News Profiter: Definte Guide To Fundemental News TRadingby Henry Liu

NewsProfiteersDefinitiveGuidetoFundamentalNewsTrading
Page1
WhatOtherPeopleAreSayingAboutUs:
Ihaveexperiencedmuchmoreconsistentprofitssince
usingthisinformation
RaymondSmith
HiHenry.....ThisisjustanotetothankyouforthedailyForexmarketperformancereportandtrading
newsoutlook....
ThisinformationisveryvaluabletomeandIhaveexperiencedmuchmoreconsistentprofitssince
usingthisinformation...
Manythanks
YourservicehasbeenapowerfulsourcetomyForex
knowledgeandunderstanding
PeterOlasemi
Peoplethatofferagreatandfaithfulservicelikethisareveryscarce.Insteadofprovidingafruitful
servicelikeyour,theyturnittointernetfraud.
YourservicehasbeenapowerfulsourceofelevatortomyForexknowledgeandunderstanding.In
factIdon'tknowwhatIwouldhavebeenwithoutthistypeofservice.Iwasimprovedinprofit,
knowledgeandpractice.
Thanksomuch.
IhavenotreallyhadanymajorsuccessesuntilIreadHenry'seBook
BolaTaylor,UKOct.2008
IhavebeentradingtheForexforthelastthreeyearsandihavenotreallyhadanymajorsuccesses
untilIreadHenryseBookwhichwasverydetailedandhadlotsofinformationandexplanationson
whythemarketmovesinanyparticulardirection.IwasactuallybaffledbyhisanalysisoftheGBP/JPY
movementonWednesdayswhichIhaveseenhappenedafewtimesandinthepast.Afewtimes
whenhetoldustostayoutofthemarketifnotsureprovedtobecorrectasalotofvolatilityoccurred
lastweek.ThanksHenryandkeepupthegoodwork.
Page2
Icanplanmytradeswithminimaltimeandconfidence
TrevorDegraaf
Henry!
Yournewsreportsareawesome.Thedetailandaccuracyisinvaluable.Icanplanmytradeswith
minimaltimeandconfidence.Basedonyourresearch,Icanexpectwhatshouldhappenwithuncanny
consistency.
Knowwhattotrade,whenandhow!
ThisisamusthaveforanyFXnewstrader.
Thanks.
ItcompletelyopenedmyeyestohowForextradingistrulydone.
MPP,FloridaUSADec.2008
HenryLiu'sNewsProfiteerisabsolutelyfantastic!Itcompletelyopenedmyeyestohowforextrading
istrulydone.Ican'tpraisetheguyenough!Ifyou'reanewbietoforextradingdonotwasteyourtime
withanythingelseoutthere.GettheNewsProfiteertodayandjoinHenry'straderoom.You'llnever
lookbackIwillpromiseyouthat!
Thisisexactlythebestsystemforanypersonthatwant
tomakeconsistentprofitintheForexmarkettrading
fundamentalanalysis.
OmavowanEferire
ThisisexactlywhatIwaslookingfor,itisperfectandextremelywonderful.sinceIstartedusingthis
yourinformationIhavewatchedmyaccountgrowgraduallybutprogressively.InfactIthinkthatthis
isexactlythebestsystemforanypersonthatwanttomakeconsistentprofitintheForexmarket
tradingfundamentalanalysis.
ItishighlyrecommendedforallForextradersallovertheworld.yoursystemistheverybest.
Thanksomuch.
Page3
Newsprofiteerebook[Inmyopinion]isarealrevelationtotheForextrader
Lee,AustraliaSept.2008
I'vereadalotofForextradingebooksandtheebooksI'vestudiedhavebeenveryinformative,
althoughtheyhavenotbeenasinformativeandstraighttothepointastheNewsprofiteerebookI
haverecentlypurchased,thewholeconceptoftradingrevealedinNewsprofiteerebook[Inmy
opinion]isarealrevelationtotheForextrader,ie.theconceptof[Sentimentnewstrading]beingif
theconditionsarerightforthenewstradeyoucanbeinatradesomedaysbeforehand,witha
positivetrade,tobeperfectlyhonestyouguysoutthereyouwon'tlookback,theemailsupportfrom
Newsprofiteerisbeenpromptandstraighttothepoint.
OkGodblessyouHenryforyourhonesty.
Yoursthankfully,
afterreadingHenry'sebookIwasconfidentenoughtostarttradingtheEUR/USDcurrencypair
andhavemadeover100pipsprofitinaweek!
PhilMcAthey
Mytradinghasimproved*alot*
NewsProfiteermaybethemostprofoundFXeducationalserviceI'veeverstudiedunder.Their
WeeklyOutlookiswithoutquestionthemosthelpfulfundamentalsroundupI'veeverread.BeforeI
startedwithNewsProfiteertherewereanumberofwaysthatIcouldn'tseetheforestforthetrees.
SinceIsignedupandreallystartedtodigesttheirtoolsandeducationalmaterialsmytradinghas
improved*alot*.I'mgratefultoNewsProfiteer,andthey'vegotmyallegiancein2009!
CP,CaliforniaUSADec.2008
Henryisalmostalwaysonthemoney
I'vebeenreadingHenry'sdailyemailforabout6months.Ifindittobeinvaluable.Henryisalmost
alwaysonthemoney.Hisforesightasgoodasmyhindsight20/20,whichiswhyIboughthisbook
onnewstrading,andsubscribetohisNewsprofiteerservice.ThankyouandMerryChristmasHenry!
TimChallenorLondon,UKDec.2008
Page4
Preface:
Whilesomebeginningconceptsinthisbookmayseembasic,theyarekeysto
understandingthemarketasawhole.Byhavingthesebasicideas(or
foundations)establishedearlyon,youcanavoidmanycostlymistakesinthe
future.
Thisbookiswrittenforintermediateandadvancedtraders.Ifyouarean
absolutebeginner,Istronglyrecommendthatyoutakesomebeginnerscourse
firsttotakefulladvantageofthisbook.
OneimportantfactthatImustmentionnowisthatthisbookisnotaboutNews
SpikeTrading.AlthoughIdoexplainhowtospiketrade,butthisbookcoversfar
moremethodologies,andIbelieveyoullbenefitfromit,nomatterifyoure
planningtotradenewsreleases,ornot.
Thisbookwillhelpyouseethemarketinacompletenewlight.Ifyouarestrictly
atechnicaltrader,thisbookwillbenefityouandpossiblyincreaseyour
profitabilitybymeansbeyondyourcurrentmethods.Ifyouarealreadya
fundamentalnewstrader,thelatterpartofthisbookwillhelpyouseeand
understandthelongertermtradeofthemarket.
Oneofthemostimportantrequirementstotakeadvantageofthisbookfullyisto
haveanopenmind.Oneanalogythatoftenremindsmegoeslikethis:Your
mindislikeaparachute,itonlyworkswhenitsopen,thereforeitismysincerest
hopethatyoukeepyourmindsopen.
Page5
Truthinasimplerwayoftrading(byHenryLiu):
OneofthebiggestmistakesinForextradingisironicallyspendingwaytoomuch
timetrading.Thereisabsolutelynoonewhocouldpredictwithcertaintywhere
themarketisgoingtodonext,andbyspendingtoomuchtimetrading,your
chancesofgettinginalosingtradeincreases,notmentioningthestress
associatedwithtrading,whichmayverywellleadtoalapseinyourtrading
decision.
MyidealwayofForextradingisknowingaheadwhenthemarketisgoingto
move,getinthemarketduringthatwindowofopportunity,enteratrade,and
thencashoutonceindecentprofit.Rinseandrepeatwhilespendingusuallyno
morethanacoupleofhoursatrade,andnomorethan4to5tradesaweek.
TheonlysystemthatfitsthisbillisForexNewsTrading.Letsexaminesomeof
thebenefitsinnewstrading:
1. ScheduledTradingTime:Youtradeonlythehighimpactnewsduringtheir
scheduledreleasetime,whichareavailablethroughvariousnewscalendars
uptofewweeksaheadoftime,andyouareinthemarketduringatime
wherevolatilityisalmostinsured,withampleliquidity,soyoudontwaste
yourtimeoryourmoneychasingthenoisesorfaketrendsduringlow
liquidityhours.
2. ReduceLosses:TradingForexisabouthavingtheoddsstackedwithyou,
notagainstyou!Bylimitingtheamountoftradesyoutakeinamonth,you
arecuttingdownyourpotentiallosseswhilepickingthecrmeofthecrop.
Page6
3. ManagedRisk:Newstradinggenerallygivesyouamanageablerisk.You
canalwaysputyourstoporderatprereleaselevel,becauseitisagolden
rulethatoncethemarkettravelsbacktothepointbeforethenewsrelease,
thentheeffectofthenewsispresumablyover
4. HighProfit:Sincethemarketislikelytooverreacttonewsreleases,
volatilitybecomesourfriend.Bygettingintherightdirectionafterthe
release,youcancashoutonmostofthemovements.
5. LessTimeTrading:Thereareonlyabout35tradablenewsreleasesa
month,andoutofthese35releases,youllprobablyget50%givingyoua
tradablereleasefigure.Sothetradableonescouldtakeupto2hoursper
trade,buttheuntradeableonesshouldonlytake15minutesofyourtime.
Therefore,youareaveraginglessthan40hoursoftradingamonth,or
about10hoursaweek.Whilemakingprobablythesameamountofmoney
youdbemakingtrading16hoursaday.
Attheendoftheday,itisnotabouttheamountoftimeyouspendtrading,orif
youusedtechnicalanalysisorfundamentalanalysis.Itisaboutwhatsleftinyour
account.Byconcentratingonlyonnewstrading,youarelookingatthesimplest
wayandprobablythemostprofitablewaythatIknowof,inForextrading.
HenryLiu
Oct.2009
Page7
LegalNotice(s)andRequirement(s):
RISKDISCLAIMER:Tradingtheforeignexchangeonmargincarriesahighlevelofrisk,andmay
notbesuitableforallinvestors.Beforedecidingtotradetheforeignexchange,youshould
carefullyconsideryourinvestmentobjectives,levelofexperience,andriskappetite.Past
performancesarenotindicativeoffutureresults,whichcanvaryduetomarketvolatility.The
possibilityexiststhatyoucouldsustainalossofsomeorallofyourinitialinvestmentand
thereforeyoushouldnotinvestmoneythatyoucannotaffordtolose.Youshouldbeawareof
alltherisksassociatedwithforeignexchangetrading,andseekadvicefromanindependent
financialadvisorifyouhaveanydoubts.
COPYRIGHTANDOTHERRELEVANTDISCLAIMERS:ThisEBookanditscontentsarecopyrighted
propertyofHenryLiu.AnycopyingorredistributionofthisEbook,inwholeorinpart,without
expresswrittenpermissionfromHenryLiu,isstrictlyprohibitedandviolationofthiscopyright.
Anywebsites,resources,andproductsmentionedinthisebookbelongtotheirrespective
owners.
LegalDisclaimer:WhileallattemptshavebeenmadetoverifyinformationprovidedinthisE
book,neithertheAuthor(s)northePublisherassumeanyresponsibilityforerrors,omissions,or
contraryinterpretationofthesubjectmatterherein.ThisEbookisnotintendedforuseasa
sourceoflegaloraccountingadvice.TheAuthor(s)andPublisherwanttostressthatthe
informationcontainedhereinmaybesubjecttovaryingstateand/orlocallawsorregulations.
Allusersareadvisedtoretaincompetentcounseltodeterminewhatstateand/orlocallawsor
regulationsmayapplytotheusersparticularbusiness.Thepurchaserorreaderofthis
publicationassumestheresponsibilityfortheuseofthesematerialsandinformationand/orits
application.Adherencetoallapplicablelawsandregulations,federal,state,andlocal,
governingprofessionallicensing,businesspractices,advertising,andallotheraspectsofdoing
businessintheUnitedStatesoranyjurisdictionisthesoleresponsibilityofthepurchaseror
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behalfofanypurchaserorreaderofthesematerials.Anyperceivedslightsofspecificpeopleor
organizationsareunintentional.
Page8
Index
How,Why,andWhen?
Page10
WhyDoestheForexMarketMove?
Page13
HowDoestheForexMarketMove?
Page15
WhenDoestheForexMarketMove?
Page22
WhatKindofNewsDoWeTrade?
Page24
FundamentalNews101
Page27
BasicTradingMethods
Page42
CurrencyAnalysis
Page49
MoneyManagement
Page64
SentimentTrading(LongTermTrading)
Page68
RisktoRewardRatio
Page73
Puttingitalltogether
Page76
MillionDollarTips
Page102
MarketCycle
Page107
SpecialResourceSection
Page110
NewsTradingAfterthought
Page126
Page9
Chapter1How,Why,andWhen?
WhenIfirststartedtradingForex,ithadneveroccurredtometoaskthese
questions.Imean,whywouldI?ThewholeForexeducationalworld(asI
understoodatthetime)wasfocusedprimarilyonTechnicalAnalysis;somewere
basedonFibonacci,someonMACDand/orSlowStochastic,oracombinationof
technicalindicatorswithdifferentproprietarysettings.Seemsliketheanswerto
theholygrailoftradingliesintherightcombinationofindicators(atleastthat
waswhatIthought.)
Istillrememberthefewbeginningmonthsoftrading;Imusthavespentover16
hoursaday,5daysaweek,doinganaverageof24tradesperday.Itwasmore
excitingthanprofitable,asIquicklywentthroughmyliveaccountsonebyone,
marginingthemoutandrefundingthem,fallinginthisviciouscyclethatmany
beginnertradersseemtofindthemselveseventuallyin,unabletogetaway
Then,itmustvebeenthefourthorfifthtimethatIrefundedmyaccount,Ibegan
tolosefaithinmytradingmethods;Istartedtoquestionwhetherornotthese
strategieswereevensupposedtowork?Iwenttomymentor,anddespiteof
spendingevenmoretimeandenergyinlearningandrelearningthesame
methods,IrealizedthateverythingIhavelearneduptothispointiscompletely,
forlackofabetterword,ambiguous.WhatIhavelearnedwaspracticallybased
ondiscretion,(whichwasdesignedlikethatonpurpose,)sothatanyonewho
teachesitcouldinterpreteitherorbothways.Inotherwords,thereisnowrong
answer
Page
10
Thenalmostbyluck,Istumbledontosomeonewhotradesfundamentals,which
atthetimeseemedsortoftaboofortechnicalanalysts.Youmighthaveheard
this:Youshowmeaneconomicnewsrelease,andIwillshowyouachart
pattern,whichwasthementalityofmanytechnicaltradersatthetime,andit
wasgenerallybelievedwhetherornotonepaysattentiontothenewsreleases,
theresultsweregoingtobethesame.ThatwasthesamehalftruthIwasfed
withlearningForex
WhenIsayhalftruth,Idontmeanitasalie.Forextradingissuchadifficultart
(notscience)tomaster,onecanneversaydefinitivelywithoutadoubtthatthisis
itorthatisthat.ForexMarketisactuallymadeupofmanypartsandthesumsof
allofitspartsaregreaterthanthewhole,asillustratedinthediagrambelow:
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11
Youseeinthisdiagram,TechnicaltradinghasitsplaceinForexTrading.Butitis
justpreposteroustoassumethatwasallthereistotrading.Inordertotrade
Forexsuccessfully,youneedtolearnTechnical,Fundamentals,OrderFlowand
Supply&Demand,andofcourse,MarketSentiment.
Beforeyougetintimidated,letmejustsaythatyoudontneedadegreein
economicsorspendhoursperdayperusingthroughnewsreleases.Allyouneed
toknowaresomebasicprinciplesandwhatnewsreleasestowatchoutfor,then
prepareforacouplehoursaweeklookingatthemarket,preferablyonSunday
afternoonbeforethemarketopens,andthenyouareprettymuchsetforthe
entireweek.
Now,letsgobacktothebeginningandtrytoanswerthesequestions,although
theymayseembasic,theyarekeystosuccessfulForextrading
1. WhydoestheForexMarketmove?
2. HowdoestheForexMarketmove?
3. WhendoestheForexMarketmove?
Letstrytoanswereachquestionindividuallyinthenextchapters.Althoughthey
mightnotberelateddirectlywithFundamentaltrading,butwithouthaving
properunderstandingofthebigpicture,fundamentaltradingwouldjustbe
anotherpieceofthepuzzlethatwecantputtogether.
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12
Chapter2WhydoestheForexMarketmove?
Thisisnotatrickquestion.Forinstance,hasiteveroccurredtoyouafter
watchingthepriceactiononEUR/USDfordays,seeingitgofrom1.5300to
1.5550,andaskyourselfthatquestion?
Well,IhaveandthesimpleansweristhattherearemoreordersBUYING
EUR/USDthanSELLING,sothepricewentupfrom1.5300to1.5550basedon
moredemandandlesssupply.
Then,itdawnedonmethatforeverypriceaction,atick,orapip,thereare
ordersbeingfilled.Themarketistravelingtothedirectionwhereitgetsmore
orders.Nowthinkofthisliketaxicabsinsteadofsubwayoratrain.Theorders
aredictatingwherethemarketgoes,notthemarketmakingstopsateverypip
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13
andseeifthereareorders.Iftherearentanyorders,marketwillnoteventravel
thereinthefirstplace.
Therealquestioniswhytheordersarepilinguponeway?Theanswer,ofthis
supply&demandsymptomthatweareseeingofmoredemandsontheEUR/USD
isthekeytounderstandingForexMarket.
Takeamomentandthinkaboutit.ThereasonwhyEUR/USDismovingupis
becausethemarketthinks(perceives)thatEURismorevaluablethanUSD.That
iswhyitisgettingbidup.Therealunderlyingquestionis:Whydoesthemarket
thinkEURismorevaluablethanUSD?
Hereistherealanswer:ForexMarketmovesbecauseoffundamentalnews.If
therearenonewsreleases,therewouldbepracticallynomovementsintheForex
marketbecausethevalueofeverycurrencypairwouldbefixed,withno
expectationofbetterorworse,themarketwillstayatastandstill.
So,wevecometoafullcirclenowillustratingWHYthemarketmoves.Toputit
inadifferentperspective,ForexMarketmovesbecauseitisconstantlytryingto
reachequilibriumwithnewsevents,pricinginsurprisesinfundamentalnews
andsentiments.InotherwordsThePriceEUR/USD(oranycurrencypair)is
tradingatisNOTitsrealvalue,butaperceivedfuturevalue,anestimatedvalue
thatthemarkethasplacedonit,asresultsofpast,present,andfuture
(estimated)events.
ThatswhyitssoimportanttounderstandFundamentalnews.Everyhighimpact
newsreleasechangestheperceivedvalueofthecurrency,understandingthese
fundamentalswillgiveyouabirdseyeviewofthemarketandallowyoutoplace
tradesandstayontherightsideofthemarket
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14
Chapter3HowdoestheForexMarketmove?
Iwishthereisaneasyanswerthatwecancomeupwith.Likeaspecialreport
titledthe20attributesofEUR/USDorsomethingalike.Butthematterofthe
factisthereisntasimpleanswerforthisquestion.Butthenthekeyto
understandingthemarketlieswithintheprinciples,nottheactualansweritself.
Letmeexplain
Everycurrencypairmovesdifferently.Everysinglepairhasitsownpersonality,or
inthiscase,theirowndailyranges,support/resistancelevels,and/ormarket
shares.Thekeytobecomeasuccessfultraderistounderstandandtradeonlya
fewcurrencypairsthatyoufeelcomfortablewith.
Whenwelookatthechartofacurrencypair,wecanseethehistoryofHOWdoes
theparticularcurrencypairmoves,andwhenwestarttolookatthesamechartin
alongertimecompressions,suchasthe4HtotheWeeklycharts,wecansee
HOWitmovesinalongerterm.However,thisstilldoesnotanswerHOWit
moves,butonlyshowsyouhowitmovedinthepast.
Thebestexercisetounderstandhowaparticularcurrencypairmovesistodoa
scalpingexercise.Getoutasheetofpaperandstartlookingatonlyonecurrency
pair,EUR/USDforexample,anduseonlyasimplecandlestickchartorjustby
lookingattheprices,thentrytoenter100tradesgoingfor30pipsofprofitwith
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15
30pipsofstoploss.Inaboutaweekstime,youshouldhavedevelopedsome
kindofunderstandingtoEUR/USD.Youlllearntoseethat:
Usuallyabullishdaywillbefollowedbyabearishday.(Ifyouhavean
extremebullishday,thenthenextdayyoumightseeextreme
retracementorcontinuationofbullishmomentum,viceversa)
Movementsareusuallyretracedaround7:30amand11:30amNYTime.
EUR/USDusuallymoveswithinarangeofabout1%itscurrentvalue.
Certainpricepoints,suchas50and00,tendtosupportorresistmarket
continuation.
Everycurrencypairdiffersfromtheother;forexample,GBP/USDtendstomake
majormovesthenretracesupto70%ofitsmove,whereasEUR/USDmightonly
retraceasmallportionincomparison.ThekeytobecomeasuccessfulForex
traderistolearnyourcurrency,learntospotitscharacteristicsandusethemto
youradvantage.Thisfeelingthatyoudevelopwillgiveyouanedgeintrading.
SomeofthebesttradersthatIknowonlytradeonecurrencypair.Asamatterof
fact,professionalbanktradersgenerallyonlyconcentrateononecurrencypair,
withdifferenttradersfocusingondifferentpairs.Theremustbeareasonwhy
theydowhattheydo;itisonlywisethatwelearntodothesame.
Learntoidentifythedailymovementranges,keysupportandresistanceareas,
andcorrelationtoothercurrencies
Correlationisdefinedasthedegreetowhicheconomicvariables
areobservedtomovetogether.Iftheymoveinthesame
direction,thenthereispositivecorrelation;iftheymovein
oppositedirections,thenthereisnegativecorrelation.
Forexample,letssaythatEUR/USDhasanegativecorrelationof93.0with
USD/CHF.BasicallyitmeansthatifEUR/USDmovesupabout100pips,USD/CHF
Page
16
willmovedown93pips.Belowisasidebyside1hourchartofEUR/USDand
USD/CHFshowingthatbothpairsarehighlycorrelated...Althoughthese2
currencypairsdonotmovealongsideofeachotherpipbypip,thefinalresultsin
agiventimeperiodareverysimilar.AndmostofthetimesyouwillseeUSD/CHF
(inrealtime)makingamajormovefirst,thenEUR/USDwillfollow.Youwont
seeitinthechartbelow,orona1minutechart,butyoumayseeitifyou
compareaTICKbyTICKchart.
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17
Again,understandinghowtheForexmarketmovesisalsotounderstandthe
correlationofeachother.Thereisanexcellentwebsite,http://www.mataf.net/
thatdisplaysrealtimeCorrelationsbetweencurrenciesinitsTradingToolsarea,
andIstronglysuggestthatyouvisit.
CorrelationRelationshipscanbeusedtoconfirmmovementsofcurrencies.In
thepreviousexampleofUSD/CHFmakingthefirstmovementbeforeEUR/USD
followssuit,isnotbasedjustonafeelingorpasthistory,butrootedinastrong
fundamentalprinciple.EUROmakesupabout58%oftheUSDollarIndexand
EUR/USDisresponsibleforabout50%ofallactivitiesintheForexMarket.
USD/CHF,ontheotherhand,onlycovers4%ofallactivitiesofthemarket.Since
USDisthedominantcurrency,about90%oftheexchangesinvolveUSD,when
USDlosesvalue(USDIndexDrops),EUR/USDgoesup.Sinceittakesmuchmoreto
moveEUR/USD(50%),weseeUSD/CHF(4%)makingthemovefirstonageneral
USDweakness.
Page
18
AnotherimportantcorrelationrelationshipisEUR/USD,GBP/USD,andEUR/GBP.
Itisvitaltowatchthemovementsbetweenthese3currencypairsifyouplanto
tradeanyoneofthem.Itisimportanttoidentifywhatismovingthemarketat
thetime,isitUSD,EUR,orGBP?BykeepinganeyeontheEUR/GBPpair,youcan
validateoreliminateeithercurrencies,andconcentrateontheonethatismaking
themostmovement.
Itwouldtakeacompletenewbooktofullycoverthesubjectofcorrelation.But
forthepurposeoffundamentaltrading,justunderstandthisfactthatone
currencycannotmovefarwithoutaffectingtheother.Lookatthissimple
calculationandseeifyoucannoticethebigpicture.
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19
(211.73 / 1.9945) = 106.15

