Thursday, November 19, 2009

short term influences on FX rate - ML perspective

* (Above all, IR has the most direct impact on FX rate, at least in the short/mid term.)

* Positions in the FX futures and options market -- For eg, high volumes around contract expiry dates can move FX rates
* Activities in the FX options market -- for eg, large orders as a result of option excise can move spot prices.
* Fund manager activities -- they can move in/out of Euro zone or America. Look at international portfolio managers, not small investors. If these managers want to trade and hedge globally and diversify the portfolio, then they need to invest not only in the domestic market but markets denominated in other currencies. They need FX as a means to an end. They must pay the FX transaction fee. In this sense, I believe FX importance and value-add is smaller than Eq and FI, but it does grow.
* Stock market -- a country's currency rises with its stock market
* commodity prices

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http://www.linkedin.com/in/tanbin