Emerging Markets are bouncing today with Turkish lira (TRY) and South African rand (ZAR) both up ove...
Avoid Europe...Go Down Under Instead
03/24/2013 7:45 am EST
The Cypriot crisis is pressuring the Euro and many Forex markets, but there is a bright light in Australia, says Alfonso Esparza of OANDA.
Nancy Zambell: My guest today is Alfonso Esparza, the Senior Currency Strategist at OANDA. Thank you for joining me. I appreciate your time.
Alfonso Esparza: Thank you for having me, Nancy.
Nancy Zambell: When your colleague, Dean Popplewell, spoke with us a couple of months ago, the euro was holding its own. But now we have the Cyprus situation where the government wants to tax small depositors, which is having an effect on the euro.
Alfonso Esparza: That is correct. It’s also very ironic, because at about the end of last year, all of the Eurozone members were basically saying that the worst was over, and 2013 was going to be a year of recovery. Cyprus has shown that this is not exactly the case.
Nancy Zambell: How do the Russians play into this situation?
Alfonso Esparza: It’s very interesting, because Cyprus is one of the smallest members in the Eurozone, and they have a lot of Russian funds in their banks.
When the Troika got formed by the ECB, the IMF, and the European Commission, it basically made an offer that Cyprus was almost forced to refuse. It was to tax all of the deposits—most of them from Russia. So right now, the Finance Minister of Cyprus is actually in Russia trying to get a better deal from Russia, rather than take the Eurozone deal.
Nancy Zambell: How do you think this is going to turn out?
Alfonso Esparza: It’s really hard to say at this point. It’s one of those things where it’s not just what happens in Cyprus. Even if the Cyprus resolution is that they do get the funds from Russia and the crisis is averted for this week, the effects will be felt most definitely on Spain.
Spain has always been on the radar, very close to a bailout request. It’s actually been expected for the last couple of months. But the Spanish bond sales have kept the bailout at bay.
After the events in Cyprus and the election results in Italy, Spain could probably be very close to asking for a bailout. And all the issues that happened with the Cyprus bailout could sort of blow up again at a much bigger scale in Spain.
Nancy Zambell: That doesn’t sound too positive for the euro, then.
Alfonso Esparza: No, definitely not. Last year, the euro was able to survive based on the statements and support from the head of the central bank and individual members—like the chancellor of Germany. They were all very supportive of the currency.
This year, it’s been all on the downtrend. Even consumer confidence and manufacturing are down. It’s not painting a pretty picture for the euro this year.
Nancy Zambell: Let’s move across the pond and talk about the Federal Open Market Committee (FOMC) meeting. What do you expect in terms of what’s going to happen to the dollar, depending on what Bernanke has to say?
Alfonso Esparza: Again, it’s one of those things where there are two parts to the equation, so it’s the forex seesaw. On one hand, you have the euro. On the other hand, you have the dollar.
And sometimes dollar strength is not really the direct result of the dollar, but actually euro weakness. Euro weakness can push the dollar up, and sometimes euro strength can push the dollar down.
Here, the story is more of a Euro weakness that’s pushing the dollar up, and it’s up to the Fed to see what decisions to make. Do they let it be for the time being, or do they actually make a statement to try to curb the rise of the dollar? Right now, the US economy is enjoying a recovery, and they don’t want to derail that with a strong dollar.
Nancy Zambell: Exactly. So is there a currency play that a trader could do today?
Alfonso Esparza: Right now, it’s very hard to say which side a trader would pick, just based on the major events that are occurring around the globe.
We’ve seen the Bank of Japan intervene on behalf of the yen, and that has some significant success in the last quarter of the year and starting into this year. Also we’re starting to see the structural weakness of Europe and how all the members are basically not cut from the same cloth, and how it’s just going to bail out territories. It’s really hard.
We actually have tools at OANDA that make the decision easier, so you can basically check the volatilities—which currency has been the most volatile, what movements have been intraday, intraweek, or even every 15 minutes. That actually helps with the statistical information and finding the best places to be in the currency markets right now.
Nancy Zambell: Do you see any current currency trades other than the euro and the US dollar, such as in Switzerland or Australia?
Alfonso Esparza: It’s been very interesting. When you mention Australia, we’ve seen the rise of the Australian dollar, not just in price but also in volume.
The Australian dollar has been one of the most attractive currencies to trade both long and short in the past couple of years. Two or three years ago, it was probably a Tier 2 currency, but it has joined the big leagues.
It’s somewhat similar to the Canadian dollar. It’s the story of a major business partner. In the case of Australia, it’s China.
It has an attractive interest rate, so it’s a very interesting currency. I urge traders to get to know it and to get to know what factors affect it. It’s a currency that should be in your tool kit, or that you should check regularly. It’s one of the ones at the top.
Nancy Zambell: If someone wants to get started in forex trading, would you suggest that they begin with a pretty small amount?
Alfonso Esparza: Even before opening an account, the best way to learn forex trading is by doing it, so we actually offer practice accounts. It’s a demo account, which gives you unlimited funds that you can try.
You will get the feel of the market, see which currencies move more than others, the volatility, the funds needed to make a trade in different currencies, and just what kind of tools that we offer in terms of technical analysis, fundamentals, news packages.
Nancy Zambell: Sounds like a safe way to get started.
Nancy Zambell: How much money would a trader actually need to get started after they go through the practice sessions and decide they really would like to dip their toes into Forex?
Alfonso Esparza: We have no minimum account deposit, so you can open an account with whatever you feel comfortable with.
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