Sunday, March 31, 2013

(6J) Event Risk - Fear Vs Greed

When trading any of the futures contracts (or any market contract - stocks, options, futures, forex, or bonds) it's important to know what has the potential to move the markets.

Bank rate decisions, employment data, manufacturing reports all influence the potential value of interest rates, which in turn can move the currency, bond, and equity markets.

For example, the coming week has the following event risks which can produce HIGH impacts on the markets:

China PMI - Sunday afternoon ( Sun 6pm PDT )
US ISM Manufacturing ( Mon 7am PDT )
Australia Reserve Bank of Australia rate decision ( Mon 8:30pm PDT)

There are close to ten macro events which have the potential to influence G10 markets this week.

If you would like to track more of these events, I would check out the mobile application iEconCal to learn more. Its a quick summary of the major nations and with their macro releases of data.

These events are able to produce large swings in the markets which produce the types of ranges and turning points that potential trading targets.

A dramatic illustration of event risk and fear and greed in the markets is shown below:

The Bank of Japan during the week of Mar 31 to Apr 4, announced it continue to print Yen in record amounts further diluting its currency - cheap money.  This is the effort of its central bank to reflate a deflating economy. The chart below shows what happens when this type of macro risk being to play out.  The Yen had a devastating sell off breaking all demand zones eventually settling at year to low (or something very close).  Previously, the Yen had been staging a weak although steady rebound off its steady recent sell off.  That now looks to continue.

This is a 240 min chart so the zones that form represent sustained demand and supply over a longer period of time. Notice how long it took the run up of the Yen (days), only to be quickly retraced and more in just a matter of a single day.

Being short netted someone an extremely profitable day!

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