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Thursday, September 30, 2010
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Interview with Marc Chandler: "you win through discipline."
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Today, we bring you an interview with Marc Chandler, the global head of currency strategy for Brown Brothers Harriman. Previously he was the chief currency strategist for HSBC Bank USA and Mellon Bank. Marc is a prolific writer and speaker whose essays have been published in the Financial Times, Barron’s, Euromoney, Corporate Finance, and Foreign Affairs. He is also the contributing economic editor for Active Trader Magazine and to TheStreet.Com. Below, he shares his thoughts on fundamental analysis versus technical analysis, the false Euro rally, Japanese Yen intervention, and other subjects.
Forex Blog: I would would like to begin by asking you to briefly explain your approach to analyzing the forex markets. Do you prefer technical or fundamental analysis, or a combination of both?
I’ve been analyzing currencies for a while, more than 20 years. I tend to think of myself as a fundamentalist, that is I look at macroeconomics, I look at policy, but at the same time, I’m a strategist, so I’m not just forecast GDP or trade. Ultimately, my goal is try to see where the currencies are going themselves, like the Euro or the Yen, or the Canadian Dollar. I find that technical analysis helps me quantify the risk at what level do I admit I’m wrong. And that’s very important. I think that often times, one would think that with economists, it’s always about being right. And I think that with trading and strategy, risk management is the most important thing. I find that technical analysis tells me where I should put my stop in effect – where I should admit that I’m wrong, unlike fundamentalists that say any level of US GDP or trade balance, the Dollar could be all over the place. Tehcnicals help me identify, help me fine-tune that a bit. I think that trading is so difficult that I need to use all of the possible tools that I have had at my disposal. It’s not just fundamental knowledge, but also studying psychology and price action.
Forex Blog: As head of currency research for Brown Brothers Harriman, it looks like you cover most of the major currencies, as well as a handful of emerging/exotic currencies. What do you think about the macroeconomic gulf that is forming between the “G4? economies (US, UK, Eurozone, Japan) and the emerging market economies (along the lines of debt, GDP growth, etc.)? Do you think that this division is reflected in forex markets?
Most of my career, I’ve focused on the major currencies, but to tell you the truth, it’s kind of blurry what’s an emerging market, especially with all that’s come to light during this crisis. Mexico, for example, Israel and South Korea are OECD countries and yet MSCI and some of these other investment agencies might consider them emerging market, so the line is really blurry.
For example, recently, the Bank of Japan intervened and they bought a lot of US Dollars. But it’s not clear to me – because the Chinese currency is so closely tied to the US Dollar – it’s not clear to me that maybe Japan wasn’t just as concerned, or even more concerned with the Yen against the RMB – since China is its biggest trading partners – as with the Yen against the Dollar. But they had to intervene on Dollar/Yen because of the way the foreign exchange market works and because China’s currency is not convertible.
While I tend to focus on the major countries, I don’t really know how to do the job and think about the world and global capital markets without recognizing and integrating what’s going on in many of the major emerging markets.
Forex Blog: Do you develop your own macroeconomic forecasts or do you simply plug in the data that your economist colleagues have developed?
Brown Brothers doesn’t really have a global economist- they’re not that kind of bank. So when it comes to GDP, for example, I will not have a formal forecast for it. I will have a guess of it and I’ll shy one way or the other from the broad market consensus. So for example, the broad market consensus for Q3 US GDP is about 1.9%. I would think of myself as a little bit above there. The important thing for the markets is instead of forecasting GDP as the end result, my end result is the Dollar or the Euro. And I would be looking at GDP, at relative economic strength as one of the inputs in an informal exchange rate model.
I would say that the emerging markets typically grow faster than the industrialized, mature economies. I find that faster emerging market growth – to me that’s more like a “dog bites man” story. This crisis, unlike past crises, from 1995-2002, these were emerging market crises: East Asia, Latin America…this is among the first crises that originated in industrialized countries.
Many of the emerging market economies have strong domestic demand, so they were able to compensate for the weakness in foreign demand. But they’ve also benefited from the terms of trade: higher commodity prices than manufactured goods prices. I think in general, that many people look at the debt levels of advanced, industrialized countries and worry that the US is becoming Greece or Argentina. I think that kind of thinking is misguided. It confuses things. It confuses cyclical comparisons with structural developments. I think there’s no doubt that the US is not Argentina. The Dollar is a major reserve currency. Most trade is invoiced in US Dollars – even when Australia sells iron ore to China, it’s probably invoiced in US Dollars and paid in US Dollars – not Argentinian Pesos or Mexican Pesos or whatever the current threat to the US Dollar is.
Forex Blog: Based on this, then, you don’t see any inherent contradiction between the Dollar’s strength and the gap in growth fundamentals between the US and emerging markets?
