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Forex Holiday Madness

We have the American Independence Day Celebration at the end of this week. Yay!! Yay for clogged highways. Yay for flight delays. Yay all round. Yay for a 4 day Trading week with an ECB rate decision, Employment numbers, Non-farm Payrolls, PMI, as well as Retail Sales from the World’s biggest economies. It’s going to be a pretty volatile trading week in the Forex Markets.

I talked about intervention in my last post. I mentioned that the Swiss had engaged in that substantially earlier on this year to stem the strength of their own currency. Well, they did the same again last week. This time they bought both the EUR/CHF and the USD/CHF. Take a look the graph below and you can see just how drastic an effect such an action can have, in the short term.

Chart

What this chart also shows is that trends are powerful things. It will take more than this sort of action on the part of one group (in this case, the Swiss National Bank) to unhinge an overall trend, start a new one. You can see that the dollar has lost substantial value against the Swiss Franc in the couple of days following the action of the Swiss National Bank. A little pullback is usually expected after such a move, but there are other factors at play here.

Most newsworthy is the statement coming out of China. They are making the call for a new reserve currency again. They did this before, but didn’t follow through with more words or action when Geithner visited some weeks ago. Infact, they seemed to take a step back. So, it’s a bit strange that they are back on that again. It was enough to make the dollar lose some more steam. I am not sure how far they will go down this path though. While the need to diversify out of Dollars is important and valid for them, China has something to lose if they keep pushing this line during a global recession such as we have now. In the short-term, they are still linked to the United States. If the dollar loses too much value, there won’t be a lot left to spend on products. China likes powerplays though, so we might continue to see more of this sort of behavior if they think they will gain some preceived leverage from it.

The Brazilian Real, meanwhile, continues to gain and gain. It’s performance this month is second only to the pound against the dollar. Check out this story on Bloomberg which talks about an IPO in Brazil that is helping to fuel this. Stocks there are doing great. Thus, the Brazilian Central Bank is still buying dollars, to reduce the speed of growth of the Real, and also to develop it’s foreign currency reserves.

However, if the trend is still dollar weakness, then it’s going to take more than buying dollars to stop it. The trend for this week is still for dollar weakness to continue. The Volatility index has dropped considerably this week. There are still signs that the economy is recovering. The dollar should still be on the way down. Expect to see more action from the Swiss if the Franc gains too much against the dollar though.

Happy Trading

Swine Flu splutters…The Markets love it

First off, I am glad that the global pandemic didn’t quite happen. It was a near thing. I have to admit, I was really worried about it. I had to fly out from one of the New York Airports last weekend. I was suffering from a bout of Hay Fever…which means I was sniffing a little…and sneezing…and my eyes watered. End result: Nervous stares in my direction everytime any of those happened. Consequently, I worked extremely hard to avoid showing any symptoms. I also overdosed on a homeopathic drug I had purchased to supplement my one-a-day Claritin. That provided some relief…along with other side effects that I won’t discuss here.

The markets are also quite happy that Swine Flu has not evolved into anything as bad as some thought it would. It’s done some damage, and the danger is by no means over yet; but things are better. At least it’s one less thing to worry about in a recession.

In Forex Trading, The dollar did well against the Euro today, along with the Canadian dollar. Not so great against the Pound, but there was a subsequent pullback. There has been a lot of optimism lately. Oil has been picking up as well. Some have said that Oil will need to rise substantially, and hold those gains, for us to feel like we are out of the woods. All of this will be bad for the dollar. However, all of this is still a little premature.

We are seeing a little bit of a pause in optimism…at least until the news is out, or in. We have a European Central Bank rate decision. If rates are cut, the Euro will most likely lose value. Also, more job figures out of the US are expected. There will be large losses, as consistent with all we have seen this year. However, if the figures are worst than expected (bearing in mind that we are all getting a bit optimistic, and therefore have better expectations…a potentially dangerous thing today), then we can expect more negative sentiment. This will be good for the dollar.

One more thing that could cause problems: The results of Obama’s Stress Tests on the Banks. If more banks need more money, then that will be bad. It will undermine some of the progress that people think we have made. And yeah, it will be good for the dollar.

