As the tension between Ukraine and Russia is intensifying, volatility is expected to increase in global markets. The EU upped its sanctions on Russia, cutting ‘selected banks’ from SWIFT.
Belarus may be next in line for assisting Russia in its war with Ukraine. Unconfirmed reports from Ukraine are suggesting Belarus is joining the war with forces preparing to join the invasion.
When such geopolitical events take place, the financial markets react in accordance. Managing the exposure in the FX markets may be more intensive in the upcoming weeks. Several forex brokers have already raised the margin requirements for forex trading Forex Trading Forex trading is the buying and selling of foreign currencies with the aim of generating a profit. The value of currencies, especially floating currencies, fluctuate to varying degrees. This constant volatility of exchange rates opens the door for speculators to invest in a certain currency against another. The Forex market is the world’s biggest and most liquid market, with over $5 billion turnover every single day, with the market being open 24 hours a day, 5 days a week.It goes without saying that forex trading is a very attractive market for not only banks and hedge funds, but even for the small individual trader, due to the low barriers for entry. One literally only needs a computer with an internet connection, and some money deposited with a forex broker. As a simple example, if you were very confident that the Euro (EUR) was going to gain strength against the US Dollar (USD) in the mid to long term, then you may decide to buy (or go long on) EUR/USD. If the EUR/USD was trading at 1.1500 at the time of purchase, a €10000 investment would have cost you $11500. As time goes by, if the EUR/USD gets stronger, e.g. its exchange rate moves to 1.2000 over the course of a few months, and you decided to close your trade there and then, you would have netted $12000, i.e. a profit of $500. No One-Size-Fits-All Approach to Forex Trading Whilst forex trading is easy to delve into, it’s notoriously difficult to master, especially for those without a financial background. A lot of time and effort is needed to practice trading on demo and eventually on real accounts. No doubt it takes dedication, discipline and patience, along with developing an edge to beat the market. That edge is gained by studying at least one of two fields, known as technical analysis and fundamental analysis. The former involves looking at currency charts, seeking out certain patterns using tools and software known as price action and indicators to help determine which way a particular forex pair may meander.By extension, the latter involves focusing on the latest news reports and geopolitical situation of the countries involved. Forex trading is the buying and selling of foreign currencies with the aim of generating a profit. The value of currencies, especially floating currencies, fluctuate to varying degrees. This constant volatility of exchange rates opens the door for speculators to invest in a certain currency against another. The Forex market is the world’s biggest and most liquid market, with over $5 billion turnover every single day, with the market being open 24 hours a day, 5 days a week.It goes without saying that forex trading is a very attractive market for not only banks and hedge funds, but even for the small individual trader, due to the low barriers for entry. One literally only needs a computer with an internet connection, and some money deposited with a forex broker. As a simple example, if you were very confident that the Euro (EUR) was going to gain strength against the US Dollar (USD) in the mid to long term, then you may decide to buy (or go long on) EUR/USD. If the EUR/USD was trading at 1.1500 at the time of purchase, a €10000 investment would have cost you $11500. As time goes by, if the EUR/USD gets stronger, e.g. its exchange rate moves to 1.2000 over the course of a few months, and you decided to close your trade there and then, you would have netted $12000, i.e. a profit of $500. No One-Size-Fits-All Approach to Forex Trading Whilst forex trading is easy to delve into, it’s notoriously difficult to master, especially for those without a financial background. A lot of time and effort is needed to practice trading on demo and eventually on real accounts. No doubt it takes dedication, discipline and patience, along with developing an edge to beat the market. That edge is gained by studying at least one of two fields, known as technical analysis and fundamental analysis. The former involves looking at currency charts, seeking out certain patterns using tools and software known as price action and indicators to help determine which way a particular forex pair may meander.By extension, the latter involves focusing on the latest news reports and geopolitical situation of the countries involved. Read this Term.
There are 2 conflicting events in the market. The drums of war from Ukraine and the possibility of easing measures from central banks. The Fed stated that several rate hikes are expected in 2022, the first hike was expected to take place in March.
Due to the war and the potential side-effects of removing several Russian banks from SWIFT, central banks may be forced to dump their ambitions to hike rates and consider loose monetary policies instead.
Russian Nuclear Alert
At the time of this writing, the Fed is expected to hike rates in March by 25bps (0.25%), a reduction of -25bps from the expected +50bps hike. During the 2008 financial crisis central banks slashed rates in an unscheduled monetary policy statements.
With reports Russia is considering transporting nuclear weapons to Belarus, risk aversion may overshadow any efforts from central banks to cool the markets.
President Putin ordered nuclear deterrent forces to be fully prepared to launch when an order is given. Unconfirmed reports are suggesting that a transportation of ‘heavy weapons’ to Ukraine was halted due to the news.
