More trouble for Europe means gains for the US

Tuesday, January 27, 2009

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 27th, 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.

8 comments:

Mandeep January 27, 2009 at 6:35 PM  

yaa its true tht global economy scenario is gettin worsen and the less bad is better then the worst....

pallavi singh January 28, 2009 at 1:15 PM  

But now i feel things would get rectified and will soon be back to its original position. Atleast this would be true for America.... Isn't it???

Mandeep January 29, 2009 at 1:48 PM  

yaa it must be....it was obama effect only that dollar appreciated now i see yen gettin stronger against dollar in coming days...

pallavi singh January 29, 2009 at 3:16 PM  

Hi Mandeep,

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. for more details please look at my latest update of today.

Mandeep January 29, 2009 at 4:23 PM  

Hi pallavi surely USD gonna appreciate against Yen ....USD and euro has fallen quite sharply in last few months....and as i said earlier tht japenese govt. dont want their currency appreciation further coz they are highly export oriented and crude is the most decesive factor for yen ....... Pallavi I believe tht in coming months yen will depreciate against USD and Euro atleast by 5%.......

Mandeep January 29, 2009 at 4:31 PM  

Hi Pallavi i guess...buyin Euro/USd , Euro/Yen and Usd/yen gonna work in coming days.....i believe euro appreciatin against dollarv and yen....whts ur view?

Mandeep January 29, 2009 at 6:08 PM  

as i predicted euro has appreciated quite well against yen and dollar and dollar against yen.....im trading through FXCM.com.....hve earned today around 25000$.....heheh
but its demo account....i hope things like dis happen wid real a/c in future....i see euro again crossin 1.3200,,,whts ur say??

Mandeep January 30, 2009 at 11:12 AM  

i got it now...its too risky...yesterdau i went from $30000 equity to $56000 and then left my position open and today morning whn i saw my account all my money was washed out.....u cant sleep relaxed if u hve open position ....either hedged it or closed .....

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