Good EURUSD analysis site? - page 3

The best analysis is the price chart. I don't listen or hear to any news. And a good reason for it is because currencies are not financial projects, but political projects. For instance, the euro is a financial and utter disaster financially, but it was crafted as a pollitical project, which is by the way performing great: there is more centralization of decision making and power in Europe than anytime before in history. (Which was the initial goal, despite of the financial pain it causes to the european middle class).

So.. no news or analysis at all, and no memory trading:

If the market is going up, I go long.

If the market is going down, I go short.

Nothing else. Other issue: nations are embarked on huge currency devaluations all the time to appear as feasable trading partners, and that means huge interventions from the central banks are due to keep the value of their currency competetive overseas, that is what triggers sudden changes. One thing is for sure: all currencies will reach their intrinsic value sooner or later: zero. In the meantime, go with the trend ;-)

These currency wars are also a war on your/your family savings: it is actually transfering wealth from you to the great players via inflation so the big companies can keep exporting products to countries with stronger currencies: as a byproduct, the government has cheap sources to borrow and spend in complete nonsense. The latter of course applies only if you save in currency units, which you won't if you are an inteligent person.

All currencies try to respond to the value of the dollar, which is trying relentlessly to decrease its value to stimulate domestic gdp and all the other nations adjust the value of their currency to mantain the status quo. So.. is a "who devaluates faster wins" race.

Sudden moves are 99% central banks intervention:

- Cental bank: we have to devaluate our <currency name here> to keep up the export rate and do some deficit expending to win elections again!

- Ok. Let's buy some bonds directly from the treasury and expand our balance sheet to infinity.

Cheers ;)

This is a great example of what I just described. The Japanese central bank probably went on tilt again and expanded their balance sheet with a massive injection of currency units into the financial system. In fact, quantitative easing was "invented" in the 90' by the Japanese central bank and ended up with the "lost decade" for the Japanese economy. (Which the US and Europe are now mirroring, kicking the can down the road buying bonds directly from the treasury until the dollar bills are best used for heating yourself in winter).

I quote "invented" because the actual inventor of QE was Diocletian Roman Emperor, and most financially educated people know how that ended.

Other scheme used to avoid currency appreaciation is buying government bonds from the country another sells their goods too. Example:

- Japan sells 1.000.000.000 plastic toys to the US, which pays in dollars

- Consequently, Japan then earns 10billion dollars. What should Japan do with those 10b?

If it sells those dollars in the forex market and converts them into yens, the value of the yen rises and exports will decrease because a rising yen means the US has to pay more for the same plastic toys in the future. So what does Japan do? It buys US goverment bonds and earn an interest of that money, without losing any appeal as a trading parner.

All of these strategies affect the value of currencies and sudden changes can happen very quickly: any currency could be worthless tomorrow morning. Think about the Enron or Madoff scams: they ended pretty quickly once discovered. All scams end up in a blink of an eye, and all currencies are scams that will one day end as abruptely as those mentioned. Interestingly, the Government is allowed to run Ponzi schemes (Social security and bonds) and counterfeit (printing currency out of thin air by selling bonds that places a mortgage on future generations' shoulders), but the average citizen doesn't.

In the meantine, there is absolutely no way to predict sudden market moves of these type unless you work for a central bank. But you can speculate with the loss of purchasing power of currencies in the long term, or apply a trend following system to daily or weekly charts to capture most of their movement against other currencies. Countries embark on currency devaluations that last for years, it is like a self empowering loop.

That's it. I am shutting up! I don't want to start talking about goverment bonds :-D the least I can say about them is "fraud".

Cheers :-D

@flaab: Thanks for the interesting posts! They are very informative!

Maybe you can explain us what really happens when someone buys EURUSD with an EUR account? What do you buy?

Thanks again,

Jacob

Read "How to read forex quotes" section, and also MarketInfo's MODE_TICKVALUE and MODE_MARGINREQUIRED, then figure how it works :D

Hello Haemse,

Brokers commonly offer OTC (Over the counter) instruments to speculate with the future value of a certain currency pair. You don't buy/sell anything when you take trades: you are signing a contract by difference with your broker, who takes the opposite trade against you. The contract states that when the position is closed, the losing party will pay the difference from the opening price to the winner.

An OTC market is, so to speak, a "betting" market over the value of a currency pair and only affects to the customers of a certain broker (Pretty much like BWIN does). So it does not affect the value of the currencies involved in the "bet". If you were actually buying/selling a currency with direct maket access, it would. Brokers cover the risk of their OTC counterparty risk using futures in the real market, and earn the spread of each position taken against them, as market makers.

So... to sum up, you don't buy/sell anything when trading against an OTC market maker, doesn't matter the denomination of your account.

Other thing you might be doing is using futures directly. A future is a derivative instrument that doesn't affect the price of the underlying asset. You are simply taking the compromise of buying/selling a certain amount of "something" in the future at the current price. If the underlying asset moves in your direction, you win. If not, you lose. Most times the difference is liquidated when the contract expires, but you can request physical delivery of the underlying if you wish (W.Buffet requested physical delivery of millions of ounzes of silver some years ago and the silver price skyrocketed).

Sometimes, the spot price of something and the futures price can diverge wildly and that situation is called backwardation. Some people trade those differences using a strategy called spread trading (Buying the underpriced market and shorting the overpriced). For instance, if spot gold is 1.500 and the futures of gold are at 1.510, a spread trader would buy spot gold and short gold futures and wait until they join again. But sometimes that divergence can keep overshooting and result in tremendous losses. The latest JP Morgan trading loss was a spread bet that went wrong and kept diverging, by the way.

OTC markets can also diverge wildly from the futures and the spot market, so... caution is advised when trading very short term. A strategy might work great on real-backtesting data and bust your account in real trading because of this. It is possible for the broker to manipulate the price quotes or delay your trades.

Cheers.