Weekly Trades: EUR/NZD and GBP/JPY

EUR/NZD

Short 1.7855 and 1.7880 to target 1.7683

Short 1.7626 to target 1.7513.

Long 1.7683 to target 1.7739.

GBP/JPY

Short 138.55 and 138.73 to target 136.68

Long 136.68 to target 137.87.

Short 136.51 to target 135.14.

 

Brian Twomey

Weekly Trades: AUD/BRL, EUR/ZAR, USD/HUF, USD/MYR, USD/BRL, USD/RON, USD/TRY

Emerging market currencies contain higher exchange rate numbers and far wider ranges than its 28 counterparts whose exchange rate numbers are lower against much smaller ranges. Other than this difference between exchange rates, no distinction exist between EM and 28 currency counterparts.

Best EM trades are found to capture the discrepancy between exchange rate ranges from the 28 counterparts. Currently, TRY, BRL and ZAR contain great opportunities from deeply overbought short, medium and long term. The problem is USD and EUR remain widely entangled with each currency and a break out is warranted yet still not seen.

In a past PLN trade article, addressed was USD/PLN and EUR/PLN contained no distinction as both exchange rates held a small distance. Both exchange rates traded together as one currency and both were either oversold or overbought. The last month’s EUR/USD rise allowed a firm breakout between USD/PLN and EUR/PLN so now a true trade exists and a double trade as for example, long USD/PLN and short EUR/PLN.

The past month’s EUR/USD rise however was far to small to force a break out to USD/TRY Vs EUR/TRY, USD/ZAR Vs EUR/ZAR and USD/BRL Vs EUR/BRL. And why is because EUR/USD ranges are far to small against wide ranges to TRY, BRL and ZAR.
For EUR/USD may move 2 and 400 pips but wide rangers TRY, ZAR and BRL may move 1000 pips and this wouldn’t come close to forcing a breakout.

More time is required before a possible breakout is seen and this assumes USD or EUR will move more widely. A range bound market to USD and EUR will only force TRY, ZAR and BRL ranges to hold much longer.

USD/BRL

Short 5.4452 just ahead of 5.4553 to target 5.3237. Must break 5.3642.

EUR/ZAR

Short 20.8159 to target 20.4004. must cross 20.5851. The target of this trade leaves EUR/ZAR in overbought territoty. The actual target and to have a fighting chance to breakout from USD/ZAR, then EUR/ZAR should trade to at least 20.2158.

USD/TRY

Short 7.3067 and 7.3199 to target 7.2276, must cross 7.2804. The target still leaves USD/TRY in deep overbought territory. USD/TRY should trade to easily 7.0654 and should attain this target easily.

AUD/BRL.

Short 4.0189 to target 3.8428. This target leaves AUD/BRL in deep overbought territoy as AUD/BRL should trade to easily 3.8100’s. Longer term, AUD/BRL is overbought to richter scale levels short, medium and long term. AUD/BRL should contain a 2.000 handle.

USD/MYR

Long 4.1812 and 4.1779 to target 4.2109. Target leaves USD/MYR deeply oversold as USD/MYR should trade to easily 4.2300’s.

USD/RON

Long 4.0955 and 4.0892 to target 4.1711. USD/RON contains easy potential to trade 4.1900 and 4.2000’s.

USD/HUF

Long 292.13 and 291.72 to target 297.32. The target leaves USD/HUF in deep oversold as a better target is 301.00’s.

EUR/USD 24 Hours Ahead

From USD rates

Long short Line 1.1776

Most Important 1.1741 and 1.1753 Vs  1.1783, 1.1791, 1.1798,, ,1.1806, 1.1821, 1.1828, 1.1832  1.1836

Bottom. 1.1717 achieves by 1.1746 and 1.1761

Upper target 1.1836

Continuation Fail 1.1806

Break Point 1.1457

 

From European rates

Long Short Line 1.1776

Most Important 1.1730 1.1747 vs 1.1783, 1.1790, 1805, 1.1820, 1.1827, 1.1831, 1.1835

Bottom. 1.1717 achieves by 1.1746 and 1.1761

Upper target 1.1835

Continuation Fail 1.1805

Break Point 1.1457

 

Longer term most Vital points from European Interest rates 1.1684 and 1.1747 Vs Above 1.1805 vs 1.1868

If 1.1836 and 1.1835 breaks higher then 1.1868 is next vital point. Rare day for EUR/USD to break higher so 1.1868 is useless however as Peter would say, what about an outside event to hit markets or an implosion. Imperative to be prepared.

Longer term most vital points from USD Rates 1.1634 and 1.1681 vs above 1.1871 and 1.1919.

 

No difference between USD and European Interest rates for exchange rate trading purposes. An exchange rate is a glorified interest rate given a different number than an actual interest rate so to create and sustain a market in exchange rate price trading.

We don’t need an exchange rate market cause we could trade only interest rates. View the Sumerians from Iraq antiquity and see how they traded and traded to exchange goods then one would understand this comment. Many academic papers were written on the subject.

The real difference between USD and European Interest Rates is USD rates are high while European interest rate are low. I’m not defining this comment but low interest rates means a higher exchange rate ahead and high interest rates means a lower exchange rate. Unless a change in rates is seen and not likely, especially in these days of dead interest to exchange rates.

Interest rate markets alone as traded instruments is a whole different story but interest rates to exchange rates is the same old tired story since the 2015/2016 changes.

For the next 24 hours, above trades will be either near exact or extremely close. The above methodology to interest rates applies to any financial instrument.

The step ladder to markets works like this: Interest rates, exchange rates, yields then comes commodities and stock markets.

 

Brian Twomey

 

 

Weekly and Daily Trades

Here is the mastery of our trades and the result of many, many years of extraordinarily hard work, tests and tinkering with methods and concepts. I read central bank research papers and Red books to understand what and how central banks trade and view exchange rate concepts.

Red book derives from the BOE but all central banks have a colored coded book with calculations and methodologies to factor their entire economic system to include exchange rates. More than a few of the major central banks today have Red books hidden from the public. The RBA is one example while the ECB’s Statistical Data Warehouse today  became a nightmare to navigate.

The BOE no longer posts its RED book. Sad because the BOE is the most open and best market oriented central bank on the planet. Most open is the FED and RBNZ.  Best is EM central banks such as South Korea, Poland, Brazil, Malaysia, Romania and many others.

No mysteries exist to factor an economic release, yield curves, interest rates, exchange rate trade methodologies and all financial instruments. The central banks are wide open to allow views to their systems. and if a concept is not understood then shoot an email and a reply will come instantaneously.

The BOE for example factors exchange rates by R2 and Student T Statistics. Very simple and highly reliable to calculate and trade but easier to use Simple Regression  as this is a true trend line and it holds for many years.

If for example, GBP was located at the bottom or top of the trend line, the BOE buys or sells  GBP and holds the trade for years. Sometimes they match the trend line by verification of the long term Forward exchange rate premium and Discount. Premium and discount is posted on the BOE site for public view and for many currencies, including Gold factored to GBP.

Not all Central banks control or factor interest rates as they allow the nations’ banking authority to perform interest rate calculations and functions. Every central bank is different and no two are alike.

Weekly and Daily Trades

 

Day trades were derived for example from the ECB and the re jigger to interest rates. The understanding was acquired from the BOE.

I simply adopted central bank methods and factored reliable trades. One looks and sounds archaic today talking about about daily interest rate trades,

Think about these concepts, that nobody on the planet does or can do to trades.

1. Targets. I mastered targets dating to 2012 and no difference exists today.

2. Price Paths. These are vital exchange rate points that must break to allow a price to reach its target destination. It allows the trader to follow the trade or to allow a trader to take profit anywhere along the price path. This price path concept applies to day, weekly and long term trades.

3. Continuous trades. Day or weekly trades contain multiple longs and shorts to allow for continuous trading and continuous profits for each currency pair to trade on every trading day.

4. Break Even. Now and then I miss an entry. This past month has seen rare missed entries. We trade to break even by adding 1 lot or the end result will be profit on 2 lots, the added lot and original lot. Either way, trade to break even means no losses.

5. Benchmark day trades. By watching day trades, the determination is known when weekly targets will reach its trade destination.

6. Weekly trades are known Saturday as traders are fully prepared for the week to entries and targets.

7. No Stops, no charts, no graphs, no ancillary market baloney talk of the day.

8. Day, weekly and long term trades are all factored by pen, paper and calculator. This method hasn’t changed in 10 + years except I have today calculators to enter prices and all relevant trade information is available. This still requires work. The 2012 trades were all factored by Pen, paper and calculator.

9. Difference between trades is we are early in our entries and targets compared to the vast majority of traders. But also we are never wrong. May miss an entry from time to time but targets always achieve.

 

Brian Twomey

 

GBP/USD, EUR/USD, EUR/CAD

 

GBP/USD

1.2942
1.2892 1.2690
1.2993 1.2589
1.3094 1.2488
1.3195 1.2387
1.3296 1.2286
1.3397 1.2185
1.3498 1.2084
1.3599 1.1983

EUR/USD

1.1527 1.1386
1.1597 1.1315
1.1738 1.1174
1.1879 1.1033
1.2020 1.0892
1.2161 1.0751
1.2302 1.0610
1.2443 1.0469
1.2584 1.0328

 

EUR/CAD

1.5525 1.5397
1.5590 1.5333
1.5718 1.5204
1.5847 1.5076
1.5975 1.4947
1.6104 1.4819
1.6232 1.4690
1.6361 1.4562
1.6489 1.4433

 

No charts, No graphs, No stops, No Fibonacci. How about no reliance on incompetent trade services and crooked Fx retail elites

Brian Twomey

Day and Weekly Trade Results: AUD/USD, GBP/USD, EUR/CAD

AUD/USD Break 0.7212, Traded to 0.7175 and +37 pips

GBP/USD Break 1.3126, Traded to 1.3061 and + 65 pips

2 quick day trades +102 pips

Purpose for day trades is profit and / or benchmark to watch for weekly trade target.

EUR/CAD

Short 1.5820 and 1.5850 to target 1.5460.

Highs, 1.5826, Lows 1.5684 trade Runs +142 pips Long way to target

Last week’s trade suffered a loss and entry short was 1.5685 and 1.5678.

 

EUR/CAD Last Week

Short 1.5678 and 1.5685 to target 1.5473

Option is exit last week’s trade at break even and +142 pips for this week’s trade or hold both lots to target.

 

GBP/USD Last week

Short 1.2802 or anywhere to target 1.2648.
Highs 1.3170

GBP/USD This week

Short anywhere or 1.3079 and 1.3088 to target 1.2723.

Highs 1.3186, Lows 1.2981

Today lows 1.3014

Trade runs +74 pips and reduces last week;s loss.

Strategy so far is trade to break even.

