FX Trading Signals for Dec 22
Let's review what happened earlier today. We had the two UK reports coming out, the Current Account and the GDP. The annualized GDP came out better than expected by 0.2%. On the other hand, the Current Account came out worse than expected by -1.7 billion. So I stayed out because of the conflict. We saw GBP/USD strengthen first on the back of the better than expected GDP, then it dropped like a rock probably on the back of the negative current account figure. Waste of two reports that would give perfectly beautiful trades if they were released on separate days. Unfortunately these reports generally do come together.
Then we had U.S. GDP that was revised down to 2.0%. We got a long signal on GBP/USD, but I immediately exited with minimal profit, because the GDP Price Index came out conflicting better than expected, and since inflation is on top of everyone's mind, that created a serious conflict, and completely muted the GDP move, and then reversed. Good that we exited early.
The Canadian reports came out both bad for the CAD, and I told everyone that the USD/CAD will probably hit the 1.1560 level, which it did, it went up to 1.1564, thus creating a move of 60 pips total. The unfortunate part however, is because we were fiddling around with the U.S. reports and the GBP/USD pair, by the time I looked at the USD/CAD pair, it already broke the 1.1530 level, and I simply didn't want to chase that move. Basically, another waste of perfectly good three reports that would give absolutely beautiful trades if they were released on their own, but because they were released together, we couldn't quite take advantage of them. These reports don't normally come together...I don't know why the governments bunched them in like that...probably due to Xmas.
Then we had the U.S. Philly Index come out. It came out at -4.3. Our long trigger was at -5 or more negative, so it didn't quite hit our trigger. GBP/USD did move up by about 18 pips upon release of this report.
So lets get thru for todays happenings on FX market...
1. Friday, December 22nd, 2006 (4:30 am New York Time) UK
We have Index of Services coming out of UK. I know very little about this indicator. I only started seeing it being released by Bloomberg in October and November of this year. I've never seen it before that, though I think this indicator has been around, just been too small for news services to care about it and release it. In October and November of this year, this indicator came out together with the UK GDP, so I have no idea if the market cares for it or not. Generally speaking, out of all the 7 major countries, UK probably cares about their services sector more than anybody else, but the indicator is only good as long as traders care about it, and due to this indicator being so young, I really doubt that it's going to cause something...we'll see. I won't be trading this, just observing for future reference.
2. Friday, December 22nd, 2006 (8:30 am New York Time) USA
We have another mess with two important but completely different indicators coming out of the U.S. Chances of conflicts are 50/50. We have Durable Goods X Transportation coming out, and we have PCE Core coming out for November. Remember, PCE Core is another inflationary indicator like CPI. The government cares about PCE core even more than they care about the CPI when it comes to making the interest rate decisions, but CPI seems to be a more fashionable indicator and moves the market more than the PCE. PCE will take more important position this month, because the only excuse the Fed had for talking up the dollar and not cutting the interest rates was the threat of inflation. After CPI came out flat or 0% earlier this month, the question is...was the CPI release a fluke, or the inflation indeed slowed down to such low degree? The way PCE data is derived is different than the CPI, so if PCE comes out way better than expected, it would cause some doubts whether the CPI reading was legit or not, and will be strengthening for the dollar short term. If PCE comes out lower than expected, it could confirm the low reading of CPI, reconfirm that the inflation is still super low, which would mean the Fed will do rate cut rather sooner than later. Looking at opinions of about 49 different economists, we have 22 of them that think that PCE will come out at 0.1%. 17 of them think that it will come out at 0.2%, and the remaining 12 think that it will come out at 0.0%. If we didn't have the Durable Goods released at the same time, I'd probably have triggers of 0.0% for long and 0.2% for short. But because of the possibility of Durable Goods conflict, we need to take more conservative approach. If Core PCE comes out at 0.3% or higher, I may possibly go short on GBP/USD. If it comes out at -0.1% or more negative, I may possibly go long on GBP/USD. I'll be honest with you...the Durable Goods report genuinely scares me. Even if it doesn't conflict, it may come out a second or two faster than PCE, and cause a spike in the price by 30 pips or more at the time of us clicking our order buttons, you add higher than normal spread to that, and you might end up getting filled at the bottom of the spike, and no matter how much the PCE deviates, there may not be enough fuel left for the price to continue declining or strengthening. So be extra careful on this one.
