A Glimpse at Trade War, EMFX Turmoil, Inflationary Threat and Cryptocurrency Revolution

The trade tormentor between US and China, NAFTA developments and Trump’s aggressive administration have been the major driving forces for the global market sentiments. 

The indirect effect of trade wars is the loss of confidence, resulting in corporate and household retrenchment that eventually leads to generalized tightening in financial conditions; we particularly see EMFX sell off and their vulnerabilities.

Very recently, Turkey’s lira has remarkably collapsed to flash headlines across the world, and with countries such as Venezuela looking to cryptocurrencies as an alternative store of value, could bitcoin offer a solution to market volatility? 

Yes, Venezuela has also been in a similar situation, where the hyperinflation of the bolivar has caused a significant surge in crypto volumes, and merchants are even accepting any of the top 14 cryptocurrencies as payment.

The member of Venezuela’s National Constituent Assembly, Mr. Hermann Escarra, has informed in an interview with Reuters about the assembly’s ideas for cryptocurrencies. While the digital currency named “the petro” has already been unveiled by the Venezuelan government in the beginning pf this year that is said to be a cryptocurrency backed by the oil reserves in the region. And, Venezuelan president, Nikolas Maduro clarified that the government would back each petro with an actual barrel of Venezuelan oil in order to allure credible investors. 

As the Turkish currency continues to tumble and makes record lows day-by-day, mainstream movement towards people investing in digital assets can be expected. 

While the trade wars and economic crises around the world have impacted the public’s confidence in fiat currency, which could lead to an increased interest in crypto. In Turkey, where trading in crypto is relatively easy compared to other jurisdictions, this seems to be a very likely scenario.

Elsewhere, we like focusing on the Asian vol space, which, despite being at the epicenter of the trade war tensions between US and China, offers attractive pricing for entering tactical plays. We highlight two opportunities, one being more defensive in nature and the other more tilted towards positive Carry generation. 

We consider two trades in the Asian vol space for navigating the current landscape, characterized by multiple elements of uncertainty. A 3M worst-of call on a (KRW-CNH-AUD) USD basket offers cheap protection in case of a further escalation on the trade war front. 

The Philippines has the highest inflation rate (6.4%) on account of the trading war. Consequently, the national currency, the Philippines Peso (PHP), tumbled to its lowest in last 13 years against the USD. While the Philippines president attributed the blame for this disaster to his “friend Trump’s” shunned judgements.

Most importantly, please be informed that the volume of fiat exchanged by the Filipinos for cryptocurrency surged record highs this summer. The volume of more than $500,000 per week is seen during early August, which is at least two times higher than a week past in July. 

It is wise to be cognizant that the transformed interest in cryptocurrencies and trade war owing to the Trump’s administrative approach are irrelevant, then please be reminiscent that the US president proclaimed they would levy tariffs of 25% for $200 billion worth of imports on August 1st. On the flip side, China retaliated with equivalent tariffs for US-imported goods soon after that event.

FxWirePro’s Currency Strength Index: Hourly BTC spot index is flashing -76 (which is bearish), while hourly USD spot index was at shy above 2 (absolutely neutral) at 07:37 GMT. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex