Press review - page 447

[Sergey Golubev]

EUR/USD Intra-Day Fundamentals: German Ifo Business Climate and 20 pips range price movement

2016-10-25 08:00 GMT | [EUR - German Ifo Business Climate]

• past data is 109.5
• forecast data is 109.6
• actual data is 110.5 according to the latest press release

if actual > forecast (or previous one) = good for currency (for EUR in our case)

[EUR - German Ifo Business Climate] = Level of a composite index based on surveyed manufacturers, builders, wholesalers, and retailers.

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From official report:

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EUR/USD M5: 20 pips range price movement by German Ifo Business Climate news event

[Sergey Golubev]

Intra-Day Fundamentals - EUR/USD and USD/JPY : The Conference Board Consumer Confidence

2016-10-25 14:00 GMT | [USD - CB Consumer Confidence]

• past data is 103.5
• forecast data is 101.5
• actual data is 98.6 according to the latest press release

if actual > forecast (or previous one) = good for currency (for USD in our case)

[USD - CB Consumer Confidence] = Level of a composite index based on surveyed households.

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From official report:

"Consumer confidence retreated in October, after back-to-back monthly gains,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current business and employment conditions softened, while optimism regarding the short-term outlook retreated somewhat. However, consumers’ expectations regarding their income prospects in the coming months were relatively unchanged. Overall, sentiment is that the economy will continue to expand in the near-term, but at a moderate pace."

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EUR/USD M5: 43 pips range price movement by The Conference Board Consumer Confidence news events

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USD/JPY M5: 74 pips range price movement by The Conference Board Consumer Confidence news events

[Sergey Golubev]

AUD/USD Intra-Day Fundamentals: Australia Consumer Price Index (CPI) and 20 pips range price movement

2016-10-26 00:30 GMT | [AUD - CPI]

• past data is 0.4%
• forecast data is 0.5%
• actual data is 0.7% according to the latest press release

if actual > forecast (or previous one) = good for currency (for AUD in our case)

[AUD - CPI] = Change in the price of goods and services purchased by consumers. Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.

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From official report:

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AUD/USD M5: 20 pips range price movement by Australia Consumer Price Index (CPI) news event

 

[Sergey Golubev]

Forum on trading, automated trading systems and testing trading strategies

CARRY TRADE

Achmad Armawijaya, 2016.10.26 11:00

CARRY TRADE

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What is?

A currency carry trade is a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.

 

Example:

- Now it is Japan's lowest interest rate 0.5%
- The highest interest rate is New Zealand 8:25%
- We borrow money from Japan then saved to New Zealand
- We can get 8:25% but pay 0.5%, it is 7.95%

- Well above transaction is called CARRY TRADE

 

In this small scale this is the calculation of swap / overnight, so the profit you earn from the difference in interest rates.

 

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Forex market is a market that can not be predicted accurately, yes we can predicted it base on technical analysist or fundamental analysist, but however, we still can not understand the direction of currency movements, therefore came this carry trader  it is one that is quite popular system used to generate profits by investors and financial managers in the biggest financial firms in the world. Without the carry trade, forex trading is a hotbed of speculators. those who only focus on carry trade can be regarded as true that forex investors. Because how great the speculators (eg George Soros), one day he would return to the carry trade. Its basic as carry trade is impossible to resist forever.

Those of us, small players, at least have to pay attention to this in order not to be brought current. If you play in the long term, ex, one week a transaction, should follow the flow of the carry trade. Do not follow the flow of speculators.

 

Advantages
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One advantage of the carry trade in the spot forex market is the payment of interest occur every day based on your position. Even if you keep your position open longer than one day, which is actually the case broker closes your position and then open it again the next day, and then they gave debit or credit payment of the interest rate differentials between the currency pair you are trading. It is also known by the term "roll over".

Leverage factor applied by the forex broker makes the carry trade is very popular in the spot forex market. Almost all forex trading on margin, meaning you only need a small amount of money to be able to open a position. In fact there are only membutuhkun only 1% - 2% margin to open a position.

 

So whether profitable if Carry Trader maintains his position for 1 year?

