Читать книгу The Foreign Exchange Matrix - Barbara Rockefeller - Страница 17

We are still missing an important component, namely the weights to attach to each player and his favoured factor, and the vectors by which the factor invades another player’s consciousness. In the set of matrices shown below, we start out with an allocation of the importance of various factors to professional bank traders. We chose bank traders as the leading edge of FX price determination – these are the players who cause directional breakouts based on their interpretation of factors. Don’t forget that the professional bank traders are informed by the trading decisions of hedge funds and others who have a global worldview and make value judgments; the bank trader is not going to fight the tape if he sees sentiment shifting in a particular direction.

Let’s say that over the summer of 2010, professional traders attributed a weight of 50% to interest rates and expected interest rates (Period 1 in the tables below). We can quibble over the weights, but let’s take 50% for the minute.

Period 1 – June 2010 to end-August 2010

Then Ben Bernanke pre-announced QE2 at the Kansas City Fed summit in Jackson Hole, Wyoming in August 2010. The focus immediately shifted to interest rate expectations, which now get a much higher weight in Period 2. The other players, seeing the dollar fall on the pros building a wider differential against the dollar, increased their weight to that factor, too. The weight attributed by the pro bank traders bled into the other players’ evaluations of factors.

Period 2 – Quantitative Easing 2: end-August 2010 to end-December 2010

In Period 3, Eurostat released data showing that inflation was over the ECB cap of 2%, raising the spectre of the ECB tightening rates faster than the US. The interest rate expectation factor thus got stronger, the dollar fell more, and because the FX market is reactive, all the other players imputed a higher weight to this factor, too.

Period 3 – euro zone inflation rises: January 2011

At end-January 2011, Tunisia experienced rioting and the government fell (Period 4). Civil unrest broke out in Egypt, and in a single day, geopolitical factors became the dominant factor. Oil rose, returning the commodity correlation story to the fore.

Period 4 – revolution in Egypt, 28 January 2011

If these matrices were on a set of cards and you could fan them in order, you would get a moving picture that would show first the interest rate expectation gaining dominance, then bleeding to the other players, and then the geopolitical factor taking over. In other words, you’d get a moving picture showing how the weight of factors increases and then bleeds into other factors.

Flickering off to the side would be the technical factors. Technical factors never really go away but can always be trumped by institutional factors. This is a useful way to think about how and why exchange rates move – better than two dimensional charts labelled with world events – but obviously it is too cumbersome and impractical for anyone but a programmer to attempt.

That brings us to the thorny problem of factors that are temporarily not at the top of the list but which are still present; a form of known unknowns. On the day in January 2011 when the Egyptian riots took over the imagination of traders in all markets, nobody was talking about fiscal sustainability in Greece, Ireland, Britain, Japan or the US. In fact, S&P had downgraded Japan’s sovereign rating just the day before, but the yen didn’t move an inch on the downgrade. Still, a new geopolitical issue coming along does not kill a factor, it just supersedes it for a while.