At OmiCronFX, our whole raison d’etre
is to have some idea about the direction that exchange rates are about to go in
when we trade. To this end we watch the outcome of scheduled economic reports,
we try to be aware of news events and we attempt to gain an understanding of
the motivations of the large players in Forex, those institutions and hedge
funds that have the power to move the market.
Despite instances where the reaction
to releases can be counterintuitive, and despite the fact that price can
oscillate irrationally during periods that are outside of the main trading
hours of the London, New York and Chicago Forex traders’ working day (and even
within those hours on occasion), it is important for us to be able to believe
that different players have different interpretations of the aggregate of the
information that is available to them at any given time, and that there is no
collusion outside of the ability to be aware of the movement of the exchange
rates.
To have a level playing field, all
communal information should be in the price, and then at least partially
derived from the price. If this is so, it would be reasonable to suppose that
there would be a time lag after a less-important information release and the
arrival of a consensus on how it should add to the fate of the currency most
likely to be impacted (really important news, for example an FOMC announcement
on the US core interest rate, will have only one predictable outcome, as
everyone is conditioned to react accordingly to either an increase or decrease.
In this case one had better be in the market in anticipation as it can move
with extreme rapidity).
Some
surprised Forex commentators
At the start of this month, on Dec 2nd.
2014, a quiet day for news, most commentators were surprised at the end of the
trading day to have to note that Cable, the Pound Sterling against the US
dollar pair (GBPUSD) had fallen quite a bit (the word “plunged” was used by at
least one) – around 75 pips, or 75 of
the smallest units that a pair can move. Very belatedly, when London was closed
and NY was well into its afternoon, they concluded that this was as a result of
the CIPS / Markit UK construction Purchasing Managers Index report, which had
come in at 59.40 when 61.00 had been expected (anything above 50.00 still
denotes expansion).
But that particular release had been
at 09:30 that morning, London time, and is normally not one that is accorded
particularly high importance (construction activity is not exported as a rule
and so does not influence GDP). In addition, as can be seen on the 10 minute
chart at top, the market took well over an hour to decide, in its collective
wisdom, that the UK Construction CPI outcome warranted a selloff in cable.
This example would seem to suggest
that the market movers were anything but united in their reaction to this
event, at least until it became clear in what way the majority was going, by
reference to the real-time exchange rate movement. We take all of this as a
positive for those of us who rely on our alertness and our response to price
action in order to profit from Forex trading.
Or should be say the alertness and responsiveness
of the algorithmic routines we have developed to assist us in this endeavour?
Possible
choppy week heading into year-end & holiday
While there are a number of economic
releases this week, of which the most important is the Fed’s monetary policy
statement on Wednesday, we are also of the opinion that trading will be
dominated by large institutions rebalancing their accounts for the year-end,
which will take place in thin trading due to the fact that many market participants
will have already left their desks for the holidays. This combination could
lead to choppy, irrational trading conditions.
It is not advisable to trade under
such conditions. We will continue to test our strategies, however. On Friday we
will commence a holiday break in the commentary that will bring us into the New
Year of 2015 when we will be back to hit, as they say, the ground running.
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