Nowdothesenumbersseemfamiliar?
GBP/JPY=211.73(BID)
DividedbyGBP/USDatitscurrentpriceof1.9945(BID)
YougetthecurrentpriceofUSD/JPYat106.15(BID)
Inessence,youcantakeanypriceyouhaveontheGBP/JPYanddividedinwith
USD/JPY,andyoullgetGBP/USDpriceatthetimeormultiplyUSD/JPYwith
GBP/USDandgetGBP/JPYcurrentquote.
Marketisnotperfect.Sometimeswewillseeslightdiscrepanciesinpricing
quotes,butonewillnotmovefarfromtheother.Therefore,whenwesee
relatedpairsmakingstrongmovesonewayortheother,itjustgivesusmore
confirmationofthedirection.
Anotherinterestingpoint,sinceGBP/JPYisabouttwicethevalueofUSD/JPY,a
singlepipchangeofvalueinUSD/JPYusuallybecomes2pipsofchangein
GBP/JPY.IfbothUSD/JPYandGBP/JPYarehittingsupport/resistanceareas,then
thesesupport/resistanceareasmightjustbestronger.
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20
Page
21
Chapter4WhenDoesTheForexMarketMove?
Anothervalidquestion,butoftenignored.ThequickanswerisCurrencyMarket
moveswhenthepeopleofthatcountryorcountriesareupandstartingtheirday,
thatswhenyouwillseemovement,liquidity,andpurepriceaction.
TrytotradeGBP/USDaroundAsianSessionorLateUSSession.Notonlyyou
wontseemuchaction,butbecauseofthelackofliquidity,marketmaymovein
ranges,notenoughtogiveyouadecentprofit,norenoughtostopyouout.
OneofthemostimportantfactorsthatIhavediscoveredandenhancedmy
tradingistorealizetheimportanceoftime.Asamatteroffact,Ihaveatheory
thatseemedtoworkverywellforme,andInamedittheLunchtimeReversal.
Simplyput,everylunchtimehourforeachofthemajormarkets,namelythe
London,Tokyo,andNewYork,youwillseesignsofmarketreversal,because
theseprofessionaltraderswhohavetheabilitytoinfluencemarket,needto
squaretheirpositionssothattheycangooutforlunch.Therefore,therearetwo
immediateapplicationsforit:
1. Closeyourtradesaroundlunchtimeknowingthatthemarketisaboutto
reverseitsgains.
2. Stayinthetrade(longerterm)andknowthatlunchtimereversalisonly
temporary.Longtermtrendwillresumeinafewhours.
Thissimpleknowledgehashelpedmetimeandtimeagain.WhenIamona
longertermtradeandallthesuddenmarketreverseswithoutavalidreason,but
ifitcoincideswithoneofthelunchtimes,Iwouldstillkeepmyoriginalposition
andrideitoutknowingwhatwasgoingon.Ontheotherhand,whenIsee
markethittingastrongresistance/supportareaaroundlunchtime,usuallyby
lookingatotherconfirmationssuchasthedailyranges,fundamentalnews,and
marketsentiment,Iwouldenterareversaltrade.Butwithoutthetimefactorin
thefirstplace,IwouldNEVERhaveenteredthetrade,aswedontusuallyknow
howfarthemarketisgoingtogo;itshardtopredictatoporbottom,butitsnot
thatdifficulttopredictWHEN.
Page
22
Otherimportanttimefilterstobeawareof,asidefromtheobviousnews
releases,aretheEQUITYMARKETOPEN/CLOSE,orStockMarketJittersasI
calledit,whichmaymovethemarketdrasticallyonewayortheotherfor5~10
minutesbeforeandaftertheopeningbell.Knowingwhattoexpectduringthis
timecanhelpyouholdontoaprofitabletradeoradjustyourstoptonotget
stoppedoutduetoaflukeinthemarket.
Anotherimportantconceptistobecomefamiliarwithwhatkindofmovementto
expectduringeachmajortradingsession.Forinstance,mostEuropean
currencieswillmoveinarangeduringAsianSession,byidentifyingtherange,you
canentertradesattop/bottomoftherangegoingwiththelongertermtrend.
Theprinciplebehindwhythesecurrencypairsmoveinarangeisbasedon
liquidity.Whenthereisntenoughliquiditytomoveacurrencypair,suchas
duringtheAsiansession,movementsoftheEuropeanpairsareconfinedina
rangewithmostoftheirgainsreversedjustaroundLondonopenduringmost
regulartradingdays,withsomeexceptions.
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23
Chapter5WhatKindofNewsDoWeTrade?
Thereisliterallyhundredsoffinancialnewsreleasedaroundtheclockfromall
overtheworld.Thekeyistoconcentrateonnewsreleasesthathavean
immediateimpactonthemarket.Thereareabout5to10importantnewsfrom
U.S.,andabout3~5eachfromUK,EUROZone,Australia,Canada,andNew
Zealand.Thesenewsreleasesareusuallyscheduledmonthlyorquarterly;they
willrepeateverymontharoundthesamedayoftheweekordayofthemonth.
Weonlytradenewsreleasesthatarecurrentlyconsideredashot,meaningthat
themarketisparticularlyinterestedinit.Forexample,afewyearsagoduringthe
realestateboom,U.S.HousingStart,ExistingHomeSales,andNewHomeSales
wereconstantlyignoredandnoonewaspayingattentiontoit.Why?Becauseat
thetimeeconomywasdoinggood,homesaleswerealwaysbetterthanexpected,
andmarketjustassumedthebestandbasicallyignoredthenumbers.Lookatthe
samenewsreleasestodayinmid2008,Housingnewsreleaseswereparticularly
importantbecausetheeconomyissuffering,anysignsofreboundfromthe
housingsectorsignalsimprovementintheeconomy,asmanymarketanalysts
pointedout;therefore,housingdataiscurrentlyhot.Similarly,theweekly
JoblessClaimsjustbecamehotrecentlybecauseofformerFed.Chairman
Greenspantalkedaboutitinhisbook
Othernewsreleasessuchasconsumerconfidence,currentaccount,andeventhe
TICNetLongTermSecuritiesarecurrentlybeingignored.Buttheywilleventually
becomehotagain,asmanyofthesenewsreleasesandmarketfocusworkin
cycles,justasthefashionindustry.
Thekeytotradingeconomicnewssuccessfullyistobeselectivewithnews
releasestotrade.Asstatedbefore,withhundredsofnewsreleasedmonthly,
whyriskwithlessimportantnewsreleasesandgambleyourhardearnedmoney
whenyoucantradewithnewsthathaveahigherprobabilityofsuccess?
Therefore,Ihavecompiledalistofnewsreleasesthathaveahighprobabilityof
success(atleast70%)backedbysolidtrackrecord.
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24
AnotherimportanthotfactorintodaysmarketisRISK.Therearebasicallytwo
differentreactionstoRisk,onebeingRiskAversionandtheotherRisk
Appetite.
RiskAversionbasicallymeanstoavoidrisk.Marketwillreactgowiththesafest
route,sellinghighyieldingcurrenciesandbuyinglowyieldingcurrencies,suchas
BUYINGCHFandJPYwhileSELLINGGBPandAUD.Fewinstancesrecentlyof
extrememarketriskaversion,GBP/JPYpairhavebeendocumentedlosingupto
1000pipsina24hourperiod.
Thisisanextremeexamplebutnotanisolatedcase,wehaveseenriskaversion
takingovermarketsentimentanddroppingUSD/CHF,GBP/JPY,AUD/JPY200to
500pipsaday.
WhatkindofnewssparksRiskAversion?Theanswer:Anynewsthatcreatesrisk
(orrumorofrisk)inthemarket,forexample:
1. GeopoliticaluncertaintyRumorsofwaroractualterroristattack.
2. SubprimeMortgageWritedownBearStearns,FannieMae,FreddieMac,
etc
3. Majorindustrysectornegativeearning/forecastreport.SuchasAIG
(insurance),BankofAmerica(finance),GM(Auto),etc
4. Oranyhugesurpriseinfundamentalnewsthatremindsthemarketofthe
conditionoureconomyiscurrentlyin.Suchasaworsethanexpected
HousingData,aworsethanexpectedemploymentdataorunemployment
rate,etc
WhattodoinaRiskAversionsituation?Thebestansweristostayoutofthe
market!
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25
RiskAppetitemeansmarketwillingtotakeonrisk.Whatisconsideredrisk?
WhenthemarketisbuyinghighyieldingcurrenciessuchasGBP,andsellinglow
yieldingcurrencies,suchasJPY,itisconsideredasRiskAppetite.Therefore,when
carrytrades(JPYbasedtrades)arewinding,orgoingup,itisasignofRisk
Appetite.
WhatkindofnewssparksRiskAppetite?Basicallyanynewsthatpromotes:
1. GeoPoliticalStabilityPeaceTreaty,peacetalks,etc
2. GoodEarningsReportfrommajorsectors.
3. GoodSurprisesinfundamentalnews,suchasbetterthanexpected
housing,employment,oreconomydata.
RiskAppetiteisdifferentfromRiskAversionwhereasRiskAversionwillbe
followedwithstrengthinbothJPYandCHFcurrencies,whileRiskAppetitewill
notonlypromotecarrytrades,butallhighyieldingcurrenciesingeneral.Risk
Appetitewilllikelytopromotestablemarketconditionandnormaldailyvolatility.
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26
Chapter6FundamentalNews101
Scheduledeconomicnewsreleasescangenerallybeclassifiedinto4different
categories.
1.
2.
3.
4.
Inflation
Economy
Infrastructure
Others
Asstatedearlierinthisbook,youdontneedtobeaneconomistorhavea
degreeineconomicsinordertotradethenews,allyouneedtoknowarewhat
newsreleasesaretradableandwhattododuringthereleasetimes.Islikealittle
storythatIhaveheard:Abusinessownerpurchasedanewcommercialmachine
forhisbusiness.Onedaythemachinebrokedown,andhehadtocallina
specialist.Thespecialistshowedupandtookoutahammer,hitthemachine
onceintheback,andlikeamiracle,themachinestartedrunningagain.
Happinesssoonfadedasthespecialisthandedoverhisbill.Theownerwas
shockedandprotestatthe$500bill,hesaidYouonlyspentlessthan1minute
andyouonlyusedahammer,thespecialistanswered:Wellsir,youarenot
gettingchargedforthe1minuteofmytime,thatsonthehousenorthattap
withthehammer,thatsalsoonthehouseIamonlybillingyouforknowing
wheretotapandhowhard
ThatsexactlywhatIamgoingtoshowyouattheendofthissection.Youmay
findthefollowingalittleboring,butpleasebearwithmeandtrytouseitas
referencesinthefuture.Istronglysuggestthatyoumemorizethereportsand
theirrelationshipsintomemory,becauseifyoudo,youllstarttoseemarket
setupsbeyondjustnewstrading,youllbecomeawareofmarketsentiment,and
eventuallybeabletotakeadvantageofit.
Letsgetstarted:
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ItsallabouttheInterestrate!
Thisisprobablythemostimportanttipinthissection!Allmajorcurrencies
Interestratesarecontrolledbythegovernmentoranindependentorganization
thatanswerstothegovernment.Themandateofthegovernmentistomaintain
andcontrolinflation.IfInflationishigh,interestratewillberaisedtoslowdown
theeconomy.Higherratesmeanhighercosttoborrowmoney,highercoston
themonthlycreditcardbills,highercosttobuyahome,etcTheeconomywill
slowdown,growthwillbecontrolled,andthusinflationwillbecontrolled.If
inflationislow,theoppositeisdone,ratesarelowered,borrowingwillbe
encouraged,economywillbestimulated,thereforeinflationwillbehigher.
Everygovernmentsmandateoncontrollinginflationistohavewhatwecalled
LowStableInflation,alsoknownasPriceStabilitybysomeothercentral
banks.Alowstableinflationof2~3percentperyearistheidealinflationresult
thatmostmajorcentralbankswant.
Anotherimportantconcepttounderstandisthatcurrenciesareassetsandtheir
returnsareearnedintheformofinterestrate.Byincreasingtheinterestrate,
thevaluesofthecurrenciesalsoincrease.
OR
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NEWSINFLATION
SinceInflationisthesinglemostimportantfactorthataffectsInterestrates.
NewsreleasesthatmeasureinflationareparticularlyimportantfortheForex
Market.
Letmerefreshyourmemory,Fundamentaltradingisspeculativetrading.Traders
placetheirtradesbasedonwhattheythingthecurrencyisgoingtobe,notwhere
thecurrencyisrightnow.Therefore,whenwegetahigherreadingoninflation
newsreleases,marketwilltendtotradeupthecurrencypairbasedonthe
releasenumber.
Thesinglemostimportantnewsreleaseforinflationis:
CPIConsumerPriceIndexisdefinedasastatisticalestimateofthe
governmentofthepricesofgoodsandservicesboughtforconsumptionpurposes
byhouseholds.Itscomputationusespricedatacollectedforasampleofgoods
andservicesfromasampleofsalesoutletsinasampleoflocationsforasampleof
timesandestimatesofthesharesofthedifferentexpendituresinthetotal
coveredbytheindexwhichareusuallybaseduponexpendituredataobtainedfor
sampledperiodsfromasampleofhouseholds(wikipedia).Itisalso
knownasthe"TrueCostofLiving".
Inshort,CPIiswhattheeconomistscalltheInflationnumber.CPIusuallyhasa
CorenumberandaHeadlinenumber.TheheadlineCPInumber,orjustCPI,isa
completeinflationnumberthatincludeseverything.TheCoreCPInumberisthe
inflationnumberthatexcludesfoodandenergy(gas)cost,whichshowsaclearer
viewoninflation,sinceenergyandfoodcostmayvarydependingonseason.
AnotherimportantInflationnewsreleaseis:
PPIProducerPriceIndex(weareinterestedintheInputcomponent)
measurestherateofinflation(i.e.,therateofpricechanges)experiencedby
manufacturerswhenpurchasinggoodsandservices.Arisingtrendhasapositive
effectonthenation'scurrency.Whenmanufacturespaymoreforgoodsand
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29
services,theyarelikelytopassthehighercoststotheconsumer,soPPIisthought
tobealeadingindicatorofconsumerinflation.PPIishighlyregarded,andat
extremeswillhaveamarketimpactequaltothatofitsCPIcounterpart.
MostPPInewsreleasesarentclassifiedashighimpactnews.Butasstated
above,inextremecases,ahighPPIinputwillaffectCPIasawhole,sinceifitcosts
moretoproduceaparticularproductorservice,theproviderwillhavenochoice
buttoeventuallypassonthecosttotheconsumer.PPInumbersareusually
releasedbeforethemonthlyCPInumbers,thereforeifwegetaparticularlyhigh
PPIinput;itmakessensetoexpectahigherCPIreleasenumbersaswell.
OR
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30
NEWSECONOMY
Theeconomyisanotherdriverforinflation.Inshort,ifwehaveabetter
economy,wewillhaveahigherinflation,ahigherinterestratewillfollow,and
highercurrencyvaluewillbeperceived.
Ontheotherhand,ifwehaveadreadfuleconomy,inflationwillbelower,interest
cutswillbeconsidered,andlowercurrencyvaluewillbeperceivedbythemarket.
Newsreleasesrelatedtotheeconomyare:
1. NewsthatdirectlymeasuresthegrowthoftheEconomy.
2. NewsthatdirectlymeasuresthegrowthoftheJobMarket.
3. NewsthatdirectlymeasurestheHousingMarket.
Newsthatmeasuresthegrowthoftheeconomyis:
GDPGrossDomesticProductthesumofvalueaddedateverystageof
productionofallfinalgoodsandservicesproducedwithinacountryinagiven
periodoftime.GDPistheprimarymeasurefortheeconomy'shealth.
Insummary,ifweweretoreducetheentireeconomyintoasinglenumber,it
wouldtheGDPnumber.
GDPalsocomesinasCoreGDPandHeadlineGDP.CoreGDPisGDPwithoutthe
transportationcomponent,whichvariesfrommonthtomonth.Itisalsoknown
asGDPex.Transportation.
GDPisalsorelatedtoRetailSalesfigures:
RetailSalesMeasuresthevalueofsalesattheretaillevel.Arisingtrendhasa
positiveeffectonthenation'scurrencybecauseRetailSalesmakeupalarge
portionofconsumerspending,whichisamajordriveroftheeconomyandhasa
sizableimpactonGDP.TraderspaycloseattentiontoRetailSalesbecauseitis
usuallythefirstsignificantindicatorofthemonththatrelatestoconsumer
behaviorandissusceptibletosurprises.
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31
RetailSalesisaveryimportantleadingindicatorforGDP,especiallyintheUnited
States,acountrythatconsumesmajorityofitsownproduction.RetailSales
makesupabout2/3ofU.S.GDP.
OR
Othernewsreleasesrelatedtotheeconomyare:
NonFarmPayroll(orEmploymentChanges)Measuresthechangeinnumberof
employedpeopleduringthepreviousmonth,excludingthefarmingindustry.A
risingtrendhasapositiveeffectonthenation'scurrency.Jobcreationisan
importantindicatorofeconomichealthbecauseconsumerspending,whichis
highlycorrelatedwithlaborconditions,makesupalargeportionofGDP.This
reportisthefirstofthemonththatrelatestolaborconditions,makingit
susceptibletobigsurprises.
Differentcountries,otherthantheU.S.A.,callthisnewsreleaseasEmployment
ChangesorEmploymentRate.Buttheyareprettymuchthesamething.TheNFP
ishowever,oneofthemostvolatilenewsreleasefortheForexMarket.Other
newsreleasesrelatedtotheEmploymentareUnemploymentRateandthe
weeklyJoblessclaims.
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32
OR
Otherimportanteconomicindicatorsare:
ISMManufacturingIndextheInstituteofSupplyManagement(ISM)
ManufacturingIndexmeasurestheactivitylevelofpurchasingmanagersinthe
manufacturingsector,withareadingabove50indicatingexpansion.Arising
trendhasapositiveeffectonthenation'scurrency.Toproducetheindex,
purchasingmanagersaresurveyedonanumberofsubjectsincluding
employment,production,neworders,supplierdeliveries,andinventories.Traders
watchthesesurveyscloselybecausepurchasingmanagers,byvirtueoftheirjobs,
haveearlyaccesstodataabouttheircompany'sperformance,whichcanbea
leadingindicatorofoveralleconomicperformance.
ISMwasestablishedin1913intheU.S.andhasbeenreportingsinceJune1998.
Forthepasttenyearsofso,ISMhaveestablishedasolidtrackrecordofthe
validityofitsreports,andtheyareveryhighlyregarded.ISMalsopublishesan
ISMNonManufacturingIndex,whichisasurveyfortheServicesector.
OthercountriessuchasUKandEurozone,havetheirownpurchasingmanager
indexfigures(PMI),buttheyareallsimilartooneanother,with50beingthe
medium,below50indicatescontractionandabove50indicatesexpansion.
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33
OR
Lastbutnotleast
NewHomeSalesMeasurestheannualizednumberofnewresidentialbuildings
thatweresoldduringthepreviousmonth.Arisingtrendhasapositiveeffecton
thenation'scurrencybecausethehousingmarketisaleadinggaugeforthe
overalleconomy.Ahighlevelofhousingactivitysignalsthattheconstruction
industryishealthyandthatconsumershavethecapitaltomakelarge
investments.Moreimportantly,newhousingactivitycreatesaneconomicripple
effectashomeownersbuygoodssuchasappliancesandfurniturefortheir
homes,andbuildersbuyrawmaterialsandhiremoreworkerstomeet
demand.
ExistingHomeSalesMeasurestheannualizednumberofexistingresidential
buildingsthatweresoldduringthepreviousmonth.Arisingtrendhasapositive
effectonthenation'scurrencybecauselargepurchasestendtobemadeby
consumersthatareoptimisticandconfidentintheirfinancialposition.Thesaleof
ahomealsotriggerscommissionsforrealestateagents,andoftenhomeowners
willpurchasegoodssuchasappliancesandfurnitureshortlyafterpurchasinga
home.Traderswatchthisreportcloselyasit'sthemonth'sfirstdemandside
housingindicatortobereleased.
Thesetwoindicators,alongwithHousingStart,BuildingPermit,andHousing
Prices,measurethehealthofthehousingsector.Ionlytradethesetwohousing
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34
newsreleasesbecausetheyhavethebesttrackrecordswithmostpredictable
marketreactionafterthenewsrelease.
AnothernotablenewsreleaseonlyfortheU.S.is:
DurableGoodsorahardgoodisagoodwhichdoesnotquicklywearout,or
morespecifically,ityieldsservicesorutilityovertimeratherthanbeingcompletely
usedupwhenusedonce.Durablegoodsmeasuresprimarilygoodswithashelflife
ofmorethan3years,suchashouseholdappliances.
ThisindicatorisusuallyrelatedtoHomeSales.Ifwegethigherhousingfigures,
mostlikelywewillgethigherdurablegoodsreleasesaswell.
OR
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35
NEWSINFRASTRUCTURE
Letstalkaboutnewsreleasesthatarerelatedtotheinfrastructureoftheentire
economy.Thesenewsreleases,atthetimeofwritingthisebook(Aug.2008),are
nothot.Theyareprettymuchignored,butasIpointedoutbefore,
fundamentalnewsreleasesarecyclical.Theywillbebacksoonenoughanditis
bestthatwegetsomeideaonwhattheyare:
CurrentAccountisthesumofthebalanceoftrade(exportsminusimportsof
goodsandservices),netfactorincomes(suchasinterestanddividends)andnet
transferpayments(suchasforeignaid).Thecurrentaccountbalanceisoneoftwo
majormetricsofthenatureofacountry'sforeigntrade(theotherbeingthenet
capitaloutflow).Acurrentaccountsurplusincreasesacountry'snetforeignassets
bythecorrespondingamount,andacurrentaccountdeficitdoesthereverse.Both
governmentandprivatepaymentsareincludedinthecalculation.(wiki)
TradeBalanceisthedifferencebetweenacountry'soutputanditsdomestic
demand(thedifferencebetweenwhatgoodsacountryproducesandhowmany
goodsitbuysfromabroad;thisdoesnotincludemoneyrespentonforeignstocks,
nordoesitfactortheconceptofimportinggoodstoproduceforthedomestic
market).
CapitalFlow(TICNetLongTerm)isthebookkeepingreportofthecapitalflow
inandoutofthecountry,ittrackstheinvestmentinthiscountryandoutofthis
country.Acontinuousnegativenumbermeansnooneisinvestinginthecountry.
Thehigheritstays,eventuallywilldrivedownthecurrencyvalue.
OthernewsreleasessuchasConsumerSentiment,ConsumerConfidence,
ChicagoPMI,andEmpireStateBusinessIndexbelonginagroupoftheirown.
Usuallythesenewsreleasesdonotmovethemarketmuch,unlesstherelease
numberdeviatesfromtheforecastnumberbyahugedifferenceThentherule
ofthumbistoalwaystradeinthedirectionofthehugesurprise.
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36
OneimportanttypeofnewsreleasesthatIcannotoverstressitsimportanceis
thespeechesofCentralBankers.CentralBankersarethemostimportantpeople
intheForexMarket.Theyhavetheabilitytomovethemarkethundredsofpips
withtheirspeeches,andwhentheyspeak,marketlistens.Mostofthetime
marketwilloverreacttothespeeches,andifyoucanlearntodeciphertheir
speeches,youcanbethefirstmoverinthemarketItisnoteasytotradetheir
speeches,butonceyoufigureoutwhattheyaretalkingabout,youlllearn
somethingthatonly5%ofretailForextradersknow,andyouwillhaveagreat
advantage.
CentralBankersspeecheshaveasetformat,usually.Theychangeasentenceof
twofrompreviousstatementstoreflecttheircurrentpolicy.Ifyoujustreadthe
previousfewstatements,ifwouldbeveryeasytonoticethedifferences;andby
comparingwithpastmarketreactions,youcandeciphertheirspeechesrather
easily.Allyouneedtodoisspentalittletimeinresearch.AsIsaid,fundamental
newstradingisnotdifficult.
LetmegiveyouanexampleofthemostrecenttwoFOMCstatements:
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37
Release Date: August 5, 2008
Release Date: June 25, 2008
For immediate release
For immediate release
The Federal Open Market Committee decided today

