16 June 2010

Solid Computation

The question for the forex market is this: has EUR/USD hit bottom. Is this a bounce upwards, will that 1 month candle become a hammer, otherwise a divergent bar reversal pattern. At the very least the pattern on 1 week suggests it will consolidate soon.

It depends on whether there are any more euro shocks in store. These may well have been already valued into the market. The forex market does not seem to value like the equity market should (i.e. future projections).

It more assigns value now, like I suggested the equity market is presently doing. It has to, assigning a future value is a consequence of long term investing, which is difficult to do in forex, especially in this volatile market (can we say margin calls ?).

Assignation of value now is like a default property of markets, and the forex market does not have the long term luxury of doing other than this. This may well be why there are apparently not long term memory processes within forex (but should be in equity markets).

On 1 day, EUR/USD is hitting structural resistance. By this I mean it is referencing consolidation in May. Is that tendency not a long term memory process ? EUR/USD if it is bouncing (rather than reversing) is hitting structure from 2006. It may well be this, rather than simply traders and trading programs wisely taking account of these patterns over time.

I do feel there is something more in the forex market, it may be it somehow references the properties of equity markets. This makes more sense to me than an inherent property of forex itself. But this is an open question. This though is why I trade on 1 min, to try and find something computationally solid.

Right now that 1 month pattern is looking like a doji, indicating indecision. A big valuation problem in the market is fundamental, valuing euro countries, valuing the US economy, and valuing the dollar. All three are distorted:

*The debt issue for euro contries (how do you value a country which is bankrupt and how do you value the non bankrupt countries which have to help it for powerful geo-political reasons).

*The US economy because of the huge issues for financial companies at the heart of the conomy yet the relative power and health (even inherent power and health) of US companies.

*The dollar because rescuing financial companies and the equity market comes at the cost of very low interest rates. Interest rates used to value the dollar, now it is the forex market itself. So what does the forex market do with Euro ? Technically it can travel upwards, the risk is the spike downwards having another interpretation.

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