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Finally, something to take our minds off of the economic crisis and all that goes with it, a health crisis - or pandemic as they are calling it. Yesterday, the World Health Organization upgraded the threat to a 4 on a scale of 1-6, 6 being global - out of control - rampant infection. But the crisis is affecting more than just border crossings - it is contributing to the downfall of some of the worlds most fragile economies, the emerging markets.
As news of the Swine Flu virus spread, the Mexican Peso, the currency at the heart of this epidemic, fell over 5% to the US Dollar and similarly to many other majors. This is just another blow that the Mexican economy has endured and it threatens to collapse the country's economic system. Although it is a small market, online Forex traders should be keeping an eye out for this, as what happens south of the US will no doubt affect the US.
Meanwhile, traders in the Euro were given another treat of two Central Bank members holding arguments with each other through the media. The disagreement came when Nout Wellink said the rate cut should go further than 25 basis points and Alex Weber said it should not - very exciting news. But, as online Forex pros, you should know that it was all a staged event to distract from the real concerns, whether or not the stimulus that the ECB will unveil next week will be enough to please the street and help the economy.
With the Taliban about to take control over the nukes in Pakistan, the Flu set to overload the healthcare systems of the world and China calling for a new reserve - the EU should lighten up and not be so tightfisted with the money they spend. You only live once they say.
Existing home sales figures showed a 3% fall in March to a less than expected annual rate of 4,570,000 units. Pundits who had thought that the housing market has hit a bottom woke to a realization that the situation is growing deeper. The dollar which had been up most of the day retreated after the report was released. As the market looks forward, forex online investors are waiting for the results of the US government stress tests for banks, a release that could shed great light on the actual state of the US economic environment.
At 11:45 GMT, the Dollar was trading flat to the yen at 98.0, down .04% to the British Pound to 147.06, up .07% tothe Canadian Dollar to 1.2235, up .14% to the Australian Dollar to .7135 and up .11% to the Kiwi to .5609
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 hitan 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.
The United Kingdom’s second bailout plan came to light yesterday as lawmakers discosed the terms and intentions of this new round of economic life-preservers were thrown at the Pound Sterling.Forex Traders were not impressed as the GBP/USD traded lower towards the 1.43 mark during a session that saw the US markets closed.The pound is trading lower today again in expectation of the British CPI figures for December – which are not expected to be great (expectations are that it will come in down 0.9%).The British economy is showing signs of deflation at this point, the question the Forex Brokers and investors are asking themselves at this point is just how bad is it?
As predicted, the markets are starting to taper off a bit – not certain of which direction it wants to travel in.Many are pointing to the loss of the investing and trading community’s appetite for risk as there are too many uncertainties out there right now and core economic data continues to come in worse than the broker trading conglomerates are expecting.Just look at what happened to the Royal Bank of Scotland yesterday.As we spoke about, they announced a huge loss that was more than expected and as a result the entire London market as well as the Pound Sterling was traded down as fears of what is to come haunt investors.The word nationalization comes up when talking about big government bailouts of financial institutions and no matter how they seem to explain it, this is what it looks like.Forex trading companies and private investors are looking to the future and seeing a constricted and restricted free market system and this is the primary issue keeping the markets in a state of flux.
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Deflationary patterns creeping up on India
I have to keep going back to India.Again, this is not a major player in the Daily FX markets, however what happens in India economically affects the rest of the world significantly, whether it is a psychological factor given the sheer size and status of up-and-coming powerhouse or a tangible problem that affects economies around the world is not important at this point.If the deflationary patterns of this downturn art creeping up on India, the world is in for a long and hard road.Governments need to reshape the way they are going about “fixing” these problems as it is apparent that the way they are going about it is either a) not working or b) scaring the investing community.
The problem started in the US with bad mortgage backed securities and it has spiraled.Not only are the banks not lending to individuals, the money they are getting from their governments which is intended to spur lending is not doing so.The reason for this is simple, if you read between the lines.The money that banks receive under bailout plans are going into their reserves as these banks know that they have much more bad debt and exposure to bad debt – they cannot lend money to people because they are over-exposed and need to make sure they remain solvent – if they loan the money away they run the risk of folding at some point down the road when more of their questionable investments that are not doing too well come to light.Look for continued volatility in the markets in the near term.
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Awaiting Bank of Canada Report on Interest Rate Cut
IT will be important to monitor the Bank of Canada today as they are expected to lower interest rates to 1% today – a drop of 50 basis points.Look not for the rate cut itself, but rather what is said about the future outlook.It is widely believed that the Canadian banks are in better shape than the rest of the world’s.The World Economic Forum declared the Canadian economy to be the “soundest” – so any negative talk by Canadian governors above what we already know could send a shock through the entire FX community.The numbers come in at 2pm GMT – keep a watch.
According to the news update I read today at FINEXO the dollar lost ground against the yen, thus retreating from its 7-month high achieved due to the fall of oil prices to a 3-month low. Many of the traders preferred to sell on the profits of the previous day, in which the oil's drop beneath $120 a barrel supported stock gains and investors are willing to take more risks after yesterday's new found support in the dollar.
When investors are willing to take more risks, this usually means the renewed investment in low yielding currencies like the yen in order to profit from higher interest rates somewhere else, also known as carry trading. Despite this short-lived profit-taking, analysts believe that the dollar will continue its rise. My growing concern is about the Japanese economy, which might increase dollar buying. The yen is under pressure due to a series of data suggesting that Japan's postwar economic growth might be coming to an end. This supports views that the Bank of Japan would probably leave interest rates unchanged at 0.5% in the near future. Market players are closely monitoring the yen to see if it can break above the 109.95 yen resistance, the highest in almost 6 years. The dollar eventually stabilized at 109.40 after a drop of 0.4 percent. The previous day's 7-month peak was of 109.89.
I am pallavi..... forex trader and analyst. The only intension to create this blog is to spread my experiences of forex trading.
I have done masters in economics and have applied for Phd. in financial planning. My blog is managed by many of my friends like Somya gabriel, Cozy, Jenny, Fedd, Pinalli, Monika, Melvin, Sandra, Monali.
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Finally, something to take our minds off of the economic crisis and all that goes with it, a health crisis - or pandemic as they are calling it. Yesterday, the World Health Organization upgraded the threat to a 4 on a scale of 1-6, 6 being global - out of control - rampant infection. But the crisis is affecting more than just border crossings - it is contributing to the downfall of some of the worlds most fragile economies, the emerging markets.
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