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Monthly Archives: October 2015

The amount of noise coming into the last hour before FOMC gave me cause to put in a trade.

At about 1:55am, I put in the following straddles: –

GBPUSD   –   1.5300   –   1.5321   –   1.5340  Spot was at 1.5321 and SL at spot level

EURUSD   –   1.1050   –   1.1073   –   1.1095  Spot was at 1.1073 and SL at spot level

At 2am, it was announced; Fed kept rates on hold but media is picking up the fact that the statement dropped the phrase, “global developments may restrain growth”.

We squared the trade at 2:11am at the following levels: –

GBPUSD, squared at 1.5260 for a trading profit of 40bps

EURUSD, squared at 1.10935 for a trading profit of 115bps

Thank you NEWS MEDIA; CNN, CNBC, WALL STREET, BLOOMBERG………..all of you were great!

It’s a wrap, time for drinks!

What the Superforecasters Say About When the Fed Will Lift Rates

Tom Redmond https//

You’ve asked everyone else about when the Federal Reserve will move on interest rates. Now try someone with a shot at getting it right.

They’re the prognosticators dubbed “superforecasters” by Philip Tetlock, the Toronto-born researcher who gained renown in 2005 by showing that almost everyone making predictions fails. The key word is “almost.” Tetlock’s new book finds that a few people actually have some skill when it comes to predicting the future.

So what do they say about the Fed? According to this group, which Tetlock describes as focusing on historically anchored “base cases” before delving into minutia, the first U.S. interest rate increase since 2006 probably isn’t going to happen this year.

“They say liftoff is more likely after January,” said Warren Hatch, the chief investment strategist at Catalpa Capital Advisors and one of the group. “My own personal view is that the markets are underpricing a liftoff at the December meeting. However, I’ve learned to trust the wisdom of my fellow superforecasters.”

After the first year of a “prediction tournament” organized by Tetlock, 59 people out of 2,800 emerged with a record of accuracy intact. The group outperformed the rest by more than 60 percent by the fourth year, and 70 percent of them kept their edge from one year to the next. Tetlock says they’re not geniuses and their skills can be learned.

Superforecasting the Fed

“There’s a Goldilocks zone, a moderate temporal distance, in which it’s possible to cultivate probabilistic foresight,” Tetlock, co-author of “Superforecasting: The Art & Science of Prediction” (Crown, 352 pages; $28), said in an interview. The book is about “correcting bias and improving judgment.”

So what’s the secret? Start with an “outside view,” says Hatch, who provided written responses to questions from Bloomberg on how he would tackle a Fed rate-rise projection. Expert analysts get bogged down in details, he said, like what the futures market is predicting, what the latest employment data are showing, and what Fed officials are saying.

Superforecasters “want to know the bigger picture,” Hatch said. “Under what circumstances has the Fed started raising rates in past cycles? How about other central banks around the world? That helps set an initial base rate on which to base their forecasts.”

Fine Tuning

Then they turn to details, adjusting from the base estimate to make predictions, but without overreacting to spot economic data, said Hatch. The conclusion of his fellow superforecasters — that the Fed will hold off until after January — aligns with what futures traders are predicting. The March meeting is the first with more than a 50 percent chance of an increase, the contracts show. The chance of an increase on Wednesday is 4 percent.

Superforecasters’ estimates are more precise, and they’re less prone to anchoring themselves to a misplaced gut reaction, according to Tetlock. He says weaker analysts often make one of three responses to a question: something is a certainty, it’s never going to happen, or that there’s a 50/50 chance. A superforecaster would be just as likely to cite a 49 percent probability, or any other number.

To get more accurate results, the best follow a strategy laid out by physicist Enrico Fermi, and break seemingly impossible questions into smaller parts, says Tetlock. For example, Fermi’s puzzle of how many piano tuners are there in Chicago can be approached by guessing how many pianos there are and the number one person can tune.

New Information

Others’ forecasts “rely on the nearest tools to hand, they tend to get updated infrequently, and — here’s a critical key to it all — they typically lack a clear way of consistently and systematically comparing those predictions to what actually happens,” Hatch said.

Superforecasters make better initial guesses and then press their advantage by updating predictions regularly, according to the book. While they have above-average intelligence and numeracy, much of superforecasting seems to be a state of mind. Its disciples are cautious and humble, and believe their craft can be improved.

