Читать книгу The Foreign Exchange Matrix - Barbara Rockefeller - Страница 7

FX is both the driver of economic conditions and the end-product of economic conditions, mainly through a single factor set – inflation and expected inflation, and its financial market manifestation, interest rates. The government entity most associated with inflation is the central bank and its interest rate policies. FX traders watch inflation and its evil cousin, deflation, tirelessly and obsessively, even when they are low and flat.

It is true that exchange rates often overshoot reasonable estimates of their true value, but in the absence of any objective measurement of true value we count on market participants to judge when they have gone too far and to correct this themselves. If governments do not agree with the market’s valuation, and desire a correction to be forced, they may order their central banks to intervene directly in the FX market.

The FX market is the only financial market in which governments intervene and such intervention is intermittent and fairly rare. Its rarity may suggest that governments dislike quarrelling with the market’s valuations because they actually do believe the best policy is to let the market decide, or alternatively they may be lily-livered in the face of such a behemoth. It would in fact be easier and cheaper to change the policies that led to a wrong currency valuation than to intervene.

If the FX market is inherently unstable, it would be because governments engage in policies that lead to overshooting, including inadequate advance signalling of policy changes. So, if governments make bad decisions and manage policy poorly, it may be justified to say FX is inherently unstable.

Exchange rates also overshoot because we misinterpret economic data and do not have a universally accepted theory of how exchange rates should be determined. The absence of a single theory of FX determination allows overshooting to occur on the influence of other markets. A shop-keeper in Lucerne will glibly comment that the dollar is down against the Swiss franc because oil is up. An amateur retail FX trader in Hong Kong will say it’s obvious that the S&P 500 and the FTSE 100 will follow the Shanghai Composite index down in a nerve-wracking big move, and a drop in global stock markets logically harms the dollar. Really? This is true only in the sense that greed and fear can easily jump asset boundaries. As for real-world fundamental connections, nearly everything posited about intermarket relationships is badly formulated, mistaken and often easily refuted.

But note that professional traders and key players like hedge funds are required to behave as though they accept the cause-and-effect relationship of FX and other markets because this is how they earn a living. A trader may know perfectly well that a big change in the price of oil or gold has no fundamental relationship to currencies in any particular situation, but will trade as though it does because that’s the profitable strategy. This is one of the more vital of the insights into the FX market that we want to convey in this book – data proving intermarket correlations may be undeniable, but correlation is not causation and to assume intermarket relationships are valid and long-lasting can be dangerous.

Finally, sometimes the FX market overshoots because a technical pattern is being completed. FX is always heavily influenced by chart-reading, more so than any other market. Traders use technical analysis because it is an effective tool to measure sentiment and reliably leads to profitable trading. Anyone with a bias against technical analysis will not fare well in FX.