Noticias del mercado & perspectivas

The 7.95% downward move on the British Pound (GBP) on the back of the Brexit vote was definitely one of a kind. The black line in the chart below shows the daily closing prices for the cable all the way back to 1975. The red line is the daily net changes (measured from close to close) during the same period.

As you can see, never in the past 41 years have we seen a daily move like the one that occurred on the 24 th of June 2016. Despite the uniqueness and magnitude of such a move, many analysts, led by the famous financial mathematician and author of “Fooled by Randomness” and “Black Swan” (which are both highly recommended for serious traders), Nassim Taleb, believe the Brexit move was within the boundaries of statistical properties, which is another way of saying it was not an outlier. Nassim Taleb’s Twitter account a few days after Brexit: Regardless of how you chose to see the Brexit events, in this article I am going to crunch some numbers to see if such extreme price actions can potentially have any explanatory power that can be used by medium and short term traders.

Analysis of GBP returns from 1975 - 2016 For this analysis, I first needed to define what makes a price change normal and what makes it extreme. To do this, I gathered the daily, weekly and monthly returns for the cable since 1975 to today (excluding the Brexit day) and constructed the table below. This table shows some of the statistical attributes of the cable over the study period.

For example, under the Daily column, you can see that historically 52% of the times the Pound has had a positive return and 48% of the times it has seen price depreciation on a day to day basis. Furthermore, this table shows that the average of positive and negative returns across all time frames is around zero. This is quite normal and holds across many markets (including stock indices) and goes to show how difficult it is to predict the direction of the market.

From here, I want to draw your attention to where it says “1% largest”. These are the returns that have only occurred 1% of the times and have all been equal or greater than the number that appears in front of them. For example, the under the daily column, it says that only 1% of the times, the sterling has recorded a daily gain of 1.56% or more.

Said differently, this line item shows that 99% of the times, the daily Pound return has been less than 1.56%. On the flip side, the “1% smallest” means that only 1% of the times, the GBPUSD has dropped more than 1.69% a day which is the same as saying that 99% of the times, the Pound’s daily return has been greater than -1.69%. From these two lines, I constructed the “Extreme” range which is one of the thresholds used for this analysis.

An extreme day is when a daily return is either greater than 1.56% or less than -1.69%. If a daily return falls between those ranges mentioned in the above, then I call that a normal day. Please note that just because of the way I have defined my normal range, I expect 98% of the times the Pound’s daily return falls in the normal range.

You can extend the same terminology for the weekly and monthly returns. For example, looking at the monthly range, if any one month’s return is between -7.34% to 6.33%, you can call that month a normal month. However, if it moves outside of those limits, then that is going to be an extreme month.

The last line in the table above shows another range which I call the Super Extreme range. These are the observations that have only happened 0.1% of the times. For example, for a daily return to be superextreme, it has to be either greater than 2.92% or less than -2.94%.

Now that we have established the thresholds, let’s turn our attention to the Brexit. The table below shows sterling’s return on the Brexit day, week and month. As you can see from the table above, Brexit was an extreme move in all time frames.

However, with the exception of daily prices it cannot be accounted as a super extreme move. Analysis of GBP’s extreme moves Now let’s turn our attention to the negative extreme moves and see what’s happened each time the cable has come across such extreme moves in the daily, weekly and monthly time frames. The results for the daily observations are reported in the following tables.

As you can see under both extreme and super extreme scenarios, the market has usually bounced back in the first 10 days, and from there onwards the future direction of the market over the next 20 and 40 days has been a 50-50 game. Therefore, it appears that purely based on the historical daily data, we cannot draw any meaningful conclusion from an excessive down day. Daily Performance Next I looked at the weekly data and summarised the required information in the table below.

As you can see, there is a bit of an edge in the first 4 weeks after a large negative event. According to this table, 55% of the times the Pound has resumed its downward trend 4 weeks after an extreme negative event with an average price fall of -3.7%. From there onwards, the model does not have much to say.

Weekly Performance Looking at the monthly data, things start looking much better. According to the table below, in 100% of the times, once the sterling posts a negative extreme month, it continues downwards for the next 4 months where it drops by an average of 12.3%. Monthly Performance While the above finding is great and shows a future direction with a notable profit potential for medium term short sellers, it comes with a catch.

If you look at where it says “Total observations”, you will notice that there have only been five cases in the entire study period where the Pound has posted an extreme negative monthly return. So our sample size is too small. What makes the matter worse is when you realize that all of these five cases are either in relation to the Pound crash in 1992 or GFC in 2008.

