With so many moving parts now in place across the world, the "Butterfly effect" is in full-play. One tiny mishap by just one country and its monetary or military leaders and it could now cause major problems across the entire globe. Keep your eye on the military conflicts in North and South Korea; they may be the "Butterfly." For those who don't fully understand the inference please read the following explanation.
In chaos theory, the "butterfly effect" is the sensitive dependence on initial conditions, where a small change at one place in a deterministic nonlinear system can result in large differences to a later state. The name of the effect, coined by Edward Lorenz, is derived from the theoretical example of a hurricane's formation being contingent on whether or not a distant butterfly had flapped its wings several weeks before. The phrase refers to the idea that a butterfly's wings might create tiny changes in the atmosphere that may ultimately alter the path of a hurricane or delay, accelerate or even prevent the occurrence of a hurricane in another location. Note that the butterfly does not have the power or can directly create the hurricane. The flap of the wings is a part of the initial conditions; one set of conditions leads to a hurricane while the other set of conditions doesn't. The flapping wing represents a small change in the initial condition of the system, which causes a chain of events leading to large-scale alterations of events (compare: domino effect). Had the butterfly not flapped its wings, the trajectory of the system might have been vastly different - it's possible that the set of conditions without the butterfly flapping its wings is the set that leads to a tornado.
Big week for Macro traders as global economic data is plentiful. We have the Bank of Japan releasing their latest monetary policy on Thursday. On the same day we also have the latest monetary policy decisions being released by the European Central Bank. Then on Friday we have the highly anticipated monthly U.S. jobs report.
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