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Foreign Exchange

Weekly review: More evidence of declining spot volumes, CTA and macro returns bounce

EBS, Thomson Reuters, FXall and CME all released trading volumes for July this week, while CTA and hedge returns started to filter out into the market. They showed contrasting fortunes in for the month.

More evidence emerged this week that spot volumes are declining after EBS, Thomson Reuters and FXall all reported declining trading volumes in July. This was further backed up from CLS data that also showed industry volumes are down. It is hard to tell whether or not the declines are attributable to a lack of clarity from European politicians, butCiti had some interesting research out this week that compared the volatility in July with the previous year. In the context of the CME’s rise in open interest, which the exchange argued shows that the FX market is still growing, the intra-day ranges are actually narrowing, and thus so is the frequency of trading.

And while CME FX volumes declined in July also, it was a good month for the CTA sector and for macro hedge funds, which showed improved returns. But, as one top-performing CTA told EuromoneyFXNews, a large part of those returns came from fixed income and commodities rather than currencies.

Macro hedge funds have had a tough year, and thanks to a stellar July they are only just in positive territory. Morgan Stanley this week launched an FX tool to help hedge funds identify better macro opportunities and outwit headline risk, which has proved to be the bane of their investing existence in recent times.

The same firm also announced that it was adding two more currency managers, one from Hong Kong and one from Switzerland, to its FX investor platform. In the trading platform space,Broadway Technology, an ambitious company that provides high-performance trading solutions for banks and hedge funds, launched its “flat fee” hosted liquidity aggregator for the FX market. It will certainly help shake up the business model in the FX space, especially in these budget-constrained times.

Currency markets had a reasonably tame week, and that gave some participants a little time to further digest the recent statement of intent by Mario Draghi, president of the European Central Bank, that the ECB would do whatever it took to save the euro. Could this be a turning point?

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