How can you use technical analysis to evaluate your counterparties' creditworthiness?

1 What is creditworthiness and why is it important?

Creditworthiness is a measure of how likely a borrower or issuer is to default on their debt or fail to meet their contractual obligations. It is influenced by factors such as financial performance, liquidity, leverage, profitability, growth, and reputation. Creditworthiness is important for treasury forecasting and budgeting because it affects the cost and availability of funding, the risk and return of investments, and the exposure and mitigation of credit risk.

3 What are some technical indicators and tools that you can use?

When evaluating the creditworthiness of your counterparties, there are numerous technical indicators and tools you can use, depending on your objectives, preferences, and data availability. For instance, credit spreads measure the difference between the yield of a risky bond and a risk-free bond of the same maturity, with wider credit spreads indicating higher default risk and lower creditworthiness. Moving averages show the average price of a security over a certain period of time, with rising moving averages pointing to an uptrend and positive outlook, while falling moving averages suggest a downtrend and negative outlook. Bollinger bands are based on the standard deviation of the security's price, with narrow bands signaling low volatility and stable creditworthiness, while wide bands indicate high volatility and changing creditworthiness. Additionally, relative strength index (RSI) is a momentum indicator that measures the speed and magnitude of price changes. A high RSI suggests overbought conditions and potential reversal, whereas a low RSI indicates oversold conditions and potential recovery.

4 How can you apply technical analysis to your treasury forecasting and budgeting?

You can apply technical analysis to your treasury forecasting and budgeting by using it to complement your fundamental analysis, which is based on the financial statements, ratios, and projections of your counterparties. Technical analysis can help you validate, challenge, or adjust your assumptions and expectations about your counterparties' creditworthiness, and thus improve your accuracy and confidence in your forecasts and budgets. Technical analysis can also help you identify opportunities and risks in your funding and investment decisions, and optimize your timing and execution of your transactions.

5 What are some limitations and challenges of technical analysis?

Technical analysis is not a perfect or foolproof method of evaluating your counterparties' creditworthiness. It is subjective and open to interpretation, and may be influenced by market noise, anomalies, or irrationality. Additionally, it is based on historical and current data and may not capture future events or changes that could affect creditworthiness. Furthermore, reliable, timely, and consistent data sources may not be available or affordable for smaller counterparts. Therefore, you should be aware of these limitations and challenges when using technical analysis.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?