Since the opening up of China, for example, in the late ‘70s, China has definitely grown faster than the US. I’d say that’s also true form many Latin American countries like Brazil. Of course they grow much faster than the US, Europe, and Japan. But sometimes what determines currencies are not relative growth differentials. If you think about what’s happened since Lehman’s collapse, the Japanese Yen has been the strongest currency, and I don’t think that’s because of strong Japanese economic fundamentals. I think it has to do more with the unwinding of carry trades – Japan being a current account surplus country – that seems to be more telling than saying they have a booming economy, which of course they don’t. There’s no free lunches; the reason Brazil, Turkey, and South Africa offer higher interest rates is to compensate investors for some of the risk (political risk, inflation risk, maybe even historic risk – that you couldn’t depend on these counties in the past, and the market has to anticipate issues going forward). For example, Brazil (Real) is one of peoples’ favorite currencies, and the budget deficit is at an 8 month high, and they are approaching a current account deficit. So when I hear about fundamentals, it kind of begs the question, ‘Well, which fundamentals should be reflected, and what happens if the fundamentals are pointing in contradictory directions?’
Forex Blog: Is there a particular (emerging) currency that you think is not getting enough attention?
I’m looking for an opportunity to buy the Brazilian Real, although I think it could weaken first. I also like India – I think they’re the tortoise compared to the rabbit of China. I like Malaysia. I like Columbia. I like China. We generally think that in the emerging market space, Asian currencies over time, will appreciate against the US Dollar. They have favorable dynamics, pulled into the Chinese economic orbit, still tied to the US tech cycle, strong underlying economic fundamentals, and pressure to raise interest rates.
Forex Blog: On your financial blog, Marc to Market, a recent post was entitled, “The Yen Conundrum.” Can you elaborate on the contradiction between weak Japanese fundamentals and the strong Yen? Do you expect the trends in capital flows that are arguably behind the Yen’s appreciation will reverse anytime soon?
To me, the Yen’s strength is kind of like a thermometer – a temperature check for a sick patient. I suspect that the Yen’s strength is a function of the deleveraging taking place in the world. When the deleveraging stops, I will be more confident that the Yen has peaked. I’m not sure that is the case yet. I think intervention kind of caught some people by surprise. They spent a lot of money to get the kind of advance they got. They got 3-Yen advance – about a 5% move. The big picture is that it might lose some strength, but gradually.
Forex Blog: Speaking of the Yen, the Bank of Japan recently “intervened” on its behalf. Do you expect that this is only the beginning of a long program of intervention? Given the poor track record of the Swiss National Bank (in terms of the Franc), do you think that other Central Banks may follow suit?
This was a unilateral intervention. There are people who say that this opens up a Pandora’s Box for other countries to intervene, but I don’t think so. I think that those Central Banks that were inclined to intervene have already been intervening, like some Asian Central Banks and like Brazil. They continue to intervene. I think that it’s unusual for a G7 country to intervene. I don’t think that any other G7 country will intervene, though earlier this year and last year, though Switzerland did intervene quite actively and aggressively as part of their quantitative easing. With Japan, it does depend on the Yen/Dollar. However, the Japanese Yen intervention was quite large, and usually the first intervention is the biggest intervention. It’s been a week now, and they haven’t been in. Since that Thursday, the low that we’ve been at was 85.25 and we’re just above there right now. But it does not appear that they are sterilizing intervention, though it’s hard to tell because of the volatility caused by it being the end of the fiscal half year. Generally speaking, I think that the Japanese are not committing yet- they bought just short of 20 Trillion Yen – about $2 Billion – and I don’t think that’s enough yet to have really changed the general tide in Dollar/Yen. I think the deleveraging process has more ways to work and it’s bigger than 20 Billion Dollars.
Forex Blog: When the Euro rallied in the beginning of the summer, a number of forex commentators (myself included) declared a paradigm shift, whereby investors would stop worrying about risk and instead focus on the fundamentals. Ultimately, this shift never materialized, and the Euro appears to have resumed its decline. What is your assessment of the Euro’s recent performance, and what can we expect for the immediate future?
I think that the Euro’s bounce over the summer was a function of people taking a step back from the abyss. In the spring, it maybe looked like the Eurozone would collapse and members would drop out. When people realized that the Euro would survive and institutions would be reformed, the Euro bounced back a bit.
I think that we’re kind of caught now between problems in Europe – I think that risk assessment is fundamental. I do think that most recently, the widening of the spreads in Europe has not read to new Euro weakness, that being said, it might be preventing a serious Euro rally. We’re still about 2 cents below where we were in August. On the other hand, the Dollar has stood on 2 legs. One is bad things in Rest of World (ROW) and the other is good things here. But those good things have faded, and quite quickly in Q2. And so my equilibrium level for the Euro if there is such a thing is probably a bit higher than at the beginning of the year, about 1.33 – 1.35 to the Dollar.
