Weekly review: BoJ joins the easing party; Deutsche Bank unleashes Rapid fire
One week on from the Federal Reserve’s announcement of QE3, the mood in the markets could be described as reflective, or even a bit hung over, after the punchbowl of global liquidity was refilled.
The USD recovered some ground – albeit after a month long pummelling – but there were still plenty betting on further losses for the US currency. Interest in EM FX also quietened down, though, as we reported, sentiment remains bullish and the prospect of further gains seems likely given that hedge funds are under-invested.
Talking of EM, the arrival of QE3 is leading to fresh reserve accumulation from central banks in the developing world. According to Bank of America Merrill Lynch, that should crush FX volatility and lead to a resumption of the carry trade.
But if the Bank of Japan was hoping to see its currency weakened by carry trade investors, they would have been disappointed this week.
The BoJ became the latest among the world’s leading central banks to join the easing party, announcing a fresh round of QE. Partly aimed at reining in the yen, the effect was fleeting as USDJPY quickly gave back its gains.
Perhaps if the BoJ had taken the advice of our friends at Strategic Alpha and announced a foreign bond-buying programme, the result may have been different, but as it is it looks like the problem of JPY strength is not receding.
Indeed, it could get even worse if the tensions between Japan and China intensify. As we reported, that could make it harder for Tokyo to intervene while at the same time ramping up haven demand for JPY.
Now the big central banks decisions are out the way, the market should find a new focus. That could mean the slowdown in China, eurozone debt woes or the US fiscal cliff. Either way, it doesn’t exactly bode well for risk. Tokyo will have to live with a strong currency for a while yet.
Deutsche unleashes rapid fire
Meanwhile, the big news from the industry came from Deutsche Bank, the world’s largest FX bank, which unveiled the second phase of its new generation FX trading platform Autobahn.
The bank introduced Rapid – or Revolutionary API Design – which combines advanced low latency trading technology with its market making capabilities for the first time.
Zar Amrolia, currency and trading technology head at Deutsche, spoke exclusively to EuromoneyFXNews, telling us why he believes that it will revolutionize the FX industry and lead to a substantial increase in client volumes.
Trading technology also featured as Caplin, the technology vendor that specializes in building FX single dealer platforms, launched a set of tools to help banks construct trading applications in HTM5, the native web technology championed by Apple, Google and Microsoft.
More from the technology also came from Ireland’s Corvil, who told us demand for its computer network security monitoring hardware has soared among FX players in Asia after last month’s computer glitch at Knight Capital, which saw the US broker take a $440 million loss.
Speaking of Knight Capital, the firm’s multi-dealer platform Hotspot FX revealed a near 20% drop in averages daily volumes last month. That was well down on other major reporting FX platforms.
Still, with a rescue package in place at Knight Capital and FX volumes rebounding generally after this month’s action from leading central banks, activity at Hotspot should bounce back.
Next week, we are taking a closer look at regulation and will be catching up the latest developments at the Trade Tech FX conference in London.
That should provide a forum for the leading stakeholders in the regulatory debate to clarify their positions. Our reporter on the ground will keep you informed.