According to forecasts, the pace GDP growth in the US will gradually decline in 2007, however, consumption will decline much more rapidly as the housing market cools. How will the trajectory of US consumer and capital spending affect exchange rates? Problems in the US will also lead to problems in Japan, China and the rest of the Asian region; however, if these problems are driven more by reduced consumption, China will be hit the hardest, other things being equal.
State of the US economy
Fed Governor Bernanke, in his speech to Congress (on Wednesday, July 19), presented a quite adequate forecast for the US economy. The reduction in domestic demand, fueled until recently from the housing market, against the background of inflationary risks, was also reflected in the Beige Book. It is still difficult to say whether the federal funds rate will stop at 5.25% or continue to rise to 5.75%. However, it is clear that the reduction in consumption and the growth of capital expenditures will affect the economies of other countries and their currencies in different ways.
Key idea
Various countries have different structure export. Where exports of consumer goods dominate, in theory, the weakening resulting from reduced consumption in the US, or in the world as a whole, should lead to more significant negative consequences. At the same time, countries specializing in the export of capital goods in this case will suffer to a lesser extent. According to this criterion, Japan, Germany and Korea are capital goods export oriented, while Spain, Hong Kong and Italy are mainly consumer goods. Hong Kong is in quotation marks for a reason, because the trade data includes transit from China. Since we do not have reliable data for China, we can use the information for Hong Kong as a reasonable substitute. In other words, from the position of common sense, we can conclude that China specializes in consumer goods.
Thus, if global demand, and in particular U.S. demand, declines in terms of consumption rather than in terms of input costs, Spain, China and Italy would theoretically be hit harder than Germany or Japan. However, in order to more accurately assess the exposure of various economies and their currencies to the level of US consumption, it is necessary to take into account (i) the dependence of a country's exports on US demand, and (ii) the dependence economic growth countries from exports.
Observation 1. If the US economy deteriorates, Mexico, Japan, China and the countries of the Asian region will suffer the most.
About 80% of Mexican exports go to the US. So weakening American economy will have a negative impact on the Mexican peso. Also, Japan, China and the countries of the Asian region are quite dependent on American demand. Therefore, their currencies will also suffer. Here we need to pay special attention to two aspects. First, the currencies of countries with a deficit are under pressure during periods of risk aversion against the backdrop of a reduction in global demand, however, the currencies of countries with a surplus can experience exactly the same difficulties. In other words, surplus countries tend to be economies with higher betas and are, in principle, more sensitive to changes in real demand. And deficit countries are more sensitive to nominal factors such as global liquidity. Thus, the conventional wisdom that the currencies of countries with a surplus will feel more confident than the currencies of countries with a deficit needs to be tested.
Secondly, the concept of "dollar smile" applies in this case. A soft landing in the US economy may lead to the preservation of risky strategies, while USD/Asia pairs will trade lower. However, if investors suspect that the weakening of the US economy will take on a wider scope, a risk reduction trend may begin, in which case the USD/Asia downtrend will face serious difficulties.
Observation 2: China is the most vulnerable in Asia.
Although all Asian countries depend on US demand, China is perhaps more sensitive to changes in consumption levels in this country, while Japan and Korea are more resilient, as they export twice as much capital goods as commodities. This is another reason to believe that this period of weakening of the US economy will be less painful for Japan than the previous ones. In addition, China's vulnerability could also be exacerbated by Beijing's restrictive yuan policies. In this aspect, it is necessary to control not net exports, but capital expenditures and speculation in the housing market. If the US economy slows down, Beijing will be in difficult situation, in the face of the need to tighten policy in a situation of weakening global economy. However, at the same time, a hit on export volumes could ease pressure on the yuan. But at the same time, Chinese exports can remain quite high, receiving support from Europe and Japan. But overall, this particular kind of easing will certainly stab Asian economies in the back.
Observation 3. European inequality.
Germany stands apart from other European countries. It is more than others dependent on the export of means of production. The divergence of world cycles of consumption and capital spending can only increase the divergence in Europe and complicate monetary policy decisions.
