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Forum on trading, automated trading systems and testing trading strategies
Something Interesting in Financial Video October 2014
newdigital, 2014.10.22 07:20
Video: Equities Soar but Dollar, Euro, Yen Show Little ’Risk’ Response
Following its worst weekly tumble in over two years, US equities have extended their recovery to a fourth session and the best single-day climb in 12 months. Alongside, a drop in volatility measures, this looks like the makings of a recovery in investor sentiment. That said, there was little of the S&P 500 and Dow exuberance seen in other asset classes. Is the surge in equities a false harbinger or will it just take time for other markets to catch up? FX traders moving forward will have to assess broader sentiment trends against monetary policy forecasts as the economic docket fills out with key event risk. We look at both themes and their market influence in today's Trading Video.
Trading the News: U.S. Consumer Price Index (CPI) (based on dailyfx article)
A further slowdown in the U.S. Consumer Price Index (CPI) may spark a bearish dollar reaction (bullish EUR/USD) as the majority of the Federal Open Market Committee (FOMC) remain in no rush to normalize monetary policy.
What’s Expected:
Why Is This Event Important:
Even though the Fed is widely expected to conclude its quantitative easing (QE) program at the October 29 meeting, subdued price growth may encourage the FOMC to retain the zero-interest rate policy (ZIRP) for an extended period of time in order to promote a stronger recovery.
Easing input costs along with the slowdown in private-sector consumption may spur a weak CPI print, and the EUR/USD may face a larger correction over the near-term should the fundamental development drag on interest rate expectations.
Nevertheless, the ongoing recovery in the labor market paired with the pickup in economic activity may show an unexpected uptick in price growth, and a stronger-than-expected inflation report may generate another wave of USD strength as market participants boost bets for higher borrowing costs.
How To Trade This Event Risk
Bearish USD Trade: Headline & Core Inflation Continue to Undershoot
- Need to see green, five-minute candle following the release to consider a long trade on EURUSD
- If market reaction favors a bearish dollar trade, buy EURUSD with two separate position
- Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is hit; set reasonable limit
Bullish USD Trade: Price Growth Tops Market Expectations & Boosts Rate Expectations- Need green, five-minute candle to favor a short EURUSD trade
- Implement same setup as the bearish dollar trade, just in the opposite direction
Potential Price Targets For The ReleaseEUR/USD Daily Chart
EUR/USD Monthly Chart
- Failure to retain the bullish RSI momentum raises the risk for a further decline in EUR/USD.
- Interim Resistance: 1.2900 (61.8% retracement) to 1.2940 (38.2% expansion)
- Interim Support: 1.2460 (78.6% retracement) to 1.2500 Pivot
Impact that the U.S. ISM Manufacturing report has had on EUR/USD during the last release(1 Hour post event )
(End of Day post event)
2014
August 2014 U.S. Consumer Price Index
EURUSD M5 : 24 pips price movement by USD - CPI news event
The U.S. Consumer Price Index (CPI) slowed more-than-expected in August, with the headline reading slipping to 1.7% from 2.0% in July, while the core rate of inflation unexpectedly narrowed to 1.7% to mark the slowest pace of growth since March. Even though the Fed argues inflation expectations remain firmly anchored, subdued price growth may continue to delay the normalization cycle as Chair Janet Yellen remains in no rush to abandon the zero-interest rate policy (ZIRP). Despite the limited market reaction to the weak CPI print, the greenback regained its footing during the North America trade, with the EUR/USD dipping below the 1.2850 region and closing the day at 1.2864.
AUDIO - The Big Bounce with Mike McMahon
Fresh off teaching a Forex class online, Mike McMahon joins Merlin and shares his feelings on this big 9 day bounce! Many global events are pushing the move, and Mike discusses why he feels it is the next leg of the Bull Rally! Mike and Merlin also take a look at some other currency pairs, including the all powerful Dollar!
if actual > forecast (or actual data) = good for currency (for CNY in our case)
[CNY - HSBC Manufacturing PMI] = Level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy.
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China Manufacturing PMI Rises Slightly In October - HSBC
China's manufacturing sector continued to expand at a slightly accelerated pace in October, the latest survey from HSBC Bank revealed in Thursday's preliminary reading with a PMI score of 50.4.
Now at a three-month high, the October score is up marginally from 50.2 in September.
A score above 50 signals expansion in a sector, while a reading below means contraction.
"Domestic as well as external demand showed some signs of slowing although both remained in expansion territory. Disinflationary pressures intensified, as both the input and output price indices declined further. Meanwhile both employment and inventory indices improved," said Hongbin Qu, Chief Economist, China & Co- Head of Asian Economic Research at HSBC.
Forum on trading, automated trading systems and testing trading strategies
vijaygori, 2014.10.23 08:24
Talking Points
Taking advantage of the financial roller coaster
Trading the markets is not particularly easy, and if anything, they are financial roller coasters. Price can trade aggressively higher or lower with an absence of news to back the move. Sometimes price will even trade in contradiction to common sense.
As there is a high number of random market moves, it’s not surprising that the average FX trader has beenright 59% of the time according to our . This means that our next trade will be probably be a winner 59% of the time and a losing trade 41% of the time.Our winning ratio is near the outcome of a coin toss, in the short term, meaning there is no certainty if our next trade will be a winner or not.
