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A Valuable Clue for Trading

16 Years ago | July 01, 2014 5/24/22, 12:00 AM


We live in a trading world where we will never be privy to firsthand flow information. By the time you hear about a buy or sell order, assume that you are the last to know. So we have to look for clues and one of the best is how markets react to news. You have probably heard the old trading adage, it’s not the news that matters but the reaction to news that counts. I am believer in real time examples and here is one that drives home the point.

It was June 30 and the early news of the day came from Germany and the Eurozone, both disappointing expectations.

-        German May retail sales came in much weaker than expected (MoM -0.6% +0.8%e)

-        Euro Zone Jun Flash CPI matched its 4-year low (0.5% v 0.5%e) rather than rising slightly as many had expected after German inflation data came in higher than expected.

Yet the EURUSD did not go down!

Then U.S. data came out:

-        Jun Chicago Purchasing Manager: 62.6 v 63.0

-        May Pending Home Sales M/M: 6.1% v 1.2%e; Y/Y: -6.9% v -9.6%e

-        Jun Dallas Fed Manufacturing Activity: 11.4 v 8 prior

Two out of three beat the consensus and the Chicago PMI remained well above 50.0 but the dollar did not go up.

This should have given a clue that whatever flows were going through for quarter/half year end did not favor the dollar. Had the flows been the other way, the dollar would have reacted positively. The moral is to use whatever you can find as clues to determine the strong side of the market. One available to everyone is the way the market reacts to news. This just one tool in your trader toolbox but when it is working, it is a valuable clue so use it!

 Related Article: Like it or Not, News Matters!

Jay Meisler, founder

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