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Market Analysis
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USD/CNH (USD/CNY): An Overview

The foreign exchange pair USD/CNH (or otherwise known as USD/CNY) is the trading ticker symbol for the powerful but volatile pair of the United States dollar and Chinese Renminbi. Chinese Renminbi is the official currency of the People’s Republic of China, but each individual unit of currency is called Yuan. These two are considered as “exotic” or volatile pairs, mainly because a major currency, USD, is paired with that of an emerging nation, CNH.

 

While considered volatile and generally treated with higher liquidity, the USD/CNH pair is the combination of the world’s two largest economies. The unique relationship between the two countries of the two currencies makes the combination both potent and fascinating.


CURRENCY BACKGROUND


United States Dollar


The United States Dollar is the official currency of the United States of America and several other countries. It is popularly known as the “greenback” due to the bills’ predominantly green color.

 

The Coinage Act of 1972 paved the way for the introduction of the US dollar. The fiscal policy of the United States is under the control and supervision of the Federal Reserve System, which serves as the nation’s central bank as well.


Chinese Yuan


The Renminbi is the official currency of the People’s Republic of China. The Yuan is the basic unit of the Renminbi, but it is also used to refer to the currency in general, especially in an international context.

 

In 1948, or one year before the establishment of the People’s Republic of China, the People’s Bank of China (PBOC) introduced the Renminbi. As the new government of China expanded its hold on its territories, it began to steadily issue the Renminbi so as to have a unified currency in the land. Since then, the Renminbi, or Yuan, has been in circulation and has been the official currency of China.


IMPLICATIONS OF USD/CNH CURRENCY PEGGING


The US and China have always had a love-hate relationship that greatly affects not only their trade relations but that of the world as well. The past decades saw a series of pegging and de-pegging between the two currencies. Here are a few key periods that saw the biggest impact and highlighted the importance of currency pegging.


1995-2005


The US Dollar is freely convertible into all currencies of developed economies. On the other hand, the Chinese government is managing the Chinese Yuan’s value. From 1995, Chinese Yuan was at a “hard currency peg” at 8.38 against the US Dollar. For a decade this seems to be the case, and for this reason, it received wide criticism, mainly from the US government. The expectation that there should be a movement in the currency exchange of Yuan (given that China’s economy saw big growth) was not seen. This move by China is seen to protect its interest as, by artificially keeping the value of the Yuan down, Chinese importers were given a competitive advantage: a lower Yuan exchange rate reflects a stronger Chinese currency because you would need fewer Yuan to purchase one US Dollar.


2005


July of 2005 saw a revaluation of the Yuan by the People’s Bank of China by 2.1 percent. PBOC likewise announced a shift to a “soft peg,” which will allow the Yuan to trade more freely within a certain managed exchange rate range. While some criticized the change for being too “insignificant,” many economists praised the move and saw it as the first step towards a more flexible currency exchange system.


2010 - present


Since 2010, China continued its efforts of reforming its exchange rate system by giving the buying and selling forces in the market a freer reign in determining the exchange rate.


IMPORTANT THINGS TO CONSIDER WHEN TRADING USD/CNH IN FOREX


Federal Reserve and People’s Bank of China


Federal Reserve


The Federal Reserve, or most commonly known as The Fed, is the United States’ central bank. It is responsible for the monetary policies of the nation and sets the interest rates of the dollar investments eight (8) times in any given year. The Fed provides direction to strengthen the US Dollar and in maintaining its fluidity and stability.


People’s Bank of China (PBOC)


PBOC is China’s central bank. It has the duty of implementing monetary policies – even unconventional ones – to ensure that CNY remains competitive and afloat. PBOC likewise sets a daily midpoint rate, which serves as a basis in trading Renminbi or Yuan within 2% in either direction.


Trade Wars


Being major players in the international trading arena, trade wars in the form of imposition of additional tariffs and sanctions greatly affects the values of the currencies. In the 2018-2019 US-China Trade standoff, when Trump imposed a series of sanctions against China’s products and exports, China retaliated by lowering the exchange rate value of CNY below its USD peg.


CNY Depegging and artificial manipulation

USD/CNH Weekly - Nov 2017-2018



CONCLUSION


Is the USD/CNH worth the risk for your investment?

 

As a volatile combination, is it worth the risk to invest in USD/CNH?

 

While it seems counterintuitive, the pair remains to be one of the most popular, given that the combination represents two of the most powerful economies in the world.

 

The US Dollar is the world’s primary reserve currency, and remains to be the most widely used currency when it comes to international transactions. The Chinese Yuan represents the continuous and rapidly rising economy of China, the world’s largest exporter. Their advantages when taken individually could be the pair’s strength when taken cumulatively.