Our forecast for USD/Asia
Stephen Yen, Morgan Stanley
Not so long ago, we published an article in which we talked about, gave the basic concepts of this term, and analyzed its functions. One of the components of the global investment market is currency market which we are going to talk about today.
I am sure that many of you have heard such a term as the "foreign exchange market", but not everyone fully understands what it is, how it can be useful, and why in general to navigate these economic processes.
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If you look at Wikipedia, you can find the following definition:
« Currency market(eng. Foreign exchange market, currency market) is a system of stable economic and organizational relations that arise in the course of operations for the purchase and / or sale of foreign currency, payment documents in foreign currencies, as well as operations for the movement of capital of foreign investors "
Currency market very versatile. Many economists are still arguing how to properly interpret this concept. There are dozens or even hundreds of definitions of the currency market, each of which has its own peculiarities. As they say, how many people, so many opinions. But no matter how you understand, interpret the concept of "foreign exchange market", its essence will not change, it will still have clear functions and fulfill the tasks set economically. If to speak plain language, then the foreign exchange market is a place where investors, sellers and buyers of currency values come to a certain agreed opinion.
Perhaps this article would have been written much later, but the situation that is happening in the foreign exchange market of both Russia and Ukraine made us understand some concepts in more detail, understand why there are significant jumps in the dollar and euro, who influences these changes how you can protect yourself from losing the value of money. Of course, within the framework of one article it will be difficult to consider general concepts, give an analysis of what is happening, and even delve into financial analytics. But we will try to give answers to many questions that arise as concisely and informatively as possible.
As you already understood, the foreign exchange market is a system of special economic relations which are built on the sale and purchase of currency values. This market has all the attributes of an ordinary market: subjects and objects, supply and demand, structure, communications, the price of goods, even its own speculators and dishonest players. The most important difference lies in the specific product. Here the currency values and the currency itself are the basis. different countries peace.
Modern currency markets did not arise by chance, but as a result of the evolution of society and economic relations. It is worth noting that operations for the purchase, sale and exchange of currency existed in ancient Rome, and in Russia there were even special money changers who exchanged money, taking for it a small fee. But the first currency markets, which became the "great-grandfathers" of modern ones, appeared in the 19th century. Economists identify the following basic prerequisites for the formation of the currency market:
It all started with national currency markets, the development of which made it possible to form a world, global currency market, in which everyone, having fulfilled certain conditions, could buy money from the leading countries of the world.
It is clear that now the foreign exchange market has no boundaries or restrictions. The global Internet network allowed participants to buy and sell currency in a matter of seconds, being in different parts of the world.
The foreign exchange market has certain features that distinguish it from others. financial markets. The modern market is characterized by such features:
Currency market- This is a multifaceted and complex system, which can not be sorted out in a few days. Many experts have been studying the specifics of working with the market for years, the influence of certain factors on the course, the causes and consequences of sharp jumps and collapses. But if you become a specialist, then this kind of work can bring millions of dollars in a short period of time.
Without the foreign exchange market, it is already difficult to imagine the functioning of the economy. First of all, it ensures correct and uninterrupted economic cooperation between partner countries, but also performs a number of other functions:
Many people know about the foreign exchange market only because of the 7th function. But, as you can see, this is a very multifaceted concept, which, first of all, is intended to be a regulator and guarantor economic development and interaction between states and large international companies.
Like any other market, the currency market has its participants, subjects. These include:
Central banks are the most important regulators of the country's domestic foreign exchange market and are responsible for economic and financial stability. Central banks act as subjects of the foreign exchange market, buying and selling currency as they need it.
Banks are hubs Money population of the country, carry out the bulk of foreign exchange transactions within the state. Many market participants have their personal accounts in commercial banks through which the purchase and sale of various currency values is carried out.
We can say that banks are the subject of the foreign exchange market both directly, when they buy and sell currency, and indirectly, when buying, selling, exchanging currency owned by individuals and legal entities is carried out through their accounts.
