Edge Forex

Tag: inflation

  • Escalation of Turkey’s crisis may spread contagion

    The lira’s depreciation would exacerbate Turkey’s inflationary dilemma while also risking aggravating currency mismatches on bank sheets. Furthermore, rising external borrowing prices will make it more difficult for Turkish borrowers to roll over their external obligations (which are denominated mainly in foreign currencies).

    Examining Turkey’s gross external finance demand, which is the total of the current account deficit and short-term foreign debt, or, in other words, the capital inflows necessary over the next year, is one approach to demonstrate the gravity of the concerns. Calculated as a proportion of central banks’ FX reserves, and provide an indication of the extent to which the central bank can assist distressed borrowers.

    Foreign exchange reserves in Turkey barely meet around two-thirds of the country’s short-term external finance needs. And this is based on gross FX reserves; net reserves are far smaller.

    However, the probability of substantial balance-of-payments stresses appears to be far lower for most other important emerging markets. Argentina and Hungary may be the most concerned, but even in those countries, foreign exchange reserves will more than satisfy external finance needs for the next year.

    According to SARB rate indicators, the South African rand is weakening as a result of the Turkey contagion.
    South Africa’s rand sank on Thursday, weighed down by contagion from a dramatic collapse in the Turkish lira and signs from the home central bank that interest rate hikes will likely be slower than markets had anticipated.

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    At 1517 GMT, the rand ZAR=D3 was trading at 15.7050 per dollar, down about 1.4 percent from its previous close.
    The South African Reserve Bank increased its main lending rate by 25 basis points to 3.75 percent ZAREPO=ECI, which would ordinarily help the rand, but some traders were focused on the gradual rate path that the monetary policy committee appeared to favor.


    “The rate of policy tightening will most likely be much slower than the market had anticipated,” said Kieran Siney, co-head of financial markets at ETM Analytics.


    According to Razia Khan of Standard Chartered, the rand was dropping in sync with the lira TRY=, which fell more than 3% after Turkey’s central bank defied inflation of 20% by cutting interest rates by another 100 basis points.


    Johannesburg-listed equities fell, with the All-Share index.JALSH down 0.11 percent to 70,867 points.
    Investec INLJ.J, a financial services business, was an outlier, jumping 1.9 percent after reporting a more than twofold increase in earnings and announcing a 15 percent interest in asset manager NinetyOne N91.L will be distributed to shareholders.


    The government’s 2030 bond yield ZAR2030= fell 1 basis point to 9.455 percent, indicating a slightly higher price.

  • Forex Trading News -November 23, 2021

    Trading the JPY

    The Bank of Japan is heavily bearish. With Japan battling with deflationary pressures for years and a huge QE program. The Bank of Japan’s prognosis remains bleak.

    The fact that the Bank of Japan is projected to keep interest rates on hold while the rest of the globe is expected to raise rates has lately resulted in some heavy selling from asset managers and leveraged funds.

    With the BoJ so pessimistic, rate differentials between the Japanese 10y and the US 10y are normally only seen in the ebbs and flows of the US 10 y. Keep in mind that the Bank of Japan has yield curve control over its bond yields. So, here’s what you need to know:

    A dropping US 10-year yield equals a rising JPY. And a rising US 10-year yield equals a dropping JPY. 

    This correlation is not always ideal because it may ebb and flow, but it is something to keep in mind while trading the JPY, particularly the USDJPY. Take a look at the USDJPY chart below to see how it relates to the US10y. 

    Rising oil prices are negative for the JPY because higher-priced petroleum draws JPY out of Japan. Japan imports the majority of its oil from other countries. And a weak Yen will make those imports more expensive. If oil begins to rise in price, keep an eye on it since this might weaken the JPY.

    Eurostoxx

    Eurostoxx futures are down 0.7% in early European trade, early deals had softer tones.

