FX Trade Results Feb 22 -May 31

 

Total available pips 14 weeks 39,852 Vs Actual profit pips 18,279

Total available pips 14 week average 2845 vs Actual pip average 1363.

We profit on Average 1363 pips per week on 12 currency pairs. We maintain profit at least 50% of all traded pips on 12 currency pairs. More Available Vs Actual is explained by Contingency Trades for trades at significant MA Break Points. Those Vital points may or may not break in any given week but we’re prepared.

Available Vs Actual Pips

3185 Vs 0

3317 Vs 1162

2988 Vs 126

2422 Vs 1979

2793 Vs 794

2740 Vs 957

2263 Vs 1033

3804 Vs 1127

3195 Vs 1700

2942 Vs 1962

2311 Vs 1979

2094 Vs 1800

2404 Vs 2592

3376 vs 1768

 

Brian Twomey

 

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FX Trade Results May 27 -May 31

 12 Weeks ago against wild Brexit Volatility, trades were perfect to profit 2500, 1800 and 1900 Pip weeks.
Volatility scared many traders I read on twitter but its expected as true market volatility hasn’t been seen in many years and most traders today don’t know volatile markets. Respectfully ans spoken for academic purposes.
3185 available pips, 22 trades, 12 currency Pairs.
Prices for most pairs either never triggered entry or triggered today.
Entry price doesn’t hit then no trading nor gamble with trusted money.
Pretty much break even week. Trade smart in trend direction or don’t trade is our way.
Profit pips were factored to targets
EURAUD 1.6214, 1.6244, Target 1.6094, Actual 1.6188 -1.6050. +94 pips
GBPUSD 1.2695, 1.2667, Target 1.2863. Actual 1.2746 -1.2580, today Triggered. 1.2891, Target 1.3003, not triggered.
GBPCHF 1.2688, 1.2715, Target 1.2945, Actual 1.2743 -1.2638. Today triggered.
GBPJPY 138.65, 138.78, target 141.57, Actual 139.61 – 136.74 minus 191.
GBPCAD 1.7009, 1.7038, target 1.7193, Actual 1.7134 – 1.6984, Today triggered. 1.7256, target 1.7378 not triggered.
EURNZD 1.7170, 1.7248, Target 1.7014, Actual 1.7128 -1.7059. +69 Pips, ongoing trade. 1.6936, target 1.6858. Not triggered.
USDCAD 1.3482, 1.3515, Target 1.3422, Actual 1.3548 -1.3485, +30 pips, ongoing target
EURUSD 1.1136, Target 1.1215, Actual 1.1214 -1.1117, Trade just triggered. 1.1244, Target 1.1351, not triggered.
CADJPY 80.48, 80.69, Target 82.39, Actual 81.58 -80.24. Trade just triggered. 82.61, Target 83.45 not triggered.
GBPAUD 1.8242, Target 1.8347, Actual 1.8383 -1.8183. Trade just triggered. 1.8382, target 1.8522, not triggered.
GBPNZD 1.9257, Target 1.9357, Actual 1.9465 -1.9291, Not triggered. 1.9417, Target 1.9614, Not triggered.
NZDJPY 71.23, 70.87, Target 73.05, Actual 71.85 -70.86, Trade just triggered.
                   Brian Twomey

EURUSD Averages 2012, 2017 and 2019

Market Movements daily and long term under any measure in this current and last 4th Quadrant of markets was cut by bout 1/3 since 2012 and since central banks adopted new Interest rate arrangements in 2015.

Central banks succeeded in stopping volatility as was the overall goal by re arranging interest rates.

Below are EURUSD averages 5 – 253 days for AUG 17, 2012, Feb 6, 2017 and today 5/28/19.

No difference in Average ranges in 2017 and 2019, both at 193 and 197 Vs 543 Pips in 2012.

Sure slight arguments to chosen dates but no argument to range compression.

8/ 17/2012

5 day =1.2311

10 = 1.2322

20 =1.2321

50 = 1.2312

100 = 1.2468

200 =1.2822

253 =1.2854 or 543 Pip Range

 

2/6./17

5 day =1.1179

10 = 1.1173

20 =1.1191

50 =1.1213

100 =1.1259

200 =1.1319

253 =1.1366 or 193 Pips Range

 

2/29/19 Today

5 day =1.1171

10 =1.1169

20 =1.1189

50 =1.1211

100 =1.1258

200 =1.1319

253 =1.1366 or 197 Pip Range

 

Brian Twomey

FX May 27 -May 31

3185 Available Pips, 22 Trades, 12 Currency Pairs.

EURCAD Poor performance was replaced by NZDJPY this week.

NZDCAD found no Trade thrills. Not sure permanent 12th Pair.

May use 12th as revolving to pick good weekly Trade and no marriage to just 1 currency pair. 

Available 3185 high, contingencies factored, 1/2 of 3185 = 1592 realistic.

Available from Average entry, Pips below

EURAUD 271

GBPUSD 301

GBPCHF 246

GBPJPY 383

GBPCAD 292

EURNZD 274

USDCAD 207

EURUSD 186

CADJPY 265

GBPAUD 245

GBPNZD 318

NZDJPY 200

Interested in Trades contact brian@btwomey.com. I don’t cater to everybody so come correct.

Brian Twomey

FXTrade Results Feb 22 -May 24

Total Available Pips 13 weeks 36,657 Vs Actual Profit Pips 18,279 Or 1/2.

Total Available Pips 13 Week average 2819 Vs Actual Pip Average 1460.

We profit on Average 1460 pips per week on 12 currency pairs. We maintain profit at least 50% of all traded pips on 12 currency pairs. More Available Vs Actual is explained by Contingency Trades for trades at significant MA Break Points. Those Vital points may or may not break in any given week but we’re prepared.

Total Available Vs Actual

3317 Vs 1162

2988 Vs 136

2422 Vs 1979

2793 Vs 794

2740 Vs 957

2263 Vs 1033

3804 Vs 1127

3195 Vs 1700’s

2942 vs 1962

2311 Vs 1979

2094 Vs 1800’s

2404 Vs 2592

3376 Vs 1768

 

Interested in Trades then contact

Brian Twomey

 

FX Trade Results May 20 -24

FX Trade Results

3317 Available Pips, 12 Currency Pairs, 14 Trades, Actual Profit Pips 1162.

Currency prices Extraordinary uneven, non uniform, GPUSD and all GBP Cross pairs for example extreme oversold to more oversold extreme.

Trades were highly specific to entry and targets, many entry and targets fell short, this signifies how far off are Current prices.

Big winners GBPAUD GBPNZD and GBPJPY.

Entry and targets below.

GBPJPY 139.93, target 142.81, Actual 139.72 -141.72, +176 Pips. Trade done Tuesday. 143.49, Target 144.82, Not triggered.

GBPUSD 1.2714, Target 1.2939, Actual 1.2686 – 1.2811, +97 Pips. Done Tuesday.

GBPCHF 1.2850, Target 1.3007, Actual 1.2818 -1.2932, +82 Pips. 1.3053 target 1.3145 Not triggered. Done Tuesday.

GBPCAD 1.7113, Target 1.7309, Actual 1.7023 – 1.7179, +66 Pips. Sick Trade. Done Tuesday. 1.7359, Target 1.7456, Not triggered.

EURAUD 1.6233, 1.6260, Target 1.6101, Actual 1.6252 to 1.6101, +145 Pips. Complete Monday.

GBPAUD 1.8689, 1.8733, Target 1.8511, Actual 1.8612 -1.8511, +101. Short 1.8424, Target 1.8335, 1.8246. Actual 1.8424 – 1.8332, +89.

EURUSD 1.1137, 1.1154, Target 1.1223, Actual 1.1107 – 1.1205, From entry +68 Pips. 1.1258, Target 1.1350, Not triggered

EURNZD 1.7133, 1.7168, Target 1.6962, Actual 1.7197 -1.7102, +66 Pips

USDCAD 1.3536, 1.3573, Target 1.3423, Actual 1.3500 -1.3423, +77 Pips. 1.3386, Target 1.3236, Actual 1.3386 – 1.3356, +30 Pips. Total 107 Pips.
CADJPY 80.78, Target 82.44, Actual 81.59 – 82.62. Not triggered. 82.67, target 83.59, Not triggered. Weekly range 81.15 -82.62
GBPNZD 1.9701, 1.9773, Target 1.9554, Actual 1.9681 – 1.9554, +127 Pips. 1.9456, Target 1.9358 and 1.9260. Actual 1.9456 -1.9397, +59. Total Pips 186.
EURCAD 1.5116, Target 1.5078, Actual 1.5085 -1.5078, Weekly Range 1.4924 -1.5085. +7 pips. Horrible EURCAD many weeks running
                                      Brian Twomey

FX May 19 -24

3317 Available, 12 Currency Pairs, 22 Trades.

The 3317 is 3rd highest in 12 weeks and matches 3376 from 12 weeks ago and 3804 in 6 weeks ago.

12 weeks equates to roughly 1 quarter, and 6 to 1/2 quarter. Weeks however different from actual trade days.

On 3804 profited 1127 weekly pips and 3376 profited 1768 pips.

