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Seamus McKenna
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Seamus McKenna is founder and Chief Executive of Omicron Forex, a dedicated in-depth resource for Foreign Exchange traders everywhere. He has a technical background and many years of experience in trading using quantitative, fundamental and technical analysis. Private retail traders, especially... More
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Omicron Forex
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Omicron Forex
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The Omicron Forex Trading Manual
  • Why Do Fed Minutes Often Contradict Its Actions?

    It is not normally the job of a central bank to manipulate the value of its country's currency. But it is its job to moderate the decline (or appreciation) of a currency if fundamental factors change that might give rise to such movement.

    This is the best way to interpret the minutes of the last Federal Reserve meeting which were released yesterday and the remarks made by Fed chairman Bernanke during the question and answer session after a speech he gave to the National Bureau of Economic Research Conference, also yesterday.

    The US dollar is going up in the medium to long term because QA is coming to an end, and the main concern of the Fed now is to make sure that this is an orderly process. Thus the Fed minutes and Mr. Bernanke's comments have led to a temporary fall in the US dollar, to somewhat offset its rise of recent weeks.

    The same goes for the Aussie dollar. It has fallen precipitately since last month and the efforts of the Australian monetary authorities now have to be to make sure that, while a weaker AUD is in fact desirable, this does not happen all at once.

    There has been a rapid decline in the value of the Aussie against the U.S. unit. This has now halted, at least temporarily, and there should be a retrace. The extent of this will be affected by the significant resistance level that exists around 0.9380, as can be seen in the monthly chart below.

    (click to enlarge)

    Below is the daily chart of this pair, which gives an even better impression of where this resistance is in relation to the current price.

    (click to enlarge)

    The efforts of central banks to moderate movement in currency rates, while it does indeed result in somewhat orderly changes when seen, for example, on the weekly and monthly charts, can give rise to significant bi-directional volatility on shorter scale time frames (we find it necessary to distinguish between bi-directional and uni-directional volatility for trading purposes).

    Individual traders should consider staying out of the Forex market for the retrace discussed here as it will be very much a countertrend move.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: Forex
    Jul 11 3:27 AM | Link | Comment!
  • Why Was A Reliable Predictor Of Currency Rate Movement Ignored This Month?

    U.S. payroll data is very carefully watched by traders because the Federal Reserve has made it known that the level of employment will be the major factor in its decisions about the tapering of Quantitative Easing (QE) which will, in turn, have a significant impact on the value of the U.S. dollar against other global currencies. For all traders, whether in equities, indexes, Forex, options or anything else, official payroll reports represent critically important information.

    Automatic Data Processing Inc (NASDAQ:ADP), a publicly quoted but non-government company which processes payroll data on an outsourced basis for a great many employers in the USA has, for some time now, been using its own databases to compile a payroll count that is designed to anticipate, by at least one day, the findings of the official U.S. Non-Farm Payroll report, which is produced by the Bureau of Labor Statistics. The ADP report has come to be as much is not more closely watched than the NFP report each month.

    And this is deserved. Here is the comparison chart for the results of both surveys in 2012 and the first half of 2013.

    (click to enlarge)

    They are correlated, but not very well in terms of absolute figures. The coefficient of correlation, which measures the value of the first one out (ADP) as a predictor of the second (NYSE:NFP) is 0.232699 over the period studied. Zero would mean they were not correlated at all, while a result of 1 would mean perfect correlation.

    But if ADP is far from perfect in absolute terms, it is a good predictor of the direction of payroll numbers month-on-month. In 13 out of the 17 months studied, in other words for 76.47% of the time, the ADP outcome was in the same direction, either up or down month-on-month, as the NFP result. This is important, because growth or decline is probably equally if not more significant than the degree to which payroll numbers are changing.

    Individual traders only survive and prosper when they learn how to think in probabilities. Any predictor that has a 75% + success rate must be way up there in terms of those that put probability on YOUR side.

    So ADP normally gives the cue to traders as to whether or not they should sell or buy U.S. dollars. For example, here is the situation in February of 2013 (reports cover January of 2013). In this case, the serious movement in the EURUSD rate took place when the ADP report hit the wires, and NFP was something of an anti-climax. This is typical.

    (click to enlarge)

    But for some reason the most recent month's figures, reported in the first week of July 2013 for the June outcome, had the following response:

    (click to enlarge)

    Here ADP caused barely a stir when released, although there was a seemingly delayed reaction 24 hours later, at the normal open of the U.S. markets the following day. This in itself is strange, as that happened to be the 4th of July, Independence Day, and a national holiday in the U.S.

    Then, when the NFP report came out on Friday the 5th , the pair dropped again. This was to be expected in the light of the ADP report, as on this occasion it did not disappoint as a predictor.

    The mystery remains, however. Why was there such a time lag on the part of the larger traders, the ones who are in a position to move the market, in taking advantage of the knowledge gained from the ADP report on this occasion?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 10 8:04 AM | Link | Comment!
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    Jul 10, 2013
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