Wednesday, 05.10.2016, 05:31

Australia - Economic forecast!

Written by
Published in FX Insights

Moving out of the summer holidays and rising temperatures, one should pay closer attention to market developments and hidden investment opportunities. While uncertainty in certain areas of the currency markets is looming, repositioning one’s investments is increasingly becoming a confusing and challenging task. 

Over the past decade, the European Union (EU) has faced a number of distinct economic challenges and political conflicts. These began with the financial crisis of 2008, which almost brought down the world’s financial system due to the U.S. subprime mortgage crisis and then continued with the second financial crisis due to the European sovereign debt crisis. Although the European Central Bank (ECB) has introduced a number of monetary policy measures to regain economic growth and financial stability for the euro area, by maintaining price stability, a number of risk events made their appearance over the last year to tackle ECB’s efforts. These risk events include the EU referendum outcome, where the UK voted to leave the European Union (52 percent – 48 percent), and the ongoing migrant crisis, as well as the review of Greece’s third bailout programme. Now, the ECB does not have to face only low inflation, high unemployment and sluggish growth in the euro area, but also the upcoming risk events that threaten the euro area’s economic environment.

Friday, 17.06.2016, 10:57

EU Referendum: To Stay or Not to Stay!

Written by
Published in FX Insights

On June 23rd, Great Britain will vote on whether to stay in the European Union (EU) or re-establish its sovereignty. No coming event on the global economic or political calendar is more significant than this EU historic referendum - whether Britain should leave or remain in the EU. At this point it's anyone's guess as to how the referendum will play out, leaving some to wonder how prepared they should be in the case of a Brexit.

The Big Picture

The argument is whether the UK should exit the EU or remain within the 28-member bloc. The "Remain" camp argues that the UK gains in economic benefits, security and global influence from being a key member of a large bloc of nations. On the other hand, the "Leave" camp argues the EU is a very different proposition to the European Economic Community that Britain joined in 1973. In addition, if Britain leaves the EU, it will no longer be forced to contribute to the EU budget. 

Polling stations in England, Wales, Scotland and Northern Ireland will be open on June 23rd between 7 a.m. and 10 p.m. local time. The result should be known by early morning on Friday, June 24.

Tuesday, 05.04.2016, 08:12

Trend Following – Failure Swing Patterns

Written by
Published in FX Insights

In my last article published in FX Trader Magazine, ‘‘Trend Following – One more Step to Success’’, I shared my trading strategy. We said that it is absolutely imperative to have a trading strategy as it will allow you to better manage your trading expectations, as well as help you to develop your trading plan. We said that even though traders using this trading strategy will often enter the market after a trend it will well established, we made a step further and tried to spot these new developing trends in their early stage. We said that one of the methods I use to identify a weakness in the trend, as well as, the possibility of the selected instrument to get in a consolidation phase or even to reverse the current trend; thus a trend reversal, is the Failure Swing patterns.  

Monday, 30.11.2015, 10:31

Turkish Lira Investment Outlook

Written by
Published in FX Insights

Turkish Economy Snapshot 

The Turkish economy advances nearly 1 percent per quarter over the last few years, following a year of recession after the global financial crisis. After four consecutive quarters of contraction with the largest shrink of 7.6 percent during the first quarter of 2009, the economy grew by an all-time high of 6.7 percent the very next quarter. The Global economic conditions and tighter fiscal policy haven’t left the Turkish economy indifferent, however as the exports returned to normal levels after the recession and are continuously improving since 2011, the economy returned back to its stable and normal rhyme of growth.

Wednesday, 07.10.2015, 08:00

TREND FOLLOWING

Written by
Published in FX Insights

In the previous issue ‘How to Eliminate Emotions From Trading’ we talked about the psychology of trading and we went through the process of how to eliminate trading emotions. We stated that this could be a tough task when money is involved, but it can be accomplished by establishing and focusing on a set of plans and rules of action. This was one of my first principles which helped me to become a successful trader. However, besides learning how to manage emotions when trading, it is another key ingredient which needs to be obtained before you can become a successful trader. It’s your trading strategy.

