03/01/2009 – USD outlook still higher but near-term correction possible

February 28, 2009

* USD outlook still higher but near-term correction possible
* Gold uptrend likely to resume after profit taking plunge
* Key data and events to watch next week

The USD extended gains this week and the overall trend in what now looks to be the sole safe haven paper currency remains bullish as we muddle through the first half of 2009. That said, short-term corrections in what has become a very volatile trading environment are a dime a dozen and a move lower cannot be ruled out. Technically the USD index looks to be potentially setting up a double top around the 88 level, though we’d need to see below the 100 day simple moving average near 85 to even suggest this pattern is coming to fruition.  Full text »

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US Government to Own 1/3 of Citi

February 27, 2009

Shares drop on news; US dollar continues in strength on the currency market

The US government and Citi have agreed to a deal in which the government will increase its stake in Citi to 36%. Even as the government owns more than 1/3 of the embattled bank, almost 3/4 of existing shareholder stake will be eliminated.

On the news, Citi shares dropped rather dramatically — not much of a surprise. The US government also expects to make changes with the Board of Citi. This type of government interference is beginning to cause some concern.

Since this is seen as a sort-of quasi nationalization of Citi, it is clear that the situation in the U.S. continues to deteriorate in terms of economy. As a result, the US dollar is likely to remain strong in the near term, since this will prompt more forex traders in a flight to safety.

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Commodity Currencies Fall to US Dollar

February 27, 2009

Risk aversion rises in currency trading

Risk aversion is on the rise on the FX market today. Commodity currencies are falling to the US dollar as global equities plunge and investors and forex traders look for "safer" investments.

Commodity currencies are also suffering from the fact that as the global recession worsens, there is decreased demand for the resources seen in countries that represent commodity currencies.

The entire financial climate right now is one of concern for the world economy. As a result, many are unwilling to take risks on commodity currencies — or even on the commodities themselves. 

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US GDP Revised Lower

February 27, 2009

GDP decreased by 6.4% in Q4 of 2008

Just a day after president Barack Obama presented his 2010 budget, the revision in 4th quarter GDP data was made. However, the news is grim indeed, with the revised GDP decreasing by 6.4% — even more than thought.

The news is actually sending the US dollar higher in forex trading on the currency market. The greenback is gaining rather dramatically in currency trading as safe haven demand is renewed.

News the things are worse than previously thought for the U.S. economy is resulting in a flight to safety on the concern that the global economy will not be recovering anytime soon. As a result, there is a trend toward capital preservation in what is considered the world’s most stable currency. 

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Will The ECB Have to Cut Interest Rates?

February 27, 2009

Eurozone economy just keeps getting worse

For months, ECB president Jean-Claude Trichet has done is best to portray confidence that economic recovery is on the way. However, unemployment is likely to become an issue soon, as the economy continues to contract and employers have to start making cost cuts.

GFT’s Boris Schlossberg points out, in FX360, that more aggressive interest rate cuts by the ECB are inevitable:

 We have long argued that ECB’s vaunted hawkishness would crumble once EZ unemployment rates started  to increase rapidly. As employment conditions in the region begin to worsen substantially  the political pressure on the ECB to ease will become immense, forcing ECB policymakers  to cut much more aggressively  in 50bp increments rather than their preferred gradualist approach of 25bp cuts. Given the current employment trends in the region, it is likely that European rates will hit 1% by this summer and if unemployment data in the region approaches 10% level rates could dip to 50bp putting  Europe on par with the rest of G7 an near ZIRP like conditions by year end

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US Dollar Continues Its Gains Against the Japanese Yen in Forex Trading

February 27, 2009

Fundamentals come into focus for yen in currency trading

The US dollar is gaining again in forex trading — at least against the Japanese yen. Indeed, the Japanese yen continues to struggling in currency trading on the FX market. 

In large part, the troubles plaguing the yen have a lot to do with the current focus on fundamentals — at least in the case of the yen. Concerns about the stability of the Japanese economy continue to raise questions about the yen as a suitable safe haven investment.

Indeed, GFT’s Kathy Lien points this out about the Japanese yen in FX360:

The surprising weakness of the Japanese Yen has been attributed to investors finally waking up to the problems in the Japanese economy. Based upon the fact that Japan is running its largest trade deficit in 28 years and 2 interesting correlations identified by UBS and Deutsche Bank, fundamentals may be mattering to the Japanese Yen once again. 

 

This, of course, raises an interesting question about where the US dollar may be headed in the long-term as well. Once traders start focusing on US fundamentals, could it eventually experience the same fallout as the Japanese yen?

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London Session – February 27, 2009 8:17 AM

February 27, 2009

Risk aversion remained the flavor into the London session as nationalization worries resurfaced with the US government now expected to take a 40% stake in Citi. European bourses are getting pummeled and currently off about -2.5% on average while US futures suggest the S&P will test the critical November intraday low support by 741 today.  With month-end upon us, we are also hearing that of lot of the USD bullishness is also driven by portfolio managers rebalancing holdings. Full text »

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Asia Session – February 27, 2009 1:42 AM

February 27, 2009

 
After a Full text »

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Нью-Йоркская Сесиия – February 27, 2009 1:24 AM

February 27, 2009

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Currency Graph: Which Currencies are Overvalued in Forex Trading?

February 26, 2009

A look at which currencies are overvalued — and undervalued — on the FX market

Over at FX360, GFT’s Kathy Lien offers a great graph illustrating which major currencies are overvalued and which are undervalued with regard to the U.S. dollar. It’s an interesting image, and it is accompanied by an excellent discussion of Purchasing Power Parity as a method of evaluating forex trading rates.

As you can see, there is room for the GBP and the down under currencies to stage a comeback — probably as confidence returns in the event of global economic recovery. I find it interesting that the euro is considered overvalued in forex trading. Does it have further to fall?

Currencies in forex trading

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