Pips count high cause Trade Contingencies for break points must factor.

1/2 of 3317 =1685. Big week ahead, potential. Available Pips below

GBPJPY 421

GBPUSD 277

GBPCHF 279

GBPCAD 293

EURAUD 132

EURUSD 178

EURNZD 345

GBPAUD 400

USDCAD 281

CADJPY 258

GBPNZD 415

EURCAD 38

Interested in weekly trades then contact. Come sincere to profit and maybe learn, and I assist. Come expecting to become Warren Buffet overnight, No chance. Come as a big mouth “I know everything” as twitter, fxstreet or Linked In participants then no chance. This is a service to assist traders only rather than a trade service open to anybody. 16 years of trading and intense research were devoted to growing accounts and models factored to profit. Rather than spend my remaining years on the French Riviera, I opened to assist interested traders.

 

Brian Twomey

FX Trade Results Feb 22 – May 17

Total Available Pips 12 weeks 33,340 Vs Actual 17,117

Total Available Pips 12 week average 2777 Vs Actual Pip Average 1485

We profit 1485 pips per week on 12 currency pairs. We maintain profit at least 50% of all traded pips on 12 currency pairs.

Total Available Vs Actual 12 Weeks

2988 Vs 136

2422 Vs 1979

2793 Vs 794

2740 Vs 957

2263 Vs 1033

3804 Vs 1127

3195 Vs 1700’s

2942 Vs 1962

2311 vs 1979

2094 Vs 1800’s

2404 Vs 2592

3376 vs 1768

 

Brian Twomey

FX Results May 13 -17

2988 Available Pips, 23 trades, 12 Currency Pairs.

Prices this week Traded to Mathematical extremes, not often seen nor factored as normal Price Trading is always the norm.

Was Caught rare day, by 3 Pairs, GBPJPY, EURAUD and GBPUSD for -600 pips while 9 pairs resulted in Good gains.

Minus 600 results in + 136 weekly pips. Rare day but respect to overall, it reports.

Longs added to GBPUSD, GBPJPY and shorts to EURAUD, hold to target.

GBPJPY 142.92, Target 144.52, Actual 139.89 -142.85. -200, added, ongoing target.

CADJPY 81.52, Target 82.81, Actual 80.95 -81.96. +44 pips. 83.01, Target 84.09, not triggered.

EURAUD 1.6051, Target 1.5949, Actual 1.6038 -1.6250, -199 added, Ongoing target. 1.5924, Target 1.5822, Not triggered.

GBPAUD 1.8665, 1.8710, Target 1.8434, Actual 1.8714 -1.8506, +204 pips ongoing target. 1.8399, target 1.8221, Not triggered.

EURNZD 1.7075, Target 1.6884. Actual 1.7114 -1.7006, +45 ongoing target. 1.6839, Target 1.6721, Not triggered.

GBPUSD 1.2932, 1.2958, Target 1.2995, Actual 1.3040 -1.2753. Minus 200 Pips. 1.3016, Target 1.3121, Not triggered.

EURUSD 1.1122, 1.1158, Target 1.1235. Actual 1.1262 -1.1159. Not triggered. 1.1266, target 1.1350, not triggered.

GBPNZD 1.9784, 1.9839, Target 1.9569, Actual 1.9804 – 1.9489, +235 Pips.

USDCAD 1.3494, 1.3534, target 1.3401, Actual 1.3493 -1.3401, +92 pips. 1.3376, Target 1.3218, Not triggered
GBPCAD 1.7615, 1.7649, Target 1.7472. Actual 1.7522 -1.7472, +50 Pips. 1.7411, Target 1.7309, Actual 1.7411 -1.7164, + 102. On Instruction.
GBPCHF 1.3307, 1.3361, Target 1.3156. Not triggered. 1.2925, 1.2958, Target 1.3092. Minus 37, hold to target
EURCAD 1.5097, 1.5125, Target 1.5084. Actual 1.5145 -1.5084, +41 Pips. 1.5070, target 1.5041, Actual 1.5070 -1.4994, +29 Pips
                         Brian Twomey

Treasury International Capital: TIC Data History

In 1934, under the presidency of Franklin Delano Roosevelt, Treasury International Capital was implemented to provide data on the United States’ International Portfolio Investment and Capital Movements, known today as TIC. The data was collected and reported by various agencies over the years, such as the Bureau of Economic Administration and the census, but problems arose due to a lack of interaction between agencies.

Problems existed with the type and quality of information in the early years, so the Office of Federal Statistical Policy and Standards coordinated statistical efforts across agencies and it ran smoothly for many decades. When the Office of Federal Statistical Policy and Standards lost its role in the 1980’s, Treasury took over the functions of collecting and reporting.

