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Sat, 27th May 2017

Anirudh Sethi Report

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Archives of “Currency pair” Tag

India : Forex Reserves Fall By $935.2 Million To $359.67 Billion

India’s foreign exchange reserves declined by $935.2 million to $359.671 billion in the week to December 23 on account of fall in foreign currency assets, the Reserve Bank said on Friday.

In the previous week, the reserves had fallen by $2.380 billion to $360.606 billion.

They had touched a life-time high of $371.99 billion in the week to September 30, 2016.

Foreign currency assets (FCAs), a major component of the overall reserves, dipped by $933.2 million to $335.970 billion in the reporting week.

FCAs, expressed in US dollar terms, include the effects of appreciation/depreciation of non-US currencies such as the euro, pound and the yen held in the reserves.

Gold reserves remained steady at $19.982 billion in the reporting week, the RBI said.

The special drawing rights with the International Monetary Fund decreased by $0.9 million to $1.427 billion, while India’s reserve position with the Fund too declined by $1.1 million to $2.290 billion, the data showed.

Bitcoin trade volume hits record in November

A record 174.7 million bitcoins changed hands, so to speak, in November, a 50% or so increase from the previous month’s trade volume, according to Bitcoinity.org.

The spike came as Chinese jumped into the digital currency as a way to shift their assets into dollars.

 The previous monthly record, which came in March, was 148.6 million bitcoins.

The November trading volume was worth $137 billion.

The yuan has been weakening against the U.S. currency since Donald Trump’s victory in the presidential election on Nov. 8.

Many Chinese evade restrictions on directly buying dollars by taking a detour into bitcoins. This is what they were doing last month.

Yuan’s swift fall fans currency tensions

The yuan is becoming a destabilizing factor in the foreign exchange market amid renewed speculation that China’s authorities would tolerate a weaker currency to support the economy.

The Chinese currency has been depreciating at a faster pace since the end of the National Day holiday period in early October, spurring speculation that it could even hit 7 to the dollar. The trend could throw the market into turmoil by triggering a devaluation war with other Asian currencies. 

 The Chinese authorities sought to hold the yuan’s depreciation in check during a recent string of high-profile events, such as the Group of 20 summit in Hangzhou. The International Monetary Fund also added the yuan to the basket of currencies that make up its Special Drawing Right. 

But now that things are quieter, the yuan has weakened sharply, hitting 6.7 to the dollar.

As the market eyes a possible rate hike in the U.S., the dollar is looking firm. On the other hand, China’s economic slowdown remains a worry. Under the circumstances, there is a growing view that the authorities are inclined to let the yuan fall.

Citigroup predicts the yuan could fall to 7, or even further, against the dollar in 2018. The U.S. bank is not alone: A majority of currency market players expect the yuan to decline against the dollar in the medium to long run.

Sluggish exports

The yuan has tended to move in the same direction as the dollar. When the dollar appreciated through last year, the Chinese currency also strengthened. As a result, the yuan gained value against the euro as well as the yen and other Asian currencies, eating into China’s export competitiveness.

When the dollar began to weaken this year, the yuan followed and depreciated against the yen and other currencies. Keen to avoid a more serious slowdown in the Chinese economy, the U.S. tolerated these trends.

Recently, however, the yuan’s depreciation has accelerated while the dollar appears to have bottomed out. Chinese authorities, evidently, are OK with this.

India’s foreign reserve hits record high at $367.76 bn

The country’s forex reserves increased by USD 989.5 million to an all-time high of USD 367.76 billion on the back of a healthy increase in core currency assets, the Reserve Bank said on Friday.
The total reserves had declined marginally by USD 392.6 million to USD 366.77 billion in the previous reporting week. The reserves had touched an all-time high of USD 367.16 billion previously.
Foreign currency assets (FCAs), a major component of the overall reserves, swelled by USD 952.2 million to USD 342.23 billion for the week ended September 2, RBI said on Friday.
FCAs, expressed in dollar terms, include the effect of appreciation/depreciation of non-US currencies such as euro, pound and yen held in the reserves. Gold reserves rose USD 58.1 million to USD 21.64 billion at the end of the reporting week, it said.
The country’s special drawing rights with IMF fell USD 8 million to USD 1.48 billion while the reserve position in IMF was down by USD 12.8 million to USD 2.39 billion, RBI said.

FXCM Doubles Yuan Margins, Warns Of Market “Disruption And Highly Illiquid Conditions”

Dear Client,
We believe there is a chance of disruption and highly illiquid conditions in the forex market during the coming weeks (and/or months). Please be aware that market gaps tend to occur over the weekend – that is, currencies trade at prices considerably distant from previous levels.

*IMPORTANT UPDATE*  

Margin requirements will double on the USD/CNH pair after market close on January 15, 2016. See a Complete List of New Margin Requirements

Please review your account to ensure that you have enough available margin to support any new positions. You may deposit additional funds at www.myfxcm.com or close positions as needed.

Follows the traditional disclaime which FXCM itself probably should have taken to heart one year ago when after the SNB’s de-pegging the firm suffered tremendous losses:

 Remember that forex trading can result in losses that could exceed your deposited funds and therefore may not be suitable for everyone, so please ensure that you fully understand the high level of risk involved.

The paradox here is that pre-emptive, if correct, warnings such as this one, tend to quickly become self-fulfilling prophecies as other brokers immediately follow suit and likewise increase margin requirements, which helps mitigate total loss potential but just as quickly soaks up liquidity from the market, leading to an even more fragmented market, prone to sudden, and quite dramatic moves.

