FX Policy for Monetary Policy: FX Trading Methodology
The common goal of the global central banks is "global equilibrium" by managing the economic and finance stability and the FX price stability, however FX policy is independent of monetary policy. The FX price stability managed to match the economic and finance stability expectation and the monetary policy also managed to match the FX price stability expectation.
Global central bankers limit their management on the medium and short term price stability to match the economic and finance stability expectation. At such, FX price is fluctuated freely interior the short and the medium bands. The challenges for measurement however is caused by the different of width of bands under their management. While the EMS Treaty allowed to 15 % and the Louvre Accord for 10 % and the dollarisation, yenisation and the euroization pegged for 2.5 % to 5 %. Their differentials represent the risk for assessing and measuring their lowest and highest rates at their upper or their lower bands. This challenge however tackled by measuring their average traded weighted rate (ATWR) at their lower and at their upper of their short and medium term bands.
The U-shape band limited for gauging the directional movement and the S-curve band is limited for measuring the turning of short and medium term and the time series band is limited for estimating the timing for the short and the medium term. The Brownian motion stochastic is limited for gauging the harmony and disharmony as well as for equivalent band performance. The on-going measurement of the ATWR represents the most accurate data for market entry and exit by the methodology, accordingly all initial measurements are "preliminary" and the actual rates are based on the measurement of the ATWR.
Below selected the designers on the architect of the FX policy and monetary policy.
Global central bankers limit their management on the medium and short term price stability to match the economic and finance stability expectation. At such, FX price is fluctuated freely interior the short and the medium bands. The challenges for measurement however is caused by the different of width of bands under their management. While the EMS Treaty allowed to 15 % and the Louvre Accord for 10 % and the dollarisation, yenisation and the euroization pegged for 2.5 % to 5 %. Their differentials represent the risk for assessing and measuring their lowest and highest rates at their upper or their lower bands. This challenge however tackled by measuring their average traded weighted rate (ATWR) at their lower and at their upper of their short and medium term bands.
The U-shape band limited for gauging the directional movement and the S-curve band is limited for measuring the turning of short and medium term and the time series band is limited for estimating the timing for the short and the medium term. The Brownian motion stochastic is limited for gauging the harmony and disharmony as well as for equivalent band performance. The on-going measurement of the ATWR represents the most accurate data for market entry and exit by the methodology, accordingly all initial measurements are "preliminary" and the actual rates are based on the measurement of the ATWR.
Below selected the designers on the architect of the FX policy and monetary policy.
Komen:
John Williamson (born June 7, 1937, Hereford, England) is an English economist who coined the term Washington Consensus. He is a critic of capital liberalization and the bipolar exchange rate. Williamson has been a senior fellow at the Peterson Institute for International Economics since 1981. He was the project director for the United Nations High-Level Panel on Financing for Development (the Zedillo Report) in 2001. He was also on leave as chief economist for South Asia at the World Bank during 1996–99. He was an adviser to the International Monetary Fund from 1972 to 1974 and economic consultant to the UK Treasury from 1968 to 1970. Williamson has been an economics professor at Pontifícia Universidade Católica do Rio de Janeiro (1978–81), University of Warwick (1970–77), Massachusetts Institute of Technology (1967, 1980), University of York (1963–68) and Princeton University (1962–63). Williamson is the author or editor of numerous studies on international monetary and developing-world debt issues.