    German DAX futures are down 0.6 percent; UK FTSE futures are down 0.4 percent. And Spanish IBEX futures are down 0.5 percent. This comes after a more modest performance yesterday, all before US markets took a knock as rates rose in response to Powell’s re-election as Fed chair, so there is some catching up to do ahead of the open today. 

    So far, the mood music isn’t as gloomy as European futures predict, but the risk is still slightly on the cautious side. As we seek to get things rolling, the S&P 500 futures are down 0.1 percent, the Nasdaq futures are down 0.2 percent, and the Dow futures are down 0.1 percent.

    Kaisa bondholders 

    According to a source with firsthand knowledge of the situation, certain Kaisa offshore bondholders who did not receive coupon payments this month have contacted investment bank Moelis & Company for advice on how to handle the situation. 

    For context, Kaisa has not paid coupons totaling more than $59 million that were due on November 11 and 12 (both having a 30-day grace period) and is facing another $400 million dollar bond maturity on December 7.

    An earlier Bloomberg article said that an ad hoc group of offshore bondholders had also sought legal counsel from Kirkland & Ellis. 

    As much as Evergrande is a household brand. It is important to remember that other Chinese property developers are also suffering similar challenges, and Kaisa is the business with the greatest offshore debt after Evergrande.

    Germany

    The situation with COVID-19 is “extremely, very serious” in various German states. No steps, including lockdown, can be ruled out. 

    This reflects last Friday’s viewpoint and simply underlines that local authorities are obviously being stretched to their limits in attempting to get a handle on the newest COVID-19 crisis.

    EUR/USD is approaching 1.1200, while USD/JPY is threatening to break over 115.00. The latter, in particular, is worth watching since it highlights the technical potential for the greenback and maybe yen pairings (if the mood is right) in the coming weeks. 

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    Looking at other markets, gold’s drop on Powell’s re-election is a significant setback to the recent technical breakthrough, but it was not unexpected. 

    The important daily moving averages around $1,792-93 are a place to monitor, although gold may drop down around $1,750 before any buying interest emerges.

    Aside from that, oil is one that one needs to continue to keep an eye on, and all this discussion of a coordinated SPR release, , is simply begging for a ‘buy the dips’ or ‘buy the fact’ play – even though there may be a kneejerk reaction lower initially.

  • Risk Management: What are the Trader’s Worst Mistakes?

    All About Risk Management

    Here are four blunders you must avoid at all costs while trading:

    • Do not Invest without a proper strategy.

    Emphasizing the necessity of having a trading strategy is simply not enough. Trading without a strategy is nothing more than a game of chance waiting for a terrible outcome. 

    • Diversify your trading portfolio.

    One of the most crucial aspects of investing and trading is diversification. It indicates that you don’t invest all of your money into one item; it’s important to diversify your portfolio. However, while trading Forex, a large number of pairings are connected. Your transactions may appear to be diverse, but they really coincide and will proceed in the same direction. If your analysis is accurate, you could gain a lot of money, but if it isn’t, you could lose a lot of money. Make sure that the deals you make during the day are unrelated.

    • Going overboard after a few wins/losses.

    Even if you have a risk-management strategy in place, you may find yourself in a situation where you feel compelled to go all in. It can happen if you’re on a losing streak and try to win it all back, or if you’ve had several winning trades in a row and feel unstoppable. In any case, if you do not adhere to risk management, you are placing yourself in a position to lose a lot of money. Stick to your management approach no matter what. Taking a 1% risk every trade and a 3% risk per day is advised. 

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    • Risking more than one can bear.

    This blunder stems from the previous one. It’s simple: if you lose more than 1% of your account as a result of a stop-loss, your risk management is incorrect, and you risk losing your account. If you lose several times in succession, your deposit may be forfeited. 

    To reiterate, trading is not only an exercise in analysis. It’s also about how you operate when you’re under pressure. And how you act when you’re on the winning or losing end of the game.