Russia threatened on Saturday to pull out the new START treaty.
If there is some correlation between BTCUSD and the indices, as reports of Russian nuclear weapons hit the markets, bitcoin was immediately sold.
Below is bitcoin reaction to the news.
source: tradingview
While managing the risk, further escalation may force the European Central Bank (ECB), Bank of England (BOE) and the Fed to act. Depending on the market in the next couple of weeks, monetary policies may be altered prior to the official date.
At the time of this writing, in an event the Fed hints it may remain on hold in March, it may be sufficient to temporarily calm the markets if QE measures are initiated. The ECB may face greater challenges as US banks are less exposed to Russia when compared to European financial institutions.
Significant FX Intervention Risk
When the Swiss National Bank (SNB) pulled the rug in EURCHF floor (1.2000) many brokers were affected. In an event of an escalation, safe-haven flows into CHF may be met with a severe action from the SNB.
Further appreciation of the Swiss Franc (CHF) may increase the odds of of a moderate FX intervention. A new floor for Euro Swiss cannot be ruled out if further escalation is noted.
Such an event must be prepared for. In 2015 Alpari UK filed for insolvency due to the SNB. FXCM clients reached a loss of $225 million, which forced the broker to take a $300 million loan.
In past FX interventions the SNB preferred USDCHF and GBPCHF.
Crude Oil Embargo
The EU and the US did not target Russia crude oil and gas. Calls for crude oil embargo on Russia fell on deaf ears. Many European countries are dependent on Russian oil and natural gas.
Placing an embargo on one of the world’s biggest oil exporters may have severe consequences. However, on 2 March the EU will present its strategy to reduce dependency on Russian energy. The plan may stake several years to implement, one of the possibilities is to stock natural gas in the summer to ensure prevent shortages in the winter.
Japan announced that will provide Liquefied Natural Gas (LNG) from April to the EU. Japan is large LNG importer, some of its imports will be routed to Europe next month.
In terms of risk, Russia may announce it is cutting its gas supply to Europe in retaliation to the sanctions. Such a statement may send ripples through the energy markets.
According to the latest reports, China may step up and buy oil from Russia in an event of a crude oil embargo.
Despite the peace talks which Ukraine has agreed to conduct, the weight of the sanctions may force Russia to react by limiting its exports to Europe. The volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term in the energy markets by be significant although temporary.
As the tension between Ukraine and Russia is intensifying, volatility is expected to increase in global markets. The EU upped its sanctions on Russia, cutting ‘selected banks’ from SWIFT.
Belarus may be next in line for assisting Russia in its war with Ukraine. Unconfirmed reports from Ukraine are suggesting Belarus is joining the war with forces preparing to join the invasion.
When such geopolitical events take place, the financial markets react in accordance. Managing the exposure in the FX markets may be more intensive in the upcoming weeks. Several forex brokers have already raised the margin requirements for forex trading Forex Trading Forex trading is the buying and selling of foreign currencies with the aim of generating a profit. The value of currencies, especially floating currencies, fluctuate to varying degrees. This constant volatility of exchange rates opens the door for speculators to invest in a certain currency against another. The Forex market is the world’s biggest and most liquid market, with over $5 billion turnover every single day, with the market being open 24 hours a day, 5 days a week.It goes without saying that forex trading is a very attractive market for not only banks and hedge funds, but even for the small individual trader, due to the low barriers for entry. One literally only needs a computer with an internet connection, and some money deposited with a forex broker. As a simple example, if you were very confident that the Euro (EUR) was going to gain strength against the US Dollar (USD) in the mid to long term, then you may decide to buy (or go long on) EUR/USD. If the EUR/USD was trading at 1.1500 at the time of purchase, a €10000 investment would have cost you $11500. As time goes by, if the EUR/USD gets stronger, e.g. its exchange rate moves to 1.2000 over the course of a few months, and you decided to close your trade there and then, you would have netted $12000, i.e. a profit of $500. No One-Size-Fits-All Approach to Forex Trading Whilst forex trading is easy to delve into, it’s notoriously difficult to master, especially for those without a financial background. A lot of time and effort is needed to practice trading on demo and eventually on real accounts. No doubt it takes dedication, discipline and patience, along with developing an edge to beat the market. That edge is gained by studying at least one of two fields, known as technical analysis and fundamental analysis. The former involves looking at currency charts, seeking out certain patterns using tools and software known as price action and indicators to help determine which way a particular forex pair may meander.By extension, the latter involves focusing on the latest news reports and geopolitical situation of the countries involved. Forex trading is the buying and selling of foreign currencies with the aim of generating a profit. The value of currencies, especially floating currencies, fluctuate to varying degrees. This constant volatility of exchange rates opens