Euro rises as the US awaits its economic fate

Wednesday, January 28, 2009

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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