Reference
Rates and the International Monetary System, Curbing the Boom-Bust Cycle: Stabilizing Capital Flows to Emerging Markets (2005)
Dollar Adjustment: How Far? Against What? (2004)
After the Washington Consensus: Restarting Growth and Reform in Latin America (2003)
Delivering on Debt Relief: From IMF Gold to a New Aid Architecture (2002)
Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option (2000)
The Crawling Band as an Exchange Rate Regime (1996)
What Role for Currency Boards? (1995)
Estimating Equilibrium Exchange Rates (1994)
The Political Economy of Policy Reform (1993)
Economic Consequences of Soviet Disintegration (1993)
Trade and Payments After Soviet Disintegration (1992)
From Soviet Disunion to Eastern Economic Community? with Oleh Havrylyshyn (1991)
Currency Convertibility in Eastern Europe (1991)
Latin American Adjustment: How Much Has Happened? (1990)
Globalization: The Concept, Causes, and Consequences (1989)
Targets and Indicators: A Blueprint for the International Coordination of Economic Policy with Marcus Miller (1987)
The Lending Policies of the International Monetary Fund, Policy Analyses in International Economics 1, Washington D.C., Peterson Institute for International Economics. (August 1982). ISBN 0-88132-000-5
Reference
Rates and the International Monetary System, Curbing the Boom-Bust Cycle: Stabilizing Capital Flows to Emerging Markets (2005)
Dollar Adjustment: How Far? Against What? (2004)
After the Washington Consensus: Restarting Growth and Reform in Latin America (2003)
Delivering on Debt Relief: From IMF Gold to a New Aid Architecture (2002)
Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option (2000)
The Crawling Band as an Exchange Rate Regime (1996)
What Role for Currency Boards? (1995)
Estimating Equilibrium Exchange Rates (1994)
The Political Economy of Policy Reform (1993)
Economic Consequences of Soviet Disintegration (1993)
Trade and Payments After Soviet Disintegration (1992)
From Soviet Disunion to Eastern Economic Community? with Oleh Havrylyshyn (1991)
Currency Convertibility in Eastern Europe (1991)
Latin American Adjustment: How Much Has Happened? (1990)
Globalization: The Concept, Causes, and Consequences (1989)
Targets and Indicators: A Blueprint for the International Coordination of Economic Policy with Marcus Miller (1987)
The Lending Policies of the International Monetary Fund, Policy Analyses in International Economics 1, Washington D.C., Peterson Institute for International Economics. (August 1982). ISBN 0-88132-000-5
Komen:
Lars Erik Oscar Svensson, is a Swedish economist. He was on the faculty of Princeton University 2001–2009. Since May 2013, he is Affiliated Professor at the Stockholm School of Economics. Since 2009 he is Affiliated Professor at Stockholm University. He has published significant research in macroeconomics, especially monetary economics, international trade and general equilibrium theory.
He is among the most influential economists in the world according to IDEAS/RePEc. He is a well-known proponent of price path targeting, a topic on which he published significant research.
During 2007–2013 he was a deputy governor of the Sveriges Riksbank (the central bank of Sweden). From 2009 he dissented and advocated a more expansionary monetary policy for Sweden, since the unemployment rate was high and inflation fell far below the Riksbank's inflation target. He is also notable for advocating a slightly negative interest rate among central banks at the Riksbank in July 2009.
Svensson earned his M.S. in mathematics in 1971 from the School of Applied Mathematics at the Royal Institute of Technology in Stockholm and his B.A. in economics, economic history and mathematics in 1973 at the Stockholm University. After studying as a Special Graduate Student in economics at the Massachusetts Institute of Technology in 1974–75, he received his Ph.D. from the Stockholm University in 1976.
Between 1975–1984 Svensson was a Research Fellow of the Institute for International Economic Studies at the Stockholm University and, until 2001, he was a professor of international economics at the same institute. During 2001–2009 he was a professor of economics at Princeton University. Before joining the Sveriges Riksbank as a deputy governor, in 2007, for a six-year term period, he acted as an advisor for many organizations, including the World Bank, the Federal Reserve Bank of New York and the Reserve Bank of New Zealand. He left the Riksbank in 2013. From 2009 he is an affiliated professor at the Institute for International Economic Studies, Stockholm University.
He is a member of the Royal Swedish Academy of Sciences since 1989 and a fellow of the Econometric Society.
He is among the most influential economists in the world according to IDEAS/RePEc. He is a well-known proponent of price path targeting, a topic on which he published significant research.
During 2007–2013 he was a deputy governor of the Sveriges Riksbank (the central bank of Sweden). From 2009 he dissented and advocated a more expansionary monetary policy for Sweden, since the unemployment rate was high and inflation fell far below the Riksbank's inflation target. He is also notable for advocating a slightly negative interest rate among central banks at the Riksbank in July 2009.
Svensson earned his M.S. in mathematics in 1971 from the School of Applied Mathematics at the Royal Institute of Technology in Stockholm and his B.A. in economics, economic history and mathematics in 1973 at the Stockholm University. After studying as a Special Graduate Student in economics at the Massachusetts Institute of Technology in 1974–75, he received his Ph.D. from the Stockholm University in 1976.