Wednesday, 19.08.2015, 07:55

Market Volatility Hits 2015 Low

Written by
Published in FX Insights

Price volatility has been much of a concern lately for most investors across asset markets, as it has fallen to historic lows with major currency pairs to be traded in narrower ranges. The implied volatility in currency markets has declined across the board with the most volatility indicators currently falling from their peaks, suggesting that market volatility has decreased. The decline in currency market volatility since the beginning of 2015, and more particularly the last few months, has been driven by several factors.

The monetary policy of the central banks to keep interest rates at historically low levels was a major factor. In particular, the U.S. Federal Reserve has kept its target interest rate at a record low for the last 10 years while the Bank of Japan has maintained short-term interest rates at close to zero since 1999. Central banks in the Euro zone and Switzerland are also expected to keep a loose monetary policy for an extended period. Volatility in the markets is likely to be highest, especially in currencies, when the major central banks finally begin to make changes to their monetary policies, thereby creating new trends and trading opportunities.

In the graph below, we can see that the global central banks rate cuts have been reduced from 108 in 2012 to 89 in 2013 and to 65 in 2014. We have had 54 cuts in 2015 so far, thus the case for more aggressive actions by the major central banks is becoming stronger. 

FIGURE_1.PNG

The Fed’s move to end its bond-buying programme back in October 2014, after adding more than $3.5 trillion to the Fed’s balance sheet, is another key factor for low market volatility. The QE program from the Fed has helped to keep a lid on volatility so far; meanwhile, ECB has recently started to buy government bonds and the BoJ is still pursuing QE. This shift has been driving dollar higher against both the euro and the yen.

The U.S. Dollar continues to stick to a tight range versus the Euro, British pound, Japanese yen and other major counterparts while the S&P 500 index remained also in a range since the beginning of 2015. A prolonged period of very low volatility makes it difficult for investors to identify a direction in the markets as most of the time the market sits flat and, in theory, low trading volumes should lead to lower volatility – this depresses volatility even further.

In North America, daily volume averaged $880 billion, down 20% from the previous survey in October, in the back of a 25% slump in spot transactions to $427 billion, according to the New York Federal Reserve. Average daily volume in London, meanwhile, was 8% lower to $2.48 trillion a day in the six months leading up to April, the Bank of England survey showed, including a 13% drop in daily spot volumes to $973 billion a day.

VIX – CBOE Volatility Index is moving low

The VIX (CBOE Volatility Index) or the fear index indicates how traders expect the market to move over a short period of time. Higher values for the volatility index indicate that investors expect the value of the S&P 500 to fluctuate wildly – up or down - in the next 30 days. The VIX has been at the front page recently because it is at historically low levels. The chart below shows VIX has fallen below the 20 level as volatility is drastically lower than they have been in recent years. The VIX hit its historic high of 89.50 in mid-October 2008 on concerns about the financial crisis in 2008 and has trended lower after hitting a 2015 high of 23.45 in mid-January.  Although it moved slightly higher the last couple of weeks, the VIX is moving around levels last seen before the financial crisis.

FIGURE 2

Chaikin Volatility indicator remains low

The Chaikin Volatility indicator, which measures implied volatility of a particular asset, is trading in a tight range, slightly below the zero mark. This is not far off from the lows seen in the beginning of 2015, before a significant spike above the 100 mark in mid-January and mid-March 2015. The Average True Range (ATR), an indicator that also measures volatility, meanwhile, fell to its lowest level since January 2015. Slightly below here is the January 2012 low. 

FIGURE 3

JFD volatility charts trying to recover from lows

With this recent decline in market volatility, we expect broad trading ranges and lower volatility in the next few weeks. The implied EUR/USD volatility is the lowest in 2015, and pound’s volatility against the dollar is at its lowest level for the year. The dollar's volatility against the Japanese yen has not fallen as much, but it has softened and is at the lower boundary of its recent range, which is roughly around 50. Below, you will find three custom JFD volatility charts of the euro, sterling and yen against the U.S. dollar, which shows the increase or the decrease of the average bar size measured by the Average True Range (ATR) and the daily highs and lows.

