the trends already
changed direction in the short term.
Take a look at AUDUSD chart during the uptrend from Mar - Nov 2009, did you see any short term
movements against the trend?
There will always be times where the short, medium and long term trends will be moving in
opposing directions.
Our jobs as investors is to decide which time frame we want to trade and stick to it.
Also it seems that tomorrow they will be anouncing news about Greece and.
I don't know fundamental to read the market. I use a paid service to read where it is going and this
paid service show that the momentum is definetilly going to risk of apetite. This momentum is
about to take over on the medium term charts.
What you need to do is to ask yourself questions, don't just blindly go by what others / news are
telling you.
For instance this POSSIBLE bail out for Greece. Remember it's only speculation at the time, this
hasn't been confirmed yet.
When something like this happens, I start to ask some questions. If Greece gets a full bailout then
what will happen with Spain, Italy, Portugal and Ireland? Can the EU / ECB bailout every European
country with debt problems? And don't forget that the UK also has some debt issues.
And then if there is a bailout, what does it mean about the European economy? Does it mean that
the European economy will be stronger or weaker? IMO, it means that the root problems weren't
solved and it will only delay a blow up later down the road.
The proper way to fix this would be to let Greece take care of their own deficit with MINIMUM
support from the EU. Whether this will happen, we'll have to wait and see.
You need to understand that what I'm doing is NOT news trading. I am doing FUNDAMENTAL
ANALYSIS, there is a big difference. News traders REACT to the news, while my style is to
ANTICIPATE market swings over a longer time perspective. This means that you have to actually

look beyond the surface of what is being said in the news and ANALYZE the situation.
Having said all this, yes, you could be right, but I don't think prices have reached a low enough
level to warrant risk appetite.
To get a picture of what I'm talking about. Look at your MONTHLY charts on AUDUSD, NZDUSD,
USDCAD over 2009 to now. To me it looks like prices have reached exhaustion and are turning
around to make a correction. And there is still a ways to go before a correction is complete.
What does it look like to you?
Of course I could be completely wrong, but I still think the odds are in favor of continued risk
aversion over the MEDIUM TERM.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++
IMO, it's still way too early to say that there is a move towards risk appetite in the medium
term.
My analysis is that the medium term risk aversion has just started and still has some more
weeks and possibly months to go.
Before I look at building my positions towards risk appetite, I'd like to see AUDUSD first break
0.90 then I would like to see it make and sustain new highs above 0.94 before it changes my
views.
Don't worry rac, the markets usually test and re-test highs and lows before shifting trends.
I'll give you an example. Take a look at the AUDUSD charts. On 16/11, prices made a new
high, but couldn't sustain it above the previous high from 26/10. Which meant that investors
weren't willing to buy at higher prices, reduced risk appetite. Then we had the Dubai debt
crisis 26/11 - 27/11 that pushed prices down to test the minor low from 3/11.
Then the markets retested the highs but failed, but it has been making new lows. This is the
MEDIUM TERM. Do you see how the markets test and re-test old trends before we see a full
reversal?
You'll see the same thing in NZDUSD, NZDJPY, AUDJPY, etc. The difference is that the
strongest trending pairs "consolidated" to the testing and re-testing areas later than the more
weaker trending pairs. Compare EURJPY with AUDJPY and you will see what I mean. EURJPY
consolidated much sooner than AUDJPY. So during the medium term risk appetite while
AUDJPY was making new highs, EURJPY was swinging within a range. Then risk aversion over
the medium term moved AUDJPY down and EURJPY broke out of it's range to the downside.
So IMO, before we see a move towards risk appetite again, the markets will test the lows and
fail to sustain new lows. When this happens then I will look for building positions in the other
direction.
-Razorjack

+++++++++++++++++++--------------------------------++++++++++++++++
+++++++-------------------------In anticipation of monetary tightening, there has been a record amount of loans in January,
more than the 3 previous months combined. Real estate prices are also up close to 10% from
the previous year.

This to me is a warning of an overheating economy and possible economic bubbles in real

estate markets.
Anyone want to take a crack at how this can affect China's monetary policy and how it can
affect the commodities and the forex markets?
-Razorjack

RASPUNS:
Quoting Razorjack

In anticipation of monetary tightening, there has been a record amount of loans in January,
more than the 3 previous months combined. Real estate prices are also up close to 10% from
the previous year.
This to me is a warning of an overheating economy and possible economic bubbles in real
estate markets.
Anyone want to take a crack at how this can affect China's monetary policy and how it can
affect the commodities and the forex markets?
if it's an overheating economy then this could be shown by rapid inflation-couldnt China want
to raise rates to slow down? o i don't know

RAZORJACK Well done!

It's a first step.
Remember that monetary policy is more than just rates. China may choose to not raise rates,
but there could be other ways of tightening monetary policy, like letting the Yuan appreciate,
tightening credit availability, etc.
So now the next step. What does this mean for the forex markets? Which currencies will be
affected?
-Razorjack
To get a good understanding of how the developments in China can impact it's economy. Let's try a
parallel exercise.
It's a high probability that China will need to cool the economy and there are several ways that
they can do this.
1. Tighten credit availability - How will this impact China's economy?
2. Increase interest rates - How will this impact China's economy?
3. Letting the Yuan appreciate - How will this impact China's economy?
If you think in terms of the Chinese national economy, imports and exports and it will give help put
the pieces in place.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
if i can remember, China has restricted loan to property related areas.

