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
EUR/USD
Bullish
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
Oil - US Crude
Mixed
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
Wall Street
Bullish
Gold
Mixed
GBP/USD
Mixed
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
Bearish
More View more
Real Time News
  • Multiple time frame analysis follows a top down approach when trading and allows traders to gauge the longer-term trend while spotting ideal entries on a smaller time frame chart. Learn how to incorporate multiple time frame analysis here: https://t.co/HnzQcAXWLU https://t.co/A517hC0JAG
  • Take a closer look visually at the most influential global importers and exporters here: https://t.co/1G7CRsegRX https://t.co/jBFhVRWLyy
  • Copper prices seem to have stalled just shy of key chart resistance as geopolitical tensions weigh on the global-growth proxy. Get your copper market update from @ddubrovskyFX here:https://t.co/qseySE5dWP https://t.co/u0HoA9tVvz
  • The #Euro may pay the price for the EU’s stance on its digital sovereignty while the US Dollar eyes closely-scrutinized US fiscal stimulus talks. Get your $EURUSD market update from @ZabelinDimitri here:https://t.co/Ga3DdHod7j https://t.co/Mfhb5iqLF6
  • The Indian Rupee struggled to benefit from an unexpected RBI rate hold as the Nifty 50 inched closer to invalidating a bearish reversal signal. What is the road ahead for USD/INR? Find out from @ddubrovskyFX here:https://t.co/Zjiay6hQWT https://t.co/TvedUlvwxd
  • While the balance sheet did not set higher highs US initial jobless claims fell to their lowest since the middle of March If you invert jobless claims, it set a higher high alongside #SP500 #FoodForThought ahead of the weekend, and have a good one! https://t.co/n6SaEdnpMi https://t.co/AKNYNlUa4l
  • Copper prices seem to have stalled just shy of key chart resistance as geopolitical tensions weigh on the global-growth proxy. Get your copper market update from @ddubrovskyFX here:https://t.co/qseySE5dWP https://t.co/zuQMaDqScY
  • When is a 1.76 million jobs added to the US economy underwhelming? When it is still 12.88 million jobs from the pre-pandemic level and economists warn the subsequent gains are going to slow sharply... https://t.co/IUMBsiGYYC
  • The New Zealand Dollar may extend its surge from yearly lows as it tentatively signals a cyclical upturn. NZD/USD, NZD/JPY rates poised for further gains. Get your market update from @DanielGMoss here: https://t.co/vrOuFkvWpX https://t.co/wKbQNFAZbn
  • The US Dollar is testing key support levels against the Singapore Dollar, Malaysian Ringgit, Philippine Peso and Indonesian Rupiah following persistent losses. Get your #ASEAN currencies market update from @ddubrovskyFX here: https://t.co/qqYDELqydd https://t.co/nh7SspnIzF
Caution Holding Euro, USD, and Yen Positions as Borrowing Costs Rise

Caution Holding Euro, USD, and Yen Positions as Borrowing Costs Rise

2014-12-18 22:30:00
David Rodriguez, Head of Product
Share:

- The year-end threatens a liquidity crunch in US Dollar lending markets

- Past quarter-ends have provided similar crunches, produced elevated borrowing costs

- Traders should be wary of holding outsized positions into the year-end

The end of the calendar year threatens to force a liquidity crunch in US Dollar markets, and traders should note risks of elevated financing costs in major FX pairs.

Why Might Rollover Rates Rise Sharply in the Coming Weeks?

A look at interbank forward markets shows that holding Euro and US Dollar-short positions short positions versus the Japanese Yen is near its most expensive since the heights of the global financial crisis in 2008.

If a trader is long the USDJPY they could theoretically collect this difference, but in practice these relative rates are guided by supply and demand and past experience has shown otherwise.,

Cost of Holding USDJPY-Short Position Surges into Year-End

Caution Holding Euro, USD, and Yen Positions as Borrowing Costs Rise

Source: Bloomberg Generic Price - “Consensus” Pricing

Indeed we saw similarly pronounced surges into the end of the second quarter in Euro pairs; at the time we noted that a single day’s EURUSD financing charge was the rough equivalent of the combined 25 days prior. It seems as though traders may continue to expect similar spikes at month and quarter end. The effect is likewise pronounced in Yen pairs, and in addition to the USDJPY the EURJPY looks especially stretched.

Caution Holding Euro, USD, and Yen Positions as Borrowing Costs Rise

Source: Bloomberg Generic Price - “Consensus” Pricing

Interbank forwards pricing show that holding a EURJPY-short position for two weeks would cost the most in financing charges since episodes of Euro funding troubles in 2011.

As with the USDJPY, a trader should theoretically be able to collect this difference, but experience over similar episodes showed otherwise.

Given that FX market volatility typically drops significantly in the final weeks of the calendar year, these charges represent an especially large cost to a trader looking to capture smaller currency moves. Indeed, the sharp changes in interbank lending markets could in some cases make the difference between a winning and losing trade.

Understanding Forex Rollover

Trading forex on leverage involves borrowing one currency in order to purchase another. In effect this means traders will pay interest rates for the currency which they sell, while they receive interest rate payments for the currency which they buy. In FX terminology this is most often called “Rollover” or “Swaps”.

Overnight interest rates will guide whether the trader will ultimately pay to hold a position or earn interest on the trade, and typically these interbank rates will track a central bank’s target quite closely. Yet sharp changes in the supply or demand for a specific currency can shift interbank borrowing rates in a hurry.

Traders should be wary of these elevated costs headed into the final weeks of the trading year.

Read more on forex rollover on FXCM.com

Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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

DISCLOSURES

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.