Yen Rises on Risk Aversion

The Japanese Yen rose on Thursday as risk aversion returned due to negative economic data from the United States and falling share prices caused investors to take advantage of the safe haven Forex opportunity that the Yen provides. Recently released data showed that US orders for items such as computers and appliances fell by a larger than expected 2.6% in December causing concerns about the state of the global economy. A separate report showed that Americans filing for first time unemployment also rose.

Yen Offers Safe Haven

Recent economic developments have limited Forex investment opportunity and many Forex brokers and traders are seeking the safe haven that the dollar and the Yen traditionally provide in a down economy. The US House of Representatives passed the $825 billion economic stimulus package proposed by the Obama administration but even the passage of the package failed to calm investor concerns. The bill was passed without one Republican vote and now has to clear the Senate.

ECB to Cut Rates

The Euro fell slightly after European Central Bank President Jean-Claude Trichet told CNN that the central bank could cut rates below the current 2%. He also stated that the bank may try some original and unconventional measures to help the troubled Euro Zone economy. Adarsh Sinha of Barclays in London stated, “A lot of people thought that the ECB was ruling out quantitative easing, but Trichet’s comments suggest otherwise.”

Euro Zone Data Negative

The Euro has provided minimal Forex opportunity during the current crisis. There has been nothing but bad news coming from the Euro Zone lately. German unemployment figures showed the biggest gains in four years and Euro Zone economic sentiment is at its lowest since 1985. Obviously the Euro offers limited Forex investment opportunity at best.

For months global economic news has been dreadful. Both stock and Forex markets have been unstable but somehow traders seem to find Forex opportunities when they occur. The coming year promises to be an interesting one!

Euro in Serious Trouble

Ever since the Euro was launched in 1999 many believed that, in time, the Euro would rival the US dollar for a global reserve currency. The Euro has provided many traders and investors with many Forex opportunities since its inception. The Euro seemed poised to weather the recent economic crisis but recent data from the Euro Zone reveal a currency in trouble.

Euro Zone Economy to Contract

The Euro is faltering as the global economic crisis takes its toll on the currency and the Forex opportunities it provided seem a thing of the past. The economy of the 16-nation Euro Zone is expected to contract by 1.9 percent this year while the US economy is set to shrink by 1.5%. Many economists are expressing doubts about the currency’

s long term prospects. There is even talk of some member states quitting the Euro Zone completely.

Greece May Defualt

The immediate outlook for the Euro Zone is dismal at best. Many member states are in real financial trouble. Many predict a sovereign debt default in Greece which would require an International Monetary Fund style bailout by fellow members with harsh conditions that would jeopardize the country’s fragile political balance. Greece has amassed debts equivalent to 90% of its gross domestic product. All this has had an adverse effect on the forex investment opportunity the Euro once provided.

EU Slow To Address Crisis

The European Union’s response to the global financial crisis has been seen as behind the curve. In contrast to the United States whose Federal Reserve Bank and Treasury Department quickly moved to address the crisis, the EU and the European Central Bank have been seen as sluggish in taking action. EU members have doled out stimulus packages seen as too little too late. The Euro is under extreme pressure on currency markets and at present it’

s potential for Forex opportunities are almost nonexistent.

Economic uncertainties explain the fact that the Euro has a share of foreign-exchange reserves half as large as the US dollar. Investors are attracted to the fact that in the United States a single government agency sets fiscal policy and that U.S. bond markets are much larger and provide investors with more Forex opportunities.

EU Population Stagnant

On unnoticed factor that gives the United States an edge is the fact that the population in the US is expected to rise by at least 20 percent by 2050 while the population in the Euro Zone is stagnating. Holger Schmieding, chief economist for Europe at Bank of America in London stated, “If you have the choice between two similar economies, the one that’s growing faster on trend than the other will have the edge.” If the Euro is to survive and provide Forex opportunities it will need prudent management and more young consumers.

Dollar Perceived As Safe Haven

The US dollar rose on Thursday due to the perception that the dollar is a safe haven in times of economic crisis and has provided Forex opportunities throughout the global financial crisis. The British pound, on the other hand, fell amid news of massive losses by the Bank of Scotland and the perception that the British banking sector is in more trouble than was previously thought.

Treasury Nominee Speaks

The dollar also benefited from a comment by U.S. Treasury Secretary Nominee Timothy Geithner who stated his belief that a strong dollar is in the U.S. interest. Geithner made the remarks to the Senate Finance committee during confirmation hearings. A strong dollar means more Forex opportunities for both traders and investors. Both the house and the senate are expected to approve his appointment as Treasury Secretary.

