Purchasing power parity | interest rate parity | balance of payments model | asset market model

The two main analysis methods of money market are basic analysis and technical analysis. Basic analysis pays attention to the development of finance, economic theory and political situation, so as to judge the supply and demand factors. Technical analysis observes the price and trading volume data and judges the future trend of these data. Technical analysis can be further divided into two main types: quantitative analysis: using various types of data attributes to help estimate the limit of buying/selling funds; Chart analysis: Use lines and graphs to identify important trends and patterns of currency exchange rate composition. The most obvious difference between basic analysis and technical analysis is that basic analysis studies the causes of market movement, while technical analysis studies the effects of market movement.

When the currency of one country is used to evaluate the currency of another country, the basic analysis includes the study of macroeconomic indicators, asset markets and political factors. Macroeconomic indicators include economic growth rate and other figures, which are calculated by GDP, interest rate, inflation rate, unemployment rate, money supply, foreign exchange reserves and productivity. The asset market includes stocks, bonds and real estate. Political factors will affect the trust in a country's government, social stability and confidence.

Sometimes, the government will intervene in the money market to prevent the currency from significantly deviating from an unsatisfactory level. The intervention of the central bank in the money market usually has a significant but temporary impact on the foreign exchange market. The central bank can unilaterally buy/sell its own currency with the currency of another country, or intervene with other central banks to achieve more remarkable results. Alternatively, some countries can simply influence currency changes by hinting or threatening to intervene.

Basic theory of basic analysis

Purchasing power parity

Purchasing power parity theory stipulates that the exchange rate is determined by the relative prices of the same group of commodities. Changes in the inflation rate should be offset by changes in the exchange rate of the same amount but in the opposite direction. Take hamburgers as an example. If a hamburger is worth $2.00 in the United States and $ 1.00 in Britain, then according to the purchasing power parity theory, the exchange rate must be $2 per 1 dollar. If the prevailing market exchange rate is $65,438 +0.7 per pound, then the pound is called an undervalued currency and the dollar is called an overvalued currency. This theory assumes that these two currencies will eventually become 2: 1.

The main deficiency of purchasing power parity theory is that it assumes that goods can be traded freely and does not include transaction costs such as tariffs, quotas and taxes. Another disadvantage is that it only applies to goods, but ignores services, which may have a very obvious value gap. Besides the difference between inflation rate and interest rate, there are several other factors that affect the exchange rate, such as the release/reporting of economic figures, asset market and political development. Before 1990s, the theory of purchasing power parity lacked factual basis to prove its effectiveness. After 90' s, this theory seems to be only applicable to the long period (3-5 years). In such a cycle span, the price finally approaches parity.

Interest rate parity (IRP)

Interest rate parity stipulates that the appreciation (depreciation) of one currency against another will be offset by the change of interest rate difference. If the American interest rate is higher than the Japanese interest rate, then the dollar will depreciate against the Japanese yen, and the extent of depreciation depends on preventing risk-free arbitrage. The future exchange rate will be reflected in the forward exchange rate stipulated on that day. In our example, the forward exchange rate of the US dollar is regarded as a discount, because the yen bought at the forward exchange rate is less than the yen bought at the spot exchange rate. The yen is regarded as a premium.

After 1990s, there is no evidence that rate parity is still effective. Contrary to this theory, a currency with high interest rate usually does not depreciate, but appreciates because it has suppressed inflation for a long time and is an efficient currency.

Balance of payments model

The model holds that the foreign exchange rate must be at its equilibrium level-that is, the exchange rate that can produce a stable current account balance. Countries with trade deficits will reduce their foreign exchange reserves and eventually devalue their currencies. Cheap currency makes the country's goods more competitive in the international market, and at the same time makes imported products more expensive. After a period of adjustment, the import volume was forced to decline and the export volume increased, thus stabilizing the trade balance and currency to a balanced state.

Like the purchasing power parity theory, the balance of payments model mainly focuses on traded goods and services, ignoring the increasingly important role of global capital flows. In other words, money pursues not only goods and services, but also financial assets such as stocks and bonds in a broader sense. This capital flows into the capital account of the balance of payments, thus balancing the deficit of the current account. The increase of capital flow produces the asset market model.

Asset market model

The best model so far.

