An issue we continue to raise with our readers is how dynamic markets are in the processing of information. When people are technically oriented, it is the numbers–be it trend lines, moving averages, fibbonacci or whatever. The bottom line is that the number is the number and that is it, though not science, but certainly the art of probability. As fundamental traders first we are always aware of changes in the markets psyche. We utilize technicals to limit our loses or provide price areas where we can get more aggressive in moving into a trade. Last night we received a fundamental piece of data from Australia: the CPI number. The market had been anticipating a reading of .8 percent and the actual release showed consumer prices up only .5 percent.
The Reserve Bank of Australia had already raised rates to head off any price rises so when inflation comes in lower the result is that real rates in Australia are now higher, which is at times a very bullish fundamental (over time probably the most bullish). But the Aussie DOLLAR sold off fairly hard as the market interpreted the lower inflation number as an indication that the Aussies would not have to raise rates going forward and thus, an Aussie negative. We put this out as an educational tool to show why those who use fundamentals as well as technicals always have to be aware of how the market chooses to interpret data in a way contrary to previous market wisdom. It is our job to try to understand the changing dynamic and profit from it. Our first tenet is that markets are dynamic, not static. When they change, so do we. The Aussie merely provides another real-time example.
Tags: Aussie Dollar, CPI, fundamentals, inflation, interest rates, RBA, technicals
Leave a Reply