October 2005
Looking at the markets lately, I have noticed that the broader indexes -- that is, the Nasdaq Composite, the Dow Jones Industrial Average (DJIA), and the Standard & Poor's 500 -- are all dancing around their 50-day moving averages. Switching over to the bond markets, I see similar behavior in the 10-year yields, which, I might add, are still at relatively low levels. This is rather odd, given that we're seeing a US current-account deficit that could cross the $800 billion mark by the end of this year. True, the low yields are mainly due to Asian central banks and their growing interest in US Treasury bonds as a means of controlling their currency. But in the United States, low interest rates have triggered increased consumer spending and new home buying, a topic taking center stage recently. When unexpectedly weak housing sales numbers were released in late August, the markets reacted strongly and the broader indexes saw a drop, ranging from 0.2% to 0.5%. That's how sensitive the markets are to home sales - it's as if rising crude oil prices have become a second priority.
What's this have to do with technical analysis? Interest rates, housing sales, and crude oil prices may all sound like fundamentals, but when it comes to trading currencies, these are just a few variables to keep in mind. Apart from reading charts, currency players must have a grasp of the global economic and political landscape.
In this issue of Technical Analysis of STOCKS & COMMODITES, we offer an array of articles related to trading currencies. Our interview this month is with Keith Raphael of Crosscurrents Investment Advisory, who has had extensive experience in trading currencies at various international banks. He shares some features of his trading system, and, although he doesn't disclose all his indicators, I think you'll be interested in his methods. The interview starts on page 54. Then again, traditional technical analysis indicators such as Fibonacci retracement levels can also be applied very effectively to currencies. In Todd Gordon's article, "Are Fibonacci Levels Leading Indicators For Forex?" starting on page 12, you'll find you can use these levels to help make your entry and exit decisions.
As you may have heard by now, technical analysis tends to be more effective when applied to the currency markets than to equity markets. So, you may ask, why not simply read the charts? Because that's not a good idea. Remember, these markets are world markets, and they trade around the clock, influenced by any number of things. Any economic or political news in one part of the world can shake that market even as you are catching up on your sleep. And you've got to sleep some time.
Jayanthi Gopalakrishnan,
Editor
Originally published in the October 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.
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