It was a bit of a rollercoaster last week. That statement could have been applied to any of the last few weeks. It was just more of the same up and down in tandem with the equity markets. WE saw, once again, just how much a piece of news could influence the currency markets.

After the relative confusion the European Central bank seemed to be at the start of last week, the positive numbers helped the Euro to rise substantially against the dollar. Things seem to be getting better in Europe. There is more news next week for Europe. If the positivenot so negative trend continues, then it is likely that the dollar will lose more ground against the Euro.

Not so for the pound. It wasn’t able to stand up to the dollar as well as everyone else last week. Fundamentally, Britain is still in serious trouble. A different picture from some months ago. At that time, it seemed that Europe was in much bigger trouble than the UK. A lot of people reiterated the thought that England not joining the Euro was a good idea. They heaved a sigh of relief as Europe suffered…at least more than Great Britain did. Now, I am not sure what they will be doing, as figure after figure comes out showing that the UK is on a much longer path to recovery than the European entity. It might turn around soon, but for now, it looks like the Pound will have more work to do to stop itself from falling considerably against the Dollar. The lack of news affecting the Pound directly this week will probably be a sigh of relief.

The commodity currencies did well in Forex Trading this week. The Canadian Dollar did well as Oil rose a little. The Australian Dollar and its cousin the New Zealand Dollar also did well. Risk appetite returning also helped these pairs. The thing now is that things are not perfect in these economies. The Central banks for all of these are poised to take some action. A Rate cut is definitely expected in New Zealand. This might mean that a loss of value against the Dollar might occur, depending on what decisions are made.

Much to observe this week. Will keep you folks posted.

Happy Trading

Sorry about the title. The Sandwich in question refers to the chart above. This chart is of the GBP/USD Forex pair. You can see how there was a massive Down-day on Monday, then a massive Up-day on Tuesday, followed by another massive Down-day on Wednesday. It’s just like a roller-coaster…sort of.

It seemed for a second that the Dollar was on the backfoot, but clearly the action today has proved that wrong. I am not saying that we will necessarily be seeing a strong dollar against the pound in the short term, but you can’t argue with price action. What’s funny is that the Euro actually gained a little bit on the Dollar today. There were some slightly contradictory comments out of the ECB as I mentioned earlier this week. Those comments obviously fueled the Euro drop we saw. However, the negativity around that has eased a bit. The ECB will not be engaging in Quantitative easing on the scale we have seen in the US. They have no intention flooding the markets with Euros, nor will they drop interest rates to 0. The remarks as to whether or not the rates will drop below 1% might have caused a stir, but I think it’s safe to say that they will not go below 0.5%.

This seems more likely as the figures that came out of Germany, Europe’s biggest economy, were not nearly as bad as people had predicted. They have quite some clout in influencing European Policy. They don’t want quantitative easing. They will use the figures to show that things may not be as bad as some think, thus reducing the need for more action e.g. interest rate cuts by the ECB. The case for this might be even stronger if the figures expected next week come in better than expected. All of this meant that the Euro was able to hold its own against the dollar.

Not so for the Pound. The pound is suffering. It really wants to rally against the dollar. It really does. But every time it’s about to shoot off, the brits get another round of crappy news. So you end up with a sandwich. There’s also some more bad news to come. That rally will have to wait.

Still, all of this might not last long. There’s nothing really strong driving the movements we are seeing in the Euro. Positive Equity markets did not uniformly provide a massive boost, so there might be a change in how the Risk trade works soon. The Forex markets are still very sensitive to the stuff that is going on in the equity markets, however, things may be changing. The sensitivity remains, but the beneficiaries may change. In essence, we might be on the way back to how things normally are. In normal times, positive sentiment in US Equities would be good for the Dollar. The same would apply to Europe…anywhere infact. Lately, that has been reversed for the Dollar because it has been used as a haven against risk. So a positive day meant people took their money out of the dollar and US-based assets into more dangerous waters, so to speak. Well, last week, we actually had a couple of days where the Dow was positive, and the dollar was as well. As Volatility comes down, we will see more of this.

More analysis will have to be done as we trade because each different Dollar Currency pair will have to be traded on it’s own merits – or lack there of – in order to make money.