We got caught and rare to happen but I know exactly what I’m doing

 

Brian Twomey

 

 

 

 

Day Trade: AUD/USD Vs USD/AUD

 

 

      AUD/USD
 long short line 0.7212
 Most Important 0.7184 and 0.7207 Vs 0.7216, 0.7221, 0.7226, 0.7231, 0.7239, 0.7244 and 0.7249
 Bottom. 0.7176 achieves by 0.7193 and 0.7174
 Upper target 0.7249
 Continuation fail 0.7231
 Break Point 0.6947
                VS USD/AUD
           Actual
 Long Short Line 1.3865
Most Important 1.3695 and 1.3754 or
AUD/USD 0.7301 and 0.7270
Vs above 1.3873, 1.3882, 1.3891, 1.3899, 1.3909, 1.3918, 1.3926, 1.3935
= AUD/USD 0.7208, 0.7203, 0.7198, 0.7194, 0.7189, 0.7184, 0.7180, 0.7176
 Bottom. 1.3795 achieves by 1.3830 and 1.3812 Or
 Bottom. AUD/USD 0.7249, 0.7230 and 0.7240.
Upper target 1.3935 or AUD/USD 0.7176
 Continuation Fail 1.3899  Or AUD/USD 0.7194.
 Day trade AUD/USD Vs USD/AUD
Higher AUD/USD at target 0.7249 Hits USD/AUD bottom 0.7249 or 1.3795.
USD/AUD at upper target = 1.3935 = AUD/USD Bottom at 0.7176.
day trade complete
80 day trades are traded every week, twice daily or 320 day trades every month. That’s 8 currency pairs traded twice daily for continuous trades.
              Brian Twomey

 

Anatomy of a Day Trade: GBPUSD

 

 

                               GBP/USD
 Long Short Line 1.3126
 Most Important 1.3087 and 1.3101 vs 1.3134, 1.3142, 1.3151, 1.3159, 1.3176, 1.3183 and 1.3192
 Bottom. 1.3061 achieves by 1.3094 and 1.3077
 Upper target 1.3192
 Continuation fail 1.3159
 break Point 1`.2779
           The Process
 1. factor the bottom 1.3061, Given by Central bank interest rates.
2. Factor most Important to bottoms. 1.3087 and 1.3101. Those are vital average lines offered by central bank interest rates.
So far we have 1.3101, 1.3094, 1.3087 Most Important, 1.3077 then 1.3061 Bottom.
Bottom Complete. Now able to trade bottom prices.
3. Factor Upper target and Continuation fail Lines. Upper Target = 1.3192 Range Factor,
Continuation fail 1.3159 = MA or 1/2 distance
4. Factor upper levels 1.3134, 1.3142, 1.3151, 1.3159, 1.3176, 1.3183 and 1.3192. Eliminate most vital 1.3192 and 1.3159
We have 1.3134, 1.3142, 1.3151, 1.3176, 1.3183
Break Point = Most Vital MA Line. We track this number twice daily. My system allows this to monitor changes by inserting the daily trade number. A price break above, Long. A price break below then short.
All see the trade as GBP/USD.
The actual Day trade and what is not seen is GBP/USD Vs USD/GBP.
By transposing interest rates to exchange rates, we are able to capture perfectly the range and relationship as GBP/USD Vs USD/GBP.
In 90% + of day trade instances, ranges don’t ever break but its impossible to break because of the range relationship GBP/USD Vs USD/GBP.
 Analysts and commentators say, GBP/USD traded to X Point. Wrong.
Lower GBP/USD maybe only GBP/USD trading while higher maybe USD/GBP trading.
The overall range is generally  factored as 1/2 to GBP/USD and 1/2 to USD/GBP.
The day trade and trade strategy is known long in advance and no mysteries to strategy.
Profit per currency pair is about 50 ish pips per day as a good average. Some days, a bit more, other days, a bit less.
 The day trade system was invented by reading academic papers on new Central bank interest rate and trade methodologies.
For example, they best trades says the BOE are found at 3 news announcements, UK, EUROPE and 8:30 am United States
               Strategy
 Purpose of this system is to trade multiple longs and shorts rather than 1 trade that pays nothing then walk away from the pair.
    Trade strategy.
 1. daily trades best trade opportunities are 3 news announcements for UK, Europe and 8:30 am EST United States.
2. Best strategy is short at or near upper target or long at or near bottoms.
3. Purpose for my day trades is to allow multiple longs and shorts in each currency pair to allow for continuous trade profits.
4. Day trades are used also to track weekly trades. Means day trades inform when will weekly targets achieve destinations.
5. Object for day trades is extra pips for the week so never to get greedy or hold to earn last traded pip.
 6. Long short line. Take the trade in the direction of the break when it complies with the weekly trade. EUR/USD this week is overbought and we are short therefore take the break of the line when price breaks below and trade to at or near bottoms.
7. Multiple trades means long at or near bottoms and short at or near upper targets. or short at or near upper targets and long at or near bottoms. This scenario happens everyday with every currency pair. Don’t trade when price is at center of overall prices.
8. Ranges rarely break except for GBP but it doesn’t happen often. A range break above upper target or below bottoms is a free market gift for free money.
9. A price breaks range above upper target or below bottoms mean price must by math law trade back to above bottoms and below upper target.
10. Most Important are vital daily averages. they change everyday.
11. Continuation fail Line is an average and must break higher in order for price to trade to upper target. A price may fail and reverse short at the continuation fail line.
 12. For long trades are provided most vital trade able points so to follow the trades and to know exactly where the price is located.
13. In all, a low price at or near bottoms will travel long and a price at or near upper target will trade short.
14. use the Long Short Line as the guide.
                        \
               Comparision
  GBP/USD
 Long Short Line 1.3126
 Most Important 1.3087 and 1.3101 vs 1.3134, 1.3142, 1.3151, 1.3159, 1.3176, 1.3183 and 1.3192
 Bottom. 1.3061 achieves by 1.3094 and 1.3077
 Upper target 1.3192
 Continuation fail 1.3159
 break Point 1`.2779
                 USD/GBP
 Long short Line 0.7618 or 1.3127 GBP/USD
Most Important 0.7525, 0.7571,  0.7649 and 0.,7679 = GBP/USD 1.3289, 1.3208 1.3073 and 1.3022
vs above 0.7627, 0.7637, 0.7647 and 0.7652 Or GBP/USD 1.3113, 1.3094, 1.3077, 1.3068.
Bottom. 0.7579 achieves by 0.7578 and 0.7586. Or GBP/USD 1.3194, 1.3196 and 1.3182.
Upper Target 0.7657 or GBP/USD 1.3059
Continuation fail 0.7637 or GBP/USD 1.3094
  Higher GBP/USD trades as GBP/USD and lower trades as USD/GBP.
 if GBP/USD hits 1.3059 then it trades to USD/GBP bottom. USD/GBP trades from 1.3059 to 1.3095
 The USD/GBP aspect is taking the example to a degree not necessarily required and a bit more explanation required.  As the main point is a day trade is the relationship between the currency pair and its opposite.
         Brian Twomey

5 and 10 Year Averages

Last time we visited 5 year averages, the vast majority of 28 currency pairs traded not only below but far below. The moment is here for Non USD pairs to head higher and break 5 year averages or the huge reversal is upon us. The EURUSD is the main pair to watch as it leads its counterparts by break of its 5 year and now approaches the 10 year at 1.2182.

GBP/USD and USD/CAD at 1.3252 and 1.3189 is also upon us. If both break higher and lower then GBP/JPY becomes a great long term trade higher.

AUD/USD at 0.7283 is here while NZD/USD contains another 200 pips to its 5 year.

EUR/JPY is the outlier within JPY cross pairs as it broke its 5 year average at 124.98 and next comes the 10 year at 129.00’s. Problem is 125.00’s contain many resistance points dating to 1998 at 125.27 125.59 and 125.70, then comes 126.05.

GBP/CHF as mentioned remains a great long term trade as its 5 year average is located at 1.3014. Same for AUD/CHF.

GBP/CAD remains a problem and will maintain problem status for many months in the future. EUR/CAD qualifies as the better trade. AUD/CAD remains its traditional dead mover.

GBP/NZD doesn’t have a clue which direction to take while EUR/NZD is the better trade, particularly subject to an out of control EUR/USD.

EUR/AUD is the better trade to GBP/AUD although GBP/AUD is deeply oversold from a long term basis.

EUR/GBP long term is massively overbought and is a non trade able currency pair

 

USD V Non USD

EUR/USD 5 year average 1.1290, 10 year 1.2182

GBP/USD 5 year 1.3252

AUD/USD 5 year 0.7283

NZD/USD 5 year 0.6805

USD/CAD 5 year 1.3189

USD/JPY 5 year 110.74, 10 year 102.19

USD/CHF 5 year 0.9822, 10 year 0.9546

JPY Cross Pairs

EUR/JPY 5 year 124.98, 10 year 129.23

GBP/JPY 5 year 146.98

AUD/JPY 5 year 80.65

NZD/JPY 5 year 75.33

CAD/JPY 5 year 84.03

CHF/JPY 5 year 112.76

CHF

EUR/CHF 5 year 1.1085, 10 year 1.1591

CBP/CHF 5 year 1.3014

AUD/CHF 5 year 0.7152

NZD/CHF 5 year 0.6683

CAD/CHF 5 year 0.7453

CAD

EUR/CAD 5 year 1.4879

GBP/CAD 5 year 1.7472, 10 year 1.7116

AUD/CAD 5 ear 0.9594, 10 year 0.9817

NZD/CAD 5 year 0.8966

NZD

EUR/NZD 5 year 1.6622

GBP/NZD 5 year 1.9521, 10 year 1.9751

AUD/NZD 5 year 1.0702, 10 year 1.1362

AUD

EUR/AUD 5 year 1.5536

GBP/AUD 5 year 1.8238, 10 year 1.8627

EUR/GBP 5 year 0.8548

 

Brian Twomey

 

 

Weekly Trade Synopsis

AUD/USD and NZD/USD and cross pair trades over weeks responded near perfectly to entries targets.

GBP/AUD was the best trade this week for 200 ish pip. EUR/AUD never hit entry. Overbought GBP/CAD was good as expected, despite an overall problem pair, from short 1.7500’s.

Most vital to currency markets overall is the GBP/USD and USD/CAD relationship due to positions as direct opposites. Normal trading GBP/USD and USD/CAD respond near perfectly to entries and targets. Means automatic longs and shorts.

The effect of a perfect market and relationship to GBP/USD and USD/CAD is pairs affected are CAD/JPY and GBP/JPY. its 4 pairs and 4 trades.