 


10/11/2022
Market Analysis
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NZD/CAD: An Overview

The Forex symbol NZD/CAD indicates the exchange rate value between the New Zealand Dollar (NZD) and the Canadian dollar (CAD).

 



Currency background

The New Zealand Dollar (NZD)

 

The New Zealand dollar has been New Zealand's official currency since 1967. It is also used by the Cook Islands, Niue, the Pitcairn Islands, and Tokelau.

 

Before NZD emerged as the country's official currency, New Zealand used the New Zealand pound. It should be noted that it differs from NZD and the sterling pound. The government researched using a decimal currency, eventually leading to the use of NZD.

 

When NZD was introduced, 27 million worth of banknotes and 165 million in coins were produced. The currency is also known as the kiwi, after the bird native to New Zealand.

 

The Canadian Dollar (CAD)

 

The Canadian dollar (CAD) has been Canada's official currency since 1858. It uses the typical dollar sign ($). You will sometimes see it as CAD, Can$, or even CA$. These variations are meant to distinguish it from other currencies that use the dollar name. Like other dollar denominations, such as NZD, it is a decimal currency.

 

CAD is pretty popular, holding the fifth most chosen reserve currency. Of course, USD dollar is at the top, followed by the EUR, GBP, and JPY. CAD is also the sixth most traded currency because the country has a lot to offer in terms of raw materials and natural resources.

 

Factors you need to consider in trading NZD/CAD

 

Most currency pairs depend on similar factors, such as economic trends and geopolitical factors. Your wins and losses will depend on the countries your currencies are from.

 

Here are some factors that drive the NZD/CAD dynamics:

 

Economic and geopolitical conditions are the most significant factors that affect NZD/CAD as a Forex pair.

 

Economic conditions

 

When considering the NZD/CAD Forex pairing, you may want to take special note of Canada's strong economy. It is a mixed one, with over 70% of it relying on the service industry.

 

It is worth noting that in 2020, the country was considered to have the world's ninth-largest economy, with almost USD 1.75 trillion in GDP. It even places third worldwide in terms of oil deposits. There are many other raw materials the country can also export.

 

Meanwhile, NZD has recently (at the time of writing) experienced a surge, with its economy rising faster than investors expected. The second quarter of 2022 has seen it grow by 1.7%. The rally did not last long, and more recent stats show it is now fizzling. However, considering the 0.2% drop during the first quarter, NZD is still headed in the right direction.

 

Because New Zealand is very close to Australia, observe how their economies are also closely interrelated. A lot of New Zealand’s exports may be going to its neighbour.

 

As a Forex pairing, NZD/CAD is reliable enough. It may not involve the ever-popular USD, but CAD is a reliable currency, and NZD is also proving its worth. One must, of course, at least show some predictable up-and-down motion for you to profit from this pair.

 

Because both Canada and New Zealand are known for their oil and other commodities, you may also want to do a lot of commodity price watching before you make a trade.

 

Geopolitical conditions and global risks

 

Canada does very well politically. It is known to have one of the least corrupt politics in the whole world. That fact makes it a steady country with a reliable economy.

 

Meanwhile, New Zealand is generally known as a peaceful country. Still, it is difficult to deny that current global tensions have affected the currency. NZD's value lowers as the tensions and the prices soar, an effect felt long after the COVID-19 lockdowns.

 

Despite NZD issues, local exporters benefit from lower NZD value.

 

Perception

 

How each of these economies is perceived also plays a role in how each performs. Traders want to invest in something they can trust and predict. For example, Canada is generally perceived to have clean and non-corrupt political practices. It also continues to deliver high-quality raw materials and natural resources. Both these factors play a big role in the currency's perception.

 

How to trade NZD/CAD

 

When trying to profit from this particular Forex pair, do so during the optimum times: from 13:00 and 17:00 (GMT). Why? It is at these hours that the NZD/CAD is at its busiest. Be careful. Trading when it is at its volatile is risky, while trading when it is not volatile will have you spending too much.


A number of other factors will also influence the volatility of this pair, for example, the CAD exchange rate can be affected by the US’s economic conditions. Meanwhile, the NZD is affected by Asian and Australian markets.

 

Conclusion

 

Is the NZD/CAD pair worth going into?

 

The NZD and CAD pairing does not involve the USD, the most sought-after currency. So, it does have that against it.

 

However, CAD is reliable enough. It is one of the world's most-held reserve currencies, coming from a stable country with perceptibly good politics and many resources. So, you can trade this pair with the knowledge that you can, at least, rely on the CAD.

 

The combination with NZD is near perfect because the New Zealand currency may be experiencing some issues, but it is still generally more reliable than many other currencies. It is the 18th most used currency, from a largely peaceful country. The ups and downs it is currently experiencing may ultimately benefit traders. After all, you want to profit from the trade and not work on a pegged, static currency.

