Forex Trading Mind

There was plenty of high-impact data released last Friday, which had significant impact upon the Forex market. The U.S. Non-Farm Payrolls number was expected to be disappointing, with a consensus estimate of 175,000 new jobs having been created following Thursday’s forecast of only 184,000. In fact, the real number came in significantly higher, at 222,000 new jobs created over the past month.

I wrote a short while ago about how the best way to trade commodities tends to be getting in early at major turns. To be more specific, you wait for the price to reach a long-term high or low price, preferably a very inflective “V” shaped level, and then watch closely for a fast, and strong rejection.

A couple of weeks ago, I wrote a short piece about “market neutral” trading strategies. These trading strategies identify two assets that have a high amount of historical positive price correlation, identify when one is overperforming and the other underperforming by more than a certain amount of standard deviation, and then goes long the underperformer and short the overperformer, in the same cash amounts.

Mario Draghi, the President of the European Central Bank, spoke a while ago at an ECB Forum in Portugal. He surprised the market with his words, being more hardline that had been expected concerning the Bank’s monetary policies, and this caused the Euro to rise by about 0.80% against the U.S. Dollar and by less than half of that against the Japanese Yen. These were not very large movements by any means, but they seem to have potential to follow through, particularly against the U.S. Dollar, as the EUR/USD approaches its long-term high price of 1.1296.

Markets seem livelier that might have been expected this week, with so few economic data releases on the calendar. Today the headlines are being made concerning two assets” the British Pound and Crude Oil.

There is an interesting article at Bloomberg now advocating for the re-appointment of Janet Yellen as Chair of the U.S. Federal Reserve when her term ends in the early part of 2018. The article takes the view that Yellen has a better track record than any of the other favorites to be appointed to the post when it becomes vacant next year, arguing that she has consistently made correct calls on the primary issues around monetary policy over recent years, except meeting the inflation target. While this may be true, it doesn’t answer the separate question of who is likely to get the job.

You might have heard about “market neutral” strategies, which are often run by hedge funds, typically in equities, but do you know what a market neutral strategy is? Basically, it is a trading / investment strategy which seeks to avoid some form of risk entirely, by means of hedging. For example, a market-neutral equity strategy might try to completely avoid having its performance affected by the broad market movement. It could do this by being sure it is long just as many shares as it is short, in terms of market capitalization.

Monday is typically a quiet day in the Forex market, especially on a Monday such as today when there are no economic data releases of high importance scheduled in the calendar. So, it is a quiet market out there, except the British Pound which has been falling steadily ever since Europe opened for business. At the time of writing, the benchmark GBP/USD currency pair is only 30 pips above its low reached when initial results in the British General Election suggested the Labour Party might be able to form a minority government.