There is a storm in the Forex markets currently and it will persist tomorrow. Today is a good day to talk about the difference between short-term trading and long-term investing. Short-term outlooks typically are top heavy with technical interpretation, and behavioral sentiment mixed with fundamentals when speculators are pursuing the marketplace looking for quick profits. Loud short term thunderbolts coming from various components that affect trading are significant. Yesterday's noise had an impact.
Long-term investment is done with a focus on patience, conservative outlooks regarding fundamentals and potential behavioral sentiment that could develop and encapsulate attitudes within a chosen asset. Day traders are often ready to bet on what is going to happen in a matter of minutes, hours and perhaps a day. If a so called day trader has to be in a position longer than a couple of days, they often find that they are not emotionally prepared to wait for outcomes.
There is also the problem regarding a lack of enough cash in many trading accounts. Short term traders often do not have enough money to carry positions for a significant duration, sometimes overnight transaction fees charged by their brokerage platforms are too expensive. The availability of limited money is a liability and creates unprofitable propositions, unless an extreme amount of leverage is being used. Most short term traders lose their money when trying to apply excessive leverage. Dangers abound for day traders.
GBP/USD One Month Chart as of 1st of June 2023
Important U.S Data is on the Schedule Tomorrow which may not be mere Noise
Tomorrow the Non-Farm Employment Change number will be published, but the Average Hourly Earnings report will be a crucial part of the data brought forth too. Short-term traders like wagering on the jobs outcome and trying to ride its impetus, hoping a prosperous wave delivers them to the shore with profits. If the Average Hourly Earnings report comes in stronger than anticipated tomorrow, this could send Forex markets into a volatile and dangerous session as it mixes with yesterday’s Federal Reserve ‘dust’ which is still in the air causing problems.
Federal Reserve Dust Storm Caused by Jefferson and Harker Yesterday
Two members of the Federal Reserve's FOMC committee, Philip Jefferson a Federal Reserve Board of Governors member and Patrick Harker the President of the Federal Reserve Bank of Philadelphia, suggested on Wednesday that keeping the Federal Funds Rate in place on the 14th of June would be a good idea.
Philip Jefferson has been nominated by President Biden to take the powerful seat of Vice-Chair of the Federal Reserve, but he has not been appointed to the position yet officially. The position of Vice-Chair is a key job within the Fed which creates a rather strong voice regarding policy historically. Jefferson’s voice could make a difference in the next two weeks. However, even with Patrick Harker joining Jefferson's rhetoric yesterday, among them are a handful of other FOMC voting members who have expressed loud concerns about inflation and made it clear in their opinions, that staying aggressive regarding interest rate policy is important.
Clarity remains difficult to visualize regarding what the U.S Federal Reserve will do near and mid-term. However, the Federal Reserve has been exceptionally good at creating choppy Forex conditions much to the detriment of short-term traders, which is supposedly not part of the Fed's mandates.
Forex Markets have been Stirred and Tomorrow’s Data could Shake Conditions More
Wednesday’s comments from the two Federal Reserve members briefly stirred global Forex and the broad marketplace. Short term traders likely got caught in the momentary flashes of hysteria caused by the comments of the two gentlemen.
Arriving closely behind the comments by the Fed officials yesterday was the U.S JOLTS Job Openings report, which is viewed suspiciously by many professionals in the investment world because its numbers are sometimes suspected of being inflated by 'headhunters'. However yesterday's JOLTS results showed a huge increase in available employment options and caused another temporary reaction in Forex – in many ways counteracting the Fed voices.
Meaning tomorrow’s Non-Farm Employment Change numbers, and the inflation report via the Average Hourly Earnings will cause a loud buzz before and after their publication. This as the rhetoric from Fed members Jefferson and Harker mixes into the statistical outcomes.
The USD has been strong in the broad markets the past few weeks against many major currencies. This as evidence has grown the Federal Reserve may feel pressured into increasing the Federal Funds Rate in June in order to fight inflation. Tomorrow’s job reports will be essentially a week and half before the interest rate decision on the 14th of this month.
Short-term traders will likely bet on what will happen tomorrow and will continue to speculate in the coming two weeks regarding what the Federal Reserve will do. This while long-term players position their portfolios based on outlooks that can deal with the 'dust' in the air momentarily, knowing they should remain patient. Long-term investors do not always make money, but yesterday’s brief fireworks caused by the Federal Reserve officials weren’t quite as troubling for investors with a broader horizon who don't flinch with fear from short-term murmurs.