Press review - page 238
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Press review
newdigital, 2013.07.01 07:19
Just next educational article about ECN and so on - Market Makers Vs. Electronic Communications Networks
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The foreign exchange market (forex or FX) is an unregulated global market in which trading does not occur on an exchange and does not have a physical address of doing business. Unlike equities, which are traded through exchanges worldwide, such as the New York Stock Exchange or the London Stock Exchange, foreign exchange transactions take place over-the-counter (OTC) between agreeable buyers and sellers from all over the world. This network of market participants is not centralized, therefore, the exchange rate of any currency pair at any one time can vary from one broker to another.
How Market Makers Work
Market makers "make" or set both the bid and the ask prices on their systems and display them publicly on their quote screens. They stand prepared to make transactions at these prices with their customers, who range from banks to retail forex traders. In doing this, market makers provide some liquidity to the market. As counterparties to each forex transaction in terms of pricing, market makers must take the opposite side of your trade. In other words, whenever you sell, they must buy from you, and vice versa.
The exchange rates that market makers set, are based on their own best interests. On paper, the way they generate profits for the company through their market-making activities, is with the spread that is charged to their customers. The spread is the difference between the bid and the ask price, and is often fixed by each market maker. Usually, spreads are kept fairly reasonable as a result of the stiff competition between numerous market makers. As counterparties, many of them will then try to hedge, or cover, your order by passing it on to someone else. There are also times in which market makers may decide to hold your order and trade against you.
There are two main types of market makers: retail and institutional. Institutional market makers can be banks or other large corporations that usually offer a bid/ask quote to other banks, institutions, ECNs or even retail market makers. Retail market makers are usually companies dedicated to offering retail forex trading services to individual traders.
Pros:
Cons:
How ECNs Work
ECNs pass on prices from multiple market participants, such as banks and market makers, as well as other traders connected to the ECN, and display the best bid/ask quotes on their trading platforms based on these prices. ECN-type brokers also serve as counterparties to forex transactions, but they operate on a settlement, rather than pricing basis. Unlike fixed spreads, which are offered by some market makers, spreads of currency pairs vary on ECNs, depending on the pair's trading activities. During very active trading periods, you can sometimes get no ECN spread at all, particularly in very liquid currency pairs such as the majors (EUR/USD, USD/JPY, GBP/USD and USD/CHF) and some currency crosses.
Electronic networks make money by charging customers a fixed commission for each transaction. Authentic ECNs do not play any role in making or setting prices, therefore, the risks of price manipulation are reduced for retail traders. (For more insight, see Direct Access Trading Systems.)
Just like with market makers, there are also two main types of ECNs: retail and institutional. Institutional ECNs relay the best bid/ask from many institutional market makers such as banks, to other banks and institutions such as hedge funds or large corporations. Retail ECNs, on the other hand, offer quotes from a few banks and other traders on the ECN to the retail trader.
Pros:
Cons:
The Bottom Line
The type of broker that you use can significantly impact your trading performance. If a broker does not execute your trades in a timely fashion at the price you want, what could have been a good trading opportunity can quickly turn into an unexpected loss; therefore, it is important that you carefully weigh the pros and cons of each broker before deciding which one to trade through.
The US dollar was on the back foot against most currencies as volatility spiked and big moves provided opportunity and risk. US housing and inflation data, A rate decision in Canada and UK GDP are the lead events on our FX calendar. Here is an outlook on the major events for this week.
Weak US retail sales sent stock markets down and triggered a sell off of the dollar. The best jobless claims in 14 years and some other OK figures could not lift the greenback, especially after FOMC member Bullard suggested to continue QE on lower inflation expectations. Weakness in other regions didn’t really help the greenback. In the euro-zone, German business confidence went negative, the German government cut forecasts and yields spike in peripheral bond markets as if it were 2012. In the UK, inflation is at a 5 year low and not all unemployment figures shine. The crash in oil prices contributed to 5 year high for USD/CAD but this didn’t last too long. The kiwi enjoyed a rise in milk prices. The yen enjoyed the risk off environment. All in all, currencies made big moves.
The USD/CAD pair rose during the course of the week, but found enough resistance at the 1.14 level to turn things back around and form a shooting star. However, the previous two weeks formed hammers, so we feel that the market is essentially going to consolidate in this general vicinity. We do not anticipate any type of selling to occur, so therefore we are going to step on the sidelines in order to avoid a lot of the potential volatility and grinding type of action that we are going to see.
The EUR/USD pair broke out during the course of the week, climbing above the 1.28 handle. However, we could not keep the gains from that move, and we turned back around to form a massive shooting star. That shooting star suggests that the market is going to drop down to the 1.25 level yet again, and as a result we think that ultimately this market will break down below that level and head to the 1.20 level given enough time. On the other hand, if we can break above the 1.30 level, we would be buyers.
