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22 February 2024

Euro-dollar futures top traded on DGCX

Drop in euro catches Mideast investors unaware. Analysts say euro decline is a correction. (EB FILE)

By Shashank Shekhar

The drop in euro and predictions of further decline has made Euro-Dollar FX Futures (Deur) the highest traded contract at the Dubai Gold and Commodities Exchange (DGCX), surpassing the gold futures contract that has dominated trading at the exchange for the past several months.

While Deur traded 1,038 contracts and was placed on the third spot behind gold and sterling contracts on January 4 (the first trading day at the exchange this year), the currency contract recorded a volume of 6,611 contracts on February 12.

Deur has remained the top-traded commodity in the first two weeks of February. The contract saw a volume of 2,379 on the first trading day of this month.

It gradually increased to 4,274 contracts on February 11 and then rose again. Exactly a year earlier, the exchange witnessed trades of 825 to 1,958 contracts.

Each Deur contract at DGCX has a size of 50,000 euros. The maximum order size has been fixed at 500 lots for banks and institutions promoted by banks. For all other entities, it has been fixed at 200 lots.

The euro has been falling against the dollar since the start of this year.

In the past one week, the greenback rose consecutively against the euro for four days. The dollar rose 0.04 per cent yesterday and was valued at $1.36 against the euro. Traders term this spur in volumes a result of potential arbitrage and hedging opportunity.

"While arbitrageurs see a low euro as an opportunity to arbitrage, the high volatility of the currency has ensured a rise in volume of hedging activity," said Sajith Kumar PK, CEO of Dubai-based JRG International Brokerage.

On the other hand, outside the periphery of the exchange, the declining euro has caught the markets in the UAE and largely speaking the Mideast unawares.

Traders and bankers see a declining euro supporting exports from Europe (primarily automobiles) to the UAE and the Middle East.

Gold as a commodity is showing a tendency to delink from the euro with which it has had a direct relationship. And foreign exchange companies remain largely unaffected.

Foreign exchange firms said remittance in euro comprises just a fraction of their total business and therefore its decline – as far as volumes of remittance is concerned – has not had an impact on their businesses.

They, however, expect trade in euro to strengthen as single currency declines further in the coming days.

"Euro comprises less than five per cent of the volume of our remittances. So we don't see an impact in our total volumes," said Sudhir Shetty, COO (Global Operations) of UAE Exchange.

There are forecasts that the currency will decline throughout this year. A North American investment bank has said that the greenback will strengthen most of this year – a prediction that Dubai-based traders reject outright or accept with a pinch of salt.

They said the euro had "overshot" the last year and therefore deserved a fall. "The decline of euro should be better termed the correction of euro," said Jahangir Aka, Senior Executive Officer, SEI Investments.

Analysts the world over are blaming the sorry state of finances in Greece as the reason for the decline in the European single currency.

And seeing the financial quagmire the entire Europe is in they do not see an early recovery. In fact, an analyst termed the scenario as the beginning of the end of Euro. "The ongoing Greek saga will not kill the euro, but the end may begin here," said Bill Hubard, the Chief Economist at the Swiss forex brokerage firm MIG Investments.

"Greek Government has been desperately trying to convince the rest of the world – the Germans in particular – that it will keep its promise to reduce the deficit in its still-shrinking economy to 8.7 per cent of GDP next year and less than three per cent by 2012.

"Yet this would amount to the most severe fiscal contraction in the history of modern Europe. It simply won't happen," Hubard said.

Alison Burns, the Regional Head of precious metals (Middle East and North Africa) with Standard Bank, sees the Euro delinking with gold this year. "The trend so far has been that euro and gold rise together. This may not happen this year if euro continues to decline and a real demand for gold seeps in," Burns said.

Gold was priced at $1100 an ounce. Jeffrey Rhodes, the CEO of DMCC registered INTL Commodities, said the bullion may rise to $1125 an ounce if investors continue to buy the dips.


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