Tag Archives: Fed

In the end Wednesday, the markets got just about what was expected from the FOMC and Fed boss Ben Bernanke. While a certain notable French bank who shall remain nameless (OK, it was Société Générale) came out with 70% odds of a $600bln round of new quantitative easing (aka QE3), that was an outlier view. Most folks in the fixed income and forex markets (we don’t pay much attention to the stock guys :) ) were looking for a continuation of the Operation Twist program in which the Fed sells short-term treasuries it owns and buys longer-term ones.

These expectations are why in the end the various global markets basically just continued on the course they had already begun earlier in the day, albeit with a little volatility after the FOMC statement and into Bernanke’s press conference. Following the extension of Twist, the Fed chief’s comments about standing ready to do whatever may become necessary were predictable. He’s been saying that for some time now. Why not? It’s true. It’s always true. The Fed will do what it thinks it needs to do when it thinks it needs to do it. Folks seem to read QE3 expectations into that every time he says it, though.

To that end, it occurred to me yesterday that the folks who keep calling for QE at the next FOMC meeting are kind of like the folks who set dates for the end of the world, then when it doesn’t happen they revise to a future date.

The thing that had me sure there was no QE3 coming this week was a comment Bernanke made a little while ago that he was seeing no signs of deflationary risks at present. Deflation risk was a big factor in the justification for QE in prior rounds, so if he’s not seeing that risk now, the odds of QE3 drop despite economic developments. Now, the Fed forecasts released yesterday did feature lower inflation expectations, but nothing leaning toward deflation. That will be something to watch morning forward.

At this stage, the bigger issue at hand is going to be the value of the signals coming from the Treasury market. As I wrote a couple weeks ago, the Fed already owns a large portion of outstanding long-term Treasury paper. The extension of Twist is only going to make that share grow. The bond market guys I work with say basically the Fed will be buying all of the long-dated paper the Treasury issues for the rest of the year. This is going to further shrink the “float” of long-dated securities, which could make the likes of US 10yr yields even more volatile because it will take increasingly smaller volume to move them around.

Considering how correlated USD/JPY tends to be to those rates, the higher volatility in yields could make for some interesting action in that exchange rate. Notice in the chart below how much time the correlation between the two markets is positive and how even when it turns negative it is just briefly and only marginally so. If the 10yr yield becomes less valuable as an indicator due to the Fed’s dominant holdings, we could see the relationship between it and USD/JPY breakdown.

Operation Twist Chart

Also, things could get interesting on the short end of the yield curve as well.

The Fed normally holds a lot of short-dated Treasury paper which it uses in open market operations to keep short-term yields in line with policy. The Twist operation has already seen a lot of that paper sold as the Fed has bought long-dated securities. The expectation in the bond market is that the Twist extension will result in the Fed not having any shorter-term paper left. That could create some interesting dynamics at the front end of the yield curve. Considering how important overnight interest rates are to currency exchanges rates, there is the prospect of some periods of unusual activity in the months ahead. As a result, it will be worth keeping track of what the Fed is doing.

This is one of those times when understanding structural elements of the markets can be important.

 

Back in March I penned the post Gold is not glittering so much these days which made the case that gold was not performing very well and had some significant downside risk. With all of the risk aversion we have seen running through the markets of late, the question has come up as to why gold hasn’t been more of a beneficiary and why money isn’t flowing into that market as it had done before when the markets have gotten really nervous. I think there are two ways to address that.

Not as much fear as in prior times
As much as things have gotten crazy in the markets at different points of late, they haven’t been as bad as you might think. Yes, we’ve seen interest rates moving rapidly, especially in the Treasury markets. That, though, can be at least partly explained by Fed ownership there as I discussed last week.  And yes, other risk markets have taken losses. Things haven’t gotten too bad in the stock market, though. If the markets were really fearful, we’d see stocks being sold aggressively as well.

No money printing by the central banks
The big thing that drove gold in its long uptrend was the money being printed by the central banks such as the Fed and Bank of England while doing their quantitative easing programs. We are not seeing that sort of activity anymore (despite some calling for it). It is important to note that programs like Operation Twist where the Fed buys long-dated Treasury securities and sells short-dated ones does not expand money supply. Gold has basically gone sideways since QE 2 ended last year.

