Seasonality vs. News

Tuesday, 09 August 2011 10:39 Brendan Hobbs
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How does MRCI factor recent news into deciding dates for trades?


Generally speaking, unexpected and dramatic news can trump both charts and seasonality.  Regarding seasonality, we try to put not only the news but the market's reaction to the news in the context of the seasonal pattern.  For example, there is a yen/pound spread coming up.  The yen had just broken out to new multi-year highs against the pound.  So, is it possible that the "news" of the BOJ's intervention simply drove the spread back down to test its most recent breakout point?  If so, and the retest is successful, then the "news" simply played right into the hands of a seasonal trader.


Markets usually try to anticipate rather than react to news.  In an uptrend, an ongoing series of good news may make it seem as if an upward movement is in reaction to reported news, but it is instead usually in anticipation of the next good news.


Regarding the yen and the BOJ intervention, why did they intervene?  Because the yen is so incredibly strong.  Usually such action temporarily frightens speculators, but the forex markets are so much bigger than any one central bank.