Learn all the information you need to get you started in FOREX Trading
Forex Foibles
Tuesday, September 23, 2008
Monday, September 22, 2008
Too Much Pressure on the Dollar
Pressure continues to mount on the dollar as everyone starts to focus on the true cost of the government's bailout of the financial system. The US government will be required to run the money printing presses 24 hours a day to keep up with the obligations.
As a result, the value of the US government is getting diluted with each newly printed dollar bill. The market has to reprice the dollar as it looks at the balance sheet of the US government. The bailout will cause a significant increase in the budget deficit, and this should weigh on the dollar in the short term.
Despite all of the bad news last week, the dollar only lost 1.8% against the euro, and half that against the yen. But we expect the market to price in the news this week. Today alone, the euro jumped to $1.478 dollars. We can expect the euro to continue to gain through the week as the market digests the news.
However, this type of market fluctuation is a perfect buying opportunity. As the euro rises back to the $1.50 level, it may be a great opportunity to take the plunge into dollars. In the midterm to long term, overseas currencies will weaken, as the slowdown in the US spreads to other countries.
4:28 PM 0 Comments Links to this post As a result, the value of the US government is getting diluted with each newly printed dollar bill. The market has to reprice the dollar as it looks at the balance sheet of the US government. The bailout will cause a significant increase in the budget deficit, and this should weigh on the dollar in the short term.
Despite all of the bad news last week, the dollar only lost 1.8% against the euro, and half that against the yen. But we expect the market to price in the news this week. Today alone, the euro jumped to $1.478 dollars. We can expect the euro to continue to gain through the week as the market digests the news.
However, this type of market fluctuation is a perfect buying opportunity. As the euro rises back to the $1.50 level, it may be a great opportunity to take the plunge into dollars. In the midterm to long term, overseas currencies will weaken, as the slowdown in the US spreads to other countries.
Thursday, September 18, 2008
RTC II or Just Another Government Handout?
The latest word out of New York is that the US Government may step in and create a new RTC.
The Resolution Trust Corporation (or RTC) was a US goverment owned company that took over the responsiblity of selling real estate properties and mortgage loans for insolvent savings and loans during the 1980s. The corporation entered into partnerships with private parties to liquidate the assets, while taking the bad loans and real estate property off the balance sheets of lenders.
So, once again the US government is looking at a new government owned company to take over the bad loans and bad real estate assets from various banks and brokerage firms so that these institutions can clean up their balance sheets and start to lend again.
The proposal did cause the DOW to close up 410 points for the day. This also translated in dollar gains against the euro and yen, as the euro fell from $1.4539 to 1.4309 to the dollar in late trading. The yen finished down at 105 to the dollar.
Russian markets were closed once again, as global markets responded to the financial crisis.
Despite all of the problems in the US financial market this week, the dollar has held up quite well. We will see how it handles a US government bailout if there is an RTC II, but one would expect the dollar to strengthen against world currencies, as the full faith and credit of the US government is placed at the disposal of US companies.
It looks like it is time to buy dollars.
1:55 PM 0 Comments Links to this post The Resolution Trust Corporation (or RTC) was a US goverment owned company that took over the responsiblity of selling real estate properties and mortgage loans for insolvent savings and loans during the 1980s. The corporation entered into partnerships with private parties to liquidate the assets, while taking the bad loans and real estate property off the balance sheets of lenders.
So, once again the US government is looking at a new government owned company to take over the bad loans and bad real estate assets from various banks and brokerage firms so that these institutions can clean up their balance sheets and start to lend again.
The proposal did cause the DOW to close up 410 points for the day. This also translated in dollar gains against the euro and yen, as the euro fell from $1.4539 to 1.4309 to the dollar in late trading. The yen finished down at 105 to the dollar.
Russian markets were closed once again, as global markets responded to the financial crisis.
Despite all of the problems in the US financial market this week, the dollar has held up quite well. We will see how it handles a US government bailout if there is an RTC II, but one would expect the dollar to strengthen against world currencies, as the full faith and credit of the US government is placed at the disposal of US companies.
It looks like it is time to buy dollars.
Wednesday, September 17, 2008
When will this End?
Every day we see more bad news poor out of New York. An infusion of $85 billion into AIG did not stem the losses, but only caused the market to scrutinize other major players. With Morgan Stanley down as much 40%, and WaMu on the auction block, when will it end? US stocks are now at October 2005 levels.
All of this is having a huge impact on the dollar, as investors flee the US market. The euro jumped today to $1.4325, up sharply from 1.4091 on Tuesday. And the dollar also fell against the pound, as the pound climbed to $1.82. This was despite a 2% drop in European stock prices today.
It looks like the US government is trying everything, but the market won't buy the story that there is no more bad news. Large swings in stocks, bonds, the dollar and gold indicate that every new attempt by the US goverment to stabilize the market is having less of an impact. Gold jumped $70 today as investors fled to safe havens.
A decision by the Bank of Japan to hold interest rates helped the yen gain slightly against the dollar. Now we have to watch the turmoil in Russia, as trading on its exchanges was stopped for a second day, and plans were announced to loan up to $44 billion to Russia's largest banks.
The volatility in the market is a great opportunity to make money, but one must proceed very cautiously.
1:41 PM 0 Comments Links to this post All of this is having a huge impact on the dollar, as investors flee the US market. The euro jumped today to $1.4325, up sharply from 1.4091 on Tuesday. And the dollar also fell against the pound, as the pound climbed to $1.82. This was despite a 2% drop in European stock prices today.