Therefore, unless you believe the GBPUSD is fundamentally in the same situation (1992 or 2008), then it would be really hard to draw a meaningful comparison. Extreme Monthly negative returns since 1975 Beware of extreme price actions Based on the information provided in this analysis, unless you believe that the UK is in a similar situation today compared to where it was in 1992 or GFC, drawing conclusions based on outliers or extreme price actions seems to be a risky business. Also in a more generic term, it appears that extrapolating past events in the daily (higher) frequency is less informative compared to when lower frequency (i.e, monthly data) are brought to the picture.

The third point that I want to make is that big one day or one period moves should not be the basis of your trading systems. They may look compelling, but when you do some simple objective tests, they won’t pass. Please note that trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment.

Also, you do not own or have any rights to the underlying assets. You should only trade if you can afford to carry these risks. Our offer is not designed to alter or modify any individual’s risk preference or encourage individuals to trade in a manner inconsistent with their own trading strategies.

Ramin Rouzabadi (CFA, CMT) | Trading Analyst Ramin is a broadly skilled investment analyst with over 13 years of domestic and international market experience in equities and derivatives. With his financial analysis (CFA) and market technician (CMT) background, Ramin is adept at identifying market opportunities and is experienced in developing statistically sound investment strategies. Ramin is a co-founder of exantera.com which is a financial website dedicated to risk analysis and quantitative market updates.

Connect with Ramin: Twitter | LinkedIn | Ramin's posts

Last week's ATR: 95-96.1 From the daily chart below, we can see that the US Dollar Index is currently testing its right shoulder, and I have marked the left and right shoulders by two red rectangles. It will take weeks for the price to tumble around the rectangle area, and there might be a lot of fake movements occur, thus it is still too soon to determine a directional bias. While waiting for the outcome to reveal, we should bear in mind that a candlestick chart under larger time frame (i.e., daily or weekly) is like looking at the larger picture.

By keeping daily or weekly chart as your main chart to look at, it should help you to try and avoid some of those fake breakouts on smaller time frames such as 4 hours chart. Last week, the US dollar index rose for the second consecutive week, and the Fed’s interest rate hike news continued to support this trend. Federal Reserve Powell pointed out on Wednesday: "Interest rates are still loose, but we are gradually moving towards a neutral level, which means neither blocking nor stimulating economic growth.

Interest rates may exceed neutral levels." In his fourth public speech in a week, Powell reiterated his optimistic expectation of the US economy. He also pointed out that the US economy is in a very stable, low inflation period accompanied with extremely low unemployment. This week, the market will focus on the US CPI report for September, which will be announced on Thursday (October 11).

The survey shows that the US CPI annual rate in September is expected to increase by 2.4%, the previous value is 2.7%; the core CPI yearly rate in September is expected to grow by 2.3%, the last value is 2.2%. By Lanson Chen – Analyst Lanson Chen @LansonChen This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions.

Trading Forex and Derivatives carries a high level of risk.

Markets are rattled by US- North Korea tensions as Trump vows to respond to North Korea nuclear threats with “fire and furry”. The senior administration officials and Secretary of State Rex Tillerson tried to find different ways to explain the President’s comments and play down the tough talk. Trump reinforced his threats stating “they should be very nervous, because things will happen to them like they never thought possible”.

The standoff has unsettled the financial markets worldwide. The DOW dropped by 200 pips and S&P 500 fell to sessions lows. The CBOE Volatility Index, the best gauge of fear in the market spiked by 45%. [caption id="attachment_58085" align="aligncenter" width="600"] Source: GO Markets MT4[/caption] The demand for safe havens has increased with the rising tensions.

Investors have switched to gold, yen, swiss franc and government bonds. USDJPY dropped to record low and Gold rose to its highest level in almost 2 months.. [caption id="attachment_58086" align="aligncenter" width="600"] Source: GO Markets MT4[/caption] The risk sentiment gets hit by the escalating geopolitical tensions as Japan and South Korea also warned of a strong response if North Korea launches missiles toward Guam. Trump intensifies its warnings to North Korea as he believes that even if Russia and China are backing the UN sanctions, it would not be enough or effective as negotiations have been going on for years.

The Nikkei index fell since the “war of words” started. [caption id="attachment_58087" align="aligncenter" width="600"] Source: GO Markets MT4[/caption] Chinese media warn that the US is engaging in dangerous confrontations. “The US is more powerful than North Korea, but in a real showdown I don’t think they would beat North Korea. There is a Chinese saying: ‘ A man with nothing to lose, doesn’t fear a man with something to lose ” Hu Xijin, outspoken editor of the Global Times said. The coming days will be crucial.

Investors will be looking for a “diplomatic outcome” rather than militaristic conflict. By: Deepta Bolaky GO Markets

In Economics, the difference between 10 Year and 2 Year Bond Yields is one of the leading indicators that help investors to observe any significant changes in the economy. Let's break things down a little further. Firstly, common sense dictates that if you want to make a term deposit in the bank, the rate you can get from the long-term deposit will be more than short term.

