Upto 20% off on USD - Currencies Special - USD, EUR, JPY, GBP, AUD, CHF, INR

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.