Transcript Presentation

3 M’s That Move The FX Market
Boris Schlossberg
Kathy Lien
Directors of Currency Research
Disclaimer
IMPORTANT NOTE: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for
all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade
foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should
not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign
exchange trading, and seek advice from an independent financial advisor if you have any doubts. Past
performance is not necessarily indicative of future results.
DISCLAIMER: This presentation and the information provided here should not be relied upon as a substitute for
extensive independent research before making your investment decisions. Global Forex Trading is merely
providing this presentation for your general information. This presentation and its information does not take into
account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain
advice based on their unique situation before making any investment decision based upon this presentation or any
information contained within. In addition, any projections or views of the market provided by the author may not
prove to be accurate. Some of the information was obtained from third party sources, and believed to be reliable,
but data may have changed as of the published date of this presentation. Global Forex Trading, Boris
Schlossberg, and Kathy Lien will not be responsible for any losses incurred on investments made by readers and
clients as a result of any information contained in this column. Global Forex Trading, Boris Schlossberg, and Kathy
Lien do not render investment, legal, accounting, tax or other professional advice. If such advice is sought, or
other expert assistance is required, the services of a competent professional should be sought.
CD08M.001.102308
B
The 3 M’s
• Macro
• Micro
• Monetary Policy
B
Macro Factors
Macro
Political Conflict
Equities and Risk Appetite
Oil and Gold
k
Geopolitics
Source: DealBook 360
• Generally, currency markets avoid political risk
• Sell first, ask questions later
• Capital seeks stability
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Risk Appetite
• Risk On! Risk Off!
Carry usually follows
• But you must always
be aware of context
Source: DealBook 360
k
Correlation: SP500 & USD/JPY
Blue Line = USD/JPY
Red Line = SP500
Weekly Chart
Source: GFT
Source: DealBook
K
Correlation: SP500 & USD/JPY
Blue Line = USD/JPY
Red Line = SP500
Hourly Chart
Source: DealBook
K
Oil
• Oil vs. EURUSD
70% correlation
since start of 2008
• Why? Because US
economy is most
sensitive among G-3
to price of crude
• But, note the
divergence lately
Source: DealBook 360
k
Gold
Aussie and Gold:
Ignore the connection
at your own risk?
Source: DealBook 360
k
Micro Factors
Key Micro Data
NFP (Labor Data)
ISM (Manufacturing and Services Data)
Inflation
Sentiment
B
Labor Data
Why is labor so critical to the economy?
• Jobs = Greater Income = Greater Spending = Greater
Growth
• In G-3 economies the consumer represents between
60%-70% of GDP
B
Labor Data – US
Unemployment Rate
B
Labor Data – EZ
Unemployment Rate
B
Labor Data – German
Unemployment Rolls
B
ISM/PMI – State of Business
ISM and PMI Surveys Measure Health of
Business
> 50 Generally Means Expansion
< 50 Suggests Contraction
B
Production Data – US
Manufacturing ISM
B
Production Data – US
Services ISM
B
Production Data – EZ
Composite PMI
B
Inflation – The Bane of CB’s
Inflation is the Key Driver of Interest Rates
All things being equal:
• Hotter inflation generally leads to higher interest rates
• Higher rates generally lead to higher currency
k
US Headline CPI
k
CPI vs. Oil
Source: GFT
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EZ Headline CPI
k
The Power of Sentiment
Sentiment Can Create Its Own Reality
Cautionary attitude could lead to retrenchment in
spending and ultimately deceleration of growth.
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US U of Mich
k
German IFO
k
Monetary Policy
Monetary Policy
Know The Players
Know The Mandates
Prepare Properly
B
Ben Bernanke
The Academic
• Believes in transparency
• Has only presided over rate cuts
B
Jean Claude Trichet
The Godfather
• Price stability drives policy
• Wage price inflation – key concern
K
Masaaki Shirakawa
The Conformist
• Hemmed in by stagnant economy
B
Mervyn King
The Gentleman Banker
• Caught between a rock and a hard place
K
Macro Trade Example
Macro Trade
Dow drops, EUR/JPY follows
Source: DealBook 360
B
Micro Trade Example
Micro Trade
EZ Trade Balance: -6.4B vs. -5.8 forecast
Source: DealBook 360
K
Monetary Policy Trade Example
Monetary Policy Trade
RBA Cuts Rate by 100 bp
Source: DealBook 360
B
Sticking With the Trend
K
Sticking with the Trend
EUR/USD
Source: DealBook
B
Sticking with the Trend
USD/JPY
Source: DealBook
B
Sticking with the Trend
How to Trade the Bollinger Bands
1. The First Break
2. Retrace
K
The First Break
EUR/USD
Source: DealBook
K
The First Break
AUD/JPY
Source: DealBook
K
Retrace
GBP/USD
Source: DealBook
K
Retrace
USD/CHF
Source: DealBook
B
Sticking with the Trend
Help Increase Your Chance of Success
By Keeping an Eye on Data
B
Disclaimer
IMPORTANT NOTE: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for
all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade
foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should
not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign
exchange trading, and seek advice from an independent financial advisor if you have any doubts. Past
performance is not necessarily indicative of future results.
DISCLAIMER: This presentation and the information provided here should not be relied upon as a substitute for
extensive independent research before making your investment decisions. Global Forex Trading is merely
providing this presentation for your general information. This presentation and its information does not take into
account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain
advice based on their unique situation before making any investment decision based upon this presentation or any
information contained within. In addition, any projections or views of the market provided by the author may not
prove to be accurate. Some of the information was obtained from third party sources, and believed to be reliable,
but data may have changed as of the published date of this presentation. Global Forex Trading, Boris
Schlossberg, and Kathy Lien will not be responsible for any losses incurred on investments made by readers and
clients as a result of any information contained in this column. Global Forex Trading, Boris Schlossberg, and Kathy
Lien do not render investment, legal, accounting, tax or other professional advice. If such advice is sought, or
other expert assistance is required, the services of a competent professional should be sought.
CD08M.001.102308