Today's Italian referendum is to decide if power of the senate house is being limited whereas they currently have equal power to the lower house.
In current system, it topically takes longer time to make a decision and enforce a new rule because the both houses have to agree with the new rule. The proposed system helps the government to reform Italian troubled banking industry for short term, while political risk remains for longer perspective, centralizing political power into fewer parties.
Choosing from Yes/No question in the referendum, Italy will face difficult situation whichever the result comes out. Simply, what is likely to happen?
(Yes to change)
Reform of the banking industry will be carried out, and market concerns are mitigated for short term.and EUR is likely stronger. The risk at political centralization would be negative but it is for a long term.
(No to change)
It is expected to take longer time to reform of the banking industry where they are suffering from bad performing loans. The prime minister, Matteo Renzi, would leave while the populist party Five Star Movement is earning more supports. It could lead to another uncertainty about populism movement in Europe, following such UK, France, Spain and Netherlands.
If the concerns at Italian banks and European politics intense, EUR will be bearish after the referendum.
Austrian presidential vote result will support positiveness in EUR at the market opening.
Sunday 4 December 2016
Saturday 17 September 2016
Theory of Interest Parity 17-Sep-2016
It hasn't been updated for such a long time, but you could see Forex analysis in our App on your own mobile.
Anyway, today's title is "Theory of Interest Parity". It theoretically defines the future Forex level by interest rates in two currencies of which are consisted in the Forex. When you have USD 1 million and invest it in interest rates, you can just invest in USD or in other currencies by exchanging. If the exchange rate unchanged, you would like to choose the currency whose interest rate is the highest. Obviously, it forms arbitrage and the fair return should be same in whichever currency you invest. In this sense, the market expects the future level of Forex that a currency of higher interest rate will be weaker than another of lower interest rate.
Of course, the future market does not always respond as theoretically expected. However, this theory is theoretically missing an important factor. Gap in quantity of issued currency will certainly affect to the future exchange rate. When the (expected) productivity is not growing and the central bank issues more notes in the currency, it implies the value of each unit of currency should be deducted.
Currently, EUR interest rate has been in negative territory. In the theory, the value of EUR is going up. But quantitative easing and weak productivity in Eurozone suppose that EUR will not be stronger as the theory expects. In fact, USD is still strong despite their relatively higher interest rate.
Anyway, today's title is "Theory of Interest Parity". It theoretically defines the future Forex level by interest rates in two currencies of which are consisted in the Forex. When you have USD 1 million and invest it in interest rates, you can just invest in USD or in other currencies by exchanging. If the exchange rate unchanged, you would like to choose the currency whose interest rate is the highest. Obviously, it forms arbitrage and the fair return should be same in whichever currency you invest. In this sense, the market expects the future level of Forex that a currency of higher interest rate will be weaker than another of lower interest rate.
Of course, the future market does not always respond as theoretically expected. However, this theory is theoretically missing an important factor. Gap in quantity of issued currency will certainly affect to the future exchange rate. When the (expected) productivity is not growing and the central bank issues more notes in the currency, it implies the value of each unit of currency should be deducted.
Currently, EUR interest rate has been in negative territory. In the theory, the value of EUR is going up. But quantitative easing and weak productivity in Eurozone suppose that EUR will not be stronger as the theory expects. In fact, USD is still strong despite their relatively higher interest rate.
Saturday 25 June 2016
Brexit just made another market turbulence but see it in longer term
Brexit brought another turbulence into the financial market, GBP diving around 10% against JPY, USD and massively down against other currencies.
This is absolutely massive scale, but is it so fresh? It is not. Nowadays, many people tend to forget something past so quickly as perhaps flood of information from the internet and media. Remembering just 1 year and a half ago, Swiss Franc (CHF) shot up around 15% against GBP, obviously whose scale is more than Brexit impact.
Lehman crisis had a clear message of credit market overestimated, and in fact that one biggest bank collapsed in public. So it is normal that people do not want Lehman's shares any more.
Unlike insolvent, nothing will change from next Monday for British people's life drastically. To establish Brexit deal. it will take more than 2 years.
