On Demand

Expectations Not Fundamentals Drive Markets

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It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford

Last week ended with a bang.

EXPECTATIONS DRIVE MARKETS
New traders would expect a bad jobs report to weigh on risk assets but often expectations rather than fundamentals drive markets. Friday's report saw traders racing to press buy in anticipation of further Fed easing. The unemployment rate dropping 0.2% would usually be good news, but looking deeper, almost 400,000 people dropped out of the workforce, giving traders more reason to believe the Fed will take additional steps in an attempt to prop up the labor market.

TRADE CAUTIOUSLY
All eyes and ears will be on the Fed now. Traders are becoming increasingly convinced the Fed will step in (again). However, those selling the rumor and buying the fact have been disappointed by the Fed's inaction in the past. Weigh carefully if you think this time will be different.

FOREX ACTION
Today, the euro/dollar has bounced off its 200-day moving average and is playing with daily Fibonacci resistance / support around 1.277. It is not prudent to stubbornly fight a bull candle like we saw last Friday. In the near term however, I would look to enter short if we break below this consolidation we've experienced since the open.

A healthy retracement to around 1.2730 today or tomorrow would offer a good buying opportunity for a continuation of this long move.

STERLING ACTION
Looking at price action, the GBP/USD has been sliding since the open and the euro lacks momentum either direction. If the euro holds this trend throughout the day, you may consider buying pullbacks in the euro/sterling cross for a few scalp pips. Last night we broke from a 15-minute bull flag. Look for retests of the 0.7988 through 0.7995 area for buying opportunities.

Looking for more trading ideas? Check out our daily Markets section

here.

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About the Author

Tim Kosen is a full time forex trader and real estate investor.  He has been trading spot forex since 2008 and investing in real estate since 2006. Kosen keeps a blog at www.kosentrade.wordpress.com where he provides insight on the currency market and trading psychology.  In 2010 he founded Corinthian Equity corinthianequity.com to assist clients with portfolio diversification through real estate and alternative investment strategies.  In trading as in real estate, he believes simplicity is the best policy.  His trading approach emphasizes a combination of scalp and swing trading around major and minor support and resistance areas.  He believes in a 90:10 split between technical and fundamental analysis; where fundamentals provide the catalyst for a market move, technicals provide entry and exit points. Contact Tim directly at tim@corinthianequity.com or follow his daily market commentary on StockTwits.com or Twitter @kosentrade 

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