Global Recession - Is it really Over?

The Central Bankers of the world met this past weekend in Jackson Hole, Wyoming. Known for hoards of Deer, Elk, hunters and hamburgers, this relatively small frontier town became the center of the financial world for a few days – and will be widely remembered from this day forth as the place in which the global recession was officially declared over.

Just don’t tell those 14% of industrialized workers who are without work, don’t tell those farmers who are selling items at 2/3rds less than what they were last year because of trade restrictions, and don’t tell the Central Bankers themselves, because in the end – the meeting and declaration was more politically motivated than factually motivated.

Jean-Claude Trichet, the EU Central Bank President, gave a speech that can be defined as optimistic, or if you are one of those protagonists, you could have derived a negative message from him.

Ben Bernanke who heads up the US federal reserve was chipper and growth focused in his remarks – notwithstanding the actual numbers, he used words like “I feel” and “in my opinion” to describe the economic recovery – terms usually reserved for politicians and not numbers oriented Central Bankers. Good for him though as President Obama rewarded him with another term as Fed chairman for his efforts.

The Forex marketplace this week has been slow and light, most everyone is off in some vacation spot, perhaps hunting Deer and Elk or eating burgers. Forex traders have not been moving the markets these past few days – and neither has any news for the most part.

The summer is winding down, quarter 4 is around the corner and the world is anxiously awaiting something to happen. In Europe, Germany’s growth and true recession exit is marred by the other EU countries that are still suffering double digit unemployment and negative growth.

In the US everyone, including the politicians and policy makers are on vacation, trying to regroup and figure out how to spend another Trillion Dollars that they don’t have on a healthcare package. And in China, they are selling their Dollars (shhhhhh).

In a world in which the lines between fact and political fiction, it is difficult to pin just where this economy is going. Yes there is some signs that things are getting better, but there also so many signs that there is bad news on the horizon.

In the past 3 months alone, 650 banks have closed in the EU and US – the pains are still there from last year. Unemployment numbers are still rising – and the politicians warn us this is going to happen for a while longer.

But something is happening, we are reaching a critical point in which something will happen. My belief is that it will not be good, but it can turn out to be positive – the haze of summer is upon us and Forex traders and online Forex bloggers like me are looking for a break in the air – a little clarity – and we are not getting it from those who are charged with honesty and truthfulness.

Keep your eyes open – next week will be a good one for numbers. For this week, enjoy the quiet, it is usually like this before the storm.

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Is Chinese want to hurt the Dollar?

So I was reading a story in the Wall Street Journal last night and I came across a well muted tidbit of information that, if it continues, could serve to hurt the Dollar in the near and demolish it in the long term.

China, the US’s largest investor, sold off a significant chunk of its T-Bills in June. Now, in recent months there has been much talk from China about their concerns regarding the US’s debt load, but trust me on this, they would not be selling the debt at this time if they did not have to.

If they did, they stand to lose a serious amount of money if the prices go down based on the sheer volume as well as psychological implications of the act.

According to other sources I read after my curiosity was peaked, it seems as if the Chinese government is spread a bit too thin right now – having increased their feverish purchase plan of almost every natural resource in the Eastern hemisphere while investing heavy in mineral and oil excavation Africa as well.

In an economy that thrives on exports to be spending as large as they have been under conditions that are being equated with the Great Depression is just plain crazy – and culturally it was probably not easy for them to stop when they realized this.

Culturally, the Chinese are all about not making mistakes or miscalculations and while they were saying things were fine, they were really not.

The theory here is that the Chinese need to unload some of the 3 Trillion greenbacks they have to raise cash – by no means am I saying that China is in trouble, but they are not as well off at this point as everyone thought.

If this is the case, Forex traders can worry if they are long Dollar positions. The fact is, the Chinese have so much impact on the Forex at this moment based solely on their reserve levels, that the hint of a selloff would panic the market.

I don’t believe the Chinese want to hurt the Dollar, I will say this a thousand times, it is not in their interest to do so. I just think that their needs might inadvertently lead to this and there is nothing anyone can do about it.

For now, I will keep my nose in the online Forex world and ears to the whispers – perhaps I can help make more sense of this as the weeks go by.

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Chinese making an Impact on US Dollar

According to other sources I read after my curiosity was peaked, it seems as if the Chinese government is spread a bit too thin right now – having increased their feverish purchase plan of almost every natural resource in the Eastern hemisphere while investing heavy in mineral and oil excavation Africa as well.

In an economy that thrives on exports to be spending as large as they have been under conditions that are being equated with the Great Depression is just plain crazy – and culturally it was probably not easy for them to stop when they realized this.

