Why trade forex? Three things to understand about the market

OANDA
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Why trade forex? Three things to understand about the market

By Craig Erlam

Sometimes referred to as the market that never sleeps – though it does, in fact, at the weekend – the foreign exchange (forex) market is the largest financial market in the world and has a wide-reaching impact on global economic activity. In 2022, trading hit a record $7.5 trillion in average daily turnover, according to the Bank for International Settlements.

Today, thanks in large part to online trading, the market is accessible to a wider range of participants than in the past: from financial institutions, governments and corporations, through to individual traders. But before deciding whether forex trading might be right for you, it’s important to understand the essential aspects of the market.

In this article, I unpack three key characteristics of the forex market and what drives it.

  1. The market is liquid – and volatile

Many traders are drawn to the forex market because it is highly liquid, which means low spreads. In particular, major currency pairs such as EUR/USD, USD/JPY, and GBP/USD are typically the most liquid. But the market is also fast-paced and volatile.

Compared to trading stocks, there is a much higher frequency of events that impact currencies and move the forex market – it’s not uncommon to see half a dozen data releases during the space of one week that all influence the way a single currency moves. For short-term traders, that’s a real plus: if a market doesn’t move, it doesn’t offer as much opportunity. However, a fast-moving market with the potential for significant price swings brings with it the possibility for significant losses, too.

  1. Economic data is king

Macroeconomic factors, including interest rates, the labour market and inflation, all have a significant impact on the forex market. Geopolitics and political events also have an impact, particularly in less stable economies.

As a result, economic data – which effectively tells us whether an economy is doing well or not – is a vital tool for those in the market, who closely monitor releases in order to make trading decisions. Interest rates are a particularly important factor in forex, as higher rates in developed markets – and therefore yields – are often associated with stronger currencies, and vice versa..

In major economies such as the US, UK and within the Eurozone, there is a steady flow of economic data that traders can use. However, discerning which economic data releases are important, and which aren’t, can be tricky and may change. An economic calendar can be useful in breaking this down.

  1. Fundamentals drive the market

The major driving force of the forex market is ultimately fundamentals – data such as interest rates, GDP and inflation – which significantly influence how currencies move over time. Essentially, the market is made up of a large community of individuals and entities that speculate on the price movements of currencies based on those fundamental factors. For example, if the US Federal Reserve is raising rates faster than others and the economy is still performing relatively well, it would be understandable that the US dollar would outperform other currencies.

Many traders use a combination of both technical and fundamental analysis, but – particularly on a longer-term basis – having an in-depth understanding of how fundamental factors impact the market can be an extremely valuable part of your forex trading strategy, allowing you to better anticipate how the market might move.

Click here to find out more about Forex CFD trading with Oanda.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

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You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

About OANDA

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Established in 1996, OANDA has affiliates in the world’s most active financial markets, including London, New York, Toronto, Singapore, Tokyo, Sydney and Warsaw.

Warpaint shares jump as sales accelerate

UK Investor Magazine
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Warpaint shares jump as sales accelerate

Warpaint London expects full-year revenue to exceed £85 million, a significant increase from £64.1 million in 2022, the company announced Friday.

Warpaint shares jumped on the news, adding 6% to 334p.

Strong trading across all geographic regions has boosted sales growth ahead of expectations this year. Operating profit is now predicted to surpass £16 million, more than double last year’s £7.7 million.

The cosmetics supplier, which owns the W7 and Technic brands, continues expanding with new retailer partnerships.

Warpaint recently launched W7 products in 400 Etos stores in the Netherlands and 100 Watsons stores in the Philippines.

It also introduced Technic items to over 200 Wibra stores in the Netherlands. Further growth is planned for early 2024, including additional W7 products in 372 CVS locations in the United States and 102 Boots stores in the United Kingdom.

Warpaint first indicated strong post-period sales in September when reporting first-half results. Robust margins have remained consistent.

Investors will look forward to gaining further insight into their key Christmas shopping season.

Oil prices tick higher as Brent bounces off $80

Eve Katz
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Oil prices tick higher as Brent bounces off $80

Oil prices ticked higher on Friday after a week of sharp declines as traders covered short positions and awaited further developments in the Middle East crisis.

