International events can have a great effect over currencies and our trading perspectives. Analyze the most important news that can help you with your trading.
The financial crisis has made a big hole in all the world’s major economies, with official data showing the 15-nation euro zone economy had shrunk by 0.2 percent for the second quarter in a row, meaning it technically is in recession. The United States is probably already in recession, most economists agree, but official data showing that will not come out until January. Even though we are in bad times I realize we need to make the most of this situation.
Studying the behavior of the currencies during this phase of financial crisis and worldwide recession, we could analyze the market under extreme situations. That way I sure we could learn something. This group is to create a report of the most important facts during this crisis.
The idea in this Threat is to get together the most important facts occurred during this recession stage in order to compare it later with the market behavior and visualize how affected it. So please post the most important issue you think has worsened the market performance.
Euro forecasts against the US Dollar took a turn for the worse on the week, as generally dismal European economic data and further losses in the US Dow Jones Industrials Average led to similar Euro/US Dollar weakness. Official confirmation that the German economy entered a technical recession through the third quarter suggested that the broader Euro Zone finds itself in a similarly weak position�forcing further deterioration in euro fundamental forecasts.
Australia Sees Recession in 2009.
Australia faces the risk of recession at the beginning of next year as the Westpac leading index plunged to the lowest in 23 years. The Euro and British Pound remained range-bound in overnight trading. The release of the minutes from the last meeting of the Bank of England headlines the economic calendar in European trading hours.
Japan’s Economy Into Recession.
Japan’s economy, the second largest in the world, fell into recession for the first time since 2001 as GDP fell an annualized 0.4 percent in Q3. This was the second consecutive contraction, and with a global economic slowdown impairing demand for foreign goods, this export-dependent nation will likely feel the pain. Nevertheless, the Japanese yen still has bullish potential as volatility remains high, leaving risk aversion in play.
Euro zone demand is plunging and price pressures vanishing, business surveys showed on Friday, while central bankers weighed the bleak prospect of deflation. The Bank of Japan left its key interest rate at just 0.3 percent and said there would be a long road to recovery. Japan’s decade-long battle with steadily falling prices and economic stagnation looms large in officials’ memories. The United States, Britain and Europe are expected to ease their rates further next month as the worst financial crisis in 80 years hastens recession across much of the globe.
Central banks, faced with a sudden collapse in growth as well as inflation, have slashed rates and are expected to keep doing so, although economists warn they may run out of rope before prices hit rock-bottom. Reversing recession is doubly difficult if prices fall broadly and constantly because there is no incentive to spend as consumers and firms know things can only get cheaper. With banks already reluctant to lend – after a U.S. housing market collapse caused many to sustain huge losses and some to fail – deflation would represent a perfect economic storm.
Trading Activity Was More Passive Than Usual At Monday Opening
After the U.S. government agreed to pump $20 billion of new capital into Citigroup, averting a bank collapse that could have crippled the world’s financial system, U.S. stocks headed for a higher open on Monday. The Citigroup rescue, along with Friday’s news that President-elect Barack Obama, would assign current New York Federal Reserve Bank President Timothy Geithner as U.S. Treasury Secretary, underpinned positive sentiment. However, investors remain extremely cautious that the plan to save Citigroup will do much to prevent the world’s largest economy suffering a deep recession.
Currency trading markets have never been more correlated to the US Dow Jones, Crude Oil, and other key assets. The financial crisis has essentially created cross-market correlations that never previously existed. All the while, we have seen more traditional correlations pick up substantially; the link between the Japanese Yen and the US Dow Jones Industrials Average has never been stronger.
Every downward move in global equity indices encourages traders to close short positions in the low-yielding Yen fully consistent with the broader theme of financial deleveraging. Continued losses in the Dow and other major markets would likely lead to further JPY rallies. We may continue to see the Euro/US Dollar move inversely to rate expectations. If higher central bank interest rate expectations translate into financial market deterioration, the US dollar could continue to gain. Any further deterioration in global financial conditions would signal a continuation of said trends, and it seems that British Pound forecasts will largely depend on the future of financial risk appetite. If we see further recovery in UK equity markets, the British pound could quite easily rally further off of its recent multi-year lows against the US Dollar.
Investors, fearful that the job losses will cause consumers to cut back spending and make the profit outlook more dire, sold stocks more broadly, but the energy sector was the biggest casualty. In fact, despite the increasingly effort from central banks and government to tackle our global situation the picture of the world’s economical future look a little bit cloudy.
The US Dollar took some punishment as bonds sold off and stocks began to rally.
However, one day of losses does not change the bullish dollar trend. Regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk. In fact, the setting for the markets is clearly far from normal � just look at the advance in the US dollar last week immediately following the report of a 533,000-person drop in national payrolls.
How long can a market go against basics law of market theory? That depends on speculators. As long risk sentiment holds as the dominant trend across all asset classes and all markets, caution will keep capital flowing towards safe havens.