Between 1975–1984 Svensson was a Research Fellow of the Institute for International Economic Studies at the Stockholm University and, until 2001, he was a professor of international economics at the same institute. During 2001–2009 he was a professor of economics at Princeton University. Before joining the Sveriges Riksbank as a deputy governor, in 2007, for a six-year term period, he acted as an advisor for many organizations, including the World Bank, the Federal Reserve Bank of New York and the Reserve Bank of New Zealand. He left the Riksbank in 2013. From 2009 he is an affiliated professor at the Institute for International Economic Studies, Stockholm University.
He is a member of the Royal Swedish Academy of Sciences since 1989 and a fellow of the Econometric Society.
Komen:
CURRENCY BAND CONSTRUCTED TO MEET EQUILIBRIUM EXCHANGE RATE THEORY
The currency band is structured based on interest rate differential by meeting the equilibrium exchange rate theory. The theory agreed for the price of exchange rate to move from "disequilibrium" to "equilibrium" similar to the general commodities in the market place. Accordingly, the exchange rate move from exchange rate at economic fundamental (disequilibrium)to exchange rate at interest rate (equilibrium). As a result, the exchange rate differentials represented by the currency band structure. Thus, the alignment and re-alignment and continuously re-alignment to upward or to downward on the bands are caused by the changes on interest rate differentials. The width of the bands however consistently managed in accordance to the agreements and consensus (Plaza, Louvre, EMS, etc) and the alignment and re-alignment and continuously re-alignment represent the changes on the interest rate differentials.
The currency band is structured based on interest rate differential by meeting the equilibrium exchange rate theory. The theory agreed for the price of exchange rate to move from "disequilibrium" to "equilibrium" similar to the general commodities in the market place. Accordingly, the exchange rate move from exchange rate at economic fundamental (disequilibrium)to exchange rate at interest rate (equilibrium). As a result, the exchange rate differentials represented by the currency band structure. Thus, the alignment and re-alignment and continuously re-alignment to upward or to downward on the bands are caused by the changes on interest rate differentials. The width of the bands however consistently managed in accordance to the agreements and consensus (Plaza, Louvre, EMS, etc) and the alignment and re-alignment and continuously re-alignment represent the changes on the interest rate differentials.
Komen:
CARRY TRADING & UNWINDING TRADING SUPPORTIVE TO CENTRAL BANKS' FX PRICE STABILITY MANAGEMENT
The basis theory of carry trading and unwinding trading is the equilibrium exchange rate by agreeing for the FX price to move from disequilibrium to equilibrium. At such, carry trading is entered at disequilibrium and exit at equilibrium by limiting the target on the width of the bands. As a result, the carry trading supportive for the FX movement during the non-sterilization period and the unwinding trading supportive during the sterilization period. Therefore, the central banks may not obligated to undertake sterilization or non-sterilization as they are replaced by the carrying and unwinding by the carry traders, and it is called "honeymoon affects" between the central banks and carry traders.
Therefore, the theory of disequilibrium and near disequilibrium introduced and provoked by Soros for his trading strategy is rationale and justified. He disclosed that the strategy is the model he practiced to generate his wealth. And, the BIS surveys also reported that "carry trading" is a common practice by the FX managers in the market, as well as "momentum trading".
Carry traders shifting their funds from one to another currencies for carry trading (asset off-taking) and unwinding their funds (asset disposals) by matching the width of the bands. Thus, carry trading is asset off-taking and asset disposals whereby the asset off-taking (carry trading) to strengthen the investment currencies and the asset disposal (unwinding) to weaken the investment currencies by the liquidation.
This structure allows the global capitalists to invest their funds to fuel the economy for mutual benefit. The capitalists to look for rationale profit, the central banks to look for liquidity to fuel the economy to grow at manageable growth, and the public to get jobs and salary for their living and wealth, and the government to get receivable from the collected tax to fund the government, the mutual benefit for all parties. No money for free, and if it is available, the amount is limited.
The basis theory of carry trading and unwinding trading is the equilibrium exchange rate by agreeing for the FX price to move from disequilibrium to equilibrium. At such, carry trading is entered at disequilibrium and exit at equilibrium by limiting the target on the width of the bands. As a result, the carry trading supportive for the FX movement during the non-sterilization period and the unwinding trading supportive during the sterilization period. Therefore, the central banks may not obligated to undertake sterilization or non-sterilization as they are replaced by the carrying and unwinding by the carry traders, and it is called "honeymoon affects" between the central banks and carry traders.