You also have to look at restructuring of Euro debt, and ask, ‘How did Greece live beyond its means.’ The answer is that they were buying lots of goods and German Banks were happily lending them the money to do so. In fact, 70% of Greek debt is owned by non-residents. Going forward, the problems can only be overcome by stronger growth, which doesn’t seem likely at the moment. Still, assuming that interest rate differentials (between Germany and the rest of the EU) narrow, we will see the Euro strengthen.
Forex Blog: I recall a Bloomberg News video segmentin which you highlighted the 200-day moving average as an important forex indicator, especially for investors with a long-term outlook. Could you explain this for the benefit of my readers? Are there any other basic technical analysis indicators that you think fundamental analysts should pay attention to?
First I just want to say that we must appreciate time frame. For example, most fund managers have a medium time frame, and it doesn’t make sense for them to look at daily bar charts. That’s really just false symbolism, noise.
I like the 200 day Moving Average because it gives you a sense of trend. I think I remember the Bloomberg story that you’re referring to. I was looking at 250 day Moving Averages, and the idea of what some people call Golden Crosses. The idea is that the 50-day Moving Average has gone below the 250 Day Moving Average, in the Swiss Franc and the Pound. If you look at the Euro/Dollar exchange rate, the last time this happened was when the Euro was launched in 1999, and it led to a large sell-off. As I aid though, you have to ultimately look at time frame.
Forex Blog: I haven’t read your book, but I’m intrigued by the title: “Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange.” Are there any particular foreign exchange myths that are especially pertinent and that you’d like to share?
The thesis of my book is that US Dollar expansion strategy is more robust than friends and enemies insist. For example, I look at the current account deficit. People say it makes us poorer but I show that’s not really the case. People think that companies service foreign demand through exporting, but they should be looking at sales from US affiliates, which have been 4 times as much as exports. In other words, build locally sell locally.
Forex Blog: What is your advice for (forex) investors that want to beat the market during these uncertain times?
Well I think that forex investor is an oxymoron, but anyway, there is a misconception that traders win by being right more than they are wrong. I think you win through discipline. That means honoring your stops and limiting your losses. Entry and exit levels are less important than discipline.
I started looking at currencies around the time the Plaza Accord was signed, and since then, I can’t remember ever seeing certainty in the currency markets. You can make a case for bonds and stocks being connected with the business cycle, but the forex connection is more elastic, more variable. I think that this is an advantage for currency traders because it means they are accustomed to uncertainty.
The trend is your friend
Raise your hand if that phrase before have ever heard? Well, now there is proof that these well-worn phrase more than just a meaningless platitude: "Royal Bank of Scotland Group indices that track the performance of four of the most popular currency strategies show that it was this year at the so-called trend style to the most powerful method, the return of 7.3 percent until August."
"Trend-Style" trade is also known as trend-following and is just as it sounds. Dealer one-way pattern in particular currency Pair(s) to identify, and try to take as long as possible. Given all of the great movements in foreign exchange markets this year, it's no wonder that is trend-following the most popular. When the 52 weeks trading viewing areas for the six most popular USD currency pairs, you can see that highs and lows often as much as 20% apart. EUR/USD pair, for example, 20% higher than a mere fell 7 months. Who in December 2009 sold and bought would deserve an annualised return of 35% without leverage in June 2010 to cover! Even if you had taken a few months of depreciation would have shown impressive returns.In addition, could have acted euro back up from June to August and earned a 60% annualised unfolds Rendite.Bestes of all, both these trends (down, then up) very smoothly with only minor fixes on the way.
I'm sure your eyes are serious technical analysts roles, the chart above, but the point is, that trend-following was never, easier, and often more profitable than it is now. A Fund Manager summarized "trend following investors are the dynamics into several large currency capture moves." You now have with regard to inflation or deflation, which is typically currency markets and interest rates move so much uncertainty in the world. This is good for trend followers as it caused volatility, creates the generally good profits."In other words, there's an enormous amount of foreign exchange markets at the moment going and this is reflected in long, deeply moved in currency pairs which can only move direction without notice to change and still the opposite way." If you think that sounds obvious, look at historical data (5-10 years) for most currency pairs: while trends were always plenty, it was only recently that began last longer and more pronounced.
The other three strategies that respondents from the Royal Scotland Group ("RSG") were trade the carry trade, trade value and volatility.Unfortunately was offered data only for the carry trade strategy (confusing by RSG called the volatility strategy), which by 5.9% in the year to date includes sale of a currency with a low yield modified.system carry trade strategy and the favor one with a high yield and benefits from the interest rate. So this strategy must be profitable but the long currency either appreciate or remain constant. So if high - volatility, is already in the last 2-3 years - is this is a losing strategy.
