Am I done with FXEngines?
I've received a lot of great comments from you about automated trading through FXEngines.
Duncan summed it up pretty well by saying that, "Big news items don't work at FXEngines. Small news items don't move enough. Only mid news items seem to be successful."
I feel the whole point of trading the news would be to capture the big news reports. The CEO places the ability of the platform to capture these large pip moves above everything else and it is just not happening. It may not be anyone's fault but their clearing broker. I spoke to Scott (CEO) about this on the phone on Friday and basically all FXCM has to do is put their orders on manual and you can pretty much kiss goodbye any potential profit you could have made. For example, if 100 people put market orders in at a particular time, instead of these orders being cleared electronically, they would go into a queue. FXCM will take each order one at a time from the queue and manually execute it. This probably requires a human to pull up a list of orders, click it on, and process it. In between the time they pull it up and process it, they can take 2-3 sips of their coffee, take a trip to the bathroom, or do whatever they want while you sit on the other end hoping your order will be closed in time for you to make a profit.
Craig's comment, "Is not trading the news like having a Tiger by the tail? spreads
increase & orders are not filled. Most advise I have read (all of
course to be taken with a grain of salt) recommends staying out of the
market during the news. I qualify this as an observation, I have never attempted to trade the news or use FX Engines."
I've heard this before and Craig may very well be right. It may just be more wise to stay out of the market during the news and try to get the follow through 15-30 minutes afterwards.
Mike states, "In summary, the FxEngines platform is a great concept, but WAY too loose
around the edges to make it work during volatile markets."
Yes this is true and if it wasn't for 1 economic news release, Initial Claims, I would be losing money using this platform. This goes back to Duncan's comment about mid news items being successful. The Initial Claims is a mid news item and these types of news events seem to work.
So what am I going to do about all of this? I'm not sure yet. I'm up 50 pips in 5 weeks but is it worth it. Will I ever be willing to put big money into this? I don't think so.
Very Uneventful Trading Week
This week has proven to be a pretty uneventful one so far. I've made 2 manual trades, 1 which was barely stopped out and another that I closed only after getting up to date on economic announcements. I opened a short trade on the EUR/JPY yesterday without being aware that the ECB was having an interest rate announcement this morning. I contemplated keeping it open but wanted to remain conservative so I closed it with a 3 pip profit. I went short because I liked the technicals but during these types of announcements, I felt like it would have been a prayer and a pure guess to which direction the pair would go. I've made these types of mistakes before and payed for it so I didn't want to chance it. No harm.
I have had 4 automated trades this week, 1 for Construction Spending, 1 for Factory Orders, 1 for Initial Claims and 1 for ISM services. These trades have profited a total of 5 pips.
Tomorrow is the always wild and crazy Nonfarm Payrolls which I've previously reported is the top market moving indicator with an average pip range of 124 in the first 20 minutes following the release. Read Top Market Moving Indicators
I will certainly be automating a trade for this announcement.
Other than that, the technicals on the daily charts look very bad to me this week. Most are just hanging out in the middle of their channels waiting for something to happen similar to what I'm doing.
What Have I Been Thinking
I don't know if what I'm thinking is right or wrong but I find us in a similar situation to where we were back in early May. May 10th, the FOMC announced a 25 basis point hike and the dollar declined for a couple of days following the announcement before making a healthy 50 – 60% retrace. Last week, the Fed announced another 25 basis point hike and kept a similar statement regarding the future of interest rates. So where do we go from here?
- Will we get a minor correction (as we've seen the last couple of days) and then further dollar weakness pushing prices down to mid-May levels?
- Will we get a renewal of dollar strength and see levels push to early April levels?
- Will we get neither of these scenarios and just furthur consolidation?
Similar to what the FOMC are doing, we have to keep on top of economic releases. We have the Non-farm payroll release on Friday which is a huge market mover and may be the lighter fluid or not.
The bottom line is I don't know what is going to happen. I haven't read any "expert" commentary on any of this because I like to make my own assessment first. Thinking about stuff like this helps in keeping you sharp on the possible scenarios that could occur. I also firmly believe that it's beneficial to your future if you make your own choices without listening to outside noise. I'm not saying to totally dismiss others words or recommendations but I try to keep the influence that this has on me to a minimum.
FOMC Preview
I found just what I was looking for in a preview of the FOMC meeting tomorrow. Being relatively inexperienced in macroeconomic events and their effects on currencies, I wanted someone to give me a general idea of what to expect tomorrow. I know that no one knows exactly what will happen but it helps to put everything in context if we know the possibilities.
According to Richard Lee, Currency Analyst at DailyFX, the 2 most likely scenarios are for Bernanke to:
- raise rates 1/4 point and keep the statement unchanged
- raise rates 1/4 point and continue bias to raise rate
In the event of #1, the outlook is initially dollar bearish because it keeps the market guessing and is generally what most traders are hoping for.
In the event of #2, this will signal that the Fed is committed to raising rates yet again in August thereby creating a dollar bullish situation.
Scenario #3 is of medium likelihood and is for the Fed to raise rates 1/4 point and shift to a neutral stance. This would be bearish for the dollar because the signal here would be that the Fed is done raising rates.
Scenario #4 and #5 are highly unlikely.
#4 is for Fed to raise rates a 1/2 point and move to a neutral stance. This would create a mixed reaction because of a higher than expected rate change but a signal that this would be the final rate increase.
