currency trading

Forex trading – what are the best currencies to trade? - Capital.com
Major Asian markets close higher as US-China trade talks resume this week - CNBC
Turkey is fighting foreign currency traders ahead of elections - Quartz

Forex trading – what are the best currencies to trade? - Capital.com

Posted: 26 Mar 2019 09:18 AM PDT

In the world of currency trading, an essential fact is frequently overlooked, which is that foreign exchange rates are reference numbers, not expressions of immutable values. Put more simply, one currency is priced against one or more other currencies, and those prices change all the time.

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Because of this, currency trading is what is known as a zero-sum game, in which a rise for one currency must mean a fall for another. Yet even seasoned observers of the foreign exchanges – traders, commentators, even economists – talk in terms of "dollar strength", "euro weakness", or the other way around.

There are occasions when traders should explore the reasons why, for example, sterling is falling against the yen, but they ought never to forget that, in such a case, sterling "weakness" is another way of talking about yen "strength".

The middle currency

Following on from this, it is impossible in almost all cases for all currencies to rise or fall at the same time. There is one exception to this, and we'll examine it in a moment.

First, the pricing of one currency against another gives rise to currency "pairs", such as sterling/dollar, Swiss franc/euro or yen/dollar. Most major currencies are quoted against other major currencies in what are known as "cross rates".

A cross-rate is a direct quote of the value of one denomination against another. By contrast, the world's lesser currencies, such as those of many developing countries, do not have cross rates. They are quoted in US dollars only.

Someone wishing to exchange such a currency for, to take an example, sterling would first switch the currency into dollars and then out of dollars into sterling, the dollar acting as the middle currency in the transaction.

So, currency pairs are created by cross-rates, giving rise to the question of which pair is right for the novice currency trader. Which is the best currency pair to trade?

There is no "correct" answer to the question of the best forex pair to trade, and the decision as to which pair to trade will depend largely on the temperament of the trader in question.

They may, for example, chose the dollar/euro pair, one of the most, if not the most, heavily-traded pair in the world. During the last 12 months, the dollar's value against the euro has fluctuated within a fairly narrow range.

It began the period at €0.8167 and is currently about €0.8810, a movement of just over six euro-cents. During the year it saw a low of €0.8033 on 26 March 2018 and a high of €0.8915 on 12 November, a trading range of nearly nine euro-cents, or about 11% of the rate at which the period began.

An "exorbitant privilege"

Whether you find that range somewhat daunting or rather dull is, again, a matter of temperament. But there are matters of fact that can inform the trader's thinking on this particular currency pair.

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One is that at no time during the past five years has the dollar achieved parity with the euro. The latter has always been the "heavier" currency.

Another is that the sheer size of the US and euro-zone economies steadies the exchange rate and makes less likely that they will experience big swings against each other.

A third is that this economic heft means both currencies are likely to enjoy a bedrock of demand simply because consumers round the world will want to buy the goods and services priced in these currencies.

And a fourth is that the dollar enjoys an advantage over the euro in that it is the world's premier reserve currency, almost an auxillary global denomination. This greatly bolsters demand which, in turn, leads to what former French President Giscard d'Estaing once called the "exorbitant privilege" of America being able to run huge trade deficits.

Back to that 11% trading range, and contrast it with the performance of sterling against the dollar in the years since the 2008 economic crisis. As the boom ended, the pound lost about a quarter of its value, from $2 to $1.75. Following the Brexit vote in June 2016, it plunged to just over $1.20, a 40% loss of value in total.

Does the relative stability of the dollar/euro rate make it unsuitable for trading? By no means. It is precisely such relative predictability that creates the opportunity for "swing trading", riding the exchange rate on the ups and on the downs.

Similarities - and differences

Someone seeking a rather less predictable forex pair to trade may trade a more obscure currency pair, such as sterling and the Turkish lira. During the last 12 months, the rate has oscillated from 5.51 lira on 20 March last year, a 12-monthly low, to a high of 8.87 on 13 August, a trough to peak range of more than 60%.

A pound currently buys 7.21 lira.

Anyone fancying a swim in this pool needs to do some homework on the factors that drive trade and financial flows between these two very different countries.

One is that they enjoy good relations, are both members of the North Atlantic Treaty Organisation (NATO), and have strong trade links, with British-based companies including BP, Vodafone and Tesco operating in Turkey. Big Turkish exports to the UK include textiles, clothing, cables and iron and steel, while Britain sells Turkey, among other things, engines, cars and medicinal and pharmaceutical products.

To mention just three differences, there are 65 million people living in the UK against 81.3 million in Turkey, Britain is ranked 39^thin the world for economic output per head, while Turkey stands at 77^th, and Britain's is one of the most stable democracies in the world while Turkey's leaders are accused of authoritarianism and the country suffered a coup attempt in 2016.

Finally, we noted earlier that there is one exception to the rule that currencies cannot all rise and fall against a monetary unit at the same time. The exception, of course, is gold.

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Major Asian markets close higher as US-China trade talks resume this week - CNBC

Posted: 29 Mar 2019 12:34 AM PDT

Most major Asian markets closed higher on Friday afternoon, as hopes rise on reported progress in trade negotiations between Washington and Beijing this week.