In 1983, after many years of negotiation, the Treasury agreed that the Fed was entitled to have access to TIC data. Thanks to better coordination between the two agencies, TIC data is now collected and quite accurately reported on a monthly and quarterly basis. The reason for this stems from the world crisis due to the Asian currency devaluation. These events caught the world off guard and alerted all nations that a better reporting system was needed.

Since 1974, and the TIC system redesign in 1978, TIC data has been collected and reported every five years and has only covered certain types of securities transactions. Only in the past 10 years has this data been reported on a quarterly then monthly basis. But the collection and types of data didn’t come without problems.

Reporting Problems and Solutions

Currency transactions were never a factor in the early reporting of transactions. Traditionally, when $10,000 entered or left the United States, a Currency and Monetary Instruments Report was filed with customs. But this reporting never reflected TIC data. Today, dollar values as well as currency claims and liabilities of transactions are accurately reported thanks to easy computer transmission and accountability. This began in March 2003 to answer questions like: how does a trading firm incorporated in the United States handle transactions to and from the London office? What if that transaction resulted in a gain or loss, or what if those monies sat idle in an overseas bank account? What if a bank wrote off a bad loan? These are all now fully reflected in the TIC reports.

TIC data is the collection and reporting of purchases and sales of U.S. securities and financial instruments by institutions, governments, central banks, corporations and many other entities. In earlier days, the U.S. was only concerned with reporting and collection of long-term government securities. Now the focus concerns all transactions, short and long term, such as stocks, derivatives, currencies, options, forwards and swaps as well as bank transactions and any cross-border transactions. The purpose is twofold: to report cross-border portfolio positions of nations, central bankers, corporations and other entities, and to determine dollar values that enter and exit the U.S. This is conducted for purposes of accountability and is important for monetary policy purposes. Data is used to determine balance of payments and international policy, and to track international financial markets. The balance of payments is published by the Bureau of Economic Analysis quarterly, in three sections: current accountcapital account and financial account. The balance of payments is the debits and credits of the flow of funds into and out of the U.S.

In 1974, overall ownership of securities by foreigners was 4.8 %, 13.5 % by 2003, while U.S. Treasuries accounted for 14.7 % in 1974 and 45.5 % by 2003. These numbers account for dispersions rather than concentrations by any one nation. Yet these numbers have dramatically increased since 2003 with nation-specific concentrations since part of modern day reporting is nation specific. Since September 2009, China held $798.9 billion in U.S. Government debt, up from $618.2 billion in September 2008. The next largest holder of US debt was Japan which held $617.2 billion in September 2008 and $751 billion in September 2009. Great Britain was third, but didn’t come near these totals.

The monthly TIC data is distinguished by Treasury’s TIC B Reports and the Federal Reserve’s S reports. BQ reports are Treasury’s quarterly reports and FR or FF belong to the Federal Reserve for quarterly reporting purposes. Each will be handled and explained separately with explanation of changes along the historic journey.

Treasury’s BL1 reports dollar-denominated liabilities to foreigners, and excludes short-term instruments. BL2 reports dollar-denominated liabilities from foreigners, and includes longer-term instruments. Institutions refer to depository, bank holding companies, financial holding companies, brokers and dealers. Foreign institutions refer to central banks, ministries of finance, Treasuries, diplomatic establishments, international and regional organizations. FR 2050 is a weekly report of eurodollar liabilities held in foreign offices of U.S. banks. FFIEC 002 stands for Federal Financial Institutions Examinations Council Agency, and reports assets and liabilities of U.S. branches and agencies of foreign banks. They collect balance and off balance sheet information. FFIEC 019- county exposure report for US branches and agencies of foreign banks. This information is collected nation by nation. FR 2644 is a weekly report that collects information on borrowings, loans, deposits and selected balance sheet items.

FRY-7N U.S. reports non-bank subsidiaries held by foreign banking organizations. FRY-7Q capital and asset report for foreign banking organizations. These reports are compiled by the International Reports Division of the Federal Reserve Bank of New York and reported on TIC D forms, which also cover derivatives. The derivatives market had a notional value of $87 billion in 1998 to $454 trillion in June 2006, measured in payments. Measured by market value, it has a value of $3 trillion in June 1998 to $10 trillion in June 2006. Since 2007, derivatives data was reported in TIC data on TIC form D. Federal Reserve S forms for monthly data are U.S. entities that buy or sell long-term securities directly from or to foreigners.

