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About 10 paragraphs below is most of post by Tom.
Tom, all of what you say sounds good. I'll bet there is less than 2% of
people in this group that trade with any more than a 1hour to 3 day time
horizon, so I find it refreshing to see someone talk of the big picture.
There is far more analysis to sink your teeth into in your 3 month time frame.
Business cycles, interest rates, trends, liquidity... are some of the
factors. Yesterday I perused rates of GDP, Idust'Production, CPI, WPI, Money
Supply and yields all over the world. So all those I feel help build a model.
You must know where they are where they have been and how they are trending -
relative to each other (to each country).
On tech' side I would add ADX, COT(commit'of traders), weekly stoch',
sentiment...
But overiding everything for me (because I'm persnickety) is the need to
have a compelling course of events that appear to be set. I knew cycles
dictated an attempt of a US recession in 1995 so it was moderately clear that
US dollar would fall and stay depressed that year (even though GDP did fine)
[next recession due 1999/2000]. Starting in 1996 and into the future still
the big story has been the ineptitude of Jap' and European governments -
mainly with regards to the EMU.
The Jap' recession it was clear would remain in force these past coule years
until a crisis pt'. That pt' was like a magnet at 129 - 131 yen to $ level or
.76 to .79 basis futures (where it boosted their exports but threatened their
financial sys'). Those levels were touched, then Greenspan went over to Tokyo
in early May and when they learned he planned to raise rates one more time
they begged him not to and a crisis was avoided. There would have been a run
on Jap' banks because of capital adequacy ratios tied to level of Yen
valuation. For me the compelling story on Japan has subsided enough to stand
aside for now.
But European story was much clearer. German, French, and Italian
governments have been backwards for the past decade and continue to go in the
wrong direction. Terrible work ethic, upside down fiscal policies, ... They
have priced themselves out of world competition. To cure unemployment they
work fewer hours, to cure deficits they raise taxes, to keep compnies
profitable they impose trade barriers...
Anyway, in order for their economies to stay afloat given their fatuous
policies, the Euro currencies have had to devalue to keep exports up and their
domestic price structure intact. This was and continues to be their only
option unless they want to join the productive US in the modern world..
If the EMU falls apart then the US Dollar will plunge for 6 to 12 months.
SO my normal tech' and fundamental models support my deflationary view on
metals and currencies, but it is the big picture scenario (which I have only
barely touched on here) that paints the most compelling picture for the months
to come.
On my short term technicals (less than 3 weeks) I do use something like a
black box in that I trade it regardless of what my overall analysis is -
though I may take a larger position when all forms of analysis are in line.
No I don't find any roadblocks in such a disciplined approach - but if one
trades long and short term horizons then I feel accounts should be segregated
with greater fund allocation to the longer term account.
In using long term tech' and fundamental analysis I believe it is OK to
combine the two for precision of entry and exit for long term trades. Tech's
tell you if it's a good place to get in or out but fundamentals are the only
factor that speaks to the action in between.
Regards, Kurt
Sunnen@xxxxxxx
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From: owner-realtraders@xxxxxxxxxxxxxx on behalf of Tom Fahey
Sent: Thursday, July 24, 1997 8:58 AM
To: RealTraders Discussion Group
Subject: GEN:currency trade and models
>>>>Thanks for the reply, Kurt.
The yen looks to be breaking down here!!
MAIN QUESTIONS AT BOTTOM BUT HERE IS THE INTRO.
At work here we are working on a 'hot money' model to flag the best
currency oportunities with.... This process gives us a valuation benchmark.
The next step is to look at relative business cycle trends to get a feel
for the direction of interest rates and realtive liquidity conditions....
The final step would involve a more technical component to give us the
trend in the currency and highlight possible exit and entry points....
Since I am new to modelling anything technical and even fundamental I
would appreciate any comments you have regarding this outline. Have you
ever tried to marry fundamental and technical analysis? What roadblocks
have you encountered in developing your rigid technical signals? Do you
use a black box approach and simply run the series through to generate a
buy/sell signal?
Your comments would be appreciated.
Thanks Tom.>>>>>>>>>
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