Whats really moving the market today?

Nasir, I'm aware of all the correlations but I don't actually take trades based on news per se. I have a technical setup that works very well on EURJPY and EURUSD. It it based three indicators: one that tells me which way the trend is going, another that shows me momentum moves and a third one that allows me to capture divergence when other conditions favor taking a divergence (I don't take every divvy willy-nilly, I pick and choose).

I gather this information so that I know what's going on with the economy/markets and what kind of movements one could see going forward. If news and conditions favor risk appetite and the market confirms that I know there is going to be some dollar selling and euro buying going on, this usually provides support for fiber. If news are bad and risk appetite turns into risk aversion the safe haven currencies are going to benefit.

In any case, thanks for trying to help, Nasir. I hope my short explanation above provides some context as to why I'm doing this information gathering.

EDIT
Let me provide you with one example of how I use the information that I gather. I've been following FOMC releases and FOMC members' speeches to gather information on the likely path of monetary policy in the US. This provides vital information as to the dollar's direction especially as the dollar has become a carry trade currency. On the other hand, reading up on BIS publications has made me realize that using the dollar as a funding currency will wreak havoc on banks worldwide in case of another financial meltdown (a possibility). The Swedish banks, for example, grew way bigger than what their deposits would allow and they went short the dollar on interbank markets. This caused them to have major funding issues during the crisis. It was not the Baltic mortgages that did them in, it was their reckless dollar shorts. But it was not just the Swedish banks, it was banks all around the world that participated in this activity. Have a look at the Fed's dollar swap line recipients and it suddenly becomes clear. This is information that is largely useless right now in terms of trading, but will become handy once Greece defaults thus sending markets into lock-down once again.

I was on here for ages before i noticed the green dot beside posters name meant they were still online .

This is what happens if you're relying to the knowledge of books without taking things in context. I'll try to explain things the way i see it.

Although nothing to add here except that the Phillips curve theory is only a theory and while acceptable in NORMAL economic environment it by all means doesn't apply to every economy conditions. Today is one of those conditions where you see inflation regardless the high unempl rate. See, that is what i have been trying to say here with my previous posts about inflation. Phillips curve theory is very logical when there is REAL economic acticity present meaning that business are gradually expanding, BORROWING is ACTIVE with willingness to lend. To me borrowing is actually one of the most important key of economic condition. In a trade deficit environment (where many developed world countries currently stand) economy can mainly grow out of "excess" borrowing. If there is no borrowing then where is that excess demand coming from to make it logical to expand your business? It is actually a very intriguing concept where wealth is built upon someone elses borrowed money (like a pyramid scheme if u will) where it's all but inevidable to avoid an economic crash from time to time.


This is not true. As much as it may look like ECB is focusing on the HICP the reality is that they are really relying on the core rate. if you don't believe me just look up the data right here on FF historical data charts. If we take the inflation target as the base (at or below 2%) then you can clearly see that the only period in recent history where the HICP was that level was from oct '06 to sept 07. ONE YEAR !! It was above the target level before that period (as much as the data shows in FF, which is about 2 years) and it was way above target level from oct '07 to mid '08. If you look at core data then you can see that it beautifully sits at or below 2%.

Now, if they haven't changed their measure of inflation (maybe i just don't know that they've switched from core to headline now) over the recent past then they are still focusing on the core rate.


I think that the problem is that everybody is focusing on the wrong thing. You can clearly see that Bullard (among most others) try to find some sort of FIXED model like " If X then Y happens" to explain the economic behaviour. Economic behaviour like trading is an ART not a SCIENCE !

No central bank is setting rates based on "if 2% then will hike by 0,25 basis points". Noone ! Not even ECB. Even though they emphazise the importance of price stability. There are far more indicators to be considered but if someone wants a straight answer then i would say that the interest rates are risen based on the overall economic health. EVERYTHING needs to be taken into account.

