Banks Move to Stabilise Currencies

The Bank of Korea is the latest in a long line of central banks that have moved to stabilise their currencies.

On account of the Korean won declining by 10% against the US dollar in the past month, and the bank said it was taking appropriate steps to stem the falls.

Big currency fluctuations are a severe threat to these economies as there are many economic problems that are associated with a weak economy.  Coupled with high rates of inflation, the recent fall in currency prices has added more wood to a growing bonfire of trouble.

“It’s not a desire to produce a stronger currency, it’s just about putting a cap on the decline,” Sean Callow of Westpac Bank.

Asian economies are currently trying to control the rise in consumer prices as this will inevitably affect their growth and stability.  The lower the currency goes the higher the import prices and therefore the slower the growth of the country.

As most people know the stock and currency markets have been fluctuating greatly over the past few months which have caused many to lose confidence in the global recovery.  South Korea’s bank and government have both agreed that “recent forex market movements in one direction were excessive.”

The lack of risk appetite and negative sentiment amongst traders has been widely blamed on the rapid decline on the currency markets with investors reacting more to fear than knowledge.

The concern that the slowdown of US recovery and the on-going debt crisis in Europe will have an overall impact on the rest of the global market seems to have been taken to heart with many economists now warning that the world economy is in a danger zone and much worse off than we were in 2009.

Canadian Dollar in Decline

The demand for the US dollar has increased this Friday trading session and along with broad based risk liquidation the Loonie (Canadian Dollar) had found itself in a bit of downward spiral on the back of a weaker than expected employment outcome.
Traders had imagined a net change in employment of 21.5k however the outcome of -5.5k left many in shock.  This outcome meant that unemployment did not hold at the expected 7.2% but rose to a significant 7.3%

The Canadian dollar has always been anticipated to be overvalued against the US Dollar but this downward slide has led many to believe that we will see a long term depreciation of the currency.  The economies that are broadly based on commodities are surely in decline as the recent global economy takes further hits.

Nonfarm payrolls are worse than expected for the forex market

The sessions of Europe and Asian remained eerily quiet in the most part probably awaiting the market changing announcement of the nonfarm payrolls from the USA.  The market remained jittery as safe haven currencies saw most of the action through the evening as risk appetite lost ground.

The last week has seen a weakening again in the Euro with more boat rocking news from Greece who seem firmly placed to upset the apple cart for the currency as it stopped all further talks with the European Commission, the European Central Bank and the International Monetary Fund when it was asked to put in place more austerity measures, so the Euro could be a currency to watch in the coming week.

The Swiss Economic Minister made a major move by announcing that the SNB could no longer slow the appreciation of the Franc, and more investors jumped firmly on this band wagon with the Franc up over 4.8 percent against major currencies and over 6% against the struggling Euro.

In the US session the shocking announcement that the unemployment rate remained unchanged at 9.1 percent in August, meaning that the payrolls were unchanged for the month in question.  The nonfarm payrolls report showed that the economy added zero jobs, well-below the median forecast of 68K, according to a Bloomberg News survey.

Of course now that the results are in there is much discussion and speculation over why there has been no increase in the payroll numbers, could it be the hurricane?  Could it be market sentiment but whatever it is, the outcome is screaming to us all that the US economy is not in recovery and has in fact stagnated.

The Canadian dollar also suffered off the back of nonfarm payroll data as the US’s biggest exporter of oil, when the oil price fell so did the Loonie.  The Canadian dollar will see itself in some troubled times ahead if the US continues to see a decline in its economy.

US Dollar Should Win the Currency War

It would seem that the worlds smaller economies must let the dollar devalue in order to stave off another global recession.  The Fed has vowed to keep interest rates at an all time low until 2013 and this means that the rest of us are now debating whether to push our own currencies lower or simply let them get on with it.

It is tempting for a country to push its own currency lower in order to bring it into line with the USD, however this will only turn a short term problem into a long term global catastrophe.  If the dollar is cheap it has the potential to revive the carry trade and means an influx of investors to high yielding assets such as emerging economies, only if a recession is aptly averted.  However if the United States falls once more into the grips of a recession investors may favour a safer option such as the Japanese yen for their money.