2 markets exists in currency trading, normal and non normal. Over the past 4 ish years and 208 weeks of trading to trade 12 and 18 currency pairs, normal trading existed in something like 90% + of weeks. Normal means entries and targets respond as expected and generally this has been the case. Normal trading also means A price that misses an entry is not a worry as targets always achieve destinations in the same week. A missed entry is a market gift for free money as the price overshot.

In rare weeks, targets achieve within the first day or two at weeks beginning of the next week. But at week’s end, the trade may not hit target yet the trade is in profit. I always recommend to take profits to prepare for a fresh trade in the new week as fresh trades are much easier and profits come quickly. Makes no sense to struggle over a few pips that didn’t hit target, especially when profits exist. The name of the game is get the money in the account.

I don’t have a complete analysis on non normal markets because I no longer take a weekly tally of trade results. The 4 or 5 months in 2019 when I took a weekly tally of trades and results, all was working fine and no need existed to check further, especially when this takes hours every Friday. I begin factoring weekly trades every Friday night and end Saturday morning. This is a monstrous weekly job because of the time involved to ensure I’m correct and delivering correct trades.

For non normal markets,  I can say over the past 4 ish years, non normal markets never lasted more than 1 or 2 weeks. Why is because 1, 2 or maybe 3 currency pairs were not price normal and the market always corrected for this non normality. If say 14 or 15 pairs are trading normally then the 3 or 4 pairs not trading normally will correct and trade normally again very quickly. The correctness of the overall normality of prices forces any outlier pairs to correct.

Non normal markets over the past 4 ish years never affected the USD V Non USD currency pairs such as EUR/USD, GBP/USD and AUD/USD  Vs USD/CAD. Only 1 time this happened and it was when GBP/USD drifted every week from 1.2900’s to 1.1900’s.

Non normal prices are the effect of cross pairs because they contain wider ranges than USD V Non pairs. And because more cross pairs exist Vs the 7 USD V non USD pairs. GBP/NZD can only travel so far in relationship to GBP/USD or

EUR/AUD can only travel so far in relationship to EUR/USD. Or EUR/NZD can only travel so far in relationship to EUR/NZD or GBP/AUD to EUR/AUD to GBP/AUD. Bu then comes weeks where divergence exists between certain pairs such as EUR/NZD Vs GBP/NZD. The key is stand clear of divergence.

 

If cross pairs are affected but USD v Non trade normally then cross pairs can only trade so far in relationship to their main base in the USD Vs non USD space. The opposite holds true. If for example, the USD V non USD traded non normally then they can only travel so far in relationship to respective cross pairs.

The last 4 weeks or so is extraordinary to non normal markets as all pairs are effected and this includes USD V non USD and cross pairs. This is a time of deep caution until this period subsides and trades normally again. I don’t remember when was the last time we saw such non normal markets in totality. We must travel back many years to find this answer.

Non normal prices refers to the depth and degree of oversold Vs overbought as we now live in far and deep extremes. In the longer run, this time represents extraordinary opportunity. For the weekly trade, this time represents trouble to entries but not to targets.

Its vital for traders to know when non normality to prices hit markets so to know how to trade and to correct entries. Never trade an overbought or oversold price to more overbought or oversold. That’s not trading, its gambling or Russian roulette and can damage an account because an extreme overbought or oversold price is subject to deep reversals anytime the match is lit.  A few examples.

This week’s deeply overbought EUR/NZD decides to travel about 100 pips higher above entry while GBP/NZD never achieved its entry. EUR/NZD went on the move while GBP/NZD stood still. Correct is when both move together in tandem.

Last week’s USD/CAD and CAD/JPY trades were good to entries and close to targets while GBP/USD and GBP/JPY went ballistic. If USD/CAD and CAD/JPY traded just a bit more to targets then GBP/USD and GBP/JPY would’ve never traded to such wild extremes. Currency prices have a habit of containing each other as one pair won’t allow the next pair to gain such a price advantage.

USD/CAD practically stood still and allowed GBP to trade to extremes.

Targets are never the issue to trades but its entries that matter most. Entries in normal markets work to possible maximum misses as 50, 100 and 150 pips to account for USD V Non pairs for 50, then 100 pips for medium term movers such as EUR/CAD and GBP/CAD then 150 to wide rangers GBP/NZD, EUR/NZD, GBP/AUD, EUR/AUD. Missed entries are generally not the order of the day in normal markets. More normal is 20, 50 and 75 for wide rangers.

For AUD/USD and NZD/USD and cross pairs, 50 pips is about max to a missed entry.

 

More later, gotta go,

 

Brian Twomey

 

 

 

 

 

 

 

 

 

 

 

 

Exchange Rates: Reciprocals, Forwards and Factor Currents Rates

1 divide exchange rate offers the reciprocal of the exchange rate. Reciprocal was the word used in the old days and it was a matter of course. Today, reciprocal means opposite and most today associate reciprocal as opposite and its termed opposite by today’s trading crowd.

1+ is vital to factor an interest rate to obtain a true interest rate because interest rates are offered and seen by the public as a percentage.

1000 becomes vital to factor not only exchange rates but Forward exchange rates.

Most important formula in all FX trading is

Interest Rate differential X number of days X Outright or Interest rate base divide by Day Count ( 360 or 365) X Spot price X 100.

Forward exchange rates are factored also by Forward points as Spot price + divide by Forward points divide by 1000. Spot + answer to forward points divide 1000 = Forward exchange rate.

Easier ways exist to accurately trade to a long term target.

EUR/USD 1 divide current 1.1796 = USD/EUR 0.8477. Opposites hold true as 1 divide USD/EUR 0.8477 = EUR/USD 1.1796.

EUR/JPY 1 divide Current 124.97 = JPY/EUR 0.0080019. Must take JPY pairs to minimum 7 decimal places to the right.

EUR/JPY 1 divide 1.2497 = JPY/EUR 0.80019204

See the difference.

EUR/JPY exchange rate is found by EUR/USD X USD/JPY

1 Divide current EUR/CHF 1.0788 = CHF/EUR 0.9269.

EUR/CHF exchange rate is found by EUR/USD X USD/CHF

EUR/CAD 1 divide current 1.5775 = CAD/EUR 0.6339.

EUR/CAD exchange rate is found by EUR/USD X USD/CAD

EUR/NZD 1 divide current 1.7821 = NZD/EUR 0.5611.

EUR/NZD exchange rate is found by divide EUR/USD by NZD/USD

NZD/EUR exchange rate is found by NZD/USD divide EUR/USD

EUR/AUD 1 divide current 1.6501 = AUD/EUR 0.6060.

EUR/AUD exchange rate is found by EUR/USD Divide AUD/USD

AUD/EUR exchange rate is found by AUD/USD divide EUR/USD

EUR/GBP 1 divide current 0.9025 = GBP/EUR 1.1090.

EUR/GBP exchange rate is found by EUR/USD divide GBP/USD

GBP

GBP/USD 1 divide by current 1.3054 = USD/GBP 0.7660.

Opposite holds true as 1 divide USD/GBP 0.7660 = GBP/USD 1.3054.

GBP/JPY 1 divide current 138.34 = JPY/GBP 0.00722856

GBP/JPY exchange rate is found by GBP/USD X USD/JPY

GBP/CHF 1 divide by current 1.1945 = CHF/GBP 0.8371.

GBP/CHF exchange rate is found by GBP/USD X USD/CHF.

GBP/CAD 1 divide current 1.7471 = CAD/GBP 0.5723.

GBP/CAD exchange rate is found by GBP/USD X USD/CAD

GBP/NZD 1 divide current 1.9733 = NZD/GBP 0.5067

GBP/NZD exchange rate is found by GBP/USD Divide NZD/USD

NZD/GBP exchange rate is found by NZD/USD divide GBP/USD

GBP/AUD 1 divide current 1.8266 = AUD/GBP 0.5474

GBP/AUD exchange rate is found by GBP/USD divide AUD/USD

AUD/GBP exchange rate is found by AUD/USD divide GBP/USD

AUD

AUD/USD 1 divide current 0.7138 = USD/AUD 1.4009

USD/AUD 1 divide current 1.4009 = AUD/USD 0.7138

AUD/JPY 1 divide 75.73 = JPY/AUD 0.01320480

AUD/JPY exchange rate is found by USD/JPY X AUD/USD

AUD/CHF 1 divide current 0.6538 = CHF/AUD 1.5295

AUD/CHF exchange rate is found by AUD/USD v USD/CHF

AUD/CAD 1 divide current 0.9566 = CAD/AUD 1.0453

AUD/CAD exchange rate is found by AUD/USD X USD/CAD

AUD/NZD 1 divide current 1.0799 = NZD/AUD 0.9260

AUD/NZD exchange rate is found by AUD/USD divide NZD/USD

NZD/AUD exchange rate is found by AUD/USD divide NZD/USD

NZD

NZD/USD 1 divide current 0.6605 = USD/NZD 1.5140

NZD/JPY 1 divide current 70.08 = JPY/NZD 0.01426940

Or 1 divide 0.7008 = JPY/NZD 1.4269

NZD/JPY exchange rate is found by NZD/USD X USD/JPY

NZD/CHF 1 divide current 0.6051 = CHF/NZD 1.6526.

NZD/CHF exchange rate is found by NZD/USD X USD/CHF

NZD/CAD 1 divide current 0.8855 = CAD/NZD 1.1293

NZD/CAD exchange rate is dound by NZD/USD X USD/CAD

CAD

USD/CAD 1 divide current 1.3405 = CAD/USD 0.7459

USD/CAD exchange rate is found by 1 divide CAD/USD

CAD/CHF 1 divide current 0.6829 = CHF/CAD 1.4643

CAD/CHF exchange rate is found by USD/CHF divide USD/CAD

CHF/CAD exchange rate is found by USD/CAD divide USD/CHF

CAD/JPY 1 divide current 79.11 = JPY/CAD 0.01264062

Or

1 divide 0.7911 = 1.264062697

CAD/JPY exchange rate is found by USD/JPY divide USD/CAD

JPY/CAD exchange rate is found by USD/CAD divide USD/JPY

CHF

USD/CHF 1 divide current 0.9151 = CHF/USD 1.0927

CHF/USD 1 divide 1.0927 = USD/CHF 0.9151

CHF/JPY 1 divide current 115.96 = JPY/CHF 0.0086236

CHF/JPY exchange rate is found by USD/JPY divide USD/CHF

JPY/CHF exchange rate is found by USD/CHF divide USD/JPY

JPY

USD/JPY 1 divide current 106.11 = JPY/USD 0.00942418

JPY/USD 1 divide current 0.00942418 = USD/JPY 106.11

 

Brian Twomey

The Louvre Accord: The Fight Against U.S. Dollar Deflation By Brian Twomey

To understand the purpose of these accords, the prior 1985 Plaza Accord must be understood in terms of allowing the dollar to slide 20% against the Japanese yen, 15% against the French franc and 15% against the German Deutsch mark. All the G-6 nations feared Inflation and the ability to sustain five years of constant economic growth since 1982.
With two years of dollar depreciation agreed to in 1985 with the Plaza Accord, the United States was sustaining huge twin deficits in its domestic and Current Account budgets. In 1986, the trade deficit rose to approximately $166 billion with exports at about $370 billion and imports at about $520 billion.
The Trade Deficit alone approached approximately 3.5% of the GDP while the Japanese had a surplus of 4.5% and the Germans 4% of the GDP. Not only were foreigners tired of financing U.S. trade by purchasing United States Treasury bonds and importing inflation into their own nations, but Democrats gained control of Congress in 1986 and called for Protectionist measures. (To learn about the Plaza Accord, check out The Plaza Accord: The World Intervenes In Currency Markets.)