Just take a look at the picture above. It’s a chart of the AUD/USD Forex Pair. In one fell swoop the dollar has wiped out the gains from weeks before. Look at the last bar that represents the day’s trading. There is no shadow. It was a straight drop. Pretty hardcore. it is slightly exagerrated on this particular currency pair, as the Australians had some worrying news to compound the situation. That said, the sentiment pervaded the Forex market today. Risk aversion is back in a major way…at least for this day. End Result: Yen and Dollar have a great day.

It’s happening like we thought it would, except it seems slightly more intense than I had estimated. Some of the bad news isn’t even in yet! The Equities had a pretty bad day. I don’t think we can say that we are heading back down though. I think the bottoming process is expectedly more complex than that. We made some big moves in an upward direction recently. It is only right that there be some correction. We can still expect some more moves lower. There is some way to go before we start panicking about the prospect of a longer recession than is already on the table.

So, for the rest of the week: Watch/listen/read the news. If more bad news comes out, then we will have some more downside. However, I don’t expect the dollar to gain much more in the short term.

Happy trading

Guess what folks? China still thinks the US is safe to invest in. Yes. I know. Weird, right? It wasn’t so long ago (think, weeks) that China was talking about the US treasuries dropping in value, what with the dollar flood that Bernanke and the Fed unleashed on us. In fact, China still seems to maintain that position, at least as far as their comments go. However, there’s data out there today that shows that China took on more of these treasuries in February, just a short time before those comments. Everything isn’t as black and white as it seems. The US still remains a haven. That won’t change quickly.

That information should bode well for the dollar in the long run. Short term, well it had a mixed day today in Forex trading. You can see on the Forex Chart above, it’s gaining against the Euro, but not against the Pound. Some numbers out today weren’t too good for US, but others weren’t so bad. It’s still a mixed bag out there.

The Pound seems to have a lot of momentum right now. It will probably continue to strengthen. It lost way too much during this whole crisis, so this correction is expected. The Euro on other hand has not shown much spirit. We could be heading down.

It’s a new week. Not much on the Calendar for today, but we’ve got Retail sales in the US out on Tuesday. That is currently forecast to have improved, in keeping with the new optimistic mood that a lot of people seem to be in in the US. We’ve also got consumer numbers coming in later in the week, for both the US and Europe. It will be interesting to see if the current positive mood can be maintained.

In any case, close attention has to be paid to the figures and the effect they will have on the forex dollar pairs, more so than usual because the driver of dollar sentiment seems to be undergoing a change, just like it did earlier in the year. This change has to do with the state of the US economy.

Typically, if a country’s economy is doing well, then its currency should be in good shape too. If things are bad, then faith in the currency is rightfully challenged. In this crisis, the dollar has been doing great because of its status as a reserve currency. People also invest in US-based assets. At the end of the day, the US seems a safer place than the rest of the world…the lesser of two evils. Thus, the dollar did well, even when things were bad in the US. Also, when things started looking up, the Dollar would lose some steam, as people would take their money out to invest in other riskier (not sure that’s a word) currencies.

Well, last week the dollar gained in the Forex markets because people are starting to believe that the US economy has seen the worst of things. They think it might all be up from here. This means that the blanket effect of Up Equities-Down Dollar and vice versa might now be over. Each Dollar pair will rise and fall by its own merits to a greater extent than we’ve seen recently. This obviously complicates things a little, but that’s trading for you.

Things might turn around again shortly, so we all have to keep up.

Happy Trading

Today, stocks took a pounding for most of the day. Risk aversion is back to the markets in a major way. There’s all kinds of bad news about the performance of – or lack thereof – financial firms. We also have to remember that there were those job numbers at the end of last week. The Markets seemed to shrug that off at the time. I guess this is as good a time as any for a late reaction.

There’s also some fear out there regarding the US Government’s actions. The Treasury secretary and his cronies seem to be more than willing to displace high ranking employees at the companies that they have provided assistance to. I am not too sure everyone is comfrotable with that.

In the forex markets, the reaction today was evident. The Dollar and Yen gained, the others lost. Still, if you look at the EURUSD chart below, you can see that resistance at around 1.3320, a Fibonacci level, held. The Euro seems to be rebounding in the Asian Session this morning (evening, Eastern Time), but I wouldn’t put much stock in it. There are a bunch of economic news items for tomorrow, including the Eurozone’s domestic product, and the Australian RBA will be making a rates announcement tomorrow.