Yes, this is correct. It was to reduce real estate market speculation. This lending was for other
areas as well including real estate. When you have this much lending, it tends to lead to
economic expansion (economic boom) but if the investments don't pay off before the cost of
credit (interest rates) is so high that it's no longer sustainable then you get the downturn
(economic bust).
In this particular case, with this much stimulus there needs to be some tightening soon.
thus, there will be less demand for commodities
e.g. iron , oil , etc
AUD and CAD will drop
Yes, there will be less demand from China. When you say AUD and CAD will drop, we need to
be clear as to which time frame.
Remember that markets factor in future events into the prices. So when there are more clues
about China's monetary policy, it will impact the MEDIUM TERM.
But in the LONG TERM, there should be a continued uptrend in commodities due to China, US
and a global economic expansion.
Then the LONG TERM trend will change when monetary policies are so tight that they strangle
economic development. But that is still a few years away.
Well done mate! Pretty soon I won't be needed here anymore!
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
I love fundamentals, I believe it gives me an edge as to what's happening and what's going to
happen in the markets.
The drawback with fundamentals, or maybe it's just me that hasn't figured this out yet, is exact
timing.
For instance, the odds are in favor of MEDIUM TERM risk aversion. The uncertain part is when risk
aversion will start to accelerate and really show in prices.
We can see that the EUR and to a lesser extend GBP have headed down to due risk aversion. But
we still have the Chinese markets supporting the commodity currencies: AUD, NZD and CAD.
I also believe the odds are in favor of a major correction in commodities. When this will happen will
depend on when China tightens it's monetary and fiscal policies. And this leaves a bit of
uncertainty.
The commodities are at POSSIBLE turning points right now, AUD, NZD and CAD all fell from Jan 14
to Feb 5 and we saw a short term rally this week. Now what is uncertain is whether we'll see these
currencies continue their fall or whether they will continue to rally to their previous highs from Jan
14.
The uncertainty is around the Chinese New Year celebrations all through next week, when
businesses and banks will be closed. I hear that China may not do or say anything regarding
monetary tightening to jinx the new year.
So will the commodity currencies turn and head downwards today and continue next week? Only
time will tell.

This is one of the areas I'm trying to improve upon, I'm making progress but this is where technical
analysis and risk management are KEY
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
I respectfully hope to hear/read Razor's view - with respect to the consideration of the 'carry trade'
winding down...and any proposed timeline as to when one might consider the U.S to raise rates.
No problem.
Around 2000-2001, we had the IT bubble pop, and there was in an immediate flee to safe haven
investments, that's why we see the USD appreciate.
From 2002 - 2008, we can see George W. and his expansion policies prostituting the USD. There
was so much money supply, easy credit and loose monetary conditions that the demand for the
USD dropped and that's why we see the big depreciation in the USD.
Then in 2008, with the collapse of the housing market, Lehman Brothers, other financial
institutions and banks, there was a global flee to safe havens driving up demand for USD.
From March 2009 to Nov 2009, the USD was the preferred currency for funding carry trades, due
to the near zero interest rates. This one of the main reasons for the decline in the USD index.
From Nov 2009 to present, we're seeing the US economy start to pick up steam and accelerate. At
the same time there is increasing risk aversion driven by sovereign debt problems initiating
unwinding of the carry trade.
As the US economy moves from recovery to expansion, there is a good probability of the Fed
raising rates before BoJ, causing further unwinding of the USD funded carry trade and shifting it
over to JPY.
Now whether we'll see the USD index rally upwards will depend upon Obama's economic policies
and whether the administration will focus on reducing gov't spending, national deficit and money
supply.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++

razor as you know using technical analysis is more simple than funadmental when you use an
indictaor only thing you should care is e.g. red line is above green line or histogram bar is
above some number and i think this is why many traders stick to technical but fundamental
needs more knowledge more experience........
Yes, this is true. However fundamentals and technical analysis provide different views.
Technical analysis provides the "when" a price movement could take place.
Where as fundamentals provide "which direction" and "how far" a price movement could take
place.
For instance, many traders trade on technical analysis alone, but technical analysis can't warn
you of a potential market crash for instance much less allow you to profit from it.
I personally could not trade if didn't use both.
risk appetite/aversion situation due to what or why traders wants to risk more or what
motivates them to risk?

Economic conditions, of course. Under certain economic conditions, risky investments can be
much more profitable than safer investments. Like for instance in a bull market. Under other
economic conditions, safer investments are more prudent, such as during the economic
crisis / bear market.
and these situations cause what?
In forex, you have "safe haven" currencies: USD, JPY, CHF
And you have "riskier" currencies: AUD, NZD, CAD, Brazilian Real, etc
In times of risk appetite, money flows from the "safe haven" economies to the "riskier"
economies and the "riskier" currencies appreciate against the "safer" currencies.
In times of risk aversion, money flows from the "riskier" economies to the "safe haven"
economies and the "safer" currencies appreciate against the "riskier" currencies.
im sorry

if my questions is repetitive

No problem, but try to read the thread. It explains all of this. And the references in this
thread are also very good at explaining how the global economy works.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++
In the meantime, back to AUDUSD. What do you now derive from the way the commodity
currencies have reacted to Chinas next leg of tightening ?
I would have expected the news to have had a lot more strength in pushing the AUDUSD lower.
The fact that it hasnt and is now testing the high of the last few days tells me investors are
shrugging off the news. What is your view ?
China released the news of credit tightening after the close of the Asian session and before a long
weekend in the US. Today the markets are closed in the US, China and other parts of Asia.
If you look at the volume you will see that it is very thin, so I'm not quite convinced of what's
happened so far. I'd like to see how the markets react in the London and New York sessions
tomorrow before drawing any conclusions.
I could be wrong, but right now I still can't see risk appetite coming back into the market with all
the negative events in the world: Sovereign debts crisis in Europe and Dubai, monetary tightening
in China, etc.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Quoting rac

Hello Razor,
your job here is inspiring, you are making us study, I'm almost half way on the VIC I book, I wish I
had more time to read it, it is eyes opening.
Hi rac,
I'm glad this is helping you see things from a different perspective. This is only the beginning, once
you learn the fundamentals enough to "see" the medium and long term trends, it will help you
anticipate the reversals.