In the first graph, the biggest daily candles, respectively appear during the peak of the financial crisis – during the last quarter of 2008, and since then, the chart shows a gradually decreasing downtrend that has bottomed during the 3rd quarter of 2014, returning to levels last seen in June 2007. According to the JFD volatility chart, since the beginning of 2015 we have experienced a very low volatility, which also reflects to the EUR/USD pair, as it moves in a range the last few months. 

FIGURE 4

The GBP/USD volatility chart also shows identical patterns. We see that the peak in the bar sizes comes during the peak of the financial crisis and since then, we have had a gradual decreasing volatility that hit a bottom during the 3rd quarter of 2014. Since then, the GBP/USD average daily bar size has been increasing gradually but unfortunately, after we entered the summer months of this year, the volatility dropped again close to January lows. However, at least we are seeing that the values are able to hold above 50 and trying to build higher lows and reverse the bearish trend set-up.  

FIGURE 5

Conclusion

The dearth of currency market volatility in 2015 has sink to historic lows. A sharp drop in price volatility is often followed by aggressive spikes, with damaging impact for market participants. History tough us that a possible reversal in market volatility comes after some significant events: the stock market crash back in 1987; as well as the Asian stock market crisis in July 1997; a shift in U.S. monetary policy, as seen in February 1994; the collapsed of Lehman brothers in September 2008; even a significant change in an economic outlook, as occurred during the oil crisis in 2000 or the U.S. unemployment scare in 1982 and 2010. As we approached the second half of 2015, volatility should start to increase in the markets, as at this point, the Fed as well as the BoE grow more serious about raising interest rates. History shows that a period just before a Fed or a BoE and even an ECB interest rate hike can be volatile.

 

Monday, 17.08.2015, 09:46

US Dollar could be Getting Ready to Roar!

Written by
Published in FX Insights

After a period of a pullback in the first quarter and a consolidation in the second quarter against its three majors - euro, pound, and yen - the dollar will demand our full attention in the Q3 of 2015. To brief recap the move in the USD so far this year, the dollar reached fresh highs versus some of its majors at the end of Q1 and it started a pullback in the mid of Q2. The dollar has remained in a range-bound for several months, consolidating roughly around the 1.10 against the euro, 1.55 against the pound and 124.00 against the yen. Furthermore, the dollar is trading in a firmer footing against the euro and the yen in the third quarter while it struggles to regain ground versus the pound. Moreover, the dollar index has gained nearly 2% so far this month and the dollar bulls may have turned back and start leading again.

One of the key drivers for the reversal has been the Greek financial crisis, as EUR/USD have remained in a tight range following the strong rebound from 1.05. Peaks and troughs have been reversed on numerous occasions following the daily ‘Yes’ and ‘No’ of the Greek deal. Another key for the recent consolidation in the USD crosses has been the outlook for the US economy – negative Q1 GDP – as well as the increased attempts at guessing when the Fed will start hiking interest rates. As the US economic data continues to improve, despite the negative Q1, the US economy is steadily getting back on track following the latest NFP figure - total Nonfarm payroll employment increased by 223k in June - and the timing of the first rate hike, where it has been since December 2008, has been increased.

Two major unknowns for the direction of the dollar are the recent Chinese stock market crisis and the familiar theme of a Grexit which continued to dominate the headlines even though Greece reached a deal with its creditors few weeks ago. Going forward, I expect markets to change their tune in the third quarter of 2015. In my opinion, what will keep the greenback moving higher is the difference between the Fed’s actions toward tightening, while other banks, such as ECB and BoJ, remain easy on their monetary policies. Furthermore, the recent comments from the Fed Chair J. Yellen about a potential rate hike by the Fed could actually help the greenback maintain its current level of strength, especially against the euro and yen.

The dollar’s outlook this quarter could be bullish and I think it will continue to rise versus the euro due to political risk in the Eurozone as well as a deteriorating growth outlook. On the other hand, an economic indicator we should watch closely is the US inflation. If inflation continues to miss the Fed’s 2% target rate then we would expect some more dovish talk from the Fed.

From a technical perspective, this is dollar negative, but economic fundamentals may also weigh on the dollar this year. In regards to the pound, for the picture to turn negative against the dollar, the bears need to go through the 200-SMA on the daily chart, near 1.5300. 