Quarterly reports are represented by forms BQ2, foreign currency liabilities and claims of depository institutions, and part two, customer’s foreign currency liabilities to foreigners. BQ3 reports maturities of selected liabilities of depository institutions and bank holding companies to foreigners. FR2502a reports assets and liabilities of large foreign offices of US banks. Monthly TIC data reports can be looked upon as rollovers leading into the quarterly and semi-annual reports. Monthly and quarterly reports are released by the Treasury and found in detail on the Treasury’s website.

 

Brian Twomey

FX May 13 -17

FX This Week

2988 Available Pips, 23 Trades, 12 Currency Pairs, fairly balanced week at an overall average of 249 pips per Currency Pair.

EURNZD high side at 309 Pips, while EURCAD remains dead at 70,

GBPCHF high side at 359 Pips.

Favored Pair: GBPJPY.

The lineup: Pips per Pair Available.

GBPJPY 230 Available Pips

CADJPY 237 Available Pips

EURAUD 204 Available Pips

GBPAUD 454 Available Pips

EURNZD 309 Available Pips

GBPUSD 168 Available Pips

EURUSD 179 Available Pips

GBPNZD 245 Available Pips.

USDCAD 271 Available Pips

GBPCAD 262 Available Pips

GBPCHF 359 Available Pips

EURCAD 70 Available pips

 

Brian Twomey

FX Trade Results Feb 22 -May 10

Total Available Pips 11 Weeks = 30,352 Vs Actual Pips = 16,981

Total Available Pips 11 Week Average = 2758.54 Vs Actual Pip Average 1544.63

We Profit on Average 1544 Pips per week on 12 Currency Pairs. We Capture and profit at least 50% of all Traded Pips on 12 Currency Pairs.

Total Available Vs Actual 11 Weeks

2422 Vs 1979

2793 V 794

2740 Vs 957

2263 Vs 1033

3804 V 1127

3195 Vs 1700’s

2942 V 1962

2311 Vs 1979

2094 Vs 1800’s

2404 Vs 2592

3376 Vs 1768

 

Brian Twomey

FX Results May 6 -10

2422 Available pips, 12 Currency Pairs, Actual 1279 and 17 trades.
GBP entry Instruction: Enter anywhere short. Spikes Sunday Offered Market Gifts.
Using Sunday Open prices as short entry for Pip Counts, not perfectly accurate as many entered at higher levels.
GBPNZD began overbought, Traded to deeper overbought.
GBPAUD 1.8751, Target 1.8486, Actual 1.8880 – 1.8531, +218 Pips, Ongoing Target.
GBPCAD 1.7672, Target 1.7427, Actual 1.7728 -1.7484. +145.
GBPCHF 1.3385, 1.3419, Target 1.3181, Actual 1.3385 -1.3172, +204.
GBPJPY 146.35, Target 145.30, +105. Perfect. 145.01, Target 144.13, +88. Total 193.
GBPUSD 1.3171, Target 1.3044, perfect. +127. 1.3020, Target 1.2919, Actual 1.3020 – 1.2968. +52. Total 179.
EURNZD 1.6936, Target 1.6834. Actual 1.6874 – 1.7147. Not triggered, RBNZ 1.6783, Target 1.6630, Not triggered.
EURUSD 1.1125, 1.1163, Target 1.1259, Actual 1.1166 – 1.1251, +85. 1.1277, Target 1.1351, Not triggered.
EURAUD 1.5969, 1.5986, Target 1.5901 Actual 1.6119 -1.5906. Add Lot, Target Ongoing. No sweat Target.
USDCAD 1.3510, 1.3548, Target 1.3396, Actual 1.3504 -1.3436, Hold to Target. +68. 1.3358, target 1.3206, Not triggered.
CADJPY 82.47, 82.24, Target 83.29, Actual 81.11 -81.93, missed entry, add lot, hold to target
EURCAD 1.5031, 1.5023, Target 1.5057. Actual 1.5029 – 1.5067. +28 Pips. 1.5095, 1.5103, Target 1.5071, +12 Pips. Total 40.
EURCAD must drop for NZDCAD due to many weeks poor performance. GBPNZD 1.9830 last week open, Entry higher. Target 1.9533, Actual 2.0027 – 1.9683, Ongoing Target, +147.
                      Brian Twomey

Yield Curves 2009

This article was written by me, Brian Twomey in 2009,  thought reader interest today
Yield curves can have dramatic effects on the US overall.

With nations struggling with recessions, low interest rates, and corporate bailouts, maybe it’s time to step back and review not just the individual markets but look at the bigger economic picture through interest rates, yield curves, LIBOR, and Fed funds rates as an indication of where we were and where we may be heading. Through this analysis, you may be able to determine where and when the next cycle will occur so traders will have a better understanding of their individual markets and a broader economic picture.To do so, there is no better way than the old reliable yield curve that has predicted economic boom and bust cycles for many years. In this article I will highlight the definition and purpose of yield curves as a predictor of booms and busts. I will also analyze the LIBOR and fed funds rates, as interest rates are not only the driver of markets but a determinant of economic activity, both past and future.

THE YIELD CURVE
The yield curve measures the difference of interest rates between shorter-term three-month US Treasury bills, medium-term US 10-year notes and newly issued longer-term US 30-year bonds. This is the beginning of prices for fixed-income securities. The prices of these various maturities and trader preferences for yield and length of time they are willing to hold an asset are what form the curve. It is an outgrowth of the markets drawn strictly from the invisible hand, to more or less quote the economist Adam Smith. This is what also gives the yield curve its predictive economic nature.

In the historical sense, the yield curve has four unique shapes: flat, inverted, humped, and rising slope. A rising slope curve simply means interest rates are aligned and properly ordered, where short-term rates offer low interest based on the present interest rate outlook and longer-term bonds offer higher interest rates. All maturities fall within a system of expected economic growth.

An inverted yield curve is quite the opposite. Here, short-term rates yield more than longer-term rates. The long end of the curve comes down. This presages an economic downturn and a fall in interest rates as evinced by investors not willing to risk capital for longer terms. This is an environment not conducive for bank lending, as the “borrow short” and “lend long” scenarios cannot result in profitability. This is the first sign of a downturn and possibly the end of a booming economic cycle.

A flat yield curve occurs when yields of shorter-term T-bills and longer-term bonds yield the same. This is evinced by a straight line on a chart. This scenario reflects an impending economic downturn as confidence in the economy is waning. Flat yield curves may also be derived from previous interest rate reductions.A humped yield curve occurs when short- and long-term yields are equal and medium-term yields are higher than the longer- and shorter-term yields. This scenario would highlight great uncertainty both in the marketplace and in the overall economy. A humped yield curve could be caused by shocks to the economic system such as an asset bubble burst, the recent housing crisis, or any event that has an air of crisis attached to it. Shocks cause yield curves to rise, influencing interest rates on all maturities. This in turn affects the slope of the curve because short-term yields rise faster than longer-term yields. The slope is not the healthy and perfectly ordered upslope where short-term yields and longer-term yields look like a perfect trendline. Instead, a hump in the line takes shape due to the influence of medium-term yields.

To further understand yield curves and the progression of understanding of the causes and effects that influence the lines and slopes associated with the curve, a brief review of the historical research would be apt here.

LOOKING BACK
Historical research less than 20 years old focused on the yield-only model and failed to incorporate or even understand the macroeconomic factors that could influence the curve. How the yield curve correlates to business cycles was a hot research topic 15 to 20 years ago. Introduction To Econometrics, the work by James Stock and Mark Watson, gave relevance to the old Phillips curve as a way to control business cycles. Other factors were considered, but the Phillips curve was high on the agenda.

That was the hypothesis that a tradeoff existed between unemployment and inflation. Low employment means a higher increase in wages. What came from this research was a better understanding of economic activity and improved forecasting methods within the 12 Federal Reserve districts as mentioned every month in the economic releases by the 12 Federal Reserve Board districts. They now measure accurate manufacturing activity. The yield-only model understood yield curves in terms of yield spreads. By subtracting the 10 years from the lower time frame spreads and finding a negative number anywhere along the curve, recession is predicted four quarters or so in the future.

A positive number denotes a healthy economy. Today, however, the difference between the three-month T-bill and the 30-year long bond should have about a three-point spread to denote a healthy economy. The modern-day understanding of the yield curve and its predictive power comes not from spreads, but short-term rates. This can be addressed first through the Fed funds rate.

THE FED FUNDS RATE
The Fed funds rate is the rate controlled by the Federal Reserve. It is short term in nature and controlled by a vote of the Federal Reserve Board eight times a year and managed by the buying and selling of bonds, notes, and bills. This is the rate that banks charge each other for overnight loans. These are the cash rates, or the liquid rates. Because these rates are so short term, all other maturities are influenced along the yield curve.This rate influences the cost of borrowing between people, companies, and governments. A healthy borrowing atmosphere is a sign of a healthy economy because it denotes expansion. To better understand the Fed funds rate, yield curves, and business activity, you must understand Fed funds futures and implied volatilities.

To understand implied probabilities, let’s take a brief walk through history. The Fed controls monetary policy by raising or lowering the prime rate where the Fed funds rate was left to the devices of the market. By 1995, a change occurred in Fed policy where the Fed announced an explicit target for the Fed funds rate to better regulate the supply of money.