You are absolutelly right I barelly understand mid term trend and Im actually cannot imagine
myself taking long term positions yet. The psicology is so different, I don't know how I could put up
with the stress to see the trend going 150 pips agains my position. I'm looking forward to learn and
I hope you will be here to help us
This is exactly what I meant.
As for the trend going 150 pips against your position, this is all depends on how you manage your
trades.
For instance I shorted AUDUSD from 0.93, unloaded half my position around 0.8660, then was
looking to add to my overall position again around 0.88 but I ended up losing percent on that
add on because the market didn't turn down and continue. And then my total position got taken
out around 89.50.
So yes, technically the market did go 150 pips against PART of my position but overall I still ended
up making substantial profit.
Trade management is THE MOST IMPORTANT PART of any trading system, what I find funny is that
VERY few traders actually talk about it. Instead it's all about taking entries based on indicators.
This is the beauty of medium and long term trading, that you can not do with short term trading,
creative trade management to maximize profits. If you manage your trades properly you can end
up making 200%, 300% or higher profit with an initial risk of 0.5%-1% by riding out the entire
trend.
If I remember correct, short term is days to weeks, mid term is weeks to months and long term is
months to years.
How many more days do the riskier currencies need to go up to be considered a mid term risk of
apetite?
It's hard to measure this in days. You can use statistics for this but it isn't very reliable. What I do
is use a combination of technical and fundamental analysis. I'll explain further down.
My long AUDUSD position TP is at 89.94 and then, I might still go up for short period until it
reverses, the momentum is set up now, but my analysis might not be valid because is not based on
the fundamentals. They are still confusing for me, I will have a more educated answer once i read
the second book.
Take your time with this and REALLY learn it. Right now you may not have a full grasp of the
fundamentals but when you do, it will give you an advantage over purely technical traders. For
instance, you can read markets extremes when they go against the fundamentals or "see" a
market crash coming and adjust your position size for more profit when the reversal comes.
Looking at the weekly and monthly charts, is it possible that the long term investors liquidated
their long positions in Oct-Nov last year because the AUD got near the high marks from mid 2008?
This depends on the the particular investors strategy.
If I took my strategy to trade the LONG TERM (I trade the medium term), I would have unloaded
PART of my LONG position around 0.93 during the Dubai Crisis and then look for adding to my
overall long position around 0.82, 0.80 and 0.78. I would also trail the stops on my open positions
to 0.74.

You asked me if I see the mid term going down, and I do see it in the attached picture. I hope we
make some moeny with the reversal.
Actually you are looking at PART of the medium term.
Take a look at the attached chart. Do you see the trend line from Feb/March 2009 to Nov 2009?
THAT is the MEDIUM TERM and it is the 1st leg of the LONG TERM.
Now where you were asking about how long it will be before we see MEDIUM TERM risk appetite in
the markets again. Take a look at the gray colored rectangle on the 38.2% of the fib. That is the
target I am looking at before seeing it turn to the upside.
Now the price may NOT get there, if the medium term fundamentals turn to the upside very
quickly. But to me 0.82 would be a price extreme where investors will feel that prices are low
enough to warrant risk taking again.
This is what the CURRENT market conditions are telling me. Now remember that I could be wrong
and it could turn upwards a bit later or sooner, this depends on how the fundamentals develop over
the next several weeks.
Attached Image (click to enlarge)

-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
The trend and the crowd both show midterm AUD and Euro weakening, and look what has
happened both have gained. Perhaps others can shed some light but I feel this is the case
only in short term trading when we have overbought/sold levels. In the end fundamentals will
take prices where they should be.
Usually the fundamentals do drive the markets over the long term, but yes in the short term
the markets can swing quite a bit. The great trades come when you can see that
fundamentals are telling you one thing and the short term pushes prices in the other direction
to extreme price levels.
I am glad to hear Razor used a SL while he was still in his profit range even though he knows

