Putting the Forex market into perspective

The rand has continued its volatile behaviour, touching just over R10.50 (the price target area shown in my previous column) before strengthening by almost a rand over the next 4 weeks. With all this volatility, one question that inevitably arises is – who behind the scenes is responsible for manipulating all these big swings on currency markets? If you also have this question in your mind, you need to better understand the size and extent of the global forex market. The forex market is by far the single largest financial market that exists, having exploded as a financial tradable market in the past 14 years – from a daily turnover of US$590 billion in 1989, to US$5.345 trillion in 2013. That is 5 345 000 000 000 US Dollars … each and every day! To put this into perspective: • This is more than the total daily turnover of global stocks, bonds, commodities and other tradable derivatives put together. • It is more than the total output (GDP) of the United Kingdom and France combined last year. • And almost 14 times South Africa’s total GDP for 2012. The forex market is also the most liquid of any financial market. There is always a buyer or seller available in the market – 24 hours a day, five and a half days a week. This market is permanently awake from when Japan wakes up on Monday to when the US closes late on Friday afternoon, and is traded (mostly electronically) from every conceivable spot on the globe, be it by individuals, companies, institutions, hedge funds, banks or central banks, to name a few. As you can therefore appreciate, being both massive and liquid, it is simply too large for any single institution or even a single government to manipulate on the open market. But being a very liquid market, it shows excellent Elliott Wave characteristics (psychological patterns), which enables us (once we have determined where we are in such a pattern) to predict with a high degree of accuracy where the investor herd in such a market is likely to be heading next – even if they don’t know themselves! Intriguing stuff, isn’t it? CAPTION James Paynter is the head market analyst at Dynamic Outcomes