ECB was raising the rates because of the economic condition improvement NOT because of the headline inflation rate was exceeding the 2% mark. We had gradually improving PMI's (as well as other business indicators) starting from late '10 til March '11 coupled with core inflation rate improvement (at the same time) which is a confirmation. Taken those into account they acted in a forwardlooking manner that the core rate MIGHT otherwise GET TOO HIGH ! And they were right to see higher core rate (look at the core rate for April and May). If the business conditions should not expand any further from now on then there is no real reason to make lending conditions harder for those businesses, are there ? (Unless of course speculative inflation kicks in but then it's a whole different story.)

I am amazed that noone seems to put emphazise of WHY the headline inflation is rising. WHY are food and energy costs rising ??

IMO they are rising because they are denominated in U.S. dollars and thus directly linked with U.S. monetary policy.

So, yes, if anybody SHOULD pay close attention to headline rate it should be the U.S. Why do you think there is a big gap between headline and core inflation rate in today's environment ? Because of 0 rate policy in the States. Low U.S. rates equals high commodity prices. If U.S. rates where higher then Oil and food would be lower (closer to their REAL demand value). But then again, if U.S. rates where higher that would cause shitload of other problems in the States, i would think (without clear support from economic growth).


All in all, the interest rates should be set based on the underlying conditions. If the commodity prices are getting out of hand (too far from their REAL deman) which is shown by headline inflation/core inflation widening cap then many would think that policy should be tougher. However, if policy is tough solely because of high headline inflation then that tougher condition is weighting on business activity.

The end result is the question of what is really wanted - do we want recession/depression type of environment with higher unemployment and all the shit that comes from that or we want to artificially stimulate the economy at the expense of higher HEADLINE inflation...The choice is up to you...

It's a dangerous game that is being played by the central banks NO MATTER which way is considered appropriate. It's dangerous SOLEY because it's totally imfckingpossible to predict accurately the economic behaviour of ordinary citizens who have no idea about the basics of economics.

As i have said before, you can stimulate all you want but the end decision is still up to the people whether they realize consensusly that it's wise to take on business/investment risks.

ecb says greece must agree on tough measured or return to drachma ,thats going to hurt eur .

this is fun stuff, mr lumesh and bug, please, keep it coming.

Fun ?

Well damn. Thanks for telling me you all moved over here. I thought everyone died...

Darkstar i been a follower of your post for sometime and trying to get a good grasp at the whole orderflow mindset for example today whe had bond auction for spain what was succesfull can whe say that it was 1 for the reasons why eu moved up a bit fast because they needed euros to buy those bonds or hedge against?

Regards Ingmar.

Hey DS theres a few guys from the other thread but not as big of an interest.
I left a note in the other thread inviting people over. Hope they haven't given up.

Glad you could make it! How's the editing going?

I know man... What I realized after a few days of doing it is that I had all this crap that wasn't even important. So lately I have focused just on the most important things and it makes it so much easier to both analyze and comprehend. There's no need to track things that the market doesn't currently care about. All it needs is a very slight acknowledgment and the bulk should be focused on the factors that may provide the edge for the day...

It's gone from 3 pages to 1. Will start posting them again next week. Have exams Monday and Tuesday, can't wait to get them out of the way and get back to trading.. I'm sure you can relate!

Sometimes the obvious is only so in hindsight I guess

Some interesting tidbits:

 

1. China's giant sovereign wealth fund ready to spend NZ$6 bln on NZ assets and government bonds- May 26, 2011

China's enormous sovereign wealth fund, the China Investment Corporation, may have set aside up to 1.5% or about NZ$6 billion of its massive foreign exchange reserves to invest in New Zealand assets, including government bonds, companies and potentially dairy farms.

LINK

 

1. China to buy Europe bailout bonds-FT

SINGAPORE May 26 (Reuters) - China and other Asian investors are expected to buy a "strong proportion" of Portuguese bailout bonds when the eurozone's rescue fund starts auctioning them next month, the Financial Times reported on Thursday, citing senior fund officials.

The report helped boost the euro in Asian trade, with the single currency trading up to $1.4150. It had firmed earlier on a strong opening for Asian equities, despite worries that Greece may be on the verge of defaulting on its debt

LINK

Hey Bug...
quoted from ur strategy statement, you hav a technical set up that works on EURJPY and EURUSD.

What indicators u used to tell you about the trend movin?
would you mind to share those secret to us.

