Monday, October 13, 2008

Market Rationality?

With some major changes happening on a global basis it's just possible that the forex markets will return to rationality.

For example, the Yen crosses (the carry trades) have been taking off like a shot today. I know I've been mooing about a possible bottom here and there in the face of mass panic and extreme volatility as indicated by the VIX.

Was that it?

I hope so, but at the same time there is a lot of economic funk to work through. We've got slowing economies, reduced earnings, ballooned government debt and a whole host of related irregularities.

However, simple economic malaise is not enough to roil the forex markets. They don't have to react in the same way as individual stock markets. If two countries are both going to drop into a recession it would seem that the currencies of those countries would react based on the relative differential between the fundamental shifts in those countries.

I'm not sure if that's clear, but it means that currencies will determine the difference, and change to that -- at least when the markets are rational. It would be great to return to that situation. I'm looking forward to trading in rational markets once again.

They are much easier to trade.

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