Wednesday, 12.08.2015, 09:54

Why the PBoC devalued Yuan Currency

Written by
Published in FX Insights

People's Bank of China’s (PBoC) decision to devalue the yuan two times the last two days marked the most significant move in the country’s policy as it abandoned the exchange rate’s strict peg to the  US dollar 10 years ago. The PBoC has cut benchmark interest rates to a record low of 4.85%. It was the fourth time that the central bank of China had cut interest rates since November 2014. The Chinese currency, also known as Renminbi (RMB), was trading around a central fixed rate of 2%, which is set daily by the PBoC. Until now, it had been determined solely by the central bank itself.

Chinaexportsflag

Chinarate.PNG

China devalued its currency on Tuesday and early-Wednesday after a run of poor economic data, driving the currency to its lowest point in three years. At the weekend, China reported a sharp fall in exports and a slide in producer prices to a near six-year low in July. In particular, exports fell by 8.3% in July, and the Producer Price Index was down 5.4% from a year earlier. Overall, China’s economic growth has been sluggish as its economy expanded at a rate of 7.4% in 2014, the slowest level in decades.

The large commodity exporters like New Zealand and Australia, which depend on China to buy their exports, sold off because a weaker yuan means Chinese companies might not be willing to purchase raw materials as their currency got weaker. China is by far Australia's largest trading partner, accounting for more than one-third of their exports. Meanwhile, the currencies of China’s rival exporters have depreciated against the US dollar - yen fell more than 20% while South Korean won tumbled more than 5%, both since January 2014 – while the Chinese yuan has been relatively stable. The devaluation also hit global equities and oil prices.

The decision of the PBoC to devalue their currency by 1.9% will have a global impact in the short and medium term. A weak currency cheapens the price of a country's exports, making them more attractive to international buyers by undercutting competitors. Therefore, first and foremost, it will increase the competitiveness of China’s exports at a time when the country’s economy was still losing momentum as is growing at its slowest rate in six years. China’s economy grew at an annual rate of 7.0% at the start of 2015 and remained steady in the second quarter, in line with the government’s annual target for 2015. As a result, domestic companies like Li & Fund - global multinational with expertise in supply chain management - and Foxconn - world's largest electronics contractor manufacturer - will be the biggest winners of a weaker currency.

Chinarateblom

Retailers around the world with a large exposure to China have also been hit. Shares in Apple Inc. (NASDAQ: APPL) fell more 5% to $113.94 on Tuesday - China is a major market for Apple products - while Caterpillar (NYSE: CAT 78.06) slip more than 2%. General Motors Co. (NYSE: GM 30.83) plunged more than 1%. The Dow Jones Industrial Average closed more than 210 points lower, wiping out most of Monday's gains. The Standard & Poor’s 500 Index and Nasdaq Composite Index also plunged lower by 0.96% and 1.27%, respectively.

China’s move to devalue twice its currency in the last two days has threatened to unleash a global currency war, as export rivals seek a relatively low exchange rate to stay competitive. If other nations also decide to devalue their currency in response, then we are about to experience the third currency war in the last century.

Monday, 13.07.2015, 07:27

How To Eliminate Emotions from Trading

Written by
Published in FX Insights

Psychology plays a significant role in trading as it does in a game of poker, or even in athletics, such as tennis or football. Mastering the psychology of trading is one of the most difficult elements of learning how to trade on the market. Besides gaining the basic knowledge of the market’s structure and the ability to understand how the economic machine works, the idea of trading, in the end, is that you don’t lose.

The ability to control your emotions and maintain discipline is the most important thing you can do. A trader must learn to contend with market challenges of individuals and the crowd psychology in order to progress from a novice to an expert. If you want to turn a profit when investing in different asset classes, such as currencies, indices, equities, commodities, or bonds, you have to understand that trading is primarily a game of psychology. Only the toughest players survive it. The real edge separating professional traders (those who make a living from trading) from failed traders is clearly their mental approach to the market.

 

Page 1 of 3
Margin Trading is high risk and not suitable for all. Please ensure that you fully understand the risks involved.