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Are you an experienced Foreign Exchange (FX) trader?

The Stafford Currency Briefing is the perfect tool for FX traders who trade based on fundamentals.
The Briefing saves you HOURS every week by delivering all the important data you need - BEFORE the beginning of the trading week.

It includes

  • Relevant world news
  • "Risk Aversion" indicator generated from counterparty risk, TED spread, VIX and other indicators
  • US economic fundamentals (CPI, GDP change, current account balance, sovereign CDS rate, unemployment, and others), news release calendar, and the prior week news results
  • Comprehensive review of comparative fundamentals, trading sentiment, news, technical charts, and commentary for the 5 major currencies: EUR, GBP, JPY, AUD, and CAD
  • A compendium of the major commodity indices and relevant news, for use with the commidities currencies (AUD, CAD)
  • The Options corner, a special feature that analyzes opportunities for trading FX with options
  • A Country Economics chart comparing the top 18 economies with respect to current account balance and budget balance. This chart is very useful for those looking for economies which are dual surplus or dual deficit.
  • User's Guide to understand the data included

Download a trial issue of the Briefing (PDF format)
Get the User's Guide to the Briefing

Subscribe to the Briefing now: go to the "Get the Briefing" tab - and see how the Stafford Briefing has returned more than 1500% since February 09!

* Sources include (but are not limited to) Financial Times, Reuters, Bank of New York, Bloomberg, CNBC, CNN, China View, New York Times, RGE Monitor, PFX Global, ICSC, Mizuho Bank, Miche’s Global Trends, Market Oracle, Seeking Alpha, Dismal Scientist, Yahoo Finance, 321energy, Capital Link Shipping, and Kitco

 

Who is Paul Stafford?
Paul has worked as a rocket scientist, an R&D engineer, a marketing manager, a commercial realtor, and now a foreign-exchange trader. The one thing all these careers have in common is the need to analyze and make decisions based on complex data. Paul loves numbers and analysis! Read more on the "About" tab.

3 months at $30/month (billed monthly)

Terms:
The briefing is emailed to you as a password-protected PDF file every Sunday at 1 PM Mountain Time (so you're ready to trade at the Sydney market opening). Please respect the amount of work and time that has been taken to create this valuable document, and do not share it with non-subscribers.

Billing happens automatically and monthly, so your expense is spread out over time.You will receive a renewal reminder email two weeks before your subscription expires.

If you have further questions about the briefing, please contact Paul Stafford.


Trade Recommendation Record

In my weekly Currency Briefing, I occasionally present an FX trading idea using options. My 2009 trading record, using the ideas presented in these briefings, is

  • 33% overall return
  • 6 wins for every loss
  • average profit 2.5 times the average loss
  • only 16 trades
  • no leverage; maximum 15% account equity committed

Central Bank Exit Strategies and Timing

We have seen the first moves by central banks, notably RBA, having raised rates twice, and Norway as well. Let’s look at some of the major banks, their guiding principles and possibilities for rate increases in the next 6 months, in order of increasing strength…

The BoJ has kept rates at 0.1% since December, and the market expects no rate changes through 2010. In fact, Prime Minister Yukio Hatoyama may want stronger monetary stimulus to buttress the economy’s “recovery”. His Finance Minister said there’s a “sense of crisis” over deflation and the Deputy Prime Minister urged the central bank to take action to overcome the price slump by stepping up purchases of JGBs (already at $20B/month). So not only no exit, but a potential stepping up of QE!

The Federal Reserve’s Bullard states emphatically that the Fed won’t be raising rates until 2012. The Fed has a dual mandate for growth and inflation targeting, and I believe it will remain accommodative for a long time to come. The market expects most other banks to be far faster in their rate increases, and is looking for the Fed to raise rates by only 125 bps for the one year forward.

The BoE is tasked with price stability. Given the growth for 2010 is forecast at 1.9%, the market is expecting BoE to be one of the first to tighten in 2010 according to futures. On the other hand, the OECD said the BoE should keep its rates low until 2011. In the latest BoE minutes, the board was split on increases vs more QE. Currently at 0.5%, maybe expect 1.25% in 2010

The ECB is showing some signs of impatience to unwind its emergency steps, recently announcing plans to tighten terms on which it lends liquidity to banks. Trichet sees further exit delays creating asset bubble risks and excess bank profits (bank source of funds at zero). The ECB is a strict inflation targeter, with rates currently at 1%. There will be some tightening by stealth (bringing market closer to target rates). The market is projecting 1.75% over one year.

