Items Tagged With fundamental news

I've been very busy and if you don't see a lot of posts coming through, that is why.  This is temporary until the wave passes.  The good thing is that I haven't stopped trading.  I've actually been pretty active this month, which is turning out to be quite a good one so far.   

I've decided to post something from a guest writer.  It's original material specifically written for the Forex Project.  Hope you enjoy.

The successful forex trader never loses sight of the big picture. There are hundreds if not thousands of factors that contribute to the strength or weakness of a given currency relative to any other and it is best to avoid getting bogged down in an attempt to wade through this endless swamp of variables. Keeping that in mind, there are certain issues that all forex traders should stay apprised of in order to make the most of their investments. If you make any trades at all involving the US dollar, you had better become a bit of a political junkie.

American politics can affect the dollar in dramatic ways. Every shift in US politics can affect exchange rates, from new legislation and big policy changes to seedy scandals and small shifts inpublic opinion. If you can learn to read the signs, then keeping an eye on the ever-changing political landscape can help you predict which way the dollar is headed. Acquaint yourself with the ins and outs of our government and its political process and you’ll not only become a better citizen, but you might soon be a much richer one as well.

1. The never-ending election cycle: Learning to predict whether foreign investors will react positively or negatively to the periodic changes in our government is a difficult task, but gaining such foresight will be well rewarded. The relative suspicion of or confidence in any new administration can cause investors to buy the dollar in bunches or sell it as fast as they can.
2. The popularity of the Oval Office: Foreign investors tend to show more confidence in a solid leader of the executive branch and often view a popular president as a strong president. Therefore, the rise and fall of the dollar often tends to be closely connected to the current US president's rise and fall in the opinion polls.
3. Consumer tax cuts: At least in theory, tax cuts or tax rebates should almost always have a bolstering affect on the dollar. Tax cuts are intended to fuel consumer spending and improve the economy, much to the benefit of the dollar. Troubles arise, however, when tax cuts coincide with government expansion and therefore increase the national deficit, a result that can ultimately weaken the dollar.
4. Growing government: Speaking of government expansion, the dollar can be adversely affected by the addition of new government programs that draw funds from other allowances in the budget. The relatively recent creation of the Department of Homeland Security and the vast expansion of the Transportation Security Administration are timely examples of how this type of expansion can influence the dollar.
5. Credit history: Part of what has kept the dollar so strong for so long has been the US government's excellent record of not defaulting on its debts. The nation's increasing deficit has been disturbing the dollar in foreign markets, and if US government's credit begins to suffer, the dollar will surely head south.
6. War: Terrorist attacks can impede economic growth by destroying consumer confidence and curtailing spending. War is expensive and leads to further debt, making foreign investors nervous about the increased risk of default. The dollar can be buoyed by victories and deflated by defeats, so the dollar will be in flux for as long as conflict continues.

Heather Johnson is a freelance finance and economics writer, as well as a regular contributor for CurrencyTrading.net, a site for currency trading and forex trading information. Heather welcomes comments and freelancing job inquiries at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

O.J Simpson guilty of at least one Las Vegas robbery charge? Barack Obama to win 2008 US Presidential Election? Bird Flu to be confirmed in the USA on/before March 31st, 2008? Earthquake measuring 9.0 or more on Richter scale to occur anywhere on/before December 31st, 2008?

So what's this all about.  I stumbled upon a site that allows you to trade these events and more.  If you think the likelihood of this happening is good, go long.  If not, go short.  

Right now, the chances of the US economy going into recession this year are 63.2%, down from a high of 75% back in mid-January.  I don't know if this site would be of any use to me but it may be a useful indicator to gauge investor sentiment.

http://www.intrade.com

There is a research paper that was brough to my attention by one of the authors which finds that combining two types of information (fundamental and technical analysis) improves risk-adjusted performance of an investment strategy.  This paper specifically addresses the success in 23 emerging  markets. 

I asked one of the author some questions.  Here are their answers.

How long and how much research was put into the paper?

The four of us have spent in total about one man-year of work into creating this research paper. We will present it at the emerging markets conference at Cass Business School in London in May '08.

Do you or the other researchers have experience as professional traders?

Two coauthors of mine are purely academic, but one is at ING Investment Management and I myself am at the Quant Strategies dpt of Robeco Asset Management. I would like to tell you about our quantititave strategies and how we apply our insights in real live portfolios, but our compliance departments do not allow this. So you could mention our affiliation with
professional investment teams, but nothing about the practical application.

What is the main attraction of the paper? 

I think the main attractor of the paper is the (slightly changed) abstract: The authors measure the profitability from fundamental and technical trading rules for emerging markets currency investments. Using a sample of 23 emerging markets with a floating exchange rate regime over the period 1995-2007, they document that both types of information can be exploited to implement profitable alpha trading strategies. In line with evidence from surveys of foreign exchange professionals concerning the use of fundamental and technical analysis, the authors find that combining the two types of information improves the risk-adjusted performance of the investment strategies, with Sharpe ratios above 1.4 for emerging currency markets and above 0.5 for developed currency markets. These results indicate that active currency traders may wish to expand their strategies to emerging currency markets, where alpha opportunities seem to be larger.

You can download the paper from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1088222