The dollar gained ground against the euro and the yen on Friday as upbeat U.S. economic reports eased concerns over the outlook for the recovery, after a week of volatile trading, fuelled by fears over a slowdown in global growth.
USD/JPY was up 0.53% to 106.88 late Friday, while EUR/USD slid 0.38% to 1.2759.
The US Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, was up 0.33% to 85.31, but still ended the week lower, its second consecutive weekly decline.
The greenback was boosted after a report showed that the University of Michigan’s consumer sentiment index unexpectedly rose to 86.4 in October, the most since July 2007.
Another report showed that housing starts rose more than expected last month, bolstering the outlook for the sector.
The data reinforced expectations that the Federal Reserve will raise interest rates in the second half of 2015.
The dollar fell against the other major currencies on Wednesday, touching a one month low against the yen and a three week trough against the euro amid a selloff sparked by fears that slower global growth would act as a drag on the U.S. economy.
Dovish comments by central bank officials on Friday also helped ease investor jitters over slowing growth in major economies.
Bank of England chief economist Andy Haldane that rates could remain lower for longer and warned that global economic conditions have worsened.
On Thursday, European Central Bank official Ewald Nowotny said the bank still has leeway for more action to address slowing inflation in the euro area and added that quantitative easing would start as soon as December.
The dollar was also higher against the Swiss franc on Friday, with USD/CHF rising 0.37% to 0.9459. The pound was little changed, with GBP/USD at 1.6092 in late trade.
In the week ahead, China and the U.K. are to release preliminary data on third quarter economic growth, while the euro zone is to release preliminary data on private sector activity.
The U.S. is to release data on consumer inflation, as well as reports on both existing and new home sales.
Monday, October 20
- Germany’s Bundesbank is to publish its monthly report.
- Canada is to release data on wholesale sales.
Tuesday, October 21- The Reserve Bank of Australia is to publish the minutes
of its latest policy meeting, which contain valuable insights into
economic conditions from the bank’s perspective.
- China
is to release what will be closely watched data on third quarter gross
domestic product and separate reports on industrial production and fixed
asset investment.
- Switzerland is to report on the trade balance, the difference in value between imports and exports.
- The U.K. is to produce data on public sector borrowing.
- The U.S. is to release private sector data on existing home sales.
Wednesday, October 22- Japan is to release a report on the trade balance.
- Australia is to publish data on consumer price inflation, which comprises the majority of overall inflation.
- The BoE is to release the minutes of its latest policy meeting.
- Canada
is to release data on retail sales, the government measure of consumer
spending, which accounts for the majority of overall economic activity.
- The U.S. is to produce data on consumer prices.
- Later
in the day, the Bank of Canada is to announce its overnight rate and
publish its rate statement. The announcement is to be followed by a
regularly scheduled press conference.
Thursday, October 23- RBA Governor Glenn Stevens is to speak at an event in Sydney; his comments will be closely watched.
- New Zealand is to release data on consumer prices.
- Australia is to publish private sector data on business confidence.
- China is to release the preliminary reading of its HSBC manufacturing index.
- The
euro zone is to publish preliminary data on private sector activity,
while Germany and France are to also to publish data on private sector
growth.
- The U.K. is to report on retail sales and also
release private sector data on mortgage approvals and industrial order
expectations.
- The U.S. is to publish its weekly report on initial jobless claims.
Friday, October 24The U.S. dollar posted modest gains against the Canadian dollar on Friday after data showed that U.S. consumer sentiment improved unexpectedly this month, while Canadian consumer prices were in line with the central bank’s target.
USD/CAD was up 0.17% to 1.1274 in late trade, not far from session highs of 1.1284.
The pair is likely to find support at around the 1.12 level and resistance at about 1.1312.
The greenback was boosted after a report showed that the University of Michigan’s consumer sentiment index unexpectedly rose to 86.4 in October, the most since July 2007.
Another report showed that U.S. housing starts rose more than expected in September, bolstering the outlook for the sector.
The data reinforced expectations that the Federal Reserve will raise interest rates in the second half of 2015.
The Canadian dollar had a subdued reaction after official data showed that the country’s consumer price index rose 2.0% year-over-year in September after rising 2.1% in August.
The data indicated that the Bank of Canada will stick to its neutral stance on interest rates at its upcoming policy meeting on Wednesday.
The US Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, was up 0.33% to 85.31 late Friday, but still ended the week lower, its second consecutive weekly decline.
The greenback rose to five year peaks against its Canadian cousin on Wednesday as fears that slower global growth would act as a drag on the U.S. economy fuelled a broad-based selloff in riskier assets.
