《外汇交易实战图表与交易心理 》 作 者：(新加坡)许强 (美国)Gary Weiss

During the latter part of the 1970’s, the dollar started a significant depreciation against both the Japanese yen and the German Deutsche mark. The thinking, at this time, was that these currency movements were directly proportional to the expanding levels of current account surpluses that had been created in both countries with the US. However, it is also instruc tive to keep in mind that this was the heightening period of US interest rates as well. In fact, up and through this interest rate tightening cycle short term fed funds traded through levels higher than 20 % before reversing the trend in the early 1980’s. As this interest rate cycle started to peak however, the dollar started to appreciate against most currencies, particularly the yen, even though there was a continuing accumulation of current account surpluses on the part of Japan against the US.

In fact, it is often argued that it was only through the concerted intervention of the Plaza accord in 1985, that this dollar appreciation cycle seemed to end. By 1994, dollar yen traded as low as 80 yen to the dollar. However, even as the dollar once again started to appreciate after 1995, this was still a gainst a backdrop of significant accumulated current account surpluses on the part of Japan.

So, given these seemingly contradictory facts, the question as to what the actual driver of currency levels is, from an economic perspective is at best difficult to discern. In fact, one can almost suggest that all of this has little practical relevance to the world of a foreign exchange trader in general. But, clearly, this can^t be the case, otherwise how could all of the e conomists in the financial world claim any type of validity whatsoever? Looking a little bit deeper, may offer a clue.

Notice that as we have examined currency cycles, they seem to have some basis associated with interest rates, as opposed to other types of economic measurements. This of course relates back to the fundamental pricing components on a currency's absolute value in the first place. Or, more to the point how much does a currency implicitly earn or cost in relation to the countervailing alternatives. Once, again examining the period of the late 1970*s through the mid 1980*8, the interest rate environment was rising initially as the dollar weakened and falling as the dollar was strengthening. Although somewhat counter intuitive, upon further reflection this is not necessarily the case. Remember, the market is a discounter not only of current prices but also of future events. In many ways it can be inferred that as the structural issues that gave rise to the need for increased interest rates in the US started to be repaired, (with the consequent plateau and subsequent fall in interest rates) the market perceived that US assets, with implied high yields from the underlying currency were cheap and needed to be bought. This led to the buying of dollars, and the decrease of counter currency valuations. All of which seems to imply that interest rates, which seem to be the best indicator of future currency movements, are themselves subject to a farther, and sometimes disconnected time horizon in terms of currency valuations. While even further down this chain of events of course, are the economic conditions that precipitated the changes in interest rates in the first place. These, of course, being issues like the trade and current account funding deficits.

Contrary to what may be considered relevant however, these issues actually do matter, although probably not in the ways that might be expected for the average day trader of spot currency. The point here is that it is important to have an understanding of the time horizon that certain economic measurements might have in terms of interest rates, which themselves have to be understood as being either representative of a continuing trend or not.

To put this in context, it is worth looking at the more recent market environment of the past few years. From 2002 until 2004 the deficit in the US current account has increased by almost 35% from a level in the 470 Billion dollar range to estimates of over 630 billion in 2004. At the same time US interest rates have been continually ratcheted down, and the dollar has slid on a fairly consistent basis until heating up its downward momentum through the end of 2004. Interestingly it was precisely during this same time period that the accommodative interest rate policy in the US seems to have peaked. Yet, seem ingly unaffected, the dollar, in late 2004, has continued its slide and set new lows against the yen, the euro and the British pound.

Once again, lets put this into the right time sequence. Al though interest rate increases that have recently been enacted may have started the process of fixing the current account deficit slide by hopefully putting a floor will under the dollar value, the timing here can be a bit tricky. Studies have shown that the cause and effect of these types of policy changes actually can take upwards of 2 years to take hold. Also, of consequence is the fact that the hoped for economic benefit of this policy change will only be seen as a result of exchange rates themselves having changed direction in the first place. So, once again, what does this mean for the foreign exchange trader?