Then we had U.S. GDP that was revised down to 2.0%. We got a long signal on GBP/USD, but I immediately exited with minimal profit, because the GDP Price Index came out conflicting better than expected, and since inflation is on top of everyone's mind, that created a serious conflict, and completely muted the GDP move, and then reversed. Good that we exited early.
The Canadian reports came out both bad for the CAD, and I told everyone that the USD/CAD will probably hit the 1.1560 level, which it did, it went up to 1.1564, thus creating a move of 60 pips total. The unfortunate part however, is because we were fiddling around with the U.S. reports and the GBP/USD pair, by the time I looked at the USD/CAD pair, it already broke the 1.1530 level, and I simply didn't want to chase that move. Basically, another waste of perfectly good three reports that would give absolutely beautiful trades if they were released on their own, but because they were released together, we couldn't quite take advantage of them. These reports don't normally come together...I don't know why the governments bunched them in like that...probably due to Xmas.
Then we had the U.S. Philly Index come out. It came out at -4.3. Our long trigger was at -5 or more negative, so it didn't quite hit our trigger. GBP/USD did move up by about 18 pips upon release of this report.
So lets get thru for todays happenings on FX market...
1. Friday, December 22nd, 2006 (4:30 am New York Time) UK
We have Index of Services coming out of UK. I know very little about this indicator. I only started seeing it being released by Bloomberg in October and November of this year. I've never seen it before that, though I think this indicator has been around, just been too small for news services to care about it and release it. In October and November of this year, this indicator came out together with the UK GDP, so I have no idea if the market cares for it or not. Generally speaking, out of all the 7 major countries, UK probably cares about their services sector more than anybody else, but the indicator is only good as long as traders care about it, and due to this indicator being so young, I really doubt that it's going to cause something...we'll see. I won't be trading this, just observing for future reference.
2. Friday, December 22nd, 2006 (8:30 am New York Time) USA
We have another mess with two important but completely different indicators coming out of the U.S. Chances of conflicts are 50/50. We have Durable Goods X Transportation coming out, and we have PCE Core coming out for November. Remember, PCE Core is another inflationary indicator like CPI. The government cares about PCE core even more than they care about the CPI when it comes to making the interest rate decisions, but CPI seems to be a more fashionable indicator and moves the market more than the PCE. PCE will take more important position this month, because the only excuse the Fed had for talking up the dollar and not cutting the interest rates was the threat of inflation. After CPI came out flat or 0% earlier this month, the question is...was the CPI release a fluke, or the inflation indeed slowed down to such low degree? The way PCE data is derived is different than the CPI, so if PCE comes out way better than expected, it would cause some doubts whether the CPI reading was legit or not, and will be strengthening for the dollar short term. If PCE comes out lower than expected, it could confirm the low reading of CPI, reconfirm that the inflation is still super low, which would mean the Fed will do rate cut rather sooner than later. Looking at opinions of about 49 different economists, we have 22 of them that think that PCE will come out at 0.1%. 17 of them think that it will come out at 0.2%, and the remaining 12 think that it will come out at 0.0%. If we didn't have the Durable Goods released at the same time, I'd probably have triggers of 0.0% for long and 0.2% for short. But because of the possibility of Durable Goods conflict, we need to take more conservative approach. If Core PCE comes out at 0.3% or higher, I may possibly go short on GBP/USD. If it comes out at -0.1% or more negative, I may possibly go long on GBP/USD. I'll be honest with you...the Durable Goods report genuinely scares me. Even if it doesn't conflict, it may come out a second or two faster than PCE, and cause a spike in the price by 30 pips or more at the time of us clicking our order buttons, you add higher than normal spread to that, and you might end up getting filled at the bottom of the spike, and no matter how much the PCE deviates, there may not be enough fuel left for the price to continue declining or strengthening. So be extra careful on this one.
posted by Naveen Pantera at 8:36 PM
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