The Forex Sentiment

We receive special requests for forex research on occasions, sometime for trading research and sometimes for risk management. Lately the forex requests have gone up.
The most sighted issue is that there is nothing happening on equity. Forex is the place to be.
Somewhere the link with forex or the interest in forex is overplayed and misunderstood. Not that forex is not a widely traded asset but widely traded assets have their own limitations and forex is not a substitute for equity but a complementary asset.
Forex is a macro economic benchmark. A strong economy suggests a strong currency and vice versa. Just like currency, a strong equity also leads a strong economy. This is why weakness in a currency is accompanied by weakness in equity and vice versa.
Then why do we love forex more than equity when both are weakening. There can be many reasons. First falling currency unlike equity may not be associated with depressing mood.

Second, investors have patiently waited for equity to return. The patience has dried out. Subdued asset class makes one sad. People don’t want to be sad. They want to be where the excitement is. We need excitement. If only that would have worked. Equity offers no excitement and hence is proclaimed dead, a classic case of sour grapes. What does not reverse and profit as expected is worthless or dead?

The chart above illustrates the linkage of LEI (left) with BETFI (right), both weakening together. When we trade BETFI are we not trading forex anyway? BETFI is a paired with Lei and through BETFI we are trading the local currency.
When we trade forex, we believe we are leaving our miseries behind, starting fresh with a new asset. Do we really know? Or are we living an illusion, illusion of knowledge and overconfidence?
Since equity can not fall to negative or zero, a rise in BETFI will be marked by a multi month reversal in the currency also. So respondents who think they are not interested in BETFI (equity) but just in Forex don’t comprehend the linkage of markets in time.
BETFI can time many other assets apart from Lei. It’s like a small fractal that can tell u about every other investment you might need to do the rest of your life. Pick up any traded asset with a reasonable traded history and you can start creating a structure for the future.
The decreasing interest unfortunately or fortunately is the classic sign that towels are being thrown in. There are no extreme on most cases for investors this month RSR readings. Even experts at 52% readings are still away from extreme negative readings needed for a sustained reversal.

The case pointed out in THE SENTIMENT DRIFT continues to pan out.
Even confidence index readings at 42.9% suggests more indecision than any immediate turn around on equities. The ongoing indecision, no serious fall in prices despite push up in negative readings validates our case of final dip lower. From a sectoral perspective underweight utilities and oil suggest that BETNG remains a more interesting sector than what the popular sentiment believes.
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