For several months now, I have been observing how the forex market has
been behaving. This was because I was seeing some unconventional
movements that ran contrary to what happened in reality.
What made it even stranger was despite the blatant departure from what
was normal, there were some analysts that appeared to have a ready
explanation which would later on be contradicted by others. In other
words, it was a scenario that smacked of manipulation.
And why not indeed?
After all, with a 4 trillion market daily, the temptation to sway
markets with a little push now and then is just too much to resist I
suppose. All it takes is a group of writers / analysts and some seed
money grown with the help of leverage and you're all set.
Here is a possible scenario with a sequence of events:
- Take some high volatility events occurring a few weeks or months down
the road.
- Hold a meeting with your analysts and draw a plan
- For example, you want to short the EUR/USD big time after a speech by
Draghi. So you proceed to have your analysts project a picture of a
strong Euro while the others can write about a dollar weakening. Keep
the noise levels about this scenario high about 1 week before data
release. Observe how the long positions are building up. Now wait for
the speech and ask your analysts writers to begin writing their analysis
about one of several things: why the euro suddenly weakened, why the
dollar found new born strength or why the speech of Draghi doomed the
Euro. Start shorting the market a bit and have these reports trickle out
a little at a time, slowly increasing the level of immediacy thus sowing
seeds of insecurity and doubt in the market. Now suddenly unleash a
deluge of shorts and the EUR crashes big time when others notice the
price dropping. Panic selling ensues and you suddenly have a nice little
profit for you to share with your cohorts.
Is this a plausible scenario?
Before the rapid increase in interest in Forex by ordinary people, no.
Because banks have very strict rules about trading. But open the market
to traders with money, leverage and a crooked sense of trading, and add
millions worth of new money from ordinary people hoping to make money
from forex, then the scenario becomes quite plausible.
This is why the market has been dispensing with the usual correlations
and is behaving so erratically. It has become in effect, the wild wild
west of finance.
Think about it. How can you analyze and trade a market that will move
seemingly in a random manner? It has deteriorated into nothing more than
a high stakes gambling arena where some greedy bastards take advantage
of clueless people holding money, following rules while they operate
outside the rules because they control a large amount of money which can
literally move markets the way they want to.
Am I disillusioned? Yes I am. Because I have a strong background in
finance and economics and I can tell when people are selling lies.
Will I abandon ship? Nope. I'm fighting it out here because I want the
real legitimate market forces to reclaim the forex market before
governments clamp down and fix exchange rates which is not that far off.
Central bank intervention is becoming a very expensive proposition and a
one currency proposal as well as fixed exchanges have been on the radar
for quite some time now. This is why I hope the market will be able to
reform before this happens.
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