Fundamental based trade #3

Hey friends its me again your economics dude.

Thanks again for all your messages and contributions! Many people messaged me and Im happy to help you to find an advanced approach to the currency markets.

There are still people who don't believe that its actually economics who move the markets saying weird stuff like "the economic news are just there to confuse you" or "fundamental trading is somewhat a trading style holding positions for weeks" even tho I show that its not true.

If you guys really want to turn away from reality (economics) just because it seem to be to much work for you because you rather like to draw fancy trend lines and channels then please don't write these kind of trash (shown above) here, as it might distract people for taking the right actions to approach the markets as it is one of the hardest intellectual battles in capitalism.

At the end of this post I would like to make an offer to all who can show certain skills and have desire to work with me. I would open a group on Discord and then fully explain my approach to forex trading to these people in a live conversation. We can benefit from each other and grow as a community.

Now lets go further with the trade I took and published last week.

Some problems occurred during the position. We had a very difficult sitution on the risk sentiment. The SPX has fallen and as we can see in the picture below. The stock index is very inflated and overvalued. It is true that the U.S. has recovered very well from the crisis, but the S&P 500 has skyrocketed too optimistically in recent months. The reason for this was, among other things, the fiscal and monetary measures of the government and central bank, which has fully exhausted their instruments to support the economy. This caused a strong loss of purchasing power and the flight into gold, bitcoins and companies that still had not fully recovered. I had this circumstance in mind and therefore monitored the risk sentiment and the stock index. When I saw how the Tesla share has crashed sharply, my assumption was that the bubble has now burst and took the price crash of the Tesla share as an early indicator.

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As the SPX fell (orange line) it led me to close my position early at the point where the red circle is.

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Tesla price decrease and the SPX.

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The Wilshire 5000 Index is widely accepted as the definitive benchmark for the U.S. equity market and is intended to measure the total market capitalization of most publicly traded companies headquartered in the United States. Since the index is worth twice as much as GDP, one could assume that this is a bubble.

You could argue that the US10Y bond yield has not fallen as an early indicator of growth in the United States. I was overcautious at the time. Now 2 days later what I had prepared myself for has happened. We see that the stock index has fallen back to the level of the last low and that this time the 10y yield also has gone down a bit and the copper price, which can act as a world economic barometer. As a result, the flight to safety increased sharply and the U.S. dollar and the Japanese yen gained in value.

In addition, armed conflicts can startle financial market participants. Central European Time (CET)

Now you know why I closed my position early and why as you can see in the first picture the EURUSD which had the potential to rise further suddenly crashed so hard.

We discussed the pros why SPX could fall further. Now lets talk why it could rise or at least go sideways. And how we can anticipate on that.

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The New Zealand Dollar is the best currency you could take to go long. We have Good PMI Manuf. The Consumer Confidence is stabilizing. Last GDP reading was high and their main export multinational company in the dairy industry based in New Zealand Fonterra is hotter than GME. The 2y bond yield of New Zealand is relative to the current official cash rate very high as you can see it is scored with 5 points in the excel sheet.

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The reason for the high probability of an increase in the interest rate is that the RBNZ is very concerned about the house price growth in New Zealand. Don't forget that New Zealand is the place to be for the high society as it is a green and clean country. You wonder why every rich guy wants to build and buy properties there? Well remember, the New Zealand dollar used to be a relatively expensive currency. With its high interest rates it is also quite expensive to borrow money and build there. In times like today when interest rates are cheap you want to take the chance to borrow and invest a lot in real estate in New Zealand. Think of the time in a few years when the interest rates rise again sharply in New Zealand and the house prices explode, because building houses again becomes difficult (less supply in the future). All who had invested then will yield incredible returns. The RBNZ would like to act against it in order not to have the event in the year 2007 and 2008 in their own country.

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Governor Orr recently said that negative OCR is an option but I would consider that as trash talk hahaha

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We are close at the 0.5% mark even though the yield has gone down a tick due to Orr's statement. The market participants still believe in a different story at the moment.

