Keep an eye out for the Kiwi and Aussie as the tides start turning on the Dollar

Monday saw US stocks fall the their lowest level in nearly 11 years after early indications showed that the markets would respond well to the US’s purchase of close to 40% of Citigroup. Monday also saw the Dollar losing steam against many currencies as the brokers trading the USD decided to take their chances somewhere else. President Obama has the economic world puzzled, on one hand he is spending like there is no tomorrow (by telling his citizens that if he does not spend like this there will be no tomorrow) and on the other hand he is promising to cut the deficit in half within two years.

This is one reason I always stress to people to not only listen to what someone is saying, but hear it too – President Obama’s actual words when announcing this yesterday was “I will work to reduce the deficit I inherited by half…” – the key part of that sentence is “I inherited”. While the US runs up a three Trillion Dollar debt in Obama’s first month, he is talking about lowering the debt he came into office with, which was 1 Trillion Dollars. So if you put the numbers together, he is looking to shave 500 Billion off of a 4 Trillion Dollar debt – which leaves 3.5 Trillion Dollars left owed to whoever buys up the bonds and treasury bills. 3.5 Trillion is larger than the entire fiscal budget for the whole of South America to put this number into perspective. It is enormous and it is this ultimate number that has many people scared.

The US Secretary of State was in China last week practically begging China to continue buying their debt – ironic that the capitalistic US is asking the communist China to basically fund all the activity that the communists have been preaching against since Lennon. I think we can begin to watch the Forex Online traders and investors’ shying away from the Greenback in the near future – as big spending and higher taxes to offset the big spending does not work well and from all indications, this is what Obama will be doing.

As for Europe, they are in for a rough ride. The Brokers trading the Euro woke up yesterday to news that Fitch (another feared rating company) is warning that Austria’s ‘AAA’ rating is in jeopardy – now even I know that this is not good – Austria was typically a well-to-do nation. Also, there is speculation that some of Spain’s largest banks might be insolvent – and the financial misery in Europe is worse than a Norwegian Winter. Forex Online traders were not too happy that the EU leaders met in Germany to talk about a game plan for the April G20 meeting – and not the pending doom that is facing Europe or a possible solution.

I still believe there is money to made down under – keep an eye out for the Kiwi and Aussie as the tides start turning on the Dollar.

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Broker Trading Updates - Currency Analysis

USD

Concerns over banks in jeopardy of going under and global economic concerns spurred the US Dollar on Friday against the Euro and the Sterling. In a day that saw the US Stocks fall to a nearly 10 year low and capping a week that saw a sharp decrease in global equity prices, the greenback fell to the European currencies. Despite Friday’s rough patch, the USD is still widely believed to be the only safe-haven currency left.

Against the Euro, the dollar lost 1 ¼% to 1.2824. Versus the Pound, the Dollar fell 1% to 1.4432.

YEN

The Bank of Japan (BOE) announced on Friday that the decline in corporate profits has continued to increase at a rapid rate and that the overall economic situation was deteriorating steadily. Japanese economic problems have driven investors from the Yen, long seen as a safe-haven in times of economic distress because of its stability, and this trend continued last week. While the Yen did make some marginal gains on Friday, it was widely seen as profit taking from short-term investors.

At Friday’s close, the Yen rose slightly to the US Dollar to close at 93.32, down 1/3^rd to the Euro at 119.72. Down slightly to the GBP at 134.69 and up ¾ against the AUD to 60.23.

Euro

The Euro had a decent day on Friday for a currency that has seen better times. Fears over the decline of Eastern European nations plagued the currency all week and it seems as if traders gave them a reprieve on Friday. While the European Union continues to field downgrade warnings from Moody’s and Standard & Poor’s over the financial viability of its Eastern members, the ECB is under pressure to find a way to stop the bleeding.

Versus the Pound, the Euro rose ¼% to .8884. Against eh Canadian Dollar, the Euro gained ¾% to close at 1.6058 on the week. The Euro also picked up a bit to the AUD at .6452 and the Kiwi to .5113. Capping the day, the Euro also gained 1/3^rd of a percent versus the Yen to close the week off at 119.72.