Culturally, the Chinese are all about not making mistakes or miscalculations and while they were saying things were fine, they were really not.

The theory here is that the Chinese need to unload some of the 3 Trillion greenbacks they have to raise cash – by no means am I saying that China is in trouble, but they are not as well off at this point as everyone thought.

If this is the case, Forex traders can worry if they are long Dollar positions. The fact is, the Chinese have so much impact on the Forex at this moment based solely on their reserve levels, that the hint of a selloff would panic the market.

I don’t believe the Chinese want to hurt the Dollar, I will say this a thousand times, it is not in their interest to do so. I just think that their needs might inadvertently lead to this and there is nothing anyone can do about it.

For now, I will keep my nose in the online Forex world and ears to the whispers – perhaps I can help make more sense of this as the weeks go by.

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The Point of No Return - A Warning to All

Last week’s G8 meeting started out well for the US Dollar, after China’s president left the conference to deal with unrest at home. However, the conference did not spare the Dollar some shame and humiliation after all.

In the last day of the conference, which focused specifically on emissions and global warming, Russian President Dmitry Medvedev made a stunning presentation at a press conference. Medvedev produced a newly minted gold coin that symbolized the “united future world currency.”

What? You might ask yourself, is a united future world currency. The short answer is a system similar to the EU, but the kunst of the meaning lies in Russian hopes for a collapse of the Dollar as a dominant force in the investments of most industrialized nations.

In presenting this coin, Mr. Medvedev said, “We are discussing both the use of other national currencies, including the ruble, as a reserve currency, as well as supranational currencies”, which means – out with the Dollar, in with something new.

Many who thought that the Chinese, Russian, Indian and Brazilian calls for the International Monetary Fund to issue SDR’s or “special drawing rights” as bonds, were shocked to learn of how far Russia is willing to go. SDR’s are a hypothetical solution based on the charter of the IMF which allows them to issue bonds to nations.

However, they are not used for normal person consumption, meaning you and I cannot walk into a McDonald’s and buy a Big Mac with them. Medvedev made something abundantly clear, that the new currency “would be used for payment by citizens as a united future world currency”. Game over!

The cries are getting louder and now the plan is taking shape. IT will not happen overnight, and thus the Forex online traders can still profit from the popularity of the Dollar, but make no mistake, this is not going to end well for the Greenback.

The US president is watching as his plans are falling apart, his honeymoon is ending and reality is setting in. He has spent so much money that belongs to future generations; he has compromised the integrity of the strongest currency on earth.

There is no stopping this now, to do so would mean rolling back the clock – the money has been spent already – the debt has accrued. Forex online traders playing with the Dollar beware, it might not be today, it might not be next month or year – but it is coming, and a gradual decrease in value as the calls get louder and louder will happen. Don’t say you did not see it coming when it does.

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Uighurs Save the Day!!

Who would have thought that a group of Uighurs, the ethnic Islamic population in western China, could be the saving grace for the US Dollar? Not me, but this morning I awoke to surprising news that might, just might, spare the dollar of some of its harshest criticism at this weeks G8 Summit in Italy.

The news is out that Chinese President, Hu Jintao, has left the earthquake ravaged city of L’Aquila in Italy, where the G8 is being held, to return to China where social unrest is escalating in the Western City of Urumqi where the Uighurs call home.

I am not going to waste this post speaking of the background of the unrest or taking a side, I am a capitalist that believes in free markets and people, and this should say it all. However, I will focus my efforts here on talking about how these Chinese citizens, who are literally fighting for their rights, could have unwittingly helped the Greenback.

For the past several months, China has been playing a game of cat and mouse with the US with respect to the Dollars standing as the global choice for currency reserves. They would make a comment that hinted towards their discontent at how the Dollar is not being managed well only to half-heartedly reaffirm their “trust” and “faith” in the strength of the Dollar. They would hypothesize on the introduction of a new global reserve run by the International Monetary Fund one day, and talk of the Dollar’s necessity the next.

And most recently, they, specifically Mr. Jintao, called on the G8 to openly debate the implementation of a new reserve structure that would see the Dollar put on the same level as all other major currencies.

Mr. Jintao’s departure from the Summit before it even began is not necessarily a good sign, however it might just be based on the order of things in China. While there is still a nicely sized delegation from China, including the Prime Minister, it is seen as the President’s role in China to cover this sort of financial issue.

The Prime Minister, Wen Jiaboa, is more likely to be the point man on the global warming and subsequent emission regulation debates than on the status of the currencies. The Finance Minister might bring it up, however it will not be strongly debated from his side without Mr. Jintao present. China is a society that operates with respect for authority and deference to that authority, and this cause is widely seen as that of the President’s.

