It seems like a great deal has changed in the last 100 days or so, ever since the Chinese authorities first reported a mysterious respiratory illness in the city of Wuhan on December 31st, 2019.
It was one week later that the small viral outbreak was attributed to a new coronavirus, which has since gone on to devastate the global landscape and cause more than 82,000 deaths worldwide according to the latest count.
This is arguably as much of a socio-economic crisis as it is a health pandemic, however, with even financial markets such as the foreign exchange experiencing significant changes as a result of the global outbreak. We’ll explore some of these changes below, while asking what they mean for traders?
- A Clampdown on Out-of-hours Futures Trading in China
While China may no longer be at the epicentre of the outbreak, this was the first country to be affected, and as such it imposed a number of trading measures that have blazed a trail for others to follow across the globe.
Most importantly, the Chinese central bank moved to provide CNY1.2 trillion in liquidity, while also suspending out-of-hours futures trading and relaxing core investment rules to prevent the forced selling of assets.
This is also part of a wider shift in China, where independent commercial banks have been asked not to call in company loans in infected regions and increase lending, as a way of supporting the economy and reinforcing the strength of the CNY.
- Coping with a Fall in the Global Risk Appetite
While currency trading is inherently volatile and tends to attract investors with an appetite for risk, it’s fair to say that the coronavirus outbreak has caused traders to seek flight in a number of different markets.
Make no mistake; the overall appetite for risk and trading volumes has weakened markedly across all asset classes, from equities (which saw the U.S. S&P 500 index trading below 3.5% recent all-time highs) to derivatives like currency.
The different with forex is that the underlying nature of this market does enable savvy traders to profit from the outbreak if they’re so inclined, as they can speculate on the decline of targeted assets and rely on resources such as Oanda to follow currency peaks and troughs in real-time.
- Trading Hours are Cut Across the Globe
While China’s central bank has temporarily outlawed out-of-hours futures trading, the Securities and Exchange Commission has also published rule changes for the New York Stock Exchange.
Last week saw the iconic trading floor closed, for example, with all investments to be conducted electronically for the first time in the history of the exchange.
This will also require traders to conduct their business and execute orders from home, while it’s interesting to note existing circuit breakers pertaining to predetermined levels of market loss will remain in place for the foreseeable future.
Globally, we’ve also seen new market trading hours introduced (primarily for bonds and currencies), with the Reserve Bank of India (RBI) leading this charge.
This is an unprecedented move, and one that has the potential to create higher levels of forex market volatility with shorter periods of time.