if actual > forecast = good for currency (for GBP in our case)
[GBP - Interest Rate] = Interest rate at which banks lend balances held at the BOE to other banks. Short term interest rates are the paramount factor in currency valuation
- traders look at most other indicators merely to predict how rates
will change in the future.
BoE Retains Key Rate At Historic Low; QE At GBP 375 Bln
As widely expected, the Bank of England on Thursday kept its
interest rate at a historic-low and the size of quantitative easing at
GBP 375 billion.
The Monetary Policy Committee governed by Mark
Carney voted to leave the key bank rate unchanged at 0.50 percent. The
rate has been at the current 0.50 percent since March 2009.
panel also decided to maintain the asset purchase programme at GBP 375
billion. The previous change in asset purchases was in July 2012, when
it was raised by GBP 50 billion.
The bank first launched quantitative easing in March 2009 with an initial value of GBP 75 billion.
In August 2013, the bank pledged not to hike the interest rate until the unemployment rate falls to 7 percent.
the unemployment started falling faster than estimated to a level below
the target, the BoE widened the scope of its forward guidance last
February, and assured markets that interest rates will not be raised before the second quarter of 2015.
if actual < forecast = good for currency (for USD in our case)
[USD - Unemployment Claims] = The number of individuals who filed for unemployment insurance for the first time during the past week. Although it's generally viewed as a lagging indicator, the number of
unemployed people is an important signal of overall economic health
because consumer spending is highly correlated with labor-market
conditions. Unemployment is also a major consideration for those
steering the country's monetary policy.
U.S. Weekly Jobless Claims Come In Above Expectations
While the U.S. Labor Department released a report on Thursday
showing a modest rebound in initial jobless claims in the week ended May
31st, the four-week moving average still fell to its lowest level in
about seven years.
The report said initial jobless claims rose to
312,000, an increase of 8,000 from the previous week's revised level of
304,000. Economists had expected claims to climb to 310,000 from the
300,000 originally reported for the previous week.
Labor Department said the less volatile four-week moving average dipped
to 310,250, a decrease of 2,250 from the previous week's revised average
With the decrease, the four-week moving average fell to its lowest level since hitting 307,500 in the week ended June 2, 2007.
EUR/USD Outlook Remains Bearish Below Former Support
Despite expectations for seeing another 215K rise in
U.S. employment, the jobless rate is expected to increase to an
annualized 6.4 percent from 6.3 percent in April, and a mixed batch of
data print may continue to produce range-bound prices in the greenback
as the Federal Reserve sticks to its current approach for monetary
policy. At the same time, Average Weekly Earnings
are projected to increase an annualized 2.0 percent during the same
period following the 1.9% expansion the month prior, but we would need
to see a marked pickup in wage growth to see a more material shift in
the Fed’s policy outlook as Chair Janet Yellen retains a dovish outlook for inflation.
ECB's Draghi Signals More Action If Needed
After announcing the historic move of cutting interest rates to
negative territory on Thursday, European Central Bank President Mario
Draghi said the bank is not over with action in its battle against
sticky low inflation and stands ready to take non-standard measures, if
"The key ECB interest rates will remain at present
levels for an extended period of time in view of the current outlook for
inflation. This expectation is further underpinned by our decisions
today," Draghi said in the introductory statement to his customary
post-meeting press conference.
"Moreover, if required, we will
act swiftly with further monetary policy easing. The Governing Council
is unanimous in its commitment to using also unconventional instruments
within its mandate should it become necessary to further address risks
of too prolonged a period of low inflation."
Earlier on Thursday,
the central bank cut its interest rates, taking the main refi rate to a
record low 0.15 percent and the deposit rate into the uncharted negative
territory at -0.10 percent. The ECB thus became the first leading
central bank to adopt negative interest rates. The marginal lending rate
was lowered to 0.40 percent.
Draghi also announced EUR 400
billion targeted longer-term refinancing operations, or TLTROs, that
will mature in September 2018. Under the plan, financial institutions
can borrow money from the ECB, totaling 7 percent of their total loans
to the non-financial private sector.
The bank will conduct two
successive TLTROs, in September and December 2014. The rate will be set
at the main refi rate plus a fixed spread of 10 basis points.
to questions from reporters, Draghi said the ECB has reached the 'lower
bound' on interest rates for all practical purposes. However, "we are
not finished yet", he said, adding that the bank is ready to undertake
unconventional measures, if needed.