Therefore, the spread between long-term and short-term return rate should always be positive, well, in most of the time. However in some historical periods, sometimes the yield spread would be “flatted” (i.e., drop close to zero) or even become negative, in some extreme cases. If that happens, where short-term returns are higher than long-term returns, this is seen as an economic overheat, and a recession is coming.

From the chart below, we can see that the current yield spread is heading towards zero. Since the Fed is guaranteed to have four rate hikes in 2018, and more increases are foreseeable in 2019, the spread is very likely to go negative sooner or later. We'll take a look that the previous cases of the inverted yield curve (i.e., negative yield spread) 1. 2000’s Dotcom Bubble The US Federal Reserve increased its interest rate from 4.75% to 6.5% in a brief time, between Jun 1999 to May 2000, which makes short-term yield soar rapidly and inverted yield curve occurred.

After the NASDAQ bubble burst, the Fed dropped its rates thirteen times in two years, to save its economy. 2. 2008’s Subprime Crisis The same story happened all over again, the Fed first increased its rates 17 times, from 1% to 5.25%. At that time whole world’s economy reached its peak, there is a 6-7% average GDP growth in emerging markets, and even in advanced countries there is a 2.5% growth (which is a lot, compared with today’s growth in the UK) However soon after the crisis triggered, the Fed dropped its rates from 5.25% to 0.00% in only one-year time and kept its zero-rate environment for almost a decade. From the two lessons above, we can observe a similar pattern.

Inverted yield curves consistently occurred near the end of the rate hike cycle, and a substantial economic recession would generally follow. Currently, the US is in the middle of its rate hike cycle, and it seems many of the economic data reveals a sign of overheat. Take the unemployment rate as an example, last month it fell to 3.9%, which is an 18-year low.

The performance of new jobs number is in one of the best periods of growths in recent history. Although previous activity doesn't necessarily predict future outcomes, history suggests once these figures reach their highest possible level, a turning point could be around the corner. There is a saying that lightning never strikes twice, we shall see in this case.

Lanson Chen GO Markets Analyst This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives carries a high level of risk.

Sources: TradeEconomics.com

Venezuela: A Latin American Crisis Venezuela’s economy has been in turmoil in recent times with its inflation skyrocketing and with no signs of slowing down, the situation may worsen. The political tensions have also been rising in one of the OPEC (Organization of the Petroleum Exporting Countries) member country whose economy has been slowly declining since the crash of oil prices in 2014. We have seen large protests against the highly unpopular president Nicolas Maduro, who won the most recent in May this year.

However, most people called it a "show election" as it had the lowest voter turnout in Venezuela’s democratic history at 46%. The Economy With the economic and social crisis rising in Venezuela, we have seen the countries inflation rise to new record highs. From reaching 4068% in January, we have seen the inflation reach 46305% last month.

Experts are predicting the number could reach 1,000,000% by the end of 2018, according to the IMF (International Monetary Fund) economist Alejandro Werner and has compared it to Zimbabwe’s hyperinflation in late 2000’s. It is worth pointing out that the second highest inflation in the world is in Sudan at 122%. Shortages in electricity, water, and public transport affect millions of people of Venezuela.

President Maduro blames countries poor economy on an economic war that he says is being led by the United States and Europe. IMF’s Alejandro Werner says that if the country’s economic and social crisis deepens, Venezuela’s economy could decrease by around 50% over the next 5 years which be one of the worst economic falls in over 60 years. "The collapse in economic activity, hyperinflation, and increasing deterioration... will lead to intensifying spillover effects on neighbouring countries," Werner wrote in a blog post. IMF is estimating an 18% decrease in Venezuela’s economy in 2018, up from 15% drop it predicted back in April.

That would be the third double-digit annual decline in a row. Werner said the projections are based on calculations prepared by IMF staff, but he warned that they have a degree of uncertainty greater than in other countries. "An economy throwing you these numbers is very difficult to project," Werner said at a news conference. "Any changes between now and December may include significant changes." The Venezuelan Currency Countries official currency - Bolivar Fuerte (VEF) has weakened dramatically in recent times. 1 US Dollar is currently worth around 206841 bolivars. The Venezuelan government has recently announced it will slash five zeros from its currency.

The announcement was made on 25th July by President Maduro and it is part of a currency reform that was already scheduled for June and was a postponed on two occasions before. The existing Bolivar Fuerte banknotes, which range from 1,000 to 100,000 will stop circulating and will be replaced by the new "bolivar Soberano", which will range from 2 to 500. The new currency is set to start circulating this month.

By Klāvs Valters Sources: Yahoo Finance, Google Maps, Banco Central De Venezuela

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