Euro rises as the US awaits its economic fate

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.

Read more...

Daily FX Updates

According to the Daily FX news, The Dollar rose again against the Euro, which hit a new month low of 1.31 USD, even after the release of a poor US retail sales report which saw sales fall 2.7% in December. Fears over a broadening global recession were realized when Standard and Poor’s downgraded Greece’s credit rating to A- / A-2, something they had warned about doing last week. Forex traders continued their move towards the US Dollar as it is still believed in the investor community that the US currency is a safe bet.

Although the news in the US has not been great as of late, the trading and investing trends has continued to work in favor of the US as Europe continues fielding bad economic news and speculation. Forex brokerages have seen continued selling of the Euro by their customers on news of an imminent rate cut. Adding to the fire in Euro-land was Germany’s declaration that its economy shrank 2.0% in the last quarter of 2008. Coupled with the S&P downgrade of Greece was the now very real prospect that Spain and Portugal were to follow after they too received warnings a short while ago. Look for continued weakness in the Euro as more countries begin reporting their Q4 economic data.

The Euro also fell against the Japanese Yen, albeit slightly to 117.11. The Yen also traded up and down slightly all day against the USD, which was looking at a mild gain towards the end of the day. Japanese officials are monitoring the strength of the Yen in an effort to perhaps keep it from getting much stronger. It is believed that a strong Yen will hurt Japanese exports which, in this environment, are crucial to their economy.

India has said that their inflation will fall to between 3% and 4% by the end of Q1. Normally a drop in inflation is good news however given that many countries are experiencing severe deflation in this economic crisis, this raises flags for India. An economic crisis in India can have a large impact on the overall global economy. This is something to watch in the near future.

Read more...