What separated the Plaza Accord from the Louvre Accord was that the Plaza Accord was a trade agreement, one that would be reached by the realignment of currencies to satisfy acceptable levels of trade for all nations.
The United States went from surplus to deficit in two years. The U.S. complied, however, as the dollar index on the NYBOT fell from 130 to 123 in two months in 1985 and from 124 to 108 in 1986. These dollar levels proved to be unacceptable as twin deficits mounted in the United States and surpluses increased in Europe and Japan. The Louvre Agreement was convened to stop the slide of the dollar and achieve currency price stability among all industrialized nations.
What made the Louvre Accord such a historic document was its focus not only on realignments but on the coordination of macroeconomic fiscal and monetary policy for all nations.
France agreed to reduce its budget deficits by 1% of GDP and cut taxes by the same amount for corporations and individuals. Japan would reduce its trade surplus and cut interest rates. Great Britain would agree to reduce public expenditures and reduce taxes. Germany, the real object of this agreement because of its leading economic position in Europe, would agree to reduce public spending, cut taxes for individuals and corporations, and keep interest rates low. The United States would agree to reduce its fiscal 1988 deficit to 2.3% of GDP from an estimated 3.9% in 1987, reduce government spending by 1% in 1988 and keep interest rates low.

Combining fiscal and monetary policies, the accord was believed to be capable of stabilizing any imbalances in the system and allowing economic prosperity to move forward, provided that coordination remained the focus.

A second aspect of historical importance was the introduction of reference ranges for currency prices rather than exact price targets. This allowed a focus not on strict trading bands as outlined in the Plaza Accord but intervention if currency prices traded outside the reference range.

 

The Plaza Accord stated currency prices would stay within the upper and lower 2.5% trading band, an aspect of the agreement encouraged by the Europeans since the adoption of the European Monetary System in the ’70s. The new policy of the Louvre Accord would focus on coordinated policy consultations if the U.S. dollar appreciated or depreciated by 5% or more while violation of the 2.5% band could lead to voluntary mutual intervention.

A final aspect of the Louvre Accords was the focus on least developing nations, which followed the same policy as the Plaza Accords.

Due to a falling dollar over the prior two years, least developing nations were experiencing high commodity prices, high inflation, an inability to participate in the world trading system and rising debt owed to banks in the industrialized nations subject to these agreements. So again, a new agreement was needed to stabilize the system for least developing nations.

Stability was achieved for the first eight months of the Louvre Accord as the dollar traded on the NYBOT with an average price of 96 with a spike lower in April when President Reagan threatened Japan with 100% tariffs on imports. This was followed by a further spike lower in May when the fed funds rate was increased from 6.5-6.75%.

The real breakdown of the Louvre Accord would occur in October 1987, when the Germans increased short-term interest rates from 3.60 to 3.85 due to inflation fears. This forced the United States to raise its discount rate as the federal funds rate increased to 7%.

The increased rates forced the 30-year Treasury bond to peak to 10.25% and sent the U.S. stock market tumbling some 500 points. The dollar eventually traded down to 86 and far exceeded the reference range bands.

The Japanese and Great Britain would also see rate increases. By January 1989, the Germans had introduced a withholding tax on interest income so any chance of a rescue of the Louvre Accord had disappeared.

What the breakdown of the Louvre Accords gave the world was an absence of further agreements to fix exchange rates.

Instead, floating exchange rates would be governed by the market, rising and falling based on inflation and interest rates

Note. As far as I see, I don’t have a private record of this article. It was taken from a website nice enough to posit it. Its accurate and my writings.

Here’s the key. All past articles from investopedia are not in most original form. They add tags and references such as here’s the bottom line. I’m not sure about a total re arranging of the article to content but I don’t trust these people personally. All are affected and many others wrote great things way back when. Emmanuelle from Fxtrader magazine and Jayanthi from Stocks and Commodities magazine would never do this to all past content especially Stocks and Commodities as really great content exist from days long past.

Next i will post Bank research and who knows what else I will find.

 

Brian Twomey

 

 

Weekly Trades: GBPUSD and EUR/CAD

GBP/USD

Last Week

Short 1.2802 or anywhere to target 1.2648.
Highs 1.3170. Last week open price 1.2790.

Long 1.2648 to target 1.2686.

Highs 1.3170. Last week open price 1.2790.
Off 368 pips. Close 1.3076, off 274 pips

This week

GBP/USD

Short anywhere or 1.3079 and 1.3088 to target 1.2723.

Short below 1.2704 to target 1.2554.

Long 1.2723 to target 1.2814

EUR/CAD

Last Week

Short 1.5678 and 1.5685 to target 1.5473

Highs 1.5977

off 292 pips. Close 1.5784, off 100 pips

This week

EUR/CAD

Short 1.5820 and 1.5850 to target 1.5460.

13 pip change to target.

Current records to the present model dates almost 4 years or 208 weeks of trades. Weekly trades began at 10 and 12 currency pairs and for the past 2 ish years, 18 weekly currency pairs trade.

EUR/USD and GBP/USD were not only clear leaders over the past 3 weeks to drive cross pairs but such wild prices hasn’t been seen in 208 weeks of trades. EUR/USD from high 1.1400’s to low 1.1500’s was done and an expected reverse experienced a 300 pip rise. GBP/USD likewise from overbought 1.2800’s decided to travel 300 pips higher.

Many years may pass until such wild prices are seen again. In non normal markets, 1 or maybe 2 currency pairs are misaligned or possibly an entire set of currencies such as all GBP or all EUR. GBP and Brexit February 2019 was the last time all GBP went ballistic.

GBP/CAD and EUR/GBP for example are problem currency pairs. But these factors are known in advance and offers clear warning to stand clear. USD/JPY and USD/CHF are never favored trades. Gold is a problem since overbought 1500’s and now 1900’s. We stand clear. Gold may travel higher, we stand clear until a normal trade exists.

In the meantime, we add 1 lot and trade to target or trade the new weekly trade to target which is at last week;s entry and that means no losses.

 

Brian Twomey

Brian Twomey Past Articles: Now Posted

Written trade- related feature articles, market commentary and posted trades began somewhere in 2006 and 2007 in Stocks and Commodities, Working Money, Investopedia, Thomson Reuters and many other sites.

Later by 2011, trades, features and commentary posted to Fxstreet dot net and dot com and investing dot com. The Thomson Reuters articles were few and mainly passed off to analysts covering the specific currency. Further to Thomson Reuters are my trades with Peter Wadkins and Johathan Clake of Cycle Guru fame. Which is actually FX Concepts.

Roughly 40 and 60 mentions and trades are posted by Peter from 2012 to 2014 ish. Not yet posted nor do I know if they should post due to the amount.

Since this current site is my main avenue of communication, I retrieved many past articles to retain on site as all articles are assorted throughout many websites. And due to the abundance of new information, past articles are buried.

Many, many past articles are still located at Stocks and Commodities and Working Money and I don’t know yet how nor if those articles can be retrieved.

I stopped my current article search in 2014 with 6 years more to go and still not considered Stocks and Commodities and Working Money.

I wish also to post years upon years of currency and market research with the idea I may assist others along their current journey. Never before posted and deeply researched math formulas, deep dive into Fibonacci, trade methods that work and those that don’t. The list and topics are long and endless.

Quick examples. Interquartile Range. Take 1.34896 X SD then divide the range by 1.34896. Inflation factors to the Output Gap but also to its relationship to Money Supplies, Interest rates and GDP. Moments of the distribution where Skew is worthless. John McGinley spoke to moving averages , prices and retention of prices to moving average lines. Take Average X SD = Slope. keep it simple.

I also retained and wish to post just absolutely beautiful bank FX commentary and analysis from days of old. Long gone are these days to see such excellent and dead on track analysis.

Long gone are the brilliant commentaries from Peter as Thomson Reuters switched methodologies from brilliantly written commentaries and analysis to quick market bullet points. To write for Thomson Reuters and even consideration to a job, one must have minimum 10 years FX Bank Dealer experience. This means ACI Certification is required. Otherwise, forget it.

Astounding to view past writings from Banks, Thomson Reuters even from myself to what passes today as analysis and commentary is truly worthless information and non actionable analysis. The breakdown has lasted at least 10 years and has grown worse by the year.

As analysis dwindled, the greats of FX disappeared into the woodwork and replaced with zero analysis and entry and exit = profits. Even the banks fell prey to entry and exit = profit. No commentary, analysis nor methodology break down, just enter and exit = profits. And many have failed this mission but most haven’t even tried to master trades nor to find interest in the things that make FX work and move.

So I will be posting stuff, all kinds of stuff to retain on my site. I suspect little interest but that;’s okay with me as I write and post my own interests. And I wish for my 16 years to be found in one location.

Articles posted

Australia Money Supply and Interest Rates. Australia doesn’t have Bank Maintenance Periods but uses the overnight rate as vital to its banking system.

Maintenance Periods and Money Supply: Europe, United States and Japan. Written for the European Banking Federation newsletter.

Fx Points, Spot Effect and Hedging by Peter Wadkins. FX Points, what a topic and should be known by every FX trader today but its not known.

Continuing Claims History

Market Technicians Association

National Futures Association. Is a guy truly a money manager then the NFA knows by Certifications.

Taylor Rule

McGinley Dynamic and Moving Averages

Gauss and the Bell Curve

New Zealand Central Bank and History

International Fisher Effect

T Bill Auction History

Commodity Cycles

Treasury International Capital: Tic Data History

International Monetary Market

Debt Monetization

Japanese Keiretsu and Zaipatsu

McGinley Dynamic part 2.

Australia Vs United States Tax treaty. Never published. Without Treaty, currencies can’t trade

Kairi Relative Index: Similar to RSI, not much difference yet a comparison.

Plaza Accords

Smithsonian Agreement.