it will go down, i guess I just assumed when trading midterm it was expected for the price to
go up and down and figuered he would just stay in as he got in at .93. Doesn;t this count as a
short term trade you did though?
Yes, you can call this a short term trade. I never looked at AUDUSD as the pair to trade down
in the medium term. Another poster wanted to use AUDUSD as an example. I mentioned in
earlier posts that the strongest performing currencies, i.e. AUD, NZD, etc are not the ones
that you want to short, instead I look at shorting the medium performing currencies like EUR
and GBP. Take a look at EURAUD and EURUSD to see what I mean.
The problem with AUDUSD is that AUD is getting a lot of support from China and the
downtrend isn't going to be as strong as the uptrend. So I have to play it differently by
trading the channel. I just saw that it was at a price extreme at 0.93 and saw a shorting
opportunity.
It's different if you compare it to a strong down trending pair like EURAUD or EURUSD.
Remember when I mentioned in the beginning that you have to look at the overall conditions
to find the strongest trending currencies? This means that AUDUSD and AUDJPY are the
strongest for the UPTREND and the strongest pair for the DOWNTREND are pairs like GBPAUD,
EURAUD, EURUSD, etc.
So the goal should be to identify the best trending pairs during risk aversion and the best
trending pairs during risk appetite then to trade them appropriately.
How did you come up with 89.50 as your SL? Things fundamentally have NOT changed so the
AUD short is still in play for the midterm but how do you decided now when to reenter as you
are now out? Do you use FIb levels?
89.50 was above the 50% fib level of the downswing. Yes, the AUD short is still in play but as
I mentioned AUD is a fundamentally strong currency and won't fall as hard as EUR or GBP. So
the ideal is to play AUD, NZD and CAD to the upside at the same time playing EUR, GBP and
JPY to the downside.
AUDUSD is not the optimal pair to short, but it is now at the 61.8% fib level, I'll watch the
price action around this area. If it breaks above 0.9050, I'll be looking to get in around 0.92,
otherwise I'll wait for it to break below 0.8950.
Entering now will mean you will no longer have that nice cushion you had shorting at .93, if
the midterm trend was to change to long while you have shorts opened at these levels now
you may loose a lot as you wait for to go down.
As I mentioned AUDUSD is not the optimal pair for shorting, so holding on to it was only an
option if it behaved like a strong downtrending pair. Otherwise I can short again close to
where I got in the first time!
Thank you for this great thread, I have always known that midterm trading is the only safe
way to trade but I would get impatient and trade on the short term which looking back I feel
is much more of a gamble.THANK YOU!
You're welcome.
I've also had problems with patience and waiting for medium trends to develop, but I'm
starting to get better at this. I want to move over the LONG TERM, it's unbelievable how much
money can be made there with little risk. I'm still trying to develop a system where I can
trade both the medium and long term, so I can stay in trends for years.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
1. is there a way to judge whether
the EUR problem has been discounted by market ?
Yes, the EuroZone debt problem was factored into the market several weeks ago. The way I read
the markets is to do a comparison analysis, just using the analysis techniques we discussed on this
thread.
First of all the debt crisis pushed the markets into risk aversion. During risk aversion the Euro
strengthens against currencies like AUD and NZD. Take a look at what happened in the EURAUD
charts. The green ellipse is when the medium term risk aversion hit the markets but there was no
trend change.
This is a pretty big clue that debt crisis has been factored into the market.
That Euro horse seems like it's been flogged to death. It's very late in the trend, if you're not
already in, it could be a tough trade.
2. what is the trend of EUR int rate ?
I assume you're referring to yield curves?
I use German yield curves, since it's the largest economy in the EuroZone. Here's a link:
http://www.bloomberg.com/markets/rates/germany.html
Attached Image (click to enlarge)

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
The Fed just hiked the discount rate by 25 basis points.
This is the first signal that the Fed is withdrawing emergency stimulus and tightening credit by
via reduction of money supply.

The all important Fed Funds Rate is unchanged, but this is a signal that the US economy has
recovered and will continue to accelerate.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++EUR yield will probably stay
put or lag US yield because EUR economy will pick up later.
First of all we need to differentiate yields and interest rates. They are not the same thing.
I assume that you are referring to interest rates.
EuroZone interest rates will stay put for a while, the economy is weighted down by the
lagging economies in Italy, Ireland, Spain, Portugal and Greece.
EuroZone rate hikes lagging behind US rate hikes?
Maybe, it depends on how fast the US economy will accelerate to warrant rate hikes.
2. in order to reduce trade deficit of EUR , which (fiscal or monetary) policy EUR should
implement?
with current anaemic economy, hiking rate will be bad for economy but will be good to reduce
trade deficit.
with current anaemic economy, pumping more money into economy will be bad to reduce
trade deficit but good to economy.
I don't think the trade deficit is the EU's and ECB's top priority right now, I believe that it is
sovereign debts (budget and national deficits) that need to be reduced in order to improve the
economy.
3. which has a greater impact on the direction of EUR (trade deficit or interest rate
differential) ?
I believe the debt problems are more important right now to the EU and ECB than trade
deficits. The sovereign debt problems are interdependent with interest rates.
I can't see the ECB raising rates until there are clear indications that sovereign debts aren't
going to hamper the EZ economy. IMO, it would be an economic disaster if the ECB raised
rates before the PIIGS (Club Med as the Americans like to call these coutries) have their
deficits under control, otherwise there are serious risks of defaults.
-Razorjack

Post 270

Cleanup

Quote

Feb 19, 2010 1:24pm | Edited at

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++
Quoting Astellas

Lets talk Carry Trade I love it !