The study is already being put to use. Good Judgment Inc., which grew out of the project, is offering consulting services based on its findings. Tetlock is looking ahead to his next project in a career that has highlighted the need to keep score. The superforecasting book appeared in the New York Times bestseller list for non-fiction this month.

“The thing that unites superforecasters, across ability levels and ideological points of view, is a shared view that probability estimation is a skill that can be cultivated,” Tetlock said.

Looks like the GBP and the EUR have both retraced quite dramatically back to the 23.6% Fibonacci based on the 4H chart.

EUR retracing back from 1.1480 to current 1.1048, GBP retracing from 1.5635 to current 1.5300, BIG moves within the past two weeks.

If Yellen even whispers anything dovish or speaks in generality and vagueness, the market is going to sell the USD, I am sure of it.

In other words, the GBP and EUR are at good levels to do a strong rebound if given the right motivation from Yellen.

This year has been just too much talking by central bankers all over the world, creating uncertain volatility in the fx market.  Rationale volatility is good for trading, however, irrational volatility is bad for trading.  Even Vice Chairman, Fischer is saying that central bankers should begin to talk less!

So will Janet continue to talk to the markets and now suggest a rate rise only in 2016 or is she just going to go into action?!

The truth is why are all on Capitol HIll and Wall Street so afraid that the US economy might run away and that the Fed may be behind the curve?  The United States of America is a developed and maturing country, it’s a dinosaur, even the strongest of growth, we will be lucky to see 5% GDP growth, more like 3% range.

So what’s wrong with letting the economy show more certainty and consistency in the numbers; labor, inflation, home prices, savings, new home sales, new building permits, and retail sales before Yellen raises interest rates.

Even if the Fed ends up being behind the curve and then, Yellen raises interest rates, how will that hurt the US economy?  It can only help since the economy is saying that it is doing well and can absorb an interest rate increase.

My hunch is that USD will take a beating today, let’s see?!

Moral of the story is not to trade at 6am in the morning NY time and also when one has not had the chance to check the noise in the media.

I am currently in New York by the invitation of Goldman Sachs for a week.

I knew yesterday there was the UK Q3 GDP number coming out.  However, I didn’t know whether the media has been drumming up the impending event or not.

Nonethless, at about 6am NY time,  I decided to put on my straddle trade with the following details: –


GBPUSD   –   1.5320   –   1.5340   –   1.5360

Spot was at 1.5340

As it turned out the GDP number was weak, however ,the market didn’t really move that much.  Well, it did move enough to trigger my bid if offered trade at 1.5320 and then after that, it started moving back up, so before I could be stopped out at 1.5340, I decided to square off the trade at 1.5328 for a 8bps trading loss.

Moral of the story is don’t trade when one has not had the time to catch up with the noise in the media.  I am in NY since Monday and will be returning to Singapore on Saturday.

Later today, will be Janet Yellen’s time, what will she do?

Looking at the CFTC report last friday, it appears that the entire market was just slight net SHORT the EUR.

Since, the start of this week, the the EUR has been staying within a channel of 1.1300 and 1.1380, I suppose while the market doesn’t see any surprises coming from Draghi, one can never know.

The noise in the media was picking up this afternoon and London open, but not in a big way.

I decided to put my straddle trade on just before the press conference with the following details: –

EURUSD  –  1.1295   –   1.1315   –   1.1335

Spot was at 1.1315.

When the press conference started and the first few sentences by Draghi leaned towards a still accommodating monetary policy together with strong jobless claims numbers, it sent the EUR south, triggering my Stop if Offered at 1.1295.  The first 15 minutes it has been hovering around the 1.1225 and 1.1230 level.  Now all of a sudden it dropped further to 1.1180, I believe it’s either stop loss triggers or option triggers.  I decided to square my position at 1.1188 for a trading profit of 107bps.  THANK YOU DRAGHI!

I think this means I deserve to play golf tomorrow morning.  I am also done for this week.

I am still pondering whether or not to close my books for the year.  It just seems to tempting to keep the books open for a few more trades before the year is out.

As this is a sensitive data for the Fed and the world, I decided to put on my straddle on three currencies as follows: –

EURUSD   –   1.1416   1.1436   -1.1456

GBPUSD   –   1.5427   1.5457   1.5497

USDJPY   –   117.90   –   118.26   –   118.56

Core CPI was slightly elevated, overall CPI was flat, jobless claims improved to 255K against forecast of 269K, and Empire state manufacturing came was weaker at -11.4 versus expectation of -7.3.

