Academy, Intermediate
May 27, 2023

Triangle of fundamental, sentiment, and technical

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How to trade by mixing the fundamentals, technical, and sentiment in the forex market?

Trading in the forex market can be a daunting task, with its fast-paced environment, constant fluctuations, and numerous factors that can affect currency values.

To be a successful trader, it is essential to have a comprehensive understanding of the market and how it works. This includes being able to analyze the three key elements that makeup forex trading: fundamentals, technicals, and sentiment.

To obtain higher returns with minimal risk, it is smart to analyze the fundamental, technical, and sentiment aspects while trading forex pairs. Here is a precise outline of how to do it effectively.

Firstly, it is critical to understand the fundamentals of the economy that are driving the value of the forex pairs being traded. This includes monitoring economic indicators such as GDP, inflation, and interest rates, as well as assessing global political developments that may affect the currency markets.

Secondly, technical analysis tools like chart patterns, trend lines, and moving averages can be used to identify potential entry and exit points to make trades. Technical analysis assists in recognizing trends in the market and pattern behavior from the past to forecast future price movements.

Finally, sentiment analysis, which examines the market mood and emotions of the traders, is essential. This requires keeping up with news and events that could influence currency market expectations, monitoring trading volume, and analyzing trader behavior on social media platforms.

By leveraging these three approaches, traders can identify trade opportunities with the potential for higher profits while keeping risks at a minimum.

Let’s learn more about Fund, technic, and sentiment

Fundamental Analysis

Fundamental analysis involves looking at the economic and political factors that affect a country’s currency. For example, if a country’s economy is doing well, its currency is likely to strengthen. Conversely, if there is political instability or a recession, the currency is likely to weaken.

So, let’s say you want to trade the EUR/USD pair. You’ll want to keep an eye on economic indicators such as inflation, GDP, and employment rates in both the Eurozone and the United States. You’ll also want to monitor any political events that could affect the currency pair, such as elections or trade agreements.

Technical Analysis

Technical analysis involves looking at charts and patterns to determine when to enter or exit a trade. There are many different technical indicators you can use, such as moving averages, Bollinger Bands, and Fibonacci retracements.

Continuing with our example, let’s say you’re looking at a chart of the EUR/USD pair and you notice that it has just broken through a resistance level. This could be a good time to enter the trade, as the currency pair is likely to continue to rise.

Sentiment Analysis

Sentiment analysis involves looking at how other traders feel about a currency pair. This can be done by looking at news articles, social media, and market sentiment indicators such as the Commitment of Traders report.

For our EUR/USD example, let’s say you notice that there is a lot of bullish sentiment around the Euro due to positive economic data. This could indicate that the currency pair is likely to continue to rise, and you may want to enter a long position.

Putting it All Together

By analyzing the fundamental factors, you can get a sense of the overall direction of the market. It would be your main or long-term trend. Technical analysis can help you find the entry and exit points, while sentiment analysis can give you a sense of how other traders are feeling about the currency pair and should wait for the aligned sentiment of other players as market motivation drivers.

For example in EUR/USD, you might decide to enter a long position based on positive economic data.

For any pair, You have a mathematical fraction. In EURUSD you have the EUR base as the numerator and the USD quote as the denominator. For ascending this fraction, the numerator must be increased or the denominator must be decreasing.

Considering, The European Central Bank (ECB) decided to increase the interest rate however the Federal Reserve is in dovish monetary policy. If the rest of the economic parameters such as recession risks or risk aversion issues do not support the dollar (safe haven) it helps the EUR to get gain vs the USD dollar. So your fundamental bias would be bullish.

They look exactly like a two-sided scale. If the side has more weight, the price will be pulled in the same direction.

A technical breakout, and bullish sentiment. However, it’s important to always manage your risk by using stop-loss orders and not over-leveraging your trades.

By using a combination of fundamental, technical, and sentiment analysis, you can increase your chances of success in forex trading while minimizing your risk.

Fundamental Trader

Our trader assistant (Fundamental trader), designed specifically for use with Metatrader 4 & 5, is a comprehensive expert advisor that gathers all necessary data. By utilizing fundamental bias, market sentiment, risk analysis, economic calendars, COT reports, and currency pair forecasts, one can effectively minimize erroneous trades.

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Ali Sabbaghi
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Academy, Advanced
May 27, 2023

What is the Market Profile and how to use it?

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What is the Market profile indicator?