In the coming week, Investors will be looking ahead to Wednesday’s rate statement by the BoC, with the bank expected to leave rates on hold at 1.0%. Canada is also to release data on retail sales.
The U.S. is to release data on consumer inflation, as well as reports on both existing and new home sales.
Monday, October 20
- Canada is to release data on wholesale sales.
Tuesday, October 21- The U.S. is to release private sector data on existing home sales.
Wednesday, October 22- Canada is to release data on retail sales, the
government measure of consumer spending, which accounts for the majority
of overall economic activity.
- The U.S. is to produce data on consumer prices.
- Later
in the day, the BoC is to announce its overnight rate and publish its
rate statement. The announcement is to be followed by a regularly
scheduled press conference.
Thursday, October 23- The U.S. is to publish its weekly report on initial jobless claims.
Friday, October 24The euro fell against the dollar on Friday as the greenback was boosted by data showing that U.S. consumer sentiment unexpectedly improved this month.
EUR/USD was down 0.38% to 1.2759 in late trade, not far from session lows of 1.2745.
The pair is likely to find support at around 1.2625 and resistance at 1.2843, Thursday’s high.
The greenback was boosted after a report showed that the University of Michigan’s consumer sentiment index unexpectedly rose to 86.4 in October, the most since July 2007.
Another report showed that housing starts rose more than expected last month, bolstering the outlook for the sector.
The data reinforced expectations that the Federal Reserve will raise interest rates in the second half of 2015.
The dollar fell against the other major currencies on Wednesday, touching a three-week trough against the euro amid a selloff sparked by fears that slower global growth would act as a drag on the U.S. economy.
Germany’s government cut its forecast for economic growth for this year and next on Tuesday, after recent data pointed to weakness in exports and industrial output.
The euro area’s largest economy now expects growth of 1.2% this year down from 1.8% previously and growth of 1.3% in 2015, down from 2%.
On Thursday, European Central Bank official Ewald Nowotny said the bank still has leeway for more action to address slowing inflation in the euro area, but added that the euro zone economy did not need emergency measures.
In recent months the ECB has cut interest rates to record lows, extended new four-year loans to banks and announced a plan to purchase asset-backed securities, a form of quantitative easing, in a bid to shore up the ailing euro area economy.
Elsewhere, the single currency edged higher against the yen on Friday, with EUR/JPY easing up 0.15% to 136.38 in late trade, off Thursday’s 11-month lows of 134.12.
In the week ahead, the euro zone is to release preliminary data on private sector activity. The U.S. is to release data on consumer inflation, as well as reports on both existing and new home sales.
Monday, October 20
- Germany’s Bundesbank is to publish its monthly report.
Tuesday, October 21- The U.S. is to release private sector data on existing home sales.
Wednesday, October 22- The U.S. is to produce data on consumer price inflation, which accounts for the majority of overall inflation.
Thursday, October 23- The euro zone is to publish preliminary data on private
sector activity, while Germany and France are to also to publish data
on private sector growth.
- The U.S. is to publish its weekly report on initial jobless claims.
Friday, October 24EUR/USD Technical Analysis: Short Trade Entry Sought (based on dailyfx article)
The Euro moved higher against the US Dollar as expected after prices produced a bullish Piercing Line candlestick pattern. Near-term resistance is at 1.2852, the 23.6% Fibonacci retracement, with a break above that on a daily closing basis exposing the 38.2% level at 1.3070. Alternatively, a reversal below the October 13 close at 1.2750 opens the door for a test of the October 1 close at 1.2619.
AUDIO - Weekend Edition with Prof. Patrick Barron
Merlin Rothfeld, John O’Donnell and Patrick Barron talk about several key issues facing our markets including fractional reserve banking and the European Union. Professor Barron points to his article about the demise of the euro, and discusses how the breakup could lead to a new world reserve currency.
if actual > forecast (or actual data) = good for currency (for CNY in our case)
[CNY - GDP] = Change in the inflation-adjusted value of all goods and services produced by the economy.
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China GDP Rises 7.3% On Year In Q3
China's gross domestic product expanded 7.3 percent on year in the third quarter of 2014, the government said on Tuesday - topping expectations for an increase of 7.2 percent but slowing from 7.5 percent in Q2.
On an annualized quarterly basis, GDP was up 1.9 percent - also beating forecasts for 1.8 percent and down from 2.0 percent in the previous three months.
The government also said that industrial production climbed 8.0 percent on year in September, beating expectations for 7.5 percent and up from 6.9 percent in August.
Retail sales climbed an annual 11.6 percent, just shy of forecasts for 11.7 percent and down from 11.9 percent in the previous three months.
Fixed asset investment jumped 16.1 percent on year, also missing expectations for 16.3 percent and down from 16.5 percent in the three months prior.