Sentiment vs Fundamentals

12 June 2016, 08:10
Sherif Hasan

Keeping track of significant economic indicators and financial news is pretty much the key to trading the Forex markets successfully.

Understanding sentiment is an absolutely vital skill that all traders should refine and practice. Sentiment is the explanation behind current patterns and trends for example-

The fundamentals could show reasons to buy the New Zealand dollar, but the market may be worried about an economic announcement or recent dovish tone from a central bank official, which can cause traders to lose confidence in the position and instead sell the currency.

This happened recently with the New Zealand dollar, when Governor Wheeler stated that continued currency strength could raise the chances of intervention from the central bank, which caused the New Zealand dollars sentiment to change and sell off for a few days.

However, fundamentally the New Zealand dollar is a very strong currency due to a strong economy and rising interest rates. So fundamentally it’s still a buy, but for a short period after Governor Wheelers speech the sentiment was sell.

Despite not being problematic to long-term traders, these market shifts can seriously impact the profitability of short-term traders if individuals are not paying attention to financial news and events.


Share it with friends: