Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes

P1: PIC/b P2: c/d QC: e/f T1: g

c02 JWBK195-Saettele May 31, 2008 11:19 Printer: Yet to come

The Problem with Fundamental Analysis 25

foreign demand for U.S. debt and assets. The thinking is that strong inflows

underpin the value of the dollar since foreigners must purchase dollars in

order to buy our securities. Like some of the other economic indicators,

most notably NFP, there is certainly a knee-jerk reaction to the release,

but Figure 2.4 does not show a consistent relationship between TIC and

the DXY. The general trend for TIC since 1970 has been up, but the DXY

has rallied and declined during that time. There have been long periods of

positive correlation, notably May 1980 to May 1984, July 1999 to February

2003. However, there have also been extended periods of negative correla-

tion, such as November 1984 to October 1987.

PRODUCER AND CONSUMER

PRICE INDEXES

The producer price index (PPI) and consumer price index (CPI) are infla-

tion indicators released monthly by the Bureau of Labor Statistics (BLS).

Like most U.S. economic indicators, the releases occur at 8:30

A.M. ET.

Both are released mid-month but the PPI is released a day before the CPI.

The PPI measures the average change over time in the selling prices re-

ceived by domestic producers of goods and services. The calculation of

PPI involves price changes for about 100,000 goods, which are separated

into over 10,000 different producer