US Fed's cautious optimism about the future helps Euro and Pound

The US Dollar fell against the Euro and Sterling yesterday as Forex traders and investors gained confidence which translated into an increased risk appetite as the US government moved to shore up the economy. Yesterday, the US Federal Reserve left interest rates at 0-.25% announcing that they will use all tools at their disposal to continue fighting the economic downturn. The Fed declared yesterday that the economy has indeed worsened since their last meeting in December, however that additional cuts to the key interest rates were unwarranted at this time.

In what was seen by the broker trading community as a signal of strength in action, the Fed said that they will continue to fight the economic woes at the source by supporting the functions of the financial industry by purchasing large quantities of mortgage backed securities, CDO’s and agency debt. This specific announcement pleased those trading and investing in the daily FX markets who fled the perceived safety net of the greenback for some risk and potentially greater reward. The Euro rose to slightly above $1.33 against the dollar while the Pound continued its climb trading above $1.43 – a more than 1% increase.

The Japanese Yen, another perceived safe haven currency also experienced losses today against the Euro and Pound as Forex investors digested the countries influx of cash late Tuesday to shore up businesses and financial companies. The move is widely seen as Japan’s way of curbing the recent strength of the Yen which is believed to hurt exports, the driving force of the Japanese Economy. The US Dollar rose one percent to just over 90 Yen, coming close to a key support level of 90.20. A move above this mark could signal a greater gain for the us currency against its Japanese counterpart. The Euro also made gains on the Yen, rising more than 1% to 119.02 as investors traded the relative safety of the Yen for the promise of greater returns from a Euro rebound.

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Euro rises as the US awaits its economic fate

The US dollar is down in early trading today against the Euro as the US markets wait for the results of the Federal Open Market Committee (FOMC) meeting. The FOMC have been meeting for two days and they conclude later on today while Broker trading firms look for signs of new ways that the Fed will be dealing with the economic crisis. The Fed, which usually is responsible for lowering interest rates has no room to move anymore on the rates as they are at rock bottom right now after last month’s reduction, so the investing and trading communities are not quite sure what to expect. At last trade the Euro was at 1.3251 against the greenback, up .7%.

While the Euro is making gains today against the dollar, the Yen is falling. Forex traders have been speculating that the recent flight from the Yen has to do with risk aversion, where the traders are feeling more comfortable with the situation that they can leave the relative safety of the Yen for things that might reap bigger rewards. This also has to do with the Bank of Japan (BOJ) not wanting the Yen to get too strong as a strong Japanese currency hurts their exports. The Euro is currently at 118.01 Yen in early morning trading, up .83%. Look for this trend to continue throughout the day and depending up what the US fed does. The rest of the week can be see a flight back to the Yen and an unwelcomed rise in the currency if the FOMC meeting results are not favorable with investors.

Part of the Japanese Yen’s issues today arise from the BOJ intervening in companies affected by the economic collapse. The BOJ interjected $16.7 Billion into a fund meant to help hurting companies. This move accomplishes what we have been expecting for a few weeks, that the Japanese government does not want to see the Yen get that strong and is staving off deflation using inflationary measures. Again, this will work for them as long as the US Fed does not do anything so offbeat that traders and investors need to run back to the Yen.

The US economy has more to worry about than what the Federal Reserve will do today. Consumer confidence hit an all time low yesterday and the trading and investing communities got their reality check on housing as well. Last week, home sales surprised everyone when it was disclosed that it was stronger than everyone expected, yesterday they found out why. Home prices fell by 18.2% in November of 2008. Of course more homes were bought with prices being so cheap – there was a report of a man in California that bought 7 homes at a foreclosure auction for less than $1 million, three years ago it would not have been possible to buy one of those properties for that price. Today’s Daily FX advice seems to be: watch out for the Fed and stay away from the dollar until they speak.

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More trouble for Europe means gains for the US

The flight to safety in the dollar was enhanced on Friday when the greenback reached a 22 year high against the British pound and a six week high against the Euro. Considering that the US economic woes are significant, this highlights how bad the Euro and British economic outlook is – at least from the perspective of the Forex traders. The pound sunk 1.4% to 1.361 against the dollar and the Euro fell nearly ½ a percent to 1.292 against the US currency. The tumble started after data released on Friday showed that the British economy tightened at a greater rate than was expected, 1 ½ percent to be exact, which confirmed on paper that the British economy was now officially in a deepening recession.

