The Ideal Trading Opportunities In The Foreign Exchange Market Are Emerging Again.

The US dollar index has been on the rise since late October. It has broken 99 points for the first time in six months. It will soon challenge the twelve and a half high of 100.3 in March. At the same time, the short-term interest rates of the euro area and its neighboring countries will be negative, and the ECB is also likely to further reduce interest rates by the end of the year.

Under such circumstances, the classic carry trade has come back again.

Carry trade is also known as arbitrage, that is, borrowing low interest currencies, selling and buying high interest currencies or assets denominated in high interest currencies, such as treasury bonds.

Moreover, this low interest currency is in the best direction of depreciation, while the high interest rate currency is in the trend of appreciation, so that not only can we earn the interest rate difference, but also we can earn the exchange rate difference.

The UBS AG V24 interest rate index, which measures the difficulty of carry trade, has risen sharply since October.

In August, however, the impact of the tumbling of the renminbi on the currency market in emerging markets was UBS AG V24.

Trading index once fell 8.3%, the largest single month decline in 16 years.

The classic arbitrage deal in the early years was the currency of many US dollars / yen or Australian dollar / yen, because the benchmark interest rate of the yen has been hovering around 0 since 1999, while the US dollar and Australian dollar are currencies with relatively high interest rates and relatively stable sovereignty.

But now the star money of arbitrage trading is no longer the yen, because the yen has been widely arranged for nearly a year, and the depreciation tendency is not as obvious as that of the European currency. So the best strategy now is to borrow European system.

Buying emerging market countries' currencies, and emerging market countries generally have higher interest rates than developed countries, and the exchange rate of emerging market currencies has experienced a three quarter slump, accompanied by rising market sentiment and a rebound in recent months.

"Only those who are becoming pioneers in the market are currently doing these pactions," said James Wood-Collins, chief executive of Record Currency Management. He believes that the difference in monetary policy will increase the attractiveness of interest rate trading to investors.

Since the Central Bank of China allowed the renminbi to depreciate significantly in August, the stability of the RMB exchange rate is expected to decline, and when China enters the interest rate cut cycle, the real interest rate has been declining, even to a negative value.

However, it can be seen from the huge earthquake of August.

Collapsing, the impact on the exchange rate of a country will be very large, especially when you are a hot arbitrage target.

Graham Summers, chief market strategist of Phoenix Capital Research, recently said that the scale of arbitrage pactions that the United States now only borrowed to buy other assets is more than 9 trillion US dollars, which is larger than that of France and Brazil.

This is mainly because the US dollar began to flood when the Fed lowered interest rates to zero in 2008, and the low cost US dollar became the main financing currency at that time.

But now that the Fed raises interest rates and the US dollar continues to appreciate, the US dollar has lost its qualification as a financing currency. The $9 trillion carry trade may have begun to collapse, which will accelerate the depreciation of the currencies of high interest currencies and accelerate the rise of the US dollar exchange rate, for example, the Asian financial turmoil in 1997 is a typical example.

Take Brazil Real as an example, a hedge fund can borrow 100 million euros to buy Brazil Real at 0.19% monthly interest, which costs only 190 thousand euros and can earn 16 million 200 thousand euros in one month.

The strategic ranking of buying the currencies of major countries and emerging market countries by borrowing the euro has been the highest in recent months (from September 28th to November 12th). Most of them are emerging market currencies, even though the interest rate market of the US dollar is rising, but the earnings are also ranked the following: