Forex Weekly Look Back: global markets assess virus spread

Forex Weekly Look Back

Looking back at the most intriguing and popular Forex industry news from the past week at LeapRate.

This Wednesday, the Bank of England cut interest rates by 50 basis points to 0.25% in a near unprecedented step, taking them back to a record low level not seen since the financial crisis. Reacting to the expected fallout from the coronavirus, the Bank unanimously voted for the cut, and also said it would relax capital rules to help support borrowing. Mark Carney did not announce any expansion of bond purchases, perhaps leaving the Bank with another card to play should the situation worsen.

Crude oil prices (Brent) experienced an epic slide this week as Saudi Arabia started a new price war with a big bang, making today’s crude oil price decline the sharpest one since the Gulf War in the early 1990s. The demand for crude oil has been declining as the Coronavirus triggered lockdowns of large parts of China, and now Italy. To balance oil prices, Saudi Arabia pressed for OPEC and Russia to produce less crude oil to reduce about 4% of global supply. However, those conversations failed, and according to Saudi Arabia, Russia said that from April 1, “everyone can produce whatever they like.” Thus Saudi Arabia has pushed away by providing significant discounts to its clients and will increase production. From next month Saudi Arabia will pump up more oil and also provide a six to eight dollar discount vs. the Brent Crude oil benchmark, hence the sharp drop in crude oil prices.

Dow plunged into a bear market after US announced travel ban. President Trump took drastic measures on Wednesday and shut off travel between the US and Europe (excluding the UK) for 30 days. The move is expected to rattle markets and has sent them further into bear market territory. All three major US indices are flirting with the 5% limit down circuit breaker once again – down over 4.5%. The travel ban is somewhat unexpected, but it is evident that monetary policy alone has not been enough to stem the bleeding in financial markets. Whilst this is still a far cry from the restrictive measures that China put in place, it was clear something more needed to be done.

Bitcoin and the rest of the digital-assets fell sharply, to the tune of 20% to 30% in the span of an hour or so and total 40% of market losses in major currencies overnight. This is certainly one of bitcoin’s sharpest sell offs ever, if not the sharpest. Matthew Dibb, Co-founder and Chief Operating Officer, calls for caution when buying BTC.

Matthew Dibb said:

“Overnight we saw one of the largest unwinds of long and leveraged positions for cryptocurrencies in the last 3 years. Bitcoin and the remainder of the cryptocurrency market showed a high correlation in market sentiment to that of the equities sell-off following President Trump’s speech on the travel ban. Market losses across the major currencies are approximately 40% over the last 24 hours.

Dibb stated that there was over $700 million long-short liquidations on crypto derivatives exchange BitMEX, funding levels on XBT futures have turned negative at -50bps (usually at 3 bps) and futures reached -10%.

Dibb noted:

“While Stack’s view on Bitcoin at present is to be ‘cautious’ for the short-term, the coming weeks for longer-term investors will be a rare opportunity to consolidate holdings from other cryptocurrencies directly into Bitcoin, and take a dollar-cost averaging approach to their digital asset portfolio.”

President of European Central Bank, Christine Lagarde took a tough stance as the ECB announced  that it will keep rates unchanged and introduced temporary measures and relief for banks.

Founder of Quantum Economics, Mati Greenspan commented:

“Madam Christine Lagarde demonstrated today that she’s perhaps the only adult in the room at the moment.”

“Not only did she refuse to cut rates, as all the other central banks are doing, the stimulus measures she did implement were quite minimal. It seems Christine understands very well the matters that we discussed in yesterday’s update. What’s needed here is targeted fiscal stimulus. The kind that only governments can provide. The kind that will allow people who feel sick to stay at home.”

Natural gas prices have been falling and some fear they could reach 2016 lows. Since November 2019, natural gas prices have been under pressure and have declined by 34.83%. The main reason for prices trading lower is that the market suffers from oversupply.

Jeff Wilkins, Managing Director at IS Risk Analytics (ISRA), part of the ISAM Capital Markets Group talks to LeapRate about the risk management methodology of the “Revenue Share Shops” that exist in today’s FX industry.

Citi has shared its intention to reduce its global ambitions in the foreign exchange space since launching a review back in October of last year. To do so Citi will drop almost two-thirds of the trading platforms it gives currency quotes. The bank has made changes to its vendor platform requirements and cut 12 of 53 connections to the bank being terminated, although further changes and cuts are likely in the months ahead.

ASIC released new regulation for foreign financial services providers (FFSPs) that service Australian wholesale clients.There will be new foreign Australian financial services (AFS) licensing regime for FFSPs. There also will be licensing relief for funds management financial services provider seeking to induce some types of professional investors

GAIN Capital’s February volumes were up by 23% MoM. The OTC trading volume for the retail segment was $198.7 billion, making a 23.1% increase in MoM. The average daily volume OTC trading made a 35.6% MoM increase with $9.9 billion. The number of futures contracts reached 692,903 for February, up by 6.9% MoM.

Following the outbreak of the coronavirus and the uncertainty in the markets, the eurozone economic sentiment – especially in its biggest economic countries – wasn’t really optimistic. And it is not like, they were that optimistic before – many long hours of monetary policy discussions and debates couldn’t deliver a clear vision on how to get through the slow growth the Eurozone has witnessed over the past year.

ATFX launched new trading products for its clients in South East Asia, Latin America and the Middle East. Their clients can now trade US Natural Gas Futures Contracts CFDs and Bitcoin Cash/US dollar CFDs. The new additions to its product line-up come because of a high demand from its clients.

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