International Monetary Fund made no progress in diffusing tensions over the current race to devalue currencies. World governments and central banks are enacting policies that have self-interest but might tank the global economy if they can’t figure out a way to resolve this problem. The IMF as an international institution is the only one that might be able to mediate an agreement.
For the forex trader, this will mean a lot of volatility over the next few months, or at least until this situation is resolved. Right now there are inflows of money into emerging markets, but those countries are reacting with fiscal policies of their own to keep them out. Again, the IMF will need to somehow convince these countries to work together.
The volatility in the currency market can easily eat away at your forex margin if you are not careful. Make sure you are well capitalized as you enter open trading positions in this hostile environment. One piece of news out of any number of these countries can cause major activity in all of the major currencies.
The G20 meetings in the next month will have huge effects on the currency market as well. The short term volatility that is expected might be a good time to trade currency options. The volatility that is expected can give you plenty of opportunities within the expiration date of most options contracts.
In addition, trading options will allow you to limit your losses in case your trade goes really bad. Since you never actually enter the spot market until your option goes in the money, you never risk cash, other than the premium you already paid.
This is one way to manage your risk as this situation progresses. Watch what the IMF will do about the currency market in the coming months. They might be the only ones who can call upon all the nations to cooperate.
IMF and the Currency Market by Steve