At the time of writing, WTI crude is up by 0.79% and Brent crude by 0.84%.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said “a barrel of Brent crude will now set you back $80 as the price declines for a third straight week. There are easing concerns over potential supply disruptions in the Middle East, and demand uncertainties in the US and China are also weighing heavily.”

“US inventories are also at healthy levels, which alleviates upward pressure on the price,” she added.

Brent crude closed at $80.01 per barrel, up 0.59% on Thursday. Comments from U.S. Federal Reserve Chairman Jerome Powell about potential future interest rate hikes later in Thursday’s trading hit equities and crude oil markets as demand concerns increased.

U.S. crude oil inventories are forecast to rise by 11.9 million barrels in the week ending November 3.

If verified, this would be the largest weekly increase since February. The U.S. Energy Information Administration (EIA) has postponed the publication of weekly oil inventory data until November 15 due to a system upgrade.

Diageo shares crash on profit warning as Latin America disappoints

Eve Katz
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Diageo shares crash on profit warning as Latin America disappoints

On Friday, the global premium beverage giant Diageo reported that they now anticipate a decrease in organic operating profit growth in the second half of the current financial year.

Diageo points out that this weakness is primarily due to significantly weaker performance in Latin America and the Caribbean.

The company’s shares are down 13.5% at the time of writing.

The world’s biggest spirits company saw its shares drop to 2,804p, making it the leading decliner on London’s blue-chip index.

In a statement, Diageo said that they expect sales in Latin America to fall by 20% in the six months to December.

Up to 11% of Diageo’s sales come from Latin America.

According to the statement, “Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading. These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment.”

Sophie Lund-Yates from Hargreaves Lansdown noted that “very tough economic conditions in Latin America mean consumers are cutting back and trading down to less premium options. The region only makes up a relatively small portion of Diageo’s whole, but the extent of declines means expectations have materially changed at the group level.”

Lund-Yates added, “Diageo has long been a favoured steady-eddie thanks to its seemingly impenetrable brand power and dividend-paying ability, and there will now be concerns that the change in appetites could translate to other, larger markets”.

AIM movers: ZOO Digital up on end of actors strike and Bowleven short of cash

Andrew Hore
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AIM movers: ZOO Digital up on end of actors strike and Bowleven short of cash

Shares in Poolbeg Pharma (LON: POLB) following yesterday’s announcement that there is evidence that POLB-001, which was developed as an influenza treatment, could be effective in reducing side effects suffered by cancer patients undergoing immunotherapies. The share price rose a further 18.6% to 9.55p.

Zoo Digital (LON: ZOO) has rebounded 8.5% to 69p on the news of the ending of the actors strike in Hollywood. The writers strike ended a few weeks ago and film and TV productions should be able to get going again. This will mean that the flow of work for Zoo Digital will build up again as these new productions require services, such as subtitles and dubbing. Film services provider Facilities By ADF (LON: ADF) is up a more modest 0.9% to 58p, because the UK film and TV sector was less hard hit.

Yet another upgrade following a trading statement by cosmetics supplier Warpaint London (LON: W7L). Current trading is better than expected and the company is selling through more retailers. The growth is across all regions. Full year sales should be at least £85m, up from £64m last year. Shore Capital raised its earnings forecast by 11% to 16p/share with further increases for 2024 and 2025. The share price is 7.03% higher at 335p.

Argentex (LON: AGFX) admits that 2023 results will be 15% lower than expectations. This follows the departure of the chief executive and finance director. Revenues and EBITDA will be similar to 2022. The share price had already slumped this week and it recovered 3.55% to 61.3p.

FALLERS

Ethernity Networks (LON: ENET) has concluded discussions with 5G Innovation Leaders Fund over its share subscription agreement, but it leaves the technology company owing $600,000. This leaves Ethernity Network in a weak financial position. The share price slumped 28.6% to 1.75p.

