A look at the week ahead
It's that time of the week again when we can look ahead at the week that will be and plan accordingly, as part of the trading process. I have put together a video looking of the key macro and big picture themes and data points that will affect markets, as well as the trading considerations which can help with our risk-to-reward assessment.
These considerations, notably the implied volatility report can help define our position sizing, 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, and the expected move in the underlying based on options (straddle) pricing. I've also added vol reads on equity, oil, gold and bonds.
Interest rate pricing
Here we can see what the market is expecting from central banks. I have 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.
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.