The Market Profile indicator as know as Volume Profile is a powerful tool for forex traders that provides valuable insights into the market structure and dynamics. It is a visual representation of the trading activity over a specific period, which shows the distribution of price and volume across different price levels.

The Market Profile indicator is based on the concept of market profiling, which divides the market into different price levels or “value areas.” Each value area represents a price range where the market has spent a significant amount of time, and where buyers and sellers have established a balance of power.

What information does it give you?

By analyzing the Market Profile indicator, traders can gain a deeper understanding of the market dynamics and identify potential trading opportunities. Some of the key information that the Market Profile indicator provides include:

– Price levels: The indicator shows the most significant price levels based on the volume traded at each level. This information can help trades to finde the supply and demand area better and faster.

– Volume distribution: The Market Profile indicator shows the distribution of volume across different price levels, which helps traders identify areas of high and low liquidity. Its like to identify order book area on the chart. This information can be useful for determining entry and exit prices and managing risk.

– Market structure: It can helps traders identify the market structure, whether it is trending, ranging, or consolidating. This information can be used to develop trading strategies that are suitable for the current market conditions. To use the Market Profile indicator for trades, traders need to understand how to read the indicator and interpret the information it provides.

The main components of the Market Profile

First, walk through some basic information about the Market profile. When drawing your Market/volume profile in the chart, you must become intimately familiar with the following values

High volume node (HVN)

HVN stands for High Volume Node, which is a price level where a high amount of trading volume has occurred. It is essentially a point of balance where buyers and sellers are equally matched, resulting in a prolonged period of price consolidation. HVNs are identified through the use of volume profiles, which display the volume of trades that occurred at each price level.

Low volume node (LVN)

LVN is a term used in Market Profile analysis to represent a price level that has witnessed low trading activity. It is a point in the price range where the trading volume is significantly lower than the rest of the market. LVNs are identified through the Market Profile chart, where the volume distribution is plotted against price levels. These nodes are considered significant because they reflect a lack of demand or supply at that price, which could indicate a potential shift in market sentiment.

Point of Control (POC):

The main key level in the Market profile indicator is the Point of Control or POC which represents the price level where the most trading activity occurred during a given period. It is usually represented by the longest horizontal line in a market profile chart, which shows the distribution of trading activity over time. The POC provides insight into the market sentiment and helps to identify key levels of support and resistance.

Value Area (VA)

VA stands for Value Area, which is the range of price levels where a certain percentage (usually 70%) of trading volume has occurred. it shows you the most trades area where buyers and sellers tried to trade their assets (Areas of high supply and demand)

How to read the chart with Market Profile?

Here are some tips for using the Market Profile indicator effectively:

1. Identify the pivot levels and volume distribution

The first step is to identify the value areas based on the volume traded at each price level. (Image above) Traders should look for areas with the highest and lowest volume and consider them as potential support or resistance levels. You should also analyze the volume distribution across different price levels to identify areas of high and low liquidity. This information can help you to determine the strength of support and resistance levels and identify potential breakout targets too.

Use the POC to determine the fair value of an asset. A special price is used to make trading decisions based on whether the market is bullish or bearish. The most supply and demand occurs in POC levels. Usually in this area, you will see a strong breakout after the battle between buyers and sellers.

Use HVNs as a basis for support and resistance levels, as they indicate where large numbers of market participants are willing to buy or sell, making it a significant level to watch out for. The HVN is an essential tool for market profile traders as it helps to identify key levels of interest with a high probability of price action.

Traders use LVNs as support or resistance levels, and they may also use them to place trades or take profit. In summary, LVNs are essential indicators in Market Profile analysis that traders use to make informed trading decisions.

2. Determine the market structure

Traders should use the Market Profile indicator to determine the market structure, whether it is trending, ranging, or consolidating. This information can be used to develop trading strategies that are suitable for the current market conditions. Use VA Volume Area and POC to determine the high volume area as side or range market.

Market profile and Range market

3. Use the information for trades

Once traders have analyzed the Market Profile indicator, they can use the information to develop trading strategies that are based on the market structure, support and resistance levels, and potential breakout targets. Traders can also use the Market profile to manage risk by setting stop-loss and taking profit targets based on the information provided like POC and all other HVNs and LVNs.

Order Squeeze

Order Squeeze Easy to use an indicator that shows you squeezed levels of the price that have a high potential to retrace, reverse or break with a high volume of traders. you can buy these tools from Metatrader markets

Order Squeeze

How to use Market Profile in Trading?

