Trading Forex? Key Drivers To Look Out For This August

29 Jul 2022

From the Russia-Ukraine war, China’s zero-covid policy, Europe’s ongoing energy crisis and global supply chain bottlenecks, we are now in what experts call a ‘poly-crisis’. Our own experts put together some key drivers for the month of August that they think will impact the major currencies.

USD

The Federal Reserve raised rates by 75-bps for the second time in two months and signalled the possibility of such move again, cementing the Fed’s commitment in driving inflation lower to the extent of accepting the possibility of negative growth. With no sign of a slowing labour market and weakening prospects in Europe and China, the Fed is likely to maintain its hawkish stance. Aggressive tightening and safe haven flows are likely to result in a stronger USD moving ahead. On the flip side, bearish themes that could pose a threat to the greenback would be the resurgence of Covid-19, poor economic data and inflation eventually peaking out. These would then force the Fed to adopt a more nuanced approach and limit USD’s strength.

EUR

Shortly after hitting parity, the EUR jumped against the dollar after ECB announced its first-in-11-years interest rate hike of 50-bp. The move signaled an active step towards rate normalisation. Nord Stream 1 pipeline, which accounts for 40% of Europe’s total natural gas supply has resumed to much relief. Current flows reduced to 20% pre-maintenance level but supplies might be completely shut off. Italy’s Prime Minister Mario Draghi’s resignation introduced further instability to the situation in Europe. Moving forward, eyes will be on the energy situation in the region, the snap election taking place in September, and most importantly, the effectiveness of the Transmission Protection Instrument (TPI), an anti-fragmentation tool to limit the divergence in borrowing cost across the Eurozone.

JPY

Divergent monetary policy continues to add weakness to the JPY. The very loose monetary policy by BOJ is still touted by Governor Kuroda who affirmed his pledge by emphasising that further easing of monetary policy will be conducted if necessary. He believes the downside risk is short-lived and will eventually balance out. As Japan imports most of its oil, rising oil prices and a weaker JPY would mean that oil is now more expensive than ever. BOJ’s tone is likely to persist in the near future unless economic fundamentals shift extensively and convince the BOJ to adopt a more hawkish stance. Until then, the greenback is will continue to reap gains over the yen.

1st AugustEurope Monthly Unemployment Rate
US ISM Manufacturing PMI
3rd AugustEUR Trade Balance
EUR Retail Sales
US ISM Services PMI
4th AugustBOE Minutes/Interest Rate Decision
US Initial Jobless Claims
5th AugustNonfarm Payrolls 

Trade Forex on Phillip MT5 and Receive US$864

All new clients who trade Forex on Phillip MT5 from 1 Aug – 21 Oct will be entitled to receive up to a total of US$864.
An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

 

Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

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