Monday, November 17, 2014

The importance of timing | Today’s reports: UK inflation, EU economic sentiment; NZ milk auction results

It is well accepted in Forex that timing is important. But there are a number of elements to timing – the need to be aware of the days on which volatility inducing events, such as the Non-Farm payroll report or FED day, occur; seasonal factors like the hiatus that can grip the markets during some of the summer months; even the day of the week at a time when there are no market moving events; and the opening of the important sessions in London and New York, or the Asian session.

The chart above shows the reactions of the market to some of these in the last two trading days, yesterday, Monday 17th and Friday, Nov 14th. At 14:55 GMT on Friday the Reuters / University of Michigan Consumer Sentiment Index came in better than expected, but instead of assisting the Greenback against the Euro, it appeared to be a case of “buy the rumour and sell the news”, as the EURUSD pair appreciated (meaning the dollar lost comparatively). This was in the aftermath of slightly better than expected Eurozone GDP figures earlier in the day.

Yesterday the open of both the London and New York sessions stood out and were anticipated by the Asian session, when there was a belated reaction to the Consumer Sentiment news out of the US, which turns out to have achieved a seven-year high. The US dollar finally had its time in the sun. Catching these moves requires careful attention, or the assistance of an algorithmic routine, such as Mandelbrot.

Today’s reports

Reports that could have an effect on the market today include inflation figures for the UK, which will be released at 9:30 GMT, the well-respected ZEW survey on economic sentiment in Europe and the Fonterra milk auction in New Zealand, which is always closely watched for signs about the health or otherwise of the Kiwi (NZDUS pair).

Inflation in the UK will be particularly important, as the remarks of the governor of the Bank of England, Mark Carney, have left little doubt that he and his colleagues will be using this as an important indicator to inform their decisions about future core interest rate rises, which are crucial for the expected value of the pound Sterling in the Forex markets.

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