Author Bio

Earlier in the year the currency markets were lacking a bit of volatility. In fact more than a few markets were grinding away with volatility on the low side. The last 3 weeks that has all changed. Volatility is skyrocketing and traders in currency, commodity, equity and fixed income markets are all being presented with opportunities each and every day. Currency traders have certainly been active as just recently Currensee went over the 1m trades mark. Have you missed out on some of that volatility? If so then I would not worry, my guess is that there is plenty more to come.

Why? There continues to be a divergence in the amount of risk-taking that is being placed on the markets. Equity markets for the past year have been rebounding as economic growth rebounds in the G7 nations. We saw last Friday how the utilization rate in the US increased to its highest level since 2008. This week the ZEW and IFO surveys will be released in Germany. They represent business confidence in Germany and although it would not come as a surprise if they regress with the ongoing Greece saga overall they have rebounded quite convincingly over the past year. IFO reported a reading of 101.6 for April which is higher than the levels that it was reporting for German business confidence in the last ‘90s when the markets were in a very bullish mood.

On the flip side a combination of events which started with the credit crises have kept yields at incredibly low rates. Among the 5 top industrialized nations only the UK had its 10 year yield close above 3.5% on Friday; and that was at a paltry 3.7%. This is keeping the carry trade on the sidelines right now. Commodities are caught between safe-haven status (how many times have you heard about fiat money being questioned of late?) and that rebound in business confidence.

Have a look at the chart below. Once the global economies emerged from the 2002 recession both equities and the Euro, or in this case EURUSD, made significant gains. In 2007 they no longer moved in tandem they way they had the prior few years. Fast forward to today and there still is a sizable difference in the pricing in of risk in both markets.

Right now you are hearing a lot of calls for Parity in EURUSD and for good reason. The currency markets continue to price the Euro at a premium even with the problems with the PIIGS as the twin-deficits in the US continue on. Whether or not we hit Parity is a call that I am not going to make but I’m pretty sure that we will not be hovering 1.25 for all too long.

What is moving the markets right now? Is it growth rates or central bank policy? Or are the markets readjusting their expectations on poor fiscal policy decisions and risk-taking in general? In the end if are you worried that you missed out on some of the recent market moves I would not worry as there should be plenty more volatility ahead for traders in all markets.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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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.

Author Bio

One of the things that I’ve noticed of late on the “Hot Topic” discussion board on Currensee is the passion and enthusiasm that members of Currensee have towards trading foreign exchange.  That is fantastic.  To hear people discuss anything with passion, besides sports, now-a-days can be hard to come by.

There are obvious reasons for this as well.  Greece, Spain, Italy and others are making headlines because of their budget woes.  The unemployment rate for the youth in Spain is 40%!  There are just too few young and old people utilizing a craft or a skill out there ‘pounding the pavement’ to get others to listen and buy into there message.  I remember when a friend of mine (about 20 years ago) would not stop talking about the merits of the information super highway.  She worked at AOL.  I was too focused on losing sports teams to take time and buy into her message.  Others did though and we all know how AOL blazed a trail that set the stage in the technology sector for other young passionate technology gurus to follow.

What group should have the most passion towards trading FX?  Professionals, right?  If your next paycheck depends upon either producing returns for investors or trading for yourself then I’d assume that you would be well versed in all news forex and be utilizing a time-tested strategy to produce those returns.

How did these professionals do last year?  Per the Barclay Currency Traders Index the average return of 124 currency programs was +0.63% last year.  If you ask me that is basically benign performance.  I mean stocks in 2009 fell excessively and then rebounded maybe even more excessively and volatility is what excites traders.

Well how about pre 2009 when forex programs were not able to sit on the sidelines and root for 0% returns as stocks and bonds were performing better?  In the 2007 and 2008 the average return was 2.59% and 3.5% respectively.  Not bad.  Without seeing all the stats you can gather that the standard deviation of returns throughout the year was much lower than what was going on in the stock market.  Still those aren’t great returns right?  A blindfolded dart thrower might be able to do better just by  buying or selling EUR/USD and not paying attention for a few weeks.

Looking back further though will yield different results.  In fact since 2000 the average FX program yielded an accumulated 32.3% return for the decade.  Now that is better than the perennial 10k in the Dow Jones!  In the ‘90s the average FX program yielded an accumulated return of over 108% and in the ‘80s the average return was over 17% per year (the index started in 1987).

Are those returns gone forever in forex?  I humbly suggest that they are absolutely not gone forever.  There are just too many PIIGS (Portugal, Italy, Ireland, Greece and Spain), emerging markets and other worries to believe that we’ll be in a low-vol forex environment forever.  Are those handsome returns coming back tomorrow?  I certainly don’t know but one thing is for sure is that there are passionate forex traders that will certainly be looking for returns on Currensee.

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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.