Companies
Basically, these are international companies that cooperate with firms from other countries. Both importers and exporters of products need the currency of the country with whose companies they cooperate. This creates a certain supply and demand in the foreign exchange market.
By the way, jumps in the dollar, in the first place, are beneficial to those Russian companies, which sell their goods in dollar price tags abroad, and employees are paid in rubles.
Many countries have their own internal currency exchanges, designed to provide the population of the country with the necessary demand for foreign currency. The state regulates the activities of these exchanges, because the general economic situation in the country.
Currency brokers
These are people who buy and sell valuables on the foreign exchange market. Their main function is to provide information to the buyer and seller, to conclude an agreement and conduct a transaction. For such work, the broker takes a certain% of the transaction amount. But the amount of this commission is often less than the difference between loan interest bank and rate on bank deposit. Banks can also perform this function. In this case, they do not issue a loan and do not bear the corresponding risks.
Private individuals
These are the smallest participants in the foreign exchange market. Every person, when exchanging, buying and selling currency, is part of the global currency market. Let the amount of transactions is relatively small, but the total set can be a very large part of all transactions carried out in the domestic foreign exchange market.
And the last thing I would like to deal with is the operations that different participants can carry out in the foreign exchange market. The following main operations can be distinguished:
Spot - currency transaction with immediate delivery
This term refers to the implementation of this type of operations that are carried out immediately. Banks undertake to deliver the currency no later than by the end of the second day after the conclusion of the transaction. Spot is very convenient if you need a large amount of money in a very short period of time. But such operations involve a certain risk, because the exchange rate is a floating value, and if you buy today at the same price, tomorrow, at the time of delivery, the price may drop significantly.
With the help of the "spot" operation, banks meet the needs of their customers in foreign currency, the transfer of capital, including "hot" money, from one currency to another, carry out arbitrage and speculative operations.
Forward transactions with foreign currency
Here we briefly reviewed the basic concepts regarding the foreign exchange market. As has been said more than once, the topic is very extensive and multifaceted, therefore, within the framework of one article, it is very difficult to analyze all possible aspects. Well, we gave a base, something from which you can start studying the foreign exchange market on your own.
And at the end of the article, we offer two rather interesting videos that will further replenish your knowledge of the currency markets, their structure, interaction, features of functioning and development.
We also recommend watching another rather interesting video about the foreign exchange market. We are sure that you will be able to discover new concepts, as well as find answers to dozens of questions regarding work and earnings in the foreign exchange market.
Forex currency market- This is an interbank market in which there is a free exchange of currencies, without any fixed values. The name of the currency market - FOREX - translated from English means "currency exchange"(FOReign EXchange). The conditions for trading in the foreign exchange market are the same for Russia and Ukraine: free trade and the ability to buy and sell currencies at the best price.
The history of the Forex currency market began in 1971, when the US President decided to abandon the gold standard. All this pushed the Bretton Woods monetary system to the final collapse and led to the possibility of free change in exchange rates. As a result of these changes, a new type of activity was born - currency trading, which began to be carried out on the international currency market.
Trade turnover in the international currency market, including the market of Ukraine and Russia, is more than 4 trillion. dollars daily. Small amounts on Forex are not convertible, so it was and remains, first of all, the interbank foreign exchange market. Among its participants are central, investment, commercial banks, dealers, brokers, various funds, insurance and large multinational companies. For private traders in Ukraine or Russia who want to make money on Forex, it is easier to get to the interbank market through a brokerage company that offers favorable terms of cooperation.
Majority currency systems certain states, including the Russian currency market, build their activities with an eye on Forex. Control over access and peculiarities of working on Forex is carried out by the Central Bank. Features of taxation of Forex activities correspond to personal income tax - if a Russian company is a broker, it must also take on the functions tax agent clients, if not, the trader is obliged to calculate the tax and draw up a declaration on his own.
Investment accounts inherently assume that the investor entrusts the management of his finances to third parties - this can turn into both a profit and a significant loss, since the risk of such an investment is very high. By playing Forex, you manage your finances by making decisions on your own. Investment accounts imply the impossibility of self-management.