 

So, it is worth checking NZD/CAD if you want to diversify your foreign exchange portfolio. You may still have another pairing with USD involved, but the NZD/CAD pair is worth checking out.


01/11/2022
Market Analysis
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Trading in a Recession 

Volatility is opportunity and there is no better time to embrace volatility than in a recession. To improve your success trading in a recession we’ve compiled a short list that will cover the historical performance of different asset classes, a look into different recessions, and strategies that could be implemented during a downturn. 

 

  • Know your markets 

   Forex 
   Stocks 
   Commodities 
   Cryptocurrencies 

  • Know your recession and recession history 

   Global Financial Crisis 
   Covid-19 

  • Strategies 

 

 

What is a Recession? 

 

Before we dive further into the markets and strategies, let’s first understand the broad strokes of a recession and what it really means. 

 

The term “recession” is generally applied when two consecutive quarters of negative GDP growth are reported, dubbed a “technical recession.” However, this can often be myopic and not encapsulate the entire economic environment. Unemployment, consumer spending, and lending accessibility are just some of the other indicators that help convey when an actual recession has occurred. Overall, there should be a general decline in overall economic activity. 
 

In the US, the National Bureau of Economic Research (NBER) is the authority in determining a recession. They define it as: “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” [1] Therefore despite the US reporting two negative quarters of growth in 2022, the Whitehouse issued a blog stating they are, in fact, not in a recession. [2] 

 

Regardless, when you see a general decline in economic activity, being prepared and able to adapt your strategy on the fly will largely determine your success as a trader when market conditions change. 


 

Business Cycle Phases

Overview of Business Cycle Phases (Source) 


So what does this means for the markets? 

 

Most know that in recession-like conditions, people become more risk-averse. We’ve seen this all throughout 2022. Risk-on assets like crypto, high-growth tech stocks, and speculative assets plummet, and safe havens currencies and assets rise. 

 

Tech Stock Declines 2021 to 2022

Selected Tech Stock Declines, Jan 2021 – Feb 2022   


BTC USD 2021 to 2022

BTC/USD Oct 2021 - July 2022 

 

In terms of forex, we’ll find that the demand for a currency will still largely be determined by the economic state of the issuing country/region. We’ll see strong economies and trusted currencies that the market believes can weather a recession rise or remain stable, and economies that are more susceptible to a severe fallout decline. 

 

Know Your Markets 

 

Most traders will not trade every market, so the first thing to understand in a recession is how your asset class has historically acted in an economic downturn. We all know that past performance is not an indication of future performance, but as the saying goes, “history doesn’t repeat, but it often rhymes,” so let’s first look at how different asset classes have historically performed. 

 

Know your markets: Forex  

 

Forex is not like other asset classes. Forex is to an economy as oil is to a car engine. It keeps the engine functioning but is not necessarily the gas that makes it go. Unlike an overall stock crash, in a recession we’ll see certain currencies shine. The main thing to look at is a country’s strength in a recession and how much it is seen as a “safe haven”. 

 

For example, in the first half of 2022, as recession fears were reaching a fever-pitch, we saw great strength in the USD. This is because most traders have greater trust in the US Dollar and confidence in the US economy, despite the US experiencing severe inflation and stagflation concerns. 

 

DXY 2021-2022

DXY Oct 2021 - Jul 2022 

 

Similarly, you’ll likely see emerging market currencies crash in a global recession as they are more vulnerable to economic downturns. This is further backed up by JP Morgan, who calculated that emerging market currencies drop by an average of 17% over a two-year period from the start of a recession. [3] Even G10 countries can be affected, as JP Morgan also estimated that the New Zealand dollar loses 7-8% in times of a recession. 


AUD USD Collapse in March 2020 Covid Recession

 AUD/USD collapse during COVID recession (March 2020)


In terms of the strongest currencies, these have traditionally been: 


  • US Dollar 

  • Swiss Franc 

  • Japanese Yen 

  • Singapore Dollar 

 

Putting a particular spotlight on the US dollar, as the world’s default currency, we’ll often find banks buy USD when they (and companies) deleverage. We saw this already in the DXY when recession fears were very much at the forefront of the market’s mind both in 2022 and 2008. 

 

DXY 2008-2009

DXY Nov 2008 – Mar 2009 


Chart, line chart Description automatically generated

 

It’s important to note that these are broad generalisations. Each recession will have its own intricacies and market movements. At the end of the day, macroeconomic data is still king and will trump any broad-stroke generalisation. Indicators and future forecasts of metrics like balance of trade (imports/exports), currency demand, employment figures, inflation, spending behaviour, and monetary policy will all have significant effects on the strength of an economy and subsequently its currency. Remember to keep up to date will the latest news, forecasts, and figures. One way to do this is by visiting Fusion Markets’ economic calendar.  