This changed economic dialogue. The nominal rate is now the target rate, whereas the overnight lending rate is the effective rate. The overnight rate is important because banks must assure they have the required reserves in their holdings by law. Since November 2008, the Fed now pays interest on reserves of 1% to prevent the Fed funds rate to not slip and trade to zero since today’s rate is 0.25. Perhaps this is the reason for the Fed to change yet again another policy where they now announce a range of their effective rates.

This created a tradable market but was later used as a means to predict the direction of interest rates because of the difference between the target and effective rate. What also helped was the change in Fed policy where they would announce their interest rate changes directly after the two-day meeting and not wait until the next day, as was once the practice.

FED FUNDS FUTURES
The Chicago Board Options Exchange (CBOE) began trading put and call options on Fed funds futures in 1988. These are referred to as implied volatilities and can be one of the best predictors of the direction of interest rates. Banks that wish for rates to stay the same or hedge an interest rate direction, speculators, and traders are all involved in this trillion-dollar market.

For example, assume the Fed funds target rate is 1%. The next meeting is December 10 and you expected an increase of 0.25 to 1.25. Basing the usual contracts over a one-month period, the calculations work like this:

-----------------------
10 (number of days in the month until the next meeting) x
1.00 (rate) + 20 (number of days left in the month) x 1.25
(expected rate/31 days left in the month) = 0.16

 A December fed funds contract priced at 98.99 for an
implied yield of 1.01. So (1.01 - 1.0) (1.16 - 1.0) = 0.16
 ------------------------

So the probability that the Fed will raise rates from 1.0 to 1.25 is 0.16, which is very low. With investors and traders not having much faith in the future upward direction of interest rates, using this example, the short end of the yield curve can only have a downsloping direction. So traders trade the short curve, where their trades are votes on the direction of the money supply.

Another way to look at the short end of the yield curve and a further reason why this end is the most important is to look at a widely traded instrument called the forward contract. Interest rate structures refer to a graph of forward contracts. Within this structure are strip yields vs. maturity of strips. This is called the spot yield curve and just another way to build your own yield curve.Strip rates refer to spot rates. Strips are the yield to maturity plotted on a graph of zero coupon bonds. These are again another way to predict the direction of interest rates. Expectations theory says these rates will prevail in the future. This may be one determinant, but the correlation is not 100%.

There are many other methods to look at short rates through trading instruments to determine the short end of the yield curve. These include credit curves, interest rate swap curves, swap curves, and even the possibility of understanding the yield curve from a longer-term perspective. The Treasury now issues 30-year bonds. A curve can be analyzed from these “on the run” instruments through the long end.

If short rates are coming down according to implied probabilities, what does this say for a trade on the 30-year bond? Another way to look at interest rates and further understand the yield curve is through LIBOR rates.

LIBOR
LIBOR is the one that banks charge each other for overnight loans. This rate is published by the British Bankers Association. This rate is released about 5:00 am Eastern time. LIBOR is an average of measured interest rates. It is not a tradable rate, yet this is where rates begin any trading day in London and are negotiated throughout the day by borrowers. LIBOR is also calculated based on 10 currencies: Australian dollar, New Zealand dollar, British pound, Canadian dollar, Swiss franc, Swedish krona, Danish krone, euro, yen, and the US dollar. The US dollar plays a role through the LIBOR and OIS spreads. OIS is the overnight indexed swaps. These swaps are a measure of available cash for interbank lending and determine interest rates for banks. When cash is not available to lend, the spreads increase. Rates have increased lately because LIBOR is trading well above the prime rate. You can’t borrow short and lend long because bankers and lenders can’t make a profit. Because mortgages are so closely tied to these LIBOR–US dollar rates, consumers can’t expect to find loans readily available.

THE BIG PICTURE
Yield curves in the United States are a product of vagaries of US economic conditions. Yet the economic interdependence that we share with the rest of the world through our markets can have dramatic effects on our yield curve. Newly traded instruments over the last 20 years that have more of a short-term nature can have serious ramifications for understanding the yield curve fully from the short end to the longer term. The focus is always on the short term as this presages implications for future economic activity and interest rates.

SUGGESTED READING
Carlson, John B., Ben Craig, and William R. Melick.
Recovering Market Expectations Of FOMC Rate
Changes With Options On Fed Funds Futures.

