It’s all getting a bit old now. The Forex Markets have been relatively predictable lately. The dollar is getting pounded. Everyone’s getting more confident in the economy…yada yada yada. But I guess that’s what is happening. People are just going to have to get used to the idea of a weaker dollar in the short term.

All the majors have been taking advantage of the fall of the dollar, including the yen. The dollar managed to fight back against the yen a little bit last week, but faltered. A steep drop followed. There are just too many speculators getting in on the action now. As I said, this is it, in the short-term.

There’s not much evidence that the US Dollar’s status as the preferred reserve currency has been crushed completely; however, there is some cause for worry. The main issue now: rumblings that Standard and Poor will drop the US’s AAA rating. It hasn’t been announced officially, but many see it as a foregone conclusion. Investors and traders can take a hint. They won’t wait for the sh*t to hit the fan. They are offloading the dollar as fast as they can.

It won’t go on forever. We should expect some pullback soon. If there is a major drop again early in the week, then a retracement should follow. The rate of the fall will slow. There just won’t be anybody left to sell the Greenback.

The guys that have benefited the most from this fall – in fact, from this whole economic meltdown – would have to be the outliers. I am talking about the South African Rand, the Brazilian Real and others like that. The Rand has climbed a whopping 11% against the Dollar in this month of May alone! It is now at the highest point it has been since early 2003.

The currency is strengthening so much that the Brazilian Central Bank is having to buy dollars to curb it. There’s good reason for this. They are afraid. While a strong currency shows some positive signs, especially in this case (where it is a result of investment in Brazilian stocks and other assets), there is cause for concern as regards exports. A strong currency means foreign countries have to pay more for Brazilian exports. That can only continue for so long, before they start looking elsewhere for other options. So they are buying dollars, and talking the Real down as well. This will also help to decrease the quantity of trigger-happy speculators out there who are interested in trading the Real against the Dollar.

When the people with the power to effect currency values (in this case, the central bank) start making comments that indicate they are willing to take strong action to change the trend, traders pay attention. You can often see this sometimes when a Central Bank announces a decision on whether or not to change the current interest rate. The markets might react in a particular fashion once the decision is announced, but the comments might change that. If a bank cuts rates (an action that would normally reduce the value of a currency in normal circumstances i.e. not these days), but then announces that it will be raising them shortly to address another issue. The currency might not fall as much, as traders will read the INTENT of the bank and might act on that instead. It’s just an example to highlight the fact that comments can be extremely important.

With that in mind, note that there will be 4 Central Bank meetings this week. Europe, England, Canada and Australia will be making rate decisions. These boys have all whipped the dollars ass this week. Changes to rates are not expected by any of their Central Banks. However, we come back to those comments again. What they say will be important. If there is negative talk, we could see some pullback in the trend. The dollar has fallen to pretty much everyone’s projected targets. Any excuse will do to gain, even if it’s just a little bit. That said, a further fall seems to be the more likely scenario this week. Not much further though.

Happy Trading.

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.

Happy trading.