By analyzing the indicator, traders can identify potential trading opportunities, develop trading strategies, and manage risk effectively. However, traders should also use other technical indicators and fundamental analysis to confirm their trading decisions and avoid relying solely on the Market Profile indicator.

💹 Enter for a buy position

If you’re looking to trade and enter a buy position based on the market profile indicator, here are some tips to keep in mind:

Manual trading tools. Fundamental trader

1. Looking for a long trend direction
It is always advisable to trade in the current direction if you want to be a successful trader.

If you like to buy an asset, to reduce your risk and faults, it’s better to find a long-term upside direction and trade when a short-term market correction or a downside retracement occurs. When you identify the long-term trend, wait for a correction and trade in a lower (cheaper) price. Price action can help you more to read the market and detect the movement direction.

2. Identify key levels
identifying the key levels of the market by finding the HVN and LVN areas. all the peaks, Hills, dimples, dents, and valleys can be support or resistance levels. the market can react to any of them. you can scalp on it or use the lowest key levels for entering a long position. Note this, the cheaper price has a lower risk for buying.

3. Wait for confirmation
While identifying support levels is important, it’s also essential to wait for confirmation before entering a buy position. This means waiting for the price to actually start moving up from the support level before making your trade. This can help you avoid false breakouts and ensure that you’re entering the market at a time when the price is actually likely to rise.

Then you can also use another technical method to confirm your buy position. For example, you might use a moving average crossover or an oscillator to confirm that the trend changing. It can help you build a more accurate trading strategy. look at the below images. you have strong levels for buying but you don’t have any confirmations (1). so wait for next levels (2)



4. Set your stop loss
Once you’ve entered your buy position, it’s important to set your stop loss to protect your investment. This should be based on your risk tolerance and the volatility of the asset you’re trading.
Using the key levels in step 2, identify supports and set your stop below them.

So, in short, for trading with Market profile

– Look at the shape of the market profile curve and identify areas of highest and lowest volume areas
– Look for price levels that have been accepted by the market for an extended period of time
– Use the POC as a reference point for potential entry levels
– Consider a buy position when the price breaks above a previous high volume area or resistance level
– Use technical ways or trend indicators in a lower timeframe to confirm the signals
– Set a stop loss order below the entry-level and below a lower POC area to limit potential losses
– Take profits at predetermined levels or use a trailing stop to ride the trend.

📉 Enter for a Sell position

You can use all the learning information above for the sell position too.

The infrastructure is this:

  • Find a long-term downtrend market that is held by sellers (sellers are bigger and stronger)
  • Find and draw all key levels, HVN, LVN, and POC areas.
  • Wait for a retracement/correction in the market and try to sell the assets at the highest possible price (Sell when the asset is expensive)
  • apply proper risk for your trade

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Ali Sabbaghi
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News
May 24, 2023

Eurozone PMI dropped in May due to manufacturing contraction

The composite PMI fell from 54.1 to 53.3 in May, which is the first decline since October last year. The divergence between services and manufacturing is growing, with services inflation accelerating again. The latter is the main concern for the European Central Bank

The PMI continues to point to decent economic growth, but the first decline in the index in more than half a year is indicative of the weakening manufacturing sector. The decline in the manufacturing output PMI from 48.5 to 46.3 puts it further into contraction territory. New orders continue to fall and backlogs of work are becoming smaller, adding to output concerns in the manufacturing sector.

For services, demand continues to be rather strong. The services PMI still indicates strong output growth at 55.9, but the index did come down from 56.2 in April. New business continues to grow for the service sector and demand is buoyed by a faster increase in wages. As wages are also the most important input cost for services, this has caused price expectations to increase again.

May’s PMI release confirms that concerns about elevated core inflation should center around services, while goods inflation is set to ease markedly from here on. The economy continues in a ‘muddling through’ phase, as the stagnation seen around the turn of the year has not given way to a strong recovery. The strong services performance and subsequent inflation pressures will likely keep the ECB on its toes heading into the summer as any impact on overall inflation unfolds.

source: ing

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Ali Sabbaghi
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News
May 24, 2023

May 24 economic calendar

German trade sentiment

German trade sentiment, European Central Bank chief Lagarde, and UK inflation numbers are in focus ahead of the FOMC meeting.