If a country is an exporting one, this is never a good situation.  The country will experience high currency values and increase the price of their exports, however to devalue a currency to protect exports is a risky business but one that China has been playing at for years, but means increasing interest rates and printing money.  This increasing of interest rates means that more investors are attracted to the country and create a very unstable asset price bubbles.  And all things must go pop.

This being said should a country not let the above happen then the US might once again slip into recession which will have a larger impact on the global economy that an increase of inflation in Korea.  Exporting countries can only win the war by helping to keep the USD out of recession and rebalancing the US and subsequently its trading partners, speeding up their own recovery in the meantime.

Euro and Swissie – Moves now dependent on Risk sentiment

Performance charts are showing that it is the Euro that is coming out on top at the opening of the US trading session.  The movements show that risk appetite has once again returned after the last few weeks of volatile trading.  The euro pushed through the resistance level from July 26th before testing the 1.4380 level.  We have new resistance levels at 1.4220, then 1.4450 and 1.4484.  Both the German and Eurozone GDP figures are out and both will be expected to have eased slightly as fears that the recovery in Europe is stalling.  Should the results be weak then risk sentiment may shift once more to the defensive.

The worst performer of the lot was the Swissie against the dollar.  For the 3rd session in a row the Euro troubles have been weighing the currency down and the currency is struggling to fend off pressure from last week when SNB Vice President Thomas Jordan suggested policy makers were considering a peg to the euro as a means to stem the currencies rapid appreciation. The currencies’ moves over the next few days will be solely reliant on risk sentiment and there is nothing in the upcoming economic calendar that would have any effect on the USDCHF pairing.

US Default on the National Debt Level – Running out of time

We are still awaiting a decision from the US government to compromise on the current debt levels.  The slow response of the US Government has only compounded the dollar into a week of sideways movement, but we can only hope that the outcome will move the dollar one way or the other and push it into a comfortable trend over the coming wekk.

The potential for the US Debt to have a large impact on not only the US dollar but literally all of the currencies across the board, is huge.  Not to mention how it will affect risk appetite across the broader markets.  A safe trader might decide to deduce all reasonable possible outcomes and play which ever ones lends itself to the decision.  It is likely that a decision will be reached in the coming days, although the stance from both sides is currently one of non-movement in order to gain sway with their constituents, the reality is that the debt ceiling will be breached on August 2.

The need for a long term fiscal plan has been heighted by ratings agencies who have highlighted that downgrading a country’s economy will run beyond any quick fix so any lifting of the limit to simply avoid defaulting would not be of any great benefit in the long term.  If the government were to reduce the deificit with a well laid out plan that suggested paying back the deficit over a decent timeframe this could very well kick out the legs of any current stimulus that has been responsible for the confidence of recent months, causing the rumour mill to go into over drive and the volatility of the greenback increase.

Another driving factor is the knock on affect of the European policy which announced major changes in its policy to contain the growing deficit situation in many of its countries.  However the policies do not appear to be enough with shortfalls still apparent, so in the end it will come down to market sentiment, if the confidence of traders is not buoyed by the changes in policy the Euro will continue its descent and in doing so will boost the dollar.

US Dollar News – A week of dollar risk ahead with more to follow…

Those who have been trading the fx market for a while should know that politicians rarely make good forecasts and even more rarely make good people to follow!  We have been listening over the weekend, to US officials threatening that the lack of a financial plan for the debt crisis would create a panic in the market that could be the cause of a collapse in the markets. Poppycock!

The US dollar took a hit upon opening, most likely due to this mis-information by a financial advisor and slipped below the support level of 94.50 to new lows that have not been seen since May 5^th but thoughts are that traders are not yet likely to bet against the Treasury’s need for a stable platform.  The S&P also opened much lower than it had closed but then regained any losses and traded well within the range.

The dollar will likely experience some movement this week as the diary is filled with risk events that are likely to give us some movement however those of us who have traded for a while will recognise that the US deificit impasse is the item most likely to cause instability if it is not resolved.  The deadline of August 2^nd is fast approaching and the two deals on the table do not seem to have the steam to get through Congress, this indecision will inevitable cause the dollar to fluctuate more and more as we approach the deadline, entering the US economy into a deadly game for the next week.

Traders cannot avoid the upcoming risk events however keeping an eye on the market movements while the ‘big cheese’ is decided wouldn’t do any harm to your forex profits.

