Before the London open yesterday the newswires were filled with commentary that seemed to support the idea that the recent rally in the Euro against the US dollar would continue, with headlines such as “EUR/USD keeps grinding higher”, and “EUR/USD strength to persist on dismal US CPI report”, which was a reference to the fact that US Consumer Price Index figures, due out later in the day, were expected to confirm the flash report earlier in the month which had US core inflation (excluding food and energy) standing at 1.8%, somewhat short of the Fed’s 2.0% target.
But it was not to be. Shortly after the London Forex traders got to their desks, the Single Currency started to head south and continued to do so for the rest of the day. In the event, the Core US CPI figure was revised up, from 1.8% to 1.9%. This represents a stimulus to the Federal Reserve to raise interest rates, so yesterday’s downward rush was confirmed. The triggering of stop-loss orders by those who had bought into the consensus of a rising EURUSD only served in accelerate the fall.
… but the OmiCronFX Mandelbrot algo routine caught it
As regular readers will know, the OmiCronFX Mandelbrot algorithmic routine is allowed to make its own decision on the direction of a currency pair, depending on the price action at the moment of trade entry. Yesterday it decided to go short the EURUSD. It was only later it transpired that the initial fall was instigated by remarks that had been made the previous evening by the Austrian member of the ECB governing council, Ewald Nowotny, to the effect that new measures needed to be implemented by the European Central Bank to boost inflation, and it is widely understood that such measures tend to weaken the Euro.
Nobody in OmiCronFX was as yet aware of this. Mandelbrot was only responding to the price action, which was in turn dictated by the activities of those large trading institutions and hedge funds that are in a position to move the market.