European economic calendar

It’s a fairly busy day for the euro, with the German economy back in the spotlight with the German Ifo business sentiment index in focus.

According to Germany’s preliminary composite PMI for May, business expectations weakened in May, weighed down by declining confidence in the manufacturing sector. Weaker Ifo business sentiment index and components weigh on EUR.

Economists expected the business climate index to fall to 93.0 from 93.6.

Regarding the German economy, investors should keep an eye on the comments of the European Central Bank. European Central Bank President Christine Lagarde will speak on the calendar today. The European Central Bank has remained steadfast in bringing inflation to the target. However, cracks are starting to appear in the Eurozone economy, which could give sellers more momentum.

UK economic calendar

It’s a busy day for the pound. The all-important UK CPI report will be in focus this morning. After disappointing private sector PMI numbers from Tuesday, sticky inflation could force the Bank of England into an aggressive monetary policy move to rein in inflation.

Economists forecast the UK’s annual inflation rate to fall to 8.3% from 10.1% and headline inflation to fall to 7.3% from 8.5%. Hotter-than-expected inflation numbers could fuel an interest rate hike in June, forcing markets to consider more hawkish monetary policy and the increased threat of a recession from the Bank of England.

Given the inflation in the UK, investors should also monitor BoE members’ comments. Bank of England Governor Andrew Bailey is on the calendar today. Bailey will deliver a keynote address at the Mansion House Net Zero Delivery Summit before speaking at the Wall Street Journal’s Inflation and the Economy CEO Council.

US Economic Calendar

Looking ahead to the US meeting, it’s a quiet day on the US economic calendar. There are no US economic indicators for investors.

However, the FOMC’s minutes at the end of the US meeting will also be of interest due to news on the US debt ceiling and US Treasury Secretary Janet Yellen.

According to the CME FedWatch Tool, the probability of a 25 percent increase in interest rates by the Federal Reserve rose to 28.1 percent in June, up from 25.7 percent on Monday. Better-than-expected US private sector PMI numbers and progress toward a debt ceiling deal could significantly increase the chances of a rate hike in June.

source: ing

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Ali Sabbaghi
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Market Analysis
May 22, 2023

Will USDJPY’s bullish rally end?

The Japanese yen is in a tight buyer position, which could be the end of a 1-week rally for the US dollar. During this time, the yen fell and the day hit a six-month low.

Japan’s core CPI reached 3.4 percent

Inflation in Japan continues to rise. Core consumer inflation rose to an annualized 3.4 percent in April, up from 3.1 percent in March and in line with estimates. This index excludes food items but includes energy items. The index, which excludes both food and energy and is closely watched by the Bank of Japan, rose 4.1 percent annually in April, the highest level since September 1981.

The rise in inflation, along with first-quarter GDP that was surprisingly on the upswing, fueled speculation that the BoJ could begin phasing out the bank’s ultra-loose policy, which has been in place for decades. Kazuo Ueda, the new BOJ chairman, has said he will not change policy until inflation is sustainably below 2 percent and wage growth strengthens. Inflation has been above the bank’s 2 percent target for more than a year, and markets are watching for any comments from the BoJ for any change in policy.

The BoJ has long played a game with speculators betting that Ueda will act to tighten policy, which will push the yen higher. As the yen moves below the 138 lines and nears 140, the possibility increases that the government will intervene in the currency markets to stabilize the yen and attack speculators.

Now, Markets will have a chance to focus on Fed speak, with Jerome Powell and two FOMC members giving public remarks. According to CME’s FedWatch report, the monthly rate hike has changed to a 66% chance of a halt and a 33% chance of a 25 basis point increase. This downward revision is due to a continued message from the Federal Reserve and a strong US economy.

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Ali Sabbaghi
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Weekly Gold
May 21, 2023

Weekly gold Analysis

Fundamental View

Is gold still supported?

Although the ounce of gold had a rough week, falling almost $50 and experiencing its worst performance since February, we saw a bullish return to the market on Friday.

One of the biggest drivers for the ounce of gold was the strengthening of the US dollar. The price of an ounce of gold has an inverse relationship with the value of the US dollar. The US dollar strengthened in response to the country’s economic data and changed interest rate expectations. But last Friday, the head of the US Federal Reserve said interest rates may not rise much. He is concerned about the credit crunch in the American banking industry. Powell said that “financial stability tools have helped calm the situation. However, the developments in the American banking sector are such that they make financial and credit conditions difficult and will most likely harm economic growth, employment, and inflation. For this reason, perhaps there is no need for a quick and large increase in interest rates. And it happened that on Friday gold was supported in the range of 1950 and now it is trading in the range of 1980.