We can only assume that a true volatility strategy would probably have been the second most profitable strategy. This strategy can positions by the use of long and short spot and implement trade with options and other derivatives. As I said, there is no shortage of volatility at the moment: "Since the collapse of Lehman Brothers in 2008, the dollar has seen record volatility against the euro... including six which moved by at least 10%." Merchants who benefit volatility, the current uncertainty has created a windfall situation.
It has however made value trade - based on fundamentals and the idea of purchasing power parity (PPP) - risky and unpopular: "volatility also made which would appear a simple bet against the dollar risk risky be."Three factors tend to move currencies: the pace of growth, debt and interest rates."Through these standards should the dollar against the currencies of emerging market and raw material will fall-producing Nations."Not only this is not the case that (to the dollar in a safe haven turns the a decline which has tolerance) but even bets on a lengthy dollar decline is risky because of the increasing Volatilität.Eine way, this is a dollar index (on an ETF for example) to act inherently less volatile (half as volatile to be exact) is as single currency pairs.
"This is not to say that value trade not profitable in the long run.""Empirical evidence suggests that currencies is... a show trend back restore PPP towards longer term."Given the current volatility/uncertainty, this strategy should uncertainty not chance to negate but profitable in the short term. Fortunately, and traders should strategy according to plot.
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Increased trade in emerging/exotic currencies
The long wait is over! The Bank for International Settlements (bis) has recently carried out the results of its triennial Central Bank survey of foreign exchange and derivatives market activity in April 2010. The report contains a treasure trove of data, perhaps enough, posted to analysts, until the next report is released in 2013. [Chart below courtesy of WSJ].
First the data confirmed earlier reports that Forex daily rose to a record in 2010 had: "Global foreign exchange market turnover was 20% higher in April 2010 than in April 2007 with average daily turnover $ 4.0 trillion to compared to $ 3.3 trillion." The increase was by 48% sales growth from spot transactions driven, represent 37% of the foreign exchange market."The increase in sales of other Forex instruments [mainly consisting of swaps and accounting for the majority of Forex trading activity] was modest at 7%."In addition, their trading activities since 2004 has for the first time, investors and financial institutions which accounted for a larger proportion of sales than banks, unchanged.
The composition of sales not really change from 2007, interrupt a shift that had taken place over the past 10 years. In particular the proportion accounted for the total turnover of the so-called majors actually increased in 2010 by 172% to 175%. [Since it two currencies in each transaction adds total volume to 200%].Growth in the G4 currencies (dollar, euro, pound, yen) was modest, but of 154% to 155% increases. This repentance is the investors from emerging markets currencies probably to the credit crisis and drove back in the safe haven currencies, namely dollar, Yen and pound (and in fact, still) due. However, this theory by the significant increase in euro trading activity, refuted that certainly benefited from the recent trend to risk aversion has not.
While emerging currencies like a smaller share of the overall activity, a group accounted for specific individual currencies managed to increase their respective shares.The Singapore dollar, Korean won, new Turkish Lira and Brazilian real all fit into this Kategorie.Noch other currencies such as the Indonesian rupiah and Malaysian ringgit, managed up to impressive gains but account for a small proportion of volume be too insignificant if you look at the total image. Those expecting even greater growth should remember that it is ultimately a numbers game: the height of the ringgit, which is outstanding exposed in the shadow, by the number of dollars, so that any profits that can the ringgit eke impressive. In addition, when you consider that the total Forex pie also rises, the nominal increase in the volume for these small currencies actually quite was great.
The constant search for the return in all corners of the financial markets is expected to bring more obscure currencies in the door. "In June, I started getting questions about Uruguay, Vietnam, and others," said win thin, senior currency strategist at Brown Brothers Harriman in NYC... investors frequently asked Mr thin questions to less well-known currencies such as the hryvnia and Romanian Leu. In the same article Mr thin, cautioned, however, that interest in such currencies in 2007-2008, for good reason is probably lower as is."It's emerging market currencies not like the Group of 10 or more liquid where, if you decide, you made a mistake, you get can."
Due to the lack of liquidity and higher spreads these obscure currencies are not really suitable for trading.It is of course a handful of institutional and even retail investors who want to make long-term bets on these currencies.You tend to more aware of the risk and less sensitive to the higher costs and lower Bequemlichkeit.Die overwhelming majority of the dealer code changes, however, your portfolio daily, if not hundreds of times per Tag.Eine 10pip, which would spread the USD/MXN (dollar / Mexican peso) as too high, let alone a spread 50 PIP on any transaction with the hryvnia.
