Stories of have-a-go forex trading heroes belie a quiet market - Financial Times

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Stories of have-a-go forex trading heroes belie a quiet market - Financial Times Posted: 26 Nov 2019 07:23 AM PST Tabloid tales of currency-trading whizz-kids are back. You know the sort of thing: young men (they are always men) in their early 20s or even late teens. They manage to secure full-page treatment, telling the world how they turned a modest lump of cash, perhaps their first pay cheque, into serious money through their mastery of forex. Cue pictures of fast cars and designer trainers. The genre — a guilty pleasure of many a financial-markets professional — took something of a knock in the UK in 2015 when Alex Hope, a self-proclaimed FX whizz who once splashed £204,000 ($262,000) on a bar bill, was sent to prison for fraud. But the inspirational stories live on. A new flurry has brought a college dropout telling The Sun last month how he "became a millionaire after learning to trade forex on YouTube". Last week a 20-year-old medical student posed for The Daily Mail with a gold-wrapped Maserati. His advice, which other professional currency traders and investors might be interested to read, is that "once you know how to do it, it's not that hard". One has to wonder, really wonder, how they manage it. Because over at the wholesale end of things, the talk of the town is just how dead the market is — hardly a breeding ground for lucrative trading opportunities. The market is, in Commerzbank's words, "structurally boring". How have currencies managed to elicit such a label from a German bank that is not exactly predisposed to excitement? Chief analyst Ulrich Leuchtmann noted earlier this month that his currency volatility index "has returned to the low levels which I referred to as 'unsustainable' in spring. Well that was wrong. 'Nothing happening' seems to be the 'new normal'." This is an interesting point. Yes, we have been here before, as recently as March. Then, the three-month rolling trading range of the euro against the dollar was at its narrowest ever point, even taking into account old Deutschmark rates going back more than 35 years. At the time, this was seen as a blip, a reflection of the US Federal Reserve's then-recent decision to put interest-rate rises on pause. Analysts also noted the market paralysis induced by the trade war between the US and China. Now, implied volatility in the euro-dollar exchange rate — a measure of how likely market participants believe a shake-up to be — is at a new record low. "It can't get more dead than that," Commerzbank said on Tuesday. It can get more dead, though. Bilal Hafeez, formerly a senior currencies analyst at Deutsche Bank and Nomura, who now runs analysis hub Macro Hive, points out that while expected volatility in the euro against the dollar is at an all-time low, actual volatility has been lower before, in the late 1970s. For him, this means it would be unwise to expect a burst of excitement. Previous notable pick-ups in volatility have been driven by moments when major central banks embarked on different paths. "Today, most central banks are on hold at low rates," said Mr Hafeez. Watch them for reasons to pounce, he said, but in the meantime, the experience of the 1970s shows that deeply sleepy market conditions can last for years. Recommended Friday, 22 November, 2019 The snooze-fest this spring may not have been a blip, then. Stability is sustainable after all. The trade talks are still grinding on with little chance of a swift resolution. The global economy is sluggish, but not dramatically so. Major central banks are all singing the same tune, and the UK's exit from the EU is tangled up in national politics. The trigger for a burst of activity is not obvious. This is not necessarily a bad thing, of course. Boring predictability can be very useful for corporate treasurers, and the have-a-go retail traders gracing the tabloid pages still claim to be making a small fortune, somehow. Other fund managers, bank trading desks and market intermediaries, on the other hand, need some movement, any movement, to make a living. "We empathise with those that subscribe to the idea of 'secular stagnation' in FX volatility," wrote Bipan Rai, an analyst at Canadian bank CIBC. He adds another item to the list of factors depressing the market: the growing investor obsession with tracking benchmarks. Buying dips in bonds and equities has become a reflexive habit, he said, suggesting there is less emphasis on trying to top-up gains or avoid losses with currency bets. But this should not give investors "carte blanche" to stop worrying about hedging their FX exposure, Mr Rai added. For one thing, volatility tends to cluster, he said. Everything is quiet until it is not. Secondly, volatility tends to revert to the mean too. By that analysis, complacency is dangerous. But believing that a burst of return-enhancing volatility is just around the corner can be career-limiting too. Pick your poison.

FOREX-Dollar gives back some gains from US-China trade deal optimism - Reuters Posted: 26 Nov 2019 12:22 AM PST * Dollar jumps to two-week high vs Japanese yen * Euro close to 11-day low vs dollar * Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh By Olga Cotaga LONDON, Nov 26 (Reuters) - The U.S. dollar gave up earlier gains as some of the optimism over a U.S.-China trade agreement faded. The U.S. currency had jumped to a two-week high against the safe-haven Japanese yen in Asian trading. Chinese Vice Premier Liu He, U.S. Trade representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin discussed issues related to phase one of a trade agreement and agreed to maintain communication on remaining issues. On Monday, China's Global Times, a tabloid run by the ruling Communist Party's official People's Daily, said the two countries were very close to a phase-one deal. The dollar was last trading neutral at 108.96 yen, after rising as high as 109.205, its highest since Nov. 12. The euro was also flat versus the dollar at $1.1016 , not far from the 11-day low of $1.1004 it reached on Monday. The Chinese yuan — the currency most sensitive to the U.S.-China trade war — had risen to a one-week high of 7.0181 against the dollar, but was last trading at 7.0335. "China and U.S. agreed on a framework to resolve their phase- one issue, which is just a way of saying that they did admin work," said Sebastien Galy, senior macro strategist at Nordea Asset Management. The next deadline for market participants to watch is Dec. 15, according to analysts. That is when the U.S. threatened to impose 15% tariffs on $160 billion of imports from China. "China appears positive to the deal. The dollar could rise further to around 109.50 (yen) if U.S. officials will visit China," said Yukio Ishizuki, senior strategist at Daiwa Securities. Last week, the Chinese government invited Lighthizer and Mnuchin to Beijing for face-to-face talks, the Wall Street Journal reported. Overall, currency trading is slowing before the U.S. Thanksgiving holiday on Thursday. Traders are also increasingly pricing in tighter trading ranges for major currencies, based on implied volatilities. One-month euro/dollar implied volatility has fallen to 4.15/4.40%, the lowest in five years. Three-month volatility fell to a record low of 4.4/4.6%. The dollar/yen's three-month volatility also stood at 4.775/5.025%, the lowest since late April and near its historical lows above 4%. Three-month volatility on the Australian dollar dropped to a five-year low of 6.12/6.42% . Reporting by Olga Cotaga; additional reporting by Hideyuki Sano in Tokyo; editing by Larry King Our Standards:The Thomson Reuters Trust Principles.

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