Forex Trading in the Global Economy
10/30/2011 9:00 am EST
The currency markets are the world’s most liquid and actively traded, and Stanley Dash reviews the important technical, fundamental, and intermarket relationships that drive them.
My guest is Stanley Dash, vice president of applied technical analysis at Tradestation. Tell me what you see technically or chart wise in the foreign exchange market.
Well technical analysis tools are applicable across the board, so forex traders are learning and applying the same tools that they look at whether they are trading in other markets, and we’ve done technical analysis for many, many years.
Whether they look at candlestick charting or the traditional moving averages, or some different types of oscillators, I think what they’re being a little more careful about is to understand the nature of the pairs that they’re trading, and to understand what time of day and the data they’re using in their analysis.
There are times of the day when certain markets are just less active, and certain pairs may be less active if the home country is closed.
Traders have to realize that they may not get really good technical readings if that home country is closed. There is still some trading in that currency, but it’s not reflecting the current economic valuations.
See related: Peak Hours for Forex Traders
We try and help people understand that they should focus their technical work on when that market is really reflecting economic value, whether it’s looking at the pound and the euro during the European session when the European Central Bank (ECB) is making policy, or the Bank of England is making policy, or focusing on the Japanese and Pacific currencies when the Bank of Japan is making policies and releasing information.
What are the leading pairs that traders are looking at right now?
Well the majors in the world are clearly the British pound, the euro, and the Japanese yen. For Americans, the Canadian dollar is very, very important; it’s our major trading partner, and of course, it’s in the same time zones as in the US.
Then beyond that, people are looking a little bit more at the exotic pairs. I wouldn’t call the Swiss franc exotic—I probably shouldn’t have phrased it that way—but the Swiss franc is still a banking benchmark currency rather than an industrial commodity currency the way we’d look at Australia.
Australia is a good example, as is Canada, of a commodity-based economy where the value of copper, gold, agricultural products, oil, can be very important in the value of those currencies.
We heard a lot about the BRIC countries, but we don’t hear much about Latin American currencies. Why is that?
They tend to trade somewhat more internally, if you will. There was certainly trade on the global scale that trade is not, I don’t want to say it’s inconsequential, but they are not currencies of trade internationally except within their region, and of course to some extent to us because we do trade with Latin America.
Brazil may be the exception in that regard, one of the BRIC countries and its economy is growing so tremendously and it’s having an increasing impact, so the real is something that people are paying much, much more attention to. It may be the leader of Latin America into a more prominent role in world trade.
Certainly, and we don’t hear anything about the Mexican peso anymore.
No, it’s interesting, when I ask people and talk to other forex analysts about it, they really reflect the fact that although there is trade between the US (and Mexico), their economy tends to be very connected with the rest of North America and it’s not really a trading currency in that way. It’s tradable in the free market, but it’s not really followed in the same way.