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The ultimate week ahead guide

Chris Weston
Chris Weston
Head of Research
Oct 4, 2019
Before I get into the week ahead, consider we have US non-farm payrolls (NFP) at 22:30 AEST. After such poor manufacturing and services ISM data, the last thing we want to see (well, unless you're positioned for risk aversion) is a terrible employment report.

However, as a guide, the consensus estimate of the 79 economists polled by Bloomberg sits at 145,000 jobs, with the range being 185K to 85K. The six-month average is 149K, while the 12-month average is a touch higher at 179K, with the top-rated economist (Canadian Imperial Bank of Commerce) calling for 166K. Good luck to all those participating in this lottery.

The week ahead

It’s that time of the week again when we can look ahead at the week that’ll be and plan accordingly as part of the trading process. I’ve put together a video (see above) looking of the key macro and big-picture themes, data points that’ll affect markets, and the trading considerations that can help with our risk-to-reward assessment.

These considerations, notably the implied volatility report, can help define our position-sizing and even offer a confidence factor for automated traders. For example, if our EA performs well in low vol periods, which are the conditions in FX we currently see by judging the implied vol (IV), then we can have greater confidence in our system. Of course, in periods where realised and implied volatility are too high, then we may look at reducing position-sizing or even turn the system off.

While I cover this in the video, here’s the table of both realised and implied volatility, as well as the expected move in the underlying based-on options (straddle) pricing. I’ve also added vol reads on equity, oil, gold and bonds. For those interested in gaining a deeper perspective on using volatility effectively here, please take a look at my recent webinar on the subject. Do subscribe to the channel for regular market updates, education and strategy.

Realised volatility vs implied volatility

Interest rate pricing

Here, we can see what the market is expecting from central banks. I’ve looked at the implied probability of a cut at the respective upcoming meetings, and then in the last column the expected easing (in basis points) over the coming 12 months. We can assess this from the interest rate and swaps market pricing.

Implied rate path

I didn’t cover off on this in the video, but on the left table we can see weekly risk reversals or the skew of 25-delta call vs put volatility. The more negative the number, the greater the demand for put option volatility over calls, which really shows that traders see a greater probability of downside risk in that instrument. The higher the number shows that traders have been relative buyers of 25-delta call options (over puts) and thus expect a greater probability of upside.

The right table is the weekly Commitment of Trader (CoT) report, which looks at the reported net position held by non-commercial players. This will be updated tonight, but it gives some idea of the positioning in the market.

The ultimate week ahead guide

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