the door for speculators to invest in a certain currency against another. The Forex market is the world’s biggest and most liquid market, with over $5 billion turnover every single day, with the market being open 24 hours a day, 5 days a week.It goes without saying that forex trading is a very attractive market for not only banks and hedge funds, but even for the small individual trader, due to the low barriers for entry. One literally only needs a computer with an internet connection, and some money deposited with a forex broker. As a simple example, if you were very confident that the Euro (EUR) was going to gain strength against the US Dollar (USD) in the mid to long term, then you may decide to buy (or go long on) EUR/USD. If the EUR/USD was trading at 1.1500 at the time of purchase, a €10000 investment would have cost you $11500. As time goes by, if the EUR/USD gets stronger, e.g. its exchange rate moves to 1.2000 over the course of a few months, and you decided to close your trade there and then, you would have netted $12000, i.e. a profit of $500. No One-Size-Fits-All Approach to Forex Trading Whilst forex trading is easy to delve into, it’s notoriously difficult to master, especially for those without a financial background. A lot of time and effort is needed to practice trading on demo and eventually on real accounts. No doubt it takes dedication, discipline and patience, along with developing an edge to beat the market. That edge is gained by studying at least one of two fields, known as technical analysis and fundamental analysis. The former involves looking at currency charts, seeking out certain patterns using tools and software known as price action and indicators to help determine which way a particular forex pair may meander.By extension, the latter involves focusing on the latest news reports and geopolitical situation of the countries involved. Read this Term.
There are 2 conflicting events in the market. The drums of war from Ukraine and the possibility of easing measures from central banks. The Fed stated that several rate hikes are expected in 2022, the first hike was expected to take place in March.
Due to the war and the potential side-effects of removing several Russian banks from SWIFT, central banks may be forced to dump their ambitions to hike rates and consider loose monetary policies instead.
Russian Nuclear Alert
At the time of this writing, the Fed is expected to hike rates in March by 25bps (0.25%), a reduction of -25bps from the expected +50bps hike. During the 2008 financial crisis central banks slashed rates in an unscheduled monetary policy statements.
With reports Russia is considering transporting nuclear weapons to Belarus, risk aversion may overshadow any efforts from central banks to cool the markets.
President Putin ordered nuclear deterrent forces to be fully prepared to launch when an order is given. Unconfirmed reports are suggesting that a transportation of ‘heavy weapons’ to Ukraine was halted due to the news.
Russia threatened on Saturday to pull out the new START treaty.
If there is some correlation between BTCUSD and the indices, as reports of Russian nuclear weapons hit the markets, bitcoin was immediately sold.
Below is bitcoin reaction to the news.
source: tradingview
While managing the risk, further escalation may force the European Central Bank (ECB), Bank of England (BOE) and the Fed to act. Depending on the market in the next couple of weeks, monetary policies may be altered prior to the official date.
At the time of this writing, in an event the Fed hints it may remain on hold in March, it may be sufficient to temporarily calm the markets if QE measures are initiated. The ECB may face greater challenges as US banks are less exposed to Russia when compared to European financial institutions.
Significant FX Intervention Risk
When the Swiss National Bank (SNB) pulled the rug in EURCHF floor (1.2000) many brokers were affected. In an event of an escalation, safe-haven flows into CHF may be met with a severe action from the SNB.
Further appreciation of the Swiss Franc (CHF) may increase the odds of of a moderate FX intervention. A new floor for Euro Swiss cannot be ruled out if further escalation is noted.
Such an event must be prepared for. In 2015 Alpari UK filed for insolvency due to the SNB. FXCM clients reached a loss of $225 million, which forced the broker to take a $300 million loan.
In past FX interventions the SNB preferred USDCHF and GBPCHF.
Crude Oil Embargo
The EU and the US did not target Russia crude oil and gas. Calls for crude oil embargo on Russia fell on deaf ears. Many European countries are dependent on Russian oil and natural gas.
Placing an embargo on one of the world’s biggest oil exporters may have severe consequences. However, on 2 March the EU will present its strategy to reduce dependency on Russian energy. The plan may stake several years to implement, one of the possibilities is to stock natural gas in the summer to ensure prevent shortages in the winter.
Japan announced that will provide Liquefied Natural Gas (LNG) from April to the EU. Japan is large LNG importer, some of its imports will be routed to Europe next month.
In terms of risk, Russia may announce it is cutting its gas supply to Europe in retaliation to the sanctions. Such a statement may send ripples through the energy markets.
According to the latest reports, China may step up and buy oil from Russia in an event of a crude oil embargo.
Despite the peace talks which Ukraine has agreed to conduct, the weight of the sanctions may force Russia to react by limiting its exports to Europe. The volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term in the energy markets by be significant although temporary.