 

For instance, we saw weeks before that energy prices were coming down due to a number of factors (Libya’s lifted embargo, OPEC+ meetings, lower demand, etc.) - energy was a major factor in the US’s rising CPI in 2022. This combined with the Fed’s less hawkish stance on rate hikes, positive job numbers, and slowing inflation saw markets rally and embrace a higher risk appetite, further exemplified by the fall of the DXY. 

 

Know your markets: Stocks 

 

Overall, we’ll generally see indices crash in a downturn. This year we saw the S&P500 fall below the 20% threshold that stock traders use to determine a “bear market”. Similarly, from 2007-2008, we saw the S&P 500 fall from 1,527 (Sept. 2007) to 968 (Sept. 2008) and the FTSE 100 drop from 6466 to 4902 over the same period.  

 

That being said, not all stocks will plummet. While “growth” stocks will be hit the hardest, you’ll notice that “defensive stocks” may actually rise during this time. For example, McDonald’s Stock rose 5.8% in Sept 2007 to Sept 2008. Similarly, we saw Coca-Cola increase revenues by 12% quarter on quarter in 2022 Q2. 

 

Fidelity created a template (below) that outlines a rough guide of how different sectors perform at different stages of the business cycle. 

 

Fidelity’s Sector Rotation Chart (Source) 


Know your markets: Commodities 

 

Obviously, gold is seen as a safe haven to many, especially during a recession and historically has thrived in risk-off conditions. However, gold is not the only commodity that may see gains. Similar to stocks where staple companies rise, we often see other popular commodities used when times are tough such as corn and wheat also rise. Reversing this assessment, we’ll also find commodities in high demand in booming economic conditions like those used in infrastructure, such as copper, fall. 

 

Similar to stocks and forex, these are all broad strokes and real-time data will trump generalisations. Ask yourself questions about how commodity markets will be affected in an economic downturn such as: are there political hold-ups (sanctions, embargoes)? How will the supply chain look (what could reduce/increase supply)? Does the commodity have new uses/markets (e.g. EVs)? 


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Gold Price vs Recessionary Period 1968 - 2021 


LME Copper Future price vs Recessionary Period 1990 - 2020 


Know your markets: Crypto 

 

Crypto has not been around in a recession, so it can be difficult to determine how it will react in such conditions. However, it has been through several bear markets that can paint a telling picture of how the market behaves in a downturn. 

 

Obviously, crypto is in the basket of “risk-on” assets, so you’ll generally see falls across the board, even in deflationary crypto assets. The real question is, what kind of falls will you see? 

 

Historically, Bitcoin has been the gold standard and although it has dropped significantly in bear markets its crash has been less severe than altcoins (alternative coins) like Doge, Ada, and Stellar. Ethereum is also now considered a bluechip coin and may show the same resilience in an upcoming recession, but in the last bear market (2018 - 2020), it followed the same big crash blueprint of other altcoins, coming down from $1,396 USD to $84 at the bottom of the market. 

 

ETH/USD December 2018 – March 2019 

 

The other key factor you’ll need to consider is which altcoins have staying power. While it’s true Bitcoin will hold up better in a market downturn than altcoins, it is also true that Bitcoin will have less upside than altcoins that are able to survive through a bear market. In 2020-2021, altcoins that weathered the bear market (Ethereum included) saw mind-boggling rises that dwarfed the return of bitcoin. 

 

ADA/USD Nov 2020 - Sep 2021 

 

At the end of the day, it comes down to your risk appetite, your time horizons and your trading style. 

 

Know your history and recession 

 

What kind of recession is this and what policies are central banks enacting to soften the blow? If we look throughout history, we’ll see a variety of different recessions with varying lengths, severities and outcomes. So, while it’s important to know how asset classes generally respond, it’s also very important to know what is unique about the recession you’re experiencing.  

 

Let’s examine two past recessions. 

 

Covid-19 Recession (March 2020) 

 

The Covid-19 recession was unlike many recessions of the past due to the unique effects on supply chain, employment and the unprecedented QE response from central banks. While the markets had been on a significant bull run for some time, the downturn can only be described as abrupt and violent.  

 

Economic Declines in 2020

 

Following, central banks went into action and put the jets on stimulus and other economic incentives to keep their economy afloat. As a result, we saw unprecedented growth across risk-on assets, and assets affected by supply chain issues such as corn and timber. 

 

Coronavirus and stock market chart



Lumber prices in COVID

 

Central banks’ response also saw further economic hardships appear as inflation rose significantly, further affecting economic stability and has led to what many are predicting as a long, hard crash in the next recession. 