to keep its target for the federal funds rate at 2
percent.
The Federal Open Market Committee decided today

to keep its target for the federal funds rate at 2
percent.
Economic activity expanded in the second quarter,

partly reflecting growth in consumer spending and
exports. However, labor markets have softened
further and financial markets remain under
considerable stress. Tight credit conditions, the
ongoing housing contraction, and elevated energy
prices are likely to weigh on economic growth over the
next few quarters. Over time, the substantial easing of
monetary policy, combined with ongoing measures to
foster market liquidity, should help to promote
moderate economic growth.
Recent information indicates that overall economic

activity continues to expand, partly reflecting some
firming in household spending. However, labor
markets have softened further and financial markets
remain under considerable stress. Tight credit
conditions, the ongoing housing contraction, and the
rise in energy prices are likely to weigh on economic
growth over the next few quarters.
Inflation has been high, spurred by the earlier

increases in the prices of energy and some other
commodities, and some indicators of inflation
expectations have been elevated. The Committee
expects inflation to moderate later this year and
next year, but the inflation outlook remains highly
uncertain.
The Committee expects inflation to moderate later this

year and next year. However, in light of the continued
increases in the prices of energy and some other
commodities and the elevated state of some
indicators of inflation expectations, uncertainty about
the inflation outlook remains high.
Although downside risks to growth remain, the upside

risks to inflation are also of significant concern to the
Committee. The Committee will continue to monitor
economic and financial developments and will act as
needed to promote sustainable economic growth and
price stability.
The substantial easing of monetary policy to date,

combined with ongoing measures to foster market
liquidity, should help to promote moderate growth
over time. Although downside risks to growth
remain, they appear to have diminished somewhat,
and the upside risks to inflation and inflation
expectations have increased. The Committee will
continue to monitor economic and financial
developments and will act as needed to promote
sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were:

Ben S. Bernanke, Chairman; Timothy F. Geithner,
Vice Chairman; Elizabeth A. Duke; Donald L. Kohn;
Randall S. Kroszner; Frederic S. Mishkin; Sandra
Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin
M. Warsh. Voting against was Richard W. Fisher,
who preferred an increase in the target for the
federal funds rate at this meeting.
Voting for the FOMC monetary policy action were:

Ben S. Bernanke, Chairman; Timothy F. Geithner,
Vice Chairman; Donald L. Kohn; Randall S. Kroszner;
Frederic S. Mishkin; Sandra Pianalto; Charles I.
Plosser; Gary H. Stern; and Kevin M. Warsh. Voting
against was Richard W. Fisher, who preferred an
increase in the target for the federal funds rate at
this meeting.
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38
IfyoucannoticethatonJunemeetingtherewasaparagraphsubstantial
easingshouldhelptopromotemoderategrowthbasicallymeantthatFOMC
willstopcuttingrates,whichwasahawkishstatement(marketdidntreact
favorablytothisreleasebecauseUSDwasundersellingpressure,withoutactions
backingupwords,marketwentagainstUSDdespiteofthishawkishtone).In
AuguststatementInflationhasbeenhigh,spurredbyearlierincreasesinpriceof
energyexpectsinflationtomoderatelaterthisyearinflationoutlookremains
highlyuncertain.Meaningthathighinflationwascausedbyhighcrudeprice,
withrecentcrudepricepullback,inflationshouldeasethereforeFOMCAugust
statementwasleaningtowardsaneutralstance.
Alsopayspecialattentiontowhovotedagainstandforwhat.Anychangein
votingcouldsendastrongsignalinadditiontothestatement.
HerearethemajorCentralBankers:
USFOMCBenBernanke
UKBOEMelvynKing
EUECBJeanClaudeTrichet
CABOCMarkJ.Carney
JPBOJMasaakiShirakawa
NZRBNZDr.AllanBollard
CHSNBJeanPierreRoth
AURBAGlennStevens
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39
Asaconclusion,herearethenewsreleasesthatItrade.Inthefollowing
illustration,youwillseethenewsreleases,thedeviation,andtheexpected
minimummovementsifthedeviationsarehit:
Special Definitive Guide Cheat Sheet Report
US Reports
Core CPI m/m
Retail Sales
Interest Rate
Trade Balance
NonFarm Payroll
ADP NFP Changes
ISM Manufacturing
New Home Sales
Existing Home Sales
GDP q/q
Canada Reports
Core CPI m/m
Interest rate
Trade Balance
Employment Change
IVEY PMI
GDP m/m
Core Retail sales
Tradable Trigger
Movement Range
0.20%
0.50%
0.25%
7.0B
70K
50K
2.5
70K
400K
0.30%
50 pips
50 pips
70 pips
40 pips
70 pips
40 pips
70 pips
70 pips
70 pips
60 pips
Tradable Trigger
Movement Range
0.3%
0.25%
0.7B
30K
3.0
0.2%
0.5%
50 pips
70 pips
40 pips
60 pips
50 pips
50 pips
50 pips
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40
United Kingdom Reports

CPI y/y
Industrial Production
Interest rate
Manufacturing PMI
Retail Sales
MPC Vote (minutes)
GDP q/q
New Zealand Reports