So, the dollar and yen remain the primary beneficiaries of strife and unhappiness. You know that friend you have that just ruins the mood when everyone is having a good time…well, that’s the Dollar.

Chart of the day

The forex chart shows it. After a couple of days of losses, the dollar fought back on Thursday to regain some strenght after some initial losses. There are some good reasons for this. The US seems to be on the way out from the crisis. We are seeing declines in Jobless claims amongst other things. Timm Geithner, Treasury Secretary extraordinaire, has said that he sees no further need for more bailout funds. That’s a big one. It just means that things are not getting worse, if nothing else.

Chrysler going bankrupt is a relief, if you ask me. It had to stop somewhere. Chrysler car owners are protected, and the comany will come out stronger after this.

The Commodity companies…AUD, NZD and the Canadian Dollar…they all had a good day against the dollar. However, the dollar fought back in the end. There is still some strength left here. I wouldn’t bet against it just yet.

It’s the end of the week. There’s not much we can do, except some back next week and see what happens

US Dollar fighting back…sort of

I am looking at my Forex Trading charts at the end of what was a pretty amazing week. The dollar has clawed back some ground after the record losses that occurred because of the Fed deciding to print more money…a trillion dollars…to buy up treasuries etc, and therefore free up the purse-strings for everyone. Talk about quantitative easing…

A year ago, hearing a figure like that would have been downright frightening. However, all we’ve heard in the US over the last few months is “Bail Out” and “Budget Deficit” etc. All kinds of crazy figures have been tossed around, so this one doesn’t sound out of place in this environment. That said, it’s still major. Thus, the dollar rightfully lost a lot of ground over the last few days.

Today, there wasn’t much news that affected the Dollar directly. Traders took their profits. People have come to terms with what Fed Chairman Bernanke and his cronies have done. Calm has returned. However, I don’t think it is over yet. It’s hard to find fundamentals to back US Dollar strength in the short term. The long term view is different though. The European Central Bank and others will have to follow the Fed’s actions in some way down the line. When that happens, it will be the dollar gets the upper hand.

You can see him the Dollar sitting in the dark, licking it’s wounds. It looks up and, with an evil smirk on it’s green face, says “I’ll be back!”. Will it really? Well, that’s the joy of trading forex…I really don’t care either way. Dollar up or Dollar down, I still get the crown.

Forgive my poor rhyming skills.

Pop goes the Dollar

The EUR/USD chart below shows what happened to the dollar in the Forex Markets after the Fed announced that it was going to buy up US Treasuries…to the tune of 1 Trillion Dollars.

EURUSD Chart

1 Trillion Dollars…That is some major dough. The US Dollar lost ground across the board, even to the Yen. That highlights an interesting point. In the past, we’ve seen the Yen lose value when confidence is up and Equities gain. In situations like these, the US Dollar would lose value against most other currencies, but gain on the Yen. Yesterday’s case was different. The Fed buying up all treasuries on this scale is bad for the dollars. When a commodity becomes available in large quantities, it loses value. The Fed is going to be printing shedloads of money, so the dollar will lose value.

On the other side of that equation, such an action is actually perceived to be GOOD for the US economy; and good for confidence. So, people tend to invest in high yielding currencies when they have confidence in the markets. The Euro, Aussie Dollar etc. all do well in these conditions. Add to the fact that confidence has been returning (based on that rally we just had), and you have a particularly violent Mortal Kombat finishing move. For non-Mortal Kombat initiates…this is a devastating effect that isn’t likely to reverse easily.

It’s funny how things can change. It was just a couple of days ago when most people still thought the dollar would retain its strength for some time to come, barring some major incident. Voila! Major Incident!!

This is what being decisive means. Bernanke gets points for doing this. This should unplug all the drains. Loans, Credit, everything. This is going all in. Hopefully it works, or else…

So, long term dollar trend anyone? My guess for now is…well, down.

The Stock rally fizzles…?