Boweven (LON: BLVN) believes that New Age’s sale of it operated interest in the Etinde oil and gas project, where Bowleven has a 25% stake, to Perenco will go ahead and that means that Bowleven will need more cash to fund its share of the development of the project. Bowleven had $1.5m in cash at the end of June and that has fallen to $1m in October. The cash will last until next spring. Major shareholder Crown Ocean is offering a cash injection at a significant discount to the current share price. There will be $25m payable under the farm-out deal for the project. Zeus believes that the risked NAV is 33p/share. The share price slipped 23.1% to 0.5p.

Yesterday, MobilityOne (LON: MBO) was perked up by the news that he joint venture with SuperApps is progressing. The deal relies on the partner’ merger with a cash shell and shareholder approval will be sought by the partner. The share price lost some of yesterday’s gains, falling 12.2% to 6.5p.

Helium One Global (LON: HE1) has suspended drilling in Tanzania because of a fault with the hydraulic system, which is hampering the iron rough neck mechanism. Results from the drilling so far have been positive. The share price dipped 10% to 5.4p.  

The UK economy flatlines, but GDP data shows slight growth in September

Eve Katz
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The UK economy flatlines, but GDP data shows slight growth in September

The UK economy flatlined in the third quarter, avoiding a technical recession in the face of rising interest rates and stubbornly high inflation.

While UK Gross Domestic Product (GDP) grew by 0.2% in September, in a broader context, UK GDP has exhibited zero growth in the three months ending September 2023, and forecasters warned of stagnation in the months ahead.

The ONS revised August 2023’s growth rate to 0.1%, which was initially reported as 0.2%.

UK-wide strikes in September UK were highlighted as a factor impacting GDP growth during the period.

Danni Hewson, AJ Bell head of financial analysis, noted that the stagnant growth “is not exactly the kind of headline any government wants. But with this last lot of GDP figures, the UK economy has at least avoided falling into a technical recession this year.”

Growth was influenced by unusually warm weather, which boosted the struggling construction sector.

This September was the joint-warmest with September 1884, as reported by the Met Office. The mean temperature was 15.2°C.

However, consumer businesses faced difficulties due to cost of living pressures, with retailers particularly affected by high temperatures discouraging winter clothing purchases.

When it comes to the construction and real estate sectors, “rate hikes have made potential home buyers think twice, and although the Bank of England has pressed the pause button, at least for now, the increased cost of borrowing is likely to keep activity in the housing market subdued,” Danni Hewson pointed out.

Additionally, Hewson notes that “all sectors are struggling—there are no stars in this set of figures, no big boosts to offset falls elsewhere. But think back to where we were this time last year, as inflation was reaching its peak, and there is cause for a degree of optimism.”

She added, however, that “stagnant waters can begin to smell quite quickly, and no growth suggests a degree of economic resilience, which does mean no stimulative rate cuts are likely in the near term.”

FTSE 100 sinks with US interest rate hikes back on the table

UK Investor Magazine
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FTSE 100 sinks with US interest rate hikes back on the table

After a session yesterday driven by stock-specific news, interest rate concerns were back in the driving seat in early trade on Friday. 

The FTSE 100 was down 1.2% at the time of writing on Friday after the S&P 500 closed down 0.8% overnight.

A poor US bond auction and comments from Fed chair Jerome Powell were responsible for the negativity in UK stocks on Friday.

A 30-year US bond auction was met with tepid demand overnight, and the US government was forced to issue debt at the highest yield since 2010.

There was weak demand from overseas buyers in a dismal display of confidence in the US economy and fiscal strategy.

Federal Reserve Chairman Jerome Powell also dampened the mood last night by saying the Fed has not done enough to bring down inflation, and they would not hesitate to hike rates further.

US bonds tanked, taking equities with them, leaving European equity traders little choice but to mark down the value of stocks when trade opened on Friday. 

“The FTSE 100 has rocks in its shoes after markets around the world digest Jerome Powell’s speech yesterday, which suggested the US would hike interest rates again if needed,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“The battle to vanquish inflation could still need an extra pair of hands, and that’s upset an investor base that had grown increasingly optimistic that policymakers would stick to the hands-off approach.

“While the comments weren’t a warning of imminent increases, they do keep monetary tightening on the table. Early signs from the US and Europe show that markets are taking this news with pouted mouths. Treasury yields have also increased slightly and that’s another way to burst equity market bubbles as the risk-reward profile for investing in riskier assets becomes less palatable.” 