Louvre Accords. Soon to post

Coinage History in the United States

Primer on Cross Currency Triangulation

Cross Currency Coefficients

UK Tax Implications Vs United States for Currency Traders

Fifo to Lifo Rules 2009. Market turning point as we switched from buying and selling lots to spreads

Big Mac Index

Currency Chart Congestion Counts

Forward vs Spot Rates

Ichimoku Trading Indicator

 

Brian Twomey

Australia Money Supply and Interest Rates

   Exchange Rate vs Money Supply
  Notice the money supply, inflation/CPI and economic GDP forecasts are determined by an interest rate rather than an exchange rate. Inflation and /or interest rate targeting in relation to the money supply and the pricing of interbank money and capital market instruments became a phenomenon in the 1990’s for most central banks. The effect balanced an interest rate to the money supply. Both share a sort of see saw, inverse relationship, a methodology easier to manage for central banks because what was found in paper after paper was one single entity,one economy has a high correlation to its money supply, interest rates and inflation.
A proper economic forecast can be made based on the balance of all three rather than a single focus on GDP output for example. Notice the historic CHART of AUSTRALIA’s CASH RATE, INFLATION AND GDP GROWTH as one example representative of many economies today. The Cash Rate tracks inflation within the stated parameters of the Cash Rate target while GDP grows when inflation and the Cash Rate are low.
  To manage the money supply in relation to a spot price or exchange rate ties two economies together so one nation attaches its economic fortunes to another. These arrangements were called pegs, fixed or crawling, and were eliminated by the major nations as a form of economic practice and exchanged for the money supply, inflation and interest rate target method because pegs caused wild swings in spot prices and so became unmanageable. Under inflation targeting, economies became separate entities with an inward focus on their own historic economic culture and the exchange rate price became a function of economic factors for each nation primarily based on a money market interest rate.
Even if one side of a currency pair was priced based on a single nation’s supply of money, the forecast, pricing and management function would be difficult and time consuming. To follow the methodologies and trade financial instruments using inflation targeting, the indicator order works as money supply, interest rates then inflation and GDP. A further management function is found in international reserves.
  The management function of exchange rates as well became a separate entity for each central bank. International reserves are found in the balance sheet of every central bank and highlighted by composition of currencies in the reserve, income, profit or loss from foreign currency transactions and swaps to name a few categories. From a market and trading perspective, composition of currencies in the reserve is most important because it determines cross border flows and currency employed to facilitate those flows through swaps, which currency to replenish at month end and if an economy employs its own currency to fund their own economy. Sweden for example relies primarily on US Dollars to fund its economy so USD/SEK deserves prominent attention from a trader perspective in terms of Sweden’s money supply, interest rate and exchange rate with the US. EUR/CHF in terms of German and Swiss economic and cultural relationships is profoundly important in terms of cross border flows.
                                               Australia
 Australia not only lacks a maintenance period but a reserve requirement as well. The method employed is the target for the Cash Rate, an unsecured lending overnight rate and pays 25 basis point interest on balances below the target for the Cash Rate. (Gray 2010).
The Cash Rate is determined by an end of day survey of only the largests banks, 25 at last count. Survey questions ask about borrowed and lent funds and is based on a weighted average by value. (RBA).
  The Cash Rate is the target of the overnight rate and is not only the policy rate that determines a loan rate but its the basis for all other interest rates in the Australian system. It represents a floor of interest and moves inversely with the money supply.
From a market perspective, the Cash Rate forms the basis of the money market yield curve then the capital market yield curve. What follows the Cash Rate as trade able money market instruments are Bank Accepted Bills with durations of 30, 90 and 180 days.
  Bank Accepted Bills are bills of credit, drawn by customers and extended by banks to business. The market comprises 20 percent of loans, 80 percent for Certificates of Deposit. ( Matthew Boge and Ian Wilson 2011, The Domestic Market for Short Term Debt Securities, RBA Bulletin, Sept 2011 ).
Bank Accepted Bills then determine overnight Index Swap rates with 1, 3 and 6 month durations. This means as Bank Bill Swap Rates, Aussie Dollars are borrowed by prime banks at the 10:00 a.m. Sydney, 6:00 p.m. New York Fix.
   Interest rates then moves to the capital market to price 1,3 and 6 month Treasury Notes as well as longer term Commonwealth Government Bonds. Figure CHART CASH RATE, BANK BILLS AND Overnight rates and notice the overnight rate priced at 4.23 and compare that rate to the targeted interbank Cash Rate. Further view the CHART CREDIT TO MONEY GROWTH HISTORY.
  The current Cash Rate is 4.25 and the inflation rate is 3.50. The RBA maintains an inflation target of 2-3 percent over a medium term. The medium term is an average rather than a rate. Stability of the currency and full employment is the foundation for Monetary Policy.
  The current economic situation in Australia has been fairly steady since 2006 so money supplies and interest rates equally held consistent. For the short term, its vitally important to look at the 90 day Bank Bill because its the one rate that can’t be controlled by future money supply predictions and therefore trades with volatility. This point was always known and outlined by Bob Rankin in his 1992 paper “The Cash Market in Australia”, a highly recommend read. ( “The CASH MARKET IN AUSTRALIA”, BOB RANKIN, 1992, RBA RESEARCH DISCUSSION PAPERS).
                                               TRADE STRATEGY
  For AUD/USD, a rise in the money supply is a sell provided interest rates move opposite. In US markets, AUD/USD comprises the overnight rate/ Effective Fed Funds rate until a trading rate is established in the capital markets.
  In Europe, Eonia/Aussie overnight night rates comprises EUR/AUD. Currency pairs can rearrange for example as Effective Fed Funds/Aussie overnight for USD/AUD and Aussie overnight/ Eonia for AUD/EUR.
When European markets close, EURIBOR/Aussie overnight rates comprise EUR/AUD and Aussie overnight / EURIBOR for AUD/EUR.
 In Japanese trading, AUD/JPY comprises the actual Cash Rate and/ or Bank Bills to Yen Tibor when Yen Tibor is fixed in Japanese markets, opposite arrangements for JPY/AUD.
Euroyen can factor as Euro currency to Yen Tibor for EUR/JPY.
  USD/CHF factors as Effective Fed Funds/ Swiss repo and Effective Fed Funds/SARON  when Swiss markets close.
                                                   CRAWLING PEG
  The true definition of a crawling peg is the link between two nation’s money supply. For Australia before formal operation of its central bank formally named the Royal Bank of Australia in 1960, reserves of Australian Dollars were held in Sterling accounts. Aussie Dollars moved in the markets based not only on British Pound movements but United Kingdom interest rates until December 1983 when  the Aussie Dollar achieved its free float status.
2011 European Banking Federation Newsletter
Brian Twomey

 

