Get your Helmet On!!!

Highlights from the Currency War Correction

First Published: e-Forex Magazine 54 / Recent Events / October, 2013

Get your Helmet On!!!

In July 150 delegates came together in London to discuss the recent rise of EMFX trading and its future. At the first dedicated - EMFX Conference - Everything from the health of the underlying economies to internationalisation of new currencies.  From the emergence of some HFT in EM to the birth of new trading technology for the sector.

One message that came across loud and clear was the need to, “Get your helmet on and take cover”, as things were about to get more volatile. This was only July 27th and ever since the EMFX market has been front-page news.

Since the conference, and at the time of writing, the Fragile 5 (INR, IDR, TRY, BRL, ZAR) are all significantly down with Indian Rupee at the front of the nosedive. Malaysia, Thailand, Philippines and Indonesia all suffering a range of  -5% to well more than -10%.

The wise voice of reason – Paul Chappell of C-View – nailed the discussion with the quip of, “the thing to remember here is that Trading EMFX is NOT just trading long the underlying economy. There are significant trading and portfolio opportunities both long and short and in relative value in the right circumstances”.

The discussion covered both the difficulties and the benefits shorting EM currencies. Philippe Bonnefoy of Eleuthera Capital said, “when traders start looking for the exit… it gets very small and further away,” reminding us that while liquidity can be thin as well as crowded around the IMM dates. Some traders have made considerable returns from this most recent Currency War Correction.

In a refreshing change, professional journalists from Dow Jones, Wall Street Journal, and the Financial Times moderated panels. Making for some more in-depth and revealing lines of questioning.

Some of the more notable answers coming out of the day were: “When it comes to EMFX liquidity…the tide comes in…the tide goes out. Only then do you see who’s swimming naked,”

As well as:

“The idea of CNY as an International Reserve Currency by 2020… Is a total pipedream – it will never happen.”

And my personal favourite:

“If it’s ‘e’ traded then its not EM anymore…it’s New World.”

In many respects the idea of what is EM is already blurring. “It’s impolite to call China and Brazil as emerging anymore. Rouble is effectively a G20 currency.”

And as such is already a high frequency traded currency pair.

Moscow gets closer and closer to London every day… now at 38 milliseconds and the Moscow Exchange has seen fantastic growth over the last 12 months. One of their new contracts to watch is CNY/RUB – while still young at this stage, its geo location alone could cause this pair to be very active over the next 5 years.

The conference continues with more dates and cities in 2014 with the overriding message of more participants means more liquidity… and more liquidity solves a number of the issues in this part of the market.

Until then…. Keep your helmet on.