Flagging participation
In my previous gold post I noted that open interest in the front month gold futures contracts had declined, indicating that fewer positions were being held in the market. Also, the volume pattern had changed from surges on up moves to surges on down moves. Both of these patterns have continued in the last few months.

What’s interesting in all this is that gold is clearly sensitive to money supply issues, but hasn’t reacted positively to the talk in the markets recently about central banks doing more policy easing. That suggests two potential conclusions. The first is that the gold market doesn’t really buy the idea that the Fed, BoE, ECB, etc. will be doing big money supply expansions as were done previously. The second is that gold got ahead of itself when it rallied previously, so doesn’t have it at this point to start moving up again. And maybe both factors are part of the story of flat gold.

Looking at the prospects
If anything, I think gold looks worse now than it did when I wrote about it back in March. I said then that the 1500 level was key and that continues to be the case. If the market falls through there we could see a long-term downtrend play out. The interesting thing to watch there is whether the open interest starts rising as the market falls. That might indicate shorts coming in.

In the mean time, the USD Index cup-and-handle pattern I wrote about last month has been broken, creating a strong upside prospect for the greenback. That’s not the sort of thing which tends to be supportive of gold on general principle.

A few days I ago I wrote a blog post suggesting that we need to be careful reading too much into low Treasury yields.  I’d like to take a little time here to expand on my comments from that piece.

There has been a lot of talk about new historic lows in long-term US yields. We’ve clearly seen a break below the lows put in back during the financial crisis when 10yr yields approached 2% but didn’t break below. As the chart following shows, that break finally happened in 2011, and we’ve since see the market move down to near 1.50%.

The thing that doesn’t get mentioned in all the talk about rates being so low is how much of the long-term Treasury issuance the Fed is holding. The Fed went through two rounds of quantitative easing (QE) where it bought Treasury and mortgage securities. It has been running Operation Twist for the last several months whereby it sells short-term Treasuries (think T-Bills and short-term T-Notes) and buys long-term securities. That’s helped bring the yields on 10- and 30-year securities down.

It is important to keep this in mind for two reasons. The first is fairly obvious. Operation Twist is set to conclude at the end of June. That would remove a major buyer from the market, reducing demand for long-dated Treasuries. Much debate these days revolves around whether the Fed will react to recent weaker economic data to either do more Twist or to initiate QE3, or some other type of easing effort. There are folks looking for something to be announced coming out of this month’s FOMC meeting, but the comments from Fed speakers recently haven’t leaned in that direction (though certainly we could see a change of tone).

The second reason I think we need to keep all the Fed buying in mind is the size of the holdings in long-dated Treasuries the central bank has built up. It’s substantial. The numbers I’ve seen indicate the Fed currently owns about 21% of the total issuance of Treasury coupon securities (T-Notes and T-Bonds). There are fewer long-dated Treasuries outstanding, though, so as you can see from the table below, the Fed actually owns a larger fraction of those securities.

What happens when you shrink the float of a tradable security?

If you answered bigger moves and greater volatility then give yourself a prize. Why? Because when there is less of something available to trade, but volume isn’t reduced on a comparable basis, the market will move more rapidly, both up and down.

Now think about what happens when markets go into “risk-off” mode, as we’ve seen happen lately.  You have a large amount of money flowing into a market which has fewer securities available to purchase. Increased demand combined with decreased availability means rapid price appreciation in those securities, and thus rapidly falling yields. That’s why one needs to be a bit cautious when viewing the recent market moves.

So where from here?

Well, it’s going to depend in part on what the Fed does. Does the central bank continue buying enough long-dated paper to maintain (or increase) its fractional holdings? Or does it stop once Operation Twist is over and hold pat with current holdings, or buy at a slower rate?

The more explosive scenario where yields are concerned is a combination of the Fed slowing or halting its purchases and the risk aversion bid coming out of Treasuries. The Treasury isn’t going to stop auctioning new debt any time soon, so we would end up with greater supply and decreased demand –both from the market and the Fed - that could send rates soaring.

Even if the Fed does keeping buying, the reduced float means we’re likely to continue to experience above volatility jumps on risk-related events for the foreseeable future. The impact of a decline in risk aversion would be a little less impactful, though, because the Fed would still be a demand factor.

The yen is an enigma to many forex market participants. It doesn’t trade like the European currencies, nor does it move like the commodity currencies. Oftentimes, it trades against the dollar the opposite way we would expect given the broader market actions.

There are a lot of things that go into yen trading, like the fiscal year-end in March, that make it unique. That has been furthered along in recent times by the aftereffects of the earthquake. This is all within the broader context of an economy that has struggled to do anything for many years now, with little prospect of reversing that any time soon. The low Japanese interest rates as a result have kept the yen at or near the top of the list of favorite currencies to borrow for carry trade purposes.

We saw a lot of the Japanese bugaboos hit the yen hard during the February/March period when USD/JPY rallied from testing 76 to the downside to probing 84 on the upside. That came after many months of the market going sideways at a time when the markets were looking at the US economy improving, which was supporting the dollar.

As you can see from the chart below, the weekly Bollinger Bands got VERY narrow as a result of the long consolidation. The rally since the range break has taken the Band width in the opposite direction, getting it to near its highest level in the last couple years.

USDJPY Chart

The market has obviously since retraced some of the rapid rally, thanks in part to weaker US economic data starting to get traders thinking the Fed may decide it needs to act to further loosen monetary policy. We’ll find out this week just how far down the path that thought really has gone. In the mean time, we have an interesting technical picture.

I’ve added two lines to the weekly chart which represent important levels for the market from here. The upper one is the high from April of 2011 above 85. The lower line is the high from late October and early November that should now be support. Those create a very good set of bounds between which the market can consolidate while the Bollinger Bands work back toward at least a more normal width.

Drilling down a bit, it is worth looking at the price distribution charts to fine tune the analysis. The chart below features monthly distributions (based on daily moves). Where they are thick, the market has spent the most time. Call these attraction zones. Where they are thin, the market hasn’t spent much time there at all. Call these rejection areas.

USD/JPY Chart

This month USD/JPY moved down to test the price level from February where the market spent the most time (though granted, not very much because of that month’s trending action). The market has bounced from there, essentially rejecting what should have been a good attraction area. As this was also above the peak from Q3 last year, it can be considered an indication of strength. As a result, I like the prospects for the market to work back up toward recent highs. That is perfectly reasonable, even within an overall consolidation.

So what’s the implication of this?

Well, if the market just shifts into consolidation for a while then I think it probably just indicates a market that overreacted to the recent softer US data (especially the jobs report). If USD/JPY eventually extends the rally from 76 to break the April 2011, it will probably do so on the basis of a combination of the concerns about US growth abating but the same not being the case for Japan. The limiting factor, though, is the trade imbalance. If the US economy strengthens sufficiently to increase import demand, that will eventually flow through to benefit the yen.

 

Our Two Cents – Week of 4/16/12

The Boston Marathon has finished, the scorching weather has departed and another week has past. While cheering on the runners battling the heat—and Heartbreak Hill—during the 116th Boston Marathon, the financial markets also made a dash for themselves.

In the U.S., consumer confidence held to a four-year high as more Americans said their finances were in better shape. The Bloomberg Consumer Comfort Index posted minus 32.8 in the period ending April 8, second only to the prior week’s minus 31.4 as the highest since March 2008. Strong U.S. retail sales fueled economic growth in the first quarter, and analysts are optimistic that the economy grew at an annual pace of at least 2.5 percent during January-March. Also, the U.S. Federal Reserve said the country’s economy continued to grow at a steady pace since February. According to its latest national economic performance survey, the central bank said five districts, including Boston, reported moderate growth.

In the alternatives, hedge funds are rebounding in 2012 as investors have put more cash into hedge funds during the past month, according to GlobeOp. Now four months into 2012, hedge funds are off to their strongest start since 2006, with the average fund gaining nearly 5 percent in the first quarter of 2012. In 2011, more than 1,100 hedge funds launched, according to Hedge Fund Research.