So, the Fed has raised the discount rate, and this can shortly be expected to feed into the Fed
Funds (target) rate.
Therefore, when risk appetite returns it will be time to start looking out for the next big trend,
a long play on AUDJPY, right ?
That's almost correct. It's not certain that we'll see a hike in the Fed Funds Rate shortly.
IMO, the Fed will be cautious to raise the FFR before employment and inflation has been
showing positive improvements for some months. The discount rate hike was mostly to help
absorb the 1 trillion USD in excess bank reserves. In essence, it's to reduce the money supply
and of course when the supply is reduced then there's a shift in balance between the supply /
demand relationship and that's why we're seeing this boost to the USD.
But when the FFR is raised then I plan to short JPY across the board and hang on to my
trades until the end of the current business cycle several years down the line.
Actually let me correct this: I plan to short JPY across the board when risk appetite is back
into the markets, whether the Fed hikes the FFR or not, then I plan to hold on to these trades
until the end of the current business cycle. This way I would already be in position by the time
the rates are hiked.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++
Most, if not all, threads are devoted to trade shorter TF (1Hr and Lower), it is great to see some
real long term trading dedicated thread.
I've tried both short term and long term. I can honestly say that long term has been much more
profitable for me.
Before reading your intros in the first few posts of this thread, I used to think fundies were more on
retrospection rather foresight. As in , why did something happen rather than what might happen.
This is a common misconception. Fundamental analysis is a tool just like technical analysis. You
have to separate the tools themselves from the finished products built by the tools. I use
fundamentals to help me anticipate trend changes, others might use technical analysis to do the
same thing.
I have one question though, Would you agree when I say: To fully utilise fundies in your trading it
is important to have order flow data too? Those cud actually point to whether you are right on the
dot or not.
I don't use order flow data. What I do is to anticipate all possible scenarios, what would cause
them and how the markets would react. Then I try to establish the most likely scenario and the
odds of it occurring. This helps med decide how much to risk and when I would know that my view
was right or wrong.
For long term trading, I don't think order flow data is needed. For instance if you know that there
has been a major fundamental shift in the global economy that will start a new trend, then the job
becomes to find out WHEN. This is where technical analysis comes in and being able to recognize
business cycle phases, accumulation, distribution, etc. In long term trading, trend changes happen
over several weeks, even months, I don't think that order flow data can help much in these cases.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
I heard something interesting on CNBC last week when the FOMC raised the discount rate. There
was a debate going on about whether the Fed signaled this in advance, but the markets were still
surprised.
And the journalist said something to the effect of how it was unfair that the FOMC "shocked" the
markets and caused some investors to lose money. There was a former central bank employee who
worked for an institution who came up with a brilliant response. He basically said that if an investor
doesn't understand the Fed and the economic market forces that move the markets then he/she
has no business investing and deserves to lose money.
Brilliant!

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Yes, but I was hoping for a bit more fundamentals:

1.

The bear market causing risk aversion from 2007 to beginning of 2009 pushed the USDJPY
downwards.

2.

Since the beginning of 2009, the USD has been the favored currency for funding the carry
trade. Causing a further weakening in USD against JPY but this time in times of risk appetite

3.

You have the US economy accelerating and the Japanese economy in a state of deflation.

4.

Combine this with Japan's gigantic national deficit and the probability of the Fed raising
rates before the BoJ is very high, essentially shifting carry trade funding from USD to JPY

5.

This will cause the USD strengthen and the JPY to weaken, which just about every country
in the world wants.

So this translates to in my opinion, the end of the downtrend in USDJPY and the accumulation
phase started in Dec 2009 / Jan 2010.

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Also what I'm trying to teach on this thread is that the news is NOT what drives the markets,
it's the fundamentals.
For instance, did you notice that the CB Consumer Confidence was "bad" for the USD but yet
the USD still gained on GBP, EUR, AUD, NZD, and CAD ..... why is that?
The answer is fundamentals and medium term risk aversion!
Once you get a proper understanding of the fundamentals and how it can be used to trade
then news items including NFP won't affect your trading decisions and you'll be able to hang
on to trades that "go against" the news items like we saw today.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++

So, now we are seeing a fundamental shift towards the JPY, it being bought to finance the
carry trade. Next step, how do we go about trading it ?
Actually WHEN the shift happens JPY will be SOLD to fund the carry trade. Please read up on
how the carry trade really works so that you can take advantage of it.
As to trading it, I can't really help you there. The reason for this is that your trading plan
needs to coincide with your personality. For instance I already started building my position in
USDJPY, but it may not take off for months. Will your emotions allow you to stay in a trade
showing negative profits for weeks/months?
For me this is not a problem, but it could be a problem for other traders.
This is why you need to find a unique trading style that works in conjunction with your
emotions.
Please shed light on this fact too , why in spite of a bad data USD rallied? Has it something to
do with the fact that with rate hike USD is no longer the favourable currency for the carry
trade.
I've explained the MEDIUM TERM RISK AVERSION in the thread. It's not much fun repeating
myself, so please go through the thread and if you don't understand, point to the specific post
you don't understand.
There is no rate hike in the US just yet, we are ANTICIPATING rate hikes just like the big boys
do.
That being the case, what we are seeing is unwinding of the carry trades. Correct me if I am
wrong?
No right now, there is no unwinding of the carry trade. An example of the carry trade
unwinding is the Dubai Debt crisis that started on Nov 25, 2009 look at AUDUSD, AUDJPY on
Nov 26-27, 2009. For other examples look at AUDJPY during the collapse of the US housing
markets that started in July 2007 and then the collapse of financial institutions that started in
late July 2008.
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
The next leg of the bull run in what?...U.S equities?..commodities?
The global economy, i.e. risk appetite, so it's basically every market that goes up during risk
appetite.
We get the "selling of JPY" in Carry trade "if/when" U.S raises rates ( which many believe may
not happen til mid 2011...including GS)
You forgot about the part where I wrote that we won't need to wait for the Fed to actually
hike rates, the market will factor rate hikes into prices much much sooner when the market
ANTICIPATES a rate hike. Also the biggest move will come, if the Fed surprises the markets
with a rate hike EARLIER than expected. Combine these 2 factors and there is a very good
chance that we will see the USDJPY take off this year, EVEN if the rate hike doesn't happen
until 2011.
What Im missing ....is the usual co relation of stocks/bonds/commod/equities...would have it
that........
Have you read the Intermarket Analysis book recommended in this thread?