 

Inflation since 2020 world

 

 

Take Aways: 


  • Central Bank responses are paramount 

  • Look beyond the term “recession” - what are the actual aftermath effects of the recession-cause (e.g. lockdowns, supply restrictions, who stays employed)?  

  • How has previous market behaviour affected investor expectations and risk appetite (prior long-lasting bull market)?   

 

Great Financial Crisis/Great Recession (Dec 2007 - June 2009) 

 

The Great Financial Crisis (GFC) was a severe recession that affected economies across the globe. It was largely driven by financial deregulation in the US (repeal of Glass-Steagall) that allowed risky subprime lending and securitisation of toxic assets. As a result of the overheated mortgage-backed securities market, when the economy started to slow in 2007 it set off a chain of events that created chaos throughout the global markets, leading to global credit freezes.  

 

During this time the S&P500 fell 38.49% in 2008 (its worst year since 1937). In order to prevent a depression, governments began implementing quantitative easing (QE) policies, as well as a number of other measures to prevent further economic catastrophe. However, it still took roughly 4-5 years for the markets to fully recover. Similar to today, in the FX markets we saw USD act as a safe haven. 

 

Notable price market movements in 2008: 
 

  • DJIA -33.84% 
  • S&P500 -38.49% 
  • Gold Rallied +8.29% 
  • Oil plunged -53.5%  

 

2008 Stock market peak to recession end


Equity Index 2008 to 2009


History of Global Financial Crisis


Take Aways:

 

  • How does the recession affect lending?  

  • How did it affect consumer confidence? 

  • To what extent will central banks go to avoid severe downturns (bailouts, QE, etc.)? 

  

Embrace your strategy 


While you will be adapting your strategy in a recession, it’s still important to stick to your trading plan. Know your take profit levels, know your stop loss levels and know your time horizon. 

Are you an intraday trader or a swing trader? Can your strategy in a bull market be applied in a bear market with tweaks? Has your risk appetite changed? 

 

Let’s examine a couple of common CFD trading strategies: 

 

Hedging


Hedging is the trading strategy of mitigating your risk by taking an opposite position in the asset or related asset. As many people are often long-term stock investors, some traders may wish to offset their risk by taking an opposite position in stocks or indices. If you’re looking for a cost-effective way to implement this strategy you can use Fusion Market’s commission-free US Share CFD or Equity Indices trading. 

 

Position Trading


As you will know the market you’re trading (FX, Equities, Commodities, Crypto etc.), you’ll also have some rough ideas of where particular assets may move. Position trading is akin to buy and hold or sell and hold strategies. In that, you take a position and run with it until you hit your broader take profit or stop loss levels. 

 

Scalping


Scalping is the practice of buying and selling an asset quickly with the aim of making small and quick profits. It is often favoured by day traders. There are many scalping techniques with some even considering arbitrage as a form of scalping. Others may try to briefly catch a trend, while some traders may look to trade the asset when it is “ranging” (bouncing between clear support and resistance levels).  

 

Carry Trading


Carry trading is profiting from interest rate spreads between two currencies by borrowing in a currency with a low-interest rate and converting that to a currency with a higher interest rate. This is a popular strategy among forex traders. However, this strategy carries risks such as the currency pair you are carry trading substantially drops in value. This is why it’s important to know the latest macroeconomic data to ensure your loaned asset doesn’t break in the wrong direction.   

 

News Trading


This can be especially potent in an economic downturn as traders will be closely watching central banks and will react quickly to their decisions. For example, as inflation and recession fears were major concerns in 2022, central bank interest rate hikes had significant effects on the markets and the perceived economic outlook of a country. This type of trading can be both short or long-term, but to be successful you’ll need to know what the market already thinks. A common method for this is to look at futures data and other markets to gauge expectations. For example, you can see data on Fed fund rate futures to see what interest rate hikes the market expects from the Fed. How closely the Fed matches expectations will affect how the market moves on and after their announcement. 

 

These strategies, much like other information in this article are broad ideas, nothing is to be taken as gospel. Still, it is a useful way to get a better grasp of what happens in a recession and how to position yourself to remain profitable when the market falls. 

 

Let us know what you think and if you have any other things you believe we should have added. 

 

To be able to trade all your assets in one place with the lowest commissions forex broker, join Fusion Markets today and get access to over 250+ trading assets. With 37ms* executions and from 0.0 spreads, we’ve made trading easy. 

 

 

 

 

 

 

 

 

 

 

 

 


20/10/2022
Market Analysis
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GBP/USD: An Overview

The forex symbol GBP/USD indicates how much the British Pound (abbreviated as GBP) is worth in relation to the US Dollar (abbreviated as USD). This article provides traders information on how much USD is needed to buy one GBP. Forex traders call an exchange of this pair as “trading the cable,” a nod to how New York and London used to transmit trading information.