Overall, USD bias, but the market didn’t move very much.  I took out the GBPUSD order, leaving behind the EUR and JPY order.

Both the EUR and JPY orders were triggered on the Offered side.

I squared the EUR at 1.1370 and the JPY at 118.70 for a trading profit of 46bps for the EUR and a negligible 0.14 yen.

This is what I mean when the event or data is not expected to make the fx market volatile, this strategy of the straddle trade doesn’t really work well.  It needs the volatility.

Want to beat the market? Sell at 10 am, play golf

An old Wall Street maxim says the “dumb money” buys in the morning and the “smart money” buys late in the trading day. But statistics show the opposite is true.
According to Bespoke Investment group, the first half hour of the trading day is anything but “amateur hour.” In fact, it’s the best time to buy and sell.
Bespoke’s report shows that if an investor bought the S&P 500 at the previous day’s close and then sold it at 10 a.m., every single trading day since 1983, a $100 investment would be worth $949 today, making it the single best portion of the trading day.
(Bespoke counted 9:30 to 10 a.m. as a full hour so it could easily divide the day into hour-long trading periods.)
“One potential reason for the strong early performance could be related to mutual fund flows as well as foreign inflows,” said Bespoke co-founder Paul Hickey. “The 1980s and 1990s were where you had strong flows into mutual funds, and when managers got new funds they would just plow them into the market.”

This trend has held up during the current bull market. Since 1963, a $100 investment made every day before 10 a.m. netted $163 today.
After early morning trading, the next best time to buy on an intraday basis since 1983 was between 3 and 4 p.m., according to Bespoke.
So the so-called “smart money” didn’t do that badly, either.
The worst time to invest?
That’s between 10 a.m. to 11 a.m., when investors actually lost money.
Since 1983, buying at 10 a.m. and selling at 11 a.m. turned a $100 investment into $60.
And don’t even think about trading within that hour on a Monday.
Bespoke ran the numbers on days of the week and found that Monday was the worst day to trade. Buying every Friday at the close and selling every Monday at the close since 1983 turned a $100 investment into just $103.
“Black Monday in 1987 sticks out like a sore thumb for the Monday pattern,” Bespoke said in its report. The Dow Jones industrial average plummeted 508 points on that infamous Monday.
The best day of the week for the S&P 500 over the last 30 years was Tuesday.
To be sure, Bespoke cautioned that while this information is interesting, it’s not necessarily actionable.
“While it would have been nice to buy at 3 p.m. and sell at 10 a.m. every day since 1983, this kind of strategy is not practical for the large majority of investors out there,” stated the report.
But Wall Street loves historical statistics, and the data speak for themselves. As long as you wrap up your trades by 10 a.m., you’ll beat the market and still have time to get a round a golf in every day.

I was wondering the past 48 hours why there wasn’t any noise in the media about the UK Claimant Count and Unemployment Rate since BOE, Carney is focusing on raising interest rates next year and not wanting to fall behind the U.S.

I decided to put on my straddle at 4:25pm as follows: –

GBPUSD  –  1.5285   –   1.5315   –   1.5345

When the data came out it was self cancelling because the Claimant Count was slightly higher but the unemployment rate improved.

GBP hardly moved, so I took out the trade.

CPI data for the UK is a hot data on the radar screen because BOE, Carney is watching CPI, GDP, employment, housing prices, etc in his decision to raise interest rates next year.

At 4:25pm, I decided to put my straddle trade on the GBPUSD as follows: –

GBPUSD   –   1.5300   –   1.5325   –   1.5350

Spot rate was 1.5325.

I squared the trade at 1.5245 for a trading profit of 55bps.  Not bad for half an hour’s work.

On October 9th, there wasn’t any noise about industrial production in the Euro area.

So to prove a point that ‘noise’ in the media creates volatility, I decided to place a EUR straddle trade as follows: –

EURUSD  –  1.1255   –   1.1285   –   1.1315

As it turned out industrial production numbers came out weaker but guess what, no one really cared.

The EURUSD hardly moved, so I withdrew the order.

The point I am making is that once we know where the economy if going then we need to follow the data that supports where the economy is going.  Couple with noise in the media nearing the release of the relevant data, then, the currency will potentially be volatile when the data is out.  Sounds reasonable?  Of course.