Forex Investment and Currency Trading

Price action in the majors has shifted over the last week in a subtle, but important way. Previously, the USD seemed to benefit from all news, positive or negative. This was on the view that growth deceleration was rotating out of the US and into the rest of the world. While the market was looking for US rate hikes, it was increasingly rate cuts elsewhere.
However, gradually this week, the USD has been trading in less confident manner. On Thursday, the second take of US Q2 GDP came out at 3.3% q/q annualised, much higher than the consensus market forecast of [...]

[Read more →]

There was a general consensus that the USD looks overdone at these levels, both against the majors and the Emerging Markets (EM), is likely to retrace.
The short-term market now looks significantly long USD. The latest IMM Commitments of Traders
data through 22 August showed that speculators were net long USD against six major currencies
(EUR, JPY, GBP, CHF, CAD and AUD). In addition, systematic trading models now appear long USD against EUR, JPY, GBP, CHF, AUD and NZD. Option risk reversals have also moved in favour of USD calls against most of the majors, another good sign of short-dated demand for USD. [...]

[Read more →]

A buyer of a CAD Call buys the right, without the obligation, to exchange a fixed currency amount for another at a set strike price on a specific future date. Unlike a spot or forward transaction, the buyer of the CAD Call is not obligated to buy CAD. If USD/CAD spot at expiration is below the strike, the holder of the CAD Call will exercise the call and buy CAD / sell USD at the strike. However, if spot is above the strike expiry, the holder will not exercise the CAD call and can buy CAD / sell USD at [...]

[Read more →]

A forward contract binds two parties to exchange an agreed amount of one currency for another at a fixed rate on a specified future date. A forward rate is calculated by taking spot and adding or subtracting forward points. Spot is the price today to sell one currency and buy another with settlement in one business day. Forward points are determined by the currencies’ interest rate differentials. If the base (denominator) currency’s interest rates are higher, forward points will be negative and the forward rate will be priced at a discount. Conversely, if the base currency’s (denominator) interest rates are [...]

[Read more →]