Posts Tagged ‘foreign exchange market’

Weekly Update 4th – 8th October 2010

Global markets closed on a mixed note in the week gone by, with Indian markets closing in positive on weekly basis. To send a message to China to raise value of its currency, the U.S. House of Representatives this week approved a bill that would let domestic companies petition for duties on imports from China to compensate for the effect of weak yuan. U.S. Treasury Secretary Timothy F. Geithner said he is confident that tensions over China’s currency, the yuan, won’t lead to escalating trade sanctions or feed into a broader global currency conflict.



European confidence in the economic outlook unexpectedly improved this month. An index of executive and consumer sentiment in the 16 euro nations rose to 103.2, the highest since January 2008, from a revised 102.3 in August. The European Commission forecasted a more “moderate” expansion in the second half of the year as governments from Ireland to Portugal step up spending cuts to push down deficits. ECB President Jean-Claude Trichet said that there is “continuing uncertainty” about the outlook.


China’s manufacturing expanded at the fastest pace in four months in September. According to China’s logistics federation and statistics bureau, the purchasing managers’ index rose to 53.8 from 51.7 in August. The data is viewed very positively by the market as it shows that China’s economic momentum may counter weakness in the global recovery. It is believed that growth may be further aided in coming months as government plans to speed the completion of stimulus projects and boost public housing construction.


In Japan, the jobless rate fell to 5.1 percent from 5.2 percent. After intervening few days back in the foreign exchange market in order to stem the yen appreciation, Japan’s Finance Minister reiterated that Japan is ready to keep intervening after selling yen for the first time in six years last month.


Core infrastructure industry that account for 26.7 percent of industrial output in India slowed to 3.7 per cent in August, as compared to 6.4 per cent in the same month last year. Going forward we expect the markets would remain firm as it is supported by strong portfolio investments. The best strategy to ride the tide would be stay invested. Nifty has support between 5940-5870 and Sensex between 19640-
19200 levels.


Bullions may continue to lead the charge in the commodities counter as both silver and gold recently tested life time highs in MCX. The latest boon to the metal has been increasing expectations that the Federal Reserve will further ease monetary policy with measures including the purchase of Treasuries. Jitters about European sovereign debt problems have also supported gold higher as a safe-haven investment. Better jobless claims data and a revised upward GDP in US supported the crude counter which can make further gains in next coming week. Base metals will take cues from LME as China markets will remain closed for a week. In agro counter pulses along with oilseeds may trade in range while spices can get some support from upcoming festive season. Mentha oil firm export demand and low crop will assist the prices to make fresh high in MCX.

ECONOMIC INDICATORS – A Key Factor in Currency Trading : Part 2

ECONOMIC INDICATORS – A Key Factor in Currency Trading : Part 2

Now comes the question what particular aspect of economy is being revealed through Economic Indicators.

Suppose an investor is likely to know which indicators measure the growth of the economy, for which he can directly refer to the GDP releases VS. those that measure inflation which can be traced with PPI or CPI releases or employment through non-farm payrolls releases.


After following the data for a while, he will become very familiar with the nuances of each economic indicator and what part of the economy they are measuring.


But it doesn’t mean that all the economic indicators are equally important although they might have been created with equal importance, some have acquired much greater potential to move the markets than others.


Market participants will place higher consideration on one statistics vs. another depending upon the state of the economy.


Markets are mainly looking forward for only those economic indicators which are decisive factors for the particular country.

Suppose prices are not fretted with inflation rate, then the inflation data will not keenly be observed or reacted with markets.

On the contrary, if economic growth is vexing problem, then the GDP or changes in the employment data will be eagerly anticipated and could impetuous remarkable volatility with the relevant releases.


So, it is important that the data should fall under the expectations of the market.

There are economists and market pundits who are forecasting for each indicator when their data is trying to hit the wires.

So while knowing the economic consequences of an unexpected monthly rise of 0.4% in the producer price index (PPI) is not much more important for the investors’ short-term trading decisions then to know that this month the market is looking for PPI to fall by 0.2%.

For just looking upon headlines is not the pathway for deriving an appropriate decision.

The headline figure is for amateurs as if closely watched detail in the pay-roll data, the non- farm payroll figures are relevant.

PPI for example, is for measuring the changes in producer prices.

But it is closely watched not only for producer prices but also for ex-food and energy as if eyed upon the trader prospect the food and energy component of the data is too volatile and subject to revisions on a month-to-month basis to provide an accurate reading on the changes in producer prices.


The important thing is that not all countries are as efficient as the G7 in releasing this information.:(

And the most valuable thing to notice is that if the trader is going to trade the currency of a particular country, he needs to find out the particulars about their economic indicators.:)

If economic indicators are highly going to shake the price action, the foreign exchange market becomes more challenging and has great potential on profit booking. Since a currency is a proxy for the country it represents, the economic health of that country is priced into the currency.


So now it is easy to predict the relevancy of economic indicators and their impact on the currency trading. 🙂

We can also conclude that these key factors also are the concern area of currency market to derive the desirable profit.

IDR norms by RBI to allow only serious investors: Analysts

RBI’s recent direction to have a lock-in period of one year for investors to redeem their investment in Indian Depository Receipts is aimed at attracting long-term players to these instruments, say analysts.

Also, the central bank’s rule that proceeds from IDR issues have to be immediately repatriated from India is designed to prevent companies from misusing foreign exchange market, they said.

Yesterday, RBI allowed overseas companies to raise money through issuing rupee-denominated IDRs in Indian markets and framed rules in this regard.

The central bank had said the proceeds from the issue of IDRs will have to be immediately repatriated outside India by the companies issuing such IDRs.

It had also said IDRs will not be redeemable into underlying equity shares before the expiry of one year period from the date of issue of the IDRs.

“It is a safeguard by the RBI to prevent non-serious investors from investing into such IDRs and also to prevent foreign companies to misuse the IDRs for managing foreign exchange,” Jagannadham Thunuguntla, equity head of SMC Capitals said.

As per the norms, FEMA Regulations will not apply to persons resident in India for investing in IDRs and subsequent transfer arising out of transaction on a recognised stock exchange.

Further, other persons resident in India will be allowed to hold the underlying shares only for the purpose of sale within 30 days from the date of conversion of IDRs.

The financial/banking companies having presence in India, either through a branch or subsidiary, have to get permission of the sectoral regulator like RBI or IRDA before issuing IDRs.

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