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Archives December 2010

Brazilian Real Supported By Fundamentals, but Obstacles Remain

Despite all of the talk of currency war (a term first introduced by Brazili’s Finance Minister) and volatility in forex markets, the Brazilian Real is on pace to finish 2010 only slightly higher from where it began the year. While fundamentals would seem to support a further rise, Brazil’s government and Central Bank have made it clear that they will do everything in their combined power to prevent such an outcome. In short, the outlook for the Real in 2011 is incredibly uncertain.

Swiss Franc Surges to Record High(s)

In the last two weeks, the Swiss Franc rose to record highs against not one, but two major currencies: the US Dollar and the Euro. The Franc is now entrenched well above parity against the former, and is closing in on the magical level of 1:1 against the latter. With market uncertainty projected to run well into 2011, continued strength in the Franc is all but assured.

Forex Volatility Remains Abnormally High

If you look at a chart of currency volatility over the last five years, two major spikes immediately jump out. The first took place in the wake of the collapse of Lehman Brothers in late 2008, while the second occurred earlier this year during the height of the EU sovereign debt crisis. While volatility has gradually subsided since then, it is still well above its historical average, and many analysts forecast that it will remain at an elevated level through at least 2011.

Interview with Boris Schlossberg: “Risk control is EVERYTHING”

Today, we bring you an interview with Boris Schlossberg, director of currency research at GFT Forex, co-founder of BK Forex Advisors, and co-contributor to FX360. He is also a weekly contributor to CNBC’s Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted and appears in numerous newspapers worldwide. He is the author of Technical Analysis of the Currency Market (2006) and Millionaire Traders (2007). Below, Mr. Schlossberg shares his thoughts on risk management, leverage, currency wars, and other assorted topics.

IPOs Raise Questions about the Future of Retail Forex

It has been said before, but now I think it’s official: retail forex has entered the mainstream. In the month of December, two retail forex brokerages – Forex Capital Markets (FXCM) and Gain Capital Holdings (GCAP) – went public on the New York stock exchange. Combined with some juicy information revealed in their regulatory filings, I think this event raises some interesting questions about the future of forex.

Chinese Yuan: Appreciation or Inflation?

Based on nominal exchange rates, the Chinese Yuan has appreciated by a modest 2% against the US Dollar since the month of September (when the People’s Bank of China (PBOC) adjusted the currency peg for the first time in nearly two years). If you take inflation into account, however, the Chinese Yuan has risen by much more. In fact, if current trends persist, the Chinese Yuan exchange rate controversy might resolve itself.

Japanese Yen Down on Risk Aversion

It seems the gods of the forex market read my previous post on the Japanese Yen, in which I puzzled over the currency’s appreciation in the face of contradictory economic and financial factors. Since then, the Yen’s 6-month, 15% appreciation (against the US Dollar) has arrested. It has retreated from the brink of record highs, and undergone the most significant correction since March of this year. Have investors come to their senses, or what?!

Canadian Dollar: Parity Vs Reality

After a stellar 2009, the Canadian Dollar (”Loonie”) has had a relatively lackluster 2010 against the Dollar, rising by only 3-4%. As the Loonie has inched (back) towards parity, it has encountered significant resistance. I think there is reason to believe that the currency has reached its limit, and that there are little prospects for further appreciation for at least the first half of 2011.

Russian Ruble Undervalued According to Central Bank

In the midst of the currency war controversy, there is one emerging market country that continues to insist that its currency is undervalued: Russia. While being a member of the illustrious group of BRIC (Brazil / Russia / India / China) countries would seem to guarantee an appreciating currency, there are strong forces weighing on the Ruble. In other words, that it remains weak is not due to investor oversight.

Risk Aversion (Still) Positive for USD

As one strategist recently put it, we seem to be witnessing Deja Vu in the forex markets. The US Dollar in general, and the USD/EUR currency pair in particular, are behaving exactly the same as one year ago: “The greenback rose back then…on a combination of strong U.S. November jobs numbers…and the triple downgrades of Greece later in the month by Fitch, S&P and Moodys.” This time around, a similar combination of US optimism and EU pessimism are once again buoying the Dollar.