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This is a 2500word group report focusing on the foreign exchange (FOREX) markets. The FOREX markets are used by entities to both earn a profit from trading, and also to raise funds for international investment projects. As such, for this assessment you will be randomly assigned the role of either a bank, or a corporation with the objective of implementing strategies that will help you achieve the highest possible profit from trading, or raise international finance for investment projects at the lowest possible cost.
BAFI 3182 Financial Markets FX MARKET ANALYSIS & TRADING STRATEGIES REPORT Lecturer: Ho Dac Viet Huy Group: Team: – Bank Word count: 2640 words Table of content I Executive summary II Introduction III Discussions about the market view Past FX market behavior .4 1.1 GBP/JPY 1.2 GBP/EUR A market view forecast 2.1 GBP/JPY a Inflation b Interest rate c GDP growth rate d Commodity price e Government intervention .9 2.2 GBP/EUR .9 a Inflation b Interest rate c GDP growth rate 10 d Commodity price 10 e Government intervention 11 IV Trading strategy and performance analysis 11 Trading strategy 11 Performance analysis 12 V Conclusion .14 VI Reference 15 VII Appendix 20 List of abbreviations BoE: Bank of England ECB: European Central Bank Euro Area: EA BoJ: Bank of Japan I Executive summary The report is written by Bank with the purpose of discussing GBP/JPY and GBP/EUR from their past performances by historical events and forecasting the direction it is heading Inflation, GDP growth, interest rates, commodity prices, and government intervention will be used to forecast the behaviors of GBP/JPY and GBP/EUR in the near future Then, we will present our trading strategies and analysis our trading performance Believing that the Pound will strengthen against the Yen and the Euro so our bank’s goal is to keep as much GBP as feasible Finally, we gained A$15,391.72, square one currency (USD), and long £44,447,005 GBP Overall, the trading session provided us with greater experiences for next sessions II Introduction As having a reputation for trading GBP, our bank is a price maker in spot FX for AUD, USD, EUR, GBP and JPY Our primary objective is making profit and square them at the end of day Regarding the secondary goal, we aim to speculate GBP based on following analysis about past performance within years and future forecast for the next 3-6 months of GBP/JPY and GBP/EUR This report commenced with research about past behavior and future forecast of GBP/JPY and GBP/EUR, followed by trading strategies and performance evaluation III Discussions about the market view Past FX market behavior 1.1 GBP/JPY Figure 1: GBP/JPY exchange rate from 1/2020 to 4/2022 (Macrotrends 2022) From figure 1, although GBP/JPY collapsed in Q1-2020, the overall and current upward trend highlights a strong appreciation of GBP against JPY The GBP/JPY plunged by 10% in March and reached the bottom at 129.2754 on 18th March- 2020 due to the first hit of Covid-19 GBP began to decline when the BoE made an emergency interest rate cut to 0.25% to bolster the economy (Inman 2020) Furthermore, this was a reflection of UK economy's unique susceptibility to the worldwide economic disruptions caused by the current pandemic (Ostroff 2020) In early 2021, GBP/JPY soared as UK economy grew by 7% thanks to vaccine deployment and Brexit trade agreements BoE raised its bond-buying program by $263 billion in November, suggesting an economic improvement (Nagarajan 2020) In Q2/2021, UK witnessed a greater GDP growth rate than Japan (4.8%>0.3%) (OECD 2021) and higher interest rate (0.25%>0.1%) (Trading economics & BoE 2021) Altogether, GBP appreciated against AUD In 2022, the Pound continued to dig into resistance against Yen GBP rallied to its peak at 167.3549 against JPY The Yen has been dropping recently, as the aftermath of the Russia- Ukraine crisis has wreaked havoc on currency markets, and it has lost about 6% this year, making it the worst-performing G10 currency (Hongxu 2022) Additionally, the depreciation of JPY against GBY is because the BoJ’s continue to maintain the extremely loose monetary policy while BoE is intensively tightening its monetary policy stance (McCarthy 2022 & BoE 2022) 1.2 GBP/EUR Figure 2: GBP/EUR exchange rate from 1/2020 to 4/2022 (ECB 2022) After peaking at 1.205 in Feb-2020, GBP/EUR reduced to the bottom in March (1.0754) Since 2021, it has gradually increased with the peak at 1.2138 in Mar-2022 indicating the overall appreciation of GBP against EUR In 2020, GBP/EUR was below 1.16 because Brexit caused uncertain policy expectations in UK (Coyle 2021) Interest rate declined remarkably to 0.1% (BoE 2022) instigating loss in investment So investment demand decreased and demand of sterling dropped Additionally, the higher inflation rate 0.88%>0.25% (OECD 2022) and lower GDP growth -9.3%