Hi stforex,
This is not a systems thread so I'm not going to be detailing anything here. I am also of the opinion that a system that works well with one person doesn't necessarily work with another. People trade different TFs using different approaches with different money management rules an so on. This is to say that I'm not comfortable sharing concrete suggestions on what indicator settings to use on what specific TF. I'm sorry if this is too cryptic or not enough for you, but that's just the way it's gonna be.

HOWEVER, I will tell you that:
1) the first indicator is a fast MA, the second one is a slow MA and the third one is the composite indicator (for divergence). If you know the basics of trend following and momentum trading you'll figure out what settings to use. Don't overdo lag and/or smoothing and you'll be fine.
2) I learned a lot from medici, Vantage, Islander and CrucialPoint. Check out the European morning trading threads (medici & Islander), the journal thread that's now been moved to the recycle bin (CrucialPoint), Mrs V's thread (Vantage) and the higher high, higher low thread (Vantage). This should provide you with some of the information that went into building my template.

There is not super-secret sauce here, the template I use is pretty basic but I've configured it to my own character. There are no guarantees in life and there certainly aren't any in trading. Although I've provided you with the basic instructions there is no telling what your brain will do with the information.

I stumbled upon a potentially massive news piece yesterday. The story is that the European Parliament (the legislative body of the EU) has approved the use of gold as collateral. I'm not sure what this means yet. It could be anything, really. Gold bugs will no doubt tell you that a gold standard is coming, but I'm not sure about that. It could provide a way to fund the European bailouts (the club Med countries own quite a bit of gold, which could be used as collateral). It could be something else entirely, something that I can't even imagine right now. In any case, here is the news piece.

WORLD GOLD COUNCIL - The Economic and Monetary Affairs Committee of the European Parliament has approved gold to be used as collateral confirming its status as a high-quality liquid asset (LINK)

Yesterday’s unanimous agreement by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) to allow central counterparties to accept gold as collateral, under the European Market Infrastructure Regulation (EMIR), is further recognition of gold’s growing relevance as a high quality liquid asset. This vote reinforces market demand for a greater choice of assets that can be used as collateral to meet margin liabilities.

Natalie Dempster, Director of Government Affairs at the World Gold Council said: “It is very significant that the European Parliament is putting its weight behind the argument that the unique characteristics of gold make it an ideal form of high quality liquid collateral.

“We now look forward to the European Parliament and Council of the European Union upholding the inclusion of gold in the next stage of negotiations around EMIR which will now take place after the July plenary vote. The ratification would mark a significant step forward in redefining what constitutes a highly liquid asset under the Capital Requirements IV Directive, due in the coming month, from the European Commission.”

Market demand for gold to be used as a high quality liquid asset and as collateral has been building for some time. In late 2010, ICE Clear Europe, a leading European derivatives clearing house, became the first clearing house in Europe to accept gold as collateral. In February 2011, JP Morgan became the first bank to accept gold bullion as collateral via its tri-party collateral management arm. Exchanges across the world, such as Chicago Mercantile Exchange, are now accepting gold as collateral for certain trades and London-based clearing house LCH Clearnet has said that it also plans to start accepting gold as collateral later this year, subject to regulatory approval.

The World Gold Council has examined this trend and has defined the characteristics that make gold an excellent form of collateral in its study “Gold as a source of collateral”. The report includes a case study on ICE Clear Europe, explaining why the central counterparty clearing house has started to accept gold as collateral and how this operates in practice.
"As regulators, from G20 countries, demand that more OTC trading is cleared on exchanges and with the ongoing world economic difficulties further eroding the credit worthiness of other forms of collateral, we expect to see increasing demand by clearing houses, exchanges and investment banks to use gold as collateral,” says Natalie Dempster.

Hi Bug

I am really battling to find a good "momentum" indicator. Any chance that you could share your's with us?

Thanks

Jerry

Yes, I'm in for this type of discussion, it's what I use this site for. I trade the news items and daily check for upcoming events in the Calendar.

