Two curious forex headlines from a major news source caught my attention on Monday morning (Jan. 5; emphasis added):
Dollar Rises to Three-Week High Versus Euro on Prospects for U.S. Stimulus – The dollar rose…against the euro and… the yen on speculation President-elect Barack Obama’s fiscal stimulus will help the U.S. economy recover from recession.
Mexico's Currency Rises to One-Week High on U.S. Economic Stimulus Plan– Mexico’s peso advanced…on speculation demand for Mexican exports will recover on U.S. President-elect Barack Obama’s plan…
So, the same news report caused the U.S. dollar and the Mexican peso to rise, goes the story. The dollar gained because a fiscal stimulus may improve the U.S. economy, while the peso rallied because an improved U.S. economy might boost Mexican exports.
But wouldn't a better U.S. economy also boost exports for the European Union nations and Japan? So, shouldn't those countries' currencies – namely, the euro and the yen – also have advanced against the dollar on Monday, just like the peso did?
Logic suggests "yes." It's too bad the euro and yen lost to the USD instead, making the "boost in exports" explanation useless for those two markets.
We all sleep better when we "know" why the markets did what they did; the desire to explain the ups-and-downs is understandable. The problem is, how do "explanations" like these help you make future trading decisions? When another economic plan comes out (won't be long), are you buying or selling the USD? The EUR? The JPY? The MXN? … I wouldn't know, either.
If you feel you need a more objective type of market analysis, you may want to give Elliott wave a try. For example, as I'm typing this, the latest EUR/USD intraday update by our Currency Specialty Service says that, despite the "economic stimulus" news,
Jan. 5, 09:47 ET/14:47 GMT, [EURUSD]: "It's too late to chase the market lower."
Why "too late"? Because a specific Elliott wave pattern – a double zigzag – that has likely been forming in the EUR/USD charts from the recent tops at $1.4717 and $1.4360 is probably "nearing an end."