Why does UDS getting stronger?

[phenom]

Alright everyone, I am relatively new to this. I have finished the babypips school and have been trading on demo and live for roughly for 6 months.

Can anyone explain me why is USD getting stronger against EURO in-spite of all this financial turmoil, banks collapsing, and investment banking in crapper?
I completely violates everything that I have learned about fundamentals. And I strongly believe in them, so lets see if someone can make sense out of all this for me.

thanks
Phenom

[dobro]

Very simply, for better or for worse, the US govt is funding/backing the losers. (I wish it would cover my forex losses.) This backing gives other countries encouragement but I suspect that after this recession goes on for a while the $ will suffer. Just an opinion but given that gold hasn't rebounded greatly the $ will stay strong for some uncertain period.

[Pipcrawler]

Sentiment is shifting towards risk aversion in the midst of the credit freeze and slowing global economy. This means that riskier plays like carry trades are being deleveraged including EUR/USD. For the past year or so, the US Dollar became a funding currencies to higher-yielding currencies like the commodity dollars (AUD, NZD, CAD), Euro, Sterling, and now those trades are unwinding. The selling of Euros and buying back of currencies like USD and JPY will continue as the credit crisis is now affecting economies overseas. We may see rate cuts from the ECB and Bank of England, which me possibly more downside to their currencies.

[Marcuse]

It´s being complex to understand the dollar behavior, and is staying strong even when the bailout and the financial crisis suggest another thing.

[gypsytu]

Originally Posted by phenom

Alright everyone, I am relatively new to this. I have finished the babypips school and have been trading on demo and live for roughly for 6 months.

Can anyone explain me why is USD getting stronger against EURO in-spite of all this financial turmoil, banks collapsing, and investment banking in crapper?
I completely violates everything that I have learned about fundamentals. And I strongly believe in them, so lets see if someone can make sense out of all this for me.

thanks
Phenom

Hi,
My take on this has to do with the fragmentation of the European Union, different countries with differing economies - there is no real central command.

Example:
Let's suppose that there is a military force composed of 5 armies of 5 different countries going into battle without a central leader. They are going up against a army with one leader - if the 5 armies are in conflict with each other, which army is going to win the day.

I believe that the European Union may have some organizing problems, while the USD is pretty much on the way to solving problems at home.

Does this sound reasonable?

[Marcuse]

The Federal Reserve said in a statement that, because of weakening economic activity, it had cut the Federal funds target rate by half a percentage point, to 1.5 percent. It also cut its discount rate by the same amount. The vote was unanimous.

[hoss]

While little doubt exists about the longer term outlook for the greenback, especially given that U.S. officials will eventually be forced to turn on the monetary spigot full blast, the dollar may well swing noticeably higher versus other currencies in the short run. The combination of massive speculative bets against the currency; widespread margin calls at major financial intermediaries as volatile markets boost collateral requirements; unexpectedly tight monetary policy; and frantic efforts to convert assets of all kinds into cash to service trillions in dollar-denominated loans, bonds, and other obligations will likely trigger a short-term boost in demand.

This move will ultimately prove unsustainable, however, as the wholesale destruction of purchasing power amid a hyperactive increase in the supply of the currency proves overwhelming. With the Fed eventually seeking to monetize anything and everything in sight, those who can will do their utmost to bail out of American currency. Dollar-denominated assets of all kinds, including former safe-haven investments such as Treasury bills and the debts of Fannie Mae and Freddie Mac, belatedly recognized as unbacked by government guarantee, will come under relentless selling pressure.

- Michael Panzner

[Marcuse]

The strength of the dollar is something artificial and could end up in a major crisis than the one the world is facing now

[ForexNinja]

It's all a matter of which economy and financial structure is uglier.

Both US and Eurozone economies and financial are both hideous at the moment, but it seems US is perceived as less ugly right now.

[felix.khafx]

hi
could babpips team , add to the school lessons about fundmentals and the effect of every news comes? and how we can get benfit of it from our trading?
thanks for your help