Article Courtesy of Credit Agricole.
The views expressed in this article are the opinion of Credit Agricole FX market analysts. Please feel free to share.
The holiday season is in full swing and for some this may mean that markets will settle down as liquidity dries up in the coming weeks.
Our evidence suggests that Forex volume tends to go up in August, however, data releases and events can trigger renewed spikes of short-end vol across G10. It remains to be seen whether the combined effect of the multitude of idiosyncratic shocks will be sufficient to fuel a broader risk off move. Even so, we have added to our portfolio a long XAU/CHF trade as a risk-off hedge. Another interesting strategy is to identify cheap FX volatility to benefit from accentuated market moves on the back of event risks and thin market liquidity ahead.
Next week’s data calendar is laden with data releases like US non-farm payrolls, and events like the BoE Inflation report and the RBA policy meeting.
The BoE inflation report may struggle to exceed the dovish market expectations ahead of the August inflation report, and that could help GBP consolidate more broadly. We remain long GBP/CHF going into the release. Investors are looking for another solid US payroll and earnings data.
JPY should remain in the spotlight ahead of the announcement of Abe’s fiscal stimulus next week. We expect Japanese stocks to recover some more as a result and that should help USD/JPY stabilize.
Ahead of the RBA, markets see a greater than 50% chance of a rate cut. We also see a non negligible risk of policy action and stick to our tactical AUD/USD short. The FX options markets do not seem to be pricing in a significant scope for spot moves making AUD short-term gamma an interesting buy as well.
That said, we remain bulls on AUD/NZD over the longer-term, and expect the upcoming NZ unemployment and inflation expectations data to fuel rate cut expectations ahead of the August RBNZ meeting, and keep the cross supported. Potential disappointments from Chinese PMI data could keep both antipodean currencies under pressure against USD.
BofAML: The dichotomy between dovish remarks from Fed Chair Janet Yellen and more hawkish comments by several of her colleagues on the Federal Open Market Committee (FOMC) sets the stage for the March minutes. The shift lower in the dot plot was accompanied by modest downward revisions to the outlook, with an outright majority of FOMC participants expecting just two hikes this year. At the same time the Committee was unable to agree on a balance of risks, and the mixed messages of post-meeting speeches suggests underlying disagreement. Thus the minutes may give important insight into the nature and degree of discord, particularly among the voting members. We expect the minutes to sound somewhat more hawkish than Yellen’s recent remarks, if for no other reason than more hawkish views will be represented.
The market’s primary focus will be on the likely timing of the next rate hike. We expect most Fed officials to support keeping every meeting “live,” as well as for several to suggest that hiking at one of the next few meetings could be likely under their forecasts. The main division among the participants should be the assessment of risks, particularly around global economic and financial developments. Details about those concerns would be noteworthy. So too would be any indication of whether a majority saw on net balanced or downside risks. If the main concern was that the outlook had recently become more uncertain, that could fade in plenty of time for a June hike. The other big issue will the inflation outlook. Despite the recent rise in core inflation rates — which would seem to exonerate the FOMC’s long-held view that low inflation was “transitory” — Yellen has noted the slippage in inflation expectations and residual slack in the labor market. These factors likely contributed to her lack of conviction. How widely shared her skepticism on an inflation pickup are will be notable as well, as that should strongly influence the pace of rate hikes.
Finally, discussion of a slower trend rate of productivity growth would be noteworthy. With slower productivity growth, the terminal funds rate may be lower while inflationary pressures and thus the speed of normalization would be faster. Yellen alluded to some debate on the FOMC regarding this issue, but so far Fed officials do not appear to have embraced this possibility. We think that could happen over time, which could materially change market expectations for the tightening cycle.
Barclays: We look to the minutes of the March FOMC meeting to provide context for the surprisingly dovish policy statement and downward revision to the median path of the dots. Several regional Federal Reserve Bank presidents have noted that the April meeting remains “live” for rate hikes if the data hold up. Since then, however, Chair Yellen indicated that she sees downside risks to the outlook stemming from abroad. “Live” need not equate to probable.
We expect the minutes to provide a clue as to whether the March policy statement, which again refrained from characterizing the balance of risks, represents a compromise between a more dovish Chair and relatively hawkish committee members. That is, we look once again to the minutes to judge the extent to which the committee remains sharply divided between those who would prefer rate hikes and those who would prefer for policy to remain on hold
RBS: The Fed Funds rate “dot plot” chart revealed that most FOMC members revised down their expectation for the appropriate path of the Fed Funds rate in March. But even if most members saw it appropriate to submit a more accommodative path for the Fed Funds rate, there does appear to be a rift of sorts between members over how strong the impact of a global growth slowdown will have on growth at home.
The March meeting minutes, which detail the discussion and debate at the meeting, may appear more balanced than Chair Yellen’s press conference as it will include the cautious views taken by many on the leadership and some of the more constructive outlooks taken by regional Fed Presidents.
But even so, given Chair Yellen’s dovish press conference in March reflected the view of the committee as a whole and most members felt it was appropriate to revise their dots lower, the core takeaways from the minutes may lean dovish.
Demo trading is not suitable for everyone.
Most traders start their trading journey by demo trading, which is a sensible way to start. Why risk real money in the market if you don’t know what you are doing.
I had a real problem taking demo trading seriously when i first started, so i pretty much went on to live trading very quickly, and lost money, as most people do.
If you are like me and you have the same problem with demo as i did. You will probably be doing the same things i did.
Things like, not stopping yourself out of a bad trade on demo as you are not losing real money.
Sitting in bad trades and waiting till they come back. When they don’t come back you blow the account, but it does not matter because its only demo, and you can easily open another account.
Trading with too big a lot size to increase the demo quickly, to give yourself an ego boost, so you can convince yourself you are ready to go on to live trading.
Jumping in and out of trades, again to try and boost the account quickly to give yourself a false sense of trading success.
I have done it all, and this type of behavior is sub consciously reinforcing bad habits in your trading, which are very difficult to break when they are ingrained.
So whats the answer? Well the answer for me was to start live trading, and pay the market for my education, by giving it my money. But there is an alternative that could be the middle ground between live trading and demo trading.
Forex trading competitions.
Anyone can enter these trading competitions for free. They give you a demo account, and the competition can last for a few weeks to a few months. They offer prize money, generally for the top 3 traders which can be anything from a few 100 dollars, to 1000s of dollars.
The good thing about using Forex trading competitions as a way of improving your trading success is you are accountable for your trades. You are trading against other traders so in order to progress up the list you have to stick to the plan. You cant trade recklessly as you do with demo trading.
The problem i found with demo trading is there is no reward at the end, so its difficult to take it seriously in my opinion. By using trading competitions there is something to play for, an objective, and that is to win. You can win a great prize or a lump of cash without risking any money at all.
Trading competitions are not for everyone though, but if you are having trouble with taking a demo account seriously, then entering a trading competition is a viable alternative in my opinion to trading with real money.
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