How Market Bias Means Different Reactions to Greece, RBNZ and Fed
• Anticipation is often the primary source of reaction when event risk impacts the markets
• For Greece, there was a limited anticipation of contagion; so progress generated little heat for Euro
• A growing bias for the Fed rate timing may engage the market, but not nearly as much as the RBNZ forecast
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Anticipation is often responsible for much of the market's reaction to major fundamental news or developments. And that anticipation can range from the surprisingly mild Greece-is-saved Euro response to the high volatility impact of the RBNZ's monetary policy bearings. For Euro traders, finally finding relief from an intensifying financial crunch amid the final ticks of its membership in the Eurozone wouldn't generate much of a bullish response. Why? There was little fear of a contagion risk and prepositioning for a crisis which necessitated little adjustment. In contrast, the market was unsure of the RBNZ's intentions at the last policy meeting, and it is heavily biased into this week's gathering. This activity leads to serious surprise and requires repositioning to suit the outcome. Another event risk falls between these extreme examples: the FOMC's timing for tightening. Here the anticipation isn't as skewed but its scope is much broader. We discuss how expectations can generate volatility and trend in today's Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.