A Forex View From Afar

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It's A GDP Story

Written by A Forex View From Afar on Tuesday, February 17, 2009

The last few weeks showed some very poor quarterly results from the developed economies. Among the leading countries, the Australian economy is the last one still pointing to a positive GDP, but some say the economy might contract as well.

Tonight, a report showed the Japanese economy contracted 3.3% in Q4 from one quarter ahead, the most since 1974. In comparison, the Japanese economy averaged a 0.5% quarterly growth rate over the last four years. The record slump came as exports, the countries main source of income, tumbled at a very fast speed in the latest months. Only in December, exports plunged a record 35% from one year earlier.

Very poor reports come from all over the world. The Confederation of British Industry said that it expects the U.K. economy to contract 3.3% in 2009, downgrading their earlier projection from -1.7%. The huge revision comes as the international conditions had become even tougher, and up to now, the actions taken by the BoE and the government seemed to have fail.

If these forecasts hold true, financial markets will probably experience new chapters of risk-aversion. However, this might be more visible in the currency market, especially in the euro and in the pound’s value, than in equity markets, which seem very resilient to move any lower. In the currency market, usually the yen is the currency that denotes risk-aversion, but after a strong series of comments from top Japanese officials about the yen’s strength, the currency appears to move only up. As thus, the euro and the pound might break very easy under the 1.27 and under the 1.40 support levels.

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There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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