If U.S dollar will be bought ( in line with rise in % rate)...and/or JPY sold...then we would see
the U.S equities FALL in price...as risk is averted and U.S dollars are bought. (equities sold??)
Not quite. Markets don't move in a black and white, cut and dry way like you are describing.
It's all about balance. As an economy expands, interest rates will need to rise to keep it from
overheating, strengthening the currency, but interest rates are low enough to continue
expansion but SLOWER expansion. As the market continues to expand, there will be more
rate hikes, etc. Until interest rates are too high to sustain economic expansion.
As the USD strengthens you will see a SLOWDOWN in the rise of the equities. It's not until
interest rates get so high and the USD so strong that the US economy can no longer sustain
expansion that we will see a decline in the equities. Remember that we are focused on the
long term, not on just one interest rate hike.
SO.....in the face of the attached chart....and the endless print of U.S dollars...you feel
strongly that we are seriously on the cusp of the full on turn around of the U.S dollar as seen
(secular bear) for the past ten years?
First of all the Fed started to soak up excess liquidity, endless print of USD that you are
referring to.
And what I meant is that we've seen the USD bottom from being used to finance the carry
trade when you compare it to the other carry trade funding currency, JPY. Had the US interest
rates been 25 basis points higher in March 2009, we would not have seen the dramatic
weakening in USD against JPY from March - Nov 2009.
As for the long term decline in the USD index, you can thank George W. Bush's economic
policies for that. Whether we'll see a reversal depends on whether the US gov't now decides
to reduce gov't spending and reign in the massive deficits. If that happens then we can expect
the USD index to strengthen for quite some time.
Because the USD Index weighs the USD against a basket of currencies, where a major portion
of the basket is EUR, another argument in favor of the USD uptrend is the weakness in the
Euro and all the trouble the EuroZone is having.
and in turn....double dip/re test of March lows in U.S equities?
No, I expect equities to undergo a correction in the medium term and continue upwards in the
long term.
in that any rise of the U.S dollar... of any magnitude to truly change its downward direction
over the long term...would it not be indicitive of lower prices in equities?
You have to stop looking at the markets in a black and white fashion, i.e. a strengthening USD
means depreciation in equities, there a many many colors that shift over time.
For instance, what if the ONLY country doing well was the US but interest rates in the US were
still low enough to fuel economic expansion. Then what would you have?
That's right, a strengthening USD AND appreciation in equities!
-Razorjack
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
2) With your fundamental analysis are you currently also analysing other mid term risk aversion
events that could possibly take place? Theres been some talks on the side about china overheating
with a real estate bubble. Any views there?

I thought I mentioned this earlier in the thread. China's real estate market overheating is one of
the reasons why China is tightening credit. I believe that we will see further measures by China's
central bank soon.
I don't expect the real estate bubble to burst just yet. If the bubble persists, it will burst several
years down the line when interest rates are so high that corporate revenues are no longer enough
to pay back the increasing cost of loans. That will be the time to look for Long Term Risk Aversion.
-Razorjack

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++++++++++++++++++++++++++++++++
PETER LEE HTTP://WWW.FOREXFACTORY.COM/SHOWTHREAD.PHP?
T=216097&PAGE=18
occasionally, i will post because I have a full time non-trading job.
here is my story;
world bonds and world equities and commodities are linked.
bond will rally first, followed by equities and lastly commodities.
sometimes, they move in tandem with little time lag.
when trading ccy pairs, remember to buy economy-strong cyy and sell economy weak ccy as
specified by kathy lien
when US hike rate, usually, most countries (not all) will hike too.
because when US economy improved , usually, economies of most countries (not all) will improve
too. this means the world equities rally, risk appetite increases and non-safe heaven ccy
appreciate.
usually, other countries interest rate is lower than that of US
for example, consider the AUD/USD ,
when US hike rate, Australia may hike too.
because both ecomony are getting better.
thus, the interest rate differential may remain approx constant
from carry trade point of view, it is better to be long in AUD
since AUD has higher interest rate than that of US.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Wow I'm surprised to see people still keeping this thread alive. Unfortunately, I don't have enough
time to post actively, but since you asked I can give you my take on the latest events.
First of all I suggest looking at all the current developments and not only the US credit downgrade.
1. slow down in China impacting commodities, i.e. AUD, NZD and CAD.
2. record high CHF and JPY levels impacting their economies causing direct or indirect (SNB cutting
interest rates and increasing money supply) intervention.
3. Euro debt crisis - the increased firepower to the EFSF will help stabilize the Euro in the long run
but the real question is the amount of ammo, i.e. if the amount of money in the fund is enough to
help Italy and Spain
4. US fiscal policy, the downgrade was caused by the unsustainable levels of debt meaning that the

govt didn't cut enough of the debt, which means that it will have to cut more in order to avoid
further downgrades. This would cause further slowdown and push the Fed to ease a bit more, i.e.
QE3
So to sum it up, the safe havens (USD, JPY and CHF) govts and central banks are pushing to ease
their policies thus depreciate their currencies, while the global economic slowdown will cause the
riskier commdolls (AUD, NZD and CAD) to depreciate.
Based on this, 2 weeks ago I got in long on Euro and GBP vs the commdolls (AUD, NZD and CAD)
right on the turn. I believe these pairs have the biggest potential gains over the medium term, i.e.
2 to 6 months. Of course I could end up being wrong but so far it's going in the anticipated
direction and I have a profit.
Finally, always make your own analysis and trade your own systems using fundamentals as a road
map. Remember that fundamentals can tell which way the markets will be headed, it just can't tell
you when, that's where your own system comes in.
Hope this helped, good luck! :-)
EDIT: Oh yeah, almost forgot...look for gold to continue upwards over the medium term until the
easing cycles are completed then short the hell out of it for a long long ride down!
-Razorjack