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As an example:

George Soros has a cash of $ 10,000 and decided to use the money as capital for forex trading. He opened an account with a forex broker, then find the currency pair has a different interest rate of + 5% per year.

Broker choice requires only 1% deposit to open a position (100: 1 leverage), so as to position 1 lot ($ 100,000) needed only $ 1,000 as margin. George Soros now control the currency position amounted to $ 100,000 and receive a 5% interest per year.

What happens to the George Soros account if he maintains his position for 1 year?

There are three possibilities occur:

1.     Value of currency positions suffered losses.
Currency bought moves down so George Soros suffered losses. When the losses that occurred reaching the margin, then the George Soros open positions will be closed so that on his account only the remaining $ 1,000, the amount set aside for margin.

2.     Currency pairs remain on the same exchange rate at the end of the year.
In this case George Soros does not make a profit from changes in currency prices, but profit from the difference in interest rate of 5% per year. For transactions of $ 100,000 he received $ 5,000 from interest payments. Of the $ 10,000 that he used as capital (margin), he had to get 50% profit.

3.     Value of currency positions increased.
The currency pair is bought to increase the price, so it's not just George Soros profit from interest rate payments, but also of the increase in the exchange rate of the currency bought.

With the leverage factor of 100: 1, George Soros has the potential to generate profit by 50% per year based on an initial capital of $ 10,000, well above the profit obtained when he was just depositing the money in the bank.

 

Disadvantages

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Carry trades work when there is a change in the financial conditions that will occur gradually, allowing investors or speculators enough time to close the trade and lock in profits. But if the environment changes unexpectedly, investors and speculators also could be forced to close their carry trades investment as quickly as possible. Unfortunately, this kind of reversal was calculated as investments carry trades which have unpredictable consequences that have the potential to destroy the global economy.

Note this

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1.     Changes in average daily range high

As previously described volatility is a major factor that must be considered the carry trader. In case of extreme sentiment on financial markets, the volatility will increase. This can be observed in the average daily price movement range (average daily range). When changes in average daily range the greater the volatility is also higher. This can be monitored by the technical indicator Average True Range (ATR), which usually are used to determine the magnitude of change range at a given time period.

2.     Bank cuts interest rate

If the state of the global economy is at high risk and have a negative impact on the market, some of the central bank will conduct a policy of cutting interest rates. This will cause the carry trader review the trading position is typically direncankan in the long run. Volatility due to interest rate cuts typically occur while the (short term), but because the cut is usually the target currency carry trade (eg interest rate cut the Australian dollar, if traders buy AUD / JPY), then in the long term profit from the difference in interest rates obviously will be reduced.

3.     Government Intervention

Although small frequency, the government can intervene in the forex market if the exchange rate is considered too strong or too weak in accordance with the expected reference to the central bank. With the intervention of the value of the currency will strengthen or weaken rapidly which of course affects the exchange rate volatility and carry trade currency pairs. As is known, the central bank of Japan (BoJ) often intervene in its currency.

4.     Ideal conditions for the carry trade
Extreme market sentiment is not always the case, as well as high volatility. Forex market, and also the stock market will usually recover (recover) along with the increasing returns that result. Investors usually wait state is most suitable or close to ideal for the carry trade, ie if the global economy is growing rapidly with the level of interest rates in some countries are already quite competitive.

 

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The carry trade is great for the big trading outfits, but it doesn’t help the average person. And that is why there is such great income disparity.

 

[Sergey Golubev]

EUR/USD Intra-Day Fundamentals: New Home Sales and 14 pips range price movement

2016-10-26 14:00 GMT | [USD - New Home Sales]

• past data is 575K
• forecast data is 601K
• actual data is 593K according to the latest press release

if actual > forecast (or previous one) = good for currency (for USD in our case)

[USD - New Home Sales] = Annualized number of new single-family homes that were sold during the previous month.

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From market watch article: New-home sales run at annual 593,000 rate in September as market grinds slowly higher

• "Sales ran at a seasonally adjusted annual rate of 593,000, the Commerce Department said Wednesday. That was 3.1% higher than August’s figures, which had originally been reported as 609,000. Sales in September were 29.8% higher compared to a year ago."
  