 

The GBP/USD pair is among the oldest currency pairs traded in the world. It is also among the most popular pairs to trade and is considered a major forex pair.

 

If you’re considering trading this pair, read on for a quick dive into the history of these currencies, their dynamics, and how you can trade this pair.

If you want to read more articles about our pairs, check out our posts on: USD/JPY and EUR/CHF.

 

Currency background


The British Pound (GBP)

 

GBP is the official currency of the United Kingdom and its territories. Its history can be traced back to continental Europe. With over 1,000 years of history, it is one of the oldest, if not the oldest, currency still in use. In 1694, the Bank of England was established, and banknotes entered circulation shortly after.

 

The GBP’s importance goes beyond the UK and its territories. It used to be the dominant international currency before USD took over in the 20th century. However, it is still among the most widely used currencies for financial transactions worldwide, along with the USD and the Euro (EUR). Further, as of 2021, the GBP comprised 5% of official foreign reserves (i.e., share of currency reserves held by central banks).

 

The US Dollar (USD)

 

USD is the official currency of the United States, dating back to the 18th century. In 1785, the US adopted the dollar sign, which is now, perhaps, the most recognizable currency symbol in the world.

 

The USD plays a major role in the global economy, dominating international finance. It is the most active currency for international payments. It has also been the top international reserve currency since World War II, with an over 50% share of global reserves. In forex markets, almost 90% of all transactions involve USD.

 

The Plaza Accord

 

No background of these two currencies would be complete without mentioning the historic Plaza Accord.

 

In 1985, the US, UK, France, Germany, and Japan—then known as the G-5—agreed to jointly intervene in the currency markets to correct trade imbalances. The devaluation of USD was meant to reduce the increasing US trade deficits.


In a couple of years that followed the agreement, the USD declined in value by about 50%, while GBP and the other currencies appreciated by about 50%.

 

Factors you need to consider in trading GBP/USD

 

The GBP/USD pair is among the most liquid in the forex market, with smooth price movements as there’s enough volume of trade in the market.

 

Various factors move the prices of currency pairs in the forex market. For most currency pairs, prices are affected by economic trends and geopolitical circumstances, both locally and globally.

 

Here are some factors that drive the GBP/USD dynamics:

 

Economy

 

Both the US and the UK are among the largest economies in the world.

 

Due to its size and role in the global economy, the economic situation and policies in the US affect many economies and markets worldwide. In general, the GBP/USD rises when the UK economy grows more than US economy.

 

If you’re trading US-based pairs, you can keep up to date with US economy updates through government data releases and economic reports or Fusion's economic calendar, which includes data such as GDP growth, interest rate decisions and balance of trade.

 

Trade balance

 

The US is one of the three largest players in global trade, along with the European Union and China. The US is among UK’s major trading partners, accounting for about 10% of UK imports and receiving over 15% of UK goods exports.

 

The trade balance situation generates some volatility for GBP/USD. GBP/USD rises when current account balance (i.e., the balance of trade between the two countries) increases for the UK.

 

Central Bank policies

 

The Federal Reserve (Fed) sets the monetary policy in the US, a key determinant of currency strength, with the aim of stabilizing US prices and maximizing employment. In the UK, the Bank of England (BoE) sets the interest rate to maintain low and stable inflation. It reviews rates every 6 weeks.

 

A rule of thumb here is that the pair rises when the BoE interest rates rise more than the Fed rates.

 

As the USD plays an important role in international markets, movements in interest rates set by the Fed have a critical impact on the movement of many currencies worldwide, including GBP. In 2022, steep rate increases have strengthened the US dollar, causing other currencies to dive as investors rush to USD.

 

Geopolitical conditions and global risks

 

Like other currency pairs, the GBP/USD is also driven by political uncertainties and global risks.

 

The GBP took a hit following the global recession in the late 2000s. In 2016, after the announcement of Brexit, the GBP dived to its lowest against the USD, as UK’s decision created uncertainties to how its trade prospects would pan out.


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GBP/USD and GBP/EUR - 2014-2021


As USD is a global reserve currency, it serves as a haven at times of global uncertainties. During the height of the COVID-19 pandemic in 2020, the GBP/USD rate dropped by 12% as investors sold the GBP and rushed to the safer USD.

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GBP/USD and GBP/EUR - 2007-2010


Conclusion

 

Is the GBP/USD pair worth going into?

 

The US and the UK are among the largest economies in the world, with both USD and GBP playing important roles in international finance. The two countries share strong economic relations.

 

In forex markets, almost 90% of all transactions involve the USD. Post-1980, the pair has been less volatile, with extreme movements stemming from major global and regional events such as the Brexit and the COVID-19 global situation. The pair is one of the most liquid in the market.

