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Foreign Exchange

Weekly review: FX to spearhead CME’s European push; summer optimism shines on

The week began with a bang as CME Group – the world’s largest derivatives and futures trading platform – announced it was launching a push into Europe.

The Chicago-based firm said it intends to launch a new London-based derivatives exchange and would get the ball rolling by offering FX futures products from mid 2013. CME said launching with currencies allowed it to leverage its 40 years of experience in FX futures for customers in the region who access the futures market during the London business day.

CME’s enthusiasm for tapping into the world’s largest FX market is understandable – Europe is, after all, where two thirds of the world’s business gets done. But when we spoke to the market, the reception was lukewarm, with scepticism rife that the venture might struggle to attract liquidity.

Elsewhere in the industry, we obtained an interesting report from consultancy group Coalition, which showed top investment banks had seen a drop in revenue in the first half of the year thanks to spread compression and lower volatility.

Lower volatility also made its presence felt in the retail sector, which has seen a drop in volumes in recent months.

That fall in activity does not seem to be concerning Oanda, one of the larger firms in the sector, which celebrated a one-billionth trade this week. The firm’s European CEO told us why he thinks the next billion trades will come quicker than the last, and quashed talk that the company might be up for sale.

Meanwhile, electronic trade processing provider MarkitServ announced new partnerships with interdealer brokers attempting to comply with upcoming FX regulation in the US and Europe. The company told us it has more deals in the pipeline.

With the summer coming to an end, the jobs market kept turning, with perhaps the most notable appointment among the larger banks that of a new global head of FX at Nomura.

Summer optimism undaunted

In the markets, investors continued to bask in the glow of the Draghi put, with last month’s promise from the European Central Bank president to do whatever it takes to safeguard the euro fuelling a rebound in risk appetite.

This week, Draghi’s put was joined by a new “Bernanke put”, as expectations of further easing from the Federal Reserve rose after the release of the minutes of the central bank’s August meeting.

We here at EuromoneyFXNews do not want to rain on anybody’s parade, so we let JPMorgan do it.

The investment bank issued a warning that the market had become complacent and was not fully pricing in the event risk from Europe, the USD and China in the weeks ahead.

They might well have a point, and, as we wrote, the fall in the dollar might turn out to be a buying opportunity.

Indeed, there is a feeling in the market that the Fed minutes, coming as they did from a meeting held before an upturn in US economic data, might be a bit stale.

For a fresher take on the US central bank’s thinking, we – and the rest of the market – will be eagerly anticipating what Ben Bernanke has to say at next week’s Fed meeting in Jackson Hole.

That could deflate the summer bubble.

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