Short said, will the majors represent, for the majority of trading volume for the foreseeable future, regardless of what the euro increases simultaneously that do not prevent a handful of selected emerging currencies as the Chinese Yuan, Indian rupee, Brazilian real, and Russian rubles (new), their share increase how liquidity passiert.Zur and spreads decrease, increase volume and their growing importance be self-fulfilling.
Wednesday, September 29, 2010
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Japan finally intervenes in foreign exchange markets
After months of speculation has the Bank of Japan (BOJ) intervene in the foreign exchange markets. Plummeted towards a fresh low compared to that entered the dollar BOJ quickly the market, driving the yen up 2% immediately. On the day it later finished 3% against the dollar.
Japan had been slowly towards intervention inching in recent weeks. [In fact, I was ready, a post yesterday on intervention is to write imminent, but that's neither here nor there...] The Minister of finance, Central Bank Governor, members of the Parliament and also the Prime Minister rise, and the need to be increasingly vocal control had started, about the yen un halting.It had already touched one 15-year high, and was only 4% way from his historic Tiefstand.Mit rhetorical intervention and its easy money policy which otherwise, to sway sold to investors the Bank of Japan an estimated 20 billion dollar value of the yen on the free market.
By no coincidence, the intervention was only one day after a parliamentary vote to see whether Naoto Kan would be replaced as Prime Minister. Ichiro Ozawa defeated and survived the challenge, Kan apparently was determined, good promise to save the economy from the brink an another downturn.(Only a few days earlier, he confessed "we are different conversations, conducting other countries will tell not negative things if Japan acts.") ("We are now different scenarios, examination of possible responses from markets, study if we to take decisive action.")
Response to intervention is mixed. On the one hand, the fact is that the BOJ so long waited in increasingly evidence taken this measure out of desperation. According to billionaire investor George Soros "Japan was correctly to act to bring the value of the yen. '"Certainly, they are hurting because the currency is too strong, so I think you are right to intervene. ' "Politicians and decision makers were on the other hand, not so friendly." A US Senator who is called the movement "annoying" and Jeanne-Claude Trichet, President of the ECB said it was "... appropriate emergency."
From these snippets it is clear that the intervention is unilaterally performed and no support from other central banks is missing. So, if the BOJ further sell yen, will so alone and maybe even among do open contempt of other central banks.At the same time it seems some credibility with investors, switch the yen for the time being off is sober, because the BOJ, have the yen as unattractive as possible by cutting interest rates and seeks to spur inflation.Whether investors will take the hint and stop and back to using the yen as a financing currency for the carry trade is still unclear.(Despite unravel significantly over the last two years, the yen carry trade nor may $ 500 billion).Japan has with China, to fight, who put upward pressure on the yen since has by buying Japanese bonds.
For that matter, it is not even clear whether the BOJ continue to intervenieren.vielleicht it wanted to view by only one message to investors to send that the yen at any time can weaknesses, will also would it a lengthy campaign be pressed, expensive to the yen and over the long-term to fail, because the BOJ 2003–2004 learned the hard way, and probably recalled the, by the Swiss National Bank the last error the BOJ the Franks to schwächen.Auf other hand, need investors to show that it is serious, and a "shock and awe" intervention campaign probably is the only real way to achieve this.
So either way, I think it's fair to say that betting on the yen this at your own risk do. while I do not think those that the yen is suddenly means going back to 100 JPY/USD, the fact that keeps my personal bets on it... are not nearly as great as that of the Bank of Japan I'm not inclined,
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CFTC passes new retail Forex policy
I have the U.S. commodity futures trading Commission's (CFTC) cover have been efforts to renew the regulatory structure that governs Forex, since it was introduced this year. On August 30 published the CFTC formally "final rules on off-Exchange retail foreign currency transactions." "The rules to implement the provisions of the Wall Street reform the Dodd-Frank Consumer Protection Act and the food, conservation and Energy Act of 2008, which together provide the CFTC register with broad authority and regulate entities as counterparties to or intermediate, retail transactions serve foreign exchange (Forex) want."
Not only the CFTC has clearly defined its authority for the primary regulator of retail Forex kept, but it has created specific provisions. Foremost among these is the limit to 50: 1 for the major currency pairs and 20: 1 leverage for "other retail Forex transactions." [It is not currently clear which specific currency pairs as major classified]. Keep in mind that the original proposal (which, together with my approval, violent protest generated) called a decline of leverage to 10: 1. Due to negative feedback from traders and brokers who attributed and argues that it offshore industry move malicious political motives, changes the CFTC would converted back down and only a modest decline in leverage.However, it is important to note that Futures Association (NFA) as well as the individual broker of discretion in less than 50: 1 leverage limits to setzen.Es to national undoubtedly some opposition from dealers, but I think we all agree that the new rule is a fair compromise.