In the eurozone, industrial production has risen for the first time since August 2011, showing signs of revived economic life for the region.

Strong retail sales ease growth worries, Reuters, April 17, 2012
Hedge funds attracting cash in 2012 rebound, Reuters, April 13, 2012
Consumer Comfort in U.S. Held Last Week Near Four-Year High, Bloomberg, April 12, 2012
US economy grows at steady pace: Federal Reserve, The Economic Times, April 12, 2012
New Sign of Economic Life in the Euro Zone, Institutional Investor, April 12, 2012
Hedge Funds Off to Best Start in Six Years, Wall Street Journal, April 11, 2012
HFR: Over 1,000 Hedge Funds Launch In 2011, FINalternatives, April 10, 2012

 

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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.

I threw the question of what I should write about this week to a former manager of mine who was a forex dealer back in his younger years and now makes a living telling folks what’s happening in the markets. He tossed back a surprisingly good question:

How can technicals be relevant when central banks are trying to manipulate the market- BOJ with USD/JPY and SNB with EUR/CHF?

I’m sure this is something that others have pondered as well.

Here’s my view on it – speaking as someone who is very much a practicing technical analyst.

Currency intervention by a central bank or other monetary authority (in the US intervention is directed by the Treasury, though it’s executed by the NY Federal Reserve Bank) is just another news item or event that influences exchange rates. Those of us who’ve been around the markets for a while have seen a great many dramatic market reactions to all kinds of developments. Some of them have been triggered by data releases. Some have been driven by news events. Some have been caused by speakers. And some have been the result of intervention action. Heck, some of the moves have come just from the suggestion of intervention without it actually happening.

In other words, intervention is just one more thing that is reflected in the price action we see on the charts. Furthermore, it’s also something that is incorporated into the market’s expectation of the future as part of the price action we’re seeing now. The more market participants anticipate intervention, the more they will factor that into their trading and by extension the more it will influence the price action we see. It works in the same way that stock traders will price in anticipated share buybacks or weak earnings. All markets are discounting mechanisms in some fashion or another, and we can analyze the patterns that are developed in the price action through that process.

So, from my perspective, I don’t view technicals as any less useful in a market where intervention may happen. I use the same methods I would in any other case.

Now, having said that, intervention certainly presents the potential for a major volatility spike on the event (or even the hint of it). If your trading strategy or market analysis is ill-suited to that kind of thing, then while that risk is in the markets you may be best advised to either change the pair(s) you trade or to lengthen your trading time frame out to one where sharp intraday moves aren’t so much of a concern. Alternatively, you could adjust your risk so that you have less exposure for trades going against the likely direction of intervention (like when going short USD/JPY if you think the Bank of Japan is going to sell yen). The analysis doesn’t change, but how you then use it does.

 

Even if one is a short-term trader, it is worth taking a look at the longer-term chart from time to time to see how things are developing in the higher time frames. My daily work has me usually focusing on daily and intraday charts, but now and again I’ll flip over to the weekly chart to gain that broader perspective. The thing I noticed today was an interesting development on the weekly USD Index chart.

As you can see below, the Bollinger Bands in that time frame have been getting progressively narrower since about the first part of the year. They are now very narrow. In fact, on a relative basis (as shown by the purple Band Width Indicator sub-plot) they are as narrow now as they got late in Q3 last year. Notice what happened then.

USD Chart Bollinger Bands

Since the USD Index is heavily weighted to the euro, we basically see the same narrow-Band situation for EUR/USD as we do for the index – just with the chart inverted.  We see similar tight Bollinger set-ups in GBP/USD and USD/CHF, which isn’t too much of a surprise given how closely related those currencies are from a fundamental (and central bank) perspective these days.

The interesting thing, however, is that once you get outside the European currencies the story is different – considerably so in some cases. The narrow-Band situation actually produced a major breakout in USD/JPY earlier this year. Now we’re seeing the market consolidate after its powerful rally.

JPY Chart

In the case of AUD/USD, we’ve got a market basically working through a sizeable range that’s been working since the highs were put in last year. We’re now seeing the market having turned down from its latest swing up, looking quite like it’s headed back for the bottom of the zone.

