News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Mixed
Oil - US Crude
Mixed
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
More View more
Real Time News
  • Fed Chair Powell: -Fiscal response to economic downturn has been strong and sustained -We are a long way away from 'returning to normal' with about 9 million Americans still unemployed -The real unemployment rate is closer to 10% -Very appropriate to be highly accommodative
  • Fed Chair Powell: -Declines to comment when asked about recent $GME stock price activity, notes financial conditions are monitored very broadly -Carefully examining aspects of non-bank sector #Stocks #StockMarket #FOMC
  • We live in remarkable times.. https://t.co/PV9XZd4nXW
  • Fed Chair Powell: -Important to maintain anchored inflation expectations -Policy to remain accommodative until goals are reached -Economy is far away from jobs and inflation goals -Likely to take 'some time' before substantial progress $XAUUSD $GC_F $GLD
  • First question of the presser on Gamestop! Good job @jeannasmialek
  • US Dollar Index extends gains as equities continue to sell off $DXY $USD https://t.co/AEZSfrnyqt
  • Fed Chair Powell: -Strongly committed to achieving dual mandate -Monetary policy to keep giving economy powerful support -Covid resurgence weighing on economy and employment -Future path of economy remains highly uncertain but has proved more resilient than expected $SPX $USD
  • Commodities Update: As of 19:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: -0.32% Gold: -0.40% Silver: -0.90% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/1LDcLDIFk6
  • Elon tweeted that he 'kinda love Etsy' yet its shares didn't get a boost. Maybe not a total Midas touch, but seemingly pretty close
  • This is like someone turning off the garden hose next to multiple fire hydrants going going at full capacity, but it will definitely draw scrutiny against a backdrop of record highs and less-than-stellar growth/return forecasts https://t.co/07RzuIMaTt
Own JP Morgan Chase Stock? Consider Hedge Against US Dollar Volatility

Own JP Morgan Chase Stock? Consider Hedge Against US Dollar Volatility

Jason Shemtob,

Article Summary: JP Morgan Chase (NYSE: JPM), the largest bank in the United States, has seen its stock price fluctuate with US Dollar moves. Here’s why and how you might protect against it.

JP Morgan Chase (NYSE: JPM) is the largest bank in the United States and its stock price has seen significant sensitivity to moves in the US Dollar. In recent weeks we have discussed the impact of currency fluctuations on corporate earnings and stock price by looking at the supply-side and demand-side of a company’s operations.

This week we will focus on a more complicated, but just as relevant, aspect of currency risk, specifically the effect that foreign exchange fluctuations have on the earnings of financial organizations. JP Morgan Chase provides a great example of such an institution given its diverse international exposure and popularity among investors.

Significant Exposure

In the past banks were generally able to avoid providing detailed disclosure of theirfinancial holdings abroad. Recent regulatory changes by the SEC following the financial crisis, and continual struggles in Europe, have forced greater admission from banks. This has provided investors with greater insight into the risks that banks face while investing overseas. When looking at JPM specifically, for instance, we find that the bank holds $8.7 trillion (Yes, with a T!) in foreign exchange derivativesalone. While much of this is used for speculative purposes, a great deal is also dedicated to hedging against currency exchange risk, a major problem due to JPMs significant exposure in foreign markets.

Own_JP_Morgan_Chase_Stock_Consider_Hedge_Against_US_Dollar_Volatility_body_Picture_3.png, Own JP Morgan Chase Stock? Consider Hedge Against US Dollar Volatility

The Risk

In total JPM’s foreign exposure has provided the bank with over $775 billion in combined assets, fueling $18.4B in international revenues (FY 2012). But the earnings generated by these assets can rise and fall significantly in the face of currency fluctuations, most notably with regards to the Euro-Dollar pair. When JPM invests Euro-currency nations, it does so in Euros, not dollars. As a result, the returns generated from these investments, in the form of capital gains, interest, principal, etc., are provided in Euros. These earnings, however, must then by converted into dollars for reporting and operational purposes.

If the Euro appreciates versus the dollar, asset returns will be inflated since JPM will receive proportionally more dollars per Euro then they when they first invested, all other things being equal. The opposite applies, however, if the Euro depreciats versus the dollar. In this case JPM will receive less dollars for each Euro, which will decrease reported earnings. This fact has in part lead to the historically positive correlation between the Euro and JPM stock price.

Own_JP_Morgan_Chase_Stock_Consider_Hedge_Against_US_Dollar_Volatility_body_Picture_2.png, Own JP Morgan Chase Stock? Consider Hedge Against US Dollar Volatility

This correlation is also evident when looking at JPM stock price versus the pound, given the banks significant holdings within the UK.

Own_JP_Morgan_Chase_Stock_Consider_Hedge_Against_US_Dollar_Volatility_body_Picture_1.png, Own JP Morgan Chase Stock? Consider Hedge Against US Dollar Volatility

What to Do

Given these correlations and the volatility we have recently seen in currency markets, it may be wise for equity investors with exposure to international banks to hedge their positions by holding certain currency positions. For instance, between the period April 9th and and July 12th of 2010, JPM stock fell over 14%. During this same period, the USDEUR short rose by over 7%, providing a much less painful three months had an investor gone long the Euro against the US Dollar.

Past performace is not indicative of future results, but we believe that the EURUSD will continue to offer a meaningful hedge against fluctuations in JP Morgan’s stock price.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES