Forum Archive Index - January 2003

[hugh webber <hugh.webber@clear.net.nz>]

Lets use the foreign exchange market for the Australian dollar as
an example. 

As an economist I can't help observing that resistance and support 
are rubbish. What determines the level of the Kiwi dollar against
the Australian dollar are (a) capital flows - investors in search of
higher interest returns in NZ vis a vis Australia and (b) trade and
trade in services flows - exports and imports and tourism &.

Anyone looking at charts and staking their life on say 93.5 cents
as the upper level and say 91.5 cents as the lower level is inevitably
going to get burnt. Sooner or later (March 2003 is bruited) the RBNZ
will cut the OCR and down goes the Kiwi dollar whatever the chart says.

Apart from an ethereal existance on charts resistance and support
are purely psychological in the minds of exchange traders and get
overrun and blotted out as soon as a major transaction goes through
- progress payment on an Anzsac frigate, cheaper tourism packages
in either direction or whatever.

Every week or so you see in the commentary that a new resistance or
support level has been established, quite different from the previous
one.

Resistance and support on share price graphs are equally futile.

The only validity they have is the extent to which they psychologically
act on investment decisions e.g. I'll sell Kiwi because its up at 93.5
or I'll buy Kiwi because its down at 91.5.
But these decisions are totally eclipsed by fundamental supply and demand
in the market. In other words they only exist as a belief system until
the market points out that the Emperor (the graph extrapolations)
 has no clothes.

besties,
Red Baron 


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