Best to wait and see…

Check out this video that talks about what’s going on with the dollar. The ride might be over…

We are now back to asking, yet again, whether the dollar will finally stop gaining on the others. I never expected much from the G20 – more like G18, if you really want to get technical about it; but I’m an easy going type of guy – after their planned meeting this week. It was clear that there were going to be differences between the leaders, not to mention the blame on America for the crisis in the first place.

However, it seemed to yield more than just hot air. They agreed to inject $1 Trillion to help address the Economic crisis. There are details to be worked out, and each country still reserves the right to decide exactly how much stimulation they are willing to put into their own economies; but it was generally unified. The markets loved it. The Dollar…not so much.

Forex traders sold the dollar across the board. A No-brainer really, for professionals and those learning forex trading alike. Today, the latest Job numbers in US were released. 663 thousand people lost their jobs in March. In any other environment, that would be horrible:devastating:unbelievably bad. Today, we have a collective sigh of relief instead. Considering what we have seen recently, that figure was pretty tame.

So, it seems that things are getting better. No need to rush to US based Treasuries. No need to buy Dollars. This recession might not be over by a long shot, but the general idea is that there might now be a light at the end of the tunnel. Yee-hah!!

The Safe Haven play might be over for the US Dollar and Yen. That doesn’t necessarily mean that the dollar is going to fall over completely. It’s just that a correction will now happen. This might mean a bit more analysis of each Dollar currency pair, instead of the general strength/weakness play we have been doing all this time.

Things will get interesting…in a different way. Happy trading.

Europe is in a world of pain right now. The UK GDP contracted even more than was forecasted by analysts. Today, the German Finance minister made comments about preventing member states from straying away of the Euro Budget rules on spending. He claimed that if member states engaged in excessive spending, it would affect the Euro’s stability. Add that to some bad data, and you have what you see in the Forex chart below on the EUR/USD pair:

So, the Dollar is back in the game. In fact, this shows that the Dollar never left. When it really comes down to it, people still count on the dollar for support. We’ll see where it goes from here.

Timothy Geithner (he’s really becoming a big celebrity these days) was on the telly again. It’s a mark of the amount of confidence he seems to have built up since that fateful day in February when he spoke and the markets crashed. Well…not crashed; but made a big drop all the same.

This time Tim was making some comments about this whole issue of the the US Dollar’s fall from grace, and how there should be a new reserve currency basket of currencies. China threw that out there for everyone to “feel” a couple of days ago. There are those who feel that both The Chairman of the Fed, Ben Bernanke, and Geithner himself are not exactly opposed to the idea. I mean Ben just poured a trillion dollars into the mix. This sort of thing is not exactly dollar-supportive.

Well, today Timmy acknowledged that he would be open to seeing the dollar lose it’s superstar status. What?! Shock, Horror! The markets reacted accordingly, ending what had started out as a pretty good day. The dollar also lost ground to most currencies. Not the Pound though. The brits are in real trouble if Sterling could not gain on the dollar on a day like this. Mr. Geithner then somewhat retracted his earlier comment later on, stating that it was in the United States best interest to have a strong dollar, yada yada yada. Markets (and the dollar) managed to claw back some ground after these comments.

So why all the back and forth? Why the mixed message? Did Geithner get carried away and make the comments by accident? What’s really going on here? And what’s the big deal about the US being the reserve currency of the world anyway? It’s a question of confidence. If the US is not to be a favourite, what does that do to investments and confidence in US based assets? Also, part of this has to do with the US recovering and leading the world out of this recession. Any whiff of fear from the people who should be fixing stuff – namely, Tim Geithner – and investors will run for the hills. In this climate, a poor dollar might ultimately undo everything they are trying to repair in the economy.

There is a general consensus…sort of…that the Dollar will lose it’s status as the dominant reserve currency. The question is when, and to what. THe Euro is a big contender. There’s also this talk of a basket of currencies, including the dollar itself, but also including some of the up and coming currencies from countries like India with good economic growth and potential. There’s much in the dollar’s favour for now, such as the fact that Oil is priced in Dollars. Still, it will happen eventually.

Still nothing major to help us work out whether this is a Bear Market rally or the real thing. There could be more sideways movement until we get some more news…positive or negative. Retail Sales out of England (could be bad) and 4th Quarter GDP are notable. We’ll just have to wait and see.