Opening Position
April 2006


February 2006 was an interesting month in the markets, certainly one to watch. Gold, which previously had experienced a strong rally, showed signs of a slowdown. Crude oil also showed a strong downtrend. We saw the inverse occur in the equities markets. Just when the market gurus were becoming bearish, the Dow Jones Industrial Average (DJIA) and the Standard & Poor's 500 started showing some strength. The currency markets also went through a turnaround from as early as late January 2006, with the dollar rising against the euro and falling against the yen. Add the inverted yield curve into the equation, and you have to wonder if we will see a weakening in global growth in the near future.

IT'S a good idea to keep an eye on the global economy, especially if you want to venture into trading currencies. In the Technical Analysis of STOCKS & COMMODITIES interview of the month, which begins on page 56, Raghee Horner places significant emphasis on this aspect and mentions some other factors you should keep in mind when trading forex. Once you grasp all these factors, you may, like her, find that trading currencies is probably the easiest of any tradable.
But don't let that drive you into placing your first forex trade. If you are going to trade currencies, it's important to keep an eye on economic fundamentals, which is why we have included articles this month that discuss such economic fundamentals as inverted yield curves and monetary cycles. Oh, that inverted yield curve! What a commotion that has caused among market watchers, given that more often than not, it has been accompanied by negative growth, but many are saying that this time it's going to be different. In Kathy Lien's article, "The Inverted Yield Curve," starting on page 20, you will get more insight into what an inverted yield curve is and perhaps you'll be able to formulate your own opinion. Another important topic, monetary trends, is discussed in Darrell Jobman's article, "Where Will The US Dollar Find Support?" This will provide an answer to what you can expect during the rest of the year. The article starts on page 14.

Although the technical aspects of trading currencies may be similar to that of any other tradable, you have to be mindful of commodity prices, interest rates, global conditions, and the fact that you are trading a market that is open 24 hours a day. Being mindful of the macroeconomic variables will help you determine whether moves in the market are a result of economic fundamentals or moves by speculators.
 

Jayanthi Gopalakrishnan,
Editor


Originally published in the April 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2006, Technical Analysis, Inc.



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