CPI q/q
Interest rate
Retail Sales
GDP q/q
Australia Reports
Interest rate
Employment Changes
GDP q/q
Retail Sales
CPI q/q
Tradable Trigger
Movement Range
0.3%
0.3
0.25%
2.0
0.5%
2 Votes
0.3%
50 pips
50 pips
70 pips
50 pips
60 pips
50 pips
50 pips
Tradable Trigger
Movement Range
0.3%
0.25%
0.5%
0.3%
50 pips
70 pips
40 pips
40 pips
Tradable Trigger
Movement Range
0.25%
27K
0.3%
0.6%
0.3%
70 pips
60 pips
50 pips
50 pips
50 pips
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41
Chapter7BasicTradingMethods
Letsstartbydefiningfewimportantterms:
Forecasted(ConsensusorExpected)Figure:Thisisusuallyderivedfroma
surveydonebyfinancialnewsorganizationssuchasBloomberg,Reuters,
etcUsuallytheygetanumberofeconomists,anywherefrom20to240,
andaskthemwhatnumbertheythinkitwillbe.Aftergettingallofthe
numbers,thehighestandthelowestaretakenoutwiththerestaveraged
outtoasingleaveragedfigure.Thatiswhywithdifferentnews
organizationswillhaveaslightlydifferentconsensusnumber.
Deviation:isthedifferencebetweentheactualreleasenumberandthe
forecastednumber.LetssaythatCPIisexpectedtobe3.0%andtheactual
numbercameoutas3.3%;thedeviationisthen0.3%.
ActualFigure:Thisistheactualreleasefigurefromtheofficialsourceofthe
information.
Revision:Thisistherevisedchangedoneforpreviousreleasefigure,
usuallythemonthbefore.Itcouldsometimeimpactthemarketgreatlyif
therevisionishuge.Usuallyifwehaveagooddeviationwithagood
revisionnumber,themarketwillreactevenmore.
FundamentalTradingInaNutshell:Everymajornewsreleasehasaforecastedor
consensusfiguredeterminedbyeconomistsbeforehand.Iftheactualrelease
figureisdifferentfromtheconsensusorforecasted(orexpected)figure,the
marketissurprisedandwillreacttothereleaseimmediately.Thebiggerthe
surprise,ordeviation,willproducebiggerreaction.Basedonhistoricaldata,we
canpredictthataparticulardeviationwilltriggeraminimumamountofpips
movement.Ifanewsreleaseconsistentlymovesover40pipswithaparticular
deviation,weexpectthatasimilardeviationinthefuturewilllikelytocausethe
markettomove40pips.
Althoughwehavetobeflexibleinourtrading,newstradingrequiresthata
specificplantobefollowedwithspecificsetofrulestoprotectourinvestment.It
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42
isparticularlyimportantthatweonlytakeatradewhenourexpecteddeviationis
hit,notwegetacloseenoughdeviation.
Forexample,ifyouhavepromisedyourteenagesonacaronhis18thbirthdayon
theconditionthathegetsstraightAsinschoolthissemester,andhecamehome
withacoupleofBs,youwouldnthavetogivehimacar.Wemustregardnews
tradingwiththesamekindofdisciplinebecausesometimesalmoststillmeans
no.
Tofurtherdrivethispoint,considerthatsincetheforecastednumberisan
average,manyfundmanagersorbanksmightbeexpectingaslightlydifferent
numberthanyouandI,andifwetakeacloseenoughdeviationtotrade,we
mightjustbegoingintheoppositedirectionagainstsomeofthesebigfund
managers.
Forexample,iftheupcomingISMManufacturingIndexhasaforecastednumber
of52.5,andourstandarddeviationis3.0.Theactualreleasecameoutas50.3
whatisourcourseofaction?Theactualdeviationis2.2,about0.8pointsaway
fromourtradabledeviation,butitscloseenoughsoyouenterashorttrade.
ButMr.BigShotatABCHedgeFundmayalsobelookingatreleaseof50.3,which
stillmeansexpansioninthesector(above50meansexpansion,below50means
contraction),anddecidedtogoonalongtrade.Thiscouldbedevastatingfor
youraccount.Remember,thedeviationsthatwetradearesafedeviations,
theyhavebeenproventoworkinthepastandthatiswhywetradethem.
Itstimetolaydownsomegroundrulesbeforegettingintotheactualtrading
methods.Rememberthatthefollowingareextremelyimportantandyoushould
alwayskeepinmindwhentradingthenews,nomatterwhatkindofnews
releasesorhowhugethedeviationsare.
1. Itdoesntmatterwhetherornotthemarketreactsthewayyouexpectitto
react.Youhavetorememberthatnothingisabsoluteintrading,especially
withForex.
2. Wedonotformanopinionbeforethenewsrelease;wewillwaitfornews
releasetocomeout,andthentradeaccordingtoplan.
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43
3. Weareonlylookingfortheprobabilityofthecombinedreactionofthe
marketintheshortterm,withinthefirst30minutesupto2hours
immediatelyafterthenewsrelease.
4. Wemustbeflexibleintrading.Ifmarketsentiment,technicalanalysis,and
thenewsreleasenumbersallpointtoonedirectionbutthemarketstill
reactinacompletelyoppositedirection,wemustalsoactaccordingly.Itis
mostlikelythatwevemissedsomeunderlyingreasontothisreaction,and
wemustrespectthemarket.
5. Weonlyconcentrateonthenewsthathasmostimpacttothemarketwith
mostpredictablereaction.
6. Wealwaysassumethatthemarketwilloverreacttothenews.
7. Studythereactionofthemarketafternewsrelease.Youwillseethe
underlyingmarketsentiment.
Ok,itstimetotalkabouttheactualfundamentalnewstradingmethods.
Remembertoalwaysprepareaplanbywritingthemdownonapieceofpaper;
donotgetintothemarketunprepared.
Itisimportantthatyougetanewswireservice,suchas
tradethenews.com,Reuter,orBloombergifyouwanttotrade
fundamentalnews.Donotusethosefreenewswireservicesor
newsfeedfromyourbroker.Everysecondcountsinnews
trading,youcouldmakeup10timesthemoneyyoupayforthe
newsfeedservicewithjustonegoodtrade.
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FundamentalTradingMethods
TRADETHESPIKE
Wewaitforthenewsreleasetocomeout.Basedonthereleasenumber
wewillenterthemarketimmediatelyifourexpecteddeviationishit.
Wewilltrytocatchtheinitialspikemove,wholeorpartofthemove,and
getoutofthetradeattopoftheexpectedmovementrange(4050pips.)
Astop/losswillbeplaced15pipsfromtheprereleaseprice.Thisisthe
priceleveljustbeforethenewsrelease.Ourtakeprofitorderwillbeonce
againthetopoftheexpectedmovementrange.
Thistypeoftradingrequiresafastreaction,agoodbrokerthatallowsyou
totradethenewsandgivesyouagoodfillwithminimumslippage.
TradePlan
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TRADETHERETRACEMENT
Wewaitforthenewsreleasetocomeout.Basedonthereleasenumber
wewilldeterminewheretogetintothemarketifourexpecteddeviation
ishit.
Wewillwaitforthemarkettoretracebackwithin10~15pipsofthepre
releasepricelevel.Sometimeswhenwehaveahugedeviation,wecan
enterthemarketat20pipsfromtheprereleaselevel,butitwouldbe
basedondiscretion.Marketwillusuallyretracewithinthefirst5~30
minutes,ifaretracementistotakeplace.
Astop/losswillbeplaced15pipsfromtheentryprice.Therefore,itis
veryimportanttowaitforthemarkettocomebackbecauseifweentertoo
soon,wemightgetstoppedout.
Thistypeoftradingismucheasierthantradingthespike,butsometimes
wemightnotgetaretracementatallorbigenoughandmissthistrade
altogether.
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PRENEWSTRADING
Weenterthemarket5minutesbeforethenewsrelease.
Webaseourentryonmarketsentimentandtechnicaltrendofthecurrency
pair.
WeALWAYSenterinthedirectionofthecurrenttrend.Ifthenewsrelease
goesourway,wecantakeadvantageoftheentiremove.Ifthenews
releasegoesagainstus,wemighthavetoenduretheinitialdrawdown,but
usuallyafterthenewsimpactisover,themarketwillresumeitstechnical
trendandgiveusachancewithasmallprofitorbreakeven.Wemight
havetowaitanywherefrom2to12hours.
Weonlytradenewsreleasesthatwontchangemarkettrend.Important
enoughtomovethemarket,butunabletochangelongtermmarket
sentiment.Forinstance,wewillnotprenewstradeNonFarmPayroll,CPI,
GDP,andCentralBankspeeches,butwecantradeRetailSales,Trade
Balances,PMIreports,etcEspeciallyreportsthatwillnothavea
profoundimpactonthetrend.
Thisishighlyadvanced.Remembertotradeinthedirectionofthetrend,
anddonttrytoguesswhatthereleasenumberisgoingtobe.Trendwill
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alwaystrumpnewsreleasesinthelongterm.Experimentfirstwithdemo
accountstogetanideahowthismethodworks.
WeeklyOutlook
IprovideaweeklyoutlookwhereIanalyzethefundamentaltrends.Istrongly
suggestthatyoutosignupforafreemembershipandreadmyoutlooktogeta
broaderviewofthemarket.Ithinkyouwillalsounderstandbettersomeofthe
conceptsthatItalkaboutinthisbookonceyouseethembeingappliedinreal
life.Thisweeklyoutlookisvaluedat$49permonth;getyourtrialforonefree
monthtodaybyusingthefollowingcouponcode.
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Chapter8CurrencyAnalysis
IfeelthisbookwillbeincompleteunlessIincludethissection.Mostofthe
informationincludedinthissectionmightseembasic,butsomearequite
advancedinmyopinion.Iwouldrecommendthatyougothrougheachandevery
currencyandhopefullyyouwillunderstandthembetter.
Letsgetstarted!
EUR/USD
TheoriginalEuroZoneismadeupof12countries,andtheyare:Austria,
Belgium,Cyprus,Finland,France,Germany,Greece,Ireland,Italy,
Luxembourg,Malta,Netherlands,Portugal,Slovenia,andSpain.
ThemajorcountriesintheEUROZoneare:France,Italy,Germany,and
Spain.
Thereareover500millionpeopleusingEuroastheircurrency.
TheEUR/USDisoneofthemosttradedcurrencypairintheForexMarket.
Itcoversabout50%ofalltheactivitiesoftheForexMarket.
EUR/USDvaluationisprimarilydrivenbytheUSDollarIndex.SinceUS
Dollarison90%ofallcurrencytrades.USDisthedominantcurrency.
USDollarIndexismadeupof:Euro58%,Yen13%,Pound12%,Canadian
9%,SwedishKroner4%andSwissFranc4%.(AUD&NZDarenotincluded
intheIndex)
BylookingatcorrelationsofUSD/CHFandEUR/USD,onecanusemovementson
theSwissFrancasgaugetomarketsentiment.
IfUSDisweak,EUROgetsadefaultboostasitisthe2ndmosttradedcurrency.If
USDisstrong,EUROwillbeweakasdefault.
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USDollarIndex&EUR/USD3YearChart
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EuroZone
UnitedStates
CentralBankGovernor:JeanClaudeTrichet
CentralBankGovernor:BenS.Bernanke
VotingMembers:LucasD.Papademos
GuyQuaden,AxelA.Weber,NicholasGarganas,
MiguelFrenandezOrdonez,ChristianNoyer,John
Hurley,MarioDraghi,YvesMersch,NoutWellink,
KlausLiebscher,VitorManuelRibeiroConstancio,
MarkoKranjec,ErkkiLiikanen.
VotingMembers:TimothyF.Geithner,ThomasM.
Hoenig,DonaldL.Kohn,RandallS.Kroszner,EricS.
Rosengren,FredericS.Mishkin,CharlesL.Evans,
WilliamPoole,KevinM.Warsh
CurrentInterestrate:2.00%
GBP/USD
GBP,Sterling,Cable,orPoundistheofficialCurrencyfortheUnited
Kingdom.
Londonistheworldslargestfinancialcenter,dominatedbyfinancial
servicessuchasBankingandInsurance.Thereforeitscurrencyisalsovery
sensitivetoequitymarketnews.
GBP/USDmakesupabout14%ofallCurrencytradedintheForexMarket
accordingto2004study.Itismorelikelyabout10~12%today.
GBPistheonlyoneofthemajorcurrenciestradedintheForexMarketthat
isnotlinkedinsomewaytoaglobalCommodity.
Therefore,Sterlingissusceptibletowildermovesbecauseofthelackof
anchorsincommodities.
SterlingisalsomorelikelytobedrivenbyMarketSentiment.
GBP/USDpairisknowntomakefakemovesbeforeLondonopen.Thebest
timetotradethispairisactuallyafter3:00am.Newsreleasesusuallyat
4:30am.(NewYorkTime)
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DuetothelowliquiditysituationduringtheAsianSession,GBP/USDmay
appeartobetrendinginonedirection,onlytohavetheentiremovement
reversedaroundLondonOpen.
Londonbanktradersareknowntotakeprofitsjustaroundtheirmarket
open.Accordingtoanexbanktraderthatifatthebeginningoftheday
theirtrades(fromthepreviousday)arealreadyinprofit,inordertokeep
theirbooksinpositivestandingfortherestoftheday,theywilltakeprofits
andclosethetrades.
GBP/USDandGBP/JPYareveryvolatilecurrenciesandareknownfortheir
tendencytomoveinawhipsawduringtradingsessions.
UnitedKingdom
UnitedStates
CentralBankGovernor:MelvynKing
VotingMembers:KateBarker,CharlesBean,Tim
Besley,DavidBlanchflower,AndrewSentance,
PaulTucker,JohnGieve,andSpencerDale.
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USD/CHF
SwitzerlandsofficialcurrencyistheSwissFranc,orCHF
SwitzerlandsofficialpolicyistomaintainNeutrality.Therefore:
SwissFrancisknownasthesafehavencurrencyoftheworld.Itisthe
mandateoftheSwissgovernmenttocontrolandmaintainitscurrency
valueactively.
SwissFrancwillkeepitsvalueagainstdepreciation,althoughtheinterest
rateisminimal(justenoughtooffsetinflation),itistheonecurrencythat
tradersoughtafterduringGeoPoliticaluncertaintiesandforRiskAversion.
SwissFrancmakesupabout4%ofthetotalactivitiesintheForexMarket.
SwissFranchasadirectlongtermcorrelationlinktotheUSTreasuryYield.
(Oneofthemostsecureinstrumentintheworldbackedbytheentire
assetsoftheU.S.Government)
CHFwillmoveaheadofEUROandGBP.YoucanuseUSD/CHFtogauge
marketsentiment.
DuringrecentCarryTradeunwinding,(JPYrelatedpairs),CHFhas
consistentlytradedhigherthantheUSDDollar.
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US10YearTreasuryYield&USD/CHFChart
Switzerland
UnitedStates
CentralBankGovernor:JeanPierreRoth
VotingMembers:JeanPierreRoth,Philipp
Hildebrand,ThomasJordan
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DuetothenatureofthecorrelationofCHFandthe10yeartreasuryYield,during
thedayswhereweseethemmoveintandemweknowthatthemovementis
morelikelytohold.
Whyusethe10yearTreasuryYieldNoteandwhatisaTreasurynote?ATreasury
noteisnothingmorethanapromisetopaybytheU.S.Governmentforitsface
valueandtheinterestthatitbears.USTreasurybillisknownasthemostsecure
investmentintheworldasitisguaranteedbytheU.S.Government.Weusethe
10yearnotebecauseofitsimpactonlongterminterestrate,andalsowhen
investorsmoveoutoftheequitymarket,theytendtoinvestintreasurynotesand
bonds.
MostcentralbanksmaintaintheirforeignDollarreservesintheformof10yearT
notesduetothetimetomaturity.Tnotesalsohaveagreatimpactonthe
mortgageindustryasitisusedtodeterminethemortgagerateintheformofa
premiumabovetheestablishedrate,theratebeingtheTnoterate.
WhentheFederalReserveraisesinterestrate,theybuybackTnotestoreduce
supply,thusincreasingthereturnvalueonallTnotesincirculation.Whenthe
Fedscutinterestrate,theyissuemoreTnotestoreducethereturnvalueofall
circulatingTnotesaswell.
USD/CAD
CAD,Loonie,orCanadianDollaristheofficialcurrencyofCanada.
CADisacommoditycurrency.ItsvaluationisdrivenbyCrudeOilPrices.
CanadahasthesecondlargestOilreservesintheworld,behindSaudi
Arabia.
BecauseoftherecentriseofCrudeOilPrices,CADhasappreciatedway
abovenormallevels.IthasbrokenParitylevelwiththeUSDollarseveral
times.
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RecentnewsoutofCanada(Apr.08)suggestedthatitseconomymightbe
affectedbyUS.SinceUnitedStatesisthenumberoneimporterof
Canadiangoods.
USD/CADmakesupabout4%ofalltheactivitiesoftheForexMarket.
WetradenewsreleasesfromCanadaregularly.Usuallyreleasetimesare
either7:00amor8:30amNYTime.
WhentradingUSD/CAD,youmustbeawareoftheintradayCrudeOil
prices.
OilispricedinternationallyinUSDollar.IfOilgoesup,USDgoesdown,
USD/CADgoesdown.IfOilgoesdown,USDgoesup,USD/CADgoesup.
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CrudeOil3yearChartandUSD/CADChart
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Canada
UnitedStates
CentralBankGovernor:MarkJ.Carney
VotingMembers:MarkJ.Carney,W.PaulJenkins, VotingMembers:TimothyF.Geithner,ThomasM.
SherylKennedy,PierreDuguay,DavidLongworth Hoenig,DonaldL.Kohn,RandallS.Kroszner,EricS.
SinceglobalcommoditypricesarepeggedtotheUSD,acontracttobuycrudeis
anautomaticcontracttosellUSDandviceversa.MostOilexportingcountries
keeptheirforeignreservewithadifferentcurrencyratherthanUSDbecauseof
thisreason,forinstance,SaudiArabiausestheEuro.
InForexMarket,ifUSDislosingagainstEuro,onecanexpectthattheUSDollar
Indexislower,thereforeALLcommodities(becausetheyarepeggedtotheUSD)
aregoingtobetradedhigherbydefault.
CanadianDollarisalsoaffectedbytheamountofOilReservesintheU.S.Ifthe
reservesarehigh,thenCanadiandollarwilldropinvalueascrudepricesdrop.
U.S.isofcoursethenumberoneclientforCanadianoilexport.
AUD/USD
AustralianDollar(AUD)istheofficialCurrencyfortheCommonwealthof
Australia.
AUD/USDmakesupforabout4%ofthetotalForexMarketactivity,itisthe
6thmosttradedcurrenciesintheworld.
AUDhasaveryhighinterestrate,itcouldbethenewcarrytradeforthe
futureifUSkeeponcuttingitsinterestrate.
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AUDisalsoacommoditycurrency.IthasalongtermcorrelationwithGold
Index.
WetradeAustralianNewsreleasesaround9:30pmNYTime.
SpotGoldandAUD/USDChart
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Australia
UnitedStates
CentralBankGovernor:GlennStevens
VotingMembers:GlennStevens,RicBattellino,
KenHenry,JohnAkehurst,JillianBroadbent,Roger
Corbett,GrahamKraehe,DonaldMcGauchie,
WarwickMcKibbin
GoldisconsideredassafeinvestmentcomparedtotheStockmarket.Intimes
ofuncertaintyandturmoil,investorsmovetheirinvestmentsintoGold.During
timesofprosperity,investmentsaremovedoutofGoldintootherhigheryielding
instruments.
Goldarebeingusedheavilyasahedgetoinflationtoprotectassetsfromfuture
declines.
AsGoldisalsopeggedtotheU.S.Dollar;acontracttobuyGoldisanautomatic
contracttosellUSD.
JapaneseYen(carrytrade)
JapaneseYen,JPY,istheofficialcurrencyofJapan.
Itisthe3rdmosttradedcurrenciesintheworld,behindUSDollarandthe
Euro.
USD/JPYmakesupforabout17%ofthetotalForexMarketactivities.
DuetothelowinterestrateofYen,itisparticularlyattractiveforinvestors
toSELLJPYagainstothercurrencies,especiallytheGBP/JPYpairwitha
hugeinterestratedifference.(RiskAppetite)
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ItisalsowhyYencarrytradeshavealongtermcorrelationlinkwiththe
Equitymarket.
WhenEquityMarketislower,RiskAversionisinplace,higheryielding
currenciessuchasAUD,GBP,NZDgetsoldoffagainsttheYen
WhenEquityMarketishigher,RiskAppetiteisinplace,loweryielding
currenciessuchasYENandmaybeUSDollargetsoldoffagainstGBP,AUD,
andNZD.
S&P500andEUR/JPY3yearChart
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Japan
UnitedStates
CentralBankGovernor:MasaakiShirakawa
VotingMembers:ToshiroMuto,KazumasaIwata,
MiyakoSuda,AtsushiMizuno,Kohiko
G.Nishimura,TadaoNoda,SeijiNakamura,
HidetoshiKamezaki
Ok,thatisaboutitforallmajorcurrencies.IleftoutNZD(orKiwi)onpurpose
becauseitisverysimilartoAUDinmanyways.Asamatteroffact,majornews
fromAustraliausuallyaffectstheKiwiandviceversa.
Asaconclusionforthissection,letmeleaveyouwithfewgeneraltradingtips:
Sometimeswhenthenewscomeoutsuggestingthatthecurrencypairgoes
inonedirection,butinsteadofmovinginthatdirectionthemarketturns
oppositeandmoveagainstthefundamentalnewsinawhipsawfashion.
Donotignorethis!Theremustbeanunderlyingreasonforthismoveand
youjustdidntseeit.Stayflexibleandgetreadytofollowthetrend.
SupportandResistanceareasarebasicallyareaslayeredwithorders.
SupportareashavetonsofBUYordersreadytobepickedup,therefore
whenthemarkettravelstothatarea,itstopsandreverses;viceversawith
Resistanceareas.Youcanseetheseareasbylookingathourlychartsof
recenthighsandrecentlows.WhatsinterestingisthatMarketMakerswill
pushthemarkettotheS/Rareas,andthenwaittoseeifitbreaksthrough.
UsuallyjustbeyondtheSupportareasyouwillseelargeSELLorders,and
BUYordersjustbeyondtheresistancearea.OncetheseS/Rareashave
beentakenout,marketwillresumeitstrend.Usethisinformationtoplan
yourtrade.
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ForexOptionsexpirebetween9:30~10:30amESTeveryday,youwillsee
heavymarketmovementsasdealersaretryingtomovethemarket
beforetheoptionsexpire.Beextracarefulasthedealersmightpushthe
markettoapricepointandexercisetheoptionsandthenpricereverses.
Sometimesnewseventswillmovethemarketbefore9:30am,andthen
themovewillcontinueuntil11:00am.
11:00am~NoonwhereLondonMarketcloses.Manyprofittakingand
ordercoveringwilloccur,itisbesttoalsotakeyourprofitsforshortterm
trades.
Fridaysareusuallythedaythatbanktradersanddealerstrytosquare
theirbooks.Iftheyhavelostmoneyduringtheweek,theywilltryto
breakevenonFriday;ifitisthelastFridayofthemonth,thentheymight
trytorecovertheirlossesforthewholemonth;ifitisthelastFridayof
thequarter,thentheywilltrytorecovertheirlossesonFriday.Bevery
carefulduringFridayssincethemarketmightnotrespondwelltonews
events,technicalanalysis,orjustcommonsense.Takesmallerprofitsand
getoutfast.
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Chapter9MoneyManagement
Tradingthenewsrequiresasoundmoneymanagementplanandalowriskto
rewardratio.ThisMoneyManagementPlanwillnotonlybenefityournews
trading,butbyapplyingittoallyourtradingdecisions,youwillseeasignificant
increaseinbothprofitandconsistency.
Thefirstruleinmoneymanagementistoprotectyourmoney.Ifyoutake
unnecessaryrisksallthetime,youwillloseyourentireaccount.Thefirststepis
todetermineyourleverageandyourlotsize.
Yourmaximumleverageshouldnotbemorethan8timesofyouravailable
depositamount.Iknowsomebrokerswillofferyoua200:1oreven400:1
leverage,butifyouarenotusingitfully,itdoesntreallybenefityou.Ifyouwere
tousea400:1leverageona$25,000accountfully,youwouldhavetotrade100
standardlots.Nooneintheirrightmindwilltrade100standardlotsusinga
400:1leverage.Everypipwilleithermakeyou$1,000orcostyou$1,000,andyou
willbepaying$3,000inspreadcostjusttogetinonatrade.
Onasidenote:Mostbrokersoffering200:1or400:1accountsaresecretly
hopingandwishingthatyouoverleverageyouraccount.Theymayhavea
dealingdesktradingagainstyou,anditisjustamatteroftimebeforeyouget
marginedoutTheyhavealicensetorobyoublindlegally.
RememberthattradingForexissimilarto,inmanyways,bettinginacasino.The
housewillalwayswin.Ifyouuseasoundmoneymanagementplan,youwillstay
longenoughtocatchthebigmovesandmakesomerealmoney,whereaspeople
whooverleveragetheiraccountswonthavethechance.
Therefore,ifyouhavea$25,000account,youshouldtradenomorethan8times
yourmoney,whichis$200,000,or2standardlots.Ifyouweretradingacurrency
pairthatrequiresmoremargins,thenyoushouldonlytrade1standardlotper
every$25,000.
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Youshouldalsoputalimittoyourdailylosstonomorethan2%ofyouraccount.
Inourcaseof$25,000account,youshouldnotlosemorethan$500perday.
Thatis25pipsperlotifyoutrade2lots,or50pipsifyoutrade1lot.
Inthecaseoftradingfundamentalnews,Iwouldsuggestthatyoudivideyour
totaltradinglotsto2.Usingour$25,000example,youwouldtrade1Lotper
tradeupto2tradesatatime.
Nomatterhowmanylotsthatyoutrade,thebasicrulesofordermanagementis
simple.Youwanttolockinyourprofitandneverletawinningtradegonegative
onyou.Ournewstradesareconsideredsuccessfulonceitreaches15pipsof
profit;thereforethereisabsolutelynoreasonwhyaftera15pipsofprofityou
wouldstillletthetradegonegativeonyou.Alwaysmoveyourstoptobreakeven
orlockin1pipofprofitwhenyouareupto15pips.
Onceyouget20pipsofprofit,close50%ofyourpositionguaranteeingyoua
profit,andleavethestop/lossateitherbreakevenor1pipprofit,andletthe
marketride.75%ofthetimeyouwillendupwith1piporbreakeven,butthe
other25%ofthetimeyouwillendupwinning50,100,oreven200pips.
Onceyouhavetakenprofitonthefirst50%ofyourpositionandlockinyour
remaining50%withprofit,youarenolongerriskinganycapital.Itwillnolonger
countaspartofyourleverage.Youmaytakeonothertrades.
Forexample,youBought1LotofEUR/USDandSold1lotofUSD/CHF,andyou
havetaken20pipsprofitonbothwith0.5Lotsandstillhave0.5LotsUSD/CHF
andEUR/USDridingthemarket,youarefreetotrade2morelotssinceyouare
notriskinganythingwithyourcurrentopentrades.
Anotherimportantaspecttomoneymanagementisyourdailygoals.Setrealistic
goalsbylookingatyourmonthlytarget.Ifyouhavea$25000accountandyou
wouldliketomake20%returnpermonth,or$5000,youneedtogenerateabout
$250perday.Thats25pipsofprofiton1lot.Therefore,ifyouaretrading1lot
percurrencypair,youwouldstoptradingforthedayonceyouhave2successful
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trades.Ofcourseifyoufollowthe50%rulewiththeordermanagement,you
couldmakemore,withouttakingadditionalrisk.
Yourgoalswilldetermineyourriskfactor.Ifyouplantomake50%returnonyour
accountpermonth,bepreparedtoloseupto50%ofyouraccount.Arealistic
numberwillbeanywherefrom5%to25%oftheaccount.Anythingabovethatis
toorisky.Tradingisabusiness,andtorunasuccessfulbusinessyouneedcapital.
Ifyouonlyhave$5000,dontexpecttomake$10,000bytheendofthemonth.
Goforsomethingmorerealisticlike$1,000oreven$1,200,butneverexpectto
doubleortripleyouraccountsize.
Herearemybasictradingplanguideline:
1. Tradeupto2standardlotsatatime.
2. Tradeonly1standardlotpercurrencypair.
3. Movestop/losstobreakevenonceyouareup15pipsofprofit.
4. Takeprofitat20pipswith0.5lotandlettheother0.5lotrun.
5. Donottakeanymoretradesonceyoulose$500perday.
6. Donottrademorethan2currencypairsatatime.
7. Onceyoureach$250ofprofitdaily,stoptakingonnewtrades.
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2. Tradeonly2standardlotspercurrencypair.
4. Takeprofitat20pipswith1lotandlettheother1lotrun.
2. Tradeonly4standardlotspercurrencypair.
4. Takeprofitat20pipswith2lotsandlettheother2lotsrun.
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Chapter10SentimentTrading(LongTermTrading)
Thisisactuallyoneofmyfavoritesubjects,SentimentTrading.Sentimenttrading
isbasicallytradingwithmarketsentiments.Theconceptisprettysimple,findout
whatthemarketsentimentis,andplaceatradeinthedirectionofmarket
sentiment.
So,howcanwefindoutwhatisthemarketsentiment?Well,lookatthis4hour
chartbelow;canyouspotatrend?Thatisprettymuchyourlongtermmarket
sentiment.
Thereareactually2typesofmarketsentiment,onebeinglongtermsentiment
andtheotherbeingshortterm.Wecannotreallytakeadvantageofthelong
termsentimentasretailtraders,becausewedonthavethefinancialbackingto
sitthroughmarketvolatility;however,shorttermsentimentiswherewecan
makegoodmoney.
Shorttermsentimentisdrivenbyfundamentalnews.Ifthemarketisexpectinga
betterthanforecastednewsrelease,itwilltrytopriceintheoutcomedays
beforetheactualnewsrelease.ItisoftencalledBuyRumorandSellFact.For
example,ifthemarketisexpectingECBtoraiseinterestratenextweek,wewill
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seeEUR/USDgoingupfewdays,evenaweekbeforetheactualECB
announcement,topriceintheratehike.Duringtheactualinterestrate
announcement,wherethemarkethasalreadypricedinthehike,mightstartto
SELLEUR/USDanddrivemarketlowerasmajorplayersscrambletocovertheir
originallongordersandtakeprofits.
Sohowcanyoubenefitfromthistypeoftrading?Well,herearesomebasicrules
foryoutofollow:
Alwayslookaheadafewdaysandbeawareofanyupcomingmajornews
releasessuchasinterestrateannouncements,CPI,GDP,CentralBanker
speeches,etc...
Payattentiontorecentnewsannouncementsandwatchmarketreaction.
Ifaseemlynegativenewsreleaseisunabletomovethemarketbymuch
(orviceversa),thentheremustbeareasonwhy.
Alwayskeepinmindoftherelationshipsbetweendifferentnewsreleases.
RetailSalestoGDP,PPItoCPI,etcIfwegetamuchbetterthanexpected
RetailSalesfigurethisweek,marketwilltendtoexpectabetterthan
expectedGDPnextweek,thereforetakeadvantageofthissentiment.
Watchthemarketcloselythedaybeforethemajorannouncement.
PreferablyattheendofTokyosessionorearlierforEuropeannews
releases,orattheendofLondonsessionforU.S./Canadanewsreleases.
Placeatradeinthedirectionofthemarketifyouseeashorttermtrend
establishes,andmakesuretoclosethetradebeforetheactualnews
release.MarketSentimenthasabsolutelynoeffectontheactualresult.If
youcanmakeanywherefrom40pipsto100pipspersentimenttrade,itis
goodenough.Thereisnoneedtomaketheextrapointsfromthenews
release.Youcantradetheretracementofthenewsreleaseandtakeyour
profits.
Readmarketanalysisbydifferenteconomists.Readmyweeklyoutlook
andlearnhowtoreadthemarket.
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Noteverymajornewsreleaseissentimenttradable.Ifthemarketis
confused,thensititout.Onlytradethemarketwhenyouseeaclear,
establishedshorttermtrade.
Onceagain,marketwilltrytopriceinahighimpactnewsreleasefewsessions
beforetheactualrelease.ThispriceinmarketactioniscalledshorttermMarket
Sentiment.Forinstance,ifthereisanoverwhelmingconsensusthatacertain
centralbankisgoingtocutrate,weshouldbelookingatitscurrencyatleasta
daybeforeandtrytopriceinourtrade,justlikemostmajorplayersbysellingit
aheadoftime.
Retailtradersdontseethissimplefact.Peoplejustfollowthemarketwithout
askingwhy.Asaherd,tradersarenotveryperceptive.However,asindividual
traders,ifwejustkeepaneyeonfutureevents,itisnothardtopredictwhatthe
marketisgoingtodooneweekaheadoftime.
WehavetounderstandthatthemarketdoesnotmovebasedonTechnical
Analysisorjustsomemovingaveragescrossing.IfthisiswhatForexisallabout,
thenweshouldhave95%ofwinnersintheForexMarket.ButIthinktheopposite
istrue.Mosttraderswouldratherchoosethecomplicatedmethod,although
theydontunderstandit,ratherthanchooseaneasy,simplemethodbecause
theythinkthattradingcouldntbethiseasyItisthesameideaasifyouraise
thepriceonacertainitemwilladdmoreperceivedvaluetoit,eventhoughitis
thesameitem.
Somarketsentimentistounderstandmarketpsychology.Tradersoverreactand
overexaggeratetrades.Thatisexactlywhatwearecountingon.
Howdowedeterminewhatkindofsentiment,bearishorbullish?Thereare
actually2differentways.
PriceAction:Thereisabsolutelynothingbetterthansimplepriceaction.Lookat
howthemarketistradingpriortothehighimpactnewsschedulednextsessionor
two.IfyouseemarketisbuyingUSD,thenitissafetoassumethatthecurrent
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shorttermtrendandmarketsentimentisUSDbullish.Wewillbelookingat
supportareasonapullbacktoenterLONGUSD.
FundamentalNewsRelationships:Thisrequiresthatyouunderstandhoweach
newsreleaseisreleasedwithoneanother.Iwilltrytolistafewbelow,butI
dontthinkIcancovereverythingbutonceyouknowwhatyouarelookingfor,
youwillgetusedtotheserelationships:
Hereisalistofnewsreleaserelationships.Usuallywhenthefirstnewsreleaseis
betterthanexpected,expectationswillstarttobuildpriortothesecondnews
releaseforbetterthanexpectationfigures.Thiswillhelpyoutoidentifythe
markettrendsandpossiblyenteronasentimenttrade.
a. PPI>CPI:AhighPPIwillaffectmarketsentimenttowardsabetter
CPIrelease.
b. RetailSales>GDP:RetailsalesinemergingcountriessuchastheUS
makesupabout2/3ofthemarket.IfRetailSaleisgood,then
possiblywewillseebetterGDP.
c. Unemployment,JoblessClaims,Unemploymentrate>RetailSales:
Ifpeoplearelosingjobs,theywillnothavemoneytospendatthe
retaillevels,thereforeaffectingtheGDPasawhole.
d. HousingData>DurableGoods:EspeciallyintheU.S.,ahigher
housingdatawillhaveapositiveeffectondurablegoodsbecause
morepeoplebuynewhousesequalstomorepeoplebuyingnew
appliances.
e. PMI>GDPandGeneralEconomy:PurchasingManagerIndex,such
asUKManufacturingPMI,U.S.sISMManufacturingPMI,Canadas
IVEYPMI,allhaveaneffectonthefutureGDPandthehealthof
economy.
Page
71
f. ADP>NFP:U.S.ADPhasanimpactontheexpectationofNFP.But
ifwegetanextremelyoutofnormreading,likeNFPisexpecting50K
andwegeta+80KonADP,thentraderswillprobablyjustignorethis,
thinkingitisprobablyamistake.
JusttogiveyouanexampleIftheRetailSalesnumbersforthepast3months
hasbeencomingoutbetterthanexpectedintheU.S.,thenattheendofthe
quarter,oneshouldexpecttoseehigherGDPq/qrelease,asRetailSalesmakeup
about72%oftheUSGDPnumber.Therefore,fewsessionsorevenacoupleof
daysbeforethereleaseofGDP,youshouldstarttolookforsignsofstrongerUSD,
andplanyourentryforasentimenttradeinthedirectionofthatexpectation
Toperfectyourentry,alwayslookforentriesduringtheMarketCycletimes,as
youllprobablygetthebestpossibleentrywithouthavingtoenduremassive
swingsinthemarket.MoreonMarketCyclebelow.
Page
72
Chapter11RisktoRewardRatio
RisktoRewardratioisanotherimportanttopicforForexTrading.Itisvery
importanttoevaluateyourriskbeforetakingatrade.Ifyourrewardislessthan
whatyouarerisking,thenitdoesnotmakesensetotakethetrade.
Forexample:
U.S.NonFarmPayrollProjectedMovement=90pips.
IfPreReleasePriceforEUR/USDisat1.5900,oncethenewscomesout,weseea
quickdropto1.5840.
OriginalScenario
Entry:
SELLEUR/USD@1.5840
ProfitTarget:
1.5810
Stop/Loss:
1.5900
Results:60pipsofriskand30pipsofprofit=2:1risktorewardratio.
Page
73
Nowyouhaveachoice,ifyougetinatthispoint,youmighthavetosuffer
retracementallthewaybackto1.5900,whichis60pips,andyourprofittargetis
only30pips,or1.5810(projected90pipsmovement).Yourrisktorewardratiois
actually2:1,risking60pipstomake30pips.
Amorepracticalapproachwillbetowaituntilitretracesbackto1.5855,then
enterwith1:1risktorewardratio,risking45pipstomake45pips.
BetterRisktoRewardRatioScenario
Entry:
SELLEUR/USD@1.5855
ProfitTarget:
1.5810
Stop/Loss:
1.5900
Ifyouwaitforittocomebackat1.5870,thenyouaregettinga1:2risktoreward
ratio,risking30pipstomake60pips.
Page
74
EvenBetterRisktoRewardRatioScenario
Entry:
SELLEUR/USD@1.5870
ProfitTarget:
1.5810
Stop/Loss:
1.5900
Alwaysplanaheadwhentrading.Ifitdoesnotmatchyourplan,thendonot
trade.Thereisreallynoreasontotakehigherriskonanotidealentrywhen
therearesomanyopportunitiestotrade.
Page
75
Chapter12Puttingitalltogether
LetstakealookattheweekofAug.38,2008seconomiccalendar,courtesyof
Forexfactory.com:
Aug 3 - Aug 9
Date
Sun
Aug 3
Mon
Aug 4
Tue
Aug 5
Filter
5:35am Currency Impact
Detail
Actual
Forecast Previous
6:45pm
NZD
Labor Cost Index q/q
0.8%
0.8%
0.7%
7:50pm
JPY
Monetary Base y/y
-0.7%
9:30pm
AUD
HPI m/m
-0.3%
-1.1%
3:30am
CHF
SVME PMI
54.1
53.4
54.9
4:30am
EUR
Sentix Investor Confidence
-15.3
-10.0
-9.3
4:30am
GBP
Construction PMI
36.7
37.6
38.8
5:00am
EUR
PPI m/m
0.9%
0.8%
1.2%
6:22am
USD
Challenger Job Cuts y/y
All Day
CAD
Holiday: Civic Holiday
8:30am
USD
Core PCE Price Index m/m
0.3%
0.2%
8:30am
USD
Personal Spending m/m
0.6%
0.5%
8:30am
USD
Personal Income m/m
0.1%
-0.1%
1.8%
10:00am
USD
Factory Orders m/m
1.7%
0.7%
0.9%
7:30pm
AUD
Services PMI
42.8
45.4
11:06pm
NZD
ANZ Commodity Prices m/m
1.8%
0.0%
12:30am
AUD
Cash Rate
12:30am
AUD
RBA Rate Statement
4:00am
EUR
Services PMI (r)
4:30am
GBP
Manufacturing Production
m/m
4:30am
GBP
Services PMI
4:30am
GBP
5:00am
EUR
0.4%
140.8%
0.4%
46.7%
0.2%
0.8%
7.25%
7.25%
7.25%
48.3
48.3
48.3
-0.5%
0.1%
-0.5%
47.4
46.7
47.1
Industrial Production m/m
-0.2%
0.1%
-0.9%
Retail Sales m/m
-0.6%
-0.6%
0.5%
Page
76
Wed
Aug 6
Thu
Aug 7
10:00am
USD
ISM Non-Manufacturing PMI
49.5
48.6
48.2
2:13pm
USD
FOMC Statement
2:13pm
USD
Federal Funds Rate
2.00%
2.00%
2.00%
7:01pm
GBP
Nationwide Consumer
Confidence
51
59
7:01pm
GBP
NIESR GDP Estimate
0.1%
9:30pm
AUD
Home Loans m/m
-3.7%
-2.1%
-6.9%
1:00am
JPY
Leading Economic Index
91.2%
90.8%
92.9%
5:32am
GBP
BRC Shop Price Index y/y
3.2%
6:00am
EUR
German Factory Orders m/m
-2.9%
0.4%
-1.4%
10:00am
CAD
Ivey PMI
65.5
62.0
69.6
10:35am
USD
Crude Oil Inventories
1.7M
0.1M
-0.1M
6:45pm
NZD
Employment Change q/q
1.2%
0.1%
-1.3%
6:45pm
NZD
Unemployment Rate
3.9%
3.8%
3.7%
7:30pm
AUD
Construction PMI
41.6
7:50pm
JPY
Core Machinery Orders m/m
-2.6%
-9.6%
9:30pm
AUD
Employment Change
10.9K
4.5K
22.2K
9:30pm
AUD
Unemployment Rate
4.3%
4.3%
4.3%
2:00am
EUR
German Trade Balance
18.1B
15.0B
14.5B
2:45am
EUR
French Trade Balance
-5.6B
-4.6B
-4.7B
4:00am
EUR
Italian Industrial Production

