Upto 20% off on USD
Sounds
bizarre. Is it some kind of scheme going on? Not exactly. All the same, US dollar
is going to be off 20% from its peak reached against majority of the currencies in the recent past within next two-six months from now.
This is
one scheme which offers a lot of opportunities for punters and organisations
alike, but how many of them will be able to avail of the scheme is yet to be
tested. Many of them would perhaps be on the other side of the table and may
actually suffer losses depending upon how severe will be the speed of fall,
because the general tendency of the individuals and organisations –
specifically in case of USD – is to remain long in the so perceived safe haven
currency/ asset.
Potential impact of a dropping foreign currency
Export
oriented organisations see corresponding loss in earnings in domestic currency due
to weakening foreign currency, whereas import oriented organisations benefit
due to lower cash outflows.
Similarly,
organisations having dollar denominated liabilities benefit from the downsized
liabilities, when these are translated in local currency on the balance sheet, whereas, there is a corresponding
diminution in the value of dollar denominated current and long term assets when
translated in the domestic currency, resulting in higher provisions/ depreciation
in the books of accounts.
This is
simply theory. The real test will be that of the Central Banks as to how
effectively they will be able to absorb and cushion the impact of the
volatility arising out of a fluctuating and falling foreign currency so as to
have least impact on the profitability of the local businesses.
While
looking at some of the charts below, it is evident that the fluctuating
currencies will have the potential to rock the financial markets and cause a significant
impact on the operations and the balance sheets of the organisations having
foreign currency exposures. Organisations which will prove to have the resilience and wherewithal to manage
and/ or in an unlikely situation absorb the impact of the turbulence arising
out of the fluctuating foreign currencies will be able to survive in the long
run. Rest may get dwarfed or wiped off.
Turbulence
in the currency markets is here to stay for a longer period than most of us are
able to think of or imagine.
Here are the
charts of some of the prominent international and domestic currency pairs:
USDEUR
USDJPY
USDGBP
USDAUD
USDCHF
USDINR
EURINR
JPYINR
GBPINR
USD has
commenced a confirmed bearish phase against Euro and JPY, whereas it is stalled
at the resistance levels against GBP and AUD (Australian Dollar) from where it
is very much likely to retreat. CHF (Swiss Franc) which has a strong link with
Euro is most likely to follow Euro’s strength against USD despite having a
stable and lesser volatile parity with USD.
In the
Indian context, USD has peaked against rupee, which is evident from a host of
adapted Bollinger Band charts, multi-period candlestick charts (please refer to
my previous posts on the blog) and other technical indicators. A strong Euro, JPY
and GBP against USD will lead to strength against INR as well.
Contact:
Author
can be contacted at riskadvisory@outlook.com.
Disclaimer:
These
extracts from my trading books are for educational purposes only. Any advice
contained therein is provided for the general information of readers and does
not have regard to any particular person's investment objectives, financial
situation or needs and must not be construed as advice to buy, hold and sell or
otherwise deal in any kind of commodities, currencies, securities or other
investments. Accordingly, no reader should act on the basis of any information
contained therein without first having consulted a suitably qualified financial
advisor.