The Shanghai composite jumped 3.20 percent to close at 3,090.76 and Shenzhen component surged 3.77 percent to 9,906.86. The Shenzhen composite bounced 3.38 percent higher to finish at 1,695.13.

Meanwhile, Hong Kong's Hang Seng index was 0.94 percent higher by the afternoon.

Elsewhere in Asia, the Nikkei 225 in Japan rose 0.82 percent to close at 21,205.81 as shares of index heavyweight Softbank Group jumped 1.90 percent, while the Topix index added 0.56 percent to finish at 1,591.64.

The Japanese yen, widely viewed as a safe-haven currency, traded at 110.56 against the dollar after touching an earlier low of 110.92 — from highs below 110 earlier in the week.

In South Korea, the Kospi was 0.59 percent higher to close at 2,140.67, with shares of chipmaker SK Hynix paring earlier gains to finish 2.63 percent higher. Australia's ASX 200 edged up 0.07 percent.

Overnight on Wall Street, stocks rose. The Dow Jones Industrial Average gained 91.87 points to 25,717.46 and the S&P 500 added 0.4 percent to 2,815.44 — on track for its best first-quarter performance since 1998. The Nasdaq Composite rose 0.3 percent to 7,669.17.

The moves stateside came following a Reuters report that Chinese officials made unprecedented offers regarding forced technology transfers as well as other major sticking points, as U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arrived in Beijing for further negotiations.

The trade standoff between the two economic powerhouses has been closely watched by investors, amid rising concerns of an economic slowdown as the bond market flashed signals that a recession could come soon.

"I think ultimately we will be rewarded with a deal of sorts which both sides will proclaim ... as a fantastic victory," Rob Carnell, chief economist and head of Asia-Pacific research at ING Bank, told CNBC's "Squawk Box" on Friday.

"The thing to bear in mind is this is a process," Carnell said. "Whatever we get out of this, it's nice to say 'right, okay we'll draw a line under this bit, now we have to look forward to all the other things that we haven't sorted out'."

The 10-year Treasury rate hit its lowest level since December of 2017 on Thursday. This comes after the same bond fell below its three-month counterpart last week — a phenomenon described as a inverted yield curve, seen as an early indicator of a recession.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.129 after rising from lows below 97.0 yesterday.

The Australian dollar was at $0.7098 after weakening from the $0.71 handle in the previous session.

Oil prices gained in the afternoon of Asian trading hours, as the international benchmark Brent crude futures added 0.27 percent to $68.00 per barrel. U.S. crude futures also rose 0.42 percent to $59.56 per barrel.

— CNBC's Fred Imbert contributed to this report.

Turkey is fighting foreign currency traders ahead of elections - Quartz

Posted: 28 Mar 2019 07:30 AM PDT

After a few months of relative calm, Turkish authorities are once again locked in a bitter battle with foreign-exchange traders. Ahead of local elections this weekend, Turkey's government has been trying to prevent a damaging slide in the lira. One of its methods is to get Turkish banks to block foreign banks from selling the currency, essentially trapping them in trades, according to Bloomberg.

Still, the Turkish lira weakened by about 5% this morning against the dollar after data showed the nation's central bank continued to run down foreign currency reserves, evidence that it is aggressively trying to prop up the lira. According to the Financial Times (paywall), Turkey's central bank burned through about $10 billion worth of reserves in the first three weeks of March.

Turkey is trying to prevent a repeat of last June, when the lira dropped precipitously ahead of general elections. President Recep Tayyip Erdogan's party is likely to lose support in the March 31 local elections, with some major cities, including the capital Ankara, potentially switching to opposition control. Though Erdogan's grip on power isn't realistically threatened, since he assumed more executive control following the general election last year, that doesn't mean the upcoming campaign isn't fiercely fought. He has threatened foreign sellers of the lira with "a heavy price" for their "provocative acts" (paywall), and Turkey's banking regulator recently opened an investigation into JPMorgan for "misleading and manipulative" research suggesting that clients short the lira.

"The virulent and aggressive rhetoric adopted by Erdogan during the election campaign is unprecedented," noted Wolfango Piccoli of Teneo Intelligence. "The extreme measures taken this week to protect the value of the Turkish Lira further attests to the importance attached by Erdogan to the vote." Erdogan said those deemed speculators in the currency would be punished.

As international banks report that local banks have been unable (or unwilling) to provide them with liquidity, the offshore overnight swap rate (a measure of how much it costs foreign banks and hedge funds to borrow lira, most likely to short it) soared by more than 1,000% this week.

While Turkish authorities take heavy-handed measures to stabilize the currency, investors have dumped other Turkish assets, too. Bond prices slumped, sending the yield on two-year bonds above 20%. Stocks, meanwhile, slid the most since July, according to Bloomberg. There's also evidence that Turkish residents are increasingly stocking up on euros and dollars.

Short-term capital controls will do little to stem the currency's long-term decline. The more fundamental issues, such as low growth, high inflation, and large amounts of foreign debt, need to be addressed, according to analysts at Commerzbank. If they aren't, the government would have to implement more lasting controls and deal with the reputational damage that would inflict among investors. Permanent controls would probably result in lower foreign capital inflows, making it harder for Turkey to deal with its pile of foreign debt. But right now, it looks like the government cares more about the optics of this weekend's election than the long-term economic pain these actions might generate.

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