The Japanese yen today breached the crucial barrier of 100 to dollar and reached an intraday high of 99.73 before closing for the day at 100.70.
This is the highest level for the yen in over a decade, though the currency had reached a lifetime high of 79.80 to a dollar on 17 April, 1995.
But unlike the losses sustained by Indian companies on currency options following reversal of Swiss franc in November 2007, dealers said, yen appreciation might not have a major impact either for the direct yen-denominated borrowings or for foreign currency borrowings made in dollars but swapped into yen. Indian companies had used the twin strategies to take advantage of the lower interest rate regime in Japan.
Dealers said that most companies and banks with yen borrowings have taken a hedge since yen has been appreciating since the past one year now.
Most of the structures in Indian companies have already been triggered when yen crossed the crucial psychological barrier of 110 to a dollar. Globally, the markets too have adjusted to unwinding of yen carry trade.
Yen carry trade takes place when investors borrow in yen to invest in other high yielding currencies, like the Australian dollar, for earning interest rate differential.
In contrast, the impact on reversal of Swiss franc was severe since the currency has been ruling stable for almost 10 years, said a dealer. It had been in the range of $1.23-1.25 since October 2006, when most of the deals were struck by Indian banks on behalf of their corporate clients.
The options in swiss franc was struck to hedge their currency risk arising from the dollar and attain stability in the foreign currency interest rate risk since the currency is very stable
Within a year the Swiss franc appreciated from $1.23 to $1.19 on September 7, when the US employment data turned weak, prompting the US Federal Reserve to cut the rate by 50 basis points. Since then the Swiss franc has been consistently appreciating.
A senior executive of Bank of India, which has two branches in Japan, said the impact of yen appreciation will be neutral on its balance sheet since the exposures have been well hedged . A hedge is a counter position taken by an entity to counter the effect of risk arising from interest rate or currency appreciation either in some other currency or in reverse interest rate.
Export Import Bank of India executive director N Shankar said though the bank has raised funds in yen, the exposure was hedged and the bank did not hold trading position in the Japanese currency.
Understanding Short Term Trading
Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.
Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
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