📅 Economic Calendar

In the coming week, the FOMC Minutes will be published. In the meantime, the GDP data will be updated and the desired inflation index of the Federal Reserve (PCE) will be at the center of attention.

US federal government debt crisis

This is a sign that the Federal Reserve may keep interest rates on record from June. After the words
The head of the US Federal Reserve, market interest rate expectations were weakened. From the point of view of the market, the possibility of an increase of 0.25 percentage points in the interest rate in June has reached 10%. Before this, the market was preparing to stop interest rate hikes from June. Several officials of the US Federal Reserve have backed away from the idea of stopping interest rate hikes. Even hopes for a rate cut at the end of 2023 have weakened.
Before the words of the head of the US Federal Reserve, the market was preparing for a 0.25 percentage point increase in the interest rate in June and had abandoned the expectation of a rate cut until the end of 2023. For this reason, we saw a sharp fall in the price of an ounce of gold. But it seems that the Federal Reserve Chairman’s comments have caused a change in interest rate expectations.

Technical View

According to analysts, it is expected that the price of an ounce of gold will experience an upward return from the current levels. However, there is a risk of an ounce of gold falling into the $1,900 range. The first resistance of the market is the 1980 range and then the 2000 dollar range. The support area of the market is in the range of 1960-1950 dollars. If negotiations to increase the federal government’s debt ceiling fail, the price of an ounce of gold could stabilize above $2,000.

Is gold still supported? by Alisabbaghi on TradingView.com

Calendar events

Affecting news/events for gold

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Ali Sabbaghi
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Week ahead
May 21, 2023

Week ahead

Everything involved in FED decisions

🇺🇸 More than 82% of market participants do not expect an interest rate hike by the Federal Reserve in the June 14 meeting. (The current interest rate ceiling is 5.25%.)

As it is known, market participants do not only expect interest rates to increase but also to decrease it. But it should be noted that if the stickiness of inflation is high, the Federal Reserve will probably increase the interest rate again, and because the market has predicted a decrease in the interest rate, this issue can put heavy pressure on stocks and indices. be risk-averse. Of course, this analysis is based on the assumption that the US labor market is strong and the unemployment rate is low. If the unemployment rate increases, the Federal Reserve will have to adopt an expansionary policy, and Congress will urgently increase the debt ceiling of the US government.

The US dollar is the foundation of all financial markets. Always one side of the price of commodities (like crude oil, Silver, and gold) or cryptocurrencies like Bitcoin and even the stock market is the US dollar! The US dollar is the main driver of all financial markets in the world. The US economy is the largest economy and the US dollar is the most common currency in the world. This is why all traders of all markets are confused in their decisions. Because the ability to predict the decisions of the Federal Reserve at this point in time has become difficult.

Why is the dollar strong even with the risk of rate hikes ending?

The US dollar index strengthened against most major currencies last week. In fact, the US dollar index has grown by almost 2% over the past two weeks. This is the best 10-day gain in the US dollar index since mid-September. But what happened that the US dollar index strengthened and is it possible to continue the growth of the US dollar?

The US dollar has grown as has the yield on US Treasuries. This means that the interest rate expectations of the market are retreating from the interest rate cut. Since the beginning of the US credit crisis, interest rate expectations quickly moved from interest rate increases to interest rate decreases. The market was worried that with the onset of the credit crisis, the central bank would be forced to lower interest rates to prevent recession and economic crisis. For this reason, traders buy the dollar as a safe asset

Interest rate increase or decrease?

While the market’s interest rate expectations were moving away from a rate cut, the chairman of the US Federal Reserve gave a speech saying that there is no need to raise interest rates. The market is preparing for another rate hike, but the Federal Reserve has not made a decision. This means federal uncertainty and that everything depends on the performance of economic indicators. The performance of the US economic data will determine whether the Federal Reserve will move towards raising interest rates or not.

Traders are focused on the net PCE inflation index.
April’s expectation for this index is 4.6%. This is not a good figure for the central bank. This means that the Federal Reserve may try to raise interest rates to lower it.