As for the requirement that distributors would move their accounts offshore / be this will be largely irrelevant, since all brokerages will be required regardless of their nationality, to register with the CFTC and his rules/supervision.Of course those traders who are so inclined, will find "illegally" non-registered brokers by shifting the Fund still a way to circumvent the rules, but do so at your own risk and have no recourse in the case of Betrug.Wie Forbes mentioned, seems "it these new rules American Retail Forex offshore, to CFTC rules to circumvent trade will stop." "This trend that picked up the pace in the last years and it must undo may quickly."
Brokerages need as a Futures Commission merchants (FCMs) or Retail Forex traders (RFEDs) registrieren.Diese institutions are required which may preserve capital of $ 20 million plus 5% of the amount, net which liabilities to Retail Forex customers exceed $ 10 million."While this rule fires the barriers to entry for potential Forex-start-up brokerages, it will protect of consumers against broker bankruptcy.Furthermore, "who solicit orders, exercise discretionary trading authority or operate pools on retail Forex will also be needed to register either as introduction, brokers, commodity trading advisor, commodity pool operators (as appropriate) or as related parties customers."
A final rule change worth mentioning is quite interesting: brokerages must "disclose quarterly the percentage of not discretionary accounts, which realized a profit and to keep and to make available the records from this calculation."This calculation is useful both in and of itself, and also considerable discrepancies between competing brokers to identify sein.Zum first time we will be able to see whether Forex trading is currently profitable (i.e. whether those who benefit are in the majority or minority) and whether/how this profitability metric that changes over time in response to specific market conditions.
The new rules go on 18.October in force.
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CHF touches record high, approaching parity
In the year to date, trade has increased the Swiss francs more than 5%, 3% against the dollar and 15% against the euro on the basis of weighted. It recently touched an all-time low against the euro and is closing in on parity with USD. Since beginning of summer, the Swiss franc by collected incredible 15% against the greenback. I don't think I'm alone in scratch head in confusion wondering, what could be behind the franc's rise perhaps?
From this point everyone is familiar with the phenomenon of safe haven. Inspired by investors, capital in locales and investment vehicles, the less risky perceived be to relocate and basically concerns a double-dip recession have ignited a flare in risk aversion. Switzerland and by extension the Swiss franc have both benefited from this phenomenon: "Anxious investors seeking an oasis of fears about the health of banks in Europe, knocked the shares and peripheral euro area Government bond spreads later sent, dumped the single currency.""The Swiss franc benefits."Enough said.
At the same time the dollar and Japanese Yen safe haven currencies also apply, and as you can see from the chart below, hardly control.with traded the three at the same rate as other words, it must be to distinguish something the franc. Economists point to a strong economy: "gross domestic product by 0.9% compared to the first quarter when it increased by 1%. '" The underlying economy of Switzerland are very, very healthy. Concerns about deflation have subsided. ' "The consensus is that economy of close to 2% on the year will expand the Swiss."However, this is hardly impressive when compared with other industrialised countries. Moreover, Swiss remain low interest rates, which means that the opportunity cost of holding the franc is high. There must be something else happens.
In fact, it looks like the Swiss franc's rise is kind of self-fulfilling. For the most 2009 the Swiss National Bank (SNB) artificially pushed spent nearly $ 200 billion to the value of the Swiss franc. During this period of the Swiss franc against the euro remained stable and depreciated against the dollar and yen. Have finally broken "Line in the sand" of € 1.50, but is now quickly appreciate the franc. Why?Because the National Bank lost no longer any credibility hat.Es $ 15 billion (due to the euro depreciation) tries to defend the Franks, and afterwards the mission was a complete waste of time. As a result, is a new round of the assistance in question. The currency markets can also, new intervention released, and it seems, are to punish the SNB (via the Swiss francs) for even trying.
According to analysts, the markets have also come to see both the Swiss franc as a reincarnation of the Deutsche mark, due to his "strong economy, massive foreign reserve assets, traditional haven status and strong ties with the German economy."Those that fear of a eurozone would reduce and/or make exclusive bets on Germany are now as a proxy to use the Swiss franc.I personally do not understand the logic behind this strategy, but perception is reality, it's important to understand that other investors see the link, instead of seeing the connection for yourself.
In the future it is mixed the mood around the franc.An analyst warned clients, "I'd sein.Es afterwards to race too far in the short term care are a multitude of opposition out there."According to another analyst, "we expect that the Swiss francs remain strong in the Decade."Personally, I'm inclined to that page is a fundamental point of view with the former Gesichtspunkt.Von no lot move the Swiss franc to keep and his recent surge on fumes likely run expect wird.Am the very least I a correction in the near future.