The full list of FXCM margin increases is shown below; expect every other FX brokerage to promptly jump on the bandwagon.

FXCM Margin Update

Merkel’s ‘strong euro’ comments put currency investors on alert

German chancellor Angela Merkel and US president Barack Obama at the Alpine meeting

Now we know what Angela Merkel was probably saying to President Barack Obama as she spread her arms wide in that impromptu G7 photo from Bavaria last week.

“Do you have any idea how many German companies are suffering from a stronger euro? This many!”

Currency worries are on the German chancellor’s mind, as she made clear on Friday when she complained about the strength of the euro.

The deflation-racked eurozone economy has benefited from a sustained period of euro weakness. In May 2014 a euro was worth $1.40. In March it dropped to $1.05, and was projected to fall below parity.

But a sluggish first quarter for the US economy has delayed the Federal Reserve’s long-awaited interest rate rise and introduced a corrective tone to trading dollar/euro — the most active currency pair.

This has been welcomed by the many US companies that squealed about dollar strength in their first-quarter earnings — but resented by their European counterparts.

It is notable that the increasingly dire turn of events over Greece has yet to leave a negative impression on the euro, with the currency 4.5 per cent firmer since April.

So the German chancellor’s comments have put currency investors on alert, especially given that they came on the back of a denial by the White House that Mr Obama had been fretting at the G7 about a strong dollar.

IMF 2015 global economic growth forecast 3.5% vs 3.5% prior

IMF World Economic Outlook:

  • Update from the January forecasts
  • IMF 2015 global economic growth forecast 3.5% vs 3.5% prior
  • October projection was for 3.8% 2015 GDP growth
  • 2016 forecast raised to 3.8% vs 3.7% in January
  • Emerging market growth forecast of 4.3% unchanged
  • IMF sees US growth this year at 3.1% vs 3.3% in January
  • IMF sees US growth in 2016 at 3.1% vs 3.3% in January
  • IMF hikes India growth forecast to 7.5% this year and next from 6.3% and 6.5% in January
  • China forecast unchanged at 6.8% this year and 6.3% next but sees risks of further slowdown

The US dollar doesn’t like these numbers at all. EUR/USD fresh high at 1.0686 and cable rips to 1.4789.

UpdateLive video of the press conference with chief economists Blanchard.

October -Forex & Indices Performance

The Monthly changes of the USD against the major currency pairs.

The USD rose against all the major currencies with the exception of the AUD.  The greenback was strongest against the JPY (thanks to the surge higher today). The USDJPY increased by 2.45% for the month. The dollar was the weakest against the AUD.  For the month, the USD lost a small 0.62% against the AUD.  Overall, the changes from last month’s close to this month’s close was minimal as the currency consolidated after the trend move higher in September.   I would characterize the month as non-trending. Does November bring back more of a trend?

How did the other currency pairs do against each other?

If you add up the % changes for the major currencies against each other, the strongest currency for the month was the AUD.  The AUD was higher against all it’s counterparties, rising the most against the JPY (again, thanks to today). The AUDJPY rose by 3.06% for the month and this was the biggest % change for any major pair.

The weakest currency was of course the JPY. The JPY fell against all the major counterparties thanks to the surprise stimulation done today.  Apart from losing 3.06% against the AUD and 2.45% against the USD, the currency lost 2.27% against the NZD and 1.83% against the CAD.

The Stock Indices.

For the month, the stock indices had an up and down month. Overall, however, the US indices moved higher , European indices moved lower and the Asian indices along with the Australian market rose.

The largest % gain was in Australia where the ASX 200 rose by 4.42%. The US Nasdaq increased by 3.06%.  The biggest decliner was the France CAC index which fell by 4.15%. The Euro Stoxx index shed 3.49% for the month.

Société Générale’s Top 10 forex trade recommendations for the 2nd Half of 2014

Here are SocGen’s top 10 for the second half of this year. Verbatim.

1- Long USD, NOK and GBP vs CHF, SEK and EUR.

  • Easy money continues to support risk taking, but the FX carry trade needs to be selective, i.e. avoid trades where valuation is stretched (e.g. risk/reward in NZD/JPY isn’t great). This portfolio exploits central bank policy differentiation. An alternative is to be long USD, NOK and GBP vs JPY, CHF and EUR.

2. Keep short EUR/GBP to 0.78.

  • Maintain short EUR/GBP trade as UK economic recovery outpaces that in the euro area. Monetary policy divergence is widening. The ECB remains under pressure to ease as back-door QE has failed to boost growth and disinflationary pressures remain.

3. Mind the cable turning point

In 2013 ,Volume of foreign exchange margin trading in Japan hit a record peak of ($41.4 trillion)

sumoThe volume of foreign exchange margin trading in Japan hit a record peak of 4.27 quadrillion yen ($41.4 trillion) in 2013, 2.6 times the previous year’s volume. The foreign exchange market moved widely throughout the year as the government and the Bank of Japan embarked on policies to weaken the currency.

     The high transaction levels seem to have continued since New Year’s.

     The Financial Futures Association of Japan, consisting of forex operators and financial institutions, compiled the volume of over-the-counter foreign exchange margin trading in all currency pairs. The trading volume was 28 times Japan’s 2013 trade value (151 trillion yen), which combines the country’s export and import values.

     Forex investors, mainly individuals, are mostly selling the yen for other currencies. The yen was trading at the upper 80 level against the dollar at the beginning of 2013; it was at the 105 level toward the end of the year. Read More