• "Despite robust demand, builders haven’t ramped up construction of new homes since the recession. Many continue to report difficulties in finding affordable labor and lots. But some analysts note that builders can reap fatter margins by keeping inventories lean and targeting higher-end customers."

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EUR/USD M5: 14 pips range price movement by New Home Sales news event

[Sergey Golubev]

NZD/USD Intra-Day Fundamentals: NZ Overseas Merchandise Trade and 12 pips range price movement

 

2016-10-26 21:45 GMT | [NZD - Trade Balance]

• past data is -1243M
• forecast data is -1123M
• actual data is -1436M according to the latest press release

if actual > forecast (or previous one) = good for currency (for NZD in our case)

[NZD - Trade Balance] = Difference in value between imported and exported goods during the reported month.

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From official report:

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NZD/USD M5: 12 pips range price movement by New Zealand Trade Balance news event

[Sergey Golubev]

Trading the News: U.K. Gross Domestic Product (GDP) (adapted from the article)

• "GBP/USD may stage a larger rebound over the next 24-hours of trade as the advance Gross Domestic Product (GDP) report is expected to show the U.K. economy expanding another annualized 2.1% in the third-quarter of 2016, and signs of better-than-expected growth may encourage the Bank of England (BoE) to retain the current policy throughout the remainder of the year as the central bank sees growing risk of overshooting the 2% target for inflation."
• "The BoE may continue to embark on its easing-cycle over the coming months as ‘a majority of members expect to support a further cut in Bank Rate to its effective lower bound,’ but Governor Mark Carney and Co. may largely endorse a wait-and-see approach going into 2017 as central bank officials warn the next quarterly inflation due out on November 3 will reflect the sharp decline in the exchange rate. Even though the threat of a ‘hard Brexit’ instills a long-term bearish outlook for the British Pound, GBP/USD may face a larger correction over the days ahead especially as the BoE appears to be in no rush to implement lower borrowing-costs.’"

Bullish GBP Trade: U.K. GDP Expands Annualized 2.1% or Greater

• "Need a green, five-minute candle following the report to favor a long GBP/USD trade."
• "If market reaction favors a long sterling trade, buy GBP/USD 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."

Bearish GBP Trade: 3Q Growth Report Falls Short of Market Expectations

• "Need a red, five-minute candle to favor a short GBP/USD trade."
• "Implement same setup as the bullish British Pound trade, just in the opposite direction."

Daily price is located below 100-day SMA (100 SMA) and 200-day SMA (200 SMA) for the bearish area of the chart for the ranging within the narrow support/resistance levels. Descending triangle pattern was formed by the price with 1.2081 support level to be crossed for the bearish trend to be resumed.

• If D1 price breaks 1.2081 support to below on close bar so the primary bearish trend will be continuing with 1.1938 nearest daily bearish terget.
• If price breaks 50.0% Fibo level at 1.2457 to above on close daily bar so the local uptrend as the bear market rally will be started.
  
• If not so the price will be on bearish ranging within the levels.

GBP/USD M5: 31 pips range price movement by U.K. Gross Domestic Product news event:

 

[Sergey Golubev]

Intra-Day Fundamentals - EUR/USD and USD/CNH : Durable Goods Orders

2016-10-27 12:30 GMT | [USD - Durable Goods Orders]

• past data is 0.1%
• forecast data is 0.1%
• actual data is -0.1% according to the latest press release

if actual > forecast (or previous one) = good for currency (for USD in our case)

[USD - Durable Goods Orders] = Change in the total value of new purchase orders placed with manufacturers for durable goods.

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From Market Watch article: Durable-goods orders soften in September

• "Orders for long-lasting goods made in the U.S. fell slightly in September, largely because of lower demand for military hardware and computers."
  
• "Core orders slumped 1.2% last month and they are down 4.1% over the past year."
• "Weak business investment has contributed to slower U.S. growth in 2016 and there’s little sign that a pickup is around the corner. Inventories did rise for the third straight month, however, after a slump earlier in the year."
  