AUD Chart

If we flip AUD/USD over we get a pretty close approximation of how USD/CAD has traded. There difference, though, is in the recent action. Where the Aussie has been selling off, the Loonie has been holding steady over the last couple of months.

CAD Chart

So what does this all seem to say?

My interpretation would be this. The relatively better performance of the CAD vs. the AUD is indicative of at least the perception of the situations with the US and China respectively. These currencies are seen as closely linked via trade to their large neighbors, so as the US data has gotten better, the CAD has been supported, and as the China data has disappointed, the AUD has weakened.

Japan is largely its own situation. There is certainly some impact from China there, but mainly the yen trades as a function of two things. One is the stagnant economy in Japan, which is showing little sign of doing anything any time soon. The other is US interest rates. The correlation between USD/JPY and the US 10yr yields is quite strong as higher US rates make the yen more attractive as a carry trade funding currency than the dollar, plus more attractive for investment returns.

Then there’s Europe. To my mind, the ranging we’ve seen in the major pairs there is reflective of the markets getting a handle on where everything stands. We’re basically waiting on the next meaningful development. My guess at this point is that will have more to do with the US than it will Europe. I say that because the market seems to see the Eurozone issues as pretty clear with little change expected out of the ECB for a while. If anything the leaning is toward further loosening of policy by that central bank.

In the case of the US, though, the situation is on more of a knife’s edge. As we saw from the reaction to the FOMC meeting minutes Tuesday afternoon, there have been a number of market participants looking for another round of QE3 from the Fed (including the likes of Goldman Sachs). At the same time, though, we have others who see the US on a good sustained growth path. The USD is likely waiting to see which side is going to win that argument. How the USD Index moves out of its current consolidation will be indicative of which way that fight ends up going.

 

The seemingly endless turmoil in the euro-zone virtually ensured that 2011 would prove to be a difficult twelve months for investors in risk assets.  Indeed, the increased stress evident in the region’s sovereign debt and bank refunding markets in recent months – alongside growing concern that the single currency might unravel – is the primary reason that the developed world’s major stock market indices failed to stage a meaningful recovery off the cyclical bear lows registered in the autumn.

Stock markets climbed higher during the spring and managed to retain their positive momentum in the face of higher oil prices – precipitated by political unrest in the Middle East & North Africa.  However, the heightened appetite for risk struck a speed-bump towards the end of April, as a long string of negative economic surprises in the U.S. – just as the Federal Reserve’s second round of quantitative easing neared an end – caused fears of a double-dip recession in the world’s largest economy to resurface.

Stock prices in the developed world and elsewhere duly registered a bear market decline of more than 20 per cent but, just as investors’ recession fears subsided and the world’s major bourses began to stabilise, attention shifted across the Atlantic to the deteriorating and seemingly hopeless position facing the Greek government, which had seen its economy plunge into a severe downturn on the back of the harsh austerity programme prescribed by the so-called troika.

The Greek crisis and the turmoil precipitated across the euro-zone prompted Europe’s slow-moving leadership into action, who reluctantly announced to the world in September that they had just, “Six weeks to save the euro.”  The disturbing rhetoric was duly followed by the fourteenth summit in less than two years and, the third comprehensive attempt this year alone, to quell the rumbling debt crisis that continues to question the viability of the region’s monetary union.

The proposals agreed to at what was dubbed the, “summit to end all summits” were received enthusiastically by investors at first glance but, upon further reflection, the measures were deemed to fall well short of what was required to draw a line under the crisis.  A wave of selling followed and, the stress that was once confined to the sovereign debt markets of the miscreants in the monetary union’s periphery steadily moved inward to infect the core, and even a supposedly blemish-free Germany did not manage to escape investors’ wrath.

The tension continued to mount and the growing sense of panic among the international community was palpable as the realisation that a disorderly break-up of the single currency could no longer be considered a trivial probability dawned on observers.  Not surprisingly, all eyes were focussed on the latest gathering of the European Union’s political elite in Brussels towards the end of last week.