WSJ's The Source: Beijing to the Euro Rescue Yet Again
It seems that Beijing wants to get back into the euro zone bailout business. Klaus Regling, chief executive of the bloc’s rescue vehicle, the European Financial Stability Facility, told reporters Wednesday he expects “clear interest” from China in the €3-5 billion bond sale planned for June. (LINK)

Forexlive: Trichet: ECB carefully monitoring inflation, ready to do whatever necessary to fulfill mandate
* With recovery more firmly established, have witnessed emergence of upside risks to inflation outlook
* Have to avoid commodity price increases leading to second round effects
* Non-standard measures do not impinge capacity to tighten monetary policy in response to inflation pressures (LINK)

Bloomberg: Dollar Tumbles Against Yen, Euro After Weaker-Than-Forecast Economic Data
The dollar dropped against the yen and euro as the U.S. economy grew less than economists forecast and jobless-benefit claims unexpectedly increased.
The common currency snapped four days of losses against the Swiss franc, climbing from a record low, after European Central Bank President Jean-Claude Trichet said policy makers are “carefully” monitoring inflation. The statement fueled bets Europe’s economy is strong enough to withstand increased interest rates.
“The consumption number is poor, the claims number is bad,” Jessica Hoversen, a New York-based analyst at the futures broker MF Global Holdings Ltd., said of the U.S. data. “It shows erosion of growth.” (LINK)

A SHORT WHILE LATER...
Forexlive: Juncker: IMF may not release next tranche to Greece next month– Bloomberg (LINK)

In other news

FT Alphaville: The euro is tracking commodities (LINK)

Great stuff Bug

Oh, man. This brings back a lot of memories from the time when I was searching for the perfect indicator myself. I'm going to be a party pooper here and reveal to you that there is no perfect indicator, momentum or otherwise. If you want a momentum indicator, you need to know the definition of momentum.

What is momentum?
1. The tendency of a security to continue movement in a single direction. Momentum is the underlying factor in trend analysis of stock prices. (from a financial dictionary)

2. In finance, momentum is the empirically observed tendency for rising asset prices to rise further, and falling prices to keep falling. (from Wikipedia)

There is a wide variety of indicators that are capable of indicating the above: the classic momentum indicator, MACD, RSI, moving average, ROC etc (those indicators can be used to show different things, momentum is just one of them). It doesn't matter which one you'll choose. What matters is that you know how the indicator works and why it's on your chart. If the benefits of having another indicator on your chart outweigh the negative cluttering effect then keep it. If you don't know how to use it, why it's there and if it only serves to confuse you then drop it.

You may be surprised to see that I haven't given you the name and settings of a specific indicator but that's because I think you need to figure this out on your own so that in the end you'll be comfortable with the indicator. Indicators are tricky for us humans because we prefer action and discretionary decision-making, these are two traits that make using indicators very tough for us. Using someone else's settings will complicate things even further. I would advise you to look into the matter, test out those indicators and see which one fits you and your preferred time-frame best.

A thing to remember while testing out indicators is not to overdo lag or smoothing. Oh, and keep it simple!
The rest you have to figure out yourself.

Thanks, ingmarforex.

Putting things into perspective: the China bailout
In the morning we got a report saying China was ready to bail out Europe by participating in the EFSF auction. Later it emerged it was not China's official position, but that of an academic (although some say his position reflects that of the party). Still later I read an article from a WSJ blog that I follow (Real Time Brussels is the name, the other one I follow is called The Source) and discovered the news of China buying EFSF bonds wasn't even newsworthy. From the article (emphasis mine):

But how much help might Beijing be? Not that much. In the roundtable with reporters yesterday, Mr. Regling’s No. 2, Christophe Frankel, said the EFSF anticipates “the same breakdown as far as investors or countries are concerned” as in the EFSF’s earlier, January sale of €5 billion worth of bonds. And who bought bonds in January? See chart.

If the breakdown stays the same, the data suggest that Stockholm, Copenhagen, Reykjavik, Helsinki and Oslo together will contribute more than Beijing and Hong Kong. If we assume, again, that proportions remain constant, and that the “China-Hong Kong” category includes only Chinese government money, then Beijing might pick up €600 million or so of the up to €10 billion in bonds the EFSF will offer to fund Portugal aid next month. China’s foreign-exchange reserves total a bit over €2 trillion.