m/m
0.1%
0.2%
-1.4%
4:00am
GBP
Halifax HPI m/m
-1.7%
-1.5%
-2.0%
6:00am
EUR
German Industrial
Production m/m
0.2%
0.8%
7:00am
GBP
Official Bank Rate
5.00%
5.00%
5.00%
7:45am
EUR
Minimum Bid Rate
4.25%
4.25%
4.25%
8:30am
CAD
Building Permits m/m
-5.3%
-1.0%
2.0%
8:30am
EUR
ECB Press Conference
8:30am
USD
Unemployment Claims
455K
420K
448K
Page
77
62
0.2%
2.5%
40.3
10.4%
-1.8%
10:00am
USD
Pending Home Sales m/m
10:35am
USD
Natural Gas Storage
3:00pm
USD
Consumer Credit m/m
1:00am
JPY
Economy Watchers Current

Index
29.3
1:45am
CHF
Unemployment Rate
2.5%
2:45am
EUR
French Government Budget

Balance
-32.8B
4:00am
EUR
Italian Prelim GDP q/q
-0.3%
0.0%
7:00am
CAD
Employment Change
55.2K
5.0K
-5.0K
7:00am
CAD
Unemployment Rate
6.1%
6.2%
6.2%
8:30am
USD
Prelim Nonfarm Productivity