Today's ECB package was
significant and the Governing Council was unanimous in its decision,
Draghi said. He also said that the bank is confident that the latest
measures will help to bring inflation close to 2 percent.
pursuing our price stability mandate, today we decided on a combination
of measures to provide additional monetary policy accommodation and to
support lending to the real economy," Draghi said.
the ECB extended the existing eligibility of additional assets as
collateral, at least until September 2018. Draghi also announced that
the bank will intensify preparatory work related to outright purchases
in the asset-backed securities, or ABS, market to enhance the
functioning of the monetary policy transmission mechanism.
ECB also decided to continue conducting the main refinancing operations
as fixed rate tender procedures with full allotment for at least until
the end of 2016. The bank will also suspend the weekly fine-tuning
operation sterilizing the liquidity injected under the Securities
Draghi also unveiled the latest ECB Staff
macroeconomic projections. The growth forecast for this year was cut to 1
percent from 1.2 percent, while the projection for next year was raised
to 1.7 percent from 1.5 percent. The forecast for 2016 was left
unchanged at 1.8 percent. "The risks surrounding the economic outlook
for the euro area continue to be on the downside," Draghi said.
projections were lowered through 2016. The inflation forecast for this
year was slashed to 0.7 percent from 1 percent and the outlook for next
year was cut to 1.1 percent from 1.3 percent. The projection for 2016
was reduced to 1.4 percent from 1.5 percent. The prediction for the
fourth quarter of 2016 was also cut to 1.5 percent from 1.7 percent. The
bank sees the risks to the inflation outlook as broadly balanced.
reiterated that policymakers do not see deflation risk in the euro
area. However, the longer low inflation lasts, the higher will be the
risks, he warned. The central bank is reacting to the risk of a period
of low inflation, he said.
He also repeated that the euro
exchange rate is not a policy target, but is important for maintaining
price stability and growth.
Quizzed regarding the measure of
large scale asset purchases, Draghi said an option that ECB has and will
be considered, if needed.
Regarding concerns of savers,
especially those in Germany, Draghi said their worries are taken very
seriously and that interest rates will rise when growth returns.
3 Steps to Trade Major News Events (based on dailyfx article)
Today, we are going to cover three steps to trade news events.
Step 1 - Have a Strategy
It sounds simple, yet the emotion of the release can easily draw us off
course. We see prices moving quickly in a straight line and are afraid
to miss out or afraid to lose the gains we have been sitting on.
Therefore, we make an emotional decision and act.
Having a strategy doesn’t have to be complicated. Remember, staying out
of the market during news and doing nothing is a strategy.
A strategy for the trader with a floating profit entering the news event
could be as simple as “I am going to close off half my position and
move my stop loss to better than break even.”
For the trader wanting to initiate a new position that is technically
based, they may decide to wait until at least 15 minutes after the
release, then decide if the set-up is still valid.
The active news trader may realize they need a plan of buy and sell rules because they trade based on what ‘feels good.’
Step 2 - Use Conservative Leverage
If you are in the market when the news is released, make sure you are
implementing conservative amounts of leverage. We don’t know where the
prices may go and during releases, prices tend to move fast. Therefore,
de-emphasize the influence of each trade on your account equity by using
low amounts of leverage.
Our Traits of Successful Traders research found that traders who
implement less than ten times effective leverage tend to be more
profitable on average.
3 - Don’t Deviate from the Strategy
If you have taken the time to think about a strategy from step number
one and if you have realized the importance of being conservatively
levered, then you are 90% of the way there! However, this last 10% can
arguably be the most difficult. Whatever your plan is, stick to it!
If I put together a plan to lose 20 pounds of body weight that includes
eating healthier and exercising, but I continue to eat high fat and
sugar foods with limited exercise, then I am only setting myself up for
You don’t have to be stressed or frustrated through fundamental news releases.
Trading the News: U.S. Non-Farm Payrolls (based on dailyfx article)
U.S. Non-Farm Payrolls (NFP) are projected to increase another 215K in
May, but the data print may spur a mixed reaction in the EUR/USD as the
jobless rate is expected to widen to an annualized 6.4% from 6.3% the
Why Is This Event Important:
Despite the ongoing improvement in the labor market, it seems as though
the Federal Open Market Committee (FOMC) will stick to its current
approach at the June 18 meeting, and we would need to see a marked
pickup in NFPs to see a material shift in the Fed’s policy outlook at
Chair Janet Yellen remains in no rush to normalize monetary policy.