Advantages of Forex trading over currency deposits obvious:
The volatility of the exchange rate (volatility) and the high liquidity of the foreign exchange market are a powerful attraction that allows Forex players to feel free and receive significant income for short time. And since you can make a profit both on an increase and a decrease in exchange rates, even during an economic downturn, a talented trader is able to secure a stable income.
But we should not forget that the greater the potential benefit, the higher the risks, and in the absence of proper endurance, knowledge and experience, you can be left with nothing.
The international currency market Forex (FX) is a platform for the free exchange of currencies and profit from exchange rate difference. Changes in rates are regulated only by supply and demand. Forex is not tied to any geographical point and works around the clock.
The daily turnover of the Forex currency market exceeds four trillion dollars. Main currencies used - American dollar, euro, pound sterling, yen and swiss franc. Operations on financial trading floors are among the main sources of income for the world's largest financial institutions. In particular, up to 80% of the profits of the famous Swiss bank Union Bank of Switzerland are provided by Forex trading.
The main participants in trading processes are commercial and central banks, investment funds, import and export companies, multinational corporations, national exchanges, brokers (intermediaries between buyers and sellers who receive interest from transactions), dealers and individuals who carry out financial operations in order to make a profit (traders).
It is believed that nowadays everyone can realize himself as a trader. Indeed, this does not require a diploma, you only need analytical skills, the ability to "feel" market changes, and you also need a deposit - start-up capital, minimum size which is determined by the broker.
This statement is both true and false at the same time. Despite the fact that any adult citizen without a diploma of economic education, the player himself must nevertheless take care of his continuous specialized training (usually through self-education) and increasing experience.
The main advantages of the global Forex currency market are high liquidity and globality. For a trader, there is another important advantage of Forex trading - the availability of leverage provided by brokers. Leverage allows you to carry out operations in the absence of the required amount or to increase the volume of the transaction in order to increase your potential benefit (but at the same time - and risk!) From the exchange rate difference. Naturally, the larger the amount spent, the greater the gain (or loss) will be.
Introduction to currency Forex market begins with the study of the basic concepts and tools of trading. The success or failure of a trader directly depends on the ability to analyze the current market situation and correctly build a game strategy.
Deals
The main instrument of any business is a transaction. Forex is no exception; this over-the-counter foreign exchange market has several of its own, specific, types of transactions. Consider the trader's tools.
The term "forward market" - does not carry the meaning of "immediate", on the contrary, it assumes that all transactions in this market are made with a delay in the fulfillment of obligations (supply of currency) for a period of more than two days. This futures market is opposed to the spot market, which implies the immediate fulfillment of obligations. The playing instruments on the derivatives market, or types of transactions (contracts), are forwards, futures, options and other derivative instruments.
In special bulletins, you can find forward rates for different periods, already calculated using interest rates LIBOR. To analyze and compare the efficiency of investing at the forward price in the international and domestic foreign exchange markets, the forward rate can be determined as the ratio of interest rates taken on an interbank loan multiplied by the spot rate.
So, only at the first acquaintance, the above types of transactions and operations may seem intimidating. In fact, they are quite simple technically, although it will take some time to master them, carefully working on a demo account, in order to get used to and get comfortable. The situation is much more complicated with the skills of analyzing the market situation and developing a trading strategy, especially with the use of FX options. Since Forex is, by definition, a spot market (over 90% of all transactions are closed within 48 hours), then any operations should begin with spot transactions. And it is better to open positions in the derivatives market, which is also a part of Forex, where forwards, futures, options and other types of derivatives are traded, after a couple of years, when personal professional experience has accumulated.
Analysis
To make deals with maximum profit, it is important to understand how the Forex currency market, which is part of the global financial and economic system, works. A novice trader needs to pay attention fundamental (FA) and technical analysis (TA) .
The first one involves studying the relationship economic processes, requires knowledge of the deep foundations of the global economy and politics. The bidder needs to know how macroeconomic and inextricably linked political factors affect the situation in the economy of individual countries and regions, take into account that force majeure circumstances (natural and man-made disasters, terrorist attacks, local wars, political upheavals) can have a decisive influence ) and mass psychology (expectations, rumors, self-fulfilling panic moods).