#5 is for the Fed to raise rates a 1/2 point and maintain a hawkish bias. This is highly unlikely yet good to know in the event that it ever does happen. This event would obviously be quite bullish for the dollar.
Another thing of interest in this column are his positioning conclusions which could greatly affect my EUR/JPY position which as of now is still open. He states that if the Fed produces a dollar bullish scenario, the dollar rally would probably be most pronounced versus the NZD, GBP, and JPY. It would be least pronounced versus the EURO. If the Fed produces a dollar bearish scenario, the opposite would be true.
Read the complete article 25bp and then what?
FOMC Meeting tomorrow
Everyone should most likely be aware that tomorrow is Alan Greenspan’s last meeting as Fed chairman. The Fed are widely expected to raise interest rates to 4.5%. Ahead of the meeting, the currency market is taking a breather and is expected to do so until a rate increase is announced.
I have not traded at all this week and it isn’t because I’m waiting for the Fed announcement. It also isn’t because I’ve been frightened away from the market. I just feel like I’ve lost my way a bit. Not only that but my posts have been fewer and I’m finding myself reaching for something to write about. I don’t know if I just need a break or if this is the beginning of the end. I hope it isn’t. I’m not one to quit very easily.
One thing I know that has been affecting me is my full-time job. There have been many changes going on at my company and I don’t know if it’s going to be for good or bad. I have a new boss as of last Friday and I’ve really had to dig in deep at work. This has prevented me from doing anything Forex related during work hours. Some of you may remember that I accepted a forex related job a couple of months ago that I was going to start after I received my bonus at my current position. It turns out that I’m not going to take the job after all. The manager who hired me quit suddenly in the beginning of the year. I was able to reach out to him to find out why and was shocked by his words. He told me flat out not to work there. He said the environment was absolutely terrible and that he actually felt bad when he sent me an offer letter. He said he was trying to delay the entire hiring process hoping that I would get tired of waiting and give up. I’m talking about one of the larger Forex retail brokers in New York City not having a men’s bathroom. I don’t want to mention them by name now. I’d rather things cool down before I say anything.
2006 GDP Growth Forecast
| Country/zone | 2005 (%) |
Source |
2006 (%) |
Source |
| World Economy | 3.2 | World bank | 3.3/3.2 | JP Morgan Chase/Moody’s |
| U.S. | 3.7 | Credit Suisse | 3.7 | Credit Suisse First Boston |
| Eurozone | 1.5 | Westpac | 2.0/1.9 | JP Morgan Chase/Westpac |
| Japan | 1.0 | Moody’s | 2.5/1.6 | JP Morgan Chase/Moody’s |
| China | 9.3 | Moody’s | 8.7 | Moody’s |
| Latin America | 4.0 | Credit Suisse | 3.7 | Credit Suisse First Boston |
| South Africa | 4.2 | South Africa | 4.0/3.9 | Moody’s/IMF |
Source: Currency Trader Magazine
Interest Rate Outlook 2006
| Country/zone | Rate (%) |
Current cycle |
2006 outlook |
| U.S. | 4.25 | Hike | Rate hike cycle expected to end in first half |
| ECB | 2.25 | Hike | Additional rate hikes seen |
| UK | 4.5 | On hold | Potential for rate cut seen |
| Switzerland | 1.0 | Hike | Additional rate hikes seen |
| Japan | 0 | None | Rumors BOJ will abandon zero interest rate policy |
| Canada | 3.25 | Hike | Additional rate hikes seen |
| Australia | 5.50 | On hold | Balanced risks seen, rates on hold |
| New Zealand | 7.25 | Hike | On hold, potential for rate cut late in 2006 |
| Brazil | 18 | Cut | Continue loosening rates |
| South Africa | 7.0 | Cut | Fund managers/economists differ on outlook |
Source: Currency Trader Magazine
US Consumer Price Index Report
We didn’t see much volatility after the CPI report this morning. The Core CPI figure of .2% was the consensus estimate and the CPI figure was -.5%, .1% above the consensus estimate. I interpret this report as meaning that inflation is generally under control with the -.5% CPI decrease attributed to the lower gas prices in November.
But the gas prices have begun their crawl back up this month so I can see an increase in CPI for December with Core CPI stable during the January announcement. I don’t foresee these figures having any bearing on future Fed rate decisions.
Greenspan leaves the door open for Bernanke
From DailyFX:
"Catching the market by surprise, the Fed released its decision 2 minutes early. The dollar sold off against the Euro as the statement contained a whiff of dovishness. In the new and much shorter statement, the Fed dropped the sentence, “the Committee believes that policy accommodation can be removed at a pace that is likely to be measured” and replaced it with “The Committee judges that some further measured policy firming is likely to be needed.” According to the Fed, core inflation still remains relatively low, but they will continue to watch economic data and the trend in energy prices to make sure inflation does not tick higher once again.
Fed Meeting Tomorrow
The USD dropped against the EURO for the most in 2 months apparently due to speculation that the Fed will announce that interest rates are no longer stimulating the US economy. With a quarter-point hike already priced into the market, everyone will be listening to the language of the announcement.
With a minor retrace occurring in the USD’s favor in afternoon trading, can we expect further dollar weakness until the Fed announcement? I wish I knew.
Dollar Drops Most in Two Months; Fed May Say Rates No Longer Spur Growth