What does this mean for Forex traders today and tomorrow? Perhaps nothing, however I believe there will be strength in the Dollar as a result.

The past two trading sessions have seen a return to risk aversion and safe-haven currencies, and for the first time in a long while, the Japanese Yen has beaten out the Dollar for this attention.

The world is still a messed up place economically (and as we see from Iran and now China, socially as well), and safe-haven bids will figure prominently into the trading in the coming sessions.

But, it is my standing that the Dollar will recapture the interest of Forex online trader’s as its harshest critic, and largest single investor, will be muted this week. And the irony of it all is that all of this would not have been possible without the help of several thousand poor and underrepresented people in some small, obscure and economically irrelevant part of China. It’s a strange, strange world.

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Livin' La Vida Loca Down Under

I have spent so much time talking about the US and Europe lately, that I have almost neglected my favorite currency, the Aussie. So I will try to avoid ranking on Obama and Brown and Trichet, while I put a plug in for the down under dollar and go back to my love relationship with the potential this currency has.

The Australian employment report that came out overnight brought about another rise in Online Forex AUD Trading, almost across the board (The Yen had a strong day too). While the key change in employment payrolls was much better than most Forex Online traders expected at almost unchanged levels, the internal numbers could spell trouble.

The numbers showed full time employment falling sharply and part-time employment rising sharply, which is normal in a recession when most of the world’s industrialized nations are dealing with a 10% jobless rate. However, you do not want this to continue long term.

As well, the unemployment rate surged to 5.7%, still far below the global average – but nonetheless worrisome as the number keeps going up. This number matches the highest level seen in Aussieland since late 2003.

But here is why the currency is strong: The AUD continues to find strength as bonds have not managed to rally and equities stormed back into the close yesterday in the US after a steep intra-session sell-off.

The background theme for Aussie strength is the idea that the global recovery, led by China, is underway. I read an article in the Wall Street Journal just this morning about the levels at which the Chinese are buying commodities, which is bringing about serious questions of its sustainability.

If this trend slows in the near future, which I do not think it will (and I will explain this below), the Aussie could be in for a very sharp adjustment lower across the board. Chinese trade numbers are still off sharply for both imports and exports on a year over year basis.

Now, while the vaulted WSJ might believe this trend will burst eventually, sooner rather than later as they said, I am finding it difficult to swallow. Here is why: The Chinese have been consuming commodities at an alarming pace for their building, this is how they are stimulating their economy. But back in March I wrote about how the Chinese are also buying up commodities using US Dollar (Yes, I know I promised I but cannot resist mentioning the Greenbuck) while at the same time making public calls for a change in the global reserve standard.

Essentially, China is swapping Dollars for tangible items – and while the WSJ uses the import and export figures to assume that their consumption has to end – I am looking at their 2 Trillion Dollar reserves and saying, they are swapping paper for copper and oil and gold and iron because right now, there is not option other than the dollar – except real stuff.

So have no fear, the Aussie will be here – trust me on this.

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Note my Forex Online Comments!!

In January of last year, specifically the 15th of the month, I wrote about the fate of the carmakers in the US. Specifically, I spoke about the urgent need to let them fail – to not prop them up and create a situation in which they are “owned” by the government.

The fact that no one listened to me is not important here, but what is, is that the policies of the government in Washington, highlighted by the announcement of a car Czar whose job it is to oversee the auto industry in the US, not to mention a pay Czar who is tasked with ensuring companies do not overpay executives, have planted the seeds for the demise of the capitalistic society that created enormous growth and wealth in the world.

There is something that has bothered me about the American people and the American economy as of late. With all the money being spent by the government, one has to ask where it’s all coming from. And aside from a few news mediums and some conservative commentators who would attack any decision and so can be labeled as partisan, no one is doing it.

The fact is that all this money that is being printed and all the oversight jobs being created to regulate industry is not good for the long term prospects of the currency.

Put an exclamation point on that: free markets should be free. It should not be the government which intervenes to save the world from corporate disasters. Helping citizens is one thing, providing food or housing needs is important – but handing over billions of dollars to companies in the name of helping citizenry is a legal form of robbery, and will have enormous impact on the value of the all mighty Dollar.

The nature of a free market is that it can live and die by its own hands – as it can by the success of a competitor or the failings of its own products – these companies, especially the Automakers, lived large and fast and I believe they should be allowed to crash.

Doing what we can to save them will only affect the long term prospects of the country’s standing. Online Forex traders know this to be true, as last week they killed the dollar – and all the data coming out that says that the US is on a recovery path means nothing, because it’s becoming more apparent that what is being shown is what they want us to see.