Diebold, Francis, Glenn Rudebusch, and Boragan Aruoba
[2003]. Macroeconomy And The Yield Curve: A
Nonstructural Analysis
, October.
Estrella, Arturo, and Frederic Mishkin [1996]. The Yield
Curve As A Predictor Of US Recessions
, Federal
Reserve New York, June.
Stock, James, and Mark Watson [2006]. Introduction To
Econometrics
, Addison-Wesley.
Wu, Tao [2003]. What Makes The Yield Curve Move?
Federal Reserve Bank of San Francisco, June 6.

 

 

Brian Twomey

FX Trades May 5-10

Recall many EURAUD Trades for example 1.6300’s to 1.5600 Targets.
Entry instruction? Anywhere. Just enter. Same Principle this week for many GBP pairs. Did EUR/AUD entry matter at 1.6300’s, 1.6200;s, 1.6100’s, Not against 1.5600 target.
 Recall same Principles for CHF/JPY 500 Pip Profit target achieved, EUR/CAD 500 Pips and many more long Term Trades.
Using Current Market Price to count Available for following:
The line Up.
GBPNZD Available 297 Pips
GBPCAD 145
GBPCHF 204
GBPJPY 105
GBPUSD 228
EURNZD 255
EURUSD 189
EURAUD 154
USDCAD 285
CADJPY 197
EURCAD Available 98 pips
                           Brian Twomey

FX Trades

 

Hello to inquiries for weekly and long term trades, Please contact by e mail brian@btwomey.com and glad to assist all inquiries. Brian Twomey

 

FX Trade Results Feb 22 -May 3

 

Total Available Pips 10 weeks 27,930 Vs Actual Profit Pips 15,702.

Total Available 10 Week Average 2792.2 Vs Actual Profit Pips 1568

We Profit on average 1568 pips per week on 12 Currency Pairs. We capture and profit at least 50 % of all traded pips on 12 currency pairs.

Total Available Vs Actual

2793 Vs 794 Pips

2740 Vs 957

2263 Vs 1033

3804 Vs 1127

3195 Vs 1700

2942 Vs 1962

2311 Vs 1979

2094 Vs 1800

2404 Vs 2592

3376 vs 1768

= 2792 week average Vs 1568 actual per week average

 

Brian Twomey

 

FX Trade Results Apr 29 -May 3

FX Trade Results

2793 Available Pips, Actual 794 as 3 Trades in 145 Pips negative

GBPNZD GBPCHF  and GBPAUD but Ongoing to Target.

All missed Trade Instruction entry by 100 ish Pips however missed entry was opportunity to add 1 lot.. Per week at 794 will run higher by end Friday Trade.

Last 4 weeks, per week actual very low compared to first 5 weeks.

EURUSD 1.1120, Target 1.1268, Actual 1.1144 -1.1264, +120 Pips. 1.1287, Target 1.1324, not triggered.

GBPUSD 1.2889, 1.2859, Target 1.2983, Actual 1.2906 -1.2983, +77,

1.3007, target 1.3125, Actual 1.3007 – 1.3102, +95. Total 172 Pips.

GBPJPY 143.92, 143.65, Target 144.73, Actual 144.03 -144.73, +70.

145.01, Target 146.06, Actual 145.01 -145.87, +86. Total 156.

GBPCHF 1.3220, Target 1.3106, Actual 1.3307 -1.3256, Entry miss 107 pips, Runs -36 Pips. Hold to Target.

1.3078, Target 1.2962, Not triggered.

USDCAD 1.3494, 1.3531, target 1.3371, Actual 1.3480 -1.3378, +102 Pips.

1.3344, Target 1.3230, Not triggered.

CADJPY 82.68, 82.47, target 83.39, Actual 82.58 -83.39, +81.

83.54, Target 84.38 Not triggered.

GBPAUD 1.8517, Target 1.8310, Actual 1.8657 -1.8550, a 140 pips Entry miss, opportunity to add 1 lot, runs -33 Pips, Hold to target

1.8283, target 1.8049 Not triggered

GBPCAD 1.7547, 1.7578, target 1.7390, Actual 1.7578 -1.7296, +82 Ongoing to target

EURAUD 1.5954, target 1.5886, Actual 1.5993 – 1.5940, Trade runs+14, Hold to target

1.5865, Target 1.5774, Not triggered

EURCAD 1.4960, target 1.5058, Actual 1.4993 -1.5058, +65 Pips.

1.5062, target 1.5096, +34. Total 99.

EURNZD 1.6608, 1.6637, Target 1.6722 Not triggered.

1.6780, Target 1.6893, Actual 1.6780 -1.6930, +113 on instruction.

GBPNZD 1.9570, Target 1.9384, Actual 1.9731 -1.9646, Miss entry 161, Trade runs -76 pips. Rare day. Add lot, hold to Target.

1.9337, Target 1.9160, Not triggered.

 

Brian Twomey