The ongoing improvement in business sentiment along with the resilience
in private sector consumption may encourage U.S. firms to further expand
their labor force, and a positive development may spur a bullish
reaction in the greenback as it puts increased pressure on the Fed to
move away from its highly accommodative policy stance.
Nevertheless, the rise in planned job-cuts paired with the persistent
slack in the real economy may ultimately generate a disappointing labor
report, and a dismal print may heighten the bearish sentiment
surrounding the reserve currency as it drags on interest rate
How To Trade This Event Risk
Bullish USD Trade: NFPs Climb 215K+; Unemployment Holds Steady
EURUSD M5 : 48 pips by USD - NFP news event
U.S. Non-Farm Payrolls increased 288K in April following a revised 203K
rise the month prior, while the jobless rate unexpectedly slipped to an
annualized 6.3% from 6.7% as discouraged workers continued to leave the
labor force. The better-than-expected NFP print pushed the EUR/USD back
down towards the 1.3800 handle, but the market reaction was certainly
short-lived as the pair ended the day at 1.3871.
Abnormal Volume Stocks To Watch On Friday
Topping the list of stocks with abnormal volume in yesterday’s trading
is Protective Life, with 7.0x normal volume. In the prior session, PL
traded 6.88 million shares, versus normal volume of approximately
981,903. Dai-ichi Life Insurance and Protective Life Corporation
announced that they have entered into a definitive agreement under
which Dai-ichi Life will acquire all outstanding shares of Protective
Life Corporation for $70.00 per share in cash, or a total transaction
value of approximately $5.7 billion. This strategic transaction will
create the 13th largest global insurer, with total assets of $424
Chimera Investment ranked #2 on the list, with 4.8x normal volume,
based on the approximately 19.50 million shares trading in the last
session, versus a calculated normal volume of 4.10 million. Chimera
Investment declared dividends, announced its March 31, 2014 estimated
book value and distributed supplemental financial information. The
Company announced that its Board of Directors has declared a second
quarter 2014 cash dividend of $0.09 per common share. This dividend is
payable July 24, 2014, to common shareholders of record on June 30,
2014. The ex-dividend date is June 26, 2014. The Board has also
reviewed the dividend program and announced that the Company will
continue to pay a dividend of $0.09 per share for each of the third and
fourth quarters of 2014. The Company said its estimated March 31, 2014
GAAP book value was $3.27 per share and its economic book value was
$3.01 per share, compared to its December 31, 2013 GAAP book value of
$3.24 per share and economic book value of $2.82 per share.
Looking for abnormal volume stand-outs, we comb through the closing
trading data for the Russell 1000 components, to find these stand-outs
that traders will be interested to watch during Friday’s upcoming
session. To compile the list (see below), we first calculate “normal”
volume for each stock by computing the average over the trailing three
month period, and then we compare that figure against the volume seen
during the session.
Coming in at #3, Zynga (NASD: ZNGA) saw 4.7x normal trading volume,
with volume of 152.11 million shares versus the usual 32.49 million.
According to theflyonthewall.com, “Shares of Internet video game
maker Zynga (ZNGA) are falling after the company’s CEO sounded cautious
about its profitability and declined to provide details about its
longer term outlook.”
PVH (NYSE: PVH) ranked #4 on the list, with 4.7x normal volume, based
on the approximately 5.43 million shares trading in the last session,
versus a calculated normal volume of 1.16 million. PVH Corp. reported
2014 first quarter results. Earnings per share on a non-GAAP basis was
$1.47 as compared to $1.91 in the prior year’s first quarter. Revenue
was $1.964 billion, an increase of 4% on a non-GAAP basis as compared
to the prior year amount excluding $47 million of revenue related to
the Bass business (which was sold during the fourth quarter of 2013),
despite revenue in the North American businesses being under
significant pressure due to unseasonably cold weather across the
region. On a GAAP basis, total revenue increased 3% as compared to
prior year GAAP revenue of $1.910 billion. 2013 GAAP revenue was $30
million lower than revenue on a non-GAAP basis, attributable to sales
returns for certain wholesale customers in the acquired Asia business
in connection with an initiative to reduce excess inventory levels. The
revenue increases over the prior year were principally driven by
growth in the Company’s Tommy Hilfiger business of 6% and in the
Company’s Calvin Klein business of 4% on a non-GAAP basis and 9% on a
GAAP basis. These increases were partially offset by a revenue decline
of 2% in the Company’s Heritage Brands business excluding the $47
million of 2013 Bass revenue, or 11% including such revenue.