  • EURUSD Update For Oct 21st 2021

    Price EURUSD at the time of writing this – 1.1655

    Price EURUSD at the time of writing this – 1.1655
    The return of the Euro from 1.1617 to 1.1658 yesterday suggests that Tuesday’s re-test near the 3 week high of 1.1669 will take place soon. A violation of which will increase the rise (per our view) from October 1.1525 up to 1.1700- 05. However, ‘loss of upward pressure’ should limit the price below resistance to 1.1755 this week.  On the downside, only a daily close below 1.1617 indicates that the reversal is over, then the trend will turn bearish towards 1.1572 next week.

    Data to be released Today:
    Continuing jobless claims, U.S. initial jobless claims, existing home sales, e, Canada ADP employment change, leading index change, new housing price index, and EU consumer confidence.

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  • Forex Trading: WHAT IS FOREX?

    Forex trading is a term used to describe people involved in the effective exchange of foreign currency, usually for the purpose of profit or financial gain. That could take the form of speculators, who want to buy or sell money for the purpose of profiting through the price movement of money; or it could be a fence aimed at protecting their accounts in the event of a breach of their financial position.


    The term ‘forex trader’ can refer to each trader in the trading platform, a bank trader using their institutional platform, or hedgers who may be carrying their own risk or withdrawing that activity from the bank or financial manager to manage the risk on them.

    The foreign exchange market, or forex (FX) for short, is a low-level market place that enables the buying and selling of various currencies. This happens over the counter (OTC) instead of the intermediate exchange.
    Unbeknownst to you, you may already be participating in the foreign exchange market by ordering imported goods such as clothing or shoes, or, more likely, by buying foreign currency while on vacation. Traders can be drawn into forex for a number of reasons, including:

    1. FX market size
    2. Different types of trading currencies
    3. A different level of flexibility
    4. Low transaction costs
    5. Trading 24 hours during the week

    TRADE OF PAIRS
    One unique feature of the Forex market is the way prices are quoted. Because money is the foundation of a financial system, the only way to extract money is through other currencies. This creates a harmonious equation metrics that may sound confusing at first.
    Forex trading in pairs gives the trader some flexibility, allowing the trader or investor to express his or her trading in the currency he or she feels most appropriate.

    Let’s take the Euro for example, and let’s say the trader has good intentions for the European economy and thus would like to make long money. But – let’s say this investor is also strong in the US economy, but bearish on the UK economy. Yes, in this example, the investor is not forced to buy the Euro against the US Dollar (which could be a long trade of EUR / USD); and, instead, they can buy the Euro against the British Pound (long EUR / GBP goes).

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    This gives the investor or trader that extra flexibility, which allows them to avoid ‘missing’ the US Dollar to buy the Euro and, instead, allows them to buy the Euro while they are short of the British Pound.

    CHURCH TRADE: BASE V / S COUNTER CURRENCIES
    One important difference of the Forex rate is the meeting: The first currency listed in the rating list is known as the ‘basic’ currency of the two, and this is the quoted asset. The second coin is known as the ‘counter’, and this is the standard currency, or currency used to define the amount of the first coin for the two.

    LET’S TAKE EUR / USD AS AN EXAMPLE

    The Euro is the first currency on the scale, so the Euro will be the primary currency in the USD / EUR currency pair.

    The US Dollar is the second largest currency, and this is the currency used by the EUR / USD quote to define the Euro value.

    So, let’s say the EUR / USD average is 1.3000. That would mean 1 Euro costs $ 1.30. If the price goes up to $ 1.35 – then the Euro would go up in value and, basically, the US Dollar would go down in value.

    If an investor was bearish on the Euro but strengthened the US Dollar, they could choose to ‘shorten’ the two, expecting prices to fall; after that they could ‘cover’ the trade by buying it at a lower price, and then put the difference in the pocket.

    TRADE OF CHURCHES
    In short, the foreign exchange market works like many other markets because it is driven by supply and demand. Using a basic example, if there is a strong demand for the US Dollar for European citizens holding Euros, they will exchange their Euros for Dollars. The value of the US dollar will rise while the value of the Euro will decline. Keep in mind that this transaction only affects the EUR / USD currency pair and will not, for example, cause the USD to depreciate in the Japanese Yen.

