Ever heard of the Theory of Reflexivity?
“Traders make money by following a perceived trend (prevailing bias). Markets react to participants expectations and those perceptions influence prices, tending to validate themselves in self-reinforcing loops until some unpredictable event jolts expectations.”
What about, “The trend is your friend until the end when it bends?”
The first is attributable to George Soros, the second to Ed Seykota; two veritable money managers.
What’s my point? Well, nothing is in fact jolting markets. Inflation is still coasting uncomfortably high, Central banks are all singing off the same hymn sheet, and we are getting small turbulent oscillations around economic data releases. In fact, today’s monthly ranges might well fit into a daily range of yester-year. And the general trend favours carry trades.
Last week was no exception; tight trading ranges, a raft of UK data which didn’t really do much to GBPUSD, Swiss inflation dropped, US inflation remained uncomfortably high, and the long-awaited cut in US interest rates looks like it will be delayed.
To this week and we start off with a US Holiday- President’s Day- on Monday. So, expect a quiet day. For the rest of the week, Tuesday looks the most interesting with RBA minutes set to be released and Canadian inflation numbers out at 1.30pm UK time. Expectations are for the headline Canadian inflation rate to fall to 3.2% year on year for January.
FOMC minutes are released at 7pm UK time on Wednesday. Expect some volatility around this time.
Thursday’s main events are German HCOB PMI which is expected to print 46.1 for Feb (up from January’s 45.5). Euro Area Core Inflation (Y.o.Y- Jan) is forecast to drop to 3.3% from 3.4%. ECB monetary policy minutes are due at 12.30pm UK time.
Friday’s main events are German 4th quarter GDP, expected at negative 0.2% and German IFO business confidence which is expected to rise to 85.5 from last month’s 85.2.
Although the week appears to be quiet, it will be well worth studying various Central Bank minutes to gauge the thinking of our top policy makers!
Good Luck and Good trading!
Ben Robson is Head of Institutional E-FX at Swiss Finance Corporation. He is also the Amazon Best Selling Author of Currency Kings – How Billion traders Made their Fortune Trading Forex. McGraw Hill 2017