It is clear that British economy entered the unexplored zone meaning uncertainty. Detailed pros and cons are not on the main topic of referendum, but more or less driven by populism. Further research and publication make clear that economic effect at Brexit. Even a single sentence in EU constitute may clash GBP value.
It is understandable to sell GBP as its expected uncertainty, but why they buy JPY? Looking at sovereign ratings or banking industry's ratings, there is no sign of strong-buy JPY. It had been traditionally always happened, but without economic reason, it is another sign of bended market.
As another trend, Gold price has started rising after years of downward trend.
By the way, keep eyes on Spanish election on Sunday
Sunday 29 May 2016
Correlation AUD vs Commodities 29-May-2016
The oil price is bounce back in 2016, where we see US$48 for WTI crude oil price, and it was around $37 at the end of 2015.
More remarkably, the gold price have been upward trend since early this year, where XAU/USD is 1220, and it was around 1062 at the end of 2015.
Australian dollar (AUD) is historically correlated with commodity price as commodity trade is one of their major export. The below figure shows 3 month correlation AUD vs Crude oil and AUD vs XAU respectively.
As seen there, those correlations have positive values, particularly with XAU. Although RBA cut the interest rate and AUD got weaken, AUD is fundamentally strong from the point of commodity price.
XAU is usually bought against USD when uncertainty is anticipated. US is having the presidential election which could be an uncertain factor (geo)politically.
Recovery of the oil price also support increasing commodity price.
Australia has kept the highest ratings, AAA (S&P), Aaa (MDY) and AAA (Fitch), which are evaluated in stable.
AUD has been sold for last 3-4 years due to their monetary policy, but it has fundamentally very positive perspectives.
Back to the correlation matter, currently 3 month correlation shows -10.0% in AUD vs XAU and -19.0% in AUD vs Crude oil. As seen in historical data, those correlations are likely to bounce back to highly positive territory soon or later. As far as the upward trend of commodity price keep ahead, AUD is expected to be upward trend, too.
By the way, our business Apps are available on Google play. Of course, they are free.
>> Forex signal by QROSS X
>> Newsensus [Business & Economy]
More remarkably, the gold price have been upward trend since early this year, where XAU/USD is 1220, and it was around 1062 at the end of 2015.
Australian dollar (AUD) is historically correlated with commodity price as commodity trade is one of their major export. The below figure shows 3 month correlation AUD vs Crude oil and AUD vs XAU respectively.
XAU is usually bought against USD when uncertainty is anticipated. US is having the presidential election which could be an uncertain factor (geo)politically.
Recovery of the oil price also support increasing commodity price.
Australia has kept the highest ratings, AAA (S&P), Aaa (MDY) and AAA (Fitch), which are evaluated in stable.
AUD has been sold for last 3-4 years due to their monetary policy, but it has fundamentally very positive perspectives.
Back to the correlation matter, currently 3 month correlation shows -10.0% in AUD vs XAU and -19.0% in AUD vs Crude oil. As seen in historical data, those correlations are likely to bounce back to highly positive territory soon or later. As far as the upward trend of commodity price keep ahead, AUD is expected to be upward trend, too.
By the way, our business Apps are available on Google play. Of course, they are free.
>> Forex signal by QROSS X
>> Newsensus [Business & Economy]
Saturday 23 April 2016
Another monetary easing by BoJ? 23-Apr-2016
JPY has been weaken sharply on Friday, where GBPJPY was at around 156.8 at the opening and it closed at around 161.0.
Ahead of BoJ meeting on 27 - 28 next week, according to some local sources, the market consensus expect another monetary easing is possibly released by BoJ, and JPY has fallen as well as the stock index, Nikkei 225 going up. As already mentioned in this Forex Flyer, N225 is actually N225/JPY and N225 going up doesn't always mean the stock is becoming more valuable in particularly in such cases.
It could say this movement is speculation in the short horizon. After the BoJ meeting, if no further policy is introduced, the market can be reversed to strong JPY and the stock market plunged, but again, it would not mean the stock is less valuable.
Nowadays, more and more news are coming up day by day, and Newsensus allow you to read news in more time-efficient way.
