Thursday, September 19, 2013

A masterclass in trading market critical announcements

Along with the great majority of commentators and analysts, Omicron FX believed that the Federal Reserve would announce some scaling back of Quantitative Easing (QE) last evening (European time) after its policy meeting. We did not attempt to predict the movement of any currency pairs, however. This was because our only concern is the reaction of the markets to any announcement and the fact of the matter is that this can often be counterintuitive, no matter what decisions are made by the powers that be.

So what we did was we started the Omicron FX Silver Trigger routine to take only short trades in the US dollar, and we did this during Mr. Bernanke’s press conference, when the market sentiment was becoming clear. OK, we missed some of the short covering that took place in the immediate aftermath of the surprise announcement, but all of our positions are now in profit and moving steadily in the right direction.

The pairs we have positions in are the EURUSD, AUDUSD and the NZDUSD, the last one because the New Zealand authorities have already indicated they are minded to raise interest rates, which will help the Carry Trade in their currency. It is not without significance that this is the pair that is most profitable for us this morning.

While the FOMC decision to maintain bond purchases, in other words not to engage in tapering Quantitative Easing (QE) for the present, is the big news, the post-meeting press conference by the chairman, Mr. Bernanke, was also tremendously enlightening. Omicron FX watched it on your behalf.

At the press conference the fed chairman came across as a decent, caring individual, but one that is suffering with a conflict. In comparison to his counterpart in the Eurozone, Mario Draghi, he gives the impression of someone who is less well able to contain the pressures of the office. Firstly, the conflict: He has apparently decided that one very important method of keeping volatility out of the markets is to give as much forward guidance as possible. So he tries to do that. The problem is that events overtake him - what he believed to be a good indication of what was possible last July is no longer so good today. The strains of trying to deal with this dilemma were apparent in his posture, his voice and, at key times, his face.

His relief at being asked a question about his seeking an additional term in the post, which he was able to answer by saying that he had decided in advance not to comment on, was manifest.

There is no doubt at all that unemployment will be the key decider of when tapering eventually does take place. And unemployment in the US is not just decided by reference to the raw figures that appear on the first Friday of every month in the Non-Farm Payrolls report. The employment rate is artificially affected by a fall in the participation rate, or the total number of people actually looking for work, so that is one thing to be factored in.

The Fed will not taper to suit market expectations, and it will not refuse to taper in order to assist emerging markets, according to the chairman.

For now, the US dollar is in full retreat. The strengthening that took place since tapering first entered the lexicon is being undone. The Euro, in particular, has broken out of the channel it has occupied since early this year:

1 comment:

  1. Feels good to have this blog as earlier i wasn't aware of this thanks..