We’re ‘big’ on fundamentals at FXCC. When we offer advice and commentary on trading FX, commodities and indices, we know that fundamentals have a massive impact on the direction of the markets. Naturally we pay attention to the high impact news events and key policy decisions made by central banks and governments. Readers may have noticed that each morning, in our “morning roll call” articles, we always highlight (and separate) the key policy decisions and the high impact news events for that day.
Now there are technical traders out there who dismiss fundamentals completely out of hand. Their belief is that the data and publications are immaterial, given that the stats delivered (as fundamental data) will eventually hit the market and bleed onto their charts. To be fair there’s a lot of logic in that theory, however, if you want to get ahead of the market, to ‘front run’ it, then having early access to critical fundamental information can prove absolutely invaluable.
There are algorithms developed, for hedge funds and investment banks, that react only on fundamentals and do it at lightning quick speeds. And there have been many suspicious early releases of information lately, from various publishing firms, that have raised a few eyebrows…
Typically publishing firms get the critical information a couple of minutes before retail traders get to see it. Huge firms will then immediately leverage this information and instantaneously be in and out of the market, (at the mercy of their algorithms), before the retail trader has even clicked his mouse after sensing an opportunity. As to whether or not this playing field will be made level is a subject of intense debate for another day.
The markets experienced a very strange event on Thursday, traders were anticipating the release of the weekly unemployment claims from the USA, we highlight these figures each week and we’ve pointed out that they’ve stubbornly remained in a rather tight band of circa 325K-350K for many months.
The latest unemployment claims publication was released at 8:30 am USA time, and the figure came in considerably below the estimate the economists polled had predicted. At 292K the print was circa 40K beneath the median prediction of the economists polled by Bloomberg.
Naturally this print took the markets by surprise and undoubtedly many retail traders will have hit the buy button on, for example, the DJIA, or perhaps major dollar pairs. But then came the ‘kicker’ and it was contained in the overall commentary. Two of the states failed to deliver information this month because their computers were off the grid. Excuse me? Yes, we heard it right. Apparently one large state and one smaller state (not specifically named) failed to deliver unemployment stats data this week because they were “undergoing a technology overhaul”. No mention of this was made pre the announcement, or in the last publication the previous week and this gap of information must have been planned. So who had access to it, major banks, huge hedge funds?
It’s a tricky profession we’re engaged in, we know that we can’t compete with the big boys, retail traders exist in the ‘coma trail’ that investment banks and hedge funds create as they blaze across the sky, in short we know our place. Which is why more often than not as analysts we suggest trading the reaction to the news and not the specific news event.
We expect to get the information later and not be in a position to have coded our own secret algos in order to scalp the market based on the data, but you just can’t help thinking that this latest failure was an insult. Let’s hope this isn’t a pattern to be repeated, if so another principal underpinning of the increasingly fragile trust that’s beginning to fray will have been lost. That trust, once gone, is very difficult to repair.