q/q
2.2%
2.5%
8:30am
USD
Prelim Unit Labor Costs q/q
1.3%
1.4%
2.5%
10:00am
USD
Wholesale Inventories m/m
1.1%
0.5%
0.9%
Fri
Aug 8
5.3%
-1.0%
-4.9%
56B
60B
65B
14.3B
6.6B
8.1B
29.5
2.5%
2.5%
-50.1B
0.5%
2.6%
Firstofall,IrecommendthatyoudothiseverySundayafternoonbeforethe
marketopen.Quicklyscanallhighimpacttradableupcomingnewsreleases
(indicatedwitharedfolder )andnotetheirreleasetime.Thenclassify
tradablenewsintotheirrespectivecountrieslikethefollowing:
Canada:
Wednesday
Friday
IVEYPMI
EmploymentChanges
Tuesday
Wednesday
CashRate
EmploymentChanges
Tuesday
FOMCStatement
UnitedKingdom: Tuesday
Thursday
ServicesPMI
OfficialBankrate
Thursday
MinimumBidRate,TrichetPressConference
Australia:
U.S.A.:
EuroZone:
Page
78
Canada:
Wednesday
IVEYPMI
Friday
EmploymentChanges
Onceyouhaveclassifiedthemintotheirrespectivecountries,nowyoucandraw
correlationwiththenewsreleases.TheonlythingthatIcanseefromaglanceis
CanadaIVEYPMIandEmploymentChanges.SincetheIVEYPMIalsohavean
employmentcomponent,ifwegetabetterthanexpectednumberonIVEYPMI,
wecouldexpectabetterEmploymentchangesonFriday.Therefore,hereiswhat
IwillbelookingatforCanadianDollar.
WednesdayPlan:WaitforIVEYPMItobereleased,andtheneithertradethe
spikeortradetheretracementwiththisnewsrelease.
Result:IVEYPMIcameoutbetterthanexpected,marketdropped28pipsfrom
prereleasepriceandthenretracedbeyondtheprereleaselevelwithin1hour.
USDisshowingexceptionalstrengthfortheentiresession.
Page
79
FridayPlan:IfthemarketshowsastableestablishedtrendonFridaysLondon
session,wewilltrademarketsentimentonUSD/CADorEUR/CAD.Ifwesee
technicaltrendonFridaygoingthesamedirectionastheIVEYPMIrelease,which
wasproCanadianDollar,wellhavetheoptiontotradethespike,tradethe
retracement,orprenewstrade.
Result:MarketdidestablishatrendofProUSDollarpriortothenewsrelease;
howeveritisprobablyduetootherfactors.Therefore,sentimentwasextremely
USD/CADlong.WecouldhaveenteredalongtradeanytimeduringearlyLondon
sessionandpickup50~100pips.
Thenduringthenewsrelease,ifwetradedprenews,asthenumbercameout
extremelybadforCAD,withestablishedbullishUSD/CADtrend,wecouldhave
madeupto40pipsimmediatelyafterthenewsrelease.Ifweweretradingthe
spike,theinitialspikewasabout50pips.Ifweweretradingtheretracement,
USD/CADretracedwithin18pipsofprereleaseprice,giventheextremenegative
surpriseandwellestablishedUSDbullishtrend,youcouldjustifyaretracement
entryandpossiblymake15to25pipsofprofit.
Page
80
Australia:
Tuesday
Wednesday
CashRate
EmploymentChanges
AustralianDollarwillhaveitsInterestRateannouncementearlyTuesdaymorning.
HereiswhatIhavefoundbydoingalittleresearch(courtesyofTradetheNews):
SeasonedAustralianjournalistTerryMcCrann,acentralbankwatcheratThe
DailyTelegraph,keptbanginghisratecutdrumyesterday,ashedidatthe
weekend.McCranarguedthattheRBApushedinterestrateshigherthanthe
requiredlevel,asinsuranceincasedemanddidn'tslowfastenough.Nowthat
economicdatahasdemonstratedthatdemandisslowingquickerthan
anticipated,theRBAcantakebacktheinsuranceandcutinterestratesattoday's
meeting.
Itisinterestingtonotethataseasonedandwellrespectedjournalisthasputhis
reputationontheline,sincenoneoftheothernotablecentralbankwatchershave
arguedforaratecutattoday'smeeting."McCrannhasbeensayingthattheRBA
isreadytocuttoday,thoughnoneoftheothercommentatorscameonboard,soI
don'tthinkthattheRBAseriouslywantedtopreparethemarketforanAugust
move,"saidMatthewJohnsonatICAPAustralia."I'mmoreagnostic,preferringto
thinkthattheRBAwouldwaitandseeabouttheH2stimulatoryfactorsandQ3
inflationoutcomebutwillingtorespectthebetteraccessthatthese
backgroundedjournalistsobtain."Headded:"Icanclearlyseehowtheycould
dovethecommuniquup,withreferencestofurthersignsthatmajortrading
partnersareslowing(JapanandEuropelookill,andtheChinesemanufacturing
PMIwassub50lastweek),theobservationthatcommoditypricesshowsome
signsofhavingpeaked,andadowngradeoffinancialmarketsbacktofragile,
from'difficult'inJuly.However,itmustbekeptinmindthatAugustisthefirst
meetingafterthehorrorQ2CPIresultandthelasttimetheygotsurprisedlike
this,theyspent'considerabletime'discussingthecaseforahike."
Page
81
TuesdayPlan:Myinterpretation,afterdoingmyresearchonvariousnews
sourcesandreadingdifferentanalysis,isthatevenifRBAleavesrateunchanged,
wearestillgoingtogetverydovishaccompaniedstatement.Furthermore,the
recenttrendonAUD/USDhasbeenextremelybearish;thiscurrencypairhas
droppedover500pipsbeforethisnewsrelease
Therefore,itisidealtodoaprenewstradingbySELLINGAUD/USD5minutes
beforetheinterestrateannouncement.Thesituationwasprettymuchanone
waystreet,verylowriskofareversalandpracticalimpossibilityofaratehike.
Result:RBAleftitsCashRateunchanged.Buttheaccompaniedstatementwas
verypessimistic.WithawellestablishedSELLtrendonAUD/USD,animmediate
movementof40pipsfollowedbyaprolongedmovementof120pipsattheend
oftheday,withatotalof400+pipsofdropbytheendoftheweekOurpre
newstradeturnedouttobeagreattrade,yieldingaminimumof40pipsanda
maximumof400pipsofprofit!
RBAGlennStevensStatement:
Page
82
Atitsmeetingtoday,theBoarddecidedtoleavethecashrateunchangedat7.25percent.
InflationinAustraliahasbeenhighoverthepastyearinanenvironmentoflimitedsparecapacityand
earlierstronggrowthindemand.ThiswasevidentagaininthemostrecentCPIdata.Inthese
circumstances,theBoardhasbeenseekingtorestraindemandinordertoreduceinflationovertime.
Asaresultofincreasesinthecashratelastyearandearlythisyear,additionalrisesinmarketinterest
ratesandtoughercreditstandards,therehasbeenasubstantialtighteninginfinancialconditionssince
themiddleof2007.Somefurthertighteninghasoccurredoverthepastcoupleofmonths.Conditionsin
internationalfinancialmarketsremaindifficult,withheightenedconcernsovercreditpersisting.
Theevidenceisthatthetighteninginfinancialconditions,inconjunctionwithotherfactorsincluding
risingfuelcosts,andlowerassetvalues,hasrestraineddemand.Indicatorsofhouseholdspendinghave
continuedtorecordsubduedoutcomesoverrecentmonths,andcreditexpansiontobothhouseholds
andbusinesseshasslowedsignificantly.Surveyssuggestasofteninginbusinessactivity,andtherehave
alsobeensomeearlysignsofaneasinginlabourmarketconditions.
TheriseinAustraliastermsoftradethatiscurrentlyoccurringisworkingintheoppositedirection,
addingsubstantiallytonationalincomeandabilitytospend.Atthesametime,highpricesofoilanda
rangeofothercommoditieshaveaddedtoglobalinflationaryrisks.Theyarealsodampeninggrowthina
numberofcountries.
Giventheopposingforcesatwork,considerableuncertaintyhassurroundedtheoutlookfordemand
andinflation.Onbalance,however,itislookingmorelikelythatdemandwillremainsubdued,and
economicgrowthwillbefairlyslow,overtheperiodahead.Inflationislikelytoremainrelativelyhighin
theshortterm,withtheCPIaffectedbyhighglobaloilprices.Lookingfurtherahead,inflationinbothCPI
andunderlyingtermsislikelytodeclineovertime,giventheoutlookfordemand,providedwagesgrowth
remainsmoderate.TheBanksforecastremainsthatinflationwillfallbelow3percentduring2010.
Weighinguptheavailabledomesticandinternationalinformation,theBoardjudgedthatthecashrate
shouldremainunchangedthismonth.Nonetheless,withdemandslowing,theBoardsviewisthat
scopetomovetowardsalessrestrictivestanceofmonetarypolicyintheperiodaheadisincreasing.
WednesdayPlan:WednesdaysEmploymentnumberwillprobablybeanon
eventconsideringwhathappenedduringtheratedecisionpreviousday.
Rememberthattheonlyreasonemploymentchangesfigurehasanyimpacton
thecurrencymarketisthenotionofbettereconomyequalspossibilityofrate
hike.ButsinceRBAalreadymadeitsbed,thisnewsreleasewillnotchangethe
trend.Therefore,wecouldtradethespike,tradetheretracement,orprenews
tradebySELLINGAUD/USDbeforethenews.
Page
83
Result:EmploymentChangescamebetterthanexpectedbutnotenoughtohit
ourdeviationtrigger.However,thesentimentwasveryAudibearish,asentiment
tradeduringwouldveworkedoutverywell.Ifaprenewstradewasentered,
marketwouldspikeagainstyoubrieflybyupto35~40pips,butthenthe
underlyingtrendwilltakeoverduringtheNewYorkSessionnextday,givingyoua
chanceforasmallprofitorbreakeven.
Page
84
U.S.A.:
Tuesday
FOMCStatement
TuesdayPlan:IwillbefocusingonFOMCInterestRateannouncement,asitisone
ofthemostvolatileevents.Myplanisactuallytowaitfortheannouncementand
trytodecipherthestatement.Therefore,ifFOMCishawkish,IwillsellEUR/USD
andBUYGBP/JPY,ifFOMCisdovish,IwillbuyEUR/USD.
MyresearchonthisparticularannouncementyieldedthatFOMCwillleave
interestrateunchanged.Therearenoexpectationsofasurprisehikeandno
particularinclinationtohawkishordovishstatements.Thereforemydecisionto
waitandseeisjustified.Furthermore,FedFundFuturesshowsalmosta0%ofa
ratehike.DoasearchonGoogleforFedFundFuture;youllseethefollowing
graph:
ItshowsthattheupcomingSeptemberRatedecision,atpresentmoment,hasa65%chance
of2.00%(unchanged),and20%for2.25%(hike),10%for1.75%(cut).
Result:FOMCdecidedtoleaveratesunchangedasexpected.Accompanied
statementwasnotextremelyhawkish,lotsofuncertaintyandthereforenotrade.
FutureoutlookontheUSDollarisstillmoderatebullishforthetimebeing.
Page
85
FOMCStatement:
TheFederalOpenMarketCommitteedecidedtodaytokeepitstargetforthefederalfundsrateat2
percent.
Economicactivityexpandedinthesecondquarter,partlyreflectinggrowthinconsumerspendingand
exports.However,labormarketshavesoftenedfurtherandfinancialmarketsremainunderconsiderable
stress.Tightcreditconditions,theongoinghousingcontraction,andelevatedenergypricesarelikelyto
weighoneconomicgrowthoverthenextfewquarters.Overtime,thesubstantialeasingofmonetary
policy,combinedwithongoingmeasurestofostermarketliquidity,shouldhelptopromotemoderate
economicgrowth.
Inflationhasbeenhigh,spurredbytheearlierincreasesinthepricesofenergyandsomeother
commodities,andsomeindicatorsofinflationexpectationshavebeenelevated.TheCommittee
expectsinflationtomoderatelaterthisyearandnextyear,buttheinflationoutlookremainshighly
uncertain.
Althoughdownsideriskstogrowthremain,theupsideriskstoinflationarealsoofsignificantconcernto
theCommittee.TheCommitteewillcontinuetomonitoreconomicandfinancialdevelopmentsandwill
actasneededtopromotesustainableeconomicgrowthandpricestability.
VotingfortheFOMCmonetarypolicyactionwere:BenS.Bernanke,Chairman;TimothyF.Geithner,Vice
Chairman;ElizabethA.Duke;DonaldL.Kohn;RandallS.Kroszner;FredericS.Mishkin;SandraPianalto;
CharlesI.Plosser;GaryH.Stern;andKevinM.Warsh.VotingagainstwasRichardW.Fisher,who
preferredanincreaseinthetargetforthefederalfundsrateatthismeeting.
Page
86
UnitedKingdom:
Tuesday
ServicesPMI
Thursday
OfficialBankrate
TuesdayPlan:IwillalsofocusingontheServicesPMIfromUK.Iwillbetrading
thisparticularreleasewitheithertradethespikeortradetheretracement;ifIsee
anestablishedtrendbeforethenewsrelease,Imightbeinclinedtotradethe
sentimentbutwithFOMCmeetingscheduledlaterontoday,Iwouldprobably
pass.
Result:ServicesPMIcameoutasexpected.Minimalmarketreactionasthe
marketbracesfromtheFOMCmeetingfromU.S.laterintheafternoon.
ThursdayPlan:IwillbefocusingontheInterestRate.MyresearchonTTN(Trade
theNews)andotheranalystsyieldedthatanoverwhelmingmajorityfeelthat
BOEwillkeepratesunchanged.SincetherearentanystatementsfromBOE
unlesstheychangetheinterestrate,Idonotexpecttoseemuchmarketreaction.
Therefore,Iwillprepareforasurprisehikeorcuttheneithertradethespikeor
tradetheretracement.
Page
87
Asfarassentimenttrading,Iwillbelookingforanestablishedbullishtrend
forminglateTokyosessionandearlyEuropeansession.
Result:MarketsentimentwasinclinedforbetterGBP/USDasthesentimentwent
up80pipsfromTokyosessiontoLondonopen.Agood20to40pipsfor
sentimenttradingwaspossible.Thentheratedecisioncameoutasexpected
withnosurprises.WithnoaccompaniedBOEstatement,themarketwascalmas
everyonewaitsforECBsratedecisionandTrichetsPressConferencelateron
today.
Page
88
EuroZone:
Thursday
MinimumBidRate,TrichetSpeech
ThursdayPlan:IwillbewatchingInterestratedecisionfromECB.Again,an
overwhelmingmajorityofanalystsagreedthatnochangetotheinterestrate.I
willwaitforthereleaseandthenforthepressconferenceat8:30am.
Ifasurprisehikeorcutisannounced,Iwilltradethespikeortradethe
retracement.Therewillbenoprenewstradeastheoutcomewilldepend
primarilyonTrichetsspeech.
IwillbelisteningtothespeechandtryingtodecipherwhetherTrichetishawkish
ordovish.Ifheisdovish,IwillSELLEUR/USD,ifheishawkish,IwillbuyEUR/USD.
IfIseeanestablishedtrendduringToykosessionandperhapsearlyLondon
session,Iwilltradewiththissentiment.SinceTrichethasbeenahawkasoflate,I
amanticipatingmarketsentimenttobeproEuropriortohisspeech.
Result:DuringearlyLondonSession,Iobservedanestablishedtrendofbuying
EUR/USDwithshorttermmarketsentimentofexpectationforahawkishspeech
fromTrichet.IenteredthemarketgoinglongonEUR/USD.Beforetheactual
pressconference,Iamupabout60pipsofgain.
At7:45amECBannouncedanunchangeddecisionfortheinterestrate.Market
didntmovemuchasitwaswidelyexpected.ThebullishtrendforEUR/USD
continuesasmarketpreparesforTrichetsspeechinabout45minutes.
At8:30am,Trichetcameouthawkishfirstbutthenwentdovishimmediately.
EUR/USDlost100pipsinamatterof10minutesandcontinuedtoloseupto500
pipsbyFriday.OneofthemostnotablephrasefromTrichetishisnewmotto,
ECBhasnobias,whichalsocausedasignificantselloffofEurolastratedecision
pressconference.ItwasagoodSELLtrade,withFOMCbeingsemihawkishand
ECBdovishness;wesawaperfectcombinationforEUR/USDweakness.
PleasereadbelowTrichetscompletestatementwithQ&Atranscript.Itisalittle
longandboring,butIdefinitelyrecommendthatyoutakethetimetoread
throughitatleastonce.
Page
89
TrichetsPreparedSpeechandQ&A:
Ladiesandgentlemen,theVicePresidentandIareverypleasedtowelcomeyoutoourpress
conference.WewillnowreportontheoutcomeoftodaysmeetingoftheGoverningCouncil.
Onthebasisofourregulareconomicandmonetaryanalyses,wedecidedattodaysmeetingtoleave
thekeyECBinterestratesunchanged.Theinformationthathasbecomeavailablesinceourprevious
meetinghasfurtherunderpinnedthereasoningbehindourdecisiontoincreaseinterestratesinJuly.It
hasconfirmedthatannualinflationratesarelikelytoremainwellabovelevelsconsistentwith
pricestabilityforaprotractedperiodoftimeandthatriskstopricestabilityoverthemedium
termremainontheupside.Thisassessmentisunderpinnedbycontinuedvigorousmoneygrowth,
withsofarnosignsofsignificantconstraintsonbankloansupply.Insuchacontext,itremainscrucial
toavoidbroadlybasedsecondroundeffectsinwageandpricesetting.Thelatesteconomicdatapoint
toaweakeningofrealGDPgrowthinmid2008,whichinpartwasexpectedaftertheexceptionally
stronggrowthinthefirstquarter.Againstthisbackgroundandinfullaccordancewithourmandate,
weemphasisethatmaintainingpricestabilityinthemediumtermisourprimaryobjectiveandthatit
isourstrongdeterminationtokeepmediumandlongterminflationexpectationsfirmlyanchoredin
linewithpricestability.Thiswillpreservepurchasingpowerinthemediumtermandsupport
sustainablegrowthandemployment.Onthebasisofourassessment,thecurrentmonetarypolicy
stancewillcontributetoachievingourobjective.Wewillcontinuetomonitorverycloselyall
developmentsovertheperiodahead.
Allowmetoexplainourassessmentingreaterdetail,startingwiththeeconomicanalysis.
TheinformationoneconomicactivitythathasbecomeavailablesincetheJulypressconference
suggeststhatrealGDPgrowthfiguresformid2008willbesubstantiallyweakerthanforthe
Page
90
firstquarteroftheyear.Asindicatedonpreviousoccasions,thisrepresentspartlyatechnical
reactiontothestronggrowthseeninthefirstmonthsoftheyear.Inaddition,italsopartlyreflectsa
weakeninginGDPgrowthduetofactorssuchasslowerexpansionatthegloballevelanddampening
effectsfromhighandvolatileoilandfoodprices.Inordertoassesstheunderlyingmomentumofeuro
areaeconomicactivityandtoavoidbeingmisguidedbyhighlyvolatilequarterlyoutturns,itis
necessarytolookthroughthevolatilityinquarteronquartergrowthratesandmonthlyindicators.
Takingthisperspective,growthintheworldeconomy,whilemoderating,isexpectedtoremain
relativelyresilient,benefitinginparticularfromsustainedgrowthinemergingeconomies.Thisshould
supportexternaldemandforeuroareagoodsandservices.Asregardsdomesticdevelopments,ina
mediumtermperspectivethefundamentalsoftheeuroareaaresoundandtheeuroareadoesnot
sufferfrommajorimbalances.Investmentgrowthintheeuroareahasprovidedongoing,though
moderating,supporttoeconomicactivity.Moreover,employmentandlabourforceparticipationhave
increasedsignificantly,andunemploymentratesremainlowinhistoricalterms.However,these
developments,whichsupporthouseholddisposableincomeandconsumption,areunlikelytofully
compensatethelossofpurchasingpowercausedbyhigherenergyandfoodprices.
IntheviewoftheGoverningCouncil,theuncertaintysurroundingthisoutlookforeconomic
activityremainshigh,owingto,amongotherthings,theveryhighandvolatilelevelsof
commoditypricesandtheongoingtensionsinfinancialmarkets.Overall,downsiderisks
prevail.Inparticular,risksstemfromthedampeningimpactonconsumptionandinvestmentof
furtherunanticipatedincreasesinenergyandfoodprices.Moreover,downsideriskscontinuetorelate
tothepotentialforthefinancialmarkettensionstoaffecttherealeconomymoreadverselythan
currentlyanticipated.Thepossibilityofdisorderlydevelopmentsowingtoglobalimbalancesalso
impliesdownsideriskstotheoutlookforeconomicactivity,asdoconcernsabouttheemergenceof
protectionistpressures.Inthisrespect,thefailureoftherecentnegotiationsinthecontextofthe
WorldTradeOrganizationsDoharoundontradeliberalisationisamajorsetback.
Withregardtopricedevelopments,annualHICPinflationhasremainedconsiderablyabovethelevel
consistentwithpricestabilitysincelastautumn,reaching4.0%inJune2008and,accordingto
Eurostatsflashestimate,4.1%inJuly.Thisworryinglevelofinflationratesresultslargelyfromboth
directandindirecteffectsofpastsharpincreasesinenergyandfoodpricesatthegloballevel.Atthe
sametime,whilelabourproductivitygrowthhasdecelerated,therearesomeindicationsthatlabour
costgrowthhasbeenrisinginrecentquarters.
Lookingahead,onthebasisofcurrentfuturespricesforcommodities,theannualHICPinflationrateis
likelytoremainwellabovealevelconsistentwithpricestabilityforquitesometime,moderatingonly
graduallyin2009.
Riskstopricestabilityatthepolicyrelevantmediumtermhorizonremainclearlyontheupsideand
haveincreasedoverthepastfewmonths.Theserisksincludenotablythepossibilityoffurther
increasesinenergyandfoodpricesandofincreasingindirecteffectsonconsumerprices.Thereisa
verystrongconcernthatpriceandwagesettingbehaviourcouldaddtoinflationarypressuresvia
broadlybasedsecondroundeffects.TheGoverningCouncilismonitoringpricesettingbehaviourand
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wagenegotiationsintheeuroareawithparticularattention.Furthermore,therearepotentialupside
risksfromunanticipatedrisesinindirecttaxesandadministeredprices.
Againstthisbackground,itisimperativetoensurethatmediumtolongerterminflationexpectations
remainfirmlyanchoredatlevelsinlinewithpricestability.Theshiftinrelativepricesandtherelated
transferofincomefromcommodityimportingcountriestocommodityexportingcountriesrequirea
changeinthebehaviourofcompaniesandhouseholds.Therefore,broadlybasedsecondroundeffects
stemmingfromtheimpactofhigherenergyandfoodpricesonpriceandwagesettingbehaviourmust
beavoided.Allpartiesconcerned,inboththeprivateandthepublicsector,mustmeettheir
responsibilitiesinthisregard.Inthiscontext,theGoverningCouncilhasrepeatedlyexpressedits
concernabouttheexistenceofschemesinwhichnominalwagesareindexedtoconsumerprices.Such
schemesinvolvetheriskofupwardshocksininflationleadingtoawagepricespiral,whichwouldbe
detrimentaltoemploymentandcompetitivenessinthecountriesconcerned.TheGoverningCouncil
thereforecallsforsuchschemestobeavoided.
Themonetaryanalysisconfirmstheprevailingupsideriskstopricestabilityatmediumtolonger
termhorizons.Inlinewithourmonetarypolicystrategy,wetaketheviewthatthesustained
underlyingstrengthofmonetaryandcreditexpansionintheeuroareaoverthepastfewyearshas
createdupsideriskstopricestability.Overrecentquarters,theserisksappeartohavebecome
manifestasinflationhastrendedupwards.
Notleastinthefaceoftheongoingtensionsinfinancialmarkets,themonetaryanalysishelpsto
supportthenecessarymediumtermorientationofmonetarypolicybyfocusingattentiononthe
upsideriskstopricestabilityprevailingatmediumtolongerhorizons.Whilethegrowthofbroad
moneyandcreditaggregatesisnowshowingsomesignsofmoderation,alsoreflectingthepolicy
measurestakensince2005toaddressupsideriskstopricestability,thestrongunderlyingpaceof
monetaryexpansionpointstocontinuedriskstopricestabilityoverthemediumterm.
Thecurrentyieldcurvehasledtoveryrapidincreasesintimedepositsandtoasubstantialdeclinein
annualM1growth.Sucheffectsandothertemporaryfactorsmustbetakenintoaccountinassessing
monetarydevelopments.Overall,abroadbasedanalysisofthedata,takingtheappropriatemedium
termperspective,confirmstheunderlyingstrengthofmoneygrowth.
OneofthemainfactorsleadingtothisconclusionisthestillhighgrowthofMFIloanstotheprivate
sector,whichisunderpinningtherobustnatureofmonetarygrowth.Thepace,maturityandsectoral
compositionofbankborrowingsuggestthat,attheleveloftheeuroareaasawhole,theavailabilityof
bankcredithas,asyet,notbeensignificantlyaffectedbytheongoingfinancialtensions.Highershort
terminterestratesandhousingmarketweaknessinseveralpartsoftheeuroareahavedampenedthe
growthofhouseholdborrowingoverthepastfewyears.Bycontrast,andnotwithstandingtighter
financingconditionsandmoderatingeconomicgrowth,theexpansionofbankcredittononfinancial
corporationsthusfarremainsveryrobust.
Tosumup,acrosscheckoftheoutcomeoftheeconomicanalysiswiththatofthemonetaryanalysis
clearlyconfirmstheassessmentofincreasingupsideriskstopricestabilityoverthemediumterm.
Annualinflationratesarelikelytoremainwellabovelevelsconsistentwithpricestability,and
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monetaryaggregatescontinuetogrowvigorously,withsofarnosignsofsignificantconstraintson
bankloansupply.ThelatesteconomicdatapointtoaweakeningofrealGDPgrowthinmid2008,
whichinpartwasexpectedaftertheexceptionallystronggrowthinthefirstquarter.Againstthis
background,itremainscrucialtoavoidbroadlybasedsecondroundeffectsinwageandpricesetting.
Infullaccordancewithourmandate,weemphasizethatmaintainingpricestabilityinthemedium
termisourprimaryobjectiveandthatitisourstrongdeterminationtokeepmediumandlongterm
inflationexpectationsfirmlyanchoredinlinewithpricestability,therebypreservingpurchasing
powerinthemediumtermandsupportingsustainablegrowthandemploymentintheeuroarea.On
thebasisofourassessment,thecurrentmonetarypolicystancewillcontributetoachievingour
objective.Wewillcontinuetomonitorverycloselyalldevelopmentsovertheperiodahead.
Regardingfiscalpolicy,therearerisksthatsomecountrieswillnotachievetheirfiscaltargetsthis
year.Inthissituationarigorousimplementationofbudgetplansandtheavoidanceofexpenditure
slippageareofcrucialimportance.Budgetplansfor2009,whicharecurrentlybeingfinalisedina
numberofcountries,needtoreflectEuropeancommitments.Inparticular,countrieswithstilllarge
deficitsmustprovideambitiousandconcretedeficitreductionplans,backedbyclearlyspecified
measures,preferablyontheexpenditureside.Wherebudgetaryscopeisavailable,automatic
stabiliserscancontributetothesmoothingofcyclicaleconomicfluctuations.
Asregardsstructuralpolicies,measureswhichreduceadjustmentcostsandpromotemoderateunit
labourcostgrowthareoftheutmostimportance,particularlyinthecurrentclimateofhighinflation
andslowingrealGDPgrowth.Theseincludetheremovalofimpedimentstocompetitionintheservices
sectoringeneral,andatthevariousstagesofthefoodsupplychainintheretailanddistribution
sectors,aswellasintheenergysector,morespecifically.Equally,makinglabourmarketsmoreflexible
andenhancinginvestmentineducationandtrainingwouldfosterproductivity,therebyincreasingthe
scopeforincreasesinrealincomes.
Wearenowatyourdisposalforquestions.
***
TranscriptofthequestionsaskedandtheanswersgivenbyJeanClaudeTrichet,Presidentof
theECB,andLucasPapademos,VicePresidentoftheECB
Question:Justafewshortquestions.Particularlyonthegrowthoutlook:Ihavenotactuallyreadthe
introductorystatementyet,butamIrightinpickingupthatyouhavedroppedreferencetodata
pointingtomoderatebutongoingrealGDPgrowth?Becauseyouhavealwayssaidyouexpected
growthtobeweakinthesecondquarter,thatyoubasicallyexpectedatroughnow,butyouexpected
growthtopickupagaintowardstheendoftheyear.Nowdatahascomeinworsethanmanypeople
expectedandsomepeoplewouldsaythatthereisarealdangerofarecessionintheeuroarea
economy.So,canyoucommentonthat,canyoucommentonwhetheryouseetheriskofrecessionin
theeuroarea?
Andalso,yousaidlastmonthyouhavenobiasintermsofyourmonetarypolicystance.Isthatstillthe
case?
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Andalso,inlightofupcomingwagenegotiationsinsomelargeeuroareacountries,weresome
membersoftheGoverningCounciloftheopinionthatyoushouldbeinastanceofheightened
alertness,orstrongvigilance?
Trichet:Onthefirstquestion,yourememberthatlasttime,amonthagoIsaidthatwewouldhave,at
midyear,atrough,inourownunderstanding,andthatweshould,inanycase,addupthefirstquarter
andthesecondquartertotakeintoaccountthefactthatthefirstquarterwas,incertaineconomiesin
particularandintheeuroareaasawhole,exceptionallyrobust.AndIwillcertainlyconfirmthat.We
willseewhatournewforecasts,ournewstaffprojections,arewhenwemeetinSeptember.ThenIwill
displaythenewstaffprojectionsandIwillbemoreinapositiontocommentonyourquestion.Atthe
presentmomentIwouldsaythatwhatwehaveseenisthatasregardstherisksthatwehavelistedas
thedownsiderisksforgrowthintheeuroareaIdidthatlasttimeonbehalfoftheGoverningCouncil,
andalsointhemonthbeforethereissomematerialisationoftheserisksthatwereidentified.But
theywerealreadyidentified:thusforus,itisnotasurprise.Weknewthattherewererisks,andthose
risksarematerialising.Ihavealready,lastmonth,identifiedclearlythesecondandthirdquarterof
thisyearasbeingparticularlyweak.Lateronwewillsee,anditwillbemuchbettertodiscussthat
duringournextrendezvousinSeptemberwiththenewstaffprojections.
Asregardsyoursecondquestion,whatisimportantinwhatIhavesaidisthat,onthebasisofour
currentassessment,thecurrentmonetarypolicystancecontributestoachievingourobjective.And,I
wouldsayascandidlyaspossible,wehavenobias.And,asyouknow,weareneverprecommittedand
wealwaysdowhatwejudge,atanytime,appropriatetodeliverpricestabilityandbecredibleinthe
deliveryofpricestability.
Onyourthirdquestion,whichwasonthewageandsalarynegotiationsinparticular,again,youmight
havenotedthatwhenwearespeaking,onbehalfoftheGoverningCouncil,ofwagesandsalary
increases,wealsomentionthepricesettingissue.Andwearenotmakinganydifferencebetweenthis
particularprice,whichiswagesandsalaries,andtheotherprices,wherewemightjudgethatthereis
notsufficientcompetitionbetweenthefirmsandwheresomepricesettingisabnormal.Asregards
wagesandsalaries,wehavehadaveryclearmessageforanumberofmonthsorquarters,andIwill
repeatnowverysolemnlythatweconsideritabsolutelyessentialthatwehavenosecondroundeffects
inthisdomain.Itsessentialnotonlyforpricestability;itsessentialformediumtermsustainable
growthandjobcreationandforpreservingthesubstantialprogresswhichhasbeenmadeinthis
domainoverthelastyears.
Question:Ihaveverysimilarquestions,butonethingIdidnotunderstandinwhatyouhavesaid.You
werespeakingofweakeninggrowthinthemiddleof2008,inpartexpecteddoesitmeanthatthe
otherpartwasunexpected,andisgrowthgoingworsethanyouwereexpecting?
AndIdidnothearanycommentontheoilprices,whichdecreasedconsiderablyinthelastweeks.Do
youthinkitwillhaveanimpactoninflationandwillslowdowninflationfasterthanyouthought?
Trichet:Letmetakeyoursecondquestionfirst.Ihavementionedonanumberofoccasions,onbehalf
oftheGoverningCouncil,thatthepriceofoilandnotonlyofoil,alsooffoodwashighandvolatile.
Iwouldsaythatvolatilecapturesprettywelltheevolutionthatwehaveseeninthemostrecent
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period.Wehavehadapeak,andthenitwentdown.Wewillseewhathappens.Weareentirely
pragmatic,andpredictionsofthefuturepricesofcommoditiesareprobablythemostdifficultexercise
youcanimagine.Personally,Iconsiderthatthepeakinthepriceofoilandcommoditieswasabnormal
anddidnotcorrespondtowhatwouldbeanequilibriumprice.Butwewillseewhathappens.Wehave
tobe,again,totallyhumbleinthepresenceoffactsandfigures,andwewillseewhathappens.Ithink
highandvolatileisagooddescription,agoodwaytocapturethingsinthepresentsituation.
Asregardsyourfirstquestionongrowth,again,whatweareseeingisthatyouhavethetechnical
correctionofthesecondquarter,afterafirstquarterwhichwasextraordinarilyrobust,particularlyin
somecountries,inGermanyinparticular.Sosincetheverybeginningithasbeenperfectlyknownthat
wewouldhaveacorrection,atechnicalcorrection.Andthatisthereasonwhywealwayssaidthatwe
hadtotakeboththefirstandthesecondquartertogetherintoaccount.Now,Ihavealsomentioned
otherphenomenathatareplayingtheirrole:inparticular,butnotexclusively,theslowingdownata
globallevel,thedampeningeffectoftheveryhighlevelofoilandcommodities,whichhaveaddedof
coursetothedifficultyinthisrespect.Butagain,IgiveyouarendezvousforSeptemberasregards
moreprecisioninthisdomainwiththenewstaffprojections.
Question:Thisisjustayesornoquestion:WastheGoverningCouncilsurprisedbytheweaknessof
thedata,therecentdata?
Thesecondquestion:Doyouthinkthatyouractionsinthemoneymarketsareenoughtoeasethe
tensionsordoyouthinkthatyouhavetocontinuetodothisanddoeverythingisthereapointinthe
nextfewyearswhenthingswillreturntonormal?
Andalso,whenyousaythatagain,thereisnobias,canwereadintothatthatthingsgoeitherway,
thatitisequallybalancedononesidetotheother?
Trichet:Onthefirstquestion:asIhavesaidwearetotallypragmaticandhumbleinthefaceoffacts
andfigures.Wetakethemastheyare.Asregardsthenumberofsurveysthathavecomeinandthat
wetooknoteof,Iwouldnotsaythatweweresurprisedbecausewehadalreadyidentifiedtherisks
andwehadsaidclearlythattheriskswehadlistedwereonthedownside.So,thefactthatsomeofthe
surveydataareveryweakwasforusthematerialisationofrisksthatwehadidentifiedandmade
public.Andagain,wewillseewhathappens,wewillseewhatthesecondquarterandthethirdquarter
bring.And,forwhatwillcomebeyondthesecondandthirdquarters,Iwouldreferyoutothe
rendezvousIhadalreadymentionedtoyourcolleagues,tothemeetinginSeptember.
Butletmeaddsomething.Donotforgetthattoagainuseametaphorthatisfamiliarwehaveonly
oneneedleinourcompass.Thatneedleispricestability,ourdefinitionofpricestability.Wetakeall
theinformationthatcomesinascontributionstoindicatewhatthesituationiswithrespecttothat
needleinourcompass.Wedonotcomparetwoneedles,oneofwhichbeingpricestabilityandthe
otherbusinessactivityorcyclicaldevelopment,orwhatever.Thatisnotthewayweoperate.
EverybodyknowsthatandIamonlyrepeatingwhateverybodyknows.
Asregardsthemoneymarket,Ihavenothingspecialtosayinthisrespect.Iwouldonlymentionthat
wehavetakenrecentlydecisionstogetherwiththeFederalReserveandalsowiththeSwissNational
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Bank.Wehadmadethatpublic.Ithinkthattheseareproofoftransatlanticcooperationthathasbeen
welcomedbythemarkets.Wewillcontinuetofollowthesituationverycarefully.Asyouknow,wehave
feltfromtheverybeginningthatwehadaresponsibilitytocontributetoasmoothfunctioningofthe
moneymarket.ButthetensionsthatwehaveseenandwearestillseeingonbothsidesoftheAtlantic
originatedoutsidethemoneymarket.Sothatitwasnotuptousalonetoeliminatethesetensions,but
tocontributetoasmoothfunctioningofthemoneymarket.
Onthebias,IwillsticktowhatIhavealreadysaid,thatwehavenobias.
Question:Ialsohaveacoupleofquestionsand,ifyouforgiveme,Iamgoingtopressureyoualittle
bitonthisgrowthquestionbecauseIamnotquitesureIunderstand.Thelasttimeyouexpressedyour
visionofbaselinegrowthfortheeuroarea,yousaidthatthetroughwouldcomeinthesecondand
thirdquarters.Wouldyousaythatagaintoday?
Second,acolleagueofyoursontheGoverningCouncilsaidrecently,ifIhavegotthisquoteright,that
itisamistaketothinkthatinflationwillfalliftheeconomyweakens.Doyouagreewiththat
statementandisthatthesentimentoftheGoverningCouncil?
Andthird:perhapsyouhavetheresultsofthesecondquarterbanklendingsurveywithyoutoday.
Wouldyoubeabletogiveusaglimpseofthoseresults?Ifso,letusknowwhetherthereisafurther
tighteningoflendingstandardsandwhetherthereisanymorethoughtontheGoverningCouncilon
thisapparentdiscrepancybetweenstillstrongnonfinancialcorporationlendinggrowthand
tighteningstandards?
Trichet:Iconfirmthatthetroughthathadbeendefinedamonthagowasatroughforthemidyear,
forthesecondandthirdquarters.Thereisabsolutelynoreasonnottoconfirmthat.Theinformation
wehavegainedoverthepastmonthconfirmsthat.Again,Iwillnotsayanythingmorethanthatat
thisstage.Iwillgiveyoufiguresatthenextmeetingwithournewstaffprojections.Ourpositionis
clearonthefactthatwehadidentifiedrisks,thefactthatsomeofthoserisksarematerialisingandthe
factthatweseereasonsforthematerialisationofthoserisksthatare,asIhavealreadyindicated,the
slowdownoftheglobaleconomyinparticular,andthedrainonoureconomyasaresultofthe
developmentofthecommodity,oilandfoodprices.Allareelementsthatexplainwhatweare
observingatthemoment.
Asregardsinflation,onceagain,wehaveonlyoneneedleinourcompassandwetakeabsolutelyall
informationthatispertinentintoconsiderationtoidentifytheriskofinflationinthemonthsandyears
tocome.And,asalways,welookatsimplyeverything.Thelevelofdemandispartofthisanalysis,asis
themonetaryanalysis,thelevelofexchangeratesandsoforth.So,wehaveto,asalways,workouta
synthesis.
Onthebanklendingsurvey,wewillasgenerallyitisthecasepublishthebanklendingsurvey
tomorrow.WhatIcantellyouatthisstageisthatwehaveseenasomewhatlowernettighteningof
creditstandardsforloanstohouseholdsforhousepurchase,butasomewhatgreaternettightening
forconsumercreditandotherlendingtohouseholds,althoughstartingfromalowerlevel.Wehave,if
everythingistakenintoaccount,asomewhatlowernettighteningofcreditstandardsforloansto
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enterprisesthanthatobservedinthefirstquarter.Butthesearenotmajorchangesandthereisstilla
significanttighteningofcreditaccordingtothebanklendingsurvey.So,Iwouldsay,moreorlessthe
sameleveloftightening,butperhapsalittlelessnettightening.Youmentionedthecreditdynamism.
Wearestillobservingalevelofdynamismasregardscreditandcounterpartsofmonetaryaggregates
thatremainsimportant.Ithasbeenpublished,sothatthereisnothingnewforyouthere.Butitistrue,
ashighasthesefiguresarethatloanstononfinancialcorporationscontinuetogrowatarate
accordingtoourlastobservationof13.6%.Therehasbeenareductionincomparisonwiththe
previousmonth.Wewereat14.2%,sothattherateisdiminishing,butonlyslightly.Weareseeing
loanstohouseholdsandloanstofinancehousepurchasethatareatamuchlowerrateofgrowthwith
afurtherreductionofoutstandingcreditbecauseinthecaseoftheloansforhouseholdswenowhave
alevelof4.2%,after4.9%inthepreviousmonth.Sowehaveasignificantslowdown.Andforloansfor
housepurchase,wenotsurprisinglyhaveastrongdecreasefrom5.6%inthepreviousmonthto,
mostrecently,4.4%.But,ifeverythingistakenintoaccount,thedynamismofloanstononfinancial
corporationshasgivenusanoverallleveloflendingtotheprivatesectorthatisstillverydynamicand
Iwouldsayagainthat,inthatdomaintoo,wehavetoberespectfulandpragmaticandwillhavetosee
