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
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.
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.
It�s being complex to understand the dollar behavior, and is staying strong even when the bailout and the financial crisis suggest another thing.
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?
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.
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.
The strength of the dollar is something artificial and could end up in a major crisis than the one the world is facing now
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. 
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
hi! i think that would be complex for the webmasters of this website, cause news affect each currency in a different way, depending on the reality and nature of the currency and the country who prints it. I guess this kind of analysis has to be a personal
an useful tool about this subject is keep checking on your platform how news affect the markets. You may check it with currency fluctuations, as you know you can go back on the graphics and evaluate comportments according to economic events and stuff. Adrian
I just want to ask if, do you think that the US manifestation of worry in relation to the attack in Gaza would have any influence in the USD market movement?.
Did I miss some thing?
When in our history has lowering interest rates helped a weakening economy?
Is it not so that markets rise on higher interest rates?
Theory : high rates to control inflation, low rates to boost spendings. But, yes, it’s theory, like any economic theory, it sometimes works and sometimes doesn’t work. So many factors-news-… are having an impact on real world.
Anyway, this thread is about USD going up, which is happening again. Any fed decision or future decision which could explain that ? It seems there are signs some CBs quite dislike a too weak dollar.
the post 9-11 recession. Although ultimately led to a housing bubble and our current mess…
greenie lowered the rates and people bought houses, just like they did EVERY time greenie lowered the rates. greenie unfortunately NEVER landed anything SOFTLY, and for all the years of his tenure, we went UP and we went SPLAT — this time though, the bankers and reits and every aspect of the market decided that wontan speculation in real estate would be a great thing to line their pocketbooks with and the splat turned into a monsterous HOLE !
but with all thats happening, please to remember that weve gotten out of it before, and we shall get out of it again and the world shall continue on.
throughout our history, the US ENTERS into a recession FIRST and gets out of it FIRST compared to europe and the rest of the world — we are just about the biggest buyers of anything made out there, and when we start buying again it will LEAD the other countries out of their problems also.
by lowering the interest rates, although the books say that “appears” to make the dollar “weaker” in light of all other currencies, it doesnt work when all other currencies are in trouble also — so much for theory as we now have cheap money which can be bought by countries who have money left to buy, and the procession moves forward !
cheap money opens the doors for those who CAN purchase, and while its not the whole solution, it is certainly a very strong part of it, and BUYING is what the country needs beyond all else, which obviously will then benefit the rest of the world also.
now one of the problems with “the rest of the world” is HOW MANY emerging economies can the rest of the world support — how many cheap products manufactured in how many countries can the rest of the world BUY ?
weve gotten to the point that the trilateral commission missed in their theories — economic blocks only work when EVERYONE is at the same level — when EVERYONES salary is comparable to everyone elses, then theres a chance for so many countries to be producers, but that means one has to LOWER the standard of living for the “haves” so that we attain parity with the “have nots”, and THAT is what i worry about in the future !
NAFTA will grow and grow, but how fast can we raise the standards in Mexico, Guatemala, and the rest of south america, not forgetting Canada !
“Tis a puzzlement” as the King said to Anna, and its not gonna get solved quickly or smoothly i fear !
but anyway
enjoy and trade well
mp
We cannot say anything about this market. What dram it play’s the sentiments of it are uncertain.
Why do people always believe that fundamentals run the economy or the markets? The markets run on a particular programming and the people you see on the tv giving you financial advise read off a teleprompter. Your job is to find the loopholes in the market and take advantage of it, not to predict or forecast and that’s where technical analysis comes in.
NO ONE will agree with you more BUT ---- serious fundamentals create serious “speed bumps” in the technicals, often altering the pre-planned movement a lot, although forex will ALWAYS return to its average or mean, which agrees with the technicals — if you look at a sudden huge move up, even if for days or weeks, you will find when it comes back down (and it always comes back down) it meets a trendline you could have drawn in the trend just before the huge move — if that line was up, the price will return to the extension of that line, which the banks know, pro traders know, good retail traders know and now YOU know !!!
aside from the “speed bumps”, the market is already laid out by the banks, who simply move the price up, reach a pre determinded top, and then short it back down to a bottom again, over and over and over !
thats the reason i ask the newbs to LOOK at the market – step back and squint at your charts and SEE what they do !
enjoy and trade well
mp