Therefore, the theory of disequilibrium and near disequilibrium introduced and provoked by Soros for his trading strategy is rationale and justified. He disclosed that the strategy is the model he practiced to generate his wealth. And, the BIS surveys also reported that "carry trading" is a common practice by the FX managers in the market, as well as "momentum trading".
Carry traders shifting their funds from one to another currencies for carry trading (asset off-taking) and unwinding their funds (asset disposals) by matching the width of the bands. Thus, carry trading is asset off-taking and asset disposals whereby the asset off-taking (carry trading) to strengthen the investment currencies and the asset disposal (unwinding) to weaken the investment currencies by the liquidation.
This structure allows the global capitalists to invest their funds to fuel the economy for mutual benefit. The capitalists to look for rationale profit, the central banks to look for liquidity to fuel the economy to grow at manageable growth, and the public to get jobs and salary for their living and wealth, and the government to get receivable from the collected tax to fund the government, the mutual benefit for all parties. No money for free, and if it is available, the amount is limited.
Komen:
FX TRADING IS FX PRICE STABILITY TRADING
Global central banks are obligated by their mandates for managing the medium term price stability to support the medium term economic and financial stability by undertaking non-sterilization. However, at upper or at lower medium term, the global central banks are also obligated to manage the short term price stability by undertaking sterilization. The main purpose of sterilization is to slower the weakening/strengthening of currencies to match the economic and finance stability.
The width of the medium term price stability however is different by the Louvre Accord 10 % and the EMS Treaty 15 % , and or by the dollarisation, yenisation of euroisation 2.5 % to 5 %. Their differences to cause difficulties to measure their price at their lower and at their upper bands (medium or short). However, this difficulty resolved by the measurement of their average traded weighted rate (ATWR) at their lower or at their upper medium and short term bands. This represent the most difficult to measure in the market by their dynamics. Thus, the actual width of bands are the actual ATWR at lower and upper bands of the medium and the short term bands, and may different from 10 % and 15 % and agreed as "tolerance".
FX prices are moving in harmony identified by Brownian motion stochastic from their "disequilibrium states" to "equilibrium states" according to equilibrium exchange rate theory, and disharmony is caused by the news, rumors and the likes in the market. Disharmony however becomes opportunity to trade as the currency pairs will resume to harmony by Brownian motion stochastic.
The central banks limited by their mandates to manage the medium and short term price stability which could be 2-6 months cycles and this is mainly followed by carry traders and momentum traders as well as FX-linked debt security traders. Therefore, the monthly, weekly and daily terms are assessed and measured by time series of the bands. The monthly, weekly and daily terms however could be at risk, but largely targeted by small to medium size FX traders.
At conclusion, the prime turning points are at the upper and at the lower bands of the medium (non-sterilization) and the short (sterilization) bands. And, the turnings at the monthly, weekly, daily highs and lows are "assumption" by time series bands.
Global central banks are obligated by their mandates for managing the medium term price stability to support the medium term economic and financial stability by undertaking non-sterilization. However, at upper or at lower medium term, the global central banks are also obligated to manage the short term price stability by undertaking sterilization. The main purpose of sterilization is to slower the weakening/strengthening of currencies to match the economic and finance stability.
The width of the medium term price stability however is different by the Louvre Accord 10 % and the EMS Treaty 15 % , and or by the dollarisation, yenisation of euroisation 2.5 % to 5 %. Their differences to cause difficulties to measure their price at their lower and at their upper bands (medium or short). However, this difficulty resolved by the measurement of their average traded weighted rate (ATWR) at their lower or at their upper medium and short term bands. This represent the most difficult to measure in the market by their dynamics. Thus, the actual width of bands are the actual ATWR at lower and upper bands of the medium and the short term bands, and may different from 10 % and 15 % and agreed as "tolerance".
FX prices are moving in harmony identified by Brownian motion stochastic from their "disequilibrium states" to "equilibrium states" according to equilibrium exchange rate theory, and disharmony is caused by the news, rumors and the likes in the market. Disharmony however becomes opportunity to trade as the currency pairs will resume to harmony by Brownian motion stochastic.
The central banks limited by their mandates to manage the medium and short term price stability which could be 2-6 months cycles and this is mainly followed by carry traders and momentum traders as well as FX-linked debt security traders. Therefore, the monthly, weekly and daily terms are assessed and measured by time series of the bands. The monthly, weekly and daily terms however could be at risk, but largely targeted by small to medium size FX traders.
