Which are the most important macroeconomic indicators for the evolution of Swaps?

I'm going to talk about my thesis because it's related. To sum up, I studied the relationship of the 5 year US Interest Rate Swap with a range of macroeconomic indicators.(Non Farm Payrolls, ISM PMI, CPI, GDP, Unemployment, Retail Sales, Commercial Balance and Consumer Confidence ) I did an statistical analysis, factor analysis in order to know which indicators explained better the evolution of the US IRS. The purposes of this project were:
           -Know better the credit market.
           -Identify the most important macroeconomic indicators and measure its mathematical meaning
           -Know in which occasions I should hedge the portfolio.
           -Identify investment opportunities.

Firstly I talked about the how the crisis was originated and its repercussion to other assets. Then I talked about the US IRS evolution. In the next part I explained the macroeconomic indicators and its evolution.

 5Y US IRS. Source: Bloomberg

As we can see in the chart the yield of the 5year US IRS began to fall down. Signals of the precedent crisis. In this period of time the yields of the IRS' were affected by the policy of the FED.

5Y US IRS. Source: Bloomberg

 

This chart is more or less the same but the period is shorter, because it´s the period I used to do my research. We can see the improvement of the US economy from 2013.

Factor Analysis

Statistics
	Mean	Standard Deviation	N
Unemployment	8,1655%	1,11226%	55
CPI	2,0327%	,80991%	55
GDP	3,8927%	,76154%	55
Retail Sales	,4345%	,60682%	55
Commercial Balance	,4869%	8,39500%	55
ISM PMI	,3186%	2,19658%	55
Consumer Confidence	1,4162%	10,15852%	55
Non Farm Payrolls	-15,6283%	114,71298%	55
Personal Income change	,3600%	,88936%	55

Source: IBM SPSS

Table correlations between the different indicators. Source: IBM SPSS

Comunalities
	Initial	Extration
Unemployment	1,000	0,794
CPI	1,000	0,754
GDP	1,000	0,772
Retail Sales	1,000	0,750
Commercial Balance	1,000	0,726
ISM PMI	1,000	0,816
Consumer Confidence	1,000	0,606
Non Farm Payrolls	1,000	0,841
Personal Income change	1,000	0,740
Extraction Method: principal components

Table: Comunalities of the macroeconomic indicators

Table: Explained total variance of the US IRS by the different indicators


Conclusion

The 5year US IRS has been affected by the FED interventions. It was a difficult period to try to predict which of the macroeconomic indicators used in my research was better. The moves are closely linked with the movements of the FED. Having that in mind, you can think that all aspects are interrelated. After my study I can affirm that the more important ones are the following:
          -Non Farm Payrolls
          -ISM PMI
          -Unemployment
          -CPI
          -GDP

5Y US IRS with the FED interventions. Source: own elaboration with Bloomberg

I would like to apply this kind of research to different assets. I hope you have enjoyed. If you have doubts, leave a comment.

#Swaps  #interestrates  #US  #FED  #macroeconomics

Multi-period Analysis of EURUSD

As I promised, here it is the analysis of EURUSD. I wanted to do a special analysis this time. I don´t know if the audience of this blog do intra-day trading or they use a different timing. If you are interested in something special, you should write a comment. I will be happy to help you.

What has happened these days?

As you know, our rate went down on Friday. The oustanding US figures and the new Greek proposal drove down the EURUSD. But today the rate has covered the gap that was created by the US Non Farm Payrolls. Also Germany has released good figures in the morning:
            -German Exports 1.9% instead of 0.1% expected
            -German Imports worse than expected -1.3%
            -German Industrial Production (MoM) 0.9% vs 0.5% expected
            -German Trade Balance 22.3B vs 19.4B expected

EURUSD daily

The article of EURUSD was ok but a bit short, I mean, it could be more detailed. I can't upload the spreadsheet. I only do this blog because I love  Financial Markets. I would like to upload even more analysis. Maybe I will do in the future, because right now I look for the data on Internet. If I had a special platform, it would be different, but step by step.

EURUSD Daily with some technical indicators

This chart show the evolution of the EURUSD. The technical indicators that appear in the chart are:
        -EMA (20, 50, 100, 200)
        -Stochastic 
        -ADX
I like the Exponential Moving Averages because they fit better than other kind of moving averages. If the price brokes one of the biggest moving averages, it will be a big movement. In my humble opinion it's good to have mind the moving averages.
The stochatic is a momentum indicator that shows the location of the close relative to the high-low range over a set number of periods. I really like the stochastic, if you are a day trader it can be useful.
The Average Directional Index measures the trend strength without regard the trend direction. It's useful to determine the direction and strength of the trend.
A lot of people follow MACD, RSI ... if you are interested in these indicators I would be happy to explain them. Personally I don't use technical indicators, but they are useful to make a point of view. If you use more than one indicator, you will trade less. If you add more indicators you are incrementing the degress of freedom, it means that you have less probability to get the signal to trade. If you prefer to use some indicators, I recommend you to backtest your strategy. Like I'm always saying it's better to have all the things in mind.

