2014-06-17 12:30 GMT (or 14:30 MQ MT5 time) | [USD - CPI]
if actual > forecast = good for currency (for USD in our case)
[USD - 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
U.S. Consumer Prices Rise More Than Expected In May
Consumer prices rose by more than expected in the month of May,
according to a report released by the Labor Department on Tuesday, with
the increase reflecting broad-based price growth.
Department said its consumer price index rose by 0.4 percent in May
after climbing by 0.3 percent in April. Economists had expected the
index to edge up by about 0.2 percent.
Core consumer prices, which
exclude food and energy prices, increased by 0.3 percent in May after
rising by 0.2 percent in the previous month. Core prices had also been
expected to tick up by 0.2 percent.
2014-06-18 00:00 GMT (or 02:00 MQ MT5 time) | [AUD - CB Leading Index]
if actual > forecast = good for currency (for AUD in our case)
[AUD - CB Leading Index] = Change in the level of a composite index based on 7 economic indicators. This index is designed to predict the direction of the economy, but it
tends to have a muted impact because most of the indicators used in the
calculation are released previously
Australia Leading Index Dips 0.1% In May - Conference Board
A leading economic index for Australia eased 0.1 percent in April,
the latest survey from the Conference Board revealed on Wednesday.
headline figure follows the upwardly revised 0.2 percent increase in
March (originally flat) and the 0.5 percent gain in February.
the individual components of the survey, building approvals and rural
good exports were down, while the sales to inventories ratio, yield
spread, money supply, gross operating surplus and share prices all were
The Conference Board LEI for Australia has been on an
upward trend since the middle of 2009, although its six-month growth
rate has moderated in recent months.
The six-month growth rate of
the leading economic index was 2.5 percent (about a 5.0 percent annual
rate) from October 2013 to April 2014, higher than its growth of 1.1
percent (about a 2.3 percent annual rate) for the previous six months.
The strengths among the leading indicators still outweigh the
weaknesses, the board said, with six out of seven components advancing
over the past six months.
The coincident index added 0.2 percent
in April following the revised 0.3 percent gain in March and the 0.4
percent increase in February.
four of its components continued to advance over the last six months.
With April's gain, the coincident economic index grew by 1.6 percent
(about a 3.3 percent annual rate) in the six-month period through April
2014 - significantly higher than the 0.2 percent (about a 0.5 percent
annual rate) in the previous six months.
Meanwhile, real GDP
increased at a 4.5 percent annual rate in the first quarter of 2014, an
improvement from 3.2 percent (annual rate) in the fourth quarter of
Taken together, the current behavior of the composite indexes suggests that economic expansion will continue in the near term.
EUR/USD Technical Analysis – Looking for Drivers Above 1.35 (adapted from dailyfx article)
The Euro is treading water as prices digest recent losses against the US Dollar
that brought the pair to a four-month low. Near-term support is seen in
the 1.3476-1.3502 zone, an area bracketed by lows from June 5 and
February 3. Initial resistance is in the 1.3574-85 area, marked by the
May 29 low and the 14.6% Fibonacci expansion. A break above that on a
daily closing basis opens the door for a challenge of the 23.6% level at
USD/CAD Forecast June 18, 2014, Technical Analysis
The USD/CAD pair
rose during the course of the session on Tuesday, but found enough in
the way of resistance above to pull back down and form a shooting star.
The shooting star signifies that the market will probably continue to
fall from here, but there is a significant amount of support below at
the 1.08 handle. It is not until we clear that area to the downside that
we can start selling, aiming for the 1.06 handle. On the other hand, if
we break the top of the range from the Monday session, we would be
confident enough to start buying again and aim for the 1.0950 level.
Forex Trading Guide: New Zealand GDP
Aside from the major central bank
happenings this week, another top-tier event in the form of the New
Zealand GDP release is scheduled to take place. Here’s my forex trading
guide for this economic event.
you’ve learned in the School og Pipsology lesson on Economic Reports,
the GDP (gross domestic product) release is one of the must-watch market
events. Think of it as the report card for the economy, indicating
whether the country performed strongly or poorly across various sectors
and summing up these grades into one neat figure.
