Stocks & Commodities V. 24:1 (12-16): Forex Focus by Darrell Jobman

Stocks & Commodities V. 24:1 (12-16): Forex Focus by Darrell Jobman
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Stocks & Commodities V. 24:1 (12-16): Forex Focus by Darrell Jobman

Access to foreign exchange trading has opened up exciting trading options for the retail trader. You can now trade alongside corporations and institutions in a highly liquid market that is global, traded around the clock, and highly leveraged. Before jumping into this market, however, we must understand the factors that affect the forex market. With that in mind, STOCKS & COMMODITIES has introduced Forex Focus to better prepare the retail trader to participate in the currency market.

Down under may be over the top. If you doubt it, then what’s it mean when commodities trend down when the Australian dollar weakens against the US dollar? To a large extent, fundamental analysis involves extrapolating the future from the events of the past as analysts review historical numbers in search of identifiable trends. Traditional technical analysis suffers from the same backward-looking drawback when it relies on traditional moving averages, arcane chart patterns, and a variety of measurements to indicate when or if a market or security has become overbought or oversold.

The purpose of investing, however, is not to identify what has happened but rather to anticipate what is likely to happen. One of the best ways to look and think forward comes from studying how the trend of one market affects another. Most often, this is called intermarket analysis. As capital flows from one long-term theme to the next, it typically shifts its geographical emphasis. In recent years, money has poured into Asia in search of superior investment returns and out again with almost single-minded ferocity. In 1998, capital outflows from countries such as Singapore, Thailand, Indonesia, the Philippines, and Malaysia helped create a financial markets crisis that spilled over to Russia and then Brazil. Capital continued to flow into the US dollar to help finance the tech bubble that eventually began to collapse in 2000 before turning toward Europe to take advantage of higher real interest rates.


In many respects, currencies act as both gateways and signposts for ongoing macro trends. When a currency is appreciating relative to other major currencies, it shows which direction capital is moving toward and, perhaps just as important, which direction it is moving away from.

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