Trading Forex in Baskets to diversify trading risk for both, speculative trading or hedging Forex risk by Ron Schelling
Asian Session: Live Market Analysis
by Dr.S.Sivaraman
November 09, 05:00 GMT
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This time a look at the average hedge position for the EUR/USD.
It’s remain sideways (red bars) and keep only a small portion long while waiting for more change in the percentage to hedge once breaking out of the last range 1.2880 - 1.3750.
Remember this is for hedging only.
Our last artcle about FX Basket was March 30.
Today we look at the development of strength and weakness of the major currency pairs during the first three weeks of April as on the chart below and compare against the beginning of April.
The lines are the RSI’s of the major currencies and cross-rates and give you an idea how strength and weakness are looking for all of them in just one view.
For example: the purple line, NZD/USD came down all the way from > 80 to <40 or 20 pips only, while the brow line, USD/CHF from -30 to 66 or from 1.1270 to 1.1635
Due to travel outside the country the next update will be next Tuesday.
Two interesting links about the fundamental economic situation is the USA:
Layoff Daily: http://www.layoffdaily.com/
30 Biggest Bankruptcy risks in the USA:
Think about the impact on the major currencies !
On our April 6th. article we wrote about ranking strong and weak currencies.
The strategy is to hold the strongest Long and the weakest Short according the ranking below and adjust the currencies each day when necessary.
You can compare how much they have changed since our earlier article on April 6th.
http://blogs.fxstreet.com/forexhedge/2009/04/06/ranking-forex-spot/
On April 6th the GBP/CHF strength was 1013 and the exchange rate 1,6733 , so to hold it long, while today the strength was on top at 1017 and exchange rate of 1.7252 so up 519 pips !
On April 6th the EUR/CAD weakness was 996 and the exchange rate 1.6622 , so to hold it short, while today the weakness was at the bottom at 977 and the exchange rate 1.5823 so down 799 pips !
Another look to hedge FX risk, this time the cross-rate EUR/CHF as on the chart below.
Our goal is to maintain an average better exchange rate and avoid this way heavy market volatility.
EUR/CHF is just the difference between EUR/USD and USD/CHF but normally the volatility in the cross-rate is less compared to the major exchange rates.
You can the charts of the major exchange rates with their hedge percentages on this link: http://www.2hedge.com/mmfxhedge.html
Small communities in the USA print now their own currency to keep the cash going.
Businesses and individuals from a local network print the currency and shoppers buy it for , say 95 cents for $ 1. value and so helping local consumers to end the strugglinglocal businesses.
Already 10% of the USA are using food-stamps but printing local currency is another depression-era idea.
See the movie here:Scrip: It’s all the rage
A very interesting article from the China Daily about the Yuan.
Five major cities in China are advised by the central government to use the yuan in overseas trade settlements which is seen as a one more step in China’s recent moves to expand the use of the yuan currency globally.
The move is aimed at reducing the risk of exchange rate fluctuations.
The trial is the latest move toward making the yuan an international currency and the prospect of a weaker US Dollar is making the transition more imprerative for China.
Not all of us are speculators and we have many following the currency markets for hedging corporate currency risk for import/export reason.
Their goal is to maintain an average friendly currency on which they can calculate their product price.
Based on the chart below the present EUR/USD holding is 40% long of the amount you need for buying/selling foreign goods which must be paid/recieved in EUR/USD.
Important is the discilpine to follow, so you can take out the gamble strategy.
Important as well is the time forward.
Maybe you remember some airlines hedged their JetFuel 2 years forward at the highest point around $ 140 p/b while today it’s $ 50 p/b so they still pay the higest price for the next 2 years !
These well running airlines are now running into financial trouble.
Therefore it’s so important to adjust your currency risk each week/month and so to maintain an average friendly currency to hedge your corporate currency risk.
The four major currencies with hedge percentages on: http://www.2hedge.com/mmfxhedge.html
Our ranking article yesterday was about Currency ETF’s and today I like to show you ranking on Spot currencies with more choice of currencies to rank than the ETF’s.
There are many possibilties to rank strength and weakness of currencies and recalculate it to a friendly number, while market speed is a seceond factor to count.
The currency can be strong trending while market speed is not always following.
The strategy for trading is to hold the 2 or more strongest currencies long and the 2 or more weakest currencies short while adjusting per day or per week.
More nice tools, FX-Index and FX-Movers are on www.2hedge.com
A quick look at ranking the Forex ETF’s (Exchange Traded Funds).
The 2e line from the top is the Australian Dollar while the Yen is at the bottom.
This matrix is showing the ranking and a green figure means not buying the ETF, but it’s the strongest in the selected group of ETF’s, while red is the weakest in the group. Each colomn is a week.
Click on the matrix to get a better view.
The next step is to measure real market value.
The GBP has a green column which indicate an uptrend for the last 39 trading days, but more important it’s 2.3% up in the last 3-months while the Yen is trending down, also for the last 39 trading days, the weakets in the group and down 7.9% in the last 3-months.
So finally we look at the Yen chart and we see at the top the trend indicator in red, down for the last 39 trading days and ROC steady down as well.
We only can rank, at the moment, the currency ETF’s but we try to show you also later the all the spot currency pairs as traded by most brokers.