For New Zealand,
this particular release could determine if the RBNZ will keep up its
pace of monetary policy tightening. Recall that the central bank already
hiked rates three times this year, and market watchers are very
interested to find out if more tightening moves are in the cards.
the first quarter of 2014, New Zealand is expected to have grown by
1.2% – a faster pace of expansion compared to the previous quarter’s
0.9% GDP reading. This could be crucial in setting the tone for interest
rate expectations, as consistent economic growth could be enough to
assure traders that the RBNZ will stay hawkish.
weaker than expected reading might lead to a Kiwi selloff, similar to
what happened in March when New Zealand released its Q4 2013 GDP figure.
NZDUSD M5 : 33 pips price movement by NZD - GDP news event:
Prior to the actual release, price moved
mostly sideways then made a strong downside break upon seeing weaker
than expected data. It didn’t help that the previous period’s reading
was downgraded from an initially reported 1.4% growth figure to just
1.2%. NZD/USD consolidated for the next few days though, keeping its
head above the .8500 major psychological support as traders were still
hopeful that the RBNZ would keep hiking interest rates.
weaker than expected reading for the first quarter of 2014 might lead to
a quick Kiwi selloff, with major support levels still likely to hold as
the RBNZ has emphasized that it is not done tightening monetary policy.
A stronger than expected figure, on the other hand, could lead to a
strong rally and encourage more traders to jump in the long Kiwi
Trading the News: Federal Open Market Committee Meeting and Federal Funds Rate (based on dailyfx article)
Despite expectations for another $10B reduction in the Federal Open
Market Committee’s (FOMC) asset-purchase program, the central bank’s
updated forecasts (growth, inflation & interest rate) may have a
greater impact in driving the U.S. dollar as market participants weigh
the outlook for monetary policy.
Why Is This Event Important:
Indeed, there’s limited scope of seeing a material shift in the Fed’s
policy outlook as Chair Janet Yellen remains reluctant to normalize
monetary policy, and the interest rate decision may spur a bearish
dollar reaction (bullish EUR/USD) should we get more of the same from
the central bank.Sticky inflation paired with the ongoing improvement in the labor market
may encourage the FOMC to soft its dovish tone for monetary policy, and
the fresh developments coming out of the central bank may generate a bullish outlook for the dollar should we see a greater dissent within the committee.However, the slowdown in the housing market along with the dismal 1Q GDP
reading may push the FOMC to lower its fundamental projections for the
U.S. economy, and the updated forecasts may heighten the bearish
sentiment surrounding the greenback should the calculations drag on
interest rate expectations.
How To Trade This Event Risk
Bullish USD Trade: FOMC Cuts Another $10B & Shows Greater Willingness to Normalize
ECB says forex benchmark rates compiled on too narrow basis
The Calm Before the Storm
In less than 24 hours, the FOMC meets to release many potentially significant market moving announcements. Merlin
takes a look at the releases and offers words of advice on how to trade
them. He also takes a look at the Dollar, Euro, Pound and other
currencies which will be impacted by the announcements.
Stock Market's High P/E Suggests Lower Returns Ahead
With the stock market setting new highs, investors face unusually
tough choices. An examination of historical valuations points to low
forward returns for the U.S. stock market. Normally, bonds would provide
a safe harbor, but interest rates are still near historic lows. They
will not provide the same portfolio protection as in years past and,
worse, bond prices will decline when interest rates rise.
It is tricky to structure a portfolio in the face of these risks but there are moves you can make right now.
Looking at history, the stock market’s returns depend a lot on where equity valuations are when you start the clock. Ned Davis Research
has done the math, comparing the actual levels of the S&P 500 Index
each month with a “normal” valuation of the index based on fundamental
factors like P/E, dividends, earnings, and cash flows. They identified
points when the market was over- or undervalued by at least 20% and they
crunched the numbers on performance after each of these points. The performance difference is dramatic. On average, one year after a low
valuation, the market rose by 19.4%. One year after a high valuation,
it dropped by 3.6%. When the market has been fairly valued, it increased
8.0%. Also note the returns one, two, three and five years later.
Data through 5-31-2014 shows the market to be 33.240% overvalued. This
says risk is high in holding stocks right now yet it is important to
note that the market could extend even further driven by QE, foreign
capital inflows or the return of the retail investor. I am simply
pointing out prospects for future gains are much lower at current P/E
multiples than they are at more normal levels. Understanding where you
are at any point in time can help you decide to either position your
portfolio more aggressively, or position it more conservatively. If
risk is high, hedge what you have. If risk is low, get aggressive and
buy. In this regard, valuation measures may not be a good timing tool
but they are a good risk measuring tool.