The rapid expansion of financial assets (stocks and bonds) trading makes analysts and traders look at money from a new perspective. Economic variables such as growth rate, inflation rate and productivity are no longer the only driving forces of currency change. The share of foreign exchange transactions derived from transnational financial assets transactions dwarfs the currency transactions derived from trade in goods and services.

The asset market approach regards money as the price of assets traded in an efficient financial market. Therefore, money increasingly shows its close relationship with the asset market, especially the stock market.

Dollar and American asset market-1999

1in the summer of 1999, many authoritative organizations decided that the US dollar depreciated against the euro on the grounds that the US current account deficit was growing and the Wall Street economy was overheated. The theoretical basis of this view is that non-American investors will withdraw their funds from the American stock and bond markets and invest in markets with healthier economic conditions, thus greatly depressing the value of the dollar. This fear has not dissipated since the early 1980s, when the current account of the United States grew rapidly, reaching an all-time high, accounting for 3.5% of GDP.

As in the 1980s, foreign investors' appetite for American assets is still so greedy. But unlike the 1980s, the fiscal deficit disappeared in the 1990s. Although the growth rate of foreign holdings of US debt may have slowed down, the continuous injection of a large amount of funds into the US stock market is enough to offset this slowdown. In the case of the bursting of the US bubble, the most likely choice for non-US investors is the safer US Treasury bonds, rather than the euro zone or British stocks, because the euro zone or British stocks are likely to be hit hard by the above incidents. This happened in the crisis of June 1998+0 1 and the stock panic caused by some remarks made by Federal Reserve Chairman Alan Greenspan in February 1996. In the former case, the net purchase of foreign government bonds almost tripled to $44 billion; In the latter case, the index soared by more than 10 times, reaching $25 billion.

In the past twenty years, the balance of payments method has been replaced by the asset market method. Although the improvement of economic fundamentals in the euro zone will certainly help this young currency recover lost ground, it is difficult to support this recovery only by fundamental factors. There is also the credit problem of the European Central Bank. So far, the credibility of the European Central Bank is inversely proportional to the frequent verbal support for the euro. The looming risks of sensitive issues such as the stability of the governments of the three giants in the euro zone (Germany, France and Italy) and the enlargement of the European Monetary Union are also regarded as potential obstacles to the single currency.

At present, the stability of the dollar should be attributed to the following factors: zero inflation growth, the safe-haven nature of the US asset market, and the euro risk mentioned above.

2. Technical analysis

Technical analysis studies the past price and trading volume data, and then predicts the future price trend. This type of analysis focuses on the composition of charts and formulas to capture major and minor trends and identify buying/selling opportunities by estimating the length of the market cycle. Depending on the time span you choose, you can use daily (every 5 minutes, every 15 minutes, every hour) technical analysis, or weekly or monthly technical analysis.

Basic theory of technical analysis

Dow theory

The oldest theory in this technical analysis holds that price can fully reflect all existing information, and the knowledge available to participants (traders, analysts, portfolio managers, market strategists and investors) has been transformed in pricing behavior. Currency fluctuations caused by unpredictable events such as providence will be brought into the overall trend. The purpose of technical analysis is to study price behavior and draw conclusions about future trends.

The Dow Jones theory, which focuses on the average line of the stock market, holds that prices can be interpreted as waves with three amplitude types-dominant, auxiliary and secondary. The relevant time period ranges from less than 3 weeks to more than 1 year. This theory can also explain the flyback mode. Anti-galloping mode is a normal stage when the trend slows down the movement speed, and the levels of this anti-galloping mode are 33%, 50% and 66%.

Fibonacci anti-galloping phenomenon

This is a widely used phenomenon group, based on the numerical ratio produced by natural and man-made phenomena. This phenomenon is used to judge the degree of rebound or backtracking between the price and its potential trend. The most important levels of the phenomenon are 38.2%, 50% and 6 1.8%.

Elliot wave

Eliot scholars classify price trends through fixed wave patterns. These models can represent future indicators and reversals. The wave moving in the same direction as the trend is called push wave, and the wave moving in the opposite direction is called correction wave. Eliot's wave theory divides the push wave and the correction wave into five kinds and three main trends respectively. These eight trends constitute a complete wave cycle. The time span ranges from 15 minutes to decades.

The challenge of Eliot's wave theory is that 1 wave period can be composed of eight sub-wave periods, and these waves can be further divided into push waves and correction waves. Therefore, the key to Eliot's waves is to be able to identify the environment in which a particular wave is located. Elliott also used Fibonacci's reversal phenomenon to predict the peaks and valleys of future wave periods.