+++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Hi mikeyshaun,
I dont do an in-depth analysis of the US market per se, but I look at the fundamentals that
influence the stock markets (US and others) such as inflation, manufacturing indexes,
unemployment figures for consumer dependent economies, Central Bank policies and
sentiment, fiscal policies, elections, debt levels, etc. These are the things that influence the
stock markets themselves.
Now this is what I do, because I like to get slightly ahead of the market before a trend
change. But remember that this is just based on how I like to do things.
If you dont feel that all this is right for you, there is still plenty of money to be made following
the long term trends. And in this case you only need to look at the different indexes and keep
an eye on inflation and monetary and fiscal policies of the currencies you want to trade. If
you're just following the long term trends, then you dont need in depth analysis of anything
you only need confirmation of the current trend or to know whether the current trend is going
against the fundamentals so you can reduce your risk exposure.
Hope this makes sense? Remember to try to link all of this stuff back to trading YOUR style,
you dont need to do what I do or what Victor Sperandeo does. Look at different indexes to
see if t helps with how you want to trade, if something helps, great keep it, if not remove it.
I'm not sure if this was the answer you were looking for, but basically I like to look at the
fundamentals themselves and to relate it back to the stock market indexes and currencies.
This way if the trends in the indexes and currencies are in line with the fundamentals then I
can expect the trend to continue. On the other side if the trends are going against the
fundamentals then I should look for an exit if I'm riding the current trend and/or look for
opportunites to get in at a trend change.
For me the most valuable lessons from the Trader Vic book was the explanation of how the
Fed works, how to consistently draw proper and objective trendlines, how he spots trend

changes and finally how he trades those trend changes.

Hope this helps.
-Razorjack

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Hello everyone,
Just thought I would come back for just a short while to finish up some thoughts I've had
regarding this thread.
I have to admit that it's bothered me to not finish what I started here, so here's the last of it.
I won't do a questions and answers thing here, instead I will just throw everything out and let
the pieces fall where they may.
Thinking like the Big Boys - Becoming an Apex Predator
I like this phrase, "Becoming an Apex Predator", somehow it sums up what I have learned and
want to get across with this post.
When you really understand what the big players in the financial markets are up against, you
will see that there are a lot of losers even there. Of course not as many on the retail side, but
still alot. And when you learn, truly learn their weaknesses...... well let's just say that I've
become a Big Game hunter, i.e. an Apex Predator, taking money even from the big
players!
Ok, so looking at the big players, we never got to finish what their weaknesses are and how
to take advantage of them:
1. Most work for a BUSINESS, i.e. reporting to a manager, stockholders, investors, etc etc
- Yes, most of the big players need to report to someone else pulling their strings
2. The Achilles' heel of most businesses is the desire for SHORT TERM PROFITABILITY or for a
more familiar term: GREED
- The businesses and their shareholders want to see profits growing on a quarterly basis. Also
due to tax purposes and yearly results, many big players need to liquidate positions at certain
time periods even when it may not be the best time to liquidate large positions
3. The Big Players get paid bonuses based on the quarterly, semi-annual and/or annual
results/profits they make.
-This puts pressure on them to profit even where they may be no moving market to profit off
of in order to keep their jobs and/or receive bonuses.
4. Yes, just as with most retail traders, even the big players and their businesses fall prey to
the emotions of FEAR and GREED.
- One of the things you learn about human psychology is that our behaviors are incredibly
complex when looking at the individual. However when you look at how we behave in a herd,
i.e. financial markets, you notice that the behavior of the herd is very simple and primitive. A
lot of the big players move with the herd just like retail traders, just think of the many hedge
funds and investment banks that got hit during the last economic downturn.
5. Having to load and unload large positions can take a long time thereby pushing prices
against the trader
Instead of looking at things like trading systems and indicators, etc etc, future would be

successful traders need to look at how they can use the above weaknesses to their
advantage.
1. Be independent - do not look to others for guidance, advice, tips, indicators etc. Being
independent means being free from the herd, i.e. the 95% losers, otherwise you will only be
thinking like the herd and fall prey to the Apex Predators. Ironically this means stop posting
and commenting on this forum about trading strategies, indicators and systems.
2. Think long term profitability - you want to stay in this game for a long time, don't try to
make your entire fortune in one trade, build it over time. This means don't just look for a
profitable system, it won't be profitable unless it fits your personality and lifestyle. Trading
shouldn't be something that you do, but should be a natural extension of who you are. Think
of also contingency plans of not only how to survive but to take advantage of market panics.
3. Never feel pressured to take a trade - only pull the trigger when your entry criteria are all
met. For me that means waiting for prices to reach extreme levels or during moments of
market panic or euphoria
4. Learn to recognize when markets are completely out of alignment under the influence of
extreme levels fear and greed, then take advantage of it. Most people don't think rationally
when under the influence of fear and greed, they'll sell valuable assets for a fraction of what
they're worth or buy assets that are way overpriced
5. Learn how the markets really work, what influences trend changes, where the big trends
will be etc etc, then learn to get in ahead of the big players so you can let them move the
markets and make you money
Ok that's it, I'm done. I feel I've given more than my share and I've relieved my karma.
Feel free to ask questions, but please do not ask me to do any analysis, give tips on pairs to
trade, etc, instead look at what I wrote above about being independent.
I'll post a few more ramblings over the next few days, but then I'll close my part in this thread
-Razorjack