📅 Ziwox Calendar

Eurozone

🇪🇺 Even though there has been no change in the possibility of interest rate hikes for the European Central Bank, a batch of recent worrying data for Germany, along with the recovery of the US dollar, have caused the Euro to fall, and as a result, the single currency has reached several levels. Lost a key.

The EURUSD currency pair now trades in a key area of 1.0800. And the reason for that is the fear of recession and global financial problems and the growth of the dollar last week. But at these low levels, can you think of buying Euros?
A key driver of the euro’s attractiveness against the dollar recently has been the perception that the Federal Reserve has reached its interest rate peak while the European Central Bank still has a way to go for contractionary policies. Although the European Central Bank will still be on the path of contractionary policies, markets are already re-betting on an interest rate hike by the US Federal Reserve after Logan’s speech.

COT report of Euro and US dollar

Ziwox Terminal (COT report)


You should note that the US debt ceiling problems and the purchase of the EURUSD currency pair were the biggest transactions among the G10 currencies, and since recent developments have ended positively for the dollar, we will probably see a Long Squeeze in this currency pair. According to the COT report, 7667 Long net positions Increased in EUR, and 5933 Long net positions Increased in the last week and these close positions by these holders can be a Long Squeeze situation. There is plenty of room to reprice the hawkish Fed expectations, so finding a floor for the EURUSD pair is risky right now.

The PMI indicators that will be published on Tuesday can play a very important role in stopping the fall of the euro or, as we mentioned above in the (Long Squeeze), fuel a sharp and further fall. The forecasts do not indicate much change in the economic outlook of the Eurozone. The manufacturing sector is expected to contract again, with growth fueled by service industries.

RBNZ, Hike interest rates again?

🇳🇿 The Reserve Bank of New Zealand is holding a policy meeting this week. It is expected to raise interest rates by 0.25% on Wednesday. If it does, it would be the 12th consecutive increase since the contractionary cycle began in October last year and would take interest rates to 5.50 percent, the highest among advanced economies.

The Bank of New Zealand will release updated forecasts in its quarterly monetary policy statement on Wednesday, so the New Zealand dollar could rise if policymakers raise their terminal rate to meet or exceed market expectations.

Next, in this week’s economic calendar, we will have Australia’s preliminary PMI indicators. For Canada, April wage growth will be released on Thursday. And for Japan, we’ll have machinery orders, the manufacturing PMI, and a preview of May inflation with the Tokyo CPI.

Economic calendar

Important news/events for this week:

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Ali Sabbaghi
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Academy, Intermediate, Learn Fundamental
May 17, 2023

How to use economic calendar data?

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For better trading along with economic reports, you need to know what the market is focusing on.

In every trading week, a large number of economic indicators are published, but only a few of them move and affect the market. I always see newbies asking questions about how fundamental analysis isn’t useful because they see numbers for US economic data for example that look good in theory but the market doesn’t act according to it and sometimes even acts against it.

📅 Ziwox calendar

The simple reason for this is that the market is not focused on a particular report, or its release is generally in line with market expectations. Actually, the market reacts more to surprising data or specific things that are focused on.

If economic data comes out exactly as expected, we cannot draw any particular conclusions from it unless the details have something to say. In addition, if the market is not focused on economic reports, even if they surprise, there is a high probability that the market will not move much.

Therefore, it’s crucial to understand which economic indicators have the potential to move the market and why. For example, the employment report, also known as the non-farm payroll (NFP), is one of the most significant indicators in the US. It provides a snapshot of the labor market and the overall health of the economy. If the NFP number comes out better than expected, it could boost the US dollar and the stock market. On the other hand, if the number is worse than expected, it could lead to a sell-off in the stock market and a drop in the US dollar.

Market and Trades focus on any surprising print

You should know that the market’s focus on trading is better on economic reports. If the market is focused on employment, it means that the central bank has explicitly stated that it is going to adjust monetary policies accordingly, so inflation reports do not affect the market much, and vice versa.

You should also know where you are in the business cycle. If you’re coming out of a recession, then inflation doesn’t matter much and you should focus more on employment, continued good orders, purchasing managers’ reports (ISMs), building permits, retail sales, etc. If you are at the end of an expansionary cycle and inflation is rising, inflation data will be the most important issue because the central bank will act to contain inflation and these actions will hinder economic growth.

Also, depending on which country the data is related to, its degree and order of importance change. In general, since the United States is the largest economy in the world, data from the United States is the most important. There is a famous phrase that says: When America sneezes, the whole world catches a cold.

