Jay Hawk | Mar 03, 2015 05:54AM ET
Hurry up and wait! Spring is just around the corner, but the activities of mankind and financial markets in general seem to be stuck in neutral, lacking a clear sense of direction. Yet this is the first week in the month, the week of Non-Farm Payroll data and so much more, the week when fireworks traditionally wake everyone from their lethargy. Perhaps this winter has been more severe, for whatever reason, but the thaw is nowhere near to be seen. Just when volatility seemed back at hand, another ranging malaise has suddenly taken over the trading community.
What is next, the primary question that greets a trader every morning? It was only a few weeks back when everyone was so sure that the dollar was headed higher, that the euro would fall to parity, and that lower oil prices would boost the global economy back onto the road to recovery. The eagerness to short the euro was palpable, but wait! Ms. Yellen suddenly turned dovish before Congress, leading everyone to change the Fed’s rate increase forecast to the third quarter. The euro flattened, even before the ECB had really begun its quantitative easing program, and oil prices bounced back 20% in a matter of weeks. China even cut their interest rates this weekend to a silent thud.
Analysts the world over have already researched the history books and checked out every arcane chart relationship known to man, only to come back with blank looks on their faces. The current situation is unlike any we have ever seen, as highlighted by the follow factoids unearthed by Bank of America (NYSE:BAC) Merrill Lynch:
Central banks in every region of the planet have created these artificial economic conditions ostensibly to force idle capital on the sidelines to commit to more risk-laden ventures, thereby spurring GDP growth. The added benefit for any country that pursues this path is that its domestic currency weakens, and, after a bit of delay, its export trade begins to pick up and thrive. The only problem is that everyone is chasing the same rabbit. Exports are a zero sum game in the end. At some point, capital must become the chief export to release the tension in this continually coiling spring. The recent Swiss Franc Debacle was only the first sign of steam escaping from this overheated kettle.
h2 What is the latest consensus thinking about key economic variables?/h2Uncertainty is normally a speculator’s paradise, but only when analytical tools of the trade give an insider’s edge to what may be on the near-term horizon. Without this edge, one is just winging it on pure luck alone, not a very worthy strategy for making consistent net gains over time. Successful people will tell you that success comes from two things, each split “50/50” – working hard and good luck. In other words, the time to work hard is now in the preparation phase, so that when opportunity knocks, the luck part, you are prepared to run with it, no matter which way it takes you.
In the past few weeks, major arguments have come forward supporting every scenario imaginable in the coming months ahead, from a total resumption of this raging bull market to Armageddon and open chaos in the streets. Earnings season has come and gone. Winter snows have blanketed the nation, but Spring is near and portends a global economic recovery by most accounts. Here are a few other tidbits to think about:
When the ancient explorers traveled to the southern hemisphere for the first time, they began to see the night sky filled with a multitude of new stars that did not appear on the charts of the day. Did these ancient mariners turn their ships around and head home to more familiar and safer waters? No – they began recording the new stars and making new charts, adapting to the changing world about them.
As forex traders, we must constantly adapt to changing market conditions surrounding us, but, unfortunately, that process cannot begin until we recognize the changes at hand. This process is made even more difficult when our physical world does not materially change, a psychological obstruction at times that can bring along with it a bit of anxiety, frustration, and outright fear, especially when so-called experts are in constant disagreement.
For the moment, things are calm. The first week of the month tends to be more eventful than most, so be prepared for a few surprises, but use this calm time wisely to prepare for whatever storm is about to rock the market waters. Stay focused on the variables that matter and to anticipate what others are not seeing. When change comes, you will be fully prepared to execute a plan, rather than blindly grasp at straws filled with chance.
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