whatthefactsandthefiguresare.Wewillcontinuetolookatthemwithextremecare.
Question:Firstofall,asregardstheincreaseinratesinJuly,couldyouelaborateabitmoreon
whetheryoubelieveyouachievedyourgoalswiththisincrease,particularlyinrelationtoinflation
expectations?
MysecondquestionisandIjustwanttoconfirmthatImreadingthisstatementright:Younotedin
theriskstopricestabilityincreasingindirecteffectsonconsumerprices,andIhaveinmymindthat
youusedthewordpassthroughaswell.Ibelievethatthisisachangefromlastmonth,andIwas
wonderingifyoucouldelaborateonwhythatwentintothestatement.
Mythirdquestion,justtofollowuponwhatmycolleagueasked,is:Whyisslowergrowthandas
youvesaid,youanticipatedtherisksandtheyhavematerialisednotlistedinthestatementasa
downsiderisktoinflation?Thatwouldseemtometobe,primafacie,afactorthatwehavetoconsider.
Trichet:Firstofall,asregardsourdecisionlastmonth,asIsaidonbehalfoftheGoverningCouncil,all
theinformationthathasbecomeavailablesinceourlastmeetinghas,inourjudgement,underpinned
thereasoningbehindourdecisiontoincreaseratesinJuly.Everythingthatwehaveobservedas
regardsinflationaryriskshasfullyjustifiedwhatwehavedone.Iwouldsaythat,particularlyas
regardsinflationexpectations,alltheinformationwehaveconfirmsthatwewererighttodowhatwe
did.
Asregardsinflation,Idontseethattheresanycommenttomake.Ouranalysisisexactlythesameas
before,andyoushouldnotoverinterpretanychangesthatyoumighthavenoticed.Weareina
universewhereweseealltherisksthatIhavelisted.Theyareexactlythesamekindsofriskthatwere
listedbefore.Weseeapipelineeffectinanumberofotherpricesstemmingfromincreasesintheprices
ofinputsparticularlycommoditiesandthatissomethingwhichisongoingandundoubtedly
createsmorerisks.Wehavetheriskofsecondroundeffectsandtheabsolutenecessitytoavoid
thematerialisationofsuchrisks.AgainIseethatwehaveasituationwhichisnotofadifferent
nature.
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Asregardsyourthirdquestion,againwehadourselvesalreadypricedinthefactthatwe
wouldhaveatroughinthesecondandthirdquarters,sowewillseewhatexactlyhappens.We
aretotallypragmatic,andthisisoneelementwhich,ofcourse,needstobeincorporatedinour
syntheticanalysis.Letmeneverthelessmakeoneortwoobservations.Economistswouldtellyouthat
theconsiderablechangeswehaveobservedinrelativepricesnotonlyhavetheconjuncturaleffectof
actingasadrainontheresourcesoftheeuroareaandotherconsumereconomies,butalsochangethe
overallgrowthpotentialofthoseeconomies,becauseyouhaveachangeinrelativeprices,whichhasa
bigimpactontheproductivesectoritselfanditscapacitytoproduce.Itseemstomethatanumberof
effectsinthisrespectarenottakenintoaccountbypartoftheanalysiswhichisbeingdone.SoIwould
drawyourattentiontothatpoint,too.Thereisnotonlyaconjuncturaleffect,butalsoastructural
effect.
Question:Youvementionedthefinancialmarketturmoilanumberoftimes.Itsnowayearsincethe
veryobviousonsetofthecreditcrunch.Howwouldyoucharacterisethepastyearinfinancial
markets?Whatwillendthecrisisandwhen,anddoyouthinkthatmoreEuropeanbanksareatriskof
hugelosses?
Trichet:Asyouknow,fromtheoutsetweconsideredthistobeaveryseriousmarketcorrection.We
tookdecisionswhichwereinlinewiththeanalysisthatwewerefacinganimportantmarket
correctionwithepisodesofturbulence.Weneverconsideredthattherewasaquickfixthatcould
allowustoresolvethatsituation,andeverythingthathashappenedsincethenhasprovedthatour
analysiswasright.Thecentralbanksarecooperating.Ivementionedfurtherexamplesofthat
cooperation.TheEurosystemhasalwaysbeenveryalertinfollowingeverythingthathashappenedas
efficientlyaspossible.Iamaskedveryfrequentlywhethertheworstisnowoverorwhetherweshould
expectfurtherenormousdifficultiesinthefuture.IwouldsticktowhatIhavealwayssaid,namelythat
itsanongoing,veryimportantmarketcorrectionwithepisodesofturbulenceandhighlevelsof
volatility,andthatitisabsolutelynotimeforcomplacency.That,forme,wouldbethebestdefinition.
Youhavenotmentionedthecollateralissuebutitis,ofcourse,partoftheinteractionwehavewiththe
moneymarket.ItoldyoulasttimeandIwillsticktothatthatweconsiderthatourcollateral
frameworkhasservedusprettywellsincethebeginningofthisturbulence.Inaway,wewereperhaps
morepreparedfortheturbulencethansomeothers,becausewehadalsothecapacitytoaccept
privatepaperascollateral,theprimarydifferencebetweenusandanumberofotherinstitutions.We
hadthecapacitytorefinancecommercialbanksoverthreemonths,whichwasnotnecessarilythecase
inothereconomicareas.Wehad,sincetheestablishmentoftheEurosystemandtheeuro,traditionally
hadaverylargenumberofcounterparts,whichprovedtobeveryusefulinthecircumstances,andwe
also,traditionally,hadalargeamountofoutstandingofrefinancing,whichalsoprovedusefulinthe
circumstances.So,thesewerethevariouselementswhichallowedustocopewiththisunpredictable
situationfromtheoutset.Thatbeingsaid,weareexaminingourruleswithgreatcareandwatching
developmentscarefully.Andwewillseewhatwehavetodo,ifitprovesnecessary,torefineelementsof
ourschemeaswehavedoneinthepast,becausewedidthattwoyearsagoandfouryearsago.So,
itsjustasIsaidlasttime,Ihavenothingnewtotellyouandthatwouldbemycommentonthat.
Question:MrTrichet,theIMFhasrecentlypublishedareportontheeuroarea.Itissomewhatcritical
ofthemonetaryanalysis,statingthatitdoesnotreallycontainmuchinformationonfutureinflation.
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TheIMFreportalsosuggeststhatthetwopillarsshouldbeconsolidatedintoone.Whatisyourtakeon
that?
Andsecondquestion:DoyouhaveanyadvicefortheIMFconcerningtheirglobalanalysis?
Trichet:Firstofall,itseemstomethattheIMFwascautiousinmentioningthis.However,wedonot
agreewiththeIMFonthis.Weconsiderourtwopillarstrategytohaveservedusextremelywell.Ona
numberofoccasionsIhaveexplainedwhyweconsidertheinformationfromthemonetaryanalysisto
beverypertinentandhowithashelpedustotakedecisionsindifficulttimesandatdifficultmoments.
And,presently,Icansaythatthesedecisionsareconsideredbyeverybodytohavebeenfully
vindicated.Inparticular,Imentionourdecisiontorefusetodecreaseinratesin2004andourdecision
toincreaseratesinDecember2005.Thesedecisionswereverysignificantlyhelpedbyourmonetary
analysisandwerecertainlyveryimportantinstrategicterms.Letmealsopointoutthatthereisa
paradoxinthisposition,becauseincreasinglyIhavebeenhearingpraiseamongeconomistsforthe
monetaryanalysisandthetwopillarstrategy.Itseemstomethat,atthecurrentjuncture,weareina
somewhatdifferentuniversetothatoftenorevenfiveyearsago.Furthermore,itisparadoxical
because,theEuropeanParliamentsaidthatitjudgedthetwopillarstrategytobeaverygood
concept.ReferencewasmadetothisintheEuropeanParliamentsresolutionwhichwasadopted
recently.So,toconclude,IwouldasktheIMFtodoitsveryimportantjob,andIaminnodoubtthatit
willcontinuetodothejobverywell.
Question:If,inthecourseofyourongoingreviewofthecollateralpolicy,thereweretobeachange,
howwouldyouletusknow?
Trichet:Wewouldbeaspublicaspossible.But,inanycase,weregularlyhavetodosomeupdating
andthereisnothingspecialtosayinthisregard,intermsofcommunication.So,youwillseewhenthe
timecomes.
Question:Youmentionedthestructuralchanges.AndIwonderwhetherornottheGoverningCouncil
infactreassesseditsnotionofpotentialgrowthintheeuroarea;beforeitwas2.5%?
Trichet:No,atthisstage,Icannotrefertoanalyticworkthatwouldrespondtoyourquestion.
Question:MonsieurSarkozyrecommendedthattheECBpublishthemeeting.Whatisyourposition?
Thesameaslastyear,Iimagine,butprobably
Trichet:Firstofall,IamnotsureatallthatthisisthepositionoftheHeadofStateofFrance.Isaw
thatinapaper,butreferringtoaconversationwithaides.Imyselfdonotcommentonrumoursor
leaksthatarenotconfirmed.Thepublicationofminuteswouldbeaparadoxbecausethelast
resolutionoftheEuropeanParliament(ontheECB)mentionsthattheEuropeanParliament
understandswhywearenotpublishingminutes.Theyaskustobeastransparentaspossible;theyask,
inparticular,that,inthiscandidexchangethatwehave,webeevenmoretransparent.Itrytobeas
transparentaspossible,asyouknow,andweareproudthatourpredecessors,WimDuisenbergand
ChristianNoyer,gaveustoLucasPapademosandmetheconceptofthisinteraction,becauseitdid
notexistbeforethesettingupoftheeuro,asyouareaware.Therewasnocentralbankintheworld
engaginginimmediate,realtimecommunicationafterthedecisionoftheGoverningCouncil.So,in
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termsoftransparencywehavebeenboldsincetheverybeginningoftheeuro.Andwecontinuetotry
tobeexemplaryinthisrespect,asthisinteractionisdemonstrating.Butagain,theEuropean
Parliamentsaidthattheyunderstoodwhywewerecautiousasregardsthepublicationofminutes.
Question:Justaquickquestion.Afterthispressconferenceinvestorswillhavecertainlypricedoutany
possibilityofarateincreasethisyearandearlynextyear.Areyoucomfortablewiththat?Canyou
commentonthat?
Trichet:Wehavenobias.Weareneverprecommitted.Wedoalwayswhatisnecessaryto
deliverpricestabilityinthemediumterm.
Question:Goingbacktothecollateralrules.Yousayyouwillletusknowbecauseyouarevery
transparent.Isthereapossibilitythatyouwillletusknowbeforeweseeyounextmonth?Andhow
sooncanweexpect.
Trichet:IhavesaidnomoretodaythanwhatIsaidamonthago.So,donotassumeanything,butsee
itasareminderofthetermsofreferencethatIhaveforthisparticularissue.
Asaconclusion:Ihaveseenamajorshiftinmarketsentimentandlongterm
sentimentasUSDcontinuesitsbullishrunasof8/8/2008.
Eurohasbrokenmajorsupportareathisweekandisexpectedtoheadbelow1.50
asECBexpressesmajorconcernedoveritseconomicgrowth(Trichetsspeech).
BOCislikelytokeeprateunchangedorcutrateastheworstlabordatawas
releasedin17yearsonFriday.
RBAisexpectedtocutinterestrateandalongwithitspessimisticeconomic
outlook,AUDisfacingstrongoppositioninthecomingweeks.
BOEdecidedtokeeprateunchangedbutmyresearchyieldedanoverwhelming
possibilityforaratecutbeforetheendoftheyear.Sterlingisalsonotlooking
good.
OverallIseethefutureweekswithUSDcontinuetostrengthenagainstallother
currencies.Riskappetitemayreturnasmajormoniesmoveoutofcommodities
andgoingbackinequitymarket,thusboostingUSDbydefault.
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OneFinalNote:Mostofthesehighlightedsectionsfromtheratestatements
madebyECB,FOMC,RBA,etcarepremarkedbynewscastersandeconomists.
Theyarereleasedalongwiththeactualstatementasheadlines.Sometimesthe
newscasterwilleventellyouthatthecentralbankerisbeinghawkishordovish.
Youreallydontneedtogothroughtheentirestatementtofigureoutwhatis
happening.Allyouneedtoknowaretheheadlines.
Iusemultiplenewswireservices,butifyouarestartingout,Iwouldrecommend
Tradethenews(tradethenews.com),theychargeonly$175permonthforForex
newsandthebroadcastersareveryprofessionalwiththeiranalysis.Youllgetthe
headlinesforthespeechesplustheironthespotreviewofthetone.Thisisjust
anotherreasonwhyyoushouldgetanewswireserviceinsteadofusingafree
oneprovidedbyabrokerorForexwebsite.
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Chapter13MillionDollarTips
InthissectionIamgoingtosharewithyousomeofthemostimportanttipsthat
havehelpedmytradingtremendously.Ibelievejustbyknowingthesetips,your
tradingcouldbeimprovedinstantly.
Yousee,asacomputerprogrammer,Iliketosolveproblemslogically.Andifyou
everlookedatanykindofautomatedtradingprograms,suchasablackbox
solutionoranExpertAdvisor(EA)forMT4platform,youllnoticethatanygood
programmerworththeirsaltwilltendtoputatimefilterintheirprogramming,
generallyusedtoavoidextrememarketconditionsduringnewsreleases,such
asadonottradefunctionduring8:258:30amESTtoavoidUSNews,or4:25
4:35amESTforUKNews.
However,theideaoftimefilterisnonexistentintechnicalanalysis.Sure,weall
learnedtoavoidextrememarketcondition,butbylearningtotradethenews,
weareactuallytakingadvantageinsteadofavoidingextrememarketcondition.
WhatIamgoingtoshowyouisanotherformoftakingadvantageofextreme
marketcondition.Theyarebasedonyearsofobservationandlogicalconclusion.
Iamsurethatonceyoubecomeawareoftheseconditions,youllbeableto
benefitfromthem.
ThefirsttipiswhatIcalltheLunchtimeReversals.Mytheoryis,thatevery
banktrader,hedgefundmanager,oranyonewhomanagesenoughvolumethat
couldaffectthecurrencymarketflowintheshortterm,takeslunchbreaks,
especiallyduringtheLondonandNewYorkSessions,wheretheNewYorkSession
lunchtimecoincideswithLondonmarketclose.
Thesebigshottraders,duringaregularsession,willusuallyclosetheirpositions
andtakeprofitjustaroundtheirrespectivelunchtimetoavoidanysurprises,and
thereforethemarketwilleitherstallorreverse.Whentheycomebacktolunch,
iftheyseethemarketstarttogotheotherway,theywillchangetheirdirection
andthenreentertheirtrade,thusreinforcingthereversal.Thatswhyifyoupay
specialattentionto,letssayEUR/USD,duringanormaleverydaytradingday
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youllseesignsofmarketreversaljustaround7:00amor11:30am,and
dependingonthesentiment,marketmaycontinueorreversecompletelythe
oppositedirection.Therefore,ifIamplanningacontrariantrade(reversal,going
againstshorttermtrend),IwillalwayswaituntiljustbeforetheNewYorkOpen
(UKLunch)oraround11:3amESTandenterthetrade.However,Iwouldnever
haveenteredacontrariantradeifitisnotanormalrangingday.Iwouldactually
stayinmytradeandrideouttheslightreversal/stallingduringtheselunchtime
periods,knowingfullywellthatthemarketwillcontinueafterthisminorreversal.
Sometimes,duringextrememarketcondition,traderswillskiplunchandjust
keeponpushingthemarket,andthatisanothersignofstayingawayfrom
enteringareversaltrade.
So,ifyouseeareversalaroundLondonandNewYorkLunchtime,maybeitssign
toeithertakeyourprofitsortoenteranewtrade.
Thesecondtip,whichalsohelpedmetomakealotofmoney,iswhatIcalledthe
StockMarketJitter.Exactly30~45minutesbeforeequitymarketopen,3:00am
forLondonand9:30amforNewYork,youllseesomeextrememarket
movement,usuallyintheformofareversalThisistheexacttimetoenterthe
marketbecauserightafterEquityMarketopens,currencymarketwillusuallygo
backtothepreequitymarketopenlevels.
Ihaveseenthiskindofmarketmovementagainandagain.Ihavelearnedtohold
ontomytradeandnottogetscaredoutofaprofitablepositionduringequity
marketopen,ortoplanmyentryjustaroundthisparticularlyvolatiletime.
Usuallyyouwanttogowithmarkettrendandwaitforreversalatthistimefora
muchbetterentry,butIhavealsolearnedtopickupquickpipstakingareverse
positioninthisshort30~45minutes.Mybesttradewasa80pipsreversalwith
GBP/JPYaroundthistime.Youvegottomasterthistip!
Yousee,byknowingwhattoexpectfromthesenormalmarketevents,youcan
add20~30pipsextratoeverysingletradethatyoutake.Lordknowshowmuch
profitIwasscaredoutofduringthesetimeswhenmarketsuddenlyreversed
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beforeIlearnedthissimplefact.Andnoonewilltellyouabouttheselittle
nuancesintradingUNLESStheyareactivetraders.
Anotherimportanttipistoconcentrateonthecurrencypairthathasthemost
potentialtomoveTODAY.IfwehavenewsscheduledforSterlingtoday,then
ourfocusshouldbeonallGBPrelatedpairs,suchasGBP/USD,GBP/JPY,oreven
EUR/GBP.IusuallywillstayawayfromothercurrencypairstodaybecauseIdont
wanttospreadmyattentiontoothinandendupwithlosingtrades.
Asageneralrule,andagreattip,istoconcentrateonjustafewcurrencypairs.
Donottradetoomanydifferentpairsandconstantlyworryingthatyoullmissa
goodmove.LikeIsaidbefore,mostprofessionaltradersconcentrateonlyonONE
currencypair,EUR/USD,whichalsohasthemostliquidityintheentireForex
Market.
TheonlyreasonthatIwasabletoput2and2togetherwithmyStockMarket
JitterandLunchtimeReversalsisbecauseIwasonlyconcentratingonafew
currencypairs,namelytheEUR/USD,GBP/USD,GBP/JPY,andeitherAUD/USDor
USD/CADifeitheronehavenewspending.
IfyouwouldgobackandrereadChapter12whereItalkedabouthowtoput
everythingtogether,youllseethatmyfocusintradingandmyselectionof
currencypairtotradeisbasedonthenewsreleasescheduledforthatday.Make
thisaroutineintoyourtradingandchasingaroundandbuying/sellingevery
currencypairunderthesun,youllthankmelater.
Thelasttip,butobviouslynottheleastimportant,iswhatIcalledashortterm
stablemarketsentiment,whichIusealotinmyshorttermsentimenttrading.If
youarestillunsureaboutsentimentaltrading,readChapter10andthenChapter
12forreallifeexamples.
Thebasicideaisthatwhenabignewsreleaseisscheduledforthenextday,
marketwilleithertradeupordowntheprimarycurrencypair,inattemptto
possiblypriceintheoutcome.Thatiswhatwecallsentiment.Forexample,if
thereareuncertaintiestoBOEsInterestratedecision,withapossibleofarate
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hike,marketwilltradeupGBP/USDadayordaysbeforetheactualrelease,
pricingintheratehike.(Anotherscenariocouldbethatthemarketishighly
uncertain,thereforetherewouldbenopremarketsentiment.)
Dependingonthenewsreleaseanditspossibleimpacttothemarket,youllsee
marketsentimenttakeplacejustonesessionbeforeitsscheduledrelease,suchas
aUKnewsreleasesentimentwillmanifestaroundAsianSessionandpartially
carriedoverduringearlyLondonopen.Sometimesahugenewsreleasemight
evenaffectsentiment2to3sessionsbefore,suchastherecentAustralian
InterestRatedecision(weekof8/8/08).
Theruleofthumbistoknowwhatnewsiscomingnextsession,thenwatch
marketcondition.Ifyouseeasteadymarketmovementintheabsenceofnews
releases,(obviouslywatchGBP/USDforUKnews,AUD/USDforAustraliannews,
etc)thenyouareprobablylookingatmarketsentiment.Atthispresent
moment,whichmaychangedependingonmarketcondition,Iamlookingfora
30~40pipsofmovewithin1andhalfhour(150minutes),withoutretracement,
thenitsignalsmemarketsentiment.Mynextstepwouldbetolookatrecent
resistanceandsupportlevelstodeterminewhetherornotthereisenoughroom
foranentry,orwaitforapullbackandthenenter(StockMarketJitteror
LunchtimeReversal)myorder.InthecaseofAUD/USD,whereyouseea
continuousAUDIselloff,byknowingthiscurrencypairandhowslowitmoves,
youcanreallysetyourorderwithproperStopLossandleaveitrunning,specially
ifthenewsiscominglateatnight.
Remember,theremustbeanewsreleasecomingforthistowork.Andideally
youwouldgetoutofthetradejustbeforethenewsformaximumprofit.Ihave
noticedthatmostsentimenttraderstakeprofitaboutanhouror30minutes
beforethenewsrelease.Youshoulddoittoo.
Ihopethesetipswillbringyoulotsofpositivetrades.Learntoidentifythemfirst,
andthentousethemregularlyinyourtradingarsenal.Asamatteroffact,you
dontneedtohavemanygoodtrades,justacouplegoodtradesandrepeatthem
overandover.
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Chapter14MarketCycle
ForexMarketmovesinapredictablecycleonadailybasis.Itisasyourlocal
traffic,whereyoullhavetrafficjamduringcertainhoursinacertaindirection
flow,andotherhoursattheoppositedirection.Ifwecanpredictmarket
directionduringthiscycle,wewillhaveanadvantagethatmosttradersdont
have.Itislikehavinglocaltrafficradioonwhiledriving,lettingyouknowwhere
aretheaccidentsanddelays,sothatyoucanchoosetheleasttraveledroad.
Marketgenerallymovesinthefollowingmanner:
5:00pm~12:00amEST
Rangedmarket.
12:00am~2:00amEST
Marketpreparetobreakout
2:00am~3:15amEST
Marketreverse
3:15am~5:00amEST
MarketTrendReEstablish
5:00am~7:00amEST
MarketTrendContinuation
7:00am~8:15amEST
Marketreverse
8:15am~9:00amEST
MarketTrendReEstablish
9:00am~9:30amEST
MarketMinorReversal
9:30am~11:30amEST
MarketTrendReEstablishandContinuation
11:30am~12:30amEST
MarketMinorReversal
12:30pm~5:00pmEST
MarketRangedContinuation
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MyTradingMethodsusingMarketCycle
Thebestwaytousethismarketcycleinformationistotradearoundthetimeof
reversals.Ofcourseitisextremelyimportanttoputthecontextofthemarket
intoconsideration,andthenpossiblyenteratradeifyouhaveenoughreasonto
justifyit.
Forinstance,ifthemarkethasbeenrelativelyflatonrisksentiment,meaning
therearenostrongsentimentdemandingforriskorseekingshelterinsavehaven
currencies,orjustaregulartradingday,youcouldlookatthemarketjustaround
thereversaltime,especiallytheJPYpairs.
Then,onceenterareversaltradefromthetoporthebottom,dependingwhere
themarketwastradingat,thenwaitforthenexthourorsoandcloseyourtrade
inprofit.Ofcourse,youneedtoconsiderthecontextofthemarketandthereare
nosentimentdrivenreasonsforthemarkettomovehigher.Usuallythiswillplay
out8outof10times,givingyouatleast30to80pipsofprofits,sometimeseven
more.
SoIenterthemarketataroundthesereversaltimes,usuallytimingmyentryjust
afteraspikeinthemarket.Forinstance,ifyouarelookingtoshorttheGBP/JPY
justaroundthereversalandthemarkethasbeenpushingitup,waitforafinal
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spikeupjustaroundthereversal,andthenyoucanenteraSELLtrade,possibly
atthetop,foratleast50pipsofprofit.
Remember,welookatthepremarkettrendandwearelookingtotradeAGAINST
thattrendthatishowwetradethereversaltimes
Thesecondusageforthemarketcycleisthemarketcontinuationtime.When
youareholdingonatrade,marketmaymoveupanddown,andsometimesshake
yououtofatrade.Butbyknowingyouareinamarketextensiontime,youcan
holdontoyourtradejustafewmomentslongerforaextra20~50pipsofgain.I
haveseenthistimeandtimeagain,especiallyduringtheLondontradinghours,if
Ijustheldontomytradesuntil7:00am,Iwouldhavemadeanadditional50
pipsThisisatipthatisworthmillionsfortherightperson.
Ofcourse,whenyouareinalosingtradeandthemarketisgoingagainstyou,
sometimeswegetemotionalandwanttogetoutofthetradewhenitispretty
muchtheworstcasescenarioKeepyoureyeonthereversaltime.Ifyouare
anywhereclosetothem,justholdonandthemarketwillgiveyouabetterexit.
Sometimes,evenletyoubreakeven.Ofcourse,onceagain,ifthemarketis
drivenbyrisksentiment,thenIdonotrecommendholdingonalosingtrade,even
ifthereversalisjustaroundthecorner.
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Chapter15SPECIALRESOURCESSECTION
SPECIALAnnouncement:IhavecreatedastandaloneversionofStrengthMeter,
itisdownloadablefrommywebsite,andyoudontneedtohaveExcelorthe
hassleofsettingitup.JustmakesureyourMT4hastheDDEServeroption
enabled,andfireuptheNewsprofiteerMeter,andvoila,youaredone!
InthissectionIamgoingtosharewithyousomeofthetoolsthatIhavebeen
usinginmydailytrading.ThesearethetoolsthatIfindcrucialandIcannotdo
withoutthem.Someofthesetoolsarefreelyavailableandsomearent.Iamnot
thecreatorofthesetoolsandIgivecreditstothepeoplewhocreatedthem.
Herewego:
StrengthMeter:
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ThisspecialtoolismadebyThomasYeomansandfriends,andyoucansee
individualcurrencystrengthwithjustoneglance.Exceptionallywelldesigned
spreadsheetusingMicrosoftExcelandMetaTrader4.0platform.Youcanget
MetaTrader4.0fromdifferentbrokersthatusethisplatform,andthenallyou
needtodoisenableDDEServerfromtheoptionstolinkwiththeExcelsheet.If
youcantfindaMetaTraderbroker,usemetaquotes.net
ObviouslyyoumustalsohaveMicrosoftExcelinordertousethistool.Almost
everyonethathasaWindowsbasedPChaveMicrosoftexcel.
Iusuallykeepthesignalmeterinareducedformatononeofmymonitorslike
below:
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Icaninstantlyseewhatcurrencyisstrongandwhatcurrencyisweak.Letme
showyouhowtosetitupwithMetaTraderthenIwillshowyouhowtousethis
signalmeter.
DownloadMetaTrader
IfyoudonthaveMetaTrader,gotohttp://www.metaquotes.nettodownloadthe
latestMetaTraderplatform.
However,ifyoudownloaditfromODLMarketsyouwillgetstockmarketcharts
suchas:UKFTSE,GermanDAX,FrenchCAC,Gold,Silver,CrudeIndex,etc
http://www.odlmarkets.com/metaquotes_metatrader4_demo.html
CompleteformandclickonSignUpbuttontoregisterforademoaccount.
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Onceregistered,youwillreceiveanemailwiththedownloadlink.
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113
ClickonRuntoinitiateprocess.
Onceyouhavedownloadedandinstalledtheplatform,youwillbeaskedtoopen
upanaccountifyouhaveneveropenedanaccountbefore.Thisisdonedirectly
fromtheplatform.Youwillseethefollowingwindow.
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Enterwhateverinformationyouwant,followtheinstructionsandyoushould
haveademoaccountwithlivedatafeed,allforFREE!
ThenGototheTOPMENUwhereyouseeFileViewInsertSelectToolsand
thenselectOptions(youcanalsouseashortcutCtrlO).
MakesurethatontheServerTabyouchecktheboxwheresaysENABLEDDE
SERVER.
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Onceyouhavedonethis,yourStrengthMeterisreadytowork!
RemembertoalwaysstartMetaTraderfirst,andthenstartyourStrengthMeter
(Excel).Youmightbeaskedifyouwanttoupdate,answeryestoallofthe
questions.
Whatcanthestrengthmeterdo?Will,tobeginwith,yougetasnapshotofthe
marketcondition.Youcanseewhatcurrenciesarestrongandwhatcurrencies
areweakatthemoment.Itgivesyouaplethoraofinformationandyoushould
alwaysremembertousesitasaconfirmationtoolinyourtrading.
RememberwhatwetalkedaboutRiskAversionandRiskAppetite?WhenIseea
typicalriskaversionscenario,bothJPYandCHFgetmuchstronger(OrangetoRed
color).Iwillalsoconfirmthiswithlookingatachart,butusuallymyfirstclue
withoutcomparing8differentcurrencypairsisthecurrencymeter.
AlsoIoftenmatchupthecurrenciestotradethenews.Forinstance,ifIwasto
tradeanU.S.news,justpriortotheactualnewsrelease,Iwilllookatthestrength
ofallthecurrenciesversus(EUR,CHF,GBP,CAD,AUD)theUSD
Basedonthismeter,IseethatifthenewsisgoodfortheUSD,Ishouldbebuying
USD/CHF;ifthenewsisbadfortheUSD,IshouldbebuyingEUR/USD.By
matchingtheweakest/strongestcurrencieswithUSD,Icanexpecttogetmore
movementoutofthenewsevent.
Ialsousestrengthmetertodeterminetheshorttermsentimentestablished
trendwhenItradeshorttermsentiments.Obviouslyusingstrengthmeterisnot
enough;youalsoneedtoconfirmthemarketwithcharts.Butasalways,thisis
whereIwouldstart.
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Anothergreatuseforthistoolisdeterminingwhatismovingthemarket.Often
timeswhenweseeacurrencypairmoving,andbeingapair,itissometimeshard
todeterminewhichoneismovingthemarket.WhenweseeGBP/USDgoingup,
wedontknowifitisaGBPstrengthorUSDweakness.IfUSDisweak,thenyou
shouldalsoseeEUR/USDgoingupIfGBPisstrong,thenyoushouldalsosee
EUR/GBPgoingdown.Buthavingthestrengthmeterwillsaveyousomuchtime,
becauseyoucanjustlookatthestrengthandknowwhatisgoingon.
Irecommendthatyoukeepthemeterupandrunningatalltimes.Iusuallystart
mymeterandleaveitontheentireweek.Asamatteroffact,Ineverturnoffmy
signalmeter,unlessIwasrebootingmyPC.
Itisveryobviousthatwhenthesignalmeterisshowingstrengthofoneparticular
currency,youdontgoagainstit!Ithassavedmefrommakingmanymistakes
whenIwasstartingout.
Onelastthing,thestrengthmeteralsohaspatterns.AsImentionedbefore,
whenIseebothJPYandCHFstrengthening,Iwillstayawayfromgoinglongwith
carrytrades.Onceyouhaveseendifferentmarketconditionsalongwiththe
strengthmeter,youwillbegintonoticeapatternemerging.Iamstill
documentingdifferentpatternsandmaybeonedayIwillreleaseaspecialreport
onthat.Surelyeverytradercanbenefitfromit.
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TradeTheNews
TradetheNewsisanewswireservicethatIuse.IhavebeenusingTradeThe
Newsforyearsandtheyhaveprovidedagreatservice,deliverytime,and
accuracy.Youllgetintoyourtradesontime,andsometimesevenbeatthe
marketbyafractionofasecond.TheyareveryreliablepeopleandIcannot
praisethemenough.
TradetheNewscharges$175.00permonthfortheirForexnewsservice.They
allowyoutodoresearchandalsoprovidecommentariespriortomajornews
releases.TheyhavebeenverygoodwithCentralBankSpeechesandStatements
whereyougettheheadlinesandcommentariesfrombroadcasters.Ihavemade
lotsofmoneytradingthenewsusingonlytheirservice.
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Youcansignupforatrialathttp://www.tradethenews.comandtestdrivefreefor
7days.
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NewsProfiteer
Ok,thisismyownservice.Iprovideafreenewsalertservicefortraders.Ihave
twotypesofmembership,oneisfreeandtheotheroneisonly$49.00amonth.
Thefreemembershipwillgiveyouadailyemailanalyzingnewseventscheduled
forthenextday.Iwillgiveyoumythoughtsonwhatnewsistradable,whatisthe
deviationthatIamlookingfor,andwhatistheexpectedmovementifthe
deviationishit.ItisaveryinformativenewsletterandIrecommendthat
everyonesignupforitimmediatelyifnotalreadyamember.
Thepaidmembershipwillgiveyouaccesstoaspecialrestrictedareawhereyou
candownloaddifferenttoolsthatIuse,includingtheStrengthMeter,andalso
accesstomyspecialweeklyoutlooksection.RememberIrecommendedthat
everyonetolookatthemarketonSundaybeforetheopen?Idothisfaithfully
(exceptwhenIamonvacation)andIsharewithmymembersinthissection.I
willgiveyoumytakeonthemarket,whatkindofsentimentsthatIamlookingat,
plusIsendoutspecialalertstomypaidmembersifIseeastrongsentimenttrade
developing.Youcansignupat:http://www.newsprofiteer.com
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ForexFactory
IfyouhavenevervisitedForexFactory,Irecommendthatyouvisitthem
immediately.ForexFactoryhaveaneconomicCalendarthatgetfeedsfromTrade
TheNews,althoughtheyareabout5seconddelay,theyarestillthebestFREE
newscalendaroutthere.
AlsoFFhasmanyseasonedanalystswritingcommentariesonthemarket.Many
majornewseventssuchasInterestrate,CPI,GDP,etcyoullgetsomevery
interestingcommentariesandanalysis.Ipersonallymakeahabittoreadthese
commentariesandarticlestokeepmeintheloopofwhatthemarketthinksis
goingon.However,Iwillneverbasemytradingdecisionsonthesearticles;I
alwaysdomyownstudiesaswell.
Youcanvisitat:http://www.forexfactory.com
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DailyFX
ThisisanothergreatwebsiteforarticlesandFinancialCalendar.ItisrunbyFXCM
andtheirleadanalystsareKathyLienandBorisSchlossberg,whomhavebeen
madepopularbyFXCM.Mytakeisnottobaseyourtradeontheiranalysis,but
doreadtheirresearchandhowtheycomeabouttothatanalysis.
SometimesontheirwebsiteyouwillseeoneanalysttalkaboutEUR/USDbreaking
outtothetopside,wheretheotheranalystswillsayUSDisontherebound.
Again,takeeverythingwithdiscretionandexpandyourtradinghorizons.
Youcanvisitat:http://www.dailyfx.com
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FederalReserveBankofCleveland
ThisisthelinktoviewFederalReserveFundFutures,agreatwebsitetofindout
whatisthepublicsexpectationforFutureFedAction.Normallytraderswilltake
thisintoaccountintolongtermtrendoutlook.
Youcanvisitat:http://www.clevelandfed.org/research/data/fedfunds/index.cfm
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Mataf.net
MatafisagreatwebresourceforForexTraders.Ifyouhavenevervisitedthis
website,Irecommendthatyouvisititimmediately.Youcanfindanonline
CorrelationChartinitsForexToolssection,alongwithavarietyofothertools.
ThebestpartaboutMatafisthatyoucangeteverythingforFREE.
Youcanvisitat:http://www.mataf.net
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Henryliuforex.com
ThisismyblogwhereIpostonupcomingnewsreleaseswithdetailedanalysisand
mytradeplansonhowtotradethem.Thisisbased100%onthemethodologyin
thisebook.
However,aswordsonthebookarejustwords,IrecordeverynewseventthatI
recommendtotrade,asItradethemlive,andIposttheentirevideobackinthe
post,showingyouhowtomakemoneytradingthenews
Someofmyebookcustomersmightbeskepticalovermytradingmethods,but
oncetheyseehowIapplythesesamemethodsinrealtime,withrealmoney,
mostwillappreciatethesimplicityinthewholeprocess.ItisassimpleasIexplain
ithere,andbyseeinghowitisdonebyme,youllgaintheconfidenceneededin
tradingForexforsuccess.
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NewsTradingAfterthought
Ithoughtitsextremelyimportanttoendthisbookonthischapter,becauseof
thehugeamountofinquiriesthatIvereceivedrecently,allaboutnewstrading.
Yousee,itsextremelyimportantthatwealwaysputthecontextofthemarket
intoourtradingconsiderationinsteadoffollowingaformula.AsIhavegivenyou
aformulathatworks,andcontinuestowork,inthisebook;andbytakingthe
contextofthemarketintoconsideration,Ithinkmyformulawillnotonlywork
muchbetter,butyourtradingwillimprovesignificantlyaswell.
Hereisascenariotoconsider;thereareonly3viablereactionsafteranews
release,andtheyare:
BUYorSELLinthedirectionifourtradabledeviationishit.
Donothing
TakeareversaltradeintheOPPOSITEdirection
Thefirstreactionisprettyselfexplanatory.Asamatteroffact,Ivededicatedthe
entirebookexplaininghowtodoit.
Youwaitforthenewstocomeout,andbasedontherelease,youeither1)Spike
Trade,or2)RetracementTradePrettystraightforward.
Thesecondreaction,stayingoutofthemarket,alsoseemsselfexplanatory,since
ifthenewsifnotgoingtogiveyouareason,orjustification,toenteratrade,then
perhapsitisbestjuststayingoutofthemarket.
Thenthethirdreactionandthatiswheremostnovicenewstraders,oreven
veterannewstradersfail,becausetheydonotputthecontextofthemarketin
theirtradeconsideration.
Letmeexplain,
Ifthemarkethastraveledtothesupportorresistanceofyourtargetcurrency,
oncethenewscomesout,youhavetomakesurethatthereisenough
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momentumtocarryovertheselevels;so,evenifwegetatradablerelease,be
verydiscreetoveryourtradingbecauseiftheselevelshold,expectforthemarket
toreverseandthat,initself,presentsagoldenopportunityforanentryinthe
reversalpositionandmaketonsofpips.
Notmanytraderstakeadvantageofthissimplefact,bytakingreversalwhenyou
canclearlyseethatthemomentumranout.Usuallythishappenseitherthese
support/resistancelevelsaretoostrong,orthereleaseiseitherinlinewith
expectationorjustslightlytradable.Soinsteadofagradualandsteadypush
beyondthesepoints,yougetasharpretracement,whereonthesecondattempt
tobreach,yougetyourselfaperfectentryforareversaltrade
Bymakingtherightdecisionandputthecontextofthemarketinyourtrading,
yournewstradingcareerjustwentfromtradingabout15outof40newsevents
amonth(15outof40newseventsthatgiveyoutradabledeviations),toabout30
trades.
Furthermore,thereisaknownmarketpsychologicalreactioncalledBuyon
RumorandSellonNews.Mosttradersknowaboutthis,buttheydontknow
howtotakeadvantageofit.BylookingatanyNoTradenewsevents,theones
thatourdeviationhasnotbeenhit,youcouldenterareversaltradeinthe
oppositedirectionofthepremarketsentiment.Thisisbecauseoftheexpectation
orspeculationoftradersonabetterorworserelease,butbecausetherelease
cameoutcloseoratexpectation,mostprenewstradersaretakingprofitsoutof
themarket,andthatwillcausethemarkettogoinreversedirection,andgiving
youyetanothergoldenopportunitytomakemoneyandexploitthesesituations.
Ofcourse,asIcannotoverstressthatfactthatyouneedtousesoundjudgment
andputtheentirecontextofthemarketinconsideration.Ifthemarketdidnt
showanykindofpremarketsentiment,orthepremarketsentimentwas
uncertain,youcantpossibleexpectareversalentryfromthere.
Inconclusion,whatIamtryingtosayisthis:Youcouldtheoreticallytakeatrade
afteranynewsrelease,regardlessofthereleasenumber,basedonjustthe
contextofthemarket.OfcourseIwouldwarnagainsttakingtrades
Page
127
indiscriminately,asthatisasurewaytofinancialruins.Butinsteadof
overlookingtheseopportunitiesbecauseyoumightevenknowthattheyare
possibleinthefirstplace,youarenowinapositiontolookforthesetradesand
possiblymakemoremoneyaroundnewstradingtimethanever.
OnelastthingandIreallyhopethiswillstaywithyoufortherestofyourtrading
career,andthatistolimityourselftoonlytradeForexaroundnewsreleases.I
thinkbyunderstandingnewsandfundamentalfactors,youhavemuchbetter
oddsattrading,plusyoullcutdownyourtradingtimesignificantly,ifyouarelike
theoldme,whousedtotrade16hoursaday.AndIhavetosaywithoutany
doubt,mytradingonlyimprovedonceIspendlesstimeatitItmaybe
unfathomable,butgiveitatry;youlldefinitelythankmelater.
HenryLiu
(RevisedVer.October2009)
Page
128

