According to the WSJ, Wen has made similar comments earlier this year on the euro’s importance, such as in mid-July when he met German Chancellor Angela Merkel he said Europe remains a key market for China’s foreign-reserve investment. China has said it aims to make better return on its vast holding of foreign-exchange reserves and ensure safety of its investment of the foreign-exchange assets.

Reading between the lines, we can tell that a large part of the increase in volume is due to the trading activities of RETAIL traders! (Yes, we are making a BIG difference) According to the BIS report, 48% of the growth was in spot transactions which represents 37% of the total turnover (or total FX flow). Although swaps became more popular to trade, all other related foreign exchange instruments saw only a 7 percent increase in volume. The report also says that “the higher global foreign exchange market turnover is associated with the increased trading activity of “other financial institutions” (think retail forex brokers). Turnover in this category rose 42% and for the first time ever, reporting dealers (banks) did more transactions with “other financial institutions” than with other banks.

Having just come back from Singapore where shelves and shelves were filled with forex trading books, I am in no way surprised that the BIS has confirmed the popularity of forex trading.

The foreign exchange market also became more global with cross-border transactions representing 65% of trading activity in April 2010, while local transactions account for 35%.

U.S. Dollar Becoming Less Important

Back in 2001, the U.S. dollar was involved in 90% of all currency transactions and as of April 2010, this fell to 84.9%. The decline in trading of dollars has benefited the euro, which gained 2 percentage points in market share since the last survey and accounts for 39% of all transactions. “The Japanese yen also increased its market share by 2 percentage points to 19%, a recovery relative to the 2007 survey but still below its peak of 23.5% reached in 2001. The pound sterling gave up most of its post-euro gains, with its share returning to the immediate post-euro level of around 13%. Trading in the Swiss franc also declined marginally to 6.4% from 6.8% in April 2007. The Australian and Canadian dollars both increased their share by around 1 percentage point, to 7.6% and 5.3%, respectively.”

“The percentage share of the US dollar has continued its slow decline witnessed since the April 2001 survey, while the euro and the Japanese yen gained relative to April 2007. Among the 10 most actively traded currencies, the Australian and Canadian dollars both increased market share, while the pound sterling and the Swiss franc lost ground. The market share of emerging market currencies increased, with the biggest gains for the Turkish lira and the Korean won.”

Of the major currency pairs, trading of EUR/USD and USD/JPY have increased while trading of the GBP/USD has decreased.

The U.K. is still the largest trading center for forex but the relative ranking of foreign exchange trading centres has changed slightly from the previous survey. The United Kingdom continued to be the most active location with a share of 46% of worldwide trading, followed by the United States with a share of 24%, slightly down from 2007. Outside these two centres, trading took place primarily in France (7%) and Japan (3%), both slightly down from 2007, Singapore (3%) and Switzerland (3%), both slightly up. Turnover in Germany almost halved to less than 2% in April 2010 compared with 2007. Banks located in the United Kingdom accounted for 36.7%, against 34.6% in 2007, of all foreign exchange market turnover, followed by the United States (18%), Japan (6%), Singapore (5%), Switzerland (5%), Hong Kong SAR (5%) and Australia (4%).

Lower Forex Margin Should Temper Volume Increases in the Future

However the pace of growth will most likely be moderated by the reduction in leverage announced in the U.S. and Japan. Last month, Japan reduced leverage to 50:1 and plans to bring this down even further to 25:1 next year. U.S. regulators announced earlier this week that leverage will be capped at to 50:1 for major currencies and 20:1 for all other currencies. This will go into effect on October 18. Lower leverage will make forex trading less attractive to some participants but 50:1 is still very generous leverage by all counts and so it will not be catastrophic for the retail forex industry. We should still see retail trading contribute positively to forex volume, but probably not by the double digit levels seen in past years.

At that time, I said “Although seasonality does not equal a certainty of USD/JPY weakness, it is worth noting that 83 percent of time, USD/JPY has ended the month lower by an average of 2 percent. Considering that USD/JPY started the month at 86.46, a 2 percent move would put it below its November low of 84.83.” Not only did we reach that level, but USD/JPY fell to a low of 83.53 last week - seasonality has proven to be effective once again!

Possibility of Yen Intervention

I like CHF/JPY

Talking about possibility of additional stimulus pre Jackson Hole

Here are some pics from Investfair and the Masterclass that I gave in Singapore

Speaking at the GFT Booth - Can you find me?

Presentation at Investfair

Forex Masterclass at the DBS Auditorium

Checking out the rooftop of the Marina Bay Sands

Investfair, Singapore August 2010

Seminars

Investfair Singapore Aug 21-22
Marina Bay Sands Convention Center
Basement 2, Exhibition Hall E

Saturday August 21:

11am Forex Trading 101 GFT Booth
2pm Panel Discussion on Stockpicking Themes for 2010 Room 3
3pm 3 Ways to Trade Currencies GFT Booth
5pm The Warren Buffet way of Trading Currencies GFT Booth

Sunday August 22:

10:30am Actionable Forex Trading Strategies Room 4
11am Forex Trading 101 GFT Booth
3pm 3 Ways to Trade Currencies GFT Booth
5pm The Warren Buffet way of Trading Currencies GFT Booth

Monday August 23:

Forex Workshop: Day and Swing Trading Strategies Signup!
DBS Auditorium | 6 Shenton Way, Level 3, DBS Building Tower 1, Singapore

Registration: 6 p.m.
Customer meet and greet: 6:30 p.m.
Main session: 7 - 9 p.m.

Listen in as Kathy Lien, GFT’s Director of Currency Research, discusses:

+ Tactics for placing trades, setting stops and exiting positions
+ How to pick tops and bottoms & trade news
+ Money management & the myths behind 2 to 1 risk/reward ratios

Media Appearances (Watch Me!) -

Fri Aug 20 Bloomberg Asia 10:10am Singapore Time (10:10pm NY Time)
Mon Aug 23 CNBC Asia Guest Host 6-7am Singapore Time (6-7pm NY Time)
Mon Aug 23 CNBC Europe 1:20pm Singapore Time (1:20am NY Time)

“There are substantial fluctuations in the foreign exchange and stock markets mainly against the backdrop of growing uncertainty about the outlook for the U.S economy. The Bank of Japan will carefully monitor such developments and their effects on Japan’s economy”.