Thread: Trading Economic News

Discuss with Analysts and other traders how to trade economic news events.

Global Economic Calendar
http://www.dailyfx.com/calendar/

US Economic Events
http://www.dailyfx.com/calendar/briefing/

Central Bank Calendar
http://www.dailyfx.com/calendar/bank-calendar.html

Trading the News: DailyFX Plus Reports (live FXCM Clients)
https://plus.dailyfx.com/tnews/index.jsp

Trying to time when the Federal Reserve will cut interest rates next and by how much is the biggest task for the financial markets at the moment and the biggest driver of currency, stock and bond market fluctuations. The majority of the market is looking at just non-farm payrolls, inflation data, consumer spending and bond yields, which means if that’s all that you follow, you risk being behind the curve. The Fed’s job is to not only balance growth with inflation, but also to ensure stability in the banking sector. They need to be ahead of the curve and in order to do so they look at much more than the monthly consumer and inflation data. Our new report Watch What the Fed Watches provides weekly updates on many of the things that the Fed follows including bank deposits, credit card delinquencies and bond spreads

WE LOOK FORWARD TO ANSWER ALL YOUR QUESTIONS AND
TO FOLLOW YOUR SUGGESTIONS FOR THE UPCOMING REPORTS.

What a fabulous idea! Does this mean that you've a telescope and a rented room opposite Constitution Avenue?

Originally Posted by Black.day

What a fabulous idea! Does this mean that you've a telescope and a rented room opposite Constitution Avenue?

If only it were so easy...

We're looking at indicators that can tell us about overall credit and economic conditions, trying to glean insight on what the Fed may be looking at as far as markets and consumers are concerned. I'm sure you'll notice that we've omitted the more obvious inflation and spending data, as these releases are largely discounted in current rate expectations and forex rates.

Feedback is more than welcome on the report.

Since the market is looking towards tomorrow Non-Farm Payroll to show whether the US economy is recovering fast enough to avert a rate cut this month and possibly till December,or not,if the employment and NFP turn out to be disappointing for the US economy, how soon should we expect a rate cut.
Since other factors are showing that the US economy is not yet out of the wood.
And if the FED decides to cut rate again what effect do you foresee it will have on the USD.

Please your comments is highly welcome.

Originally Posted by wynn

Since the market is looking towards tomorrow Non-Farm Payroll to show whether the US economy is recovering fast enough to avert a rate cut this month and possibly till December,or not,if the employment and NFP turn out to be disappointing for the US economy, how soon should we expect a rate cut.
Since other factors are showing that the US economy is not yet out of the wood.
And if the FED decides to cut rate again what effect do you foresee it will have on the USD.

Please your comments is highly welcome.

The market is already expecting an approximately 50% chance of a 25 basis point Fed Funds rate cut on October 31. A disappointment in tomorrow's NFP's would only boost expectations for lower rates, and this would almost definitely sink the USD further.

The NFP came out today and better than expected. At the time of this writing, the US is a little stronger, but not the huge rally that I was really expecting. On the other FXCM sites, there is an anticipted top and reversal which would mean that the US would suddenly nosedive (including the DOW). What could possibly be the catalyst for that? The Yen currencies are all expected to favour Yen strength or US weakness. The release of this NFP didn't do that, so what would?

Ever since, scholars have been tweaking coefficients, modifying variables and debating its function, but Taylor's rule has remained the gold standard, so to speak—open to doubt and subject to discretion, but impossible to dismiss. “A simple equation that has proved remarkably useful as a rule-of-thumb description of monetary policy,” wrote now-Fed Chairman Ben Bernanke in 2004. Or as Taylor observes in the following Region interview, “Staying close to the rule works pretty well.”

"All monetary policymakers now understand what the academics call "Taylor's Rule" (due to John Taylor) -- when inflation increases and market interest rates rise with that inflation, the central bank must increase its target rate by more than the increase in market yields -- else, the central bank is just keeping abreast of the market and not leaning against the inflation. If such a rule is approximately correct, then it should also moderate the growth of the base and reserves (which of course are feeding the inflation). It would be a useful task to build such an empirical model and demonstrate how the process works, but I'm not aware of anyone doing so..."

Richard G. Anderson - the world's foremost authority on the monetary base and legal reserves

William Poole -- University of Chicago, Ph.D., 1966 -- President and CEO, Federal Reserve Bank of St. Louis, --Understanding Inflation

The rational expectations literature makes clear that policy regimes are the correct way to interpret policy. Tom Sargent has defined a regime as “a function or rule for repeatedly selecting settings for economic policy variables as a function of the state of the economy.”(5) Others have labeled this “rule-like behavior.” A policy regime, in some cases, might be as simple as a single equation; an example is the Taylor Rule, which I and many others have discussed elsewhere. In this case, the policy rule, rather than federal funds rate, is the instrument of monetary policy—the federal funds target is an endogenous variable within the larger model. The precise form of the rule, so long as it is consistent with price stability, is less important than policymakers displaying rule-like behavior. The “rule” certainly need not be a simple linear equation. Rather, the rule is a method of decision-making and a commitment to a specific, articulated objective. Nobel laureate Robert Lucas (1981) credits the introduction of this concept to Milton Friedman in his 1948 “A Monetary and Fiscal Framework for Economic Stability.”(6) In the same article, Lucas notes that Friedman’s maxim was lost to policymakers during the two decades of prosperity that followed the 1948 Employment Act, setting the stage for the Great Inflation.