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EUR/USD M5: 17 pips range price movement by Durable Goods Orders news events

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USD/CNH M5: 28 pips price movement by Durable Goods Orders news events

[Sergey Golubev]

S&P 500 Intra-Day Technicals: H1 bearish reversal (adapted from the article)

H1 price broke 100 SMA/200 SMA levels to be reversed to the primary bearish market condition with 2,126 support level to be broken for the bearish trend to be continuing with 2,124/2,123 levels to re-enter.

• "The most critical level to watch as resistance comes at the 2146/50 area, where several inflection points of support and resistance can be found. To a less degree in this vicinity we have a trend-line running down off the 10/10 swing high. A break above brings the 10/24 swing high at 2155 into play, and on aggressive trade higher the trend-line extending lower off the 9/7 swing high. Several inflection points spanning over a fairly lengthy period make this an important trend-line to watch. To a lesser degree of importance, running near this t-line is the upper parallel off the 10/14 swing high. In the unlikely event we trade above the before mentioned resistance levels in the very near-term we will look to 2070 as the next stopping point."
• "On the downside, we first have support by way of a trend-line running higher off the important 10/13 daily low, then the lower parallel extending back to the 10/17 pivot. Horizontal support quickly comes into play around 2130, then 2124, and finally the important 2115 level."

The most likely scenario for H1 price movement is the following: the price will cross 2,126 level to below with 2,124/2,123 next level to be broken for the bearish trend to be continuing.

[Sergey Golubev]

Forum on trading, automated trading systems and testing trading strategies

Something Interesting to Read October 2016

Sergey Golubev, 2016.10.28 08:14

GDP: A Brief But Affectionate History

by Diane Coyle

GDP is one economic model among several that could serve the purpose, but its use conveniently leads to policies that reflect the thinking of a particular school of economic monetary and fiscal policy advocates.

We all know that in operating a business we need to be able to measure the profits of our company and then adjust our prices and production to make sure that there are enough profits to adequately fund the company. That is a relatively straightforward process, since the amount of money in the bank at the end of the month is a real number.

GDP: A Brief But Affectionate History is a fascinating 140-page book that I cannot recommend highly enough. This is simply the best book on GDP that I’ve ever seen. You can read it on a few hours’ plane ride or a lazy Sunday afternoon. And Ms. Coyle actually makes a relatively dry subject interesting and at times a page-turner. She has a true gift.

Ms. Coyle starts with the predecessors to Adam Smith and takes us through the 17th century right up until today with the development of GDP, so we see the ebb and flow of ideas through time. Who knew the early developers of the model did not want to include defense spending, as they saw it as a wasteful, nonproductive activity? Or that Adam Smith thought the inclusion of services in the concept was misleading. “The provision of more services was a cost to the national economy, in his view. A servant was a cost to his employer, and did not create anything. Importantly, money spent on warfare or the interest on government debt was also being used unproductively. The nation’s wealth was its stock of physical assets less the national debt. National income was what derived from the national wealth.”

Will the Real GDP Please Stand Up?

GDP is a huge undertaking, full of rules, with almost as many exceptions to the rules, changes, fixes, and qualifications, so that, as one Amazon reviewer noted, GDP is in reality so complex there are only a handful of people in the world who fully understand it, and that does not include the commentators and politicians who pontificate about it almost daily. The quarterly release of GDP statistics is more akin to a religious service than anything resembling a scientific study. The awe and breathlessness with which the number is discussed is somewhat amusing to those who understand the sausage-making process that goes into producing the number. Whether the GDP reading is positive or negative, it often changes less in a given quarter than the margin of error in the figure itself, and it can be and generally is revised significantly – often many years later when almost no one is paying attention.

GDP Is a Political Construction

GDP has always been a political construction, subject to the ebb and flow of the intellectual and political climate, the need to raise taxes, and the military needs of the day. It is also a tool used to argue for or against income inequality (depending on what country you’re in).

GDP is a financial construct at its heart, a political and philosophical abstraction. It is a necessary part of the management of the country, because, as with any enterprise, if you can’t measure it you can’t determine if what you are doing is productive. That said, the act of measuring GDP precipitates the observer effect writ large.