Online Forex blogs this weekend were littered with talk about the value of the Dollar. With yields going up, mortgages are expensive – with gas going up, energy is expensive – people need to save in order to pay their core bills.

Watch the retail numbers this week and you will see what I mean. And watch the Forex, EUR/USD and USD/JPY specifically – the decisions Obama is making will come to haunt them and I believe that this process started last week.

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China Worried about US Debt - The making of a Powerhouse

Richard Fisher, head of the Federal Reserve Bank in Dallas, Texas – one of the US’s largest states – told a British Newspaper yesterday that the Chinese are incredibly concerned over the US governments handling of the financial crisis, specifically, the printing of money by way of the Federal Reserve buying US government bonds, treasury bills and notes. For those of you that don’t know this, when a government wants to increase its cash position, it “lends: itself money by buying up its own debt. I know most of wish we could do that, but if this were the case we would be bankrupt with houses stripped and cars repossessed and the rights to our firstborn taken as well.

This is yet another example of China showing they are worried. Did they come out and tell Ben Bernanke or Tim Geithner, the US Fed Chairman and Treasury Secretary? No. Did they send a letter to Vice President Biden or talk with Secretary of State Clinton? No, and Clinton was just there. Did they address the congressional delegation who came to visit them this week – a delegation that included the speaker of the US House of representatives Nancy Pelosi, AKA the third most powerful person in the US? No. What they did do was take a round about way to let people know they are unhappy with the status of their investment and the way in which the CEO is handling the company. By Company I mean, The US and by CEO I mean Obama.

The Chinese are in a difficult spot, and I have written along these lines before in my Online Forex Blog, you see if they cause a widespread panic in the markets by making such a fuss over this, the value of their investments go down even further. Widespread panic regarding a rating decrease last week showed what it could do, the Dollar fell hard. What would happen if the Chinese leadership addressed the US leadership on this issue directly – it would take away the air of hearsay that exists now through these drips and drabs of media reports.

The Chinese are able to get their message out this way, but not in a way that would cause so much of a stir. Who reads these little interviews aside fro ma few of us boring people with nothing more to do? Wen Jiao Bing calling Obama on the phone to say “yo, what ARE you doing?” will get front page attention on every major newspaper. This way the Chinese get to have their cake without it collapsing on them. The US gets the message. And, I am sure, the US does not care.

Culturally the US and Chinese mindset are worlds apart. The Chinese are savers and conservative by nature fiscally (they also are superstitious), the Americans are care free, “it’ll all work out” type of thinkers – there is no long term.. Hell, the Chinese emperors buried thousands of ceramic soldiers and preserved aspects of their legacy. In May of 2009 they are thinking of 2030, whereas the Americans in May of 2009 are thinking of June.

In the end the Chinese will emerge stronger – this is certain. It happened the same way for the US in 1914 when it was purchasing all the gold it could. China is now doing the same. And where the US became a global leader in the 40’s because of it, China will dominate later on in this Century. Hold on to your Yuan’s, they might be worth something some day.

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China has already Canceled America's Credit Card

The Chinese are making moves to dismantle the Dollars standing, in an article in the Wall Street Journal this weekend, it was revealed that “China has already canceled America's credit card” as a US senator put it.

As China is the leader in US debt holdings, 800 Billion Dollars worth of bonds and another 2 Trillion in Treasury Notes and Bills, it seems as if China’s concern over rampant US spending has taken its toll on the way China conducts business. Last month I told you in Forex Online land that China was beginning to amass large reserves of Copper and Aluminum. With a building sector down to near zero production right now, I am sure they are not stockpiling these metals for the future. They are converting their cold hard American debt to tangible assets.

The problem has gotten so bad that the US Federal Reserve has been compensating for the lack of interest in Treasury Bonds, Bills and Notes, by buying it themselves. It’s not even paying your MasterCard with your Visa, its paying one MasterCard with another MasterCard and it is going to get the US in trouble.

Anyway, for the week ahead my Forex trading friends, look for the European Central Bank meeting – nothing exciting will come of it as nothing ever does, but it has been hyped for some time. Also, look for Thursday when the US Treasury releases the results of the over talked about stress tests on banks . Tomorrow I will talk about why the US messed up by having them in the first place. Also, watch the markets flip flop as President Obama announces his new plan for Wall Street – I guarantee you they won’t like it.

Trade well people.

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The Swine Flu Virus Spread, The Mexican Peso at the Heart of this Epidemic

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.

