One of the interesting things about the global economic meltdown is the opportunity it has presented for some currencies that would have been somewhat…well around the fringes, if you know what I mean.
Case in point – the Norwegian Krone. Do you know about the Norwegian Krone? Well, you’re not alone if you don’t. It’s only recently risen up the ranks because of all the uncertainty surrounding major currencies. All the regular names have suffered and recovered as this thing has moved along, but currencies like the Krone have definitely benefited more from the problems we have all been experiencing.
That’s the thing about upheavals; they shake things up. It’s really all about safety. America has been viewed as a safe place to put your money…whether that’s the US Dollar, or US based assets. The Japanese Yen has also done quite well. You might not gain too much in terms of return (interest rates are rubbish in Japan), but the risk is also low. So, when things have been bad, the US Dollar and the Yen have gained. When things have done well, the US dollar has suffered, except against the Yen. That’s because, the dollar is a higher yielder than the Yen. This is the way it has been.
Last week, we saw something different between the Dollar and the Yen. There is some consensus that the rate of things getting worse has reduced – whether that translates to things getting better is an open question – so the risk-takers have been out there, putting their money into the higher yielders…places where they will get more return in interest etc. This means the US Dollar has taken a beating, rightfully. At the end of last week, the Euro was at a 2-month high against the Greenback. Not a problem, right? Expected, right? Fine. Well, look the the Dollar Yen Forex pair. You would expect the Dollar to have strengthened against the yen. There should have been somehthing. No change would have been fine. It would have seemed pretty negative for the Dollar, but that would have been acceptable…sort of. Instead, the Yen is at a 9-week high against the dollar. That is a major indictment of the US economy.
The US is deteriorating in Creditworthiness. You know those folks out there that tell us what ranks as a great investment? Well, there is talk that they might be dropping the US from it’s “AAA” Credit Rating. That’s saying the US is in trouble. That’s saying that it might not be such a good place to stick your money ‘cos they can’t vouch for it 100%. That’s not good. It’s a double whammy. First, the Risk takers are coming back in, so safety is not such a huge concern; then now, the US is losing it’s badge as a safe place for investment. The Forex trading chaps agree. The dollar gained against pretty much nobody. This trend is even more likely to continue in the short term.
I started out this post talking about obscure currencies. Well, the Krone has been doing well. The Brazilian real has been doing great as well. Also, the South African Rand is another one. It’s time to start looking at the so-called Majors, and start “diversifying your portfolio” as regards to the Forex Pairs you trade. Keep that in mind as you do more trading.
This week in Forex Trading: It’s a holiday on the Monday in the US, so not much activity in the US; but there will be plenty elsewhere. The IFO surveys are coming out for Europe on Monday. The ECB is starting to worry about the strength of the Euro. It seems that a stronger Euro might make a recovery in Europe harder. We saw some reflection of this in the last couple of months, with the Swiss National Bank actually letting the value of the Franc fall against the Euro to help themselves and their exports. We might see the ECB officials making statements to this effect this week, so the strength of the Euro might wane a little. Maybe it will work more against the Pound, which has erased it’s losses against the Euro in recent times. So, we might see the Pound gaining more against the Euro.
We’re expecting some numbers in the US; the Consumer Confidence Index on Tuesday…also Durable goods and GDP on Friday. If some of these numbers can show that the US is doing better, then that might help the US Dollar against the Yen, IF there hasn’t been much negative news elsewhere.