Gold Chart – The most profitable investment in the past three months

Gold has been making the headlines lately as the standard by which all currencies were once valued at has gained more than 20% since mid-November. Gold, not too long ago valued in the two-three hundred Dollar range has been the recipient of much investor interest as they try and find a stable, recession-proof home for their investment dollars and savings. Gold is about to hit a monumental mark, closing in on a $1,000 closing price. Many traders believe that Gold is overvalued at this point and is benefitting from inexperienced and misinformed private investors.

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Currency Market Updates & USDJPY Chart analysis

US Policy: Aggressive Spending

Brokers trading the dollar helped it climb on Wednesday to a new six week high against the Yen an a new 2 ½ week high against the Euro as US President Obama announced a new 80 Billion Dollar mortgage bailout bill. The new bill is expected to help close to 9 million families either restructure or refinance their mortgages in order to avoid foreclosure.

At 5PM GMT, the Dollar was up 1 ¼% to the Yen at 93.56 and ½ of a percent versus the Euro to 1.2523 after hitting 1.2557 – its lowest level since early December. The US is continuing its aggressive spending policy to shore up its economic situation, a tactic that might prove detrimental to the valuation of the Dollar down the road. For now, those Investing and trading the greenback see the US doing something and is banking on the possibility that it will work to help stave off a worsened situation.

GBP: Bank of England Might Consider a Further Interest Rate Cut in March

Forex traders took the Sterling down marginally against the Euro and Dollar as the Bank of England released minutes of this past month’s interest rate meetings. The record showed that the BOE members voted unanimously for the policy of “quantitive easing” by purchasing other securities and Gilts. The fear was that based on the minutes and the unanimity of the vote, the Bank of England might consider a further interest rate cut in March.

At 5:15 GMT, the Sterling was off .33 of a percent to the USD at 1.4189 and 1/10^th of a percent to the Euro at .8824.

Chart Analysis: More USD/JPY – this time a 5 month look

As we said yesterday, the deviation of Dollar/Yen with respect to its historical patterns in terms of its connection with the risk appetite of Forex traders is a problem that could mean additional weakness for the Japanese currency. Its break above 92.40 is significant technically. This is now the new support level and the JPY/USD is setting its sights on the moving average for the past 100 days, somewhere near 94.00 as well as the 2009 high up at 94.62.

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US, Japan and Europe Daily FX Update

It was fascinating to watch yesterday, as President Obama was signing the 800 Billion Dollar economic stimulus package, the US stock markets were falling – I guess the traders and investors on Wall street were not too happy with the idea of severe regulation combined with massive spending on nonsense. Forex brokers trading in the USD though had a different kind of a day. The US dollar, while it should be falling based on all this spending that the government is doing, was rising – sharply in some instances.

The problem around the world is that there are problems around the world – and they keep getting worse. Japan, for a while looking to hamper the strength of Yen to offset losses to the export business it thrives on, sobered up when they realized that their economy has fallen more than at any point in 35 years – which is scary because they are still feeling some effects from their 1990’s prolonged recession. Those investing and trading in the Yen have been hit hard as the Yen has fallen to even the lowly Euro recently.

Speaking of the Euro, yesterday the EU got word from not one, but two rating agencies letting them know that the sovereign debt of many EU members states is in jeopardy of having a ratings cut. This is not a shock considering that many Western European states are the primary debt holders for much of the Eastern bloc countries who have been hard hit as of late. President Obama had said yesterday, I guess to cover himself when this plan does not do what he says it will, that “the economy is going to get worse before it gets better” – in the EU’s case, Forex traders are wondering if it will ever get better or is there some major restructuring of the way they do things that needs to get done. I expect the Euro to continue its slide.

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Chart Analysis: USD/JPY

Chart - USD - JPY - 5 Day

Once a safe haven partner to the Dollar in times of economic stress, the Yen has been battling through some tough times lately. Not too long ago, speculation was that the Bank of Japan wanted the Yen to temper its strength in order to protect its export business, but recent events in Japan have caused the Yen to lose its luster amongst traders looking for security during hard times. In this real case of "be careful what you wish for", teh BOJ has seen their currency lose over 2% to the USD in less than 1 week. Looking at the Daily FX news, it seems as if Japan has more to worry about now than the goods they send to other countries - they are now faced with the prospect of returning to the gloomy 1990's.

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