Crestmont Research puts the current P/E ratio of the S&P 500 at 26,
consistent with results of a methodology popularized by Yale professor
Robert Shiller. As a reference point, 26 is high compared to what
Crestmont calculates to be a long-term “normalized” P/E ratio of about
15 based on 10-year trailing earnings, and adjusted by removing the
abnormally high ratios of the late 1990s and early 2000s, which they
believe inflate the long-term averages. According to Crestmont, “except
for bubble periods, the P/E tends to peak near 25.” This measure says
risk is high.Using a different methodology, Ned Davis Research (NDR) pegs the median
P/E ratio over the long term at 16.7. At a current P/E ratio of 20.7, a
fair valuation for the S&P 500 is 1553. The S&P 500 is at 1940,
suggesting the market is more than 20% overvalued. The following chart
suggests the S&P 500 will be overvalued at 2033.36 (a+1
standard-deviation move above fair value).Some investors say the market is fairly priced today pointing to P/E
based on Wall Street analysts’ forward earnings estimates –
unfortunately, analysts have a nasty habit of being overly optimistic so
caution is advised. Profit margins are highly mean reverting; thus,
some form of smoothing actual earnings makes sense. Find your favorite
P/E evaluation process, compare it to its historical data and stick with
it. History shows that when P/E valuations are high risk is high and
forward return expectations are low. The reverse is true when P/E
valuation measures are low.
How can an investor adapt to this environment, especially when the bond
market presents risks as well? Just as an odds maker would look at the
data and position risk accordingly, I favor P/E as a tool to measure the
level of current market risk. When risk is low, position more
aggressively long equities. When risk is high, use tools that can help
you hedge your equity exposure and increase portfolio weightings to
I highlight four strategies for the current high risk environment:
How to Scale-In and Scale-Out of Trades (based on dailyfx article)
So now that we understand the benefits of scaling in and scaling out of
trades, in what situations should we consider it? Well, for starters, we
should only look to add to positions that are in profitable territory.
We don't want to throw good money after bad if the trade is already
proving us wrong. It's best to cut losers short, lest we add fuel to the
We also only want to scale out of positions only when they are
profitable as well. There is no reason (other than hope) to partially
close out a trade once its proven us wrong. So rather than setting a
single profit target for the entire trade, we can set 2 or 3. It's also
possible to leave a part of our trade open without a limit at all, and
letting an indicator or a trailing stop decide when it should be closed.
Where Do We Add-To or Partially Close Trades?
Using this method is actually much easier than many traders try to make
it. The way I look at scaling in is the same way I would look at opening
up a single trade, but locating several times where opening up a trade
is warranted. Stay away from setting "blind" entries 50, 100, or 200
pips away from our original entry. We want to have just as much reason
to add to a trade as we did when we initially opened it.
Take the simple CCI strategy below where we decided to take a buy trade
when CCI crossed above -100. This is a classic trade that found itself
in a pretty tight range for the next 20-25 bars. There were times when
price ran up in our favor; but never a definitive price move that would
catch the attention of AUD/USD bulls, until the range was broken and
price closed above resistance. This breakout would justify buying the
Aussie in its own right. But since we already had a trade, we can simply
add to our existing trade.
After we added to our position, we witnessed another "top" creating
another resistance level. When the AUD/USD broke this 2nd resistance
level, that was another time where we could add to this trade. So it
isn't anything too difficult. We just look for opportunities where buy
trades look good, and allow those entries to add to our existing trade.
As for scaling out, we want to use the same method as we would normally
use to exit trades, but pick multiple levels that fit that criteria. So
for the chart below, we can see that we bought on an initial break of a
previous high. We then targeted a profit just below the next potential
resistance level and then targeted an exit just below the resistance
level after that. So rather than taking a quick profit on our entire
trade at the first resistance level, we were able to let part of the
trade run and obtain greater profits.
Scaling for Success
So we understand that our strategies' trading logic is important, but so
is how we enter and exit our trades. Scaling in and scaling out can
enhance our gains but also at times reduce our risk. Using the methods
above can improve your strategy, but remember to perform your own due
diligence before placing any trades on your own account.