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. See our updated Privacy Policy here.

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
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
More View more
Real Time News
  • The ISM manufacturing index plays an important role in forex trading, with ISM data influencing currency prices globally. Learn about the importance of the ISM manufacturing index here: https://t.co/Xr3xtoFpZy https://t.co/j5xDAG6LLb
  • While the meetings of central bankers in the US, Japan and the UK will be front, left and center of traders’ minds this coming week, it would be wise not to ignore next Sunday’s German Federal Election. Get your euro forecast from @MartinSEssex here: https://t.co/m920Uvmngm https://t.co/yQYtfHf66s
  • Take a closer look visually at the most influential global importers and exporters here: https://t.co/G58J1dg6y3 https://t.co/Dqq9S9vGvo
  • Trading bias allows traders to make informative decisions when dealing in the market. This relates to both novice and experienced traders alike. Start learning how you may be able to make more informed decisions here: https://t.co/rz7fqhRoMG https://t.co/lccPTTlvj0
  • GBP/USD’s consolidation could end soon if price breaks out of a symmetrical triangle in play since July. At this time, a downside breakout is likely following the appearance of a death cross. Get your weekly $GBP forecast from @DColmanFX here: https://t.co/WIKdSesfkJ https://t.co/Fx0qr32xgI
  • Greed is a natural human emotion that affects individuals to varying degrees. Unfortunately, when viewed in the context of trading, greed has proven to be a hindrance more often than it has assisted traders. Learn how to control greed in trading here: https://t.co/kODPAfJE79 https://t.co/IRS9MaA7h8
  • The Federal Reserve rate decision is likely to sway the near-term outlook for the price of gold as the central bank appears to be on track to scale back monetary support. Get your weekly gold forecast from @DavidJSong here: https://www.dailyfx.com/forex/fundamental/forecast/weekly/CHF/2021/09/18/Gold-Price-Outlook-Hinges-on-Fed-Rate-Decision-Forward-Guidance.html https://t.co/dWWxtErjK0
  • Forex liquidity makes it easy for traders to sell and buy currencies without delay, and also creates tight spreads for favorable quotes. Low costs and large scope to various markets make it the most frequently traded market in the world. Learn more here: https://t.co/arxYmtQeUn https://t.co/4qxwiJsV1K
  • Forex quotes reflect the price of different currencies at any point in time. Since a trader’s profit or loss is determined by movements in price, it is essential to develop a sound understanding of how to read currency pairs. Learn how to read quotes here: https://t.co/CNtqrKWDBY https://t.co/stMPuq0VXR
  • A currency carry trade involves borrowing a low-yielding currency in order to buy a higher yielding currency in an attempt to profit from the interest rate differential. Find out if the carry trade suits your trading style here: https://t.co/7t4BzmLg8w https://t.co/v6RGICQvge
US Dollar Scarcity May Endure Despite Fed's Bold Coronavirus Response

US Dollar Scarcity May Endure Despite Fed's Bold Coronavirus Response

David Cottle, Analyst

US DOLLAR, TRADE FINANCE, CORONAVIRUS, SUPPLY CHAINS – TALKING POINTS:

  • When market stress increases, so does the risk of a damaging ‘credit event.’
  • Central banks know this well and are pumping in liquidity to offset the risk
  • However, the complex funding of global supply chains still poses questions

The coronavirus has seen global monetary authorities reach for their well-thumbed crisis playbook as they try to maintain at least access to credit in global markets. This is to head off, among other things, the chances of a “credit event” which could see the now-unavoidable downturn metastasize into something far worse.

Monday sees the start of the seventh Federal Reserve plan announced at the end of March to try to ensure a global supply of US Dollars as the coronavirus drains liquidity and threatens the supply of credit. Under the temporary Foreign and International Monetary Authorities repurchase arrangement (FIMA), global entities like central banks with holdings of US Treasuries will be able to swap them for greenbacks.

This implicit acceptance by the Fed of responsibility for the US Dollar funding market globally, and not just at home, is probably one reason why riskier assets have stabilized at least to some extent, following the hammerings of recent weeks.

CORONAVIRUS CREDIT STRESS THREATENS GLOBAL TRADE FINANCE

Market focus on the spread of credit market difficulties into the global economy has been intense since the financial crisis. Back then supply chains were broken as doubts about the solvency of previously unquestionable financial institutions caused counterparties to simply walk away, often leaving cargoes unloaded at ports or stuck at the dockside.

The complexities of ‘supply chain finance’ are once again becoming a worry for market watchers.

The Wall Street Journal weighed in this week with an article calling it a ‘new risk’ in the coronavirus crisis. It points out that all three major credit rating agencies have warned in the past month of the dangers inherent in touch conditions of the deals now routinely made in this largely opaque form of financing which allows trade partners to defer payments to suppliers, improving cash-flow.

Companies effectively borrow money to meet their bills, which might mean extending nominally one-month payment terms out to six months of longer. The arrangement gives firms cash-flow flexibility, but it can make them look more credit-worthy than they because the deals don’t necessarily count as ‘borrowing’ on their accounts. They get filed in the ‘trade debt’ or ‘accounts payable’ columns on firms’ balance sheets instead. In usual trading times this is rarely a problem. But these are not usual trading times.

No one knows the exact scale of this supply chain lending, but it’s been estimated at hundreds of billions of dollars globally, with a potential market size perhaps even bigger than that. Sectors where it’s reported to be especially popular include telecoms, chemicals, aerospace, retail and packaged consumables.

These financing arrangements have grown in importance as the coronavirus brings a cash crunch with it. The risk of course is that banks may stop providing cash to companies, forcing them to pay their bills much more quickly at a time when their own accounts may be illiquid.

US DOLLAR MAY RISE AS FUNDING PRESSURE DRIVES CASH DEMAND

The US Dollar has soared against this backdrop as the prospect of a credit-market lockup to match global coronavirus containment efforts fuelled a rush for cash. Financial authorities have acted swiftly to provide massive liquidity, with the Fed in the vanguard as it ought to be. All the same, it’s likely to be in those corners of the market generally un-regarded in the good times, such as supply-chain finance, that some of the greatest threats may lie.

As with subprime finance in 2008, it’s only when market stresses become unbearable that the full scale of the market, and the problem, becomes clear. With this in mind, the US currency may have room for yet another foray to the upside as funding stress returns and liquidation follows.

US DOLLAR TRADING RESOURCES

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

https://www.dailyfx.com/forex/market_alert/2020/03/12/Dow-Jones-Surge-US-Dollar-Drops-as-Fed-Unleashes-Huge-Liquidity-Pump-.html?ref-author=Cottle

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

DISCLOSURES