The minutes of the January meeting of
the Bank of England’s Monetary Policy Committee (MPC) were released yesterday
at 9:30 GMT. The OmiCronFX algorithmic routine, Mandelbrot, was poised and
waiting for the outcome to be reflected in the exchange rate of the Pound
Sterling.
The minutes showed that two members
of the committee, Mssrs. Weale and McCafferty, who had, since last August, been
consistently voting for a rise in interest rates, had changed their stance and
were now in favour of waiting. This meant that the decision to hold was
unanimous. The market reacted accordingly, making down the GBPUSD pair on the
understanding that a rate rise by the Bank of England is now as far into the
future as ever. Maybe even more so. The minutes show that the change of mind on
the part of the former “dissidents” had been brought about because of the
falling inflation statistics.
The Mandelbrot algorithmic routine placed
a trade a few seconds after the announcement, on the short side (expecting the
pair to continue falling). This achieved two levels of profit before the rate
reversed and the remainder was stopped out at the price point at which the
trade had been initially entered.
We are very proud of the manner in
which Mandelbrot can react to events such as this. The move down in this case
was short lived, but extended trends are often started by just such a movement
as was seen here.
Forex
market in a tizzy ahead of ECB meeting
If your commentator had a
Euro/Dollar/Pound/Yen for every time he heard that a market event was the “most
anticipated ever”, he would be a wealthy man. On this occasion, however, such
language, being bandied about by market pundits, just might have some validity.
At 13:30 GMT today, Mario Draghi,
President of the ECB, will make that institution’s latest monetary policy
statement, to be followed by a press conference. Forex traders will hang on his
every word. There will, very likely, be extreme and sustained short term
volatility in currency exchange rates, especially in those pairs that include
the Euro, during and immediately after the statement and while he is speaking
to journalists.
Even yesterday, at the time of the
open of the New York session, a story appeared on the Dow Jones Newswire to the
effect that the executive branch of the ECB governing council had prepared a
document for discussion (ratification?) at the full council meeting today,
which puts forward the possibility of a QE package that would entail the
purchase of €50 Billion of Eurozone sovereign bonds per month, for a period of
at least a year. This was enough to put the Forex market into a tizzy of
excitement that sent the EURUSD pair off in all directions, only to come to
rest pretty much exactly where it had started off (see chart above).
The market is expecting an announcement
to confirm that the Eurozone has joined the QE club, that august gathering of
central banks that have embarked on an activity that has various euphemisms
such as ‘economic stimulation’, ‘balance sheet enlargement’ and ‘Quantitative
Easing’, but which boils down in the end to conjuring up money from nowhere,
courtesy of the printing presses at the various mints around Europe. It has
marked down the value of the Euro to a significant degree in anticipation.
Something of that sort will
undoubtedly be announced. However, in the Eurozone, nothing is simple. There
are countervailing forces at work, which could result in so much compromise
that the market will be disappointed.
And no, OmiCronFX was not in the
market when the volatility occurred yesterday. After lunchtime (GMT), and the close of
our Cable (GBPUSD) trade, we decided to wait for the dust to settle after the ECB
announcement and press conference later today before we sent Mandelbrot off
looking for more trades.
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