Where is the EURUSD going?

Like I wrote in one of my last articles. I think that the EUR should weaken versus the USD. The causes are:
         1º The upcoming rise in the US interest rates.
         2º The European QE should weaken the EUR.
         3º The doubts about Greece.
         4º The outstanding US employment data.

If you like technical analysis I see a triangle that it could drive this rate down.

EURUSD Daily triangle

EURUSD Daily triangle

We have to look every day because if the 1.14624 is broken this rate will go up.

Multi-Period Analysis of EURUSD

Let me show you the study I've done. I've compared the daily data, 4 hours data, 1 hour data and 30 minutes data.

	Daily	4 Hours	1 Hour	30 Min
Min Yield	-2,73%	-1,43%	-1,18%	-1,12%
Max Yield	3,44%	1,39%	0,95%	1,15%
Range	6,17%	2,82%	2,13%	2,27%
Intervals	28	28	28	28
intervals var	0,22%	0,10%	0,08%	0,08%
Mean	-0,0030%	-0,0060%	-0,0035%	0,0008%
Variance	0,0034%	0,0004%	0,0002%	0,0002%
Std Deviation	0,5858%	0,2061%	0,1567%	0,1254%
Variation Coef	-0,0050	-0,0290	-0,0223	0,0062
Asymetric Coef	0,0553	-0,0428	0,0117	0,2095
kurtosis	2,7918	8,5480	6,4267	11,3306
Excess of kurtosis	-0,2082	5,5480	3,4267	8,3306

This table shows the summary of the data. As we can see all the means are around 0. The standard deviation increments because in long periods the price moves more. One of the most important statistical figure is the excess of kurtosis because it measures the the excess of data that are in the tails. In order to do that we should do the kurtosis minus 3. As we can see in 30min period study there are a lot of outliers.

I hope you have enjoyed this article. I am open to receive questions and suggestions.

Non Farm Payrolls, the doubts of US economy disappear

The EURUSD was going down this morning but then it stopped. The traders were waiting maybe the most important figures of the month. Non Farm Payrolls was so much better than expected, 23% better than expected. What a really good news for the US Economy, they added 280000 people to the workforce. Also they have released a better: average hourly earnings, manufacturing payrolls, government payrolls and private nonfarm payrolls. The US unemployment rate was worse than expected but even with that it´s really good.
I was concern because the IMF suggested that the Fed should delay the rise of the interest rates until early 2016. But with today's figures I guess we will see this rise before the final of the year.

EURUSD 5Min

Also let me show the movement of the bond.

US 10Y T-Note 5Min 05/06/2015

As I commented some days ago, Greece has finally asked the IMF to bundle its June repayments to month-end. I will upload tomorrow a complete analysis of the EURUSD. Have a nice weekend.

#trading  #fx  #bonds  #US10Yt-note  #NFP  #NonFarmPayrolls

Why the EUR should go down?

I have three main reasons to bet that the EUR will go down against the USD. They are really simple to understand.
      -The upcoming rise of the US interest rates.
      -The accelerating buys by the ECB.
      -The problems with Greece.

1º Let me explain the things. Firstly the rise in the US interest rates, when a country rises its interest rates means that investing there is more profitable for investors. So they can draw money from abroad. This, can be really important because all the developing countries have interest rates near zero. Even when the FED denies this rise, sooner or later it will happen, and I guess that it will happen before the final of the year.

2º The Europe QE, the accelerating buys by the ECB tumbled the EURUSD last week. When a country injects money its currency lose value.

Simple Explanation of Supply and Demand

This explanation is really simple, but sometimes easy things help to understand. The reasons behind the movements are not as simple as that, but it depends about the timing of your trading strategy. You should have in mind all the things that can affect the Price.
To remark the importance of QE let me show you the next graph:

Behabiour of EURUSD Weekly  during US QE's . Source: www.axitrader.com

As we can see each time that the Fed releashed a quantitative easing the USD lost value against the EUR, maybe this is one of the reasons of the improvement of the US economy.

3º Again the problems with Greece. Tomorrow they will pay to the IMF, but we will see what happen in the next payments.
Also in my humble opinion Europe should be a real union, I mean, Europe should do a fiscal union and centralize some services.