The latest summit to save the euro appeared not to disappoint and delivered much as expected – with much of the detail well flagged days in advance – and, as a result the financial markets’ initial response was relatively mute but, two days of analysis over the weekend and investors delivered a more considered verdict – the summit had failed to move the euro-zone even one step closer to a successful resolution.

The summit’s proposals reveal that the EU’s political leaders remain in denial or are blind to the true nature of the crisis that afflicts the euro-zone and, until the politicians awake from their slumber, the odds of a successful conclusion to the sorry episode is still not much better than a coin toss.

The EU’s leadership continues to believe that profligate government spending among the euro-zone’s periphery is the central problem and, insist that fiscal austerity is the only path to future stability.  With this in mind, the summit proposed that euro-zone members adopt constitutionally-binding debt brakes requiring states to maintain balanced budgets, defined as structural deficits of no more than half a percentage point of GDP.

The idea that the euro-zone’s woes simply reflect fiscal mismanagement is simply not borne out by the facts.  Indeed, before the crisis struck, only Greece and Italy showed government debt ratios that were well above the Maastricht limit of 60 per cent, while both Ireland and Spain sported public debt fundamentals that seemed to be comfortably below the danger zone.

The euro-zone’s periphery came unstuck because large private sector deficits led to unsustainable external imbalances that had to be financed in a foreign currency – namely, the euro – since member states had given up their currency sovereignty upon admission to the single currency.  This meant that euro-zone countries with persistently large current account deficits and dangerous levels of foreign debt as a result, were vulnerable to a sudden reversal in capital flows.

Put simply, euro member states are users of currency rather than issuers of currency and, as a result, must obtain euros to meet international payments as they fall due.  The euros required can be obtained through exports, borrowing or asset sales.  However, the euro-zone’s periphery increasingly relied upon the willingness of member states with current account surpluses to finance their deficits.

The music stopped once the global financial crisis struck and, in many cases, the external deficits were effectively nationalised by government in an effort to prevent an economic meltdown.  Not surprisingly, fiscal deficits and government debt-to-GDP ratios subsequently exploded.

This fact seems to have gone unnoticed by Europe’s leadership, who continue to pursue the fiscal austerity route.  Those of a bullish persuasion will argue that the constitutionally-binding debt brakes are a welcome step on the road to an eventual crisis resolution.  However, the measure simply enshrines pro-cyclical fiscal adjustments in the currency union’s struggling member states, without any countervailing transfers from a central fiscal mechanism akin to that which exists in the United States.

Signing up to this deal is nothing short of economic suicide, as member states are effectively being asked to adopt contractionary fiscal policy when a recession strikes.  The downward pressure exerted on the economy under such an approach could only be overcome by higher domestic consumption and investment or a trade surplus.

The former would be most unlikely since the private sector is already heavily indebted across the periphery, while the latter was not adequately addressed at the summit.  Simply put, the chronic current account deficits in the periphery are the mirror image of the surpluses in the core and, these imbalances must be considered in any attempt to resolve the crisis.

The current approach is designed to make matters worse and all the more so, given that the member states issue debt in a foreign currency and have no credible central bank backstop.  The deal to save the euro does the exact opposite and, if implemented, would hasten the single currency’s demise.  As a result, financial market stress is virtually certain to continue in 2012.

As Otmar Issing, the prominent German economist once noted, “There is no example in history of a lasting monetary union that was not linked to one State.”  Investors take note.

 

Previously posted on www.charliefell.com

 

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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Obviously, as with any other market, if you want to invest in currencies you need to do your analysis. In many ways, analysis of the Forex market is quite similar to that for government interest rates. Both focus on high-level macroeconomic factors like economic growth and inflation. In Forex, trade and capital flows are very important factors as well.

Plus, the interest rate and currency markets intertwine and influence each other. Higher interest rates can make a currency more attractive. Similarly, trade flows can influence foreign demand for government debt securities, impacting their yields.

But it’s tricky.