The Bank of England, will they or won’t they? Will it affect your Forex Profit?

The Bank of England has released some figures and statements today after recently choosing to keep the Bank of England base rate at the now record low of 0.5%. As people saw a dip in the rise of house prices and also in consumer spending during May and indeed much of the Spring, the BoE has stated that people believe that inflation will in the long term come down to 2% from its current high of 4.5% but that for the short term period expectations were ‘elevated’.

This seems hardly surprising given that the rising cost in fuel and the cost of living has forced us all to reconsider what we put in our shopping trolleys and how far we are really willing to travel in these times of uncertainty. The very idea that we might be forever more strapped for cash and living from one paycheck to another is simply, to the average man, unfathomable. So are we the eternal optimists of the British public that instead of picking up on the signs we are simply burying our heads in the sand and waiting for it all to blow over?

These expectations can have a damaging effect on the recovery of the economy as if people believe that inflation will keep rising, then surely the cost of living must also increase, causing a demand for higher wages from an already cash strapped business economy and helping to create a long term problem out of a previous bump in the road. The BoE has said that it does not believe that the British public have become ‘entrenched’ in this inflation rising world and that it does not see a need to raise interest levels to match those of the inflation increase.

Inflation is currently at 4.5% – more than double the Bank’s target of 2% and it has been above the ‘bell ringing’ 3% since the start of the year without many signs of abating. However as there are many uncertainties surrounding the use of the indicators that are used to make these assumptions, the risk can only be assessed in retrospect and remains a factor that the Bank is keeping a close eye on, especially as stubbornly high inflation is now seen to be affecting how the British public perceives the bank, with many believing that if the Bank of England does not lower inflation in the short term then the British public with start to believe that it will remain high in the long term.

Three MPC members have voted to raise the interest rates in recent meetings and although expectations have not yet changed it seems likely that in the future, this decision is going to have to be made. Where you placed your forex fund in the next few months will be crucial to the healthiness of your overall account. If you are lucky enough to be creating forex Profit then be very careful where you are keeping you finances!

NFP – Uncertainty Ahead….

Well most of you will know from earlier posts that we had predicted that the lack of increase in US jobs during the month of May would send unemployment back to over the psychological 9%. And guess what? It happened.

As the market struggled to digest the news the Dow Jones Dollar Index hit the floor with an increase in the safe haven currencies of Yen and Franc however within a short space of time the risk averse market began to emerge, with major currencies falling in favour of the Greenback, Yen and Swiss Franc.

Those on private payrolls rose by 83k, widely missing the 170k that was forecast and the manufacturing payrolls were down 5k with an expectation of 10k new jobs. This dismal news looks to spell the start of a difficult time for the US economy, Bloomberg itself had predicted that unemployment would be back to 8.9% and they had expected a 165,000 job increase during the month of May. Needless to say the 54,000 increase seems measly by comparison.

With poor housing sales and now confirmation of a falling job market, it seems likely that the future will be tough for the USD. Measures to cut the AAA credit rating of the world’s largest economy now loom in its near future – unless of course they come up with a plan to sort out its budget deficit. The likelihood will be that the US will keep its 0% interest rate for the forseeable future and all eyes now turn to Bernanke, (Fed Chairman) to see how he rolls the next dice.

If you would like more information see our post http://profitwithforextrading.com/trading-in-the-market/dollar-versus-gold-war-to-come/

Dollar Versus Gold – War to come?

Just before the North American session could kick off this morning, figures released from ADP Employer Services threw the trading world into some chaos. The figures, showing the number of jobs that companies have added since September 2010, showed that only 38,000 jobs were added in May 2011, which is the smallest increase that the employment market has seen in nearly a year.

With a Bloomberg News survey which had called for an increase of 175,000 in May, now proved disastorously wrong the dollar took a nose dive and found itself following the Dollar Index which lowered itself to 9527.34 from a previous figure of 9547.09.

As traders turn their attention to Friday’s government labour report, they appear to be taking a more cautious approach, favouring the unemployment rate to remain above the 9% level. The disappointing outcome from todays figures could spell another round of quantitative easing once we reach the end of June (Fed Res second round of stimulus ends), which would only serve to increase gold prices and those other assets significantly.

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