Interbank market news scan: FedNow closer to launching; foreign exchange, crypto rates ….

Commentary: Politics and the Edge

I came across an interesting conversation on YouTube between Aaron Fifield of Chat with Traders, and Adam Grimes, president of Talon Advisors, LLC about the topic of trader’s edge. I have seen the term used in the titles of a number of videos and found the discussion insightful.

I appreciated that Mr Grimes did not avoid exploring the nuance of the term’s definition. He could have done a quick brush off by restating what some would say is the obvious; that an edge is something that gives you an advantage in trading. But that view would give an impression that an edge is a one-off, a bit of luck that may not be permanent or continuous into other trading opportunities.

Instead, Mr Grimes noted that to identify the edge, we would need to have a working knowledge of probability. Understanding probabilities, I gathered, allows the trader to filter out noisy events, random events. The meaning of edge is for the trader to identify something in the market that is not random and to use that condition to make profit.

According to Mr Grimes, when condition A has historically existed, and we see that condition today, there is the probability of the condition existing in the future.

His observation on probability made me think about political, policy, or legal events and whether traders appreciate how important it is to be mindful of how impactful political, policy, or legal events can be on foreign exchange valuations.

For example, an enforcement action by a regulatory agency or a court opinion can have an adverse impact on the value of an asset. At first blush there may be some negative reaction that may either amplify as the opinion is fully read and understood, or cause the value of an asset to head back to its original level or even increase beyond the original level as more data and a better understanding of the action’s implications are gleaned.

In this small example, the edge could simply be knowing that until an opinion is read fully, you should not assume any price action on a first reading is the right one. A trader should consider understanding the impact of political decision making as part of her edge.

Alton Drew

4 September 2022

News Scan

Interbank, Federal Reserve System, FedNow. On 29 August, the Federal Reserve announced that its FedNow service is expected to launch in mid-2023. Currently, 120 institutions are participating in the pilot program with the goal of providing access to approximately 10,000 financial institutions in the United States. The objective of the FedNow service is to allow individuals and businesses to send and receive instant payments anytime of the day with recipients having full and immediate access to their funds. Source: Board of Governors of the Federal Reserve System.

Interbank, Federal Reserve System, economic outlook. On Wednesday, September 7th, Lael Brainard, vice-chairman of the Board of Governors of the Federal Reserve System, will deliver a speech before The Clearing House and Bank Policy Institute. On Thursday, September 8th, Board of Governors chairman Jerome Powell will deliver a speech at the Cato Institute’s 40th annual monetary conference. Source: Board of Governors of the Federal Reserve System.

Foreign exchange, Russia, oil, price caps. Last Friday, U.S. Secretary of the Treasury Janet Yellen announced that the United States was joining other G-7 nations in imposing a cap on Russian oil. According to Secretary Yellen, the price cap not only reduces revenues from Russian oil sales but would help alleviate global inflation, including in the United States, resulting from increased oil prices. Source: U.S. Department of the Treasury.

Foreign exchange and crypto rates as of 2:37 pm EDT

Currency Pair Broker Bid Broker Ask Change in bid from 6 August 2022

USD/INR 79.5780 79.8280 79.1370 (+0.4410)

RUB/INR 1.3195 1.3252 1.3080 (+0.0115)

USD/SAR 3.7452 3.7552 3.7452 (0.00)

RUB/SAR 0.0621 0.0623 0.0619 (+0.0002)

USD/ZAR 17.2672 17.3181 16.6953 (+0.5719)

RUB/ZAR 0.2863 0.2875 0.2759 (+0.0104)

USD/CNY 6.8990 6.9010 6.7531 (+0.1459)

RUB/CNY 0.1144 0.1146 0.1116 (+0.0028)

USD/BTC 0.0001 0.0001 0.0000 (+0.0001)

USD/ETH 0.0010 0.0010 0.0010 (0.0000)

Source: OANDA