Initial Market View, Trading Strategies and Currency Analysis

This report provides an analysis of four currency pairs: USD/JPY, AUD/USD, GBP/USD, and EUR/USD, examining their price movements over a period and identifying the factors influencing their appreciation or depreciation. The analysis includes data from August 2018, highlighting the impact of factors such as trade wars, central bank policies, interest rate differentials, and global economic outlook on currency values. The report then proposes trading strategies for each currency pair, considering both passive and active approaches and assessing the risk appetite of different client profiles. For USD/JPY, a long position on the Japanese Yen is recommended, while for USD/AUD, a long position on AUD is suggested. Conversely, for GBP/USD, a short position on GBP is advised due to negative market sentiments. Finally, for USD/EUR, a long position on the Euro is proposed. The report concludes with a bibliography of sources used in the analysis.

1.0 (a) Which currencies appreciate and which currency depreciates and why?
USD/JPY
Date Price Open High Low Change %
Aug 08, 2018 110.94 111.35 111.44 110.84 -0.40%
Aug 07, 2018 111.39 111.41 111.48 111 -0.02%
Aug 06, 2018 111.41 111.19 111.53 111.14 0.15%
Aug 05, 2018 111.24 111.23 111.27 111.16 -0.03%
Aug 03, 2018 111.27 111.66 111.83 111.08 -0.35%
Japanese Yen has appreciated and USD has depreciated. (investing.com, 2018)
Reason
(a) Full blown trade war by America on account of which USD fall;
(b) Report of bank of Japan on how far interest rate shall be allowed to move from
the target of central bank; (Wilkes, 2018)
(c) Positive wage data
(d) Narrowing interest rate differential in the global bond market;
(e) Buying and selling of dollar.
USD/AUD
Date Price Open High Low Change %
Aug 08, 2018 0.7426 0.7426 0.7440 0.7383 0.07%
Aug 07, 2018 0.7421 0.7386 0.7440 0.7379 0.46%
Aug 06, 2018 0.7387 0.7398 0.7406 0.7372 -0.09%
Aug 05, 2018 0.7394 0.7397 0.7400 0.7394 -0.08%
Aug 03, 2018 0.7400 0.7359 0.7412 0.7346 0.54%
USD has become weaker against AUD, AUD strengthened USD fell. (investing.com,
2018)
Reason
(a) Full blown trade war by America on account of which USD fall;
(b) Buying and selling of dollar
(c) Rise in interest rate remained steady @1.5% by Central Bank;
(d) Outlook of global growth;
(e) Favourable Trade balance on account of import greater than export; (Anon.,
2018)
(f) Gap between rate of interest in USD and AUD;
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(g) Japanese and Chinese currency is performing well.
USD/GBP
Date Price Open High Low Change %
Aug 08, 2018 0.7763 0.7725 0.7780 0.7716 0.44%
Aug 07, 2018 0.7729 0.7725 0.7739 0.7708 0.05%
Aug 06, 2018 0.7725 0.7687 0.7742 0.7681 0.46%
Aug 05, 2018 0.7690 0.7685 0.7692 0.7685 0.03%
Aug 03, 2018 0.7688 0.7681 0.7709 0.7667 0.09%
GBP has become weaker against USD, USD strengthened GBP fell. (Anon., 2018)
Reason
(a) Drop of GBP against USD due to no deal Brexit.
(b) Outlook of global growth
(c) Buying and selling of Pound
(d) Gap between rate of interest in USD and GBP
USD/EURO
Date Price Open High Low Change %
Aug 08, 2018 0.8617 0.8619 0.8640 0.8600 -0.04%
Aug 07, 2018 0.8621 0.8657 0.8661 0.8615 -0.40%
Aug 06, 2018 0.8656 0.8639 0.8673 0.8639 0.08%
Aug 05, 2018 0.8649 0.8643 0.8650 0.8642 0.05%
Aug 03, 2018 0.8645 0.8630 0.8650 0.8611 0.15%
USD has become weaker against EURO, EURO strengthened USD fell. (Anon., 2018)
Reason
(a) Full blown trade war by America on account of which USD fall;
(b) Buying and Selling of dollar
(c) Outlook of global growth
(d) Favourable trade balance on account of import greater than export
(e) Pressure on trading.