At conclusion, the prime turning points are at the upper and at the lower bands of the medium (non-sterilization) and the short (sterilization) bands. And, the turnings at the monthly, weekly, daily highs and lows are "assumption" by time series bands.
Komen:
DOLLARISATION, YENISATION AND EUROISATION
Not all central banks have the capability to manage their exchange rate price stability due to the limitation of skills and international reserve management. These central banks have an option to peg their currencies to USD, JPY or EUR. This allows the central banks to manage their currencies with USD (dollarisation), JPY (yenisation) or EUR (euroisation) and the price of their currencies are depending on the price of USD, JPY or EUR with other currencies managed by the Fed, BOJ and ECB.
Many European, Nordic and the Eastern European currencies are managed by Euroisation and selected Asian currencies with Yenisation and the Latin America currencies with Dollarisation. However, the largest currencies are mainly managed by Dollarisation. It is the simplest way for central banks by relying on the Fed, BOJ and the ECB.
Not all central banks have the capability to manage their exchange rate price stability due to the limitation of skills and international reserve management. These central banks have an option to peg their currencies to USD, JPY or EUR. This allows the central banks to manage their currencies with USD (dollarisation), JPY (yenisation) or EUR (euroisation) and the price of their currencies are depending on the price of USD, JPY or EUR with other currencies managed by the Fed, BOJ and ECB.
Many European, Nordic and the Eastern European currencies are managed by Euroisation and selected Asian currencies with Yenisation and the Latin America currencies with Dollarisation. However, the largest currencies are mainly managed by Dollarisation. It is the simplest way for central banks by relying on the Fed, BOJ and the ECB.
Komen:
GEORGE SOROS: DISEQUILIBRIUM AND NEAR DISEQUILIBRIUM TRADING THEORY
Soros' theory of trade is the combination of the equilibrium exchange rate theory introduced by Williamson and the currency band theory introduced by Paul Krugman. Both Williamson and Krugman are advisor to Soros. His trading theory however is very consistent to trade from "disequilibrium" to "equilibrium" states.
The reflexivity theory of reading the mind of the market is the mind of the medium term and the short term bands, as well as the mind of the long term (cycles). All those minds are equivalent to the long, medium and short term bands, but he developed for stock market and mainly practiced for FX trading.
Soros' theory of trade is the combination of the equilibrium exchange rate theory introduced by Williamson and the currency band theory introduced by Paul Krugman. Both Williamson and Krugman are advisor to Soros. His trading theory however is very consistent to trade from "disequilibrium" to "equilibrium" states.
The reflexivity theory of reading the mind of the market is the mind of the medium term and the short term bands, as well as the mind of the long term (cycles). All those minds are equivalent to the long, medium and short term bands, but he developed for stock market and mainly practiced for FX trading.
Komen:
IT IS COMPLEX BUT IT IS WORK FOR SUSTAINABLE LONG TERM PROFITABILITY.
Paul Robin Krugman born February 28, 1953) is an American economist who is currently Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for The New York Times. In 2008, Krugman was awarded the Nobel Memorial Prize in Economic Sciences for his contributions to New Trade Theory and New Economic Geography. The Prize Committee cited Krugman's work explaining the patterns of international trade and the geographic distribution of economic activity, by examining the effects of economies of scale and of consumer preferences for diverse goods and services.
Krugman was previously a professor of economics at MIT, and later at Princeton University. He retired from Princeton in June 2015, and holds the title of professor emeritus there. He also holds the title of Centenary Professor at the London School of Economics. Krugman was President of the Eastern Economic Association in 2010, and is among the most influential economists in the world. Krugman is known in academia for his work on international economics (including trade theory, economic geography, and international finance), liquidity traps, and currency crisis.
Krugman is the author or editor of 27 books, including scholarly works, textbooks, and books for a more general audience, and has published over 200 scholarly articles in professional journals and edited volumes. He has also written several hundred columns on economic and political issues for The New York Times, Fortune and Slate. A 2011 survey of economics professors named him their favorite living economist under the age of 60. As a commentator, Krugman has written on a wide range of economic issues including income distribution, taxation, macroeconomics, and international economics. Krugman considers himself a modern liberal, referring to his books, his blog on The New York Times, and his 2007 book The Conscience of a Liberal. His popular commentary has attracted widespread attention and comments, both positive and negative.