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Online Forex Update: US Dollar Trading Flat Today

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

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Forex Online Story: The Cat has Come Out of the Bag

The funny thing about statistics is that they can be manipulated to tell a story that is contrary to the actual truth. The fact is that for the past few weeks we have been seeing data coming out from government agencies and corporations that provide investors a glimmer of hope that the economic situation is changing. While international organizations like the IMF warn of trouble ahead, companies like General Electric, Citigroup, Goldman Sachs along with various governmental statistical divisions provide the online Forex world with “positive” numbers. I became suspicious of these numbers when Citigroup, a recipient of “bailout” money only three months ago, and only a few weeks ago considered a “zombie” (dead but living on the fat of the US government) announced a pretty healthy profit expectation. It was reinforced when they announced that sales figures in the EU shot up drastically in January.

Well, the cat has come out of the bag. Forex traders and brokers who have been watching this happen and acting on the data will be happy to know that the reason for all of this good news is the result of number manipulation. Let’s start with the sales data, which showed a 30% rise in January. The reality here is that until January, they used to report the numbers YOY or year over year, reflecting the performance of one month against the same month in the previous year. Now this number is reported month over month – meaning January sales rose 30% against one of the worst months for sales in recorded history.

Next, this past weekend I read in the Wall Street Journal that the Goldman Sachs profit increase from 4th quarter 2008 to first quarter 2009 excluded the miserable month of December that Goldman had – thus making the losses in Q4 of 2008 much less. This was allowed because in the change of status that the bank made from investment bank to “savings” bank in order to qualify for federal deposit insurance protection. Because the change was made mid-December, they were allowed to omit Decembers numbers from the report. Nothing changed other than the legal classification of the bank, but it resulted in a major change to its on-paper bottom line.

This week as the world begins to digest this, we will see some volatility and signs that things are slowing down again. The euphoria has left the building along with Elvis and reality is creeping in again. It can be seen on the unemployment lines and in the empty shelves of stores going out of business and on the foreclosure signs lining the streets of what was once thought to be prosperous neighborhoods.

Trade well – and don’t believe the hype until you know the full story.

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Deflation to Inflation: A Trend We Will Soon Witness

With all the money the US has spent, the fears on the street are that of inflation. History has proven that if you keep spending as a country, and you exceed a certain percentage of your GDP then you run the risk of rampant inflation. Take Zimbabwe for example, where a loaf of bread (if you can find any) costs the equivalent of three days pay for the average worker (again, if you can find any work). Now, I am not suggesting that the US is headed down Zimbabwe's path, however the spending bills they have come up with in the past three months alone total nearly 80% of their Gross Domestic Product.

Wednesday, the US released data that showed that deflation was rampant in the US and Forex Traders flooded to the dollar thinking this is the greatest thing that can happen. My online Forex friends though are not so naive. The fact is, it takes a while for these things to take affect. It is impossible to spent 12 Trillion Dollars in a few months, although give me a platinum card and I will try my best to do so.

The reality is that the US has had a deflationary issue which is why the recession is bad, and which is why the "pros" at the Federal Reserve and treasury think that insane spending can reverse it. I can guarantee you right here, right now, that they are right. The problem is they have gone too far and went crazy on their spending (mostly to fulfill political promises and appease labor unions), that they will find themselves in a hyper-inflationary mode once the spending and borrowing catches up. I talk about this often and I will not say I told you so when you see it.

Anyway, England also reported that the rate at which housing prices are falling has slowed. Many online Forex chatter is elated that a bottom to the housing bust in Britain is in sight, and all I can see is that it's still falling at a high rate. I mean, London property was so overpriced, and even with the year long slide in value it is still one of the most expensive cities to live in. It just shows you how much air was in the bubble. But I would not bet on a speedy recovery here either. Social spending has hampered the future for the UK just like the US and it will be to the detriment of the Sterling overall. Just wait.

Now the EU has it right. They are finally getting in on the bandwagon of spending to stimulate the economy - but they are mindful of the inflation factor in doing so. There is no "blank check" they are writing. They will announce a plan that is not indefinite, it has an end. In doing so they are not writing new laws that will see Billions spent each year to "prevent" this sort of crisis from happening again, it is a one off - one time only - lasting less than a year. They really are putting their money where their mouth is after being so vocal about beating down the US and UK's plans. Bravo Trichet - the Euro just might be the currency of the future yet.