News Profiter: Definte Guide To Fundemental News TRadingby Henry Liu

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NewsProfiteersDefinitiveGuidetoFundamentalNewsTrading

(211.73 / 1.9945) = 106.15

Release Date: August 5, 2008

Release Date: June 25, 2008

For immediate release

For immediate release

The Federal Open Market Committee decided today

The Federal Open Market Committee decided today

Economic activity expanded in the second quarter,

Recent information indicates that overall economic

Inflation has been high, spurred by the earlier

The Committee expects inflation to moderate later this

Although downside risks to growth remain, the upside

The substantial easing of monetary policy to date,

Voting for the FOMC monetary policy action were:

Voting for the FOMC monetary policy action were:

United Kingdom Reports

New Zealand Reports

5:35am Currency Impact

Labor Cost Index q/q

Monetary Base y/y

Sentix Investor Confidence

Challenger Job Cuts y/y

Holiday: Civic Holiday

Core PCE Price Index m/m

Personal Spending m/m

Personal Income m/m

Factory Orders m/m

ANZ Commodity Prices m/m

RBA Rate Statement

Services PMI (r)

Industrial Production m/m

Retail Sales m/m

ISM Non-Manufacturing PMI

Federal Funds Rate

NIESR GDP Estimate

Home Loans m/m

Leading Economic Index

BRC Shop Price Index y/y

German Factory Orders m/m

Crude Oil Inventories

Employment Change q/q

Core Machinery Orders m/m

German Trade Balance

French Trade Balance

Italian Industrial Production

Halifax HPI m/m

Official Bank Rate

Minimum Bid Rate

Building Permits m/m

ECB Press Conference

Pending Home Sales m/m

Natural Gas Storage

Consumer Credit m/m

Economy Watchers Current

French Government Budget

Italian Prelim GDP q/q

Prelim Nonfarm Productivity

Prelim Unit Labor Costs q/q

Wholesale Inventories m/m

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