FX warning for month end

This time last week the Federal Reserve announced a series of monetary easing measures, the like never seen before. Not to be outdone, just a few days later U.S. Congress signed into action a U.S. $2tn economic relief package, equivalent to 10% of U.S. GDP. Before the ink was even dry, rumours of a fourth stimulus package had begun to circulate.

Locally, the Australian Government announced over the weekend that residential and commercial landlords will be banned from evicting tenants under financial stress for six months. This is expected to be followed by news in coming days the government will subsidise by as much as 75-80%, the wage bills of businesses placed into “hibernation.”

The effects of such government and central bank measures have been to provide a layer of insulation to asset markets against the headline shocks provided by Covid-19. An example being the lack of reaction to the 3.28m jump in initial jobless claims in the U.S. last Thursday, providing further evidence to our view that volatility has peaked.

That said, we do have one eye nervously focussed on a possible spike in volatility due to end of month and end of quarter rebalancing flows. As mentioned last week, there is likely to be large inflows into equity markets at the expense of the bond market. As part of this rebalance, FX hedges will also need to be adjusted.

The risk of a larger than usual FX rebalance, prompted the Global Foreign Exchange Committee (GFXC) to send the following warning to institutional market participants late last week.

“Given the intense volatility seen in global financial markets this month, it is possible that FX market participants may execute larger than usual FX volumes during end-of-month benchmark fixings. In addition, FX market participants may face more operational constraints reflecting lockdown in some financial centres. In light of these possible developments, significant volatility and price movements may be observed during FX fixings in the coming days.”

I generally avoid trading over month-end, due to higher than normal volatility and the unpredictable nature of rebalancing flows. Because of the huge moves experienced in asset markets this month and because liquidity in the FX space is yet to return to more normal levels, fellow FX traders may wish to tread an extra cautious path over the next 48 hours.

Source Tradingview. The figures stated areas of the 30th of March 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.