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Forex Online Currency Analysis – Overnight Session

These days Dollar is on its full mood. We could witness great recovery and continued strengthening against all major currencies. It is believed that the next volatility could be seen for the dollar in the U.S. session when the release of two important releases, PPI and retail sales, according to the forex online reviews. Looking at the Daily FX currency analysis:

The EUR/USD seen a resistance at the 20-day SMA in the early Asian session and dropped to 100 pips. The traders believe that the euro's decline was in sequence with the selling experienced in the other major pairs, as the dollar posted strong gains tonight on risk-aversion.

The CAD was struggling during the overnight session in order to break above the 1.2240 area, at same place it acted as a resistance during the last U.S. session. In the middle of the trading session, the sentiment of the traders for the Canadian dollar seems to have turned little bearish when the crude oil seen a strong declines lately.

Forex brokers and traders experienced that the Pound traded flat during the Asian session and believes hard that GBP/USD would attempt to break any higher as the session came to a close. Currently, the sterling pound is trading near the opening price of the today’s session. The daily chart shows that this pair is trading very close to a vital swing point, which would require tough force in order to break this level.

The Swissy was on top when it gained 100 pips during the last overnight session, retracing the decline seen yesterday. We noticed that the most gains of this pair came during the late Asian and early European trading hours as the pair gathered good momentum.

The AUD/USD dropped almost 80 pips during the overnight session in contrast with the major gains seen in the previous day of trading session. Moreover the good news is that the aussie crossed the highest valuation in the last half year when yesterday it moved very close to the 200-day SMA.

One of the major releases for today is the National Australia Bank business confidence report. It is seen in the report that Business confidence in Australia has improved to -13. It is an improvement of 9 points from last month's reading of -22.

Lastly, the Yen dropped to 70 pips during the last Asian session, but hit support at the level of 99.40 soon after the European market open. The Japanese yen strengthened overnight as the currency market was driven by risk aversion once again.

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You know you are in trouble when.....

There is a growing sense of unease that I have every time I read about the US Federal reserve buying US Treasury debt. It is like paying your Mastercard with your Visa, something we are told from early on in school is just jot a smart way to handle your money. I have written about this several times and am doing so again because last Friday, the US Fed policy maker warned that the US was flirting with severe inflation if it did not stop spending so much. Actually, the term that was used was the US needed to start "winding down" its spending habits or it runs the risk of "a hyper-inflationary surge."

Now, Forex traders and online Forex buffs know much about what hyperinflation can do to a country - just look at Zimbabwe. But for this to happen to the US would be devastating. The fact is that the US has spent nearly 12 Trillion Dollars so far this year, and their gross GDP is 14 Trillion. The question has to be asked, is it too late to stop the inflation or will we see it anyway. At the rate that the US has spent, and the means by which they have done it, specifically monetizing their own debt (probably because nobody else would at this point) and the fact that the US is the most significant player in the financial world, what would hyper-inflation look like there?

Another worrying trend for Forex traders and brokers to consider is the fact that China has just reached 1.9 Trillion Dollars worth of foreign debt holdings. That is to say, US debt holdings. That number is correct - China holds in their hands roughly 15% of the US GDP in debt form - this should trouble us all - especially when China is suggesting a new reserve currency for the world to use. Perhaps it would be the Yuan if they would stop tinkering with it to make their goods so cheap.

Late last week a large US bank that received 25 Billion Dollars in US aid in November 2008, announced they would be turning a profit of 3 Billion in the first quarter of 2009. One needs to wonder if that includes the 25 Billion they got from the US taxpayers - and if not, why did they need the money in the first place? With everyone thinking that the economy has turned a corner, no one is looking at the big picture. This is going to be a hectic week for the Forex - with the Dollar holding high against the Yen, watch the Euro and GBP in play.

And please. When you read a piece of good news - ask questions, don't just look at what is being said, look at what is not.

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Possible Automaker Bankruptcy Boosts US Dollar & Chart Analysis EUR/USD

USD

The Dollar rallied on Monday as news of possible bankruptcy at US automakers, General Motors and Chrysler sent investors into the currency markets seeking the safe-haven USD and Japanese Yen. When times get tense in the financial world it is common for investors to pull their money from higher yielding, higher risk investments and pick up the US and Japanese currencies – viewed as more stable and resistant to losses as other investments.

At 5PM GMT, the Dollar was up 1.08% to the Euro at 1.3142, up 1.14% to the Pound to 1.4157, up 1% to the Canadian Dollar to 1.253, up 2.18% to the Australian Dollar to .6788 and up 1.7% to the Kiwi to .5602.

EUR

The Euro was down broadly as news emerged that Spain was forced to take over a regional bank once thought to be stable. This added to the selling already underway as investors braced for another interest rate cut by the European Central Bank, a move that is expected to bring the core rate down to 1%.