FTSE 100 movers

Diageo shares sank on Friday after issuing a shock profit warning as sales volumes fall in the second half. The drinks giant highlighted weakness in the Caribbean and Latin America while growth faltered in Europe.

Diageo shares were down around 14% shortly after 12pm.

Burberry shares fell 3% as Daigeo’s profit warning hit the luxury sector across Europe.

The Federal Reserve’s comments last night rocked the FTSE 100’s interest rate sensitive housebuilding sector with Barratt Developments falling 3.7% and Taylor Wimpey dropping 2%.

General deterioration in sentiment saw Ocado shares drop 8%.

FTSE 100 helped higher by AstraZeneca and Taylor Wimpey

UK Investor Magazine
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FTSE 100 helped higher by AstraZeneca and Taylor Wimpey

The FTSE 100 gained on Thursday as macroeconomic concerns took a back seat and investors focused on corporate earnings.

Upbeat releases from Taylor Wimpey, Autotrader and AstraZeneca helped the FTSE 100 higher by 0.7% at the time of writing. 

The housebuilders were once again in focus after Taylor Wimpey reiterated their operating profit guidance for the full year. Persimmon had earlier this week increased their completion forecasts for the year.

After nearly two years of steepening borrowing costs and high inflation, housebuilders are benefitting from increased sentiment after the BoE paused rate hikes.

Taylor Wimpey shares were 2.5% higher at the time of writing. 

AstraZeneca shares were doing a lot of the heavy lifting on Thursday, adding a significant number of points to the FTSE 100 with a 3.5% gain.

The pharma giant increased its sales and profit outlook after their obesity and oncology drugs were met with strong demand. 

“AstraZeneca continued to show its strong suit in oncology treatments with its third quarter update and this was the key driver behind an increase in profit guidance,” said Russ Mould, investment director at AJ Bell.

“Alongside these encouraging numbers the company spent $2 billion on an exclusive licence for an oral weight-loss drug candidate, Eccogene.

“While this might be perceived as an attempt to jump on the coat tails of the likes of Novo Nordisk and Eli Lilly in what has become a booming market, AstraZeneca has form for adding strings to its bow – prior to the Covid pandemic it was not considered to have any particular expertise in vaccines, for example.”

Autotrader was the FTSE 100 top gainer, adding over 8%, after announcing group revenue increased 12% in the first half.

AIM movers: Audioboom deals and ex-dividends

Andrew Hore
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AIM movers: Audioboom deals and ex-dividends

Audioboom (LON: BOOM) has secured four new exclusive podcast partnerships which are expected to add five million downloads each month, which is about a 4% increase to recent monthly levels. This should take ad impressions well above one million each month. The highest monthly income was generated in October, which underpins the full year forecast of a £1.9m loss. The share price rose 13.2% to 215p.

Afrentra (LON: AET) has gained government approval for the acquisition of Sonangol to increase its stake in block 3/05, offshore Angola. There are also improved fiscal terms for the block. Tennyson Securities has upgraded its forecast for 2024 free cash flow from $31.1m to $36.7m. The share price is 9.18% higher at 30.025p.

Time Finance (LON: TIME) says trading is better than expected and Cavendish has upgraded its 2023-24 pre-tax profit forecast from £5m to £5.4m. That is equivalent to 4.4p/share. The smaller company finance provider increased its gross loan book to £180m. Arrears have remained flat. The share price improved 8.62% to 31.5p, which is a new 2023 high.

Panthera Resources (LON: PAT) is preparing to deliver a notice of dispute relating to the expropriation of the Bhukia gold assets in Rajasthan by the end of this year. This will be followed by a notice of arbitration early next year with an independent tribunal set up within two months. Panthera Resources is entitled to fair and equitable compensation. The share price recovered 2.04% to 6.25p.
FALLERS

Myanmar Investments (LON: MIL) is asking for shareholder approval to cancel trading on AIM. In 2019, the company took the decision to wind down its investment portfolio and political conditions in Myanmar are unfavourable, which is hampering realisations. There was $476,000 in the bank at the beginning of this week and management wants to conserve as much cash as possible. Leaving AIM will save $115,000/year. The share price fell 27.3% to 4 cents.

