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Forex Gump
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Forex Gump is my incognito name. My real name is Feras Gimp. When I was a kid, my parents would make me hunt and gather food. So every day, I would go fish at a nearby lake and gather corn from the fields. This process took me all day and left no time for me to play. Play time actually didn’t... More
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BabyPips.com
My blog:
Piponomics
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  • Is It Time To Sell In May And Go Away?

    Looking back, the "sell in May, go away" adage has actually proven to be quite consistent over the past 50 years. It was first noticed in U.S. markets, but seems to have held true in Canadian and European markets as well.

    One explanation why this might be true is because of investors cashing in on their investments in May so that they can take the summer months (normally June to August) off and chill out.

    Another reason may be that stock markets tend to perform well from November to April (earnings season, anyone?), then taper off from May to October. With stock prices peaking in April, some traders decide that it's just best to book some profits the following month.

    You might be asking, "Mr. Gump, doesn't this only apply to the stock market? What about us forex traders?"

    Well, if you were carefully paying attention when reading our School of Pipsology lessons, you'd remember that the equities and forex markets are normally highly correlated. Digging a little deeper, we can in fact see that the old adage has held true in the forex markets as well.

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    If you look at the monthly charts of both EUR/USD and AUD/USD, you'll see that the month of May has been very bearish for the past three years. In fact, EUR/USD and AUD/USD experienced their largest monthly losses in May for both 2010 and 2012. Moreover, if you drill down to the smaller time frames, you'll also see that it wasn't a one-time thing. The pairs declined steadily throughout the month.

    "If it happened in the past three years, it should be true, right??"

    Hold up! Don't get too excited just yet.

    Remember that NOTHING is certain in the markets. You should know by now that the past doesn't necessarily predict the future. Heck, if that were the case, trading would be a piece of cake and we'd all be millionaires!

    The market environment changes year after year. Themes and factors that dictated the previous years' selloffs may not be present in 2013.

    So don't get too caught up with this adage. The worst that could happen is for you to be too engrossed in it that you purposely miss out on obviously bullish trades that you would have otherwise taken.

    While the "sell in May, go away" superstition certainly gives us something to consider when trading, I think that you would have a better chance at growing your account if you stick to good ol' hard work. So remember to always conduct your own research and analysis, and make sure to factor in the CURRENT market environment when formulating a trade plan!

    May 06 12:01 AM | Link | Comment!
  • FOMC: Ready For Anything

    Once again, Federal Reserve members decided to keep rates steady and to maintain the current level of monthly asset purchases at $85 billion USD. Kansas City Fed President Esther George also stuck to her stance that current monetary policy may blow up in the face of the Fed, and that it might be time to start withdrawing some stimulus.

    One thing that did change though, was a line that said that the FOMC is "prepared to increase or reduce the pace of purchases" as they see fit. In the recent past, there was some rumbling that the central bank would begin reducing asset purchases by the end of the year. With this slight change in language though, it appears that the Fed is really taking a cautionary stance and wants the flexibility to either add or reduce monthly bond purchasing should economic conditions warrant it.

    In any case, this didn't have much of an effect on the markets, as we didn't see any violent reactions.

    As we can see in the dollar index, the Greenback didn't establish any new highs or lows during the New York session, and pretty much just followed its recent decline.

    (click to enlarge)

    What should we focus on in the coming months?

    It looks as though that we'll have to shift our attention back to two familiar indicators in the near term - employment and inflation.

    The Fed aims to bring the unemployment rate, which currently stands at 7.6%, down to 6.5%. If this month's employment data falls short of expectations just as last month's did, it could prompt the Fed to stick with its current stance, or perhaps even consider expanding its QE program. That being said, today's nonfarm payrolls report could serve as a catalyst for a major move.

    As for inflation, the Fed is targeting a range of 2.0% to 2.5%. However, it seems price pressures have been subdued as of late, which gives the Fed plenty of leeway to keep interest rates at very low levels.

    But from the looks of it, the Fed will need to kick things up a notch if it wants to hit its targets. Even with open-ended stimulus program, job growth has been lukewarm at best. And equally as alarming is how inflation pressures seem to be dying down. These disturbing conditions have prompted St. Louis Fed President James Bullard to actually suggest that the central bank may have to ramp up its asset purchases just to achieve its goals.

    What's a central bank to do?

    Keep in mind that the Fed doesn't necessarily have to bump up its monthly purchases to give the effect of monetary easing. It can also opt to just extend its stimulus program and buy assets for a longer period of time. Doing so would effectively inject more money into the economy, albeit at a steadier pace.

    In any case, the following months could be very crucial to the outlook for the U.S. economy. Policymakers will want to avoid another summer season slump, as the economy has lost momentum in the summer months for the last three years now. Will history repeat itself for a fourth time? I certainly hope not.

    May 03 7:53 AM | Link | Comment!
  • Trading Guide: April 2013 Non-Farm Payrolls
    ADP Employment Report Results

    According to the ADP employment report released yesterday, private sector job growth declined once again. It showed that there was a net 119,000 increase in payrolls for the month of April, the smallest gain seen since December 2012.

    It appears that the pace of job growth is slowing down due the financial problems of the U.S. government. The recent tax increases and government spending cuts that have been implemented are now hitting the job market, and is causing hiring to weaken across all industries. Details show that employment has significantly declined among companies that hire around 20 to 499 workers.

    NFP to Mirror ADP's Weak Reading?

    Good things are expected from the upcoming NFP report. It's expected to show that 150,000 net jobs were added in April and that the unemployment rate remained at 7.6%.

    (click to enlarge)
    In four out of the last six times, the ADP was able to predict the direction of the NFP. When the ADP came in better than expected, the NFP, too, beat forecast. This suggests that the upcoming NFP report could also disappoint.

    But if there's one argument against a weak reading, it would be the encouraging initial jobless claims report. Last week, unemployment insurance claims dropped to its lowest level in 5 years, indicating that the job market isn't as weak as we think.

    In any case, the NFP report is expected to show that 150,000 net jobs were added in April and that the unemployment rate remained at 7.6%.

    Potential Reactions to the NFP

    So how will EUR/USD react to the NFP's results? Let's take cues from the last two releases.

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    Back in March the NFP figure came in TWICE as many as market players had been expecting. The dollar received a huge boost, enough for EUR/USD to break its Asian and U.K. session range and fall by a ridonculous 300 pips during the U.S. session alone.

    (click to enlarge)

    The Greenback's correlation with the NFP reading can also be seen in April when, like in March, the pair also ranged tightly ahead of the release. Unlike the previous month though, the NFP greatly disappointed and weighed on the dollar. This caused EUR/USD to show an upside breakout to the tune of 92 pips.

    Before you bet the farm on these scenarios, you should remember that these are just probabilities. Anything can still happen at the NFP's release tomorrow. All we can do is to conduct proper research and create trading plans for every scenario possible. Think you're up to it?

    May 03 7:49 AM | Link | Comment!
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