Archive for March, 2007
Carry Trade to Continue?
By Marek W. Stupka | March 31, 2007
In 2006, carry trade scored Nr.1 amongst the popular trading strategies of the major market players - the hendge funds. Will it score the same place in 2007?
For those of you who are not familiar with the definition of the carry trade, here’s a good one for you: CARRY TRADE = The speculation strategy that borrows an asset at one interest rate, sells the asset, then invests those funds into a different asset that generates a higher interest rate yield. Carry trade profit is acquired by the difference between the cost of the borrowed asset and the yield on the purchased asset.
In terms of FOREX, we are talking about big investors like hedge funds temporarily selling currency pairs with low interest rate yields (t.m. the difference in interest rates of the countries currencies of which are included in the pair) - like EURUSD, or EURCHF - and investing the money so acquired into temporarily buying the currency pairs with high interest rate yields (USDJPY, GBPJPY, AUDJPY, NZDJPY, or generally the Yen crosses).
This strategy is effective due to the fact that Japanese Yen is, at the present, the absolute Nr.1 low-interest-rates-yielding currency. On the other hand, AUD, NZD, GBP, and even USD, have the attached interest rates set much, much higher.
Over the last months (and years) we have seen investors prefering this strategy with enormous enthusiasm. In the beginning of 2007, however, it seemed for a while that the carry trade appetite of the big players has a bit faded . Anyways, as we look at the price action of the carry trade basket (currency pairs chosen for applying the carry strategy, usually the highest yielding Yen crosses) now, we can identify signs supporting the idea of yet another carry trade rebound.
In the light of the above, the question of today is: will the carry trade really continue?
And truly, the technical setup speaks clearly in favor of the carry trade revival. Just look at the weekly chart for the referential carry pair - the USDJPY.
Here’s a very simplified, long-term technical analysis of the pair: note the yellow-marked zones in the 1w chart. Stochastics is posting bullish crossover near the 20 level. MACD Histogram is turning high again. Note also the brown convergence lines drawn over the Stoch and MACD Histogram peaks. And the trend line analysis? The pair is situated in a nice ascending Trannel (red lines), and the crossing line (green) has just been intruded by price, which suggests a nice move upwards.
Anyways, a series of technical confirmations would have to be made before actually presenting the idea above as a fully comprehensive analysis.
In any case, even this brief insight behind the curtain of the USDJPY technical picture should be quite convincing for us to get alert, and to consider analyzing currency pairs in the carry trade basket, with the intention to benefit from their future price action driven by the renewed carry appetite of the bigest players in this business - the hedge funds…
Topics: FOREX Trading Analysis | No Comments »
FOREX the Most Profitable
By Marek W. Stupka | March 16, 2007
Did you know that most professional traders consider FOREX the Nr. 1 instrument of the Financial Markets when it comes to profitability and ROI?
There are national as well as commercial banks today who allocate as much as 20-30% of their funds into the FOREX market. WOW! It is more than any other financial market segment you can think of…
Another statistic shows that big commercial players in the investment banking business make 40-60% funds of all their profits trading currencies. WOW again! That’s a great, great share of the profit cake!
There are plenty of reasons why even the top investors consider FOREX being their Nr.1 financial market when it comes to profitability. The most relevant of them are covered on the 1-on-1 Training website, in the section titled The Ultimate Advantage of Trading FOREX.
Some other grounds for the above are that FOREX is a market that is continually oscillating and in consequence with good trading opportunities during the whole trading day. This is in part due to the increase in global trade and foreign investments during the last two decades that has made the economics of all countries more dependent upon one another.
It is just another way of saying that as a country’s currency fluctuates as a result of its economic activity, it affects the currencies of other countries as well. And so the FOREX market is just constantly on the ever-cyclical move, making it the most predictable, and thus profitable, financial market there is.
The point is clear now, I believe. WE ARE IN THE RIGHT MARKET !!!
Topics: Miscellanous | No Comments »