Back
29 Sep 2014
This week is key for the US - BAML
FXStreet (Guatemala) - John Hopkinson, analyst at Bank of America Merrill Lynch explained that the data dependent forward guidance from the Fed presents a significant challenge to FX markets.
Key Quotes
"If US data are expected to be the key driver for currencies, successful trading might require data forecasts that are superior to the consensus."
"However, data dependence in itself creates patterns in markets that we believe can be exploited. The most fundamental pattern is that volatility tends to decline through the course of each month."
"Data released early in the month is not only some of the biggest (eg, US payrolls), but it is naturally the most timely and therefore most relevant to markets. We can measure the data dependency of FX markets as the ratio between average FX volatility in payroll weeks and the week prior to payrolls."
"This measure of data dependence tends to increase when Fed hikes are anticipated. In recent years, the effect has been magnified."
Key Quotes
"If US data are expected to be the key driver for currencies, successful trading might require data forecasts that are superior to the consensus."
"However, data dependence in itself creates patterns in markets that we believe can be exploited. The most fundamental pattern is that volatility tends to decline through the course of each month."
"Data released early in the month is not only some of the biggest (eg, US payrolls), but it is naturally the most timely and therefore most relevant to markets. We can measure the data dependency of FX markets as the ratio between average FX volatility in payroll weeks and the week prior to payrolls."
"This measure of data dependence tends to increase when Fed hikes are anticipated. In recent years, the effect has been magnified."