This is why economic events or market events tend to suddenly happen and then suddenly unhappen, even when they are happening making it very hard to call an economic top or bottom. I was reading a report from before the crisis in 2007 and it said the markets (the equity markets) may head for a crash or it may continue upwards.
Then why have I been tracking a recovery in the markets for months and talking about it even in darker times. Because there is a deep logic to these kind of complex systems. Remember they are probably not chaotic systems precisely, in the sense of a natural chaotic systems. It is hard to see how they can be when they are so precisely determined by minds.
Human minds are probably not formal systems in the sense Godel's theorem limited. They are logical, even the most creative action tends to work in this world when it is logical. But they have this deep logic. This cascades through the markets.
It is the relentless logic great investors have applied to the analysis of financial statements, which reveals a functionality of the equity market. A great challenge is seeing if this deep logic exists in forex.
That deep logic was what was in the jobs reports just before this. Remember there was gloom and then despair. Well at the time I said there isn't and shouldn't be. Why - many reasons, including behavior of the forex markets and the nature of money flow structured created by intra-national target rates, essentially valuations placed on assets in a relative sense.
These ebbs and flow of asset valuations created by this process were masking a recovery taking place. This was shown in the jobs data then, jobs associated with money flow economics were ebbing as would be expected as money flow was ebbing. But jobs associated with company growth were starting to flow.
It might be said there was an attempt to linearize the economy in at least the past decade, make the output a non-complex effect of the input. The market would not allow this as a computational system which is not linear. But it can re-structure this as a deeply logical system. That creative logic which bubbles up through the system as a recovery takes hold.
It is possible that is the determinism conjectured at the heart of this system (and that is a determinism which is both local and global). The problem with forex is you are not really dealing with minds in this way, you are dealing with formal systems, computer programs expressed as trading programs or traders using trading systems. A possible exception is very short term trading which is controlled by market makers and long term trading where the big money can afford to be.
But in general, it is why it is hard to find determinism, long memory or logic in this system but it is in it from the input of the Dow into forex and its references to the economy. Specifically this is why it it hard to judge what a currency pair will actually do on news announcement. Some have looked for logical structure in markets, as I discussed in earlier posts.
This is something I was looking for in 1 min behavior and I found its echo in long term charts, but again this may not be a fractal phenomenon, it may be the assertion of the mind. I believe there is a deep logic to forex though, that partly what this blog is exploring.
It is interesting to conjecture what the forex market would be like if it was solely based on buy or sell orders for currency pairs. I think that is what some believe it is, and what they mean when they talk about speculators pushing up and down currencies.
They essentially cannot do this, because it would involve the ability to control economies, which it seems is exactly what failed in the past few years. It might even be argued the way the forex market is behaving now is more functional than the way it behaved in the run up to housing crisis when FOMC and ECB was all.
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