These days, when I look at my charts and the state of the Forex market, I sometimes laugh at myself. It’s funny because, at some point, I genuinely believed that there was a legitimate argument to be made about fundamental or technical analysis. When I was learning about Forex Trading, I was under the impression I had to choose one. With that in mind, I chose what come naturally to me – technical.
I then spent the next year and a half attempting to test out a string of technical strategies and indicators, attempting to impose my ideas on the markets. Needless to say, I failed; but I learnt…I learnt a lot. That’s one of the most important things about mastering forex trading…or any other skill for that matter. Your student cap needs to be on all the time.
Fast-forward to Today. We’re in an Economic crisis. What stage of the crisis we are in still remains in debate. Whether the Dollar will be strong or weak in the long term…more debate. What is interesting are the ups and downs we see today in US Dollar versus other majors, mostly driven by the performance of the World Equity Markets. It’s still Up Equities, Down Dollar and vice versa.
In my trading framework, the fundamentals drive direction while the technicals set targets. So, for instance, if the Stock Market points higher, we get more risk takers in the market, the EUR/USD currency pair falls as the dollar loses steam. When it gets to the next level of support, traders re-evaluate, perhaps take some profit off the table as they work out whether the momentum will allow a further fall. This is obviously over-simplified, but it’s the general idea.
So, I find the choice of Technical against Fundamental completely removed from me. That is where we still are this April. It could change soon, if things get better, but we all have to pay attention.