It looks like the US government is trying everything, but the market won't buy the story that there is no more bad news. Large swings in stocks, bonds, the dollar and gold indicate that every new attempt by the US goverment to stabilize the market is having less of an impact. Gold jumped $70 today as investors fled to safe havens.
A decision by the Bank of Japan to hold interest rates helped the yen gain slightly against the dollar. Now we have to watch the turmoil in Russia, as trading on its exchanges was stopped for a second day, and plans were announced to loan up to $44 billion to Russia's largest banks.
The volatility in the market is a great opportunity to make money, but one must proceed very cautiously.
Tuesday, September 16, 2008
No Change in US Interest Rates and a Bailout for AIG
Another tumultuous day in the US ended with little change in the value of the dollar against the euro. Many expected the Fed to drop interest rates by 1/4 to 1/2 a point, as the economy continues to struggle from the financial crisis.
However, Paulson and Bernanke had other ideas. The Fed elected to hold firm on interest rates, and dump $80 million into AIG to save it from cratering like Lehman did a few days ago.
Reports out of New York indicated that the governor of New York may have pleaded with the federal government to intercede with AIG so as to prevent any further monetary crisis, and problems with the insurance industry.
The constant gyrations on Wall Street make it difficult to predict if a new crisis is looming in the shadows. However, assuming there is not another crisis ready to rear its ugly head, the dollar should start to stablize and increase in value against the euro and other world currencies.
A drop in interest rates over the weekend by the Chinese government should also help to strengthen the dollar. And as European banks start to fess up to their role in the US financial mess, the euro should start to drop.
The Fed's decision to hold interest rates steady will also keep investors in the dollar. As investors rush out of oil in order to escape the 20% losses over the past few days, they will rush into bonds and currencies. This should help drive the dollar once again.
No matter what, we still expect a few more volatile days. Proceed cautiously.
8:03 PM 0 Comments Links to this post However, Paulson and Bernanke had other ideas. The Fed elected to hold firm on interest rates, and dump $80 million into AIG to save it from cratering like Lehman did a few days ago.
Reports out of New York indicated that the governor of New York may have pleaded with the federal government to intercede with AIG so as to prevent any further monetary crisis, and problems with the insurance industry.
The constant gyrations on Wall Street make it difficult to predict if a new crisis is looming in the shadows. However, assuming there is not another crisis ready to rear its ugly head, the dollar should start to stablize and increase in value against the euro and other world currencies.
A drop in interest rates over the weekend by the Chinese government should also help to strengthen the dollar. And as European banks start to fess up to their role in the US financial mess, the euro should start to drop.
The Fed's decision to hold interest rates steady will also keep investors in the dollar. As investors rush out of oil in order to escape the 20% losses over the past few days, they will rush into bonds and currencies. This should help drive the dollar once again.
No matter what, we still expect a few more volatile days. Proceed cautiously.
Monday, September 15, 2008
Financial Crisis in the US
We are in financial crisis. Every day the news gets worse. More brokerage firms ready to collapse. More banks struggling to survive.
However, this weekend the US Treasury drew a line in the sand, and said there would be no goverment bailout of Lehman. This ultimatum will have a ripple effect through the financial markets, as brokerage firms and banks realize that they need to step up to the plate and take accountability for the survival of their company.
From a currency perspective, this weekness will continue to weaken the dollar for the next few weeks. Today, the euro jumped to $1.4482, as investors fled the weak US economy.
Yet, in the long run over the next few months, the weakness in the world economy will help strengthen the dollar. Contrary to what Japanese banks did in the early 1990s, US banks and brokerage firms appear to be coming clean, and axing their bad investment decisions. We should see the economy work through the current problems over the next few weeks, and see the euro dip again into the $1.36 to $1.38 range.
9:28 AM 0 Comments Links to this post However, this weekend the US Treasury drew a line in the sand, and said there would be no goverment bailout of Lehman. This ultimatum will have a ripple effect through the financial markets, as brokerage firms and banks realize that they need to step up to the plate and take accountability for the survival of their company.
From a currency perspective, this weekness will continue to weaken the dollar for the next few weeks. Today, the euro jumped to $1.4482, as investors fled the weak US economy.
Yet, in the long run over the next few months, the weakness in the world economy will help strengthen the dollar. Contrary to what Japanese banks did in the early 1990s, US banks and brokerage firms appear to be coming clean, and axing their bad investment decisions. We should see the economy work through the current problems over the next few weeks, and see the euro dip again into the $1.36 to $1.38 range.
Saturday, September 13, 2008
Will the Fed Lower Rates?
3:11 PM 0 Comments Links to this post
This is the question that is on everyone's mind, and helped drive the dollar down against the euro on Friday. A weak US retail report raised concerns that the Fed may have no choice but to lower interest rates.
Let's explain why interest rates drive the dollar. If US interest rates drop, then investors start selling dollars and US treasuries in order to invest in the debt of other countries with higher interest rates. Since the EU is still chugging along, European interest rates are still higher than in the US. So, a drop in US interest rates would drive more money into overseas markets.
I predict that the EU will also have to drop interest rates in the next month or so in order to keep the European economies from slowing down. Such a drop will drive money into the dollar, since I think the US has seen the worst of its downturn.
But in the short term, the euro and the pound will rebound. Proceed cautiously for the next few weeks.
© Copyright 2006-2008 by TheForexTutorial.Com. All rights reserved.