RUPIAH AFTER ELECTION

July 22th has gone. The official anouncement said that Jokowi was elected President of my beloved country, Indonesia. As we know, the survey before showed that the society had high expectation for Jokowi to be President. And today, we'll just wait for Jokowi's inaugural speech.

Economists forecasted that Rupiah would get stronger after the election. We still remember when Jokowi was nominated as the future president, the Indonesia Composite Index (IHSG) moved up. But now, as Jokowi's named as the President-elect, Rupiah gives no sign of any "raise". Rupiah is still in USD/IDR 11,500 - 11,700.

What can possibly affect Rupiah?

We have many explanations. First, US Economic grows faster this year; 4% (until Q2) based on fxstreet.com while US GDP 2014 (until Q2) grows 2.8% based on statista.com the highest growth since 2008 global crisis. This makes USD moves stronger against its pair. GBP/USD, NZD/USD, and EUR/USD even get weaker (1.6876, 0.8493, and 1.3387 consecutive). This condition will surely affect Rupiah, too.

Second, the inflation rate is still higher than Bank Indonesia targeted (inflation target for 2014 is 4.5% while June inflation is 6.7% (see http://www.bi.go.id/en/moneter/inflasi/data/Default.aspx). BI rate (7.5%) and Net Domestic Assets position could affect rupiah, too.

Last, though the presidential election had declared that Jokowi was the winner, his opponent, Prabowo, is disputing the outcome. This case is now brought to Constitutional Court. I assume Rupiah won't make a good movement till the Constitutional Court's fixed result on the 6th of August. Well, let's wait another days and see what will happen to Rupiah.
By the way, you can shift your focus to US NFP data release. Have a nice trading.

Read More

CORRELATION BETWEEN INFLATION RATE AND UNEMPLOYMENT RATE

William Phillips (1958) stated that there is negative correlation between inflation rate and the rates of unemployment. It's such a trade-off, when the level of unemployment decreases, the inflation rate goes higher. I myself was curious to prove the truth of the statement. I took the Indonesia's unemployment rate and inflation rate data since 1998-2013 and the result says so. 

Based on the picture below, the correlation is -0.3087 which means between unemployment rate and inflation rate have an inverse relationship.

You can also chceck out the scatter diagram below:

But, Phillip's study was just in short run. The question is, why can this happen ? Here is the explanation. As the unemployment level decreases will correlate with higher change of money wage. When the rate of unemployment rises, there will be less money supply. Since the economists say with the less money supply, the less inflation rate; that's true!

On the other hand, the increasing unemployment reduces the purchasing power. Yes, it's a trade-off. The only way to control the inflation is to change the mindset of the labor, to invest their money that it will be quite productive. In the next post, I'd like to discuss how to control the inflation.

Read More

CORRELATION STUDY: NFP and EUR/USD

Howdy, traders.....

In this post (and maybe later) I'd like to explain something statistical; correlation study. I myself choose the correlation between NFP data release and EUR/USD. Correlation measures the strength and direction of a linear relationship between two variables, in this case, NFP and EUR/USD. The result will be completed with a scatterplot/ scatter diagram.

How do we interpret a correlation (r) value? It's simply like this, The value of r is always between 1 and -1.

If you get a positive value, it indicates that the correlation has an uphill (positive) trend. On the contrary, if the value is negative, the relationship has a negative trend. If it's zero, it means there's no linear relationship.

I took the NFP data from fxstreet.com and EUR/USD from AGEA with a range between May 2013 until April this year. You can look at the pictures that the r value was 0.0477 which means it hasn't any strong relationship. As a result, The Scatterplot's dots were totally scattered. Since they're scattered, means no pattern of the trend. Once again, they're actually have a weak linear relationship. Despite having a weak relationship, NFP is quite influential in moving the price of USD. That's why I suggest you to make  better combination of data to gain a good result.

FYI, today is the end of April, prepare yourself for the next NFP data release on the first Friday of May.

Read More