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Newsflow Analysis for 12 Dec 18

What’s Due?


What’s Expected?

The market is expecting +2.2% vs 2.5% previous for the headline, and 2.2% vs 2.1% previous for the core read.

A look at the Data:

The market looks correct in pricing a lower headline reading since gas prices dropped quite a lot in November compared to October. However, recent ISM prices component dropped by 11% and that would contrast the slightly higher PPI read we had recently. So overall, we believe a negative surprize is in store.

Trade Scenarios:

Sell USDCAD on a worse CPI print accompanied by an evident directional cue from the market. Keep stops 30 pips away and go for 30 pips’ profit. The algos will digest the data quickly so act even after the first minute.

*Now onto a few preliminary warnings for those members that may be expecting magic formulas, holy grails & the like. Trading the reaction to certain market movers can offer an edge. This does not mean it always offers an edge. In particular, what we will be utilizing to stack the odds are:

  • a significant deviation from expectations (over & above a threshold value that is unique to each release)
  • an equally significant reaction from the market (so we expect the high frequency models to be doing the exact same work we are, and we use it as confirmation of our own hypothesis)
  • the current trend of the market (one news event can’t change the nature of an established trend, unless we’re talking NFP or Central Bank meetings)
  • volatility (in particular, the amount of space covered during the day/week)
  • the trade management component of the equation. These intraday trades need to have a sufficient ex-ante risk-reward, and a quick trailing stop mecchanism to lock in gains on the market’s initial reaction.
  • the money management aspect of these trades. Given that they are aggressive, short term opportunistic in nature, the risk per trade naturally needs to be small. Think 0.25% for starters.

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