Making the Euro volatility work for you
Whilst the Spanish property market is well on its way to recovery, there are still obvious bargains to be had and the strength in the value of the Pound against the Euro is making life a little easier for those investing in the Spanish property market.
Sterling had risen from the near parity with the euro back in late 2008 through to a €1.29 spike in 2012 and, whilst the Pound dipped again through to the €1.13 low in early 2013/14, we can now see prices have really risen to around €1.36. This highlights the enormous advantage to be gleaned from well-timed currency contracts and a little bit of planning.
Those needing to buy Euros who timed their transactions well over the last year will have made nearly 8% gain already and that makes the investment into an already discounted Spanish property even more sweet. Sadly, some will not have been aware of the techniques available to them to capture those attractive exchange rates but all is not lost if you are still on the lookout for that perfect investment in the sun or holiday home.
With the GBP-EUR exchange rate hitting €1.36, it is possible to buy your euros on a contract based on that rate but delay settlement for up to 2 years. Imagine those who did that at €1.29 in mid-2012 and then took possession of their properties in mid-2013 when the market rate was 15 cents lower. That’s an 11.5% advantage gained through nothing more than forward planning and taking advantage of an opportunity through the use of the right tool for the job.
But forward contracts aren’t the only useful tool in this situation. If you like the current exchange rate but have some confidence that it will improve, you can wait to take advantage without leaving yourself completely exposed to a sharp drop in the rate. A Stop Loss order does exactly what is says on the tin; it protects you against a negative exchange rate movement by acting as a safety net below the current exchange rate but the beauty of such an order is that, if the market continues to rise, your order will not be triggered and you can either buy when the level is too attractive to miss or move the Stop Loss order up behind the market to secure an ever higher guaranteed level.
The key to making these sorts of plans is access to market knowledge and that is something you will definitely benefit from. Sadly the kind of technical and fundamental analysis needed to use forward contracts and automated market orders is generally not available through high street banks. It is something you can obtain from good currency specialists though. It is worth seeking out a broker to help you make the most of these substantial opportunities. It might just make the difference between a gain or loss in your overseas investment.
By David Johnson, Technical Analyst and Director, Halo Financial.
For more information, visit: www.halofinancial.com
Authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, FRN: 528727.
Her Majesty’s Revenue & Customs MSB registration No. 12197454.
© 2015 Halo Financial Ltd. Registered in England No. 5155787.
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