And finally, Intelsat (NYSE: I) ranked #5 on the list, with 4.6x normal
volume, seeing approximately 888,300 shares change hands, compared to
normal volume of 194,882. Intelsat S.A. announced a multi-year
agreement with Slovak Telekom a.s., the largest Slovak multimedia
operator, to expand Slovak Telekom’s direct-to-home services in Central
Comparing these stocks on a trailing twelve month basis, below is a
relative stock price performance chart, with each of the symbols shown
in a different color as labeled in the legend at the bottom:
EUR/USD falls on solid U.S. May jobs report
A solid U.S. May jobs report sent the dollar gaining against the euro on
Friday, as markets bet the U.S. economy and labor market continue to
recover and are in need of less monetary support from the Federal
In U.S. trading, EUR/USD was down 0.17% at 1.3639, up from a session low of 1.3621 and off a high of 1.3677.
The pair was likely to find support at 1.3503, Thursday's low, and resistance at 1.3723, the high from May 21.
U.S. Labor Department reported earlier that the economy added 217,000
in May, more or less in with expectations for a 218,000 increase, after a
282,000 rise in April, whose figure was revised down from a previously
estimated 288,000 gain.
The private sector added 216,000 jobs last
month, exceeding expectations for a 210,000 gain, which drew market
applause and firmed the dollar.
The report also showed that the
U.S. unemployment rate remained unchanged at 6.3% last month compared to
expectations for a rise to 6.4%.
The data, viewed by markets as
not exceptionally robust, was still strong enough to keep expectations
firm for the Federal Reserve to continue winding down its monthly
bond-buying program, which weakens the dollar by suppressing long-term
The euro, meanwhile, continued to come under
pressure after the European Central Bank cut its benchmark interest rate
on Thursday to a record-low 0.15% from 0.25%, cut its deposit rate to
-0.1% and said it will support the banking sector to spur lending via
targeted long-term credit injections.
Elsewhere on Friday,
official data revealed that Germany's trade surplus widened to €17.7
billion in April from €15.0 billion in March, whose figure was revised
up from a previously estimated surplus of €14.8 billion. Analysts had
expected the trade surplus to widen to €15.2 billion in April
Elsewhere, the euro was down against the pound, with EUR/GBP down 0.01% at 0.8121, and down against the yen, with EUR/JPY down 0.08% at 139.80.
Mumbai: India's forex reserves fell by $273.8 million to $312.382 billion in the
week to May 30, mainly on account of a drop in currency assets.After weeks of gains, the reserves nosedived by a whopping $2.268 billion to $312.656 billion in the previous week.
Foreign currency assets (FCAs), a major constituent of overall reserves,
dipped by $269.3 million to $285.291 billion in the period under
review, the Reserve Bank of India (RBI) said in a statement.
FCAs, expressed in dollar terms, include the effect of
appreciation/depreciation of the non-US currencies such as the euro,
pound and yen held in reserves.
Gold reserves remained unchanged at $20.965 billion in the reporting week.
Special drawing rights declined by $3.3 million to $4.449 billion, and
India's reserve position with the IMF dipped $1.2 million to $1.676
billion in the period under review, the apex bank said.
Forum on trading, automated trading systems and testing trading strategies
Discussion of article "Time Series Forecasting Using Exponential Smoothing"
newdigital, 2014.06.06 21:48
Becoming a Fearless Forex Trader
There is one commonality with traders who can trade without fear. They
build losing trades into their approach. It’s similar to a gambit in
chess and it takes away the edge and strong-hold that fear has on many
traders. For those non-chess players, a gambit is a play in which you
sacrifice a low-value piece, like a pawn, for the sake of gaining an
advantage. In trading, the gambit could be your first trade that allows
you to get a better taste of the edge you’re sensing at the moment the
trade is entered.
James Stanley’s USD Hedge is a great example of a strategy that works
under the assumption that one trade will be a loser. What’s the
significance of this? It pre-assumes the loss and will allow you to
trade without the fear that plagues so many traders. Another tool that
you can use to help you define if the trend is staying in your favor or
going against you is a fractal.
If you look outside of the world of trading and chess, there are other
businesses that presume a loss and therefore are able to act with a
clear head when a loss comes. Those businesses are casinos and insurance
companies. Both of these businesses presume a loss and work only in
line with a calculated risk, they operate free of fear and you can as
well if you presume small losses as part of your strategy.
Another great Mark Douglas quote:
“The less I cared about whether or not I was wrong, the clearer things
became, making it much easier to move in and out of positions, cutting
my losses short to make myself mentally available to take the next
opportunity.” -Mark Douglas