 Maintenance Periods and the Money Supply: Europe, United States, Japan

 Maintenance Periods and the Money Supply: Europe vs the United States
Published 2011 in Eurpean Banking Federation Newsletter. Seems incomplete as Australia is missing and others
   Maintenance periods is an old issue no longer discussed yet its import should be understood in order to determine the demand and supply of money, interest rate direction and purpose employed through market mechanisms such as Eonia and Euribor in Europe and Fed Funds in the United States. Maintenance periods for central banks defines monetary policy by pricing a nation’s demand and supply of reserves to an interest rate. Yet each central bank that employs a maintenance period deploys those periods in different ways.
   A maintenance period  for the Eurozone is the time between governing council meetings, an ECB policy rate meeting in market parlance with a purpose to price excess reserves placed by banks on account at the European Central Bank. Reserves are averaged monthly over the maintenance period term. The ECB then provides liquidity to the banking system by bankers who bid for Euros through weekly and three month auctions at the Main Refinance Rate, also termed the Minimum Bid Rate.
   The Refi rate is the most important interest rate in Europe because it influences prices in market interest rates such as Eonia, Eurepo (Repurchase Agreement Rate) and Euribor to satisfy ECB policy to bring price stability to the European system based on the ECB Treaty on the Functioning of the European Union Article 127.
 Price stability for the European consumer is found within the Harmonized Index of Consumer Prices, a quarterly economic release to measure prices in relation to inflation and the Refi Rate. More importantly, the Refi rate is also termed the base rate because it establishes at what interest rate reserves are expected to grow or contract and appears in M3 money supply forecasts. Reserves are also termed the money supply, interest rates are termed reserve rates and reserve requirements are the terms of reserves vs deposit liabilities, sometimes called the cash ratios due to focus on balances in accounts.
   Excess reserves are paid an interest rate to manage liquidity. For the European system, the overnight rate termed Euribor or the Euro Interbank Offered Rate is paid on excesses for the short term. Reserve deficits are charged an interest rate termed Eonia, Euro Overnight Index Average and a weighted average of Euribor. Eonia is the rate bankers charge each other for overnight loans and represents the floor of interest rates. Eonia is an effective rate to Euribor that trades contracts from one day to 24 months with a Fix time of 19 CET, 1:00 p.m. New York after European market closes.
  Excess reserves once priced are loaned throughout the banking system to multiply Euros by borrowing at the Eonia rate and lending at Euribor. Euribor is a term deposit, fixed at 11:00 a.m Central European Time, 5:00 a.m. New York with 1 week to 12 month lending terms with a T+2 two day spot value. Spot value dates establishes foreign banks in different time zones to adjust their own books within their own trading hours.
Notice not only Euribor establishes loan rates for mortgages, consumers, major companies but are indexed through Fixed Rate Tenders and offered by the ECB since 2008. A Fixed Rate Tender simply allows the ECB to offer money, Euros at a fixed price. This represents what is known as the interest rate corridor or channel for the European system that establishes a floor and ceiling of daily interest rates.
The Fixed Rate Tender forces money into the interest rate channel by pricing liquidity at a desired price and allows a Maintenance period time to maintain its existence throughout policy meeting to policy meeting.
   The purpose of the 1999 introduction of these short rates is to price reserves on a daily basis and gives indication of the demand and supply of Euros to meet the three month, money supply refi target rate. Above the target means inflation and an erosion prices, below means deflation. Both are an uncertain cost to reserves.
  Euribor rates are established through an average of bids and offers for Euros by bankers who comprise the panel of bankers at the European Banking Federation in Brussels. Once the rate is released, bankers with excess reserves loan Euros at OIS Euribor- Libor + 100 basis points while bankers with deficits borrow.
The 100 basis point figure is derived from the size of the interest rate corridor as corridors change with expansion and contraction of interest rates over time. If the price of Euribor interest is not sufficient to meet a deficit nor sufficient to meet Euro supply, bankers can swap Euribor interest rates in another currency.
  Euribor then transforms terminology to an Overnight Indexed Swap rate. If the swap was completed with OIS Euribor-Libor and  OIS-Fed Funds, bankers would buy/sell or sell/buy. With present lower interest in the US compared to the Eurozone, bankers would sell OIS-Fed Funds and Buy OIS-Euribor. The proceeds of OIS-Fed Funds is added to OIS-Euribor for one week to 3 months or longer in order to meet the insufficiency of interest in the Eurozone.
  What is funded within the demand/supply, deficit/surplus equation from a bankers perspective are deposits not only in Euros but Swiss Francs, US Dollars and British Pounds. CHART of EURO DEPOSITS
   Euribor and Eonia are trade able market rates that trade as futures contracts on Euronext based on a 360 day count.
Euribor/Eonia Swap Index futures is one such contract. Euribor prices are quoted in percents to three decimal places as 100 minus the rate of interest, 0.005 equals 12.50 Euros. Eonia trades as 100 minus the traded average effective Eonia rate, 0.005 equals 12.50 Euros.
Since 2008, the one month Eonia contract and the three month Eonia swap index aligned in terms of trade and settlement to central bank maintenance periods. The Eonia three month contract trades normal International Money Market dates while the one month contract is aligned to European maintenance periods. Eonia swap rates is a measure of future overnight rates.
  Interest rates and Euribor share an inverse relationship, a rise in the Refi rate will see a decrease in Euribor while an decrease will see an increase in Euribor contract prices.
  A trader will find as the money supply increases, Euribor rates decrease while a money supply decrease will see a Euribor increase. Euribor bids and offers are based on one week to 12 month terms for 15 maturities with a Fix time 11:00 CET, 4:00 am New York. Most important is Euribor and Eonia are unsecured loans hence unsecured interest rates.  CHART  EURIBOR and EURO MONEY SUPPLY.
   Eurepo is a secured loan, employed as the repurchase agreement rate. A range of  European interest rates is measured by the spread of unsecured rates to the secured interest rates. CHART EUREPO VS EURIBOR
   Figures 6.8 and 6.9 are charts of the interest rate corridor for the ECB, US, Japan and the BOE. Each nation has various means to achieve the desired three month money supply target. For the short term, the Japanese employ Call rates, the BOE remunerates and indexes reserves at the Bank rate with Sonia rates as the daily operational guide and the US employs the Fed Funds rate. The Japanese, ECB and the US employs maintenance periods while AustraliaCanada and New Zealand do not.
  Most important for the Japanese, ECB and the US maintenance period time is short rates establishes the start of the day’s yield curve. The interest rate releases at the predetermined Fix time answers the question long or short a currency pair and/or which pair to swap in interest rate terms. More important is the fix time establishes the pricing of financial market instruments such as government bonds in each respective market.
                        United States Maintenance Periods
  The Federal Reserve Board established in 2008 what it calls maintenance periods. These are weekly periods during which banks must maintain required reserves. Maintenance periods cover 14 consecutive days.
Required reserves began as Reg D that appeared first in the Federal Reserve Act of 1978  then carried forward to the 1980 Monetary Control Act that imposed mandatory reserve requirements. All governments then imposed  reserve laws and this gave rise to the need for the British Bankers Association as reserves had to be priced and balanced in line with central bank target rates.
  To pay interest on reserves was scheduled for 2011 with passage of the Financial Services Regulatory Relief Act of 2006 but moved forward by Congress to 2008 with passage of the Emergency Economic Stabilization Act of 2008 (Federal Reserve 2010).
  Overdrafts are charged and reserves are credited an Effective Fed Funds rate defined as a volume-weighted average rate of trades. Required Reserves are credited an average targeted Fed funds rate minus 10 basis points while excess reserves are credited the lowest targeted fed funds rate minus 75 basis points (Federal Reserve 2010).
    With a fed funds target rate currently 0.25 with hardly a possibility to sustain itself above due to crisis conditions, the fed had to ensure this rate would never trade to zero or worse, trade a negative.
Instead they had to shift reserves toward or in line with the target rate. See Exhibits 5.5 and 5.6 and notice that without required reserves, fed funds rates would have traded to 0. Exhibit 5.7 provides actual fed funds trades before, during and after maintenance periods. Notice fed funds target rates are 0.00 to 0.25 so trading ranges will normally fall within this period unless crisis occurs or the market prices in an interest rate hike.
    FED Fund rates trades the same as Euribor, money supply increases in US Dollars will see a decreased Fed Funds rate while a decrease in the money supply will see an increase in Fed Funds rates. Fed Funds is a single rate and is measured against an effective fed funds rate. The money supply base measured against Fed Funds is released monthly. This time is reserved for money managers to re balance their books in relation to the money supply and an interest rate.
 In conclusion, maintenance periods is an important time between the US and Europe because lend and borrow rates, bids and offers, yield curves and direction of financial market instruments are established for a particular day’s trade not only in the US and Europe but between the US and Europe in terms of a Euro/USD exchange rate. The most important aspect of maintenance periods is the determination in the demand and supply of Euros vs US Dollars. Its an indicator and a valued market tool that should be a regular focus for those involved in the markets.
  So a EUR/USD spot price begins a trading day based on Euribor/Fed Funds or Eonia/Effective Fed Funds.
                                  Bank of Japan Overnight Rates
  The unsecured Overnight Call Rate represents the base rate that determines Japanese Yen money supply forecasts. As the money supply increases, Call rates decline while a money supply decrease sees an increase in the Overnight Call rate. Its a daily weighted average of uncollateralized loans in the overnight market between Japanese bankers.
  The Complementary Deposit Facility, a 2008 invention by the BOJ and the heart of the maintenance period is the conduit where interest on excess reserves, not required are payed.
Euroyen is another call market rate with the same maturities, same unsecured structure but trades offshore as actual/360.
Un collateralized Call rates establish daily loan rates and forms the interest rate yield curve in the Japanese market to price Japanese Government Bonds, the Japanese Yen, repurchase agreements and other financial market instruments.
   The current interest rate in the Complementary Deposit facility is 0.10, the top interest rate and remained fixed since Nov 2008. This rate served as the risk free rate. Trading ranges/target for the Uncollaterialized Call rate is presently 0.00- 0.10.
The December 1, 2011 rate traded an average of 0.082% with a maximum of 0.150% and Minimum of 0.050%.
December 2, 2011 saw Uncollateralized Call  rates traded an average of 0.077%, a maximum of 0.125 % and minimum of 0.060%. Notice the reduction in the daily averages. In order for the Yen to multiply, bankers must borrow short and lend long to profit or the economic system stagnates. Its the point to determine economic growth.
    Important is the Overnight Call rate is an “end of day” rate to mean after Japanese markets close.
It prices Yen in the overnight market until a new price is established. That new price will be found when the British Bankers Association releases EUROYEN Libor at 11:00 a.m. London, 5:00 a.m New York.
More importantly is bank accounts must balance and that is the purpose for Uncollatereralized Call rates. While this may conclude the Japanese maintenance period time to factor reserves and overnight rates, Japanese interest rates continue during market trading hours to price not only the Yen but financial instruments such as the JGB and shorter term T-Bills. Its an extension of banking activities to not only loan funds but to raise and invest funds.  CHART  UNCOLLATERALIZED CALL RATE HISTORY.
                                                      Overnight Call Rate Futures
  Contracts are quoted as 100 minus the rate of interest, 0.005 =1250 ( 300,000,000 notional  X 0.005 % X 30/360 =1250. One basis point =2,500 Yen so 1250= a 1/2 basis point and 0.625 is a 1/4 basis point.
The contract settles as 100 minus the average uncollaterialized overnight Call rate rounded to the nearest 3rd decimal place and trades between BOJ policy rate meetings.
                                                    TIBOR, EUROYEN and TOKYO REPO RATE
    During market hours, three interest rates have profound importance, Yen Tibor, Euroyen Tibor and the Tokyo Repo rate. This period changes the Japanese yield curve due to market trading.  CHART UNCOLLATERALIZED CALL RATE VS TOKYO REPO RATE.
   Japanese Yen Tibor, Tokyo Interbank Ofered Rate, is fixed at 11:00 a.m Tokyo time, 11:00 p.m. New York and is an unsecured Call market interest rate and offered 1 week and 1-12 months against 13 maturities, trades actual/365 and establishes loans during market hours.
The 11:00 a.m. Tokyo time release coincides with a 1 hour market opening so this time is called a Mid Rate.
Tibor is a loan rate but it also represents a deposit rate. A loan/ deposit rate funds not only mortgages and consumer loans but it funds the Yen and other currencies held in Japanese and foreign banks. CHART of TIBOR RATES.
    Important is Tibor is the day rate banks employ as a currency swap to satisfy a deficit or surplus, earn interest income and invest funds. A swap for the Japanese banking system is USD, a vitally important currency to the Japanese economic system. YEN FUNDING CHART.
A high or low Tibor rate determines which currency to employ as the funder, sell Yen buy USD or buy Yen, sell USD. Yet Tibor is released as a rate to specifically price the Yen.
   The historic problem with Tibor is its offered at the ask or offered rate, a single rate without a bid rate. The released rate is the day’s trading rate for lending and borrowing in the inter-bank money market and called a cash rate because it represents the day’s risk free deposit rate.
The Japanese Bankers Association manages Tibor through 18 Japanese banks who submit bids and offers. The highest and lowest are discarded, remaining bids and offers are averaged and that rate is released at 12:00 Tokyo time, 12:00 p.m. New York. This time represents one hour after Tokyo markets open.
   The 18 Japanese banks represent the largest and most capitalized yet thousands of banks channeled by many types such as city, agricultural, rural, cooperatives comprise the Japanese banking system and all are members of the JBA.
Currently 64.9% of banks represent fund raising and 64.2% represent loans as a percentage of market share. In 2001, JBA membership comprised 141 full members, 46 associates and 72 special members so the JBA grew exponentially. (BIS official reports). JBA’s proper Japanese name is zenginkyo and translates roughly as complete bank pride.
                                                               Euroyen Tibor
    Euroyen Tibor is an invention of post World War 2 reconstruction implemented by the US to allow offshore finance of food and supplies to enter Japan. (Fukao 2006).
With a 60 year rocky interval of exchange control laws and early establishment as a bond, Euroyen Tibor was formally established in the offshore market in Dec 1986, internationalized in 1998 by amendment to Japan’s Foreign Exchange Law that allowed a liberalization of international financial transactions after amendment in 1980 that allowed freedom of transactions with exceptions and only offered to certain foreign banks.(Fukao 2006).
   With the addition of the 1997 introduction of Japanese derivatives, single stock options and screen based trading between the Osaka and Tokyo Stock Exchange, it appeared Euroyen was completely liberalized but transaction taxes, low interest rates and regulations saw ‘lethargy” in Euroyen trade. (Ito and Lin 1996).
  When Nikkei 225 futures arbitrage between the Osaka and Singapore exchanges hindered Euroyen’s function due to volatility swings from separate margin requirements between both exchanges, Euroyen would not become free until formal introduction of the Euro.
    Euroyen Tibor is an offshore deposit interest rate to serve Japanese banks overseas, derived by an average of bids and offers from 18 Japanese banks, released the same time as Yen Tibor by the Japanese Bankers Association as a Mid Rate and trades as actual/360.
The actual/360 classifies Euroyen as an offshore rate due to alignment to Europe and the US 360 day count convention. More importantly was the purposeful alignment by WW 2 allies of Euroyen to US Dollars to serve as a funding and/or reserve currency. Yet it is strictly a Japanese interest rate and operates within the same parameters as Yen Tibor.
When Yen money supply increases, Euroyen Tibor drops. It shares an inverse relationship to the money supply.
Euroyen has two profound purposes, an insight into future Yen Tibor deposit rates and BBA Yen Libor, the London Interbank Offered Rate.
    As an insight to future Tibor, Euroyen Tibor trades as a futures and options contract not only at the Tokyo Financial Exchange but also at the Chicago Mercantile Exchange, Euronext and the Singapore Exchange, the SGX but once termed the Singapore International Monetary Exchange or SIMEX.
    The Singapore Exchange opens at 7:40 a.m. -7:05 p.m. and 8:00 p.m. -2:00 a.m. the next day, 7:40 p.m., 7:05 a.m. New York time and  8:00 a.m. – 2:00 p.m. New York time to coincide with the CME close.
Tokyo opens from  8:45 a.m. to 11:30 a.m and 12:30 p.m.-8:00 p.m.—-8:45 p.m. to 11:30 p.m. and 12:30 a.m., 8:00 a.m. New York time. Singapore time is ahead of Tokyo one hour so Euroyen futures and options trades one hour when Tokyo opens.
Therefore, arbitrage and hedging opportunities occur in Singapore markets because it also trades Japanese Government Bonds. JGB’s trade based on yield so a long JGB position can be hedged against Euroyen Tibor.
   Euroyen Tibor is a deposit rate and trades at times as future Yen Tibor because Yen Tibor serves as a daily interbank trading rate rather than a capital market rate.
Euroyen Tibor serves as the key indicator to determine not only future Yen Tibor interest rates but capital market rates, the money market yield curve and supply of Yen. A valid intellectual argument can easily refute these claims for many reasons.
   Japanese Overnight Index Swap derives from internal interest rates and connects to Tibor for currency swaps, a 360 day Euroyen yield curve may not always align to Japanese 365 day financial and money market instruments and Euroyen may not forecast Yen money supplies.
Therefore as a key indicator, it fails. Both arguments must be analyzed in the context of Japanese companies establishment offshore since 2006 for purpose of access to cheaper priced commodities and greater profit potential.
USD/JPY was the premiere pair arrangement in this context so Japanese banks offshore can buy US dollars to fund offshore investments especially when the interest rate differential favored the Japanese.
Euroyen, FX Swaps, Libor and Eurodollars was employed as traditional funding mechanisms. During Japanese trading hours, JPY/USD must be traded with Yen Tibor as the focus so the profound conundrum is Japanese markets are closed during overseas Euroyen trade. Its a fascinating interest rate that serves a broad usage.
                                                   3 Month Euroyen Futures and 3 Month Options
  Trades as 100 minus the rate of interest, 0.005 =Yen 1,250 and settled to the 3rd decimal place. To calculate, from the Tokyo Financial Exchange: if Tibor is 0.12786%, final settlement price is 99.872, 100 minus 0.128.
  Options are quoted as Euroyen Futures points, 0.005 with strike price interval=0.125, 0.005=Yen 1,250.
Options settle American style. Singapore and the CME Euroyen Futures contracts trade based on LIBOR, the London Interbank Offered Rate and released at 11:00 a.m. London, 5:00 a.m New York, 2:00 a.m.Tokyo, 1:00 a.m. Singapore.
     Brian Twomey

