Fundamental Analysis
efficient hedging and positioning among global FX audiences with liquidity remaining robust on the electronic trading platforms that support such volume. For 30% of the estimated 4.2 trillion Dollars traded in FX per day to be directed in the EUR/USD is just shy of one trillion Euros per day (4.2 x 0.3/1.3) and perhaps goes some way to making the c u m u l at i ve mov e me n t on the year rather more explicable, with so much two- way business and so many c o n t r ibu t o rs to prices and volume.
B acktracking slightly to
the general view on the Fed’s reluctance towards QE3 being a net negative, we believe that, in the current economic cycle, such a view is naïve to the extent that sometimes doing nothing is actually the best tactic, much akin to having a square position in FX when the market is irrational and/ or price action moves away from reality or becomes unfathomable.
There have been occasions in 2011 when adoption of such a wise approach may have saved many
a trader from being stopped-out and avoid the frustration of seeing markets snap back on fundamental realignments then taking place in a vast array of currency pairs. One of the most challenging aspects of FX is certainly dealing with market irrationality while attempting to
FX
2011 will go down as one of the most inexplicable years when considering various market reactions and price points in the history of FX markets, with particular reference to the sudden meltdown in the Euro over the summer from 1.4940 to 1.2946: despite all the reasons
for said
selloff being t ele g r a p he d several weeks and maybe even months before the headlines hit the move was quick and violent in nature. This was a departure from what may have been expected in that markets sold the rumour and also sold
the
stay solvent as markets gyrate, often to the beat of their own drum, made even trickier when the same news headlines can generate a variety of reactions.
Like life itself, things usually make the most sense when looking in the rear view mirror, hindsight is 20/20 after all. This year is
definitely different, conferences having
spoken with a great many friends and colleagues in the industry at various
in different
parts of the world, there seems to be a general consensus that
relatively fact-
maybe this is why FX markets are
attracting great and rising interest despite
lower market
volumes in other asset classes, where participants are finding many ways to gain alpha from the numerous opportunities provided.
One for Yuan?
With the contraction of spreads between bid/ask in EUR/USD making it probably one of the most efficient yet still unpredictable markets at a given time, we have been giving some attention to other geographic areas where we believe
FX TRADER MAGAZINE January - March 2012 13
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