This statement is only to emphasize the importance of the economy of the United States of America. So if the US economy does well, it can be a positive risk (as long as the rest of the world isn’t bad) and that’s when US data comes out positively. In 2020, we saw the exit from the Corona crisis.

On the other hand, the weaker and weaker data of the United States of America can cause negative risk and cause the purchase of the US dollar as a safe haven.

Look for expectations from the data, not the data itself

When it comes to analyzing data, it’s important to look beyond the numbers themselves and consider the expectations they carry. For example, these days, evident in the current market focus on inflation data, which reflects the fact that inflation rates in the US are well above the Federal Reserve’s target of 2%. As a result, investors anticipate more contractionary measures from the Federal Reserve, which could have significant implications for economic growth and stability. This is why other data points, such as unemployment claims or EU data, are currently less important to the market – the expectation is that what happens in the US will have a ripple effect on other markets. By understanding the expectations behind data, investors can make more informed decisions and better predict market trends.

In the above example, the main focus of the market is on inflation data, why? Because the inflation rate in the US is more than double the 2% target of the Federal Reserve for inflation.

This, in turn, makes the market expect a faster contractionary process by the Federal Reserve and all the things that can come from it, such as slowing economic growth, policy errors or failures, economic stagnation, etc., and such things are priced in the market. Right now, the market doesn’t care about unemployment claims or some UK or EU data, because whatever happens in the US can spread to other markets.

As you can see, there are many factors to consider when looking at economic data rather than just looking at whether the data came in better or worse than expected, or whether the economic calendar says it’s an impactful or minor event. You need to broaden your horizons and recognize what is important in a particular situation so that you can make a better deal based on published economic data.

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Ali Sabbaghi
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News
May 16, 2023

German ZEW index adds to recent growth worries

The third drop in a row for the German ZEW index marks a turning point for the worse as any growth optimism from the start of the year evaporates

All bad things come in threes. The ZEW index, which measures financial analysts’ assessment and expectations of economic and financial developments, signals a turn of the German economy for the worse. In May, the ZEW index decreased to -10.7 from 4.1 in April, the third consecutive drop. At the same time, the current assessment component also weakened, dropping to -34.8 from -32.5 in April.

Weak German macro data in recent weeks, as well as the US debt ceiling debate, banking turmoil and expectations of further rate hikes, seem to have dented analysts’ optimism.

Earlier optimism has disappeared for now

The ZEW index is definitely one of the worst-performing leading indicators in Germany when it comes to predicting GDP growth. However, it has a decent track record in predicting turning points in the economy. With this in mind, today’s ZEW sends a worrisome message: three consecutive drops are a new trend, a trend in the wrong direction.

To some extent, today’s index numbers are both backward and forward-looking. It’s both a reflection of recent weak macro data but also, once again, of a downscaling of growth expectations. The optimism at the start of the year seems to have given way to more of a sense of reality. A drop in purchasing power, thinned-out industrial order books as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown of the US economy all argue in favour of weak economic activity. On top of these cyclical factors, the ongoing war in Ukraine, demographic change and the current energy transition will structurally weigh on the German economy in the coming years.

All of this doesn’t mean that the German economy will be stuck in recession for the next couple of years. But it does mean that growth will remain subdued at best and that the flirtation with stagnation will continue.

source: ing

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Ali Sabbaghi
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Trade idea
May 15, 2023

RBA-BOJ monetary policy divergence continues to bullish AUDJPY.

AUDJPY trade idea

Consumer inflation expectations in Australia rose to 5% in May from 4.6% in April, the latest data showed. Earlier this month, the Reserve Bank of Australia unexpectedly raised the cash rate by 25 basis points to 3.85 percent, saying further tightening may be needed to ensure inflation returns to target within a reasonable timeframe.
China is scheduled to release its April industrial production and retail sales figures on Tuesday. This may limit upside moves from the trend line.
Additionally, the Japanese goods trade balance and more importantly, national CPI figures due out on Thursday could also have a significant impact on the pair.
Now for trade AUDJPY, our bias is bullish in the short term, but the price must break to the edge of the trend line to enter a buy position in the correction of the price to the level of 90.2

The resistance level for the target will be the strong weekly levels of 91.85 and 92.3. A drop below the 90.2 level will invalidate the bullish scenario.

RBA-BOJ monetary policy divergence continues to bullish AUDJPY by Alisabbaghi on TradingView.com

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