The Yen also made significant gains against the Euro and Pound on Friday, with the Euro closing down ½ of a percent to 114.66. The status of the US and Japanese currencies as a safe bet amongst Forex Brokers underscores the dire shape of the overall global economy. It is not a matter of who is doing well anymore; rather it is a factor of who is not doing as bad. The trading and investing communities are just looking for something to cling to as the Daily FX charts are becoming more and more confusing to traditional technical and fundamental traders.

The surge, or should it put, strength of the dollar was also helped by the US Treasury Secretary designate, Timothy Geithner, who commented in front of a Senate panel that a strong dollar was in the best interest of the US, prompting broker trading firms to speculate that once confirmed, he will do all he can to prop up the greenback. Considering the mountain of debt that the US economy needs to climb out of which grows each day by billions of dollars, it is difficult to see how any one man can accomplish this feat.

The week was capped off by a peculiar stunt by Canada’s ruling conservative party which pre-announced (it was an intentional leak) that when it reports its budget deficit projections on Tuesday the 27^th, it will show a $52 Billion (US) shortfall the next two years and will not return to positive territory for another five. The move was seen as Canada’s way of minimizing the short-selling and thus overall decline of the Canadian dollar in the Forex trading arena. Aside from this, we can read between the lines into the actual numbers and see a truly disturbing picture. Canada’s economy, and currency for that matter, are intrinsically tied to commodities, oil and metals to be specific.

A projected shortfall of this magnitude means that Canadian economists and actuaries are not too optimistic about a short term global recovery that everyone is hoping for. What this simply means is that Canada is looking at a two year period of global declines followed by a three year recovery period. This essentially puts the crisis in a situation where its affects last five years, a really gloomy scenario that Canada is using to set policy. We hope they are wrong.

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Dollar Shining After Obama Inaugural

The British Pound Sterling is falling today, down to a 7 ½ year low against the dollar and the Euro has fallen to a new six week low against the currency of Obama as well. Banking woes, economic uncertainty, lack of faith in England’s new bailout plan are all contributing to the downslide while the US is tapering some of its inauguration day losses while Forex Brokers are scrambling to find something that is stable in what has been a highly volatile week. At the moment, the Sterling is trading against the dollar at $1.3718, a 1.2% drop bringing it back to 2001 levels.

But it is not only the US Dollar that is benefitting from the British currency’s woes, the Yen, much to the chagrin of the Japanese government which wants to keep the currency from getting too strong, reached a record high against the Sterling today – up over 1% to 123.53. In what Forex Brokers see as a response that is not in line with the wants of the Bank of Japan, the Yen is gaining strength against the majors – also hitting a 13 year high against the dollar. Today, the BOJ will be coming out with a plan to boost lending to businesses (aka commercial paper) in order to thwart ill effects of this credit crisis. Look for the YEN to pare some its recent gains as the BOJ’s hidden agenda is to stem the growth of the YEN in order to protect exports as well.

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Global Economic Crisis And Major Events For Today

What we are seeing these days with smaller economies seems to be a limited affect of the global crisis on their economies. Not to say that they are immune, they most certainly are not, but their slide is less dramatic. How this translates in the daily FX trading patterns as they deal with their crisis remains to be seen – but those investing and trading, along with brokers trading their currencies are sure to keep an eye out as they may offer a glimmer of hope in what is a dark and murky world.

Let’s have a look at the Economic Calendar for major events going to be held today.

Date	Time (GMT)	Source	Description	Forecast	Previous
1/21/2009	04:00	JPN	BoJ Monetary Policy Meeting	n/a	n/a
1/21/2009	05:00	JPN	Leading Index CI	n/a	81.5
1/21/2009	07:00	GE	Producer Prices (YoY)	4.2%	5.3%
1/21/2009	09:30	UK	Bank of England Minutes	n/a	n/a
1/21/2009	09:30	UK	M4 Money Supply (YoY)	16.0%	16.4%
1/21/2009	09:30	EU	Speech by Jean-Claude Trichet	n/a	n/a
1/21/2009	13:30	CA	Wholesale Sales MoM	-1.5%	-1.8%
1/21/2009	18:00	US	NAHB Housing Market Index	9	9
1/21/2009	21:45	NZ	NZ Card Spending (MoM)	n/a	-2.3
1/21/2009	22:30	NZ	Business NZ PMI	n/a	35.4
1/21/2009	23:50	JPN	Merchnds Trade Balance Total	n/a	-Yen225.2B

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