FX MARKET WATCH of dollar swaps; and tight
currency management by central banks, particularly in Asia. In addition, says Olivier Desbarres, founder of 4X Global Research, predictable central bank policy rates may
be
h e l p ing i nd uc e cu r r e nc y stability, with the Federal R ese r v e b r o ad ly m a t c h i n g expe ct a tions for rate rises so far in 2017 and 2018, in contrast to 2015 and 2016 when markets were s u rp r ise d after expected rate rises failed to materialise.
Predictable central bank policy rates may be helping induce currency stability
Also, the fact that there have been no major currency shocks in the past 21 months - 2015 saw the Swiss National Bank and renminbi revaluations, and 2016 Brexit – may also be calming the forex market, he says. Against this background, trading strategies that were successful before (and after) the crisis need to be reassessed.
14 FX TRADER MAGAZINE July - September 2018
the structural, the political and the cyclical – all of which have to be looked at differently in the new world of forex. “It is like when you look at a piece of art, you don’t say you like the Mona Lisa from the left and not from the front: you have to put all these factors together,” he says.
Mr Bloom says that there is no doubt that from the structural and political side, investors are
One simple strategy for the new era would be to bet against the dollar. However Mr Bloom warns that the dollar is stuck in a range as those structural, the political and the cyclical factors are pulling
in
d i f f e r e n t directions.
“In the old world of FX, a strong economy would mean higher interest rates, which would lead to a stronger currency, but now for the US that relationship has broken down because of these structural and political factors,” says Mr Bloom.
Interest rate differentials
Elsewhere, with rates across the developed world still largely
Three main aspects currencies
of
David Bloom, global head of currency strategy at HSBC, says currencies have three aspects:
bearish on the dollar. However it is, he says, difficult to make a bearish case for the dollar when the US is the only country where inflation is threatening to move above target and the Fed is set to hike interest rates.
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