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EUR/USD: Why "Fundamentals" Matter Less Than You May Think
Most "fundamental" arguments are as easy to make as they are confusing, ultimately

By Vadim Pokhlebkin
Thu, 01 Sep 2011 13:45:00 ET

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Google “U.S. dollar” and you'll get dozens of forex articles, complete with speculation about the dollar’s future. Here's just some of what they've been discussing lately:

The Federal Reserve's future monetary and interest rates policy
Prices of gold and silver
Sovereign debt problems in Europe and U.S. debt problems/credit downgrade
Reports of consumer confidence, spending, unemployment, manufacturing activity, etc.
Speculation of flat or lower interest rates in the Eurozone

Ask any ten mainstream forex experts how these factors will impact the dollar and euro, and you'll probably get ten different answers. Because, when it comes to "market fundamentals," how you interpret the data is really your choice. For example:

If the Fed really keeps interest rates low until 2013, you could say it's good for the U.S. economy and therefore the dollar -- OR -- you could say that it only underscores the bad shape of our economy, which is also bad for the USD.

If gold rallies, you could say investors are looking for "safe havens," and since the dollar has always been one, higher gold also means higher dollar -- OR -- you could say that rising gold means investors are losing faith in paper money, so the dollar is toast.

If Europe's sovereign debt crisis continues, you could say it's good for the dollar -- OR -- you could say that the U.S. faces an even bigger debt crisis of its own -- therefore, the euro wins, dollar loses.

And so on. Pick a "fundamental" factor -- any "fundamental" factor -- and, depending on whether you feel bullish or bearish, chances are you can interpret it to agree with your bias. Most experts on financial TV and other media do it all day long.

These exercises in "fundamental" logic are as easy as they are confusing -- because at the end of the day, you have no idea where the dollar will go tomorrow.

There is an alternative: technical analysis. Elliott wave, for example, looks at the markets objectively: You study forex charts, look for patterns and make a probabilistic forecast about the next move. Does it always work? Of course not; what does? But once you try it, you'll quickly discover that it's a whole lot more objective than "fundamental" discussions.

Just look at this chart of the EUR/USD, the most actively-traded forex pair. You see that, while "fundamental" experts argue about the impact of this or that macro factor, the EUR/USD had been moving sideways:

To an Elliottician, a sideways move means that prices are in a correction: The period when the market takes a "rest," or "hesitates," before the next move. The bigger the correction, the bigger that next move -- and this correction has already taken the entire summer.

Our Currency Specialty Service experts think that it fits well into the larger EUR/USD Elliott wave pattern, and they do have objective forecasts for what's most likely tomorrow, next week, and even next hour or two.

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Tags: Elliott Wave trading, euro, eurozone, euro/USD exchange rate, europe, European Union (EU), eurozone, forex, forex trading, fundamental analysis, safe haven, U.S. dollar, U.S. Federal Reserve (the Fed)

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