The fundamental difference between fundamental analysis and technical analysis lies in the approach: FA proceeds from the fact that the cost of currencies, like any other commodity, is governed by the law of supply and demand. And supply and demand depend on a number of fundamental economic factors: the state and growth national economy, discount rate changes and monetary policy, trade balance dynamics, policies central bank etc. Consequently, the value of currencies can be influenced by certain economic and political measures. For FA, indicators are important not in absolute, but in relative terms, that is, indices consumer prices and sentiment, labor prices, unemployment, GDP growth, etc. In order to predict the Forex market, the most important events and news (expected and planned, unexpected and random) are studied, which can be:
The national economy has one important property: it is inertial and cannot quickly slow down, turn around or accelerate, resembling a heavy icebreaker. But the prerequisites for future phenomena are being laid today. Therefore, FA is necessary when building medium-term and long-term trading strategies on Forex, which without it is simply impossible to implement.
To conduct FA, you need to “turn on the filter” and understand the true significance of the events taking place - some of them, seemingly decisive, may not have any effect on the movement of currencies, others, almost imperceptible, may lead to a reversal of existing trends. This is a very difficult task that requires extremely high qualifications - understanding the channels of communication and mutual influence of currencies and other investment instruments competing with them, the historical development of interstate relations and national monetary systems, - therefore, only large Forex market participants can afford FA: banks, investment funds, transnational corporations, some brokerage companies and outstanding traders.
But even if you have the experience and education necessary for the FA, this will not be enough. FA is not applicable and even useless for short-term and intraday strategies due to the above factors. And to play long, in addition to knowledge and skills, you need significant capital in order to place stop orders for months or even years in advance and suffer losses on open positions in several figures on the chart, which is implied by the use of long-term trends.
But the doctrine of technical analysis is diametrically opposed to FA and is extremely laconic: a real-time chart of changes in prices for currencies already takes into account the factors of influence described above - economic, political and psychological - which means that for success you should simply analyze this chart. It shows a retrospective of price movements and contains all the necessary clues (signals) regarding a change in trends (bullish, bearish, sideways, etc.). Since, according to the TA postulate, the psychology of the crowd is stable, its past behavior is repeated in the future and is reflected in certain graphic figures of the graph, the nature of its movement. A trader using today's rich toolkit ("Elliott Waves", "Japanese Candlesticks", MACD, RSI, etc.) must choose a forecasting horizon, in this time period it is correct to build a trend, determine its strength and possible reversal points, and therefore - entry points to the market and closing deals. As a result of Forex technical analysis, it becomes possible to say when, within what limits and with what probability a trend change will occur, how long the new direction of price movement will last.
The information basis of analytics are graphical and mathematical tools that allow you to analyze price dynamics, as well as statistical data and the principles of probability theory. Graphic display of the price can be presented in the form of graphs, histograms, charts and "Japanese candles".
It is important for a novice trader not only to know the basics of analysis, but also to use a set of available tools, and primarily indicators, which are based on algorithms that allow you to calculate market price fluctuations. The indicator gives the trader the opportunity to enter trades with the least risk and close positions in a timely manner. Of course, the use of indicators cannot and does not give a 100% guarantee of success, but it allows minimizing possible losses. The main advantage of indicators is that they eliminate the need to carry out calculations manually, but this way they can lull the trader's vigilance.
There are a huge number of author's indicators, but the time-tested and most popular of them are MACD (uses three moving averages), Ichimoku (uses five lines), RSI (determines the strength of the trend and the likelihood of its change) and ADX (trend indicator).
So, fundamental and technical analysis, on the one hand, are antipodes, on the other hand, they are inextricably linked and complement each other. Technical analysis, like a vicious little dog, tries to reject the postulates of fundamental analysis, which, in turn, does not comment on technical analysis tools in any way. It's like in physics: the laws of the micro- and macroworld - they differ, and sometimes contradict each other, but at the same time they operate in a single space and time. In any case, a trader has no other means than TA when playing at short distances, and there is nothing better than FA when building long-term strategies.
