Puts on Emerging Market Currencies

http://www.options-trading-education.com/24330/puts-on-emerging-market-currencies/ Puts on Emerging Market Currencies By www.Options-Trading-Education.com While Europe and especially the French concern themselves with terrorism, emerging economies deal with rising political risk. Bloomberg Business writes about declining currencies in these countries. Brazil is a prime example. Brazil’s real led emerging-market currencies lower amid political turbulence fueled by the arrest of one of Latin America’s top bankers in a corruption probe and a stand-off between Russia and Turkey over a downed fighter jet. Stocks fell for a third day. The real tumbled 1.2 percent as a bribery scandal that has engulfed the state-run oil giant led to the arrest of Grupo BTG Pactual’s chief executive officer. The Ibovespa equity gauge slumped the most since Oct. 13. Russia’s ruble declined for the third time in four days and the lira dropped to a one-week low as Russia ratcheted up criticism of Turkey for shooting down its warplane on Tuesday. Chinese shares rallied amid speculation state intervention is working. Forex options traders will want to know just how unstable nations like Brazil will become as they consider puts on emerging market currencies. China Too Not only is political risk a problem with emerging markets but so is to a great degree the Chinese economy. As the Chinese economy slows so do orders for commodities from many emerging markets. The slowdown in China is another reason to consider puts on emerging market currencies. The Wall Street Journal writes about the Chinese slowdown is bringing to light bad Chinese debt which will further damage the Chinese economy and those of its suppliers. China’s slowing growth will lead to more bad loans on bank balance sheets, according to a new estimate from one of China’s official bad-loan buyers, putting further strains on the country’s financial system. Soured loans could make up 1.67% of Chinese bank-loan portfolios by the end of this year, according to China Orient Asset Management Corp., one of the country’s four asset-management companies, which are widely called “bad banks.” That compares with 1.59%, or 1.19 trillion yuan ($186.3 billion), as of the end of September, according to official data, the highest level in six years. Many emerging economies like Brazil rode high during the Chinese economic boom and are in deep trouble today. Puts on emerging market currencies may be the order of the day for some months or years to come. U.S. Interest Rates The U.S. Federal Reserve is going to raise interest rates next month by all accounts. Higher rates drive the value of a currency up in comparison to other currencies. CNBC writes about the likely interest rate hike. There is a "strong case" for raising interest rates when Federal Reserve policymakers meet next month, as long as U.S. economic data does not disappoint, a top Fed official said on Saturday. "The data I think have been overall encouraging, especially on the labor market," San Francisco Fed President John Williams told reporters after a conference at University of California Berkeley's Clausen Center. "Assuming that we continue to get good data on the economy, continue to get signs that we are moving closer to achieving our goals and gaining confidence getting back to 2-percent inflation… If that continues to happen there's a strong case to be made in December to raise rates." Depending to how fast and how high the Fed raises rates it will drive down the value of virtually all emerging market currencies. https://youtu.be/F3w_VJU1mg4

Comments