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

NOV, 2009

Forex TradingOur 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.

Why ironically? Because FX is one of the faster-moving asset classes as far as execution, yet anecdotal evidence shows that even inevitability is always resisted (at least initially) by the human element; despite the advancement of technology, human resources is still the major component of influence in the world of currency trading and therefore can cause devlopments to move more slowly and more randomly than might otherwise be expected. For example, how many textbook traders would have expected the USD to remain so relatively steady during a bout of Quantitative Easing (QE), or simply put, printing money? The human factor cannot be underestimated because psychology must definitely have played a role in determining the USD’s floating market value, defying the odds against almost inevitalble devaluation. Players are buying USD even though algo systems and modelers may have specified QEto be a key component of a ‘sell‘ strategy.

Nevertheless, technological improvements are continuously underway and the topic of FX markets facing fresh regulatory issues in the U.S. and Europe may also have impacted recent psychology. This holds true despite obvious potential efficiency improvements that would be attainable in certain instances if people pushed beyond the limits human comfort zones. That‘s an issue not faced by the robots, black-box models or dark pools, which are emotionless and all about the price at a given point in time rather than what the price might be after an event.

The fanfare and buzz that continues to surround the asset class of Forex has been accompanied by reminders through observations and analysis that although entry into the Forex market perhaps rightly generates a great deal of excitement, developing and executing an FX plan efficiently is of far more importance than the speed of its completion. This theme is highlighted by the growing phenomenon of managed accounts and.....




Register for free to read full article


More in this section:

Forex: The World Cup Effect
JULY, 2010 By Kevin Sollitt 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. According to wide-ranging conversations we’ve had with global partners, the stabilisation of trading conditions could not have come at a better time due to the ...<read full article>

So far, so good for USD and LatAm currencies in 2010
MAY, 2010 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 absen...<read full article>

First Quarter Outlook for Real, Argentine and Mexican Peso
NOV, 2009 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 ye...<read full article>

"Special FX": Forex themes as 2009 draws to a close
NOV, 2009 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 atte...<read full article>

Whats behind the moves in Foreign Exchange markets?
JULY, 2009 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 p...<read full article>

Alternatives for executing Foreign Exchange for Institutional Investors.
JULY, 2009 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 th...<read full article>