Wednesday, October 13, 2010

Japan plots next Yen intervention

Almost a month has passed since the Bank of Japan (BOJ) in forex markets on behalf of the Japanese Yen appealed. In a trading session a record you spent to get a 3.5% jump in yen 2.1249 trillion yen ($ 25.37 billion). Since the yen has continued to appreciate know and now it seems like it's only a matter of time before the BOJ is intervened again and again.

USD JPY Forex Intervention

Before surgery Japan's main concern was that there would be a bitter backlash from the rest of the world.Japan fears of allegations were validated on the one hand, it was participation in "Currency war."It received a mild rebuke from U.S. decision makers who know annoyed would cause his intervention, China to reconsider, allows to appreciate the Yuan.

Others were more tolerant, go as far to Japan's actions as a necessary response to Korean and Chinese intervention to entschuldigen.Nach everything, since that competes directly with these two countries of export market share Japan, could tell it how idle how you actively their currencies depreciated.U.S. Treasury Secretary Timothy Geithner let Japan completely off the hook by told reporters he doesn't think Japan "set fire" of the current dynamic in forex markets.

Deutsche Bank (which created the chart below) added "must always way with such persistent intervention, be it frustrating for Japanese makers to other Asian economy to see their currencies to weaknesses."» " «Perhaps the last straw was Chinese purchases of JGBS [Japanese Government bonds] that some Japanese officials to argue, played a prominent role in the recent JPY appreciation.» In other words, not only China was down its currency against the dollar, but now it had started the CNY/JPY exchange rate target.

Forex Reserves in Asia, Japan Forex Intervention

"G7 meeting in the next week will try Japan achieving a formal permission slip for his program with the argument that" "our intervention isn't the kind of large-scale operations, aimed, achieving certain rate levels in the long run." "September's intervention only 'aimed reducing excess fluctuations' in the yen rates." Depending on how the G7 (via his official statement) responds it can likely more intervention affect.

From an economic perspective, not Japan have to worry about too much. The only disadvantage of wholesale printing money and use it to the U.S. dollar to buy is the risk of inflation. Japan, however, this would be considered a positive development, and is hardly a limitation more intervention: "Japan's economy still in the grip of deflation, the authorities have the ability and the incentive to prevent more WINS in the yen." In fact, the Bank of Japan recently "truncated and pledged, fresh his overnight rate target to virtually zero 5 trillion yen ($ 60 billion) worth of assets in a dose of economic stimulus to buy."As the Fed is the same [more on that later this week] to do is's BOJ hope that this time around "the yen reflexively investors bearish turning the greenback favouring is not."

The only question then is really, if the BOJ will intervene.The Japanese yen has fallen already, 82 USD/JPY, disappointing analysts, who predicted the point of intervention 83 / 84, in the next point of the last month intervention würde.Dass take place the yen continues to slide it has allowed is somewhat confusing that it makes the futility of their previous efforts available.The BOJ claims that it is not entering a program on continuous intervention, but that is really the only chance that did it successfully for any length of time.The Swiss National Bank (SNB) established a "line in the sand" of 1.50 EUR per SWF and $200 billion defend ausgegeben.Wo is the BOJ "Line in the sand?"82? 80?

In theory this should mean the Japanese Yen appreciation to come to an end soon wird.Angesichts of the fact that any other major currency (with the exception of the euro) is either indirectly or competitive devaluation, but this by no means sure do Japan about holding Yen is serious, may it formally declare war.

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Saturday, October 9, 2010

Passive currency rises in popularity investing

Those who read Central Bank survey of foreign exchange and derivatives market activity know the recent Bank for International Settlements (bis) three-year daily Forex turnover rose to 20% in the last three years to $4 trillion. According to the official data financial institutions and the like, who committed the impression that the trade would be the overwhelming majority are the vast majority of participants for speculative purposes. However anecdotal research suggests that it is "passive" behind the scenes Forex trading, is making its presence known.

"Flows account for more than 50 percent of currency to Deutsche Bank, - such as corporate Treasurer looking not benefit hedge currency risk or your core business - facilitate"passive"players."By definition, these passive players not out a profit, and exchange of currencies only, because it is simply necessary shops.

This is not surprising since the approved exporter in the United States increased 10% over the past year, which is available for the data. It is almost a given that the number of exporters in emerging markets increase, is a faster clip.As a result, are corporate banking departments struggle to keep pace with the demand for currency exchange/backed by such companies that simply want to know whether their own profit margins, and set prices accordingly. can belong to the most reliable hedgers great companies: "companies raised the amount of estimated forward 12 month earnings to 34.3 per cent on average in September…boosted 22 percentage point rise in U.S. companies hedge ratio to 55.7 per cent, the highest secured to record." Even sovereign wealth funds are reportedly interested in securing your Forex reserves.