FX Points, Spot Effect and Hedging

  The Great Peter Wadkins

 

just be aware of something that I learned at my own expense as chief dealer … I had a guy working for me who used to arbitrage forward points against AUD bill futures and USD Eurodollar interest rate futures. He used to hedge 100% of the face value (E.G. $1,000,000 ) with the equivalent amount of Euro futures (1 contract I think it was) the problem with futures is that they tend to out-perform or under-perform cash – always … a function of the market’s bias … so if everybody thinks US interest rates are going up and LIBOR is 1.0000% for arguments sake, the implied rate on the futures contract will be anywhere from that to 1.25% (and vice versa) you also have to calculate the impact of margin requirements in futures … this is called “tailing” at the time (1988/89 – whenever the AUD contract started trading on the IMM) we found that it was better to hedge something like 85-90% of face.

It’s a little known fact that many traders are unaware of … another issue is “spot effect” on forward points … as spot moves up and down the future value of the forward contracts are impacted by the value of foreign currency – E.G. AUD points are worth US$100 per 1 point on spot or presently AUD 99.78 (because AUD/USD is quoted USD per AUD. If AUD goes higher say 1.10 then those forward points are only worth AUD90 if AUD goes down 10% they are worth AUD110.

On small books it doesn’t matter but if you are carrying multi-billion dollar forward books those differences add up. Therefore any forward swap trader worth his salt has to hedge spot effect.

The best way to look at arbitrage is to understand that a forward swap is as you simply a loan and a borrowing simultaneously … just in different currencies … you borrow 1,000,000 AUD at 5.5% for one year it costs AUD 55,000 interest you lend USD 1.002,200 for 1 year at 1.0% and you receive USD 10,000 plus 1% on 2,200 $22 so $10,022 if you were to do that via interest rates you would have to convert the AUD you borrowed at 1.0022 and in a year’s time you would you would convert back at the spot rate applicable at the time.

As they did not want that risk they invented FX forward swaps so that the exchange rate was locked in at the same time and the difference between spot rates and outright forward rates was purely and simply the interest rate differentials or the difference in what you paid in I nterest in one currency versus what you would receive in another.

What complicates the issue is when you do actually arbitrage and interest rates are no longer theoretical but based upon what you can actually borrow at and what the investment rules (if any) allow you to invest in. I.E. if you can invest in muni bonds or AA corporate paper instead of “LIBOR” (or whatever is implied by the bank pricing the trade) you can make a spread … that’s when the repayment schedules become involved (monthly, quarterly, or annual interest payments) because then you have to calculate the impact of interest upon interest (net present valuing or compounding) That is why long dated forwards (one year or more) are trickier to price than one year or less …

 

Brian Twomey

Continuing Claims

 Continuing Claims is a United States weekly economic report released every Thursday morning from Form r539cy at 8:30 Eastern Standard Time that determines the number of workers that initially filed and continued to receive unemployment insurance.
Data is compiled by the Employment and Training Administration an agency within the Department of Labor from all 50 states, Puerto Rico, Virgin Islands and Washington D.C. The ETA calculates rates of unemployment for seasonally adjusted workers, non seasonally adjusted workers, newly discharged veterans, former federal civillian employees and  railroad retirement board employees.
The railroad industry was granted a special provision in 1938 under HR 10127 titled the Railroad Unemployment Insurance Act that allows railroad employees to collect unemployment but who are exempted from federal tax on those benefits. The ETA further calculates not only initial and continuing claims for each of these categories but initial and continuing claims for workers whose benefits were first time claims and those whose claims were either extended or received under emergency unemployment compensation, disaster relief and those that fall under previous Trade Readjustment Acts. Modern day trade acts began with HR 10710 termed the Trade Act of  1974 where benefits were extended to 52 weeks whose allowances have increased since this original passage.
   Trade Adjustment Allowances is an income to persons who exhausted unemployment compensation whose jobs were affected by foreign imports. The Trade and Globalization Adjustment Assistance Act of 2009 is just one example where benefits were extended to workers as well as provisions for retraining and extension of cash benefits. Workers can now collect up to 120 weeks of cash benefits along with retraining provisions.
    Unemployment Insurance for Disaster relief began in 1974 with the Disaster Relief Act but has been expanded over the years to include pregnant women, sickness and hardship cases. Federal civillian employees began coverage in 1954 with HR 9707 while Korean War veterans began receiving unemployment insurance in July 1952 with HR 7656 termed the Veterans Readjustment Assistance Act of 1952. Since 1952, the collection of benefits has expanded with passage of HR 4717 termed the revenue Act of 1982 to all service personnel.
  The program called Unemployment Insurance that is measured in the Initial and Continuing Claims report today began in 1935 with passage of HR 6635 called the Social Security Act. Coverage was initially extended to national and state banks who were members of the Federal Reserve System and to “instrumentalities” not owned by state and local governments.
As time progressed and as more laws were passed, more industries began coverage with benefit weeks that expanded and contracted. For example, 1946 saw expansion of UI benefits to Maritime workers while Korean War vets received 26 weeks of benefits yet federal civillian workers received 20 weeks.
With passage of HR 12065 in 1958, benefits began extensions of 13 weeks for those that exhausted their claim but who still were not gainfully employed. Extensions were granted to 39 weeks in the early 60’s with passage of HR 4806.
With passage of HR 14705 called the Employment Security Amendments of 1970, UI benefits were extended to employees for 39 weeks who were affected by recession. This law introduced triggers for the first time.
For example, UI was extended to 39 weeks if the unemployment rate exceeded 4.5 % for 3 consecutive months. As recession ended, benefits were scaled back to whatever the norm was during that time. Today, all industries are eligible under the UI program with a larger expansion in not only benefit weeks but extensions.
  The collection of data of employed and unemployed workers in the UI program by the federal government dates its history to the original passage of the Social Security Act of 1935. Then, UI information was collected on an annual basis.Yet as a formal economic release and as a means to compile data for formal distribution,  the continuing and initial claims report began in 1967 as a weekly release.
The Department of Labor was responsible for collection and dissemination of data. All 50 states, the Virgin Islands, Puerto Rico and Washington D. C participate. These states electronically send their weekly UI claims to the ETA .This information is disseminated  by initial claims and continued claims and separated by each state initially to report trends and differences in trends.
The report released Thursday is quite detailed and reports any changes to states such as an increase or decrease in reported filings for initial or continuing claims. The ETA doesn’t have the means to report on industries that experience an increase or decrease in claims. They only report initial and continuing claims on the full report along with any changes to states.
 Further, the ETA reports on seasonal and non seasonal trends and marked by a 4 week moving average. The term seasonally adjusted first entered the lexicon with passage of  HR 12987 that established the National Commission on Employment and Unemployment Statistics.
The purpose of this commission was to measure employment and unemployment trends to find possible deficits in industry that may need help in the future. Since, the ETA adopted the seasonal adjusted aspects in their report marked for the first time by a 4 week moving average to smooth the data. Seasonal spikes occur during holiday periods such as Christmas, Thanksgiving and Easter for example. So initial and continuing claims is factored for both seasonal and non seasonal factors.
 Calculation of employment rates works based on a covered denominator of 130,128,328. Where does this number come from?
The Bureau of Labor Statistics in their division of  Quarterly Census of Employment and Wages factors the total number of jobs in the US as 130,128.328.
The QCEW tracks employment, unemployment and wages as factors to determine how much employers must pay for UI claims.
Approximately 96 % of all US employers are covered under the UI program. Between a small tax called FUTA, Future unemployment tax allowance payed by employers and a small tax payed by recipients, UI program expenses and benefits can be paid to the next set of recipients.
  What is not covered under the UI program and not factored in the initial claims reports are those that collect benefits under Emergency Compensation Claims.
This number is lumped together with initial and continuing claims. Exhaustion rates are not factored by the ETA or reflected in the initial claims reports either. That is the domain of the QCEW. Initial and continuing claims is a straight number that records claimants of initial and continuing claims in the UI program.
February 2010
  Brian Twomey is a currency trader and adjunct professor of Political Science at Gardner-Webb University