EURUSD031609

It seemed like we had 5 days under the belt; then at the end of the day stocks retreated. The fun is over, at least for now. It was a near thing. Most of the day was gone. So close, yet so far. Check out the Forex EUR/USD Chart above. If you look at the bar circled above, you can see the retreat reflected. The correlation between Dollar Strength and Equity weakness still seems firmly in place.

There are some note-worthy news items this week. If more negative news comes out…or even if there is no more positive, then we could be on the way down again. Promises are all well and good, but we need more concrete actions. The G20 didn’t really deliver on that front. It is also clear that we are still in trouble as far as the economy goes.

Watch the Markets…if we go up, the Dollar will continue to fall. If not, then it will be back to business as usual.

Happy Trading

After the roller-coaster that was last week, we are beginning another one. For people who are learning forex trading, or are who are new to the Forex markets, it’s been a pretty harsh environment lately. People like me who proclaim to be part-time traders are also getting a good spanking.

Everyone waited expectantly for the Jobs Report out of the US on Friday. Everyone knew it would be bad, so there were no real surprises at the figure of 651,000. The unemployment rate did jump to 8.1% which was a little higher than most people expected though. I think everyone also expected that such figures could not bode well for the Equity markets. This was the case.

What was a little fuzzy was exactly how the Forex Market, particularly the US Dollar, would react to this news. In the recent past, uncertainty and more negative has tended to favor the US Dollar, what with it’s “Haven” status. However, this has not been 100% reliable lately, as more and more news has come out to show that the US is still very much caught in the recession. It’s always been somewhat counter-intuitive that the Dollar should keep gaining, even as the US economy sinks deeper into the recession.

This was something that could no be ignored on Friday, at least not initially. The Dollar lost substantial ground against pretty much everyone. Unfortunately for those who think the Dollar is losing it’s shine, Forex traders quickly realized the error of their ways and bought the Dollar back. The result: The Forex Markets were back to close to where how they begun the day; most gains against the dollar erased.

So we go into this week expecting quite a bit of news out of Europe. Once again, we expect quite some negativity. Consequently, I think the dollar will be back to it’s old ways again.

Equities go up…Dollar goes down

So, we see it again. This morning, stocks have been rising as the Chinese Government highlights plans for an added Economic Stimulus. This helps to inject some confidence into the market. The risk aversion we have being seeing thus abates a little bit. Investors can come out to play.

After analysis, the offshoot of that is that the dollar loses some steam, at least temporarily. The same goes for the Yen. This loss on the Dollar’s part is furthered increased against the Pound as figures in the UK show that Consumer confidence in February rose from it’s lowest levels in four years. Good times…at least for today.

So, in general terms, a lot of investors talk about long or medium term dollar strength; but as soon as there is the slightest sliver of hope that we might be reaching the bottom of this fall, the dollar is pushed back a little bit. Then some other news comes out that shows that we really aren’t quite there yet; then the dollar gains once more, usually further than it’s previous loss.

It’s no wonder Forex traders still keep betting on the Dollar. We will need a steady succession of good news to end this trend. Today might be the day that starts. More likely, it’s just a breather. More likely, the pain will continue. More likely, dollar strength will continue.

How high can the Dollar go?

I’ve heard it so many times over the past months…”Don’t fight the trend…The dollar rally will continue”, “The dollar will continue to be a safe haven for some time to come”. Those comments are still valid today. The Dollar just keeps getting stronger and stronger. For a minute last week, I thought that trend was reversing. I mean how can you continue to justify the currency’s strength when there are so many problems with the US economy? The Yen was in a similar situation; its status as a haven is being threatened terminated. The fundamentals don’t really provide support for it.

However, with the Dow dropping below 7000 yesterday, the Yen and the Dollar gained strength again. Once again the discussions have begun. Is anyone willing to make a call on whether this is a bottom for the stock markets? It should be close (but then again, people have been saying that for some time now).

In any case, I am bullish on the US Dollar right now. It certainly will keep its strength longer the Yen in the current climate. If the Equity markets start to rise, then investors will be willing to take their money out of safety. That might take some shine off the dollar. We will see what the rest of 2009 holds.

Happy Trading

  
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