If not for the enormous pool of passive participation in Forex, it might difficult for speculators to make a profit. "" "The streams of passive players limited factors have direct sensitivity to broader market and macro so that you as counterparts to topic-driven investment flows, can be used" ", reported the financial times. Since these participants disinterested in actual Forex variations are - as long as you in return rates with spot and futures transactions can - disable passive dynamic currency movement creates, and also opportunities for speculators (including retail Forex traders), to make a profit.

In a sense, speculators is a free lunch.On the one hand, two-digit currency have been moved up to almost banal with some currencies routinely rise or fall in recent years of more than 5% per month are Forex volatility fallen geworden.Auf of the other hand, is so common time in the course (except during the financial crisis) and is low compared to other asset classes.For example, "Annualised is average daily volatility of the euro/dollar pair in the last decade, such as 140 percent lower than the volatility in the EuroStoxx 50 at the same time."In addition "deleted to jump JPMorgan's index of implied volatility on options for the Group of seven currencies 13 percent in the third quarter, according to 22 percent in the previous three months."This is amazing, because it implies as increased uncertainty, risk (aka volatility) has fallen.

"Interested in Forex increases with the indirect investors such as pension funds, mutual funds and retail investors to seek exposure to currency by investment products.""In July, RBC capital markets has published a survey of 102 Asset Managers…which revealed that 38 per cent currency leads the list of asset classes most likely say are in equities and commodities to move, do in the next 12 months."On a related note, the recommend most investment advisors that currencies 2-7% of each investment portfolio regardless of objective and risk tolerance include sollte.Die number of Forex investments "Specialists" and the related investment products seem to rise to demand different strategies-based wear, momentum and value.

At this rate, it looks like Forex volume a fresh record sets in 2013, when the next round of data is released.

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Thursday, October 7, 2010

Currency war: who are the winners and losers?

On September 27, "Currency war", used the term to describe Brazilian Finance Minister, Guido Montega, the series of recent Central Bank intervention in the currency markets. While he may not have intended, put the term, and financial journalists everywhere have run with it.

In the current cycle (dating back a few years) Central more than a dozen banks holding foreign exchange markets with the intention of entered your respective currencies against each other and against the US dollar. What makes it a war is the central banks struggling financially to outdo each other. It is a war of attrition, inasmuch as the central banks will fight, until exhausted all your media, have been conceding defeat for their currencies. On the other hand, in contrast to a conventional war no alliances, still there it much in the way of little strategy. Central banks simply buy large blocks of counter currencies and hope that their own currencies are then depreciated on the spot market.In addition, because the counter currencies almost always dollars or euros, competing participants in this war even not directly against one another, but against one enemy who is much to do.[Chart Belowcourtesy of der Spiegel].

Unequal Competition- Global Trade and Currency Wars

The Swiss National Bank (SNB) was the first intervene and staged a year campaign in the course of 2009 to keep the Swiss franc against the euro to 1.50. Ultimately it could if the sovereign debt crisis sales of Euro caused an exodus. The Bank of Brazil was following, although its activities 14th modest; it seems the ultimate futility of their efforts have accepted, and will seek, slow down the real's appreciation rather than to stop it. Last month, the Yen's appreciation of the markets spent the Bank of Japan 20 billion dollars in a session to show how serious it is on the fight. In fact, it was this intervention that triggered Montega's comments about currency war.(The BOJ has no yet since appealed) .all together, the people's Bank of China has continued their war chest reserves - currently $ 2.5 trillion - as part of the ongoing Yuan dollar peg Add. And of course there were a handful of smaller interventions (Republic of Korea, Singapore, Taiwan) and no shortage of rhetorical (Canada, South Africa) interventions, as well as act as indirect (US, UK).

The law - forget caused to weaken you not, that the fed and the Bank of England, have injected billions in the financial markets through their respective quantitative easing programmes and their currencies. In a sense all have the following interventions have been made to restore the balance in the currency markets who lost, gone if these two central banks deflated currency printing money it wholesale. Since much of this cash his way in emerging markets (see table below) has found, can your central banks from trying some of the upward pressure on the their currencies to mitigate blame.