Actual policymaking, of course, requires large doses of experience and judgment—former Chairman Alan Greenspan argued that model uncertainty counseled caution in policymaking. Models omit many real-world problems such as incomplete and asymmetric information, the high cost of information and the value to both workers and firms of multi-period contracts. Nevertheless, the essential insight of rational expectations survives—a sound policy rule or regime is essential for a good outcome.

Some analysts have argued against rules for monetary policymaking, viewing them as straitjackets for policy. If policymakers adopt a model, how do they respond when the economy changes significantly? Modern models clarify that the benefits of “rule-like” behavior accrue even if the central bank from time to time changes its policy regime or rule.(7) What is required is that at each instance when policymakers decide to take an action that is not consistent with their extant rule, the new action must be consistent with some policy rule that, in the medium- to long-term, will achieve the stated policy objective. Surely it cannot be the case that an optimal policy response to a new set of circumstances could be determined by consulting a table of random numbers.

When policy departs from usual practice, it is incumbent that policymakers communicate the change—its nature and rationale—carefully to the public. Monetary policy is more powerful, and better able to achieve its goals, if the forward-looking behavior of consumers and businesses is consistent with the forward-looking behavior suggested by the policy rule or regime. For several years, I have referred to this as “synching” the markets and monetary policy. The fundamental mechanism for making synching work is communicating the policy regime or rule—but rule-like behavior must be adopted by policymakers in the first place before it can be communicated to the public.

Originally Posted by vnmonica

The NFP came out today and better than expected. At the time of this writing, the US is a little stronger, but not the huge rally that I was really expecting. On the other FXCM sites, there is an anticipted top and reversal which would mean that the US would suddenly nosedive (including the DOW). What could possibly be the catalyst for that? The Yen currencies are all expected to favour Yen strength or US weakness. The release of this NFP didn't do that, so what would?

Does anyone else have any comments on my above quote other than flow5, please? Flow, I don't intend to be mean, but you are just a little too long winded for me.

Originally Posted by vnmonica

Does anyone else have any comments on my above quote other than flow5, please? Flow, I don't intend to be mean, but you are just a little too long winded for me.

vnmonica

I believe the trigger for a large recover in the U.S. dollar will be the next 10/31 FED meeting.
The market is divided between a 25 bps (48%) cut and no cut at all (52%) and this month Inflation numbers could well make the difference.

I just post & seldom reply:
The statistics now released by the BLS represent non-conforming data:

Non-conforming data is “subject therefore to the limitations of all analyses based upon broad statistical aggregates, namely, data cannot be compiled accurately or in a manner which conforms to rigid theoretical concepts, and the entire approach tends to be ex post and static.”

The seasonally mal-adjusted data includes adjustments which can also be sources of error.

And month-to-month, or y-o-y comparisons are (1) not parametric, are (2)uncorrelated, and (3) do not imply causation, because the statistics do not represent the actual economic lags for real-gdp or inflation.

Conventional associations using month-to-month, or Y-o-Y data, produce a lot of proverbial "noise".
-------------------------------------------------------------------------
The current economic downswing ends now -- Oct 07. If you review, say, 10years or so of currency charts, you should see that the seasonals (beginning in Oct.), are followed with a falling dollar until after the holidays. An economic rebound changes the fundamentals. But I'm still not able to tell you how currencies will unfold. I've always had a hard time with them but have never lost trading Treasury

The future course of the dollar doesn't hinge on the ffr level.

The position of the exchange value of the dollar reminds me of bonds in the 70's. You trade from the short side -- just like Iran, Venezuela, Quatar, Vietnam, Russia, Japan, and Kuwait.

The current currency war & the re-cycling of petro-dollars probably depends upon the control of Iraq's 2nd largest proven oil reserves.

LONDON - If the war in Iraq was fought on behalf of major international oil companies, consider it lost. The race to gain access to the grand prize of Iraq’s vast energy reserves is actually being won by small risk-takers willing to carve out a profit at great risk,

Norway’s DNO, Switzerland’s Addax, Turkey’s Genel Enerji, Canada's Heritage, etc.

The Board of Governors raised the ffr to 5.25 on June 29th 2006.

Then, the dollar moved sideways to irregularly lower (from 109.33 on 6/28/06 to 107.99 on 1/29/07); then declined sharply (without a change in the ffr), to 102.30 on 9/17/07).

The ffr was lowered on 9/18/07 (St. Louis Fed/Broad Indices) & the dollar has declined less (but was already falling), than the time period where the ffr was steady. There was only a very short-term impact with the drop in the ffr.

How are you going to tell if the dollar's movement was related to a change in the ffr or due to the seasonals?

Originally Posted by Antonio Sousa

vnmonica

I believe the trigger for a large recover in the U.S. dollar will be the next 10/31 FED meeting.
The market is divided between a 25 bps (48%) cut and no cut at all (52%) and this month Inflation numbers could well make the difference.

But if the Fed doesn't cut the rate, that would imply that the economy wasn't doing as badly as some thought and it may not be necessary. Therefore, the US would gain strength. But if the Fed did cut the rate, that would imply that things realy are a recession-looming possibility and the US would lose strength. Is this correct?