Ahead of BoJ meeting on 27 - 28 next week, according to some local sources, the market consensus expect another monetary easing is possibly released by BoJ, and JPY has fallen as well as the stock index, Nikkei 225 going up. As already mentioned in this Forex Flyer, N225 is actually N225/JPY and N225 going up doesn't always mean the stock is becoming more valuable in particularly in such cases.
It could say this movement is speculation in the short horizon. After the BoJ meeting, if no further policy is introduced, the market can be reversed to strong JPY and the stock market plunged, but again, it would not mean the stock is less valuable.
Nowadays, more and more news are coming up day by day, and Newsensus allow you to read news in more time-efficient way.
Tuesday 29 March 2016
Memo [Stock price and Dividend] 29-Mar-2016
Although there is difference between Stock and FX in CFD trading, I prefer to treat both underlyings in same ground.
First of all, let me list main difference between Stock and FX.
[Market opening hours]
Stock: Limited hours between MON and FRI
LSE: 8:00AM - 4:30PM (LDN time)
NYSE: 9:30AM - 4:30PM (NY time)
FX: Whole time between
SUN 10:00PM (UTC) and FRI 10:00PM (UTC) (except for world holidays)
[Source of income gain]
Stock: Dividend >= 0
(Treatment of dividend may be varied in CFD trading according to the brokers)
FX: Swap
(It could be profit or loss)
[Frequency of the income gain]
Stock: Annual, Semi-Annual or Quarterly in usual manner
FX: Daily
In terms of the value sensitivity, Source of income gain is a big difference. Once the value of dividend is withdrawn from the relevant stock, theoretically the stock price should fall according to the dividend. The market do not always behave theoretically, and the stock price is likely to fall beyond the dividend value due to speculation.
Put them in same ground
If you see the FX market, for example GBP/USD means GBP value against USD. In case that GBP/USD is going up, we have two assumptions, "GBP more valuable" or "USD less valuable".
On the other hand, in stock market, in case that FTSE100 is going up, it looks the portfolio of FTSE100 becomes more valuable, or in case that DJA is going up, it looks the portfolio of DJA becomes more valuable. It maybe correct, but the fact to remind is that FTSE100 is quoted in GBP and DJA is quoted in USD respectively.
Now, we see them precisely as FTSE100/GBP and DJA/USD, and FTSE100 going up could mean "The portfolio of FTSE100 becomes more valuable" or "GBP becomes less valuable".
This point of view makes sense for Japanese stock market trend in 2012 - 2013. In those time, JPY value had been down against major currencies and N225 index goes up in JPY. It implies the pure upside on N225 is actually less than the amount in JPY shows.
More things to be mentioned about it, but maybe next time.
First of all, let me list main difference between Stock and FX.
[Market opening hours]
Stock: Limited hours between MON and FRI
LSE: 8:00AM - 4:30PM (LDN time)
NYSE: 9:30AM - 4:30PM (NY time)
FX: Whole time between
SUN 10:00PM (UTC) and FRI 10:00PM (UTC) (except for world holidays)
[Source of income gain]
Stock: Dividend >= 0
(Treatment of dividend may be varied in CFD trading according to the brokers)
FX: Swap
(It could be profit or loss)
[Frequency of the income gain]
Stock: Annual, Semi-Annual or Quarterly in usual manner
FX: Daily
In terms of the value sensitivity, Source of income gain is a big difference. Once the value of dividend is withdrawn from the relevant stock, theoretically the stock price should fall according to the dividend. The market do not always behave theoretically, and the stock price is likely to fall beyond the dividend value due to speculation.
Put them in same ground
If you see the FX market, for example GBP/USD means GBP value against USD. In case that GBP/USD is going up, we have two assumptions, "GBP more valuable" or "USD less valuable".
On the other hand, in stock market, in case that FTSE100 is going up, it looks the portfolio of FTSE100 becomes more valuable, or in case that DJA is going up, it looks the portfolio of DJA becomes more valuable. It maybe correct, but the fact to remind is that FTSE100 is quoted in GBP and DJA is quoted in USD respectively.
Now, we see them precisely as FTSE100/GBP and DJA/USD, and FTSE100 going up could mean "The portfolio of FTSE100 becomes more valuable" or "GBP becomes less valuable".