 

If you’re new to the forex market, trading with highly liquid currencies such as GBP/USD could benefit you. This is because many strategists recommend trading in these currency pairs while you’re still improving your grasp of forex trading. You're also in luck, in that, Fusion Markets is the lowest cost regulated broker on the market. Start trading today!  


14/10/2022
Market Analysis
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EUR/CHF: An Overview

The forex symbol EUR/CHF indicates how much the Euro (abbreviated as EUR) is worth in relation to the Swiss Franc (abbreviated as CHF), and how many Swiss Francs you need to buy one Euro. The pair is nicknamed “Euro-swissie” in the FX market.

 

As a cross-currency pair, EUR and CHF are traded directly, without the need to convert to a base currency first. This is also commonly known as currency pairs that do not involve the US Dollar (USD). The EUR/CHF currency pair is among the most popular cross-currencies in the forex market.

 

In this article we breakdown the history of these currencies, their dynamics, and how you can trade this pair. 


For more currency pair breakdowns, check out our USD/JPY Overview.

 

Currency background


The Euro (EUR)

 

As of 2022, 19 out of the 27 member countries of the European Union (EU) use EUR as their official currency.

 

Since its debut in 1999 and entry into circulation in 2002, EUR has become one of the most widely used currencies for financial transactions worldwide, often second only (or at times at par with) USD.

 

Owing to its credibility, EUR has also, until recently, been a relatively stable currency. This stability has allowed it to extend its importance well beyond the EU. Over 50 other countries and territories globally have adopted the EUR as currency or have pegged their currencies to EUR. Furthermore, it accounts for over 20% of global foreign exchange reserves, second only to USD.


The Swiss Franc (CHF)

 

CHF is the official currency of Switzerland, as well as of Liechtenstein. In contrast to EUR, CHF traces its origin over a century back to 1850.

 

CHF is among the top ten most traded currencies globally. It has long been considered a safe-haven currency, owing to the stability of the Swiss economy and its political neutrality. However, unlike EUR, no other country uses CHF as a peg for their own currency.

 

What to consider in trading EUR/CHF

 

Compared to most currency pairs in the market, EUR/CHF experiences fewer price movements. The trends are typically slower and more stable.

 

Several factors affect the prices of currency pairs in the forex market. For most currency pairs, price movements are mostly tied to economic and geopolitical circumstances, both locally and globally.

 

Here are some factors that drive EUR/CHF movements:

 

Economy

 

The EU, as a single market, is one of the largest economies in the world and one of the three most prominent players in global trade. It is Switzerland’s primary trading partner, with the EU accounting for over 60% of Swiss imports and receiving over 40% of Swiss exports. The economic situation in the Eurozone has a history of affecting the Swiss economy, such as in the 2010s.

 

If you’re trading EUR-based pairs, you can keep up to date with happenings in the EU economy through European Commission economic reports, including economic forecasts and reviews, as well as Fusion's Economic Calendar. The European Central Bank also publishes economic bulletins that provide insights on monetary policy, a key determinant of currency strength.

 

Swiss policies

 

The Swiss National Bank, which issues CHF, has traditionally been non-interventionist. Several of its moves, however, have impacted currency markets. In 2011, it pegged the CHF to EUR, in a move to help Swiss businesses to increase their profitability. A few years later, in 2015, it abandoned the peg, stunning investors, causing market turmoil, and leaving a profound impact on the EUR.

 

EUR/CHF chart of Euro Peg and Depeg

EUR/CHF 2011-2015 Weekly Time Frame


Global risks

 

Investors on the move to mitigate global economic risks are drawn to CHF due to its solid reputation for financial stability. In the aftermath of the global financial crisis in the late 2000s, widespread buying of CHF saw a 20% depreciation of EUR to CHF.

 

Geopolitical conditions

 

Investors also turn to CHF in times of political uncertainty in the EU, such as during the Greek sovereign debt crisis following the 2008 financial crisis. Demand for CHF had also soared during the Brexit negotiations, with investors using it as a hedge for protection against Brexit.


Movements in USD

 

A distinct advantage of EUR/CHF is its independence from USD. As they can be directly traded with each other, the pair isolates traders from USD-related volatilities. 


Conclusion 


The EU is one of the largest economies in the world, with EUR used in a majority of global transactions. The EU and Switzerland are not only geographically close, but also share strong economic ties, such as trade relations.

 

The EUR/CHF as a cross-currency pair experiences fewer price movements, with less volatile trends compared to other forex pairs. Both currencies are credible, with CHF long considered a safe-haven currency. Even during the COVID-19 global pandemic, investors have trusted CHF.