2.0 What are your proposed trading strategies (to be implemented in Week 5 trading session)??
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I. For USD/JPY, investor can go long on Japanese Yen on account of positive
sentiments in the market and performing yen. Further, results were also due form
Bank of Japan. Further, for a passive trader the strategy of holding and relaxing
shall have hold good and would have earned 0.33 yen per USD over 5 days.
For an active trader, everyday squaring the transaction at the days low would
have resulted in a profit of 1.03 yen per USD over 5 days.
Thus, I would have implemented a safe bet and would have gone long on Yen
depending on the risk appetite and the requirement of customer. If the clientele
had been young active strategy would have been employed.
Investment in Yen would have fit in the strategy of handsome return with minimal
risk on account of positive global sentiments towards Asian Countries.
Allocation of 30-40% of portfolio.
II. For USD/AUD, the movement has been minimal on account of stable interest rate
in AUD as announced by central Bank a day before. If passive strategy would
have been employed on account of weaker dollar and strong AUD, one would have
earned .0018 USD per AUD by going long on AUD and short on USD.
If one had followed an active strategy by going long at the open price and selling at
days high one would have earned .0072 USD per AUD.
Thus, I would have implemented a safe bet and would have gone long on AUD
depending on the risk appetite and the requirement of customer. If the clientele
had been young active strategy would have been employed\
Investment in AUD would not have been so lucrative on account of no strong
internal news.
Allocation of 10-15% of portfolio.
III. For USD/GBP,investor cannot go long on Pound as due to negative sentiments
in the market about pound and also dollar outperforming pound.GBP/USD it can
further drop to 1.20 percent if there is no deal and if the deal breaks than the
GBP/USB could drive toward parity.GBP is reaching its 11 months low value
against dollar due to rising concern of no deal Brexit”.It still cannot see any
upside despite promise by the Bank of England to raise the interest rate and
keeping it ,the move should have boost the pound rate.
Investment in GBP would not have been so lucrative on account on account of
reaching its 11 months low.
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IV. For USD/EURO, the movement has been minimal on account of stable interest
rate in EURO. If passive strategy would have been employed on account of weaker
dollar and strong EURO, one would have earned .0030 USD per EURO by going
long on EURO and short on USD.
If one had followed an active strategy by going long at the open price and selling at
days high one would have earned .0065 USD per EURO.
Thus, I would have implemented a safe bet and would have gone long on EURO
depending on the risk appetite and the requirement of customer. If the clientele
had been young active strategy would have been employed\
Investment in EURO would not have been so lucrative on account of no strong
internal news.
Allocation of 12-15% of portfolio.
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Bibiliography
Anon., 2018. GBP/USD - British Pound US Dollar. [Online]
Available at: https://in.investing.com/currencies/gbp-usd-historical-data
[Accessed 9 August 2018].
Anon., 2018. USD/EUR - US Dollar Euro. [Online]
Available at: https://in.investing.com/currencies/usd-eur
[Accessed 9 August 2018].
Anon., 2018. What makes the Australian dollar move?. [Online]
Available at: https://www.commbank.com.au/guidance/economy/what-makes-the-australian-
dollar-move--201605.html
[Accessed 9 August 2018].
investing.com, 2018. AUD/USD Historical Data. [Online]
Available at: https://in.investing.com/currencies/aud-usd-historical-data
[Accessed 9 August 2018].
investing.com, 2018. USD/JPY - US Dollar Japanese Yen. [Online]
Available at: https://in.investing.com/currencies/usd-jpy-historical-data
[Accessed 9 August 2018].
Wilkes, T., 2018. FOREX-Euro struggles to make headway even as dollar rally fades; yen rebounds.
[Online]
Available at: https://www.cnbc.com/2018/08/08/reuters-america-forex-euro-struggles-to-make-
headway-even-as-dollar-rally-fades-yen-rebounds.html
[Accessed 9 August 2018].
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