  • Basics of Trading Psychology

    Whether it is forex trading or any other form of trading which involves highs and lows, the trader’s mindset plays a vital role in his moves. Abrupt and instinctive decisions may not be fruitful in the long run as it is not a lottery. Proper analysis and strategy are required to become a successful trader.

    Every move in the forex market will either benefit you or prove to be a loss for you. It can be quite stressful to handle all ups and downs but if you are really into trading and want to make it work, you should set up your mind in that way.

    Trading psychology involves all the emotions that a trader experiences when he is either about to make a crucial decision or when he has gained or lost in the market. The most prevalent emotions that every person dealing in trading will experience are fear, anxiety, nervousness, and greed.

    Fear is a constant feeling when you are trading either in forex or in shares. You don’t know what the coming time is going to bring you. You may make a decision and would be frightened about the results. This may keep you away from making the right decisions and giving all that you have learned a try. So, it is important to overcome your fears and make stable and sensible decisions. In our perspective, a person fears something he is not good at or something he is not completely aware of.

    We suggest you completely know about all the basics, the tools of technical analysis, and the various strategies that can be deployed in the forex market. Once you are aware of all the possibilities of your moves in the market, you will automatically observe that the fear recedes away.

    There are times in the trading market when you have to decide in a very short time. You don’t get to think for some hours, it is a matter of some minutes. In that case, you encounter feelings of nervousness and anxiety. When we have to make decisions in a very short duration of time, it is possible that we make decisions without thinking properly or maybe very instinctive decisions. We cannot completely avoid this situation and we need to get used to it.

    A trader should keep an eye on the market and the trends even when he is not placing an order. If you know what has been going on in the market before and you are already predicting some things for the near future, it becomes easier to make decisions in a short interval of time.

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    Greed and excitement are the two emotions that will arise when you think things are going well and will continue to go on a high note for some time. You may want to make the most of the time and exceed your limits. This is a situation in which you need to handle your emotions and stop yourself from incurring huge losses. A trader tries to buy more and more in such a situation and forgets about the counter effects that can have on his account.

    To handle this emotion, a trader should put a limit on the number of pips he can afford to lose and stick to it. Whatever comes up, always stick to the strategy you have formed for the long run. Making huge profits at once is not a viable expectation and one should believe in shorter steps and consistent profit rather than abrupt and huge profits.

    Awareness of the pros and cons is very important for a good trader. Even an experienced trader loses money at some time or the other, these outcomes should not have an impact on the confidence of the trader. Uncertainty is an unavoidable part of the forex market. A good trader should be mentally ready to incur any loss.

    While you place an order, do the analysis and look at both sides of the coin. Estimate the amount of profit you may get and then estimate the amount of loss you may have to incur. Do not make instinctive decisions hoping that the things will turn in your favor only, the reverse can happen as well. So, it is better to prepare yourself for the loss and then make a move. Profits and losses are like the two sides of the coin in trading. A good trader remains mentally stable regardless of the outcomes of his trade.

    A trader who is new to the forex market is most likely to incur huge losses if they are not proceeding with caution. Prevention is always better than cure. Most of the people move into the trading area with the thinking that they will convert their $1000 into $1000000 anytime soon. Some may make the mistake of investing all the input they have at once. All this happens due to a lack of experience and ambiguity of the basics of forex trading. Blowing up all your account balance just to make one trade is a big no. Look for a reasonable and sensible strategy and its yields before you starting making purchases in the market.

    Along with the basics and trend analysis of the forex market, a trader should learn risk management as well. There are many risk management moves and strategies that one should know about and follow. Using stops and limits and familiarizing yourself with the concept of leverage may be a good start.

    If you are new to the forex market, we suggest you set up a demo account for a while and get a good grasp of the market before you start risking money. Stay updated about the news and events to make wise and informed decisions.