Ransquawk

False news applies in the market too.

It used to be so simple. Market news and analysis was provided by qualified economists and traders had their favourites, normally dependent upon them having provided the confirmation of a view that led to a memorable profit.

Now, unfortunately, those days are gone and even Reuters, the doyen of unbiased reporting, is accepting quotes from some every odd “reporters”.

Since this avenue has, to a certain extent, been closed off, it falls even more onto the individual to follow the economic data, build a picture and make up their own mind.

As the retail FX market has grown, brokers have been keen to encourage traders to learn technical analysis as the most reliable (in their view) methodology. This is because it suits their profile, is a tangible process and no blame can be attached to them if anything goes wrong.

However, that misses out on a large part of the trading picture and although it is understandable that brokers could be held liable for giving trading advice, the use of analysis as simply a marketing tool means that traders need to dig deeper to find support. I have found plenty of examples of analysis that seems to suit the broker more than the trader and it can almost be a coin toss as to whether the analysis is positive to a particular currency pair or not.  

Drivers never change, perception does.

When I first came to the market, back in the days when five points was an acceptable interbank spread in Gbp/Usd, the most important data release on a monthly basis was the U.S. trade report. That was because the market was primarily driven by trade flows, the equity markets were still very closely controlled and even the Dow was primarily affected by domestic flow.

Two major shifts took place in the eighties/nineties. Big Bang happened in the U.K. which reverberated around the global equity markets opening them up and allowing foreign money to flow, which it did in major way, into U.K. equities. This created a global pattern and allowed money managers access to markets they had never previously considered. This was good and bad as it provided opportunity to legitimate managers but also spawned several scams.

The second event that changed the FX market was the export of U.S. manufacturing output overseas. This meant that the U.S. had a permanent trade deficit which, although it held traders interest for a few months eventually led them to look elsewhere for what was driving the economy and naturally they turned to employment.

Non-Farm Payrolls, the Official false news.

The market has, for many years now, considered the U.S. employment report as being the most important economic indicator released monthly. I suppose it is rivalled by the GDP data but since that is quarterly and the occasional revisions rarely spring a surprise, it is the employment report that tends to encapsulate the entire economy in one place.

Unfortunately, and still many traders ignore this fact, it is based on ESTIMATES. There is no way that the U.S. Bureau of Labor Statistics could possibly have a cogent report available by the first Friday of the month (subject to the day of the month that falls upon) so they make a guess.

What those guesses are based upon nobody knows. That is why the report is subject to revisions of up to 30%. In fact, look at tomorrow’s report. Since the March data was so out of line, there could easily be a major revision when that is released.

Over the past few years since the global economy has started to recover and inflation has become a major factor, the wages data has started to take over from the headline Non-Farm Payrolls as the most significant part of the report. This is also happening in the UK.

As wage rises are a precursor of price rises and the gap between wages and prices has become significant the emphasis is starting to change again.

Leave us a comment!

Ransquawk
SHARE
Previous articleDax Open Range Breakout Live Trading Video 2nd May 2018
Next articlePrice Action Formations – Bearish Engulfing
Alan is a highly experienced banker with an in depth knowledge of Corporate Banking, Treasury and Trade Finance. He has had a varied career in Global markets, Risk management, FX Trading and Sales & Interest Rate Management. He has managed sales teams mentoring his team in both markets and marketing.He has been published in a number of journals and has appeared daily on radio to discuss market movements and events. His first novel was recently published.