Now lets talk about how we can get in that crash (NZDUSD and NZDJPY) as we try to catch a falling knife hahaha

The Australian Dollar und New Zealand Dollar are high beta currencies as they tend to be very volatile. The reason for that is their strong dependency on the primary sector exports (commodities) and therefor their low economic complexity. The same counts for emerging market currencies. In my opinion, China is not an emerging market lol

What we want to see for our high rewarding trade is the SPX finding its bottom. What speaks in favor of it? In the chart above you can see the DOW JONES TRANSPORTATION AVERAGE (DTX) in green. According to the Dow Theory, the Dow Jones Transportation Average is considered a leading indicator of the U.S. economy and thus also of the stock markets. Some technical analysts are particularly concerned with the index. Economic development is reflected in the order situation of logistics companies. Required raw materials have to be brought to the production plants long before the final product is transported to the end consumer. That is why the transport index is considered by many analysts to be an early indicator of economic development. It didn't fall beneath the last high (blue horizontal line).

If the US10Y (yellow line) doesn't fall beneath 1.36 and copper (purple line) also starts to stabilize, then we could see the stock index building up a bottom. DTX in green.

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GDP is good and Durable Goods Orders speaks also in our favor.

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The Fear & Greed Index should go above 60 to mark a shift into a risk on sentiment.

Find this useful risk on/ off indicator here.

Now lets finish this post as it took to much time from me already hahaha

NZD/USD

We want to know where is the fair price and when we can expect buyers to come into play. USD appreciated very strongly as we know from the dollar smile theory. The US has the most richest people who can move the US dollar upwards when thy withdraw their engagements. If the FED holds on their monetary positions to stay dovish even when inflation goes beyond their target then we want to sell US dollars. You can read in my last post (Fundamental based trade #2) why we want to sell a currency if inflation rises but central banks doesn't react.

NZD/JPY

This is compared to the NZDUSD very mild. As Yen is seen as an risk off currency, a shift can weaken it again. And this is what we want to play. Depending on when the risk sentiment shifts, the current price area can be interesting.

RISK TO THE TRADE:

- S&P 500 falls further

- RBNZ decides to not react to inflation and house price growth

- Risk sentiment doesn't shift to risk on

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As mentioned at the start Im looking for people who want to work with me. Lets start on what I have to offer:

If you want to understand why a currency moves one way or the other and what the backgrounds are. If you are interested in finding a more professional approach to participating in forex trading, then I can help you gain interesting insights. I can show you on what to look at and what factors play a role that can cause a currency to leave its current fair value and find a new fair value. I will share my screen with you and others where you can watch live what I am looking at and how I form an opinion about the currencies. In a group on Discord you can try to find and share with me and others interesting approaches that you have created yourself after learning how to do it.

Who can participate? You are a member if you are seriously interested in contributing. If you can do the tasks you have been given independently and share them with everyone in the group. If you have time at least 3 times a week to discuss promising trades and the current economic development in group calls.

For this you need at least one of these disciplines:

- An understanding of economics and the ability to do extensive research work.

- A good knowledge of Excel

- Good knowledge in Python (web scrapping) or statistics with R

- Similar skills that can help the group

You can see how much effort goes into each of my trades. All this comes from a one man job. I want to have a group of people who all do a great job evaluating the market. Just like the principle, 10 eyes see more than 2.

If you think you have what it takes and you also think you can inspire me in the analytical and fundamental then write me a personal message with what discipline you can convince, why you are motivated enough to be active in the group, and maybe even what you have to show.

I have send a dozen people my excel sheets. How many people have asked me how my Excel sheet is structured? None of them. If you dont have questions. You are not inspired and not made for the group.

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Thank you for all the feedback I have received over the past few weeks. If you think my content is valuable, I appreciate a thumbs up and your follow to stay up to date. As always I try to respond to comments.