The Norges Bank, the first in Europe to increase rates (by 0.25% to 1.5% last month), has a mandate of maintaining price growth (CPI) of close to 2.5%. However, inflation has exceeded the bank’s target in six of nine months this year, so they need to be even more aggressive! Yet as an exporter, they must remain fearful of a too-strong Krone. So I expect the Norges Bank to move deliberately (as they all do), and increase rates at every second meeting to 2.75 percent within 12 months.

Over in Oz, rates have gone from 3.0% to 3.25% and then 3.50%, the market is pricing in a rate hike to 5% in 2010. This makes sense from the expected growth rates (GDP +3.25% in 2010!), and the fact that the RBA is tasked with keeping the inflation rate between 1%-2%. However, the latest RBA minutes indicated a much less hawkish stance than expected, so maybe not all 150 bps will materialize in the next 6 months.

Current rates

Currency Converter

To trade currencies successfully (aka "foreign exchange", "ForEx", or simply "FX"), you need to predict future currency values. There are two main approaches to FX trading:

  • Technical Indicators relies on using various mathematical measures of historical price movement (such as MACD and RSI)
  • Economic fundamentals believes the value of a currency is driven mainly by a country's underlying economic environment and fiscal policy decisions, and the measures of success of those policies. This website and its materials are focused on fundamentals analysis for the US dollar, euro, British pound, Japanese yen, Canadian dollar, and Australian dollar.

A country's fiscal policy is driven by its government, generally to stimulate the economy, but sometimes to slow it down in times of high inflation. Fiscal policy is reflected in the control factors a government has, such as the central bank rate, government budget surplus or deficit, and to a lesser extent other factors (financial market controls such as "uptick" rules, reserve requirements for banks, etc). The measures of success of a country's fiscal policies are indicators like the consumer price index (CPI), unemployment, GDP growth, the current account balance, consumer and business sentiment, retail trade growth and many others. Of course, the stronger the measures, the stronger the currency.

To trade FX, you need to know what the current fiscal policies are, what the measures of economic success are, and the current trading sentiment for each currency. And you not only need to know what the current situation is, but, more importantly, have a good idea of what it might be in the future. After all, the current price reflects current reality, and you are placing a bet on the future reality.

Additionally, currencies are traded in pairs, which means you must short one currency and go long on the other. Therefore, all trades are a bet on the relative values of the two currencies. So in another sense, FX is sentiment-driven, because it reflects the relative sentiment of investors and their perceptions of the two economies in question. Sentiment will be affected by the control factors (especially central bank rates), the measures of success of an economy, and intangibles - the "mood" of the market. Sentiment can be measured to some extent by currency and interest rate futures.

The Stafford Weekly Currency Briefing aggregates raw economic data, fundamental measures of fiscal policy and relevant, topical economic news from many sources (Bloomberg, Financial Times, Retail Traffic, Dismal Scientist, The Economist and others) and organizes it in a way designed to assist you in determining relative values of currencies. A further goal of the newsletter is not simply to describe the reasons for the current equilibrium, but also to uncover data which will drive changes in the future.

I also have a paper available (PDF format) that discusses my own approach to trading ForEx using options.

Who is Paul Stafford?

A guy who loves complex analysis! He started out as an engineer at NASA, designing image processing hardware used in infrared astronomy. Paul then continued his engineering career at Hewlett Packard, where he specialized in calibration algorithms for RF and microwave signal analysis and generation. With several patents under his belt, he moved to the marketing and finance side of HP and became fascinated by the economics of the business. Paul’s new focus became ROE, NPV, IRR and other investment metrics.

Paul StaffordAfter his wife Julie won a very prestigious art award (the proverbial “kick in the butt”), Paul and his wife moved from the San Francisco Bay Area to a home in the woods west of Missoula, Montana, where she works as a full-time artist (www.JulieTChapman.com). Paul began a new career in commercial real estate, where his experience on the financial and business side of HP resulted in a mastery of income property analysis (and happy clients).

After discovering ForEx and tackling it like any other engineering problem, Paul noted the essential randomness of the market, very low signal to noise ratio and the risk/reward dangers. He has developed a trading approach - using options in conjunction with fundamental analysis - which matches the market characteristics. Instead of utilizing the technical trader’s tools of RSI and MACD, Paul has focused on the deeper economic indicators of current-account balance, balance of trade, differential interest rates and unemployment. His weekly newsletter, the Stafford Currency Briefing, is a direct result of his own weekly preparations for trading currencies on the fundamentals.

Feel free to email Paul for questions or discussion.

 


Please note:
All comments and opinions are solely those of the author. Information on this site or in the newsletter has been obtained from sources believed by the author to be reliable, but the accuracy, completeness and interpretation are not guaranteed and have not been independently verified. Opinions expressed are subject to change without notice and, due to the rapidly changing nature of currency markets, may quickly become outdated. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities or options on securities.