EUR/USD: What Moves You?
by ilene - February 5th, 2010 1:33 pm
EUR/USD: What Moves You?
It’s not the news that creates forex market trends — it’s how traders interpret the news.
Courtesy of EWI’s Vadim Pokhlebkin
What moves currency markets? "The news" is how most forex traders would undoubtedly answer. Economic, political, you name it — events around the world are almost universally believed to shape trends in currencies.
A January 14 news story, for example, was high up on the roster of events that supposedly have a major impact on the euro-dollar exchange rate. That morning, the European Central Bank announced it was leaving the "interest rate unchanged at the record low of 1% for an eighth successive month." (FT.com)
The euro fell against the U.S. dollar after the news. But could it have rallied instead? You bet. In fact, traditional forex analysis says it should have. Here’s why.
Analysts always say that the higher a country’s interest rates, the more attractive its assets are to foreign investors — and, in turn, the stronger its currency. Well, U.S. interest rates are now at 0-.25% and in Europe, at 1%, they are 3 to 4 times higher. Isn’t that wildly bullish for the EUR? Apparently not, and wait till you hear why — because in today’s announcement ECB president Jean-Claude Trichet warned that European recovery would be “bumpy.” Ha!
By no means is this the first time a supposedly bullish event failed to lift the market. On June 6, 2007, for example, the ECB raised interest rates. Bullish, right? But the euro didn’t gain that day, either — the U.S. dollar did.
Watch forex markets with these "inconsistencies" in mind and you’ll see them often. In time you realize that it’s not news that creates market trends — it’s how traders interpret the news. That’s a subtle — but hugely important — distinction.
So the real question becomes: What determines how traders interpret the news? The Elliott Wave Principle answers that question head-on: social mood — i.e., how they collectively feel. Currency traders in a bullish mood disregard bad news and buy, leaving it to analysts to "explain" why. Bearishly-biased traders find "reasons" to sell even after the rosiest of economic reports.
If you know traders’ bias, you know the trend. How do you know? Watch Elliott wave patterns in forex charts – it’s reflected in there, on all time frames.
Today, the EUR/USD stands well below its November peak…
Market Sentiment: Is It Really at Bullish Extremes?
by ilene - December 3rd, 2009 6:33 pm
Market Sentiment: Is It Really at Bullish Extremes?
Courtesy of Elliott Wave International
At EWI’s Q&A Message Board, readers ask us dozens of questions daily. Here’s an interesting one that several subscribers have recently asked:
In Bob Prechter’s Elliott Wave Theorist, Short Term Update and elsewhere, you say that market sentiment is very bullish right now, which historically has indicated a market top. Is the sentiment really that bullish? I get a different feeling when I look around."
Elliott wave analysis is very visual; we’re all about charts. And often, a single look at a well-made chart can instantly show you what’s really been going on. Take a look at this chart from the December 2 issue of our Mon.-Wed.-Fri. Short Term Update:
In the words of Steve Hochberg, the Update’s editor:
We see the bears’ retreat in the CBOE Volatility Index (VIX), which has dropped sharply the past three days to where it is nearly as low as it’s recent November 25 extreme of 20.05. We see it in the 10-day average of NYSE daily volume, which is at its lowest point since the bear-market rally started in March. And we see it in today’s release of the most recent Investors Intelligence Advisors’ Survey. The above chart shows the percentage of stock market bears, which has contracted to 16.7 percent… There are fewer bears now than at the October 2007 stock market peak and still fewer than at the June-July 2007 top in the NYSE a/d line.
By itself, a sentiment extreme — whether pessimistic or optimistic — is not a guarantee of a market reversal. (Nothing is, really: Financial markets exist in the world of probabilities, not certainties.) But couple sentiment measures with a longer-term Elliott wave pattern, and now you have a leg to stand on.
*****
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Free offer from Elliott Wave International
by ilene - November 25th, 2009 6:42 pm
Elliott Wave International (EWI) has just released a free eBook, "How You Can Identify Turning Points Using Fibonacci." This is being offered till Dec. 2nd. Go here to download your free eBook.
Free eBooks from EWI
by ilene - October 25th, 2009 12:00 am
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