What are the contents of technical analysis?

Discover trends

The first sentence you may hear about technical analysis is the following proverb: "Trend is your friend". Finding the dominant trend will help you see the overall market direction and give you a sharper insight-especially when short-term market fluctuations disrupt the overall market. Weekly chart and monthly chart analysis are most suitable for identifying long-term trends. Once you find the overall trend, you can choose the trend within the time span you want to trade. In this way, you can buy down in the rising trend and sell up in the falling trend.

Support and resistance

Support level and resistance level are the points in the chart that continue to bear upward or downward pressure. The support level is usually the lowest point of all chart modes (hourly line, weekly line or annual line), while the resistance level is the highest point (highest point) in the chart. When these points show a recurring trend, they are considered as support and resistance. The best time to buy/sell is near the unbreakable support/resistance level.

Once these levels are broken, they often become reverse obstacles. Therefore, in the rising market, the broken resistance level may become the support of the rising trend; However, in the falling market, once the support level is broken, it will turn into resistance.

Lines and channels

Trend line is a simple and practical tool to identify the direction of market trends. An upward straight line is formed by connecting at least two consecutive low points. Naturally, the second point is definitely higher than the first point. The extension of the straight line helps to judge the path that the market will follow. Upward trend is a special method to identify support line/support level. Instead, draw a downward line by connecting two or more points. The variability of transaction lines is related to the number of connection points to some extent. But it is worth mentioning that the points don't have to be too close.

A channel is defined as an upward trend line parallel to the corresponding downward trend line. The two lines can represent the price rising, falling or horizontal channels. The common property of channels supporting the connection point of trend line should be between the two connection points of their reverse lines.

Average line

If you believe in the creed of "trend is your friend" in technical analysis, then the moving average will benefit you a lot. The moving average shows the average price at a specific time in a specific period. They are called "moving" because they are measured at the same time and reflect the latest average.

One of the disadvantages of EMA is that it lags behind the market, so it may not be a sign of trend change. In order to solve this problem, the short-period moving average of 5 or 10 days can better reflect the recent price trend than the moving average of 40 or 200 days.

Alternatively, the moving average can be used by combining the averages of two different time spans. Whether using the 5-day and 20-day moving averages or the 40-day and 200-day moving averages, when the short-term average crosses the long-term average, a buy signal is usually detected. On the contrary, when the short-term moving average goes down through the long-term moving average, it will prompt the sell signal.

There are three different moving averages in mathematics: simple arithmetic moving averages; Linear weighted moving average; And a weighted average of that square coefficient. Among them, the last method is the first choice, because it gives greater weight to recent data and considers the data in the whole cycle of financial instruments.

Lesson 5 Comparison between Foreign Exchange Market and Stock Market

From the perspective of choosing investment tools, the foreign exchange market and the stock market have their own characteristics. The following is a brief comparison for investors' reference.

Comparison and comparison of investment methods Stock bill foreign exchange (firm offer)

Participate in the market, domestic stock market and international foreign exchange market.

Market size, with daily turnover of 654.38+0 billion RMB and daily turnover of 654.38+0.5 billion USD.

International practice of China Securities Regulatory Commission and central banks of various countries.

Poor liquidity, it is best to have a daily limit, but there is no daily limit.

Account Opening Procedures Shareholder Code Card+Securities Company Account Number Bank Foreign Exchange Account Number

There is no upper and lower limit for the investment amount.

Trading hours are from 9: 30am to 165438+ 0: 30pm from Monday to Friday, and trading is 24 hours from Monday to Friday.

Settlement period T+ 1 T+0

The settlement currencies are RMB, Hong Kong dollars, US dollars and all foreign currencies except RMB.

There are as many trading varieties as 1000, four major currencies and more than a dozen cross exchange rates.

Transaction mode: self-service terminal, telephone, Internet, telephone, self-service terminal and counter.

The average range is about 50% per year, 15% per year and 0.8- 1.5% per day.

Transaction cost 1-3 ‰, without handling fee.

The annual profit potential is uncertain at around 20%.

Risk insurance ST, PT, extinction of delisting countries

Generally speaking, the foreign exchange market is more standardized and mature, the trading methods are more flexible and convenient, the profit space is larger, and the risks can be controlled within a certain range. It is a stable and mature investment method for professional investors and institutions and individuals holding foreign exchange.