3 Reasons Why You Should Trade This Week

Sep. 09, 2012 11:37 PM ET
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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 matter because I had no friends to play with anyway because they were all to busy hunting and gathering food as well. One day, while resting under an apple tree, an apple fell and hit me on the head. I came up with an idea where if I focused on just fishing and I could find somebody to focus on just gathering corn, maybe we could finish working faster and have enough time left to play. So I tried it and it worked. I wanted to fully understand why this worked and that’s where I discovered his love for economics. I later became a senior macroeconomics professor at Pipvard University in Pipston, Pipsachussetts. After several decades there, one day I decided to stop teaching. Leaving campus that afternoon, as I reversed out of the parking lot, I reversed into a pristine Bentley. It was Dr. Pipslow’s car. (Now a fellow blogger on BabyPips.com) He had been invited by the school to demonstrate his ability to float currencies. When we met each other, Dr. Pipslow already knew who I was. He told me not to worry about his whip and explained to me that BabyPips.com needed a macroeconomics expert and wondered if I was interested. I was. So the following day, I changed me name to Forex Gump and created Piponomics.

Though I normally don't mind trading a couple of hours in front of the charts for more time at the beach, the opportunity presented by the potential game-changers this week is just too good to miss!

1. Major data from the U.K., Australia, Canada, and Switzerland

Australia's retail sales and job ads data, as well as the U.K.'s manufacturing PMI will start the fireworks this month as both are scheduled for release tomorrow. Throughout the week, we'll see the U.K. print its construction and services PMI and manufacturing production figures.

Only a few leaps away from the U.K., Switzerland will also be busy printing its retail sales on Monday, quarterly GDP numbers on Tuesday, inflation numbers on Wednesday, and its jobless rate on Friday.

Even the commodity-producing countries are joining the fun with Australia starting Wednesday with nothing less than its quarterly GDP data. The Land Down Under will also release its employment numbers on Thursday, which will be followed by its trade balance data on Friday.

Canada isn't one to be left behind though. We'll see its top tier reports for the week, including monthly building permits, employment numbers and the big IVEY PMI data all on Friday.

2. Interest rate decisions by four big central banks

Next week we have not one, not two, but FOUR central bank interest rate decisions on the docket! After adopting the wait-and-see mode for the past couple of months, market players believe that September is the month when major central banks will reveal their cards and present their plans for their respective economies.

The RBA will start the parade on Tuesday, which will be followed by the BOC on Wednesday. The RBA is expected to keep its rates steady at 3.50% thanks to a less-dovish-than-expected RBA minutes last month. Meanwhile, Canada's string of disappointing economic reports is prompting speculation that the central bank wouldn't be as hawkish as it was last month.

On Thursday we'll see a back-to-back interest rate action from the BOE and the ECB. After announcing its programs to boost bank lending, market geeks believe that the BOE won't be touching its interest rates and asset purchases in September. But don't ignore the report just yet! Who knows, maybe the BOE has a few tricks up its sleeve after all.

The ECB is last to take the stand next week, but its decision is also the most anticipated. As I mentioned, Draghi's absence at the Jackson Hole meeting and his interview with a German paper are fueling speculation that the ECB is on to something big. Will the ECB announce a bond-buying program? How about a centralized banking authority? Or will they create a "new architecture" that would solve the region's crisis? We'll have to wait until Thursday to find out!

3. The big boss of economic reports!

Who could forget that next week is also the non-farm payrolls (NFP) week? After the ECB hoopla has settled, traders will most likely focus on the NFP report coming up on Friday at 12:30 pm GMT. You see, Big Ben gave little away about QE3 this weekend, which leads investors to believe that the Fed is waiting for more clues on Uncle Sam's condition before it pulls the QE3 trigger.

Last month the big boss of economic reports blasted above its expectations, showing that a net increase of 163,000 workers found jobs in July. That's not only higher than its previous 64,000 reading, but it's also higher than the 125,000 figure that analysts were pricing in!

This time around traders aren't quite sure on what to expect from the NFP. Will it be as disappointing as the latest U.S. reports or will it continue exceed expectations and give the Fed more time before it launches its QE3 program?

There you have it, folks! With the NFP week upon us, it's good to get your trading plans ready as early as today. Don't forget to do your own research and be mindful of the potential scenarios that could play out as each of the reports are released. But if you're risk averse, you can always trade the reports on demo or stay by the sidelines and observe the price action.

Good luck and good trading, forex junkies!

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