At 5:10 GMT, the Euro was down .1% to the Pound at .9271, down 2.15% to the Japanese Yen to 127.26, down ¼% to the Canadian Dollar to 1.6464, down ½% to the Swiss Franc to 1.5144 and up 1% to the Australian Dollar to 1.933.

Background to Mondays Market Action

President Obama surprised the markets today by denying the US Automakers, General Motors and Chrysler’s, request for additional funding after demanding the resignation of the GM Chief Executive. It was widely expected that Obama would grant their request for an additional 21 Billion Dollars, however as the G20 summit approaches, it seems as if Obama is interested in publicly denouncing his “spender” label. Obama and British Prime Minster Gordon Brown are trying to garner support for a 1.7 Trillion Dollar “Global New Deal” as their counterparts in many European and Asian countries are questioning their tendency to spend blindly on bailing out companies that are failing – termed “Zombie” companies.

The G20 meets Wednesday in London.

Chart Analysis: EURUSD

EURUSD is slicing lower on the new bout of risk aversion to open the week and ahead of a possibly dovish Trichet on Thursday. Online forex sees a key level comes in just above 1.3100, the 100-day moving average (not an important MA recently, but was very influential in recent years), and also the 50% retracement level for the recent rally to north of 1.3700. Below that, the psychologically important 1.3000 level looms.

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G20 – The dawning of a new world order.

The thing about big conferences involving world leaders is that everyone is so proper and polite in front of one another. British Prime Minister Gordon Brown is lobbying the world for a new world order along with President Barack Obama. They are proposing a 1.7 Trillion Dollar global stimulus plan for the world to follow, the trouble is over the weekend news broke that the world is not into that idea. France, Germany, Spain, Russia, China, have all made statements questioning the idea of such a global spending effort – some classifying it as counterproductive.

The Canadian Prime Minister was on American Television on Sunday being very diplomatic in his discourse. He said that he needed to review the proposal and that certain things needed to be ironed out before a “meaningful discussion could be had on the issue” – in plain English, the G20 will not yield any fruit on Brown and Obama’s plans. The few things needed to be ironed out are this – FIX YOUR BANKS FIRST, SHOW US THAT THEY ARE GOOD AND SOLVENT, THEN MAYBE WE CAN TALK ABOUT YOUR IDEA.

The Online Forex world knows this to be true. And the erratic trading on the dollar and pound have proven that there are many skeptics out there with regard to the G20 and what it will produce. Aside from some smiley pictures, a few days in cloudy London and some good old Scotch, what can these leaders say they came home with? I do not believe they will come home with much.

It is going to be a slow week up until the summit on Wednesday – light volumes and erratic swings will be the norm (unless someone big makes a gaffe like Geithner or Brown did last week). I also believe that the world is in for a shock when they see what all the spending and currency manipulation has done to the two staple currencies, the Pound and the Dollar. The Pound used to trade at over $2 to the Dollar and now it is hovering around $1.40 – this is a big drop. And the US Dollar is almost at parity with the Canadian Dollar – this used to be the butt of many jokes about Canada back in the day when I first started out. But now the two are neck and neck – it used to be .60 cents on the dollar for the Canadian currency. Perhaps we are in for a new world order. Perhaps we are in the midst of history in the making.

Hang on.

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Geithner: "Proposal for Chinas world currency" | Pounds Stumbles | Chart Analysis EUR/JPY

USD

Treasury Secretary Timothy Geithner said on Wednesday that the US Dollar was likely to be the worlds reserve currency for a long time to come. And with this, he also said he was open to Chinas world currency proposal. The dollar reacted negatively as Geithner spoke, especially against the Euro which it had been up against until Geithner spoke. As investors began to digest the bank plan the US Treasury announced on Monday, many began to question the viability of the plan which increases US spending and taxpayer liability, and calls on private investors to join in the purchase of these assets with unknown value.

At 5PM GMT, the Dollar was trading down to the Euro .5% to 1.3534 after trading up to 134.95 when Geithner began to speak. The Dollar also fell to the Yen by ½ to 97.57 and to the Canadian Dollar by ½% to 1.2248. The dollar did manage a gain against the Pound to 1.4592, a .6% rise.

GBP

The pound fell after the Confederation of British Industries distributive trades survey balance fell to -44 in March from -25 in February. Analysts had expected a smaller deterioration to -35. The failure to achieve a fully covered Gilt auction, suggesting reduced demand for sterling assets, also weighed on the currency.

Gilt strategists blamed the auction's failure on market uncertainty created by Bank of England Governor Mervyn King when he said on Tuesday that the Bank of England could scale back its program of gilt purchases if they were especially successful in boosting the economy.