This point of view makes sense for Japanese stock market trend in 2012 - 2013. In those time, JPY value had been down against major currencies and N225 index goes up in JPY. It implies the pure upside on N225 is actually less than the amount in JPY shows.
More things to be mentioned about it, but maybe next time.
Thursday 25 February 2016
British Pound remarkably low against major currencies 25-Feb-2016
Since the beginning of this month, GBP has sharply gone against major currencies such as USD, JPY, AUD or NZD though GBP peaked out in last Autumn of 2015.
Compared with the level at the end of 2015, GBPJPY got the sharpest decline more than 12.0% down, GBPUSD is following down at 6.0%, and even against AUD and NZD, GBP has gone down 5.0% and 3.6% respectively.Due to the rate cut of AUD and NZD for a last few years, GBP and other currencies have been relatively stringer against AUD and NZD whose interest rates are more stable now than before.
However, even though their rates had been cut, the policy rate in
We cannot miss out that global stock markets have been downward and volatile since the beginning of the year. The market shows
What happened in crisis probably happens now again, it is still a question from the view of investment because Japan has S&P rating only A+ (stable) and negative interest rate at -0.1%. Do you want to invest?
2015 was geopolitically unstable year, and 2016 will be economically and (geo)politically unstable due to the volatile market, US president election, Brexit, Spanish goverment, ...
Keep yourself to follow the global economy more efficiently, why not use Newsensus. Available on Google Play.
Tuesday 9 February 2016
Global stock market plummeted in massive scale for a last years 9-Feb-2015
Long Time No See.
As most of you already know, the global stock market have plummeted since beginning of 2016, or now we could say it might have started later 2015.
Despite Japanese negative rate introduced by Bank Of Japan, Japanese stock market has gone down, where Nikkei 225 down 5.40% from last closing.
Italian banks have been vulnerable relatively due to concerns over the bad loan.
Financial Times >> Italian finance official expects big interest in banks’ bad loans
That pile of bad loans made the country’s financial institutions especially vulnerable in the recent market sell-off, causing alarm among investors and policymakers. Stocks in Italian banks tumbled last week even after the deal was announced.
The bad loans will not be sold individually under the new plan but will be packaged through securitisation — a market that has been lacklustre in Europe over recent years — and sold to private investors.
Massive quantitative easing and negative interest rate have been carried out by several economic zones. After all, they will have limited choices to stabilize the financial market, and actually loosened financial policy for a last few years could bring massive bounce back into the market once the market is going out of the control.
To check international news, Newsensus is available on Google Play.
Here is the list of global stock indexes.
[North/South America]
As most of you already know, the global stock market have plummeted since beginning of 2016, or now we could say it might have started later 2015.
Despite Japanese negative rate introduced by Bank Of Japan, Japanese stock market has gone down, where Nikkei 225 down 5.40% from last closing.
Italian banks have been vulnerable relatively due to concerns over the bad loan.
Financial Times >> Italian finance official expects big interest in banks’ bad loans
That pile of bad loans made the country’s financial institutions especially vulnerable in the recent market sell-off, causing alarm among investors and policymakers. Stocks in Italian banks tumbled last week even after the deal was announced.
The bad loans will not be sold individually under the new plan but will be packaged through securitisation — a market that has been lacklustre in Europe over recent years — and sold to private investors.
Massive quantitative easing and negative interest rate have been carried out by several economic zones. After all, they will have limited choices to stabilize the financial market, and actually loosened financial policy for a last few years could bring massive bounce back into the market once the market is going out of the control.
To check international news, Newsensus is available on Google Play.
Here is the list of global stock indexes.
[Asia & Pacific]
(Japan) Nikkei 225 index
(Singapore) STI Index
[Europe / Middle East]
(France) CAC 40
(Germany) DAX
(Italy) FTSE MIB
(Norway) OSLOStock Exchange All Index
(Russia) RTSI Index
(Spain) IBEX 35
(UK) FTSE 100
[Africa]
(South Africa) FTSE/JSE Africa All Share Index
(Nigeria) Nigerian Stock Exchange All Share Index
[North/South America]
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