When doing analysis in the currency market, you have to look at both sides of the exchange rate equation. This is something that trips up a lot of traders and investors. They think like stock investors and only consider one thing. For example, they look at Federal Reserve policy and make a judgment on the dollar. In the case of playing the dollar’s exchange rate against the euro, though, it’s not good enough to just look at the dollar. One needs to do a similar analysis of the euro because the exchange rate reflects both sides of the equation, not just one side. In other words, proper investment-level analysis of exchange rates requires developing expertise in multiple economies. This is a definite challenge to many would-be Forex investors.

Trading profitably is your other challenge.

It’s been suggested that something like 95 percent of those who try their hand in Forex trading fail. That’s a very dramatic number and not one backed-up by any real evidence. What we do have, though, are actual figures from U.S. Forex brokers provided by mandatory quarterly reporting. They show that in any given quarter only about 1/3 of accounts are profitable (based on data from required quarterly reports made by U.S. brokers to the CFTC).

In other words, despite suggestions the contrary, Forex trading is not some golden path to riches. As with any other endeavor, the rewards fall to the relative minority who really know what they are doing, and who can consistently turn good market analysis into profitable trading strategy. That takes lots of time and loads of effort. Most people come up short.

For that reason, or simply because you don’t have time to do it properly yourself, you can always leave things to others as you might do investing in stocks, bonds or alternative investment approaches.

In previous blog posts, we’ve discussed the managed strategy options out there for investing in foreign exchange. There are ETFs and mutual funds which offer certain types of opportunities. If you are a high-net-worth individual, you may have access to the currency markets through hedge funds. Global macro hedge funds, and certain other types, have been playing in the currency markets for decades.

Well known money manager Paul Tudor Jones was shown trading German marks in 1986 in the Trader documentary. Big funds like currencies because of their high liquidity. There are new alternatives to take part in the currency market now, though, that provide access to the same sort of hedge fund investing at lower capitalization.

For example, there are managed account options where you give someone direct control of your Forex brokerage account to do transactions on your behalf. Obviously, there needs to be a high degree of trust for an arrangement like this, but if you can find someone good it can be a very worthwhile option.

Then, there are programs, like the Currensee Trade Leaders Investment Program, where you can arrange to have the transactions made by one or more other traders in their own accounts automatically duplicated in yours. These can provide more transparency and control than managed accounts, as well as the opportunity to easily diversify among managers.

The Forex market is already influencing your life and financial well-being in ways you may not even realize. Why not put it to work for you? It’s not nearly as volatile a market as many would have you believe, but still offers plenty of opportunity. That makes the currency market a legitimate focus for alternate investment funds.

If you are ready to dive in, then be sure to keep our free e-book “The Smarties’ Guide to Alternative Investing in the Foreign Exchange Market” close to hand.

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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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The foliage is officially adorning the trees here in New England, signaling fall is well underway and the fourth quarter is in full swing. Investors are trying to ride the economic wave before closing their books in a matter of weeks. Here are some headlines we’re reading in preparation for the year-end rally.

Occupy Wall Street continues to remain in the spotlight as movements spread across the globe. For the demonstrations to spur change, organizers say participants’ voices must echo worldwide, and they need to secure support from fellow citizens—even those not taking to the streets. After Occupy marked its first-month anniversary Oct. 17, activists say nearly 55 percent of Americans support the movement. Also seeking support on a grand stage is Europe. The region’s financial leaders are busy preparing for their financial summit this week, and one of the top agenda items is discussing revamped strategies to save Greece from its debt. Before Europe sits at the round table, top U.S. financial experts are acknowledging lessons they’ve learned from this crisis. Speaking in Boston Oct. 18, Federal Reserve Chairman Ben Bernanke said the Fed may revise approaches about monetary policy in the future, including making communication and guidance more transparent. While the global economic crisis has inked a multitude of negative headlines, there are ways to offset market volatility by investing in alternative funds. As many investors know, alternative investments help diversify portfolios, mitigate risk and elevate returns. Stronger-than-expected U.S. retail numbers last week offered a glimmer of optimism that investing can end on a high note for 2011, easing thoughts of the U.S. heading into another recession. Investors are certainly keeping their eye on the prize, hoping to balance their portfolios in the black by year’s end.

 

 

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