The US Dollar has retreated against the major forex currencies over recent days, suffering most at the hands of the Euro �which has become really strong now- and the Japanese Yen. Prices are now poised to test pivotal support and it suggests the current retracement may be ready to turn over. Inflation and housing data are due to cross the wires before hand and are expected to strengthen the case for further easing.
However, if we see prices ease less than expected, it could raise inflation expectations which may lead the central bank to keep rates on hold, which could send the dollar soaring. Some analysts think that is the Euro the Queen of all currencies rather than Usd or Jyp. These �save heavens� have been changing a lot since October. Is this related to the rate cuts or there is also more behind it?
Fraud-linked bankruptcies like Enron, WorldCom and Adelphia have kept U.S. courts busy for years. A study revealed that companies that are cited for financial-statement fraud were twice as likely to file for bankruptcy as those that were not cited. It was not clear whether employees at bankrupt companies are more likely to commit fraud or whether the microscope of bankruptcy makes it easier for regulators to detect it. The most common type of fraud detected at both bankrupt and nonbankrupt companies was improper revenue recognition.
Interest rates have changed dramatically over the past year to eighteen months with the upheaval in credit markets and the onset of a global recession. And, while the resulting plunge in investor sentiment has claimed many casualties along the way, the carry strategy seems to be one of the hardest hit. However, investors will not sit on idle capital for long; and eventually a turn in sentiment will put investors and banks back on to yield and into the carry trade.
The antithesis of the US dollar, the euro holds a unique position among the potential carry currencies. From an interest rate perspective, the European Central Bank has been one of the most reserved policy groups in lowering its target rate. More importantly, officials have suggested further easing will come at a much slower pace. And, while the European benchmark rate does not have as much yield potential as its Australian counterpart, the stability of their monetary policy and the bank�s focus on inflation put its on a solid foundation.
Currency trading markets have never been more correlated to the US Dow Jones, Crude Oil, and other key assets. The financial crisis has essentially created cross-market correlations that never previously existed. All the while, we have seen more traditional correlations pick up substantially; the link between the Japanese Yen and the US Dow Jones Industrials Average has never been stronger.
Every downward move in global equity indices encourages traders to close short positions in the low-yielding Yen fully consistent with the broader theme of financial deleveraging. Continued losses in the Dow and other major markets would likely lead to further JPY rallies. We may continue to see the Euro/US Dollar move inversely to rate expectations. If higher central bank interest rate expectations translate into financial market deterioration, the US dollar could continue to gain. Any further deterioration in global financial conditions would signal a continuation of said trends, and it seems that British Pound forecasts will largely depend on the future of financial risk appetite. If we see further recovery in UK equity markets, the British pound could quite easily rally further off of its recent multi-year lows against the US Dollar.
hi guys, I always keep in mind what you advice and say in this forum but I think we need be really concentrated about news, about every single reactions taken by governments, companies issues and stuff. It seems it will give us parameters making decisions. Adrian
The euro appears to have found significant strength recently. The currency market is favoring the euro against both the U.S. dollar and the U.K. pound. Both currencies are finding it hard to stop the euro in forex trading as their economies continue to struggle. Euro strength and dollar weakness further emerge in thin trading activity as geopolitical uncertainty creeps higher. Euros anti-dollar attribute is being underscored by the ECBs reluctance to telegraph further easing, the negative releases from the US and the ensuing geopolitical uncertainties from the Middle East and South Asia. Euro strength is creeping across the board, hitting fresh all time high against Sterling at 0.9795, paving the path for parity as early as this week.
Volumes are low, the behavior is extreme and volatility is mad. The market is behaving in an extreme way. Nothing I�ve tried has worked to anticipate the conditions. I had to adjust all my indicators. Honestly, I don�t feel like trading these days. This is my first year on Forex. Is it always like this or is it really because of the recession?
I agree with you. I think you should concentrate in particular news affecting the market. Check this:
The EUR has started the New Year in a complete reversal from where it ended. The European currency has shown considerable weakness against both the Dollar and the Pound. The last two days of trading have seen sharp reversals in both the EUR/USD and the GBP/EUR. Yesterday the EUR/USD closed the day sharply lower at 1.3546, while the EUR/GBP also saw heavy losses to end the day down at 0.9290.
Fundamentals are once again driving the depreciation of the EUR which may be influenced by indicators due to be released from Great Britain and the U.S. From Britain, the Services PMI index will be released, and from the U.S. the Pending Home Sales. Traders should look to the Home Sales report to potentially beat market expectations for an influence on the EUR/USD price.
The GBPUSD has gone through 1.50 after having tested 1.45 just yesterday. Additional upside is expected. The next resistance is former support at 1.5259. The British pound has spent most of December drifting toward support at 1.4400, as the markets anticipated that the Bank of England will continue cutting rates aggressively. However, the comeback might be related to speculation about the Bank of England expanding a 200 billion pound program that allows banks to buy illiquid securities in exchange for government debt.