If we take this fact and combine it with real money trading, then it makes sense that traders will experience strong mood swings, as any given trade can quickly generate a gain or loss.This also explains how greed and fear is part of the market.
The swings of the markets does complicate trading, but can also be an advantage to the trader that can keep their emotions in check.
The emotionally stable traders knows and acts like the next trade is just one trade out of many trades to come. One routine which can help traders to be less emotional is tohave a trading plan and understandingthe key components of the trading plan.
Suggested reading: How to Build a Four-Point Trading Plan
How our body can complicate things further
When the markets move in ways we do not predict, our body will react by producing hormones such as adrenaline, cortisol and testosterone which in turn place our body on high alert. The primary function behind the release of such hormones is to sharpen the senses and to prepare the body. As in the case of cortisol, to deal with the imminent stress by increasing blood sugar, supressing the immune system and increasing its metabolism. Although this can, in the short term, make us more alert it also reduces our ability to think ahead. As a result we may act less rational.
It is in this state of high alertness and stress that we tend to think less rationally, traders beginning to feel and behave as if it were their last ever trade. It is at this point that they begin to add to losing positions or refuse to cut their losses.
How can we limit the impact of emotions on our trading?
We should ultimately plan for different scenarios and create a plan contingent on such scenarios. Ideally this should be done before placing a trade, the reason being that we will be in our most objective state given that neither pride nor money is at stake. Minimally, good levels for our stop loss, profit target and entry should be worked out. When the time comes and our entry gets triggered, we must adhere to our rules created prior to the trade.
The mood swings
The mood swings will still be there even if we trade with rules, and there is no simple way around this, except by exposing ourselves to the market over time. The more we expose ourselves, the more comfortable we become in handling the pressure (the old maxim = practice makes perfect!). The most successful traders will understand this and remain cool and just trade their systemunshakably independently of any short term gains and losses.
One way to get around the pressure is through small trading. Starting out with a low one fifth of your desired lot size can be a good start, eventually increasing the risk as you start to become more and more comfortable.
Conclusion
Price can trade aggressively higher or lower with an absence of news to back the move. Sometimes price will even trade in contradiction to common sense. This will cause strong mood swings with most traders, hence generate big swings in the markets. Our body can complicate things further by producing hormones such as adrenaline, cortisol and testosterone, which can make us less rational in our trading. It’s important to understand that we might not act in our own interest at this point, which makes it important to plan your trade before your executiveit. Through regular trading, we can become better at handling the stress.
if actual > forecast (or actual data) = good for currency (for EUR in our case)
[EUR - French Manufacturing PMI] = Level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy.
==========
French Private Sector Contracts At Fastest Pace In 8 Months
The French private sector contracted at the sharpest rate in eight months in October, flash survey data from Markit Economics showed Thursday.
The composite output index fell to 48 in October from 48.4 in September. This was the lowest reading since February, albeit indicative of a moderate rate of contraction overall.
The services Purchasing Managers' Index slid to 48.1 from 48.4 in September. The index was forecast to fall marginally to 48.3.
Likewise, the manufacturing PMI dropped to 47.3 in October from 48.8 a month ago. The reading was forecast to ease to 48.5.
if actual > forecast (or actual data) = good for currency (for EUR in our case)
[EUR - German Flash Manufacturing PMI] = Level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy.
==========
German Private Sector Growth Rises Marginally In October
Germany's private sector growth improved marginally in October, flash survey data from Markit Economics showed Thursday.
The composite output index rose to 54.3 in October from 54.1 in September. The private sector extended the current sequence of output growth to a year-and-a-half.
Manufacturing growth picked up in October, with the pace of expansion the fastest in three months. Meanwhile, services output grew at a slightly weaker, albeit still robust rate, data showed.
The manufacturing Purchasing Managers' index climbed unexpectedly to 51.8 in October from 49.9 a month ago. Economists had forecast the index to fall to 49.5.
But the services PMI fell more-than-expected to a 4-month low of 54.8, from 55.7 in September. The score was forecast to drop marginally to 55.
AUDIO - Talking Trading with Jeff Manson
Jeff Manson joins Merlin to talk about some of his money management learning lessons and perspectives on the US dollar. Several listeners are struggling with rules and money management, so Jeff and Merlin help them out.
Video: Major Event Risk Can Move and Restrain EURUSD, USDJPY, GBPUSD (based on dailyfx article)
Normally, we look at event risk like a Fed rate decision and ECB stress test results as the fuel for trade setups. Yet, the influence of such high level events and data can dampen markets as readily as they motivate them. Looking ahead to next week's docket, there is a range of high profile risk - any one capable of changing the trend on their respective currency and a few even capable of turning the tide on global sentiment. We discuss how headline events can disrupt active and potential trade setups like those seen from S&P 500, EURUSD, USDJPY and others in today's Strategy Video.
USD/CAD Technical Analysis: Stalling Above 1.12 Figure (based on dailyfx article)
The US Dollar may be forming a top against its Canadian namesake as negative RSI divergence points to fading upward momentum. A daily close below the intersection of a rising channel floor and the 23.6% Fibonacci retracement at 1.1204 exposes the 1.1092-98 zone (38.2% level, September 15 high). Alternatively, a push above the 38.2% Fib expansion at 1.1329 opens the door for a challenge of 1.1406, the intersection of the 23.6% threshold and the channel top.