Antibody discovery company Fusion Antibodies (LON: FAB) is still facing tough trading conditions and interim revenues will be lower than expected. There are delays in drug development programmes, plus technical problems with some projects. Potential work is growing as Fusion Antibodies broadens the potential market for its antibodies. There are discussion relating to a collaboration on the company’s OptiMAL platform. Cost cutting means management still believes there will be enough cash to last until next November. The share price slumped 22.9% to 3.95p.

Landore Resources (LON: LND) is raising £2.96m at 6.5p/unit – one share and one warrant exercisable at the equivalent of 1p. The cash is being raised to increase working capital to enable a listing on the TSX-V. The share price dipped 16.5% to 6.35p.

Argentex (LON: AGFX) finance director Jo Stent has resigned, although she is working out her notice. This follows the appointment of Jim Ormonde as interim chief executive. He replaced previous chief executive Harry Adams, who is the second largest shareholder in the payments company with 12.3%. The share price continues to decline with a further fall of  17.1% to 65.5p, taking it to an all-time low.

Ex-dividends

Anpario (LON: ANP) is paying an interim dividend of 3.2p/share and the share price is down 1.5p to 231p.

Burford Capital (LON: BUR) is paying an interim dividend of 5.08p/share and the share price is 2p lower at 310p.

Bioventix (LON: BVXP) is paying a final dividend of 90p/share and the share price slid 75p to 3625p.

Beximco Pharmaceuticals (LON: BXP) is paying a final dividend of 3.17 cents/share and the share price is unchanged at 39p.

Catalyst Media Group (LON: CMX) is paying a dividend of 27p/share and the share price fell 42.5p to 115p.

Greencoat Renewables (LON: GRP) is paying a dividend of 1.6 cents/share and the share price dipped 2.8 cents to 89.6 cents.

London Security (LON: LSC) is paying an interim dividend of 82p/share and the share price is unchanged at 3050p.

Touchstar (LON: TST) is paying an interim dividend of 1p/share and the share price is unchanged at 95p.

Warpaint London (LON: W7L) is paying an interim dividend of 3p/share and the share price

Taylor Wimpey shares edge higher after profit guidance reiterated

UK Investor Magazine
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Taylor Wimpey shares edge higher after profit guidance reiterated

Taylor Wimpey shares gained on Thursday after the housebuilder said operating profit would be at the top end of previous guidance.

The company voiced concerns about the macroeconomic environment in a trading statement that didn’t invigorate investors to the extent other housebuilders have in recent trading sessions.

Persimmon stole the show earlier this week by announcing increased completions guidance for the full year, and it’s difficult to get overly excited about Taylor Wimpey’s update this morning.

Although Taylor Wimpey shares were 1.5% higher at the time of writing, the housebuilder’s update lacked the optimism evident in their peers’ recent releases.

The group’s net private sales rate has fallen to 0.63 year-to-date, down from 0.74 in the same period last year. In the second half of the year to date, the sales rate has fallen to 0.51.

Taylor Wimpey said they were confident operating profit would be at the top end of the previously guided £440m to £470m, but did not alter their completions guidance.

“Shares in Taylor Wimpey have risen ahead of today’s trading update, as hopes there would be signs of life in the housing market,” said Garry White, Chief Investment Commentator, Charles Stanley.

The rise in Taylor Wimpey’s shares already this week looks to have priced in any improvement in sentiment around UK housebuilders. Although the situation is marginally better for Taylor Wimpey, there are still nagging doubts about earnings for the sector going forward.

White continued to explain Charles Stanley was cautious about the outlook for the sector and expected completions to fall further.

“The company did not raise its guidance for completions, but profits are expected to be at the top end of guidance. Nevertheless, no real guidance for 2024 has been issued and we remain cautious on the sector due to the expected decline in completions in 2023 and 2024, which will result in a significant downturn in sector earnings,” White said.

“Although volumes are likely to hit a floor soon as the mortgage market stabilises and build cost inflation eases, the increased use of incentives and tough economic backdrop means margins are unlikely to recover rapidly.”

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