FX Volatility Alert: The European Central Bank QE and Grexit Prospects

While the industry is still in shambles from the recent turmoil caused by the Swiss National Bank (SNB), what now needs to be done is to look forward. This week will see two of the most Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term stirring events since the beginning of 2015. Albeit expected, some may come unprepared for the implications of an unlikely (for now) Greek exit from the Eurozone.

A number of big brokers have already prepared for what may be a paradigm shift in not only foreign exchange, but across the broad financial markets volatility. By using higher margin requirements, the clients of a brokerage are increasingly protected against those negative balances some clients ended up with in the aftermath of the SNB’s decision.

Industry insiders who chose to remain off the record, have shared with Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term Magnates that preparing clients for the ‘new normal’ in volatility has to signal the need for having sufficient margin to support potentially bigger and more extreme short-term shocks.

The Swiss franc turmoil is only one example of the heightened volatility going forward. This week’s potential quantitative easing announcement from the ECB and the election in Greece, January 25, are other such events.

After the CHF tornado that swept through the currency markets damaging traders and brokers alike, what will differentiate industry leaders from the rest is what steps they will take to help their clients manage their risk with prudence and be prepared better for potential market moves.

European Central Bank Quantitative Easing

The prospects for a quantitative easing program by the European Central Bank have been increasing in recent weeks. But what is its scope and how will the market react to it?

While the market knows that it is coming, a big part of the prospective QE move by the ECB might already be priced into the market. The bigger risk however, remains that the euro will go yet again lower. Heightened risks for fragility and division within the ECB governing council, further isolating Germany and its supporters for sound money, could drop a bomb on the foreign exchange markets.

By no means will it be as dramatic as the Swiss franc debacle from last week, however the theme of increased global uncertainty is here to stay. The ECB will merely become another one of the politicized central bank institutions that are following up on governments’ agenda for easy money.

An economist from the German ZEW institute stated on Tuesday that quantitative easing is already reflected into the price of the european currency… but there is more.

Greek Elections and the Prospects for a ‘Grexit’

Just a couple of days before the elections in Greece, the lead of the radical leftist coalition headed by Alexis Tsipras, SYRIZA, widened to between 4 and 6.5% against conservatives from New Democracy.

Is a leftist government in Greece already priced into the market? Probably to a big extent it is. What remains to be seen is how SYRIZA will form a government if it wins, and how it will act in the face of pressure from its partners from the European Union and the International Monetary Fund.

The last time we had Greek elections in 2012, there was a snap election in the aftermath of the first one. While Greek politicians appear very strong and committed to their voters before taking power, in the aftermath of the European sovereign debt crisis, their pre-electoral promises have usually collapsed under the heavy burden of the country’s burgeoning debt.

Why should this time be any different?