Welcome back to the OmiCronFX
commentary on the first full week of the New Year of 2014.
We run a market neutral
operation here, which means that our strategy involves never attempting to
predict the direction of the currency pairs in which we trade. Instead, our
systems react to price action that is apparent at the present time, combined with
our assessment of the probabilities.
As a result of this, we do
not attempt to predict the future. However, timing is also important, because this
gives us advance notice of when we need to be even more focused than usual on
the markets, and timing is dependent on the major market moving events that
take place. They are, to a large extent, scheduled in advance but we also have
to be ready for surprises, the well-known “Black Swan” events that occur out of
the blue. It is the job of our money management and risk control measures to
cater for these.
This week’s economic calendar
includes a number of items with high impact possibilities. Later in the global
day today, Monday January 6, the US Senate will vote on the appointment of Ms.
Janet Yellen to replace Ben Bernanke as Chair of the Federal Reserve. This vote
is expected to pass, and if and when it does Ms. Yellen will take up her post
on February 1st. next.
Tomorrow sees the publication
of the Australian Balance of Trade figures, which is the difference between
imports and exports for our friends Down Under. This is much watched in Oz,
more so than in other jurisdictions, and it has been moving in a direction in
recent times that is not to the liking of the authorities.
Also tomorrow we will have
inflation figures in the Eurozone. It was low inflation that allowed the ECB to
reduce its target interest rate in November, to the surprise of many, so any
further decline will be of interest this time around.
Then, on Wednesday, there is
the ADP employment report. This is carried out by a private company but it
often provides a leading indicator of the outcome of the official, and
market-critical, Non-Farm Payrolls report, which comes out on Friday (It is
normally on the first Friday of each month, but is on the second Friday on this
occasion due to the recent holiday period).
Thursday has the ECB monthly interest
rate decision, monetary policy statement and following press conference.
All in all, a busy week to
kick off the New Year.
The major Central Banks and
their policies.
Obviously, the known policies and, in particular, the manner in which
they are implemented by the various central banks are of supreme interest to
us. It would be forgivable to think that policy is always about the value of
the currency for which any given central bank is responsible. This is often true, but is not always the most pressing concern. The
European Central Bank (ECB), for example, is committed to control of inflation
and in this regard the value of the Euro on the world stage might have to take
second place in their considerations from time to time.
The Federal Reserve in the US has been carrying out a policy
of Quantitative Easing for some time now, and this, of course, affects the US
dollar. While the primary goal of QE is to simulate the economy, the fact that
it weakens the greenback at the same time is probably welcomed by the US authorities,
as they then get to pay back their massive foreign debt using devalued
currency.
Right now, both Australia
and Japan
are, indeed, primarily concerned with reducing the value of their currencies,
as they are perceived to be too high to sustain the exports that those
countries depend on for their prosperity.
So different monetary authorities can have different priorities. There is
one thing they all have in common, however: This is a profound dislike of
volatility in the markets. It is for this reason that all major institutions
that have responsibility for monetary policy are now committed to giving what
they call Forward Guidance. They will go to great lengths to avoid surprises in
the market place. The good news for those of us that need a certain amount of
volatility, in order to be able to trade, is that the central banks, just like
everyone else, do not have the ability to foretell the future.
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