Strategies
A necessary condition for successful Forex trading is the correct alignment of the tactics of their actions. Knowledge of strategies makes it easier to understand the market and the peculiarities of its movement, and, accordingly, helps to choose the right time and direction for opening a deal. Strategies can be simple (based on the rules for entering and exiting Forex), as well as indicator (their basis is the interaction of indicators) and non-indicator (based on graphic elements, their indicator is price).
Indicator strategies are most convenient for beginners, as rate changes are generated automatically. Traders in this case build their own trading scheme based on several indicators. However, it is important for beginners not to get carried away and use no more than three to five indicators, because otherwise there will be too many variables for analysis.
The main advantage of non-indicator strategies is the ability to effectively predict price changes, and, accordingly, high profitability with minimal risks. However, the use of this strategy requires certain skills and composure. Experts recommend launching it during a period of weak market movement.
There are also breakout strategies, which are based on the principle of breaking through the highs and lows of the value, and Martingale strategies, which involve the simultaneous conclusion of several multidirectional deals with an increasing lot.
From non-professional people or outright scammers, you can hear that some specific Forex trading strategies are win-win, since even with several unprofitable transactions, an overall positive result will be achieved. This is not true. There are no universal strategies, as well as uniform conditions for their application.
For successful trading, you need to own two or more strategies and skillfully apply them. The most popular of them include:
Software
Analysis a large number Information and efficiency of actions in the foreign exchange market are provided through special applications for PCs and mobile devices. These software tools are called trading platforms, and their user applications are called terminals. They are equipped with tools for technical analysis, news feed and various options. The most popular platforms - MetaTrader 4 and 5, MetaStock and OmegaResearchProSuite 2000i. Many traders use several terminals at the same time, which expands the possibilities for technical and fundamental analysis, but we do not recommend doing so. At least until you reach a certain professional level.
Although the possibilities of the platforms are quite wide, they are not always enough for traders. For comfortable work on Forex, special scripts are designed - small programs that allow you to place pending orders, close all orders simultaneously, calculate the level without loss, manage open positions and perform other operations.
Website informers allow you to always be up to date with Forex news. From these self-updating sources, you can learn about the course of trading and the income of large companies, as well as get an analysis of currency pairs, stocks and indices.
And finally, demo accounts. Brokers usually offer the opportunity to get acquainted with trading terminal, tools for analyzing and making Forex transactions by opening a demo account, which allows you to train on the market with the same software functionality, but without real money investments.
Books and information portals about the foreign exchange market
Trading on the Forex currency market provides for constant development - expanding the knowledge base and developing skills. Experienced players constantly study specialized literature, forums and blogs. A beginner should start by getting acquainted with the works that have become classics, for example, by Alexander Elder (“How to play and win on the stock exchange”, “Trading with Dr. Elder: an encyclopedia of the stock game”, “Basics of stock trading”), John Murphy (“Technical analysis Futures Markets: Theory and Practice”), Lewis Borselino (“Day Trading Textbook”, “Day Trading Task Book”), Jack Schwager (“Technical Analysis. Full Course”). The novice trader will also be helped by Forex portals, such as www.financemagnates.com, www.forex.ru, www.mt5.com, www.fortrader.org, www.forexmaster.ru and others.
Many players are disappointed in Forex after the first unsuccessful steps. To prevent this from happening, a novice trader needs to follow simple rules that will help avoid losses and make the process of working on the market interesting and productive:
Careful preparation, thoughtful analysis and composure are what a novice trader needs to successfully trade Forex. To master this way of earning under the power of anyone. Reputable brokerage companies provide extensive information opportunities and training programs that will help you understand the intricacies of trading and learn how to plan your actions.
Warning : contracts proposed for conclusion or financial instruments are highly risky and can lead to the loss of deposited funds in full. Before making transactions, you should familiarize yourself with the risks with which they are associated.
