Figure Deviation
A
common practice used by short term fundamental traders (or more
accurately news and event traders) is trading based on the deviation of
an economic indicator actual figure vs. the expected figure.
When economic figures are to be announced, usually 3 numbers are shown:
Previous, expected (also called consensus or forecast) and actual figures.
Previous Figure:
The actual figure of the previous period (usually the previous month).
Expected Figure:
What experts think the figure should come out as. Usually and average
is made between say forecasts of 20 experts on the field.
Actual Figure:
The actual number of the figure.
What
news and event traders focus on is on the last two figures: the
expected and the actual figure. The more the deviation the actual figure
has from the expected value the more the impact it should have in the
exchange rate.
Carry Trades
Most
fundamentalists trade the currency market for the long term. This is
because most of the time changes in supply and demand take longer to be
reflected in the charts.
Carry
Trades or Rolling over is a common practice that consists of taking
advantage of the interest rate differentials between two currency pairs.
Most of these trades have a long-term span. Aside from taking advantage
in the currency pair movements, they also benefit from buying a high
yield currency and simultaneously selling a low yield currency or
selling a low yield currency and simultaneously buying a high yield
currency. This way, traders are paid an interest or roll over.
Equity Market Correlation
When
a given equity market offers greater returns than other equity markets,
it is common that fundamentalists buy the currency of the equity market
that offers greater returns.
This
is because investors around the world will see benefits by investing in
that country. As the sentiment gets better, that currency will increase
its demand, pushing its price up.
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