#trading   #fx   #eurusd    #QE   #macroeconomics 

Where is the EUR going?

Firstly I want to say sorry because I haven´t written these two last days the EURUSD has risen a lot. Two days ago, the movement was greater than I expected.

Why does the EURUSD has gone up so quickly?
Let me sum up all the causes, I would divide on Tuesday and yesterday.
     Tuesday:
             -Good Spanish Unemployment change
             -Germany keeps 6.4% of unemployment rate
             -Astonishing UK construction PMI (55.9 vs 54.2)
             -Bigger UK mortgage approvals
             -Better than expected UK Net lending to Individuals
             -European CPI better than expected also Core CPI
             -Really bad US Factory Orders

      Yesterday:
             -Mixture of bad and good European Service PMI's (Germany and France showed good figures)
             -Good European Markit Composite PMI and really good Services PMI
             -Positive European Retail Sales
             -Better European Unemployment Rate
             -Better than expected US ADP Nonfarm Employment Change
             -Worse than expected US figures: Markit Composite PMI, Services PMI, ISM Non-Manufacturing Business Activity, ISM Non-Manufacturing PMI

The confirmation of the payment to the IMF by Greece has helped to boost the confidence in Europe. Also, a really good data for the Eurozone has helped the Euro to go up these days. I am quite skeptical about the situation of Greece. It is true that they are going to pay to IMF, but what will happen in the next payments. The opinions of the politicians are really different. Luis de Guindos, the Spanish finance minister, says that Greece won´t exit the Eurozone. In my humble opinion, it´s a really tough situation, if you are borrowing money you should reinvest this money and try to get bigger returns than the interest that you need pay to the lenders. It´s true that right now, the finance cost of Greece is cheaper than other countries that are in a better economic situation, but I think that its debt is really big.

Technical Analysis

EURUSD Daily 03/06/2015

As we can see in the chart in the last two days the Euro has strengthened according to the good inflation data of Europe. I keep the scenarios I say in one of my articles. For tomorrow this rate should move between 1.14474 and 1.10516.

 EURUSD Daily 03/06/2015

The major trend is bearish, but if the price goes above 1.14646 the bear trend will be finished. I can see some figures in the chart. The first one it's a triangle if this rate crosses the line above could go up even more if the price goes above 1.14646. If it breaks below it can look for the annual minimums.

EURUSD Daily Triangle



The next figure is a triangle, the explanation is the same.





EURUSD Daily Triangle

The next figure is a bear channel, I suppose it will go up a bit more and then it will fall.

 EURUSD Daily Bear Channel

Note
I quit my portfolio because I have to do some changes on the blog. I would like to create some portfolios, some of them discretionary trading and the rest will be algorithmic trading.
I have to admit that 2 days ago I did a big mess with my portfolio because when I did the analysis of EURUSD I didn´t include enough data to have in mind all the possible scenarios. When the price went more than X standard deviation I increased my position. So I would provide a new analysis including more sessions.
Have a good trading, keep on your rules and protect yourself from the improbable scenarios because sometimes happen.

#trading     #fx     #EURUSD    #Europe     #US

Up and Down EURUSD

During the Asian trading session the EURUSD went down reaching a minimum (1.08969), but the overnight movements of this rate usually are not important. Let me analyze what has happened today. During the morning the European PMI's has been released, all of them have been better than expected but not the German one (51.1 instead of 51.4 expected by the market). If the German PMI is bad, the European PMI will be bad. We have seen this affirmation today (European PMI 52.2 instead of 52.3 expected) Also, this rate has gone up because there was a rumor about a good conversation between Merkel, Hollande and Tsipras. I was short because I am quite skeptical with the problems that Greece has. The strengthen of the Euro has finished at 14:45 when the Chicago PMI showed a good figure (54). It wasn't better than the forecast but it's good enough to let the traders know about the improvement of the US Economy. Fifteen minutes later a really good ISM PMI was released. 52.8!!! What an amazing new for USD!!! This rate has fallen until 1.08889. Then it rebounded.

EURUSD 5Min 01/06/2015

Tomorrow you need to be aware of unemployment data of Europe, the construction PMI in UK, the Europe CPI and PPI and US Factory Orders. Also keep an eye on Greece, because it can be really important for the price of our rate.

As I said in my other article
The EURUSD has crossed the 1.09661 and then it went down really quickly. So I was right in my last article an is a really good level to have in mind.
Anyway keep on the rules of your trading strategy. What I express in this blog are only my opinions, you must have your own criteria. Good night, have a good trading day tomorrow.