For those who are intellectually curious and who want to know more about the currency market than they’ll ever need to become a halfway decent trader Brian Twomey’s Inside the Currency Market: Mechanics, Valuation, and Strategies (Bloomberg/Wiley, 2012) is a fascinating if sometimes overwhelming book.
Twomey begins not with the definition of a pip but with an analysis of Bank of International Settlements (BIS) reports (which, by the way, are available online). The second chapter, entitled “Currency Trading Beyond the Basics,” lives up to its billing. It deals with such topics as margin in various countries, rollover rates and LIBOR, swap points, and purchasing power parity.
Twomey supplies formulas where necessary, charts where helpful as he takes the reader on a journey through trade weight indices, short-term interest rates and money market instruments, LIBOR, government bonds and yield curves, swaps and forwards, stock and bond markets, currency cycles and volatility. The journey is also geographical, encompassing markets in all the major crosses. And it includes a series of recommended trade strategies.
The final chapter is on technical analysis but, once again, not just the run-of-the-mill fare. He describes volume and open interest, COT reports, Bollinger bands, simple moving averages, Ichimoku, the Baltic dry index, the IMF and special drawing rights, pivot points, and currency correlations and trend lines.
This post is beginning to sound like a laundry list, but it’s the only way I can convey the breadth and the sometimes unexpected content of Twomey’s book. The book is definitely not for those who want a “dummies” introduction or who are looking for instructions on how to get rich quick in the forex market. It’s also not for those in search of some light reading for a rainy afternoon. Inside the Currency Market is for the serious student who wants to go beyond simple buy and sell signals to understand the range of market factors that influence currency prices.