Dollar Debate Misses at G8, but Criticism is still there

So the Dollar was spared yesterday, spared by a seemingly minor situation in an obscure city in an insignificant province of a very relevant state. The Uighur uprising in China took the debate about the value of the dollar as a global reserve unit off the table at the G8 (due to the fact the Chinese president, Hu Jintao, was forced to leave the summit), however it did not stop the show of concern that America’s counterparts in the G8 had.

Germany, one of the US’s staunchest supporters during the Bush years, have chilled that relationship and have become more openly critical of the Obama administration. In the past, when the German government had a problem with the US’s policies, you read about it weeks after it had been sorted out, George W. Bush had a great relationship with the German Chancellor Merkel, and it showed.

It is ironic. Obama’s social philosophy is more aligned with the German’s and much of Western Europe for that matter, Bush was far to the right of where Europe was. However, we are seeing a spate of discontent from the Western European leaders at the Obama policies – and this is most evident in the words and silence of Germany.

Long-time Forex traders know this to be true as in the past, we did not see the spikes we do today in the Dollar, after a European leader gives a speech, today it is routine.

In the absence of the BRIC debate on a global reserve currency, Angela Merkel, the German Chancellor, filled in nicely and spoke of how the focus of many nations vital to the economic stability of the world has been on reliving mistakes of years past.

By assuming the policies of stimulating the economy through a broad array of spending programs, a tactic that was employed and failed in 1933, the rising debt has been ignored and has grown in such a manner, that the entire world is now under threat of jeopardy in more profound manner.

Merkel’s concerns are valid and Forex online traders need to keep this in mind when dealing in the Dollar. As we have seen, the Japanese Yen has been profiting nicely from the return of safe-haven flows where it usually took a secondary role to the Dollar in this capacity.

The Dollar is volatile, more than ever before, because traders as well as the long-term investors are unsure of which way to go. Sentiment keeps us in the Dollar, but reality forces us to look away.

I believe the next three months are vital to determining which way the pendulum will swing for the Dollar – and it starts with the criticism of a European leader that an American policy is too liberal. Go figure.

Read more...

Uighurs Save the Day!!

Who would have thought that a group of Uighurs, the ethnic Islamic population in western China, could be the saving grace for the US Dollar? Not me, but this morning I awoke to surprising news that might, just might, spare the dollar of some of its harshest criticism at this weeks G8 Summit in Italy.

The news is out that Chinese President, Hu Jintao, has left the earthquake ravaged city of L’Aquila in Italy, where the G8 is being held, to return to China where social unrest is escalating in the Western City of Urumqi where the Uighurs call home.

I am not going to waste this post speaking of the background of the unrest or taking a side, I am a capitalist that believes in free markets and people, and this should say it all. However, I will focus my efforts here on talking about how these Chinese citizens, who are literally fighting for their rights, could have unwittingly helped the Greenback.

For the past several months, China has been playing a game of cat and mouse with the US with respect to the Dollars standing as the global choice for currency reserves. They would make a comment that hinted towards their discontent at how the Dollar is not being managed well only to half-heartedly reaffirm their “trust” and “faith” in the strength of the Dollar. They would hypothesize on the introduction of a new global reserve run by the International Monetary Fund one day, and talk of the Dollar’s necessity the next.

And most recently, they, specifically Mr. Jintao, called on the G8 to openly debate the implementation of a new reserve structure that would see the Dollar put on the same level as all other major currencies.

Mr. Jintao’s departure from the Summit before it even began is not necessarily a good sign, however it might just be based on the order of things in China. While there is still a nicely sized delegation from China, including the Prime Minister, it is seen as the President’s role in China to cover this sort of financial issue.

The Prime Minister, Wen Jiaboa, is more likely to be the point man on the global warming and subsequent emission regulation debates than on the status of the currencies. The Finance Minister might bring it up, however it will not be strongly debated from his side without Mr. Jintao present. China is a society that operates with respect for authority and deference to that authority, and this cause is widely seen as that of the President’s.

What does this mean for Forex traders today and tomorrow? Perhaps nothing, however I believe there will be strength in the Dollar as a result.

The past two trading sessions have seen a return to risk aversion and safe-haven currencies, and for the first time in a long while, the Japanese Yen has beaten out the Dollar for this attention.

The world is still a messed up place economically (and as we see from Iran and now China, socially as well), and safe-haven bids will figure prominently into the trading in the coming sessions.

But, it is my standing that the Dollar will recapture the interest of Forex online trader’s as its harshest critic, and largest single investor, will be muted this week. And the irony of it all is that all of this would not have been possible without the help of several thousand poor and underrepresented people in some small, obscure and economically irrelevant part of China. It’s a strange, strange world.

Read more...

The one thing that is turning the world upside down...

What happened in the span of three weeks that enabled the market to lose its confidence in a global recovery? For some months there, things were going well – numbers out of the US and Europe were promising, they did not give a clear cut date for when things will be back to normal, but they did leave many with a glimmer of hope that it will be soon.

I know I have been mocking all of those optimists in the past, and I am – but really? What is the turning point on the market sentiment, that has caused things to go south in Forex land?

It is not the Jobs numbers out of Europe and the US, if it were, then there would have been no hope in May or April either as jobs still fell hard – just not as hard as in June. It could not be the constant ramblings out of the BRIC’s about a new reserve currency for global consumption - this story has been playing out for six months and has been etched on every Forex online trader’s mind ever since – simply, it has been traded out already.

It cannot be the yapping from ECB president Trichet about how things are getting better later than expected – he did this twice and people expect it already from him.

So what can it be? The easiest answer is buried thousands of feet below us – the black gold, oil. I read an article on Sunday in the New York Times that spoke of how the ups and downs in the price of oil has really hurt the financial sector and its ability to stabilize.
As oil prices fluctuate up and down, losing more than 2/3rds of its highest value and then doubling from there and then dropping off 10% in a week, we see the lack of a pattern and hence - the problem.

Most thriving economies rely on energy to move, when the price of the primary energy source is uncertain from day-day, it makes planning for the future quite difficult. Forex traders and those in the Online Forex arena are not too familiar with this level of volatility.

While currency prices do fluctuate up and down, there are never these massive swings – but lately things have been changing, and I am not so sure this is a good thing for the overall Forex market.

One of the things that made the Forex great was the relative stability, and now it seems as if this era is over. Perhaps China, Brazil, India and Russia can make black gold their new reserve, perhaps this will help stabilize the price.

The idea that something like grease can affect change all over the world is humorous – I just don’t know if I should laugh or cry about it.

Read more...