 

Market Technicians Association

 The Market Technicians Association is an organization incorporated in 1973 as a not for profit with the intention to propagate the study of technical analysis for the mainstream of then present and future market professionals. During this time period however, the study of technical analysis wasn’t the all pervasive study that it is today so its full acceptance took time as market professionals moved from pencil and graph paper to computers.
This may explain part of the reason the first Certified Market Technicians exam was not awarded by the MTA until 1989. Despite a slow beginning, the MTA today claims over 3000 members worldwide, 1900 in the United States with 930 designated with the now coveted CMT moniker beside their name and 817 of those active in the industry as working professionals. Yet  approximately 2070 can claim affiliate status as many await their chance to achieve the high status as a Certified Market Technician.
    When the MTA confers the honor of CMT this means they certify to the exchanges, the investment community and the public that candidates have the full and comprehensive body of knowledge of technical skills from past and present to be able to conduct research, sign their name to a research report, recommend trades and investment programs from a wide variety of financial instruments and markets  and even trade their own accounts with proficiency.
With trillions of dollars flowing through the financial markets on any given day as opposed to millions from days past, the importance of the CMT designation bestows a greater consequence to those that are charged with the management of that money.
   The CMT encompasses much more than the ability to read a chart. Candidates will learn to read and fully understand point and figure, line and candlestick charts from price perspectives past, present and future. Candidates will learn the relationship between these prices and price patterns. Candidates will learn trends and what they mean, how to draw trend lines, how to determine if trends will continue or fade.
Candidates will then advance their knowledge to indicators and how they work, how they are calculated and meaning and purpose behind those calculations. Candidates will learn implied volatilities, put/call ratios, and inferential statistics from correlational analysis to t-tests to regression analysis. Candidates will learn volume, breadth, short selling, sentiment gauges and inter market analysis. While these examples name only a small portion of the technical skills learned from the three exams offered to become a CMT, the exams in itself tests a much wider knowledge of technical skills and analysis. Each exam encompasses a level of difficulty so the historical pass rate is about 60 %.
    For example, level 1 exams test definitions, measures basic concepts of terminology. charting methods and ethics. Ethics is not only a recent focus due to past scandals but it has been given greater weight to each exam. Failure to pass ethics portions on the CMT level 3 exam will mean failure. Ethics encompasses  factors of  public trust, inside information and research reports to name just a small portion of the tested ethics for each exam, its comprehensive and shouldn’t be treated lightly by candidates.
For definitions, any idea what is the true meaning of a dead cat bounce, an increase in the VIX, the meaning and purpose of Bollinger Bands or how to read a line or point and figure chart. Any idea how to apply technical analysis to bonds, currencies, options and futures.
The first 132 multiple choice exam of which 120 are graded will ask these and much more within the two hour allotted time period for testing. The cost is $500, $250 covers the whole program fee that allows a candidate five years to complete all three exams. Exams are offered in the Spring and Fall at many locations not only in the US but 300 worldwide sites.
    Level 2 is a four hour,160 question of which 150 are graded multiple choice exam that measures application of technical analysis, ethics, Dow Theory and inter market analysis to name a few categories. The cost is $450 and offered Spring and Fall.
Any idea what is the general term for rate of change, the difference between relative strength and the indicator RSI. Relative Strength Indicator, the theories of Charles Dow or phases of cycles. This and much more will be tested as well as ethics.
   Level 3 was recently changed from an outside written research project that demonstrated a high level of technical analysis skills to strictly essay exam questions  that demonstrate well thought out research opinions, portfolio analysis and theory and ability to integrate a high level of technical analysis skills.
Candidates are allotted four hours to complete this last and rigorous exam. The pass rate is about 60 % historically. The cost is $450 and offered Spring and Fall. Passage of the ethics portion and a 70 % passing score will qualify a candidate to become a CMT. The designation will not be conferred until a candidate has achieved three years of work experience, joins the MTA and maintains $300 a year in annual dues.
  To help candidates with their independent study, the MTA recommends books from masters such as Edwards and Magee: Technical Analysis of Stock Trends, Martin Pring: Tehnical Analysis Explained, Charles Kirkpatrick and Julie Dahlquist: Technical Analysis:  The Complete Resource for Financial Market Technicians, David Aronson: Evidence Based Technical Analysis, Perry Kaufman: New Trading Systems and Methods and Frost and Prechter: Elliott Wave Principles.
  All three exams require independent study. The MTA recommends 100 hours of study for exam 1, 140 hours for exam 2 and 160 for exam three. Yet they offer forums, mentor ships and webinars to help candidates further their comprehension and study.
  Passage of exams 1 and 2 qualifies a candidate for a series 86 exemption. A Series 86 is a Research Analyst designation that addresses research reports and a candidate’s ability to conduct research so candidates no longer need to take this exam as of 2005 thanks to the  National Association of Securities Dealers submittal of a rule that was accepted by the SEC and recognized by the exchanges.
 Many CMT’S have moved forward with rich and rewarding careers. Some invented indicators or a unique trading methodology, some became teachers, analysts, mentors, authors. Some became independent traders while many work for the exchanges, hedge funds, firms and brokerages that cover many different markets.  The opportunities are immense, the rewards great.
February 2010 Brian twomey
 Brian Twomey is a currency trader and adjunct professor of Political Science at Gardner-Webb University.

 

National Futures Association

  When the National Futures Association was created in 1982 as a self regulatory body by congressional passage of an amendment to the Commodity Exchange Act, the original purpose established in 1983 was to register introducing brokers, commodity pool operators and commodity trading advisors.
The introduction of many new financial instruments in the later 1970’s such as T-Bill Futures, Ginnie Mae Certificates, options on sugar and coffee and stock index futures in 1982 saw the need to register new brokers and salespeople to the futures industry. With the introduction of new financial instruments and the International Money Market that traded many of these new instruments, the NFA assisted the CFTC as a complement  in their oversight functions of the futures industry.
Since 1982, the mandate of the NFA has expanded to compliance and the issuance of regulations, arbitration and mediation and an online registration system for brokers with the function that allows the public to check the registration status of their broker as well as a means to check the status and outcomes of dispute resolutions.
   Earlier registrations began on a voluntary basis for brokers. With time and the passage of new laws to protect market integrity and eliminate fraud, registration became mandatory. Today mandatory registration of brokers and principles encompasses even  broader categories to now include five new sections: supervision, ethics training, business continuity and disaster recovery, privacy rules and promotional materials.
Principles that have a 10 % or more ownership in a brokerage or who oversee client communications, sales processes or trading activity must register. The term broker is defined as an IB or introducing broker. These are firms that offer self trading accounts particularly to the general public. Supervisors or Associated Persons are employees that supervise communications, sales forces or trading activities and must obtain a series 3 license to maintain employment as well as register. Ethics training, business continuity and disaster recovery, privacy rules and promotional materials must be included in registration applications but fall more under the category of regulations yet all are focused on the total accountability of the industry and the NFA’S oversight function.
   Today the NFA claims 3816 total firms registered with 1446 registered as Introducing Brokers, 975 CTA’S and 377 CPO’S. 52,941 Associated Persons are registered and all reported from 9 different exchanges in the United States. Annual dues can range from $750 for CTA’S and CPO’S to $125,000 for firms with $5 million and above in annual revenues. Registration fees can range from a $200 application fee for CPO’S and CTA’S along with a $750 membership fee reported on Form 7R to $85 for IB’s and AP’S and reported on Form 7R. Futures Commission Merchants pay a $500 application fee with membership fees ranging from $1500 to $5625 and reported on form 8R.
 The CFTC Reauthorization Act of 2008 mandated forex solicitors, account managers, CTA’S and Pool Operators to register with the NFA as Introducing Brokers to allow more accountability of  foreign exchange trading so reported membership figures will be much higher in the future.
   Laws passed by Congress must be codified into a set of uniform regulations. Regulations issued by the NFA for 2008-2009 primarily addressed  foreign exchange due to the many frauds and abuses reported over these years.
For example, the CFTC Re authorization Act increased net capital requirements for foreign exchange brokers from $10 million in 2008 to $20 million in 2009. Membership requires compliance.
For example, NFA Rule 41 states brokers must certify net capital requirements and report weekly account balances while CTA’S and CPO’S must maintain a $45,000 net capital requirement at all times as well as file disclosure documents. NFA Rule 2-36 issued in April 2009 addressed provisions of false reports, supervision of personnel and submission of promotional materials.
Regulations issued in June 2009 addressed written confirmations that must be issued one business day and monthly and quarterly statement submittal. The NFA not only issues uniform regulations but all regulations are monitored through a system of compliance to perform the function of oversight through surveillance. For example, violators can be censured, face expulsion or fined $250,000 for each violation depending on the severity and number of infractions.
    Dispute resolution at the NFA began in 1983 with an arbitration program while mediation began in 1991. Parties that agree to mediation usually report claims less than $150,000. Cases that are arbitrated are filed either as customer to member, member to customer or member to member.
Historically the majority of claims filed have been customer to member. For example, 160 customer complaints were filed in 2009 with an average close of cases of about five months with 44 awards granted.
In 2008, 193 customer complaints were filed with an average of six months to close and 43 awards granted. Awards granted and arbitration decisions are final and cannot be filed in the court system. Awards are administered through the Restitution program.
    What began as a system called DIAL or Disciplinary Information Access Line in 1991 to allow customers to check the registration status of their broker or salesperson by telephone soon became an online system called BASIC or Background Affiliation Status Information Center.
Basic allows online users to check the registration status of their broker and principles of the firm, commodity pool operators and CTA’S 24 hours a day. Basic also allows users to check a broker’s disciplinary actions, arbitration status and awards granted.
 Since the creation of the NFA, many firms became members through a series of  laws yet as the functions and duties of the NFA expanded, the number of claims filed has also decreased. One reason may be that the NFA offers investor alerts, education and an enhanced system to allow the markets to function properly.
January 2010 Brian Twomey
 Brian Twomey is a currency trader and adjunct professor of Political Science at Gardner-Webb University