Forex

Forex: The World Cup Effect

When the last issue of ALI was released market conditions warranted a pause for those involved in FX markets. A timely respite has been provided by the World Cup soccer tournament, evidenced in part by a drop in implied volatility from 19 percent to 14 percent over the first couple of weeks in June.

So far, so good for USD and LatAm currencies in 2010

By Kevin Sollitt

Contrary to popular opinion, the USD has continued to strengthen against most major currencies in the first four months of 2010. The main reason for this seems to be the sudden risk-aversion towards the Eurozone as the “PIIGS” (Portugal, Ireland, Italy, Greece and Spain) crisis dominates sentiment. Reserve asset managers and sovereign wealth funds that were clamoring to buy the Euro at the end of 2009 are apparently nowhere to be seen, according to some reports.

This absence of official buyers may or may not be true but for sure it seems that the evolution of the global FX market will in any event ultimately dictate that the world needs more than one reserve currency and once the dust has settled and markets focus on the next crisis (American debt levels?) that second currency of choice will most likely be the Euro, at least for now.

For that simple reason, aided by the fact that Greece comprises such a small part of the Eurozone as a whole and that the issues seem to be relatively in hand with the German & French cooperation in arranging an IMF facility if needed, we suspect the Euro may stabilize around 1.33 and even recover to around 1.41 over the next few months.

First Quarter Outlook for Real, Argentine and Mexican Peso

By Kevin Sollitt

Our last article reviewed the roller coaster that was 2009 and many of the core themes that influenced FX market pricing and movements throughout the year. Based on further observations our analysis to date indicates that thematic overtones such as liquidity, behavioral unpredictability of the ‘human element’ and over-reaction to basic fundamentals are likely to keep FX market participants firmly entrenched and involved in what could be another dynamic yet unpredictable year ahead.

January was reasonably quiet although did show the unwinding of one major recent trend as many currencies came under selling pressure, resulting in a generally unexpected bout of USD strength against most currencies, especially towards the end of the month. Interestingly, the Dollar strengthened on risk-aversion in some cases and on generally better-than-expected US data in others, as employment deterioration showed signs of slowing drastically.

The Euro in particular came to a sticky end (at least during this one-month time frame) leaving many participants wondering how the EUR could have fallen so relatively precipitously; from 1.50 in December to 1.38 in January, around 8 percent in just over a month and quite a significant move given unchanged interest rates at close to zero in both regions. 1.3500 should provide support, if indeed the Dollar manages to rise that far.

"Special FX": Forex themes as 2009 draws to a close

Our last article focused on the widespread impact of change engineered by ongoing challenges to conventional wisdom and considered various trading styles that have subsequently evolved due to increased volatility and price turbulence within FX markets.

Not much has altered since although it’s fair to say markets have calmed down somewhat as players mull financial and behavorial effects to date on business conditions. With a degree of stability returning, players are turning their attention toward the debate on future expectations for FX market conditions, for example attempting to understand the increasinglly elevated status of and need for non-deliverable forward contracts and potential deregulation of ‘minor‘ currency markets as the currency world slowly, perhaps ironically, evolves

Whats behind the moves in Foreign Exchange markets?

Since August 2007, sporadic volatility and price turbulence witnessed by FX markets in the ‘established’ global market place have seen conventional wisdom & perceptions consistently challenged in unpredictable fashion, with wild swings in daily currency trading ranges raising questions on whether the giant pools of liquidity traditionally offered by the G-10 countries are of sufficient depth & maturity to withstand such constant barrages that may lead to more actual and potential systemic financial shocks.

These ‘major’ markets have always been perceived to be ostensibly positioned, able and more importantly willing to pave the way forward for the future growth of other vital yet (relatively speaking) peripheral markets of Latin America, at least from the standpoints of market pricing and available orderliness-it seems clear that any further jeopardy to overall stability is both counterproductive-and risky-for all involved

Alternatives for executing Foreign Exchange for Institutional Investors.

By Francisco J. Heredia | Boston Global Associates

This piece is intended as a primer for institutional investors new to the foreign exchange market. This market is very complex and its participants and their needs substantially differ from one another.

For most institutional investors (other than the ones with dedicated staff) the execution of their foreign exchange (FX) is an afterthought. Unless, you have been trading global securities for some time and you are comfortable with the magnitude of the market’s volatility. When there is the need to purchase or sell currencies for the purpose of hedging or funding a primary trade, foreign exchange becomes a derivative, a secondary trade. A derivative that’s not as important to their primary investing objectives. There are investors that do not have a dedicated team to follow the currency market and are willing to give up the trades to their custodian, equity or fixed income salesperson to execute on their behalf

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