If you're looking to trade EUR/CHF, you'll be able to get ultra-tight spreads and $2.25 commissions per lot with Fusion Markets. Don't wait on the sidelines, be part of the action.

 

 

 

 


03/10/2022
Market Analysis
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Overview and Analysis of USD/JPY

Extremely liquid and highly traded, the USD/JPY pairing is one of the major pairs of the foreign exchange market, being the second most traded pair by volume behind EUR/USD. Used to denote how much 1 US Dollar (the base currency) converts to Japanese Yen (the quote currency), the volatility, reserve-held status of both currencies, and liquidity have made it a popular trading pair among Forex Traders.


Historically the Japanese Yen has fared well against the US Dollar in times of market turmoil, as many investors view the Yen as a safe-haven currency. This was most apparent during the Global Financial Crisis (GFC) in 2008 and post GFC market rebound.


Yen during the GFC

USD/JPY from 2005-2015



What factors affect USD/JPY?


The USD/JPY pair is influenced by both the US and Japan’s monetary policies, in particular those related to treasuries and interest rates.


Differences in policies and interest rate decisions by the Federal Reserve (FED) and the Bank of Japan (BOJ) are often one of the key drivers of the pair, and have in the past correlated closely with USD/JPY movements.


These differences have further been compounded with Japan’s introduction of Qualitative and Quantitative Easing (QQE) with Yield Curve Control (YCC) in 2016.


Historically, when US treasury prices rise, the USD/JPY pair weakens. Similarly, when US treasuries fall, the US dollar strengthens against the Yen.


With bond yields being a key driver, factors that affect bond yields such as interest rate expectations and inflation can significantly affect the pair. For example, as rising interest rates lead to higher bond yields, it also subsequently leads to the USD/JPY strengthening.


Therefore, when the Fed or BOJ intervenes to control inflation, deflation or stagflation with changes in interest rates it affects USD/JPY.


While treasuries and interest rates are often seen as one of the core drivers of USD/JPY, similar to other Forex markets, a range of other economic factors also play a role in the movement of the pair.


Some other economic factors that have played a role in the past are: Japan’s import/export balance, natural disasters, GDP, CPI, unemployment rate and wage growth. Although these do not influence the pair as much as US treasuries and interest rates, they can create significant price movements depending on how unexpected the event is.


For example, following the 2011 Tsunami in Japan, the Yen surged against the US Dollar with pundits expecting that Japanese investors would have to repatriate to cover the cost of the damages.



USD/JPY March 2011



Why is the Yen weakening and USD/JPY soaring?


As mentioned above, interest rates and monetary policy are some of the biggest drivers of the pair. This was further magnified during the COVID-19 outbreak and the subsequent Quantitative Easing (QE) policies of countries worldwide with stimulus schemes issued by many governments including the US and Japan.


In the case of the US this was one of the major factors to its rising inflation. As such, the US has begun implementing interest rate hikes, and is expected to more aggressively raise interest rates throughout 2022 and 2023.


In comparison, the BOJ has opted to not introduce any interest rate hikes in the short term and instead plans to continue with their stimulus and subsidies packages. Japan’s history with deflation and negative rates makes this position understandable, but the weakening Yen has made Haruhiko Kuroda, the Governor of the BOJ, express concerns.


Japan’s plans to continue with their proposed stimulus has led to the Yen weakening not only against the US Dollar but other foreign currencies where central banks plan to increase interest rates, such as the UK and GBP.


It will be important to keep an eye on USD/JPY as the monetary policies of the FED and BOJ continue to diverge.



How do I trade the USD/JPY pair?


As Treasury bonds tend to affect the pair, looking at yields across different maturities can be a good basis to begin your analysis. This can help forecast the future of the pair, and overall provide a solid fundamentals-based foundation for other analysis.


Another useful indicator, as USD/JPY can represent market confidence, is the S&P 500, as it may provide early warning signs of overall market reversals.


In terms of when to trade the pair, 12:00 to 15:00 GMT (when the Tokyo market isn’t open) has been one of the most volatile and best times to trade the pair. Even though the Tokyo Market isn’t open yet, this period tends to have high volatility as it is when the London and New York markets overlap.


In terms of when not to trade the pair, you want to avoid “quiet” times in the market such as 21:00-24:00 GMT when the New York market is closed, London is sleeping, and the Tokyo market is yet to open. Similarly, 03:00-5:00 GMT is considered another quiet period as the Tokyo market is nearing the end of the day, and the London and New York markets are not open.


Another consideration is your trading strategy. A commonly cited reason that USD/JPY is favoured by some traders is due to Japan’s traditionally low interest rates. These low interest rates make it a good pair to consider for those who are implementing carry trade strategies.

To learn more about currency pairs, and the foreign exchange market sign up to Fusion Markets and keep up with all the latest macroeconomic events.   

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