At 5:15 GMT, the Sterling was down 1.1% to the Euro to .9272, down about 1% to the Yen to 142.42, down 1 ½% to the Swiss Franc to 1.6394 and down 1 ¼ % to the Canadian Dollar to 1.7858.

Online Forex Chart Analysis: EUR/JPY

The persistent EUR/JPY rally of late finally met resistance late yesterday as equities eased off recent highs. We wonder if the JPY crosses will top out here towards the end of March as Japan gets set for a new financial year. Watch the 200-day moving average in this cross as an important technical level over the coming week.

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Be Afraid – The end is near

The Bank of England is screaming at the British Prime Minister to cease his policy of spending. In fact, they have gotten so vocal for an organization that usually conducts its business behind closed doors and through confidential memos, that every newspaper in England – and most across the world, featured this story on the cover. The Times of London has a picture of Mervyn King, the BOE governor with a headline that reads “No more stimulus” – while online versions of the story have titles – “Stop, we have no more money”. It is interesting to see that the fiscal policy of England is beginning to rattle cages over there. It is worthwhile to note that the Prime Minister, Gordon Brown, is on a whirlwind tour in advance of next weeks G20 summit, trying to garner support for his and US President Obama’s “global stimulus” – and in his home his central bank is saying they cannot even afford it.

Oh, the similarities between the two – US and England – spending silly in the name of recovery while the debt goes higher and higher. There is one difference though, no one is screaming to Obama to stop. IN fact, Treasury Secretary Timothy Geithner just blew another Trillion yesterday and asked the US Congress for powers to seize “troubled companies” in the non-financial sector as well. Sounds more like Soviet style economics to me – but it all came in the name of being able to address an issue before it becomes one. So essentially, a business can be taken over by the US Treasury and its assets sold to other companies if the Treasury secretary (in coordination with the President and Federal Reserve) decides so. In my day we used to have something called a bankruptcy procedure – which required that a company who was in trouble go through the legal system to do the same. Secretary Geithner plan seems to do away with that process – I am not sure that is legal in the US, but have no fear, Congress will pass a retroactive law making it legal.

The world is getting worse – and China and Russia as I spoke about yesterday calling for the world to adopt a global currency in lieu of the dollar just the tip of the iceberg. The UN is doing the same. And while there has been these ideas before, we are entering a period of fear driving decisions, where the irrational becomes the rational in order to save us all from economic disaster. I fear that the UN will get their way now – posing this idea which china and Russia now back as a solution to a problem. I fear a global currency system – as it will destroy the capitalism that has made so many wealthy – and allowed for free markets such as the Forex. IT will kill the Online Forex and commodity industries and turn us all into socialist sheep, following instead of leading and thriving. Be afraid – be very, very afraid.

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Dollar is Beginning to Lose its Luster

Ok, so the stock markets seem to be bouncing back, data releases seem to be telling a good tale and the dollar is beginning to lose its luster as online Forex investors move towards a more risky approach to their investing. I still believe there is a long way to go before we can call this crisis over – I still don’t believe we have hit the bottom yet. I would not be surprised at all to see the markets suck everyone in for a few more weeks- perhaps even a month, and then collapse once again. The problem here that everyone needs to see is that this “turnaround” in the economy came overnight – on the heels of a dismal employment report in the US. It was protracted based on a better than expected retail sales report – a report that does not take into account the fire-sales and going out of business sales that saw retail prices drop in some cases, by 80%.

Forex traders and the Forex Broker companies are smarter than that. Have you ever wondered why when the stock market’s fall the currency gets stronger and vice-versa? It is because the Forex tends to work more on economic logic than raw emotion. If people are losing money in equities, they look for a quiet and safe place to park their cash – and what better place to park cash than in Cash, or rather, in foreign currencies. Forex traders know that the economy is no beeter now than it was two weeks ago – and they are preparing themselves for the fall while in the mean-time, taking advantage of some good shot-term trading opportunities to earn some extra money.

We must not forget that the EU is in trouble and still cannot agree on anything related to a solution. What is good for France is not good for Germany and what is good for the West is not good for the (or available to) the East. It’s a problem being connected at the hip when economically when your individual economies are in need of different things. The US is not out of the woods by far. All of this money printing and debt issuing by the US government will come back to bite them, big-time. IF anything, these Trillions – with a capital “T” – have made recovery in the long term a difficult task because deflation can creep up at any moment. The worse situation is retreating to the stagflation days of the seventies after Nixon nixed the gold standard and made deficit spending possible.

History is there for us to learn from it. Why can’t our bright and educated leaders see that?

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