Australia $ ebbs and flows with risk
If the history of the Australian dollar in the last 12 months in addition to the S & P-500 chart is the overlap vibrations. You can see from the chart below, the two lines zig and zag almost perfectly in unison. It seems that in the second quarter of 2010 was it a slight break, but this is an illusion, because the Aussie and S & p continues to rise and fall in the same pattern in this period time differ only in range.
Because the S & P-500 is a pretty good proxy for risk can it be said that this is the investor in the Australian dollar to a manifestation of risk appetite. If risk aversion was high, the S & p and the Aussie were low. If risk tolerance picked up, she rose. It's funny how it came to be.It is probably best as a holdover from the credit crisis, where investors equally separated assets into two classes: risky and safe.If consider the performance of the Australian dollar, is pretty clear which side of the dividing line was made.
This is probably fair as the Australian dollar of a growth currency is ist.entsprechend of just published Bank for International Settlements (bis) triennial Central Bank survey of foreign exchange and derivatives market activity, the Australian dollar now the fifth strongest currency traded (behind only the G4: dollar, euro, Yen, & pound), having usurped that position from the Swiss franc. In 2010, 7.6% (from a total of 200%) of all trade made it, mainly as a result of trading in the USD/AUD currency pair, the fourth was popular in Forex.
Investors have come, the Australian dollar in somewhat contradictory terms to see. It is stable and liquid, but its economy is unpredictable and inflation is generally above average. The current economic situation was strong, with GDP growth, more than 3% in 2010.Its benchmark interest rate (4.5%) is the highest in the industrialized world and touch 5% before the year past ist.Auf of the other hand, political situation is currently uncertain, thanks to a choice which produced a hung Parliament and the recent resignation of his Prime Minster. In addition, while its trade balance that is currently in the surplus fell in July thanks to reduced demand from China. Analysts question me, whether it is entirely dependent on China (exports) directly and indirectly on high commodity prices to generate not too positive GDP growth.
Ultimately, investors take care not to any of diesem.Sie only worry whether the global economy is stable and whether a further financial/credit/economic likely crisis.Although such a crisis will probably spare Australia, Aussie even the hint of the crisis is punished because Australia perceived as riskier than the USA, for example, to invest."The Australian dollar will be hard to stay not insecurity markets as" summarized JP Morgan.
Unfortunately it is not currently the nuances of trade statistics analyze value and monetary policy, because it makes my work easier no influence on the Aussie, but at least this has for the moment is the Australian dollar to check if it looks like the global economy (particularly in the United States) avoid a double-dip recession, wird.ansonsten it for the same rough stretch as of the S & P.
Thai baht rises to 13 weeks high
As I pack my bags and head to Thailand for a holiday (for Forex research purposes... yeah right), I thought, would it be appropriate blog about Thai baht's strength. The dynamics behind the baht was nothing incredibly short and as so often in the foreign exchange markets, the currency's rise self-fulfilling has become. It has already guessed 13-year high 8.5% last year towards one and some analysts are predicting that this just the beginning.
The last time I traveled to Thailand, 2004, trading was the baht around 40 USD/THB compared to the current exchange rate from 30.7.This is pretty amazing when you consider that for the meantime, Thailand behandelt.Und experienced a military coup and similar political instability as well as a financial crisis, a severe blow to the emerging market currencies of the world but, if the baht's performance against the dollar chart, would have only the faintest ideas that either this took place crises.
To be sure, the financial crisis provided a high tribute to Thai financial markets and the Thai economy. Schlingerte stock and prices down, as foreign investors cash currencies like the US dollar and Japanese Yen moved to so-called safe haven. However, was the Thai economy among the first to emerge from recession in 2009 and 2010 surging. "Compared with the previous year, GDP rose by 9.1%, while the economy grew 10.6% in the first half," according to the latest data.Tourism, one which has the country's pillar industries, already recovered, together with exports and Verbrauch.Projizierte export growth of 27% is expected the economy forward on 7, 5% in the year 2010, to drive both the IMF and the Thai Government projections. The consensus is that growth would have even more spectacular (maybe 1-2% higher) if not for the political protests that were crushed in May of this year.
Despite concerns about risk and volatility are foreign investors once again means in Thailand in a record pace casting. About $ 1.4 billion in the stock market has been pumped alone in the year to date. As a result, "Thailand's benchmark SET index has rebounded30 percent since May... helping send the SET to its highest level since November 1996."Capital inflows are also spurred is Thai interest rates rising (the benchmark is currently at 1.75%), even, while the rates in the industrialized world remain flat. At this point exceeds the money come in Thailand well the money out, which remains low due to the steady imports and limitations capital outflows of Thai individuals and institutions. This imbalance reflected recently surpassed $ 150 billion in the Central Bank of Thailand's foreign exchange reserves, more than 50% of GDP.