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Just me rambling....take it for what it's worth
Without trying to come off like boasting, I have reached a new paradigm. I no longer see myself as
a trader. Instead I am an investor, a long term investor at that.
When I started this thread, the focus was on Medium and Long Term trading. My strength has
always been to see trend changes before they happen, but one of my greatest weaknesses was not
being able to hold on to a winning position throughout an entire long term trend. Well I realized
that I was looking at it the wrong way and had to change how I was perceiving the markets.
Strangely enough I went and started to invest in stocks and that helped me see how to fix this
weakness. I can now hold on to positions indefinitely or at least until my conditions for investing
change.
Matter of fact I've been holding on to short JPY positions for over a year now. I wrote in earlier
posts about a shift in the carry trade funding currency from the USD to JPY when there are signs of
the Fed ending the easing cycle. Well we couldn't have asked for a better opportunity with the new
BoJ governor unleashing a massive amount of JPY on to the markets. This will not only devalue the
JPY over the next 2 years but it means that the Fed will start to unwind QE and raise interest rates
well ahead of the BoJ, possibly adding another 3-4 years to the uptrend.

I hope all of you remembered when I wrote about a massive opportunity shorting the JPY. On the
other hand, it looks like I was wrong about the biggest trends being in the commodity dollars
moving the most against the JPY, instead the biggest trends will be in the USD, GBP and EUR vs
JPY. Of course this can also change over the course fo the next 2 years, but most of this is easy to
see well before it happens so plenty of profits available for the taking!
I hope be riding these trends for the next 7 years!
There are actually even larger market shifts happening right now. The financial crisis with the very
accommodating central bank monetary policies and politician follies have created some excellent
once in a lifetime opportunities. Oddly enough the media, journalists and analysts are EXTREMELY
quite about this.....food for thought about thinking independently.......just apply what I wrote in
this thread and you should be able to spot these opportunities with a bit of effort.
I also tried to just live off of trading and nothing else. Even though this was possible, my
investment style only requires working an hour a day and I just got bored to death....I realized that
I need an office to go to, an intellectual challenge to conquer etc etc. So I started my own business
that includes investing as well as a few other revenue streams.....
Running a business has also made me see how investing is a business in and of itself and must be
treated as such. One of the interesting things about investing via a business is that instead of using
a broker, I go through fully licensed banks. What a difference it is to have invest through a bank
compared to a broker.
I now have a sales rep that I can yell at for fun and an account manager at my beckon call to kick
in the ass when I get bored!
Hmm, I wonder if this is what it's like to be one of the big fish in the financial markets?
Yes, I have gone over to the dark side and become one of the big boys, but hopefully without all of
the disadvantages I listed above!
Finally living the dream of financial independence. And yes, financial independence is all that it's
cracked up to be!
Hehehe.... let's just say I'm enjoying life at the moment!
-Razorjack

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For me, the trick is to get in very early in a long term trend change and build a position
through the turn.
I'll try to explain how I do this with an example using USDJPY:
1. First it starts with looking at the current situation and history - In 2012 when USDJPY was
still in a long term downtrend, it was due to 2 main reasons. The first were the Fed's QE
programs, the other was the nearly 2 decade long deflation in Japan, this caused the USD to
weaken and JPY to strengthen
2. To get ahead of a trend change I look at what conditions would need to change to shift the
fundamental driving force in the other direction. In my earlier posts I wrote how the preferred
currency to fund carry trades was the USD due to the QE programs and very low interest

rates. With that in mind, USD would strengthen dramatically with the unwinding of QE and an
interest rate hike by the Fed. As soon as the US economy started recovering there was talk of
unwinding QE, so I buy a little USDJPY @77.50 even though it's in a downtrend, just a small
amount.
3. As the US economy starts to recover, we see USDDJPY start to range, then more talk of
unwinding QE, better employment numbers etc etc, I buy a bit more @77.00 as the range
holds over time.
4. More US economic strength, USDJPY starts to head upwards, I buy a little more @ 77.75,
By now it is quite clear that the Fed will raise rates and tighten monetary policy long before
the BoJ, this means you can expect USD to strengthen faster than JPY, so I buy a little more
@79.00
5. There is a new government elected in Japan that pledges to defeat deflation once and for
all, I buy a little more @82.50, USDJPY heads up a bit more
6. A new BoJ governor looks to be appointed (I buy more @85.00) and implements a very
aggressive easing (QE) program, twice as aggressive as the Fed on GDP basis. I buy a bit
more @92.50 and USDJPY really pops.
7. BoJ governor announces a 2% inflation target for 2015 and unlimited QE until that target is
reached. I buy a bit more on a dip @ 93.00 and we're off to the races over the next 2 years.
You have to remember that this is a dramatic shift from the timid monetary policies for
previous 20 years.
8. Combine the fact that we will see QE in Japan until 2015, the Fed to unwind QE in 2015
and possibly moving into a rate hike cycle long before JPY strengthens and there is a very
good chance of a trend lasting for about 5 years.
9. To avoid uncertainty, I need to make sure that I buy only on dips, for example when price
bounces off of 50 day SMA and that the pyramid doesn't become "top heavy", e.g. trade
management and money management
10. The rest is just hanging on for the long, long ride upwards!
As I mentioned before the trick for me is to build a position through the turn, even while price
is moving against me, when I learned to do it right it is a much lower risk then if I waited for
a confirmation of a trend change, contrary to what most people think.
This also makes it easier to ride the ups and downs as my average price for the position is
around 82.50, and well into profit with the current price in the upper 90s.
Hope this was clear.
EDIT: Oh yeah, I almost forgot, I try to look for extreme areas where price will not come back
for years. For example, buying longs BELOW 50/200 day SMAs or major psychological price
levels, so when price moves to the other side, I have some major heavy weight support
protecting my positions.
-Razorjack

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