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FXTM:
What do you think of the global monetary policy of low interest rates?

JP:
It’s a mess getting messier, and there are substantial odds that quantitative easing measures may backfire, and be the cause for bigger problems than those they seek to solve. Regulators aim for fair markets but at the same time do a horrible job intervening in interest rate markets, crowding out the private sector, and are instituting sufficient pain for banks that these are ultimately not lending too much; all of this is problematic over the medium term.

FXTM:
Do you think FED will maintain their stance of two additional interest rate hikes this year?

JP:
I see little chance of two hikes taking place this year. Half of the year is out and they’re expressing concern over the fate of the US labor market and over Brexit. They can’t swing back very quickly to a hawkish attitude, so that means that at best they only do one this year.

FXTM:
How do you see the USD move in the medium-long term?

JP:
The USD does not tend to move in tandem across all major pairs. Even if USD strengthens against EUR, GBP, and AUD, it may weaken against the yen. Even so, I see the dollar’s theoretical performance loosely tied to U.S. economic performance, which is substantially better than that of G7 peers and China. Asia is keen to ease its woes by weakening their currencies against the dollar, but the U.S. is closely watching for manipulative behavior and a notorious U.S. presidential candidate is making trade deficits with certain nations, a focus of his campaign.

FXTM:
How do you think the new regulations sweeping across the industry will impact Fx markets in the future?

JP:
MiFID II will usher important changes to Europe, particularly in how service providers address the topic of demonstrating best execution. Right now, I don’t see brokers doing much to demonstrate that they are offering best execution. US or Japanese regulations of the retail sector are not changing much, but it’s fairly clear that retail FX is decreasing in impetus in the United States because of draconian regulations that ultimately limit broker choice while Japan’s market is thriving and growing well thanks to its healthy number of brokers and high yen volatility. Japan’s retail FX volume now generates approximately 50% of the global retail FX/CFD volume. The coordinated Codes of Conduct being promulgated in two parts in institutional (non-retail) circles, will help to restore market confidence. Even so, a variety of banking regulations have created disincentives for banks to make markets in FX and now we are seeing non-bank FX liquidity become more important. The problem for FX participants, retail FX traders included, is that this pulling out of bank FX liquidity is larger and faster than the onboarding of non-bank FX liquidity. This reality translates to greater chance for sharp FX volatility during times of market stress.

FXTM:
Do you think we will soon see the end of the high leverage era and the rest of the World will follow Japan and USA in tightening regulations?

JP:
The market as a whole is moving on the direction of being regulated, but jurisdictions are doing so at their own pace and adopting their own regulatory model. The regulatory models of the U.K., Japan, and Australia are credible and yet not too harsh. That of Cyprus and offshore centers are not yet credible, but MiFID II will likely change some of that for Cyprus. And then there are places that misguidedly want to “protect investors” by removing the choice of trading FX or CFDs altogether by banning certain trading products or by running up the costs of regulated firms beyond what is reasonable. The United States, South Korea, Turkey, and Israel are clearly on this last category.   

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