Anticipation is building that some use their reserves for Thailand, to stopped or reverse even the appreciation of the baht.After the last week, intervention by the Bank of Japan is seen not only as unacceptable but also necessary such intervention.Pressure which has Prime Minister the Central Bank take at least an emergency, to determine the best course of action einberufen.So far, can only approve members, restrictions on capital flows and credit standards to exporters should be relaxed.
Value for what is Thailand's richest man in the Central Bank not to be asked: "is probably fruitless as foreign capital is expected, that ceaselessly flood in Thailand because of the country's healthy economic recovery and growth to exportieren.Der baht as a matter of fact become even stronger Thailand policy in normal State should remain."He is supported by the facts that show that the Thai export sector just fine given the rising baht, although perhaps has stopped just because other Asian currencies at a similar pace increased.
If other central banks strengthen its intervention-(Deutsche Bank has argued on the chart below, all "Asian central banks have to prevent USD depreciation in this region for many years more or less permanently in the market who clear their currencies""stabilisation" "but with a bias against")-the Bank of Thailand would probably have no other choice but to follow.
Otherwise, it could be not long before the baht is 30 USD/THB deletes. my next post on the baht in 2015 probably in the form of a similar lamentation....
Saturday, September 25, 2010
Monitoring of central banks
To quantitative monetary policy easing Forex intervention the central banks of the world are pretty busy at the moment. Although the worst of the credit crunch past and the global economy has carefully moved into recovery mode, there is still a lot to do. Unemployment remains high, inflation is low and asset prices are on the verge of decline move. In short, central banks will continue to hog limelight.
In the field of monetary policy, central banks have started split into two camps. A Commons, consisting of the Federal Reserve Bank, European Central Bank, Bank of England, Bank of Japan and National Bank (whose currencies should it mentioned, is the most foreign exchange activity), remains frozen in place. Interest rates in all five countries/regions remain at the low point close to 0% in most cases.While the ECB benchmark rate apparently higher than others is set, its actual price is also near 0 %.Inzwischen has none of these banks guidance provided, that there will be prices hike end of 2011.
In the other camp, Canada, Australia, Brazil and a handful of other emerging market banks are central banks all have carefully move to hike rates on the basis of economic recovery. Among the developed countries, Australia (4.5%) now is at the head of the Pack with New Zealand (3%) in a distant second. Brazil's benchmark Selic rate at 10.75%, making it the world leader in (widely followed) the emerging markets.It's from Russia (7.75%), Turkey (7%) and India (6.1%), gefolgt.Die lone exception seems to influence the Yuan managed China, the artificially low prices. [More about below.]
Yet their revealed quantitative easing programs, none of the industrialized central banks on the peak of the credit crunch abgewickelt.Die fed balance sheet currently exceeds $ 2 trillion; its asset purchase program has driven Treasury prices and mortgage rates to record lows. The same applies to expand yen for banks from England and Japan, of which the latter actually moved its programme in a bid to hold. Meanwhile many credit lines, which the ECB to beleaguered banks and other companies are still and have expanded even in recent months.
Central banks in the foreign exchange markets have been particularly busy. The Swiss National Bank (SNB) was the first intervene and € a 200 billion spending to keep the Swiss franc, 1.50 € managed.As one of the EU government crisis, but the Swiss franc broke the pole and because at a record high against the euro gestiegen.Es not surprising has its the SNB abandoned their foreign exchange intervention program. Click threatened you throughout last year, that central banks from Canada, Brazil, Thailand, Korea, to intervene, but only Brazil has taken so far through a levy on all foreign capital inflows. Last week the Bank broke his of Japan 6-year period of inaction by intervention for the yen, which immediately rose 3% in motion. The BOJ has pledge to stay involved, but the extent and the duration is not clear.
Finally, the Bank of China allows to appreciate the Yuan for the first time in two years, but his pace has carefully controlled, to it in recent weeks the Yuan has picked up actually gentle auszudrücken.Klicken speed but critics to insist that it is undervalued.In addition, China has the Yuan rise against the dollar by its purchases of Japanese bonds, contradicted, that has spurred a rise in the yen.This is both ironic and counterproductive, global economic recovery: "da China grows by 10%, it can undermine exports and make increase by renting Yuan domestic demand faster appreciate against the dollar.""But China wants to tun.In of fact although China's State administration of foreign exchange deregulated the Forex market over night, should the measures some exporters your foreign currency operations for a year to keep private demand for US dollars, not Yuan boost."
The efforts that above listed have the impact of the financial crisis and the resulting economic downturn moderiert.Allerdings that banks have certainly found it impossible, a compelling recovery engineer, and at this point it probably not much more you can do. Accordingly many analysts are now your hopes on fiscal policy (despite his equally questionable track record) fixieren.vielleicht is the title of this post would have: monitors for Governments and their stimulus plans.
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