Tuesday November 17, 2009 - 13:31:56 GMT
Share This Story
Black Swan Capital - www.blackswantrading.com
In One Emerging Currency, Volatility Counts for Something ...
Bernanke Signals `Extended Period' May Be Even Longer as Joblessness Rises (Bloomberg)
Japan's Deflation Concern Mounts Even as Economy Expands Most in Two Years (Bloomberg)
â€śThe markets are probably going to shrink this year as the numbers tell us. But this is a temporary situation. Because, the crisis does not change Turkey's dynamics. The banking sector is not very much affected. And if you put all this together, you can see that when there will be stability, Turkey will be one of the countries that will make the biggest leap.â€ť
FX Trading â€“ In One Emerging Currency, Volatility Counts for Something ...
This isnâ€™t an entirely new idea â€“ weâ€™ve made the connection in Currency Currents before and have since seen it presented elsewhere.
Yesterday the near-term VIX (volatility index) stormed higher and failed to make a legitimate test of support. [Chart not available in text format.]
As you may or may not be aware, the VIX generally measures investorsâ€™ willingness to take on risk. Typically we see greater appetite for risk when volatility is low or falling; and we see less appetite for risk when volatility is high or rising.
This morning, the US dollar is stronger across the board â€“ a sign of waning risk appetite. But this came on the heels of yesterdayâ€™s move toward risk. That is, yesterday, despite the volatility we noticed in the near-term VIX above, the US dollar was sharply lower.
So I ask: are we reacting to yesterdayâ€™s near-term VIX action?
Perhaps our answer lies with the South African rand ... [Chart not available in text format.]
Of course, itâ€™s still early and todayâ€™s USDZAR price could change drastically; but I think youâ€™ll notice a similarity between this chart and the one I showed earlier of the near- term VIX.
The near-term VIX shot up by nearly 12% yesterday; the South African rand has already given up as much as 2% from where it finished up yesterdayâ€™s US session.
Now, those moves may not seem comparable, but in the world of currencies â€“ especially emerging currencies â€“ a 2% move in one day is impressive. And it may pay off to keep an eye on this near-term VIX today to see if this move away from risk can be sustained. In such a case the South African rand will likely be among the most pressured of the currencies.
And if you want to take it beyond charts, here are a couple items that could also drive the rand in the near-term ...
1) After a weekend meeting, speculation is growing that the powers of South Africa may decide to expand the mandate of the countryâ€™s central bank. What might that be? Well it could take the focus of solely combating inflation and give them additional flexibility with policy, being able to react to social issues ... with an emphasis on job creation policies. Itâ€™s questionable how that might impact the economy, but it would tend to mean less monetary policy pressure driving up the rand.
2) South Africaâ€™s central bank finalizes a two-day policy meetings today where they are expected not to change their benchmark interest rate. With that, attention will be paid to any accompanying announcement or commentary surrounding the analysis and decision from the bank. A stronger South African rand is certainly a concern to an economy still battling recessionary forces.
Clearly the dominant force for the rand has been the risk appetite environment. When risk appetite is strong, the rand is supported; but when risk appetite is weak, the rand struggles with a very shaky fundamental foundation.
John Ross Crooks III
Black Swan Capital LLC
REMINDER: Emerging Currency Webinar this Thursday
Weâ€™ve been running a special discounted price on our Emerging Market Currencies newsletter, and that offer expires at the end of this week. You can read more about the newsletter here.
And to top it off, this Thursday weâ€™re offering a FREE webinar devoted to explaining the nuances of emerging currencies , why it makes sense to devote some capital to this niche market and how you can appropriately get started right away.
We hope you can make it!
â€śHarnessing the Power of Emerging Market Currenciesâ€ť
Space is limited. Reserve your Webinar seat now:
Please join us this Thursday at 4:30 PM EST for a complete look at investing in Emerging Market Currencies.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."