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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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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