Tag Archives: Debt Ceiling

I came across a poll being run by the folks at BabyPips today. The question is "Do you usually trade using hedging, i.e. making the opposite trade of the one that is currently open?" When I checked on the results this morning it showed that 29% of respondents responded that they do indeed use this sort of "hedging" (though I couldn't see the actual vote count). This strikes me as a very high number, considering there is no economic benefit to this activity, and it can actually cost the trader money in the form of additional spread and carry costs. Maybe it's a function of BabyPips being largely a newer trader oriented forum.

In retail forex, "hedging" has long been a hot-button subject. When the NFA ruled that US brokers could no longer use that type of accounting ("hedging" in this fashion is nothing more than a method of accounting), it created something of a firestorm among traders. My No More "Hedging" for Forex Traders post at the time remains by far the most commented one on my blog, with strong views expressed on both sides.

Needless to say, this sort of "hedging" will not be among the risk management subjects I will be discussing in Wednesday's webinar. Instead, the focus will be on understanding volatility in the markets so one can be better prepared both for the risks implied and the opportunities it presents.

As a little bit of a taste, take a look at this chart.

What you see here is a comparison of daily volatility between the S&P 500 and the USD Index. The plots show the percent change for each market for each day, expressed as a positive figure (so a -1.5% would be plotted as +1.5%). As we can see, the stock market has moved around quite a bit more than the dollar has since the beginning of July, a time which encompasses things like the US debt ceiling debate and continued European sovereign credit issues. There may be a couple of sessions where the dollar was more volatile, but mostly the stock market moved markedly more than the currency index. That means on a strictly price volatility basis, the USD Index is quite a bit less risky than stocks. This is something investors looking for opportunities to diversify need to know.

From the aftermath of the debt ceiling crisis and the S&P downgrade to the release of the latest unemployment numbers, we’ve been busy counting the latest stories in the world currency markets. Check out our top picks of the week:

News on the S&P downgrade made headlines and many wonder what’s next for the U.S. economy. After a tumultuous week in the stock market, the CBOE Market Volatility Index rose 26 percent, marking a 29-month high. Some investors are stressing a need for new currencies and stock exchanges either in the form of a world economic system managed by the International Monetary Fund or cyber currencies. Meanwhile, gold futures soared due to the rating cut, reaching a record $1,697.70 an ounce. The U.S. Securities and Exchange Commission launched an investigation last week, asking Standard & Poor’s to provide information on employees who were informed of the downgrade decision before it was announced. Concern has once again risen for the European economic crisis as falling shares in French banks prompted finance and budget officials to search for new ways to trim public deficit. Employment numbers released last week show that U.S. unemployment benefits have dropped to a four-month low. These statistics have already impacted the currency markets; both the USD/JPY and USD/CHF have increased, which “releases the hot air” out of the franc and the yen. Japan continues to face problems with the rising yen, as the currency’s increase against the U.S. dollar leads to a cut in Japan’s export sales.

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

In the wake of the much-awaited U.S. debt ceiling decisions, we’ve had a busy week tracking down the top stories in the world currency markets. Check out the headlines that gave us the biggest bang for our buck:

Congress finally reached a deal this week to raise the $14.3 trillion debt ceiling, a decision that lessens the possibility of an immediate crisis but still poses some long-term risks. According to reports, investors may feel the impact of the deal due to increased market volatility and are encouraged to remain “defensive.” The market reacted with stocks down nearly 11 percent in two weeks, culminating in the Dow Jones industrial average falling 227.13 points Aug. 5 due to Standard & Poor’s “historic” downgrade of the U.S credit rating. Job numbers reported at the end of the week offered a glimmer of relief; recent reports show that in July the U.S. economy created more jobs than expected. Beyond our nation’s borders, Italian Prime Minister Silvio Berlusconi obeyed orders from the European Central Bank, promising that Italy will enact more reforms, including spending cuts. In return, the ECB promised to buy bonds, which sent the EUR/USD on an upward trend. Despite efforts by Japan’s central bank to force the yen lower, the currency continues to increase against the dollar and pose as an issue for Japanese companies.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

After an exciting week of record-setting temperatures here in the North East and breaking news in the world currency markets, here are some of the hottest stories we’ve been reading:

U.S. lawmakers are still working toward debt ceiling resolutions as the Aug. 2 deadline looms.  Results of the European bank stress tests haven’t alleviated the overall negative market outlook, as their failure to acknowledge the high possibility of Greek restructuring led many to disregard the tests’ usefulness. Additionally, financial stocks on Wall Street lowered this week due to investor nervousness about the stress tests and U.S. debt ceiling discussions. The latest numbers show a possible resolution for the European crisis may be to exchange individual government bonds for new euro bonds backed by the credit of the entire group of nations. In other news, a recent survey by Bank of America shows that 18 percent of asset allocators are overweight cash, a number up 6 percent since May and at its highest level in a year. Weekly U.S. unemployment claims reached 418,000, worse than the expected 409,000, and are having adverse effects on the already declining USD. Meanwhile, currency day trading now accounts for 8 percent of the daily volume in the $4 trillion foreign exchange market – quite a large jump for a market that only came into existence within the past 10 years.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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Here at Currensee, we’ve had another busy week tracking the top stories in the world currency markets. Check out what we’ve been reading:

European Central Bank President Jean-Claude Trichet has indicated this week that he may elevate interest rates in coming months and allow Portugal easier access to emergency funds in order to battle a looming economic crisis. Despite these expected rate increases, the euro continues to weaken. In other news, CLS Bank reports that foreign exchange transactions in June reached a record-breaking $5.12 trillion in volume, while hedge funds are still on the decline, with research showing that the average hedge fund was off 2.12 percent by the halfway point of 2011. In foreign-exchange news, NYSE Euronext shareholders voted this week and approved a $9.6 billion takeover by Deutsche Boerse AG of Germany. Meanwhile, Obama and congressional leaders will be trying again this afternoon to generate a new plan to raise the U.S. debt ceiling.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.