Unbelievable in its arrogance

I am watching the USD/JPY AUD/USD and the EUR/USD now. Post University
of Michigan data which gave a glowing picture of consumer sentiment not
seen since 2007.

There was also several key US data released earlier this week that
likewise painted a rosy picture of the US economy.

Now unless the USD is no longer the currency of the USA, then common
sense and past experience dictates that the USD would be stronger after
such data.

But since this week, these have been sentiments raised using phrases
like anti-US moves against the USD/JPY in particular because the market
movement no longer reflected reality.

In fact, given the volatility post Draghi and Bernanke speeches, it is
extremely unbelievable that the market moves in the manner it is doing
now. I mean the volatile reactions to simple words which were hints or
even vague references were in such magnitude that you get over 100 pips
movement in a few minutes.

Yet this "in your face" data merited a 50 pip or so drop in the OPPOSITE
DIRECTION!

Its extremely disconcerting and I really hope there is a forex
equivalent for insider trading. The Feds and the NFA should already look
into this because this kind of market manipulation has some extremely
sinister implications not only for forex but for the economy at large as
well.

Solid proof of manipulation

Finally, the past few days have shown that manipulation exists.

We get really good data for the USD and what happens?

The USD/JPY drops!

NFA ET TU?

Post US CPI

In a manner consistent with my previous post, a few minutes ago we got
really good US numbers for CPI etc. So how did the market react?

Well there was the initial drop for the AUD/USD and EUR/USD pairs post
event though not as much as previous good numbers. But 15 minutes later,
lo and behold. They are back at their previous levels with change to spare.

And what of the USD/JPY pair? Quite pathetic. A small increase post data
followed by a decrease to previous levels. Again with change to spare.

Seriously. This is one confused market.

Or it is one where neither bull nor bears are in control.

Only the manipulators are in the drivers seat

Puzzling market behavior

A few minutes ago, the EUR CPI and other EUR related data was released.
All are in the green, meaning the data was better than expected.

So how did the EUR pairs react? Nada, zilch. If at all, both the EUR/USD
and the EUR/JPY DROPPED prior to data release and has yet to regain even
half of what it dropped.

It's really quite puzzling to me because these are the fundamentals that
matter, yet the movement is pathetic particularly in the light of the
volatility when Mario Draghi spoke.

Strange times indeed.

FOREX TRADING - THE HIDDEN HAND THAT MANIPULATES THE MARKET?

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.

ON CORRELATIONS AND DIVERGENCE

Not too long ago, there were correlations that you could count on in
Forex. Some of them, like the EUR/USD vs USD/CHF were almost mirror
images due to almost perfect negative correlation. That way, you could
use the pairs to hedge against one another.

Today, however one can no longer rely on perfect correlation because it
does not happen anymore. In fact, one of the more important
correlations, the AUD/USD vis s vis SP500 is not that reliable either.
In fact, just last month, there was an unusual divergence between the
two which many analysts thought to be indicative of dire events brewing
in the market.

Thankfully, those dire events have not come to pass (yet?) but the point
I am making is that trading has taken on a different tone today where
one can really be caught off guard by a sudden move that can lead to
closeouts for positions that had no stops or sufficient margin.

I have been reading several articles that are quite informative about
the new market trends and as soon as I figure out how to best format
them on the blog, I will post them here.

Something strange is going on...

The FOMC minutes this morning set off a lukewarm reaction from the
market with the end result being almost back where it started.

However, after Bernanke finished with his Q and A portion, the USD, to
quote some traders, collapsed!

The market moved with such ferocity and speed that a lot of stops were
taken out and both the EUR and the AUD went beyond their channels and
appreciated strongly against the USD.

For one thing, while the answers of Bernanke shed some doubt on the
prospect of commencing tapering this September, the bottom line was that
the US economy was still on track for tapering because it appeared to be
on the road to recovery. Then there was the general agreement among
traders prior to the move, that the USD was on an uptrend.

So the sudden move took most people by surprise and really shook up the
market around 530 am Manila time.

Anyway, there wasn't any damage on my part except that I had just closed
some AUD/USD long position prior to the move! I missed the chance to
make decent profits and I almost got my shorts squeezed.

Just to be safe, I am in consolidation mode and will just wait for the
AUD data for release this morning before stepping back to reassess my
next moves.

Like I said, there is something strange going on and it appears to be
some form of manipulation by maybe a large group which controls a
substantial part of the funds in the forex market. Its good to see that
some other renowned traders have taken notice of the situation and
hopefully, someone will look into where this move (and other curious,
previous moves) came from.

As always, be careful. It's becoming more of a mind game nowadays rather
than a trade based on sound economic and business principles.