It is still too early too early to tell how far the currency war go location.the G7/G20 has announced that it discusses the issue at the next Summit, although it probably too much in the way of the action is not. Ultimately politicians can try not much more than shake your finger at the countries that pressed their currencies. In the case of the Yuan-dollar peg, American politicians have tried, this a step further to take by threatening to beat China punitive trade sanctions, but won't likely this beta, and as a problem may total disappears after the elections in November. As I announced on Friday, Brazil, has matters into own hands taken by all foreign capital inflows taxation, but this had not much effect on the real.

Emerging Market Capital Inflows 2009-2010

This brings me to my final point that is, that all currency in vain because most central banks can only capacity limited intervention in the long run over to intervene.If you are printing too much money to keep their currencies, risk, stoking inflation.China is the exception to this rule, of course, but this is exchange-rate system less because of the size of his war chest and more because the mechanics of his.Successfully to manipulate their currencies on the spot market for central banks to the trillions of dollars in Forex daily fights.Finally this truism must expect each Central Bank.

In determining winners and losers the war currency (as I promised in the title of this post to do the euro will probably lose (read: appreciate) because the ECB not ready same applies required.the Swiss francs, the SNB basically intervention provisionally left currency spam.messages of Japan has deep pockets Bank and if the markets which secure Yen over 85 Yen / dollar, I wouldn't be surprised to see it again to intervenieren.Mit fed ponder a push, extending its quantitative easing program now continue the dollar probably sinken.Und as for the countries that do the actual intervene succeed them may temporarily estimate their respective currencies capital long-term shifts gedrückt.Als emerging economies, their currencies but rise soon again.)

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Friday, October 1, 2010

Brazilian real 2-year high despite "Currency war"

Brazil is the drums of war hit. The Forex diversity that is. Accordingly to the Finance Ministers "we are an international currency war, a general weakening of the currency in the middle." "This threatens us because it takes our competitiveness." According to own statements, Brazil will sit on the sidelines of this war. Rather it is for your currency, the real fight.

Brazil's concerns are perhaps justified since the Brazilian real strong, a 2-year high risen, and amazing value more than before the collapse which is Lehman Brothers and the ignition of the global financial crisis. (If anything, this shows how far we have come upon the return to stability).According to Goldman Sachs is the real now most overrated main currency in the Welt.Dies confirmed the Economist's Big Mac index, which shows that in terms of PPP (purchasing power parity) Brazil now the third country in the world behind only Norway and Switzerland.

Economist Big Mac Index July 2010

It is not difficult to understand why the real is growing. His benchmark Selic rate is 10.75% in Government, so that one nor increased 12%. After inflation, this is the highest among the major currencies. Its economy is booming; projected GDP in 2010 to 10%. Consequently, tributaries have returned cash flow levels pre-credit crisis: "Net foreign exchange inflows totaled $ 11.14 billion in the period September 1 17 to 2.11 billion $ in the first ten days of the month according to the data released Tuesday by Central Bank of the country."The tributaries have driven by a 70-billion dollar shares, the issuance of PetroBras, the (former) State-owned oil company. "It is a record sum, and 3 the agricultural times Bank greater than the eye-popping $ 23 billion of China raised only a few months ago.""If the Petrobras deal had never happened, the actual somewhere around 1.75 per dollar, trade could be" compared to 1.70 today. With other companies, noise with fremd-to follow and equity still offered cash probably casting.

As I said at the beginning of this post, the Bank of Brazil has several tools petto. It has already started, "surprise daily auctions to purchase excess dollars in the spot market" (in the 2006 suspended), in which investors can trade dollars for Brazilian government debt. "" It beats also reverse currency swaps that would serve a similar purpose."""The order is to buy, buy, buy", ", said a government source. It has purchased in the month of September alone almost $ 1 billion in foreign currency and is committed to provide its 10 billion dollar sovereign investment funds if necessary. Finally there is the tax rate (currently 2%) on all foreign capital inflows conversation of raise, but no real schedule for such a step is.

Oh, while keeping the Government of Brazil in its intentions the real is certainly sincere, lacking the necessary Kleingeld.Die was 1 billion dollar intervention in September by the 20 + billions of dollars spent by the Bank of Japan on a day to hold Yen dwarfed.Even controlling for the differences in the size of their respective economies, Brazil still thoroughly outspent was.His $ 10 billion investment pales compared to the ~ $ 1 trillion foreign exchange reserves of Japan.Kurz said Brazil would be wise to avoid full commitment in currency war.

Real USD 5-Year Chart

Also the real can better to strength the weakness in the US dollar and other currencies of G4 werden.In seen Brazil lean purchases of US dollar on the spot market related growth probably not much to the gradual exodus of cash from safe havens again currencies entgegenzuwirken.vielleicht it may take solace in the fact that so overrated real is that it seems, have no place to go, but down.

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