Fundamental Trading Analysis Does Not Work Anymore

“Fundamental trading analysis simply does not work the way it used to work.”

Last week, the Reserve Bank of Australia lowered its interest rates by 0.25% and instead of the currency dropping like a stone which is normally the case when a Central Bank lowers interest rates, it soared over 100 pips and is still in rally mode.

Today, the Reserve Bank of New Zealand lowered its interest rates by 0.25% and just like the Aussie, instead of the currency plummeting, it spiked upward. To make matters even more strange, the RBNZ explicitly stated in its policy;
– “A decline in the exchange rate is needed.”
– “Monetary policy will continue to be accommodative.”
– “Our current projections and assumptions indicate that further policy easing will be required”

rbnz-wheeler

In other words, the Central Bank is willing to take actions to keep their over-priced currency under control and the currency should be significantly lower… Normally, when a Central Bank says things like this, the market reacts with the Central Bank’s goals, not against it.

They also stated in the policy that;
– “House price inflation remains excessive” and “financial system risks arising from the rapid escalation in house prices.”

In other words, the country has an out-of-control property bubble.

So why did the currency rally rather than dramatically fall?

Well… we are currently seeing a dysfunctional global economic environment that is so bad, it makes the Kiwi look fairly stable at this current time. Same with the Australian economy… while many see a “Perfect Storm” brewing on the horizon, the Central Bank has become impotent at controlling their currency.

So what does this mean to traders?

It means throw away the fundamentals and use only technical analysis to jump on a market move, even if it doesn’t quite make sense based on the fundamentals.

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