Dollar Down Against Yen

The dollar was down against the yen after a report showed a larger than expected increase in the number of U.S. workers filing claims for unemployment benefits. The US lost about a million jobs in 2008 and markets reacted to the news that Microsoft will trim 5,000 jobs over the next 18 months and reported that earnings and sales were below expectations.

Yen’s Gains Limited

Gains in the Japanese currency were limited; however, as investors were on alert for possible intervention after Swiss officials issued similar warnings. The Yen is approaching a 13 year high against the Dollar and achieved a 7 year high against the Euro on Wednesday. Traders and investors continue to take advantage of the safe haven and Forex opportunities that the Yen has provided throughout the global economic crisis. Omer Esiner, senior market analyst at Ruesch International stated, “On balance, the dollar is not expected to fall too much because the market has been bracing for dismal news anyway. Bad news out of the euro zone and Japan has benefited the dollar and that should continue despite bad U.S. economic data.”

Credit Downgrades in Euro Zone

The Euro has been damaged by three rating downgrades of euro-zone countries within a week. Standard & Poor’

s downgraded Portugal’s sovereign rating on Wednesday after downgrading Spain and Greece. Despite all the bad news there are always Forex opportunities for those who pay attention and do the necessary research.

Dollar Climbs Against Pound and Euro

Tuesday was inauguration day in the US and the country celebrated the swearing in of Barack Obama. Tuesday was also a good day for the US dollar as it climbed against the Pound and the Euro. The dollar hit its highest level since December against a basket of currencies giving many investors Forex opportunities. Many traders and investors saying that euphoria about Obama’

s inauguration increased short term demand for the Dollar.

Pound’s Biggest Drop Since 1992

He British Pound fell 3.5% against the dollar and is heading for its biggest drop since 1992. The Royal Bank of Scotland on Monday announced the biggest losses in UK corporate history. Marco Annunziata, head of currencies at Unicredit in London had this to say, “Sterling is falling on a continuation of banking sector concerns from yesterday. Further deterioration in UK banks will require more government funding,”

Euro Zone Nations Face Credit Downgrades

The beleaguered Euro was stung further on concerns that more euro zone nations may face credit ratings downgrades. Many analysts said a bigger than expected improvement in the German ZEW (Centre for European Economic Research) economic sentiment survey failed to lift demand for the Euro. The Euro drew little cheer from the ZEW institute’s announcement that its German economic sentiment index improved to -31.0 in December from -45.2.

Standard & Poor’s Downgrades Spain

The dismal economic figures and the banking troubles in the UK is bound to have an effect on Forex trading and Forex investment opportunities. On Monday there was even more bad news for the Euro Zone as the European Commission forecast a 1.9 percentage shrinkage in the economy in 2009 and Standard & Poor’s downgraded Spain’s credit rating.

Optimism About Obama Administration

The decline of the Pound and the Euro helped to push the dollar higher against major currencies. Anther factor affecting the dollar is optimism that the incoming Obama administration will take measures to improve the economy. Marco Annunziata also had this to say about the incoming administration, “There are hopes that a change in the U.S. administration will bring about a turnaround in the economy, even though this won’t happen overnight. The inauguration is crystallizing all expectations that the U.S. economy will be the first to recover from the recession.”

Many Forex traders and investors around the world are hoping that the new administration in Washington will bring about economic recovery. A recovering global economy is sure to bring investors new Forex opportunities.

ECB Rate Cuts Expected

It has already been an exciting week for Forex markets and all eyes are on the European Central Bank whish is expected to significantly cut rates in an attempt to stimulate the Euro Zone economy. The US dollar continues to provide a safe haven and Forex opportunities for traders and investors.

Consumer Spending Down

The dollar strengthened following better than expected economic data and more clarity from the Federal Reserve on their plans to stimulate the economy. The December retail sales report is due for release and unless there is surprise data consumer spending is expected to be negative for the sixth straight month.

Bernanke Outlines Plan

Federal Reserve Chairman Ben Bernanke outlined his plan in a speech at the London School of Economics. Bernanke talked about additional tools available to the Fed, spoke about an exit strategy and offered suggestions on how the incoming Obama Administration should use the remainder of the TARP funds. Bernanke created a new name for his program—credit easing. In contrast to Quantitative Easing, which focuses on the liabilities portion of the central bank’s balance sheet, credit Easing focuses on expanding the asset side of the balance sheet. Bernanke expects interest rates to remain low for an extended period of time.

Weak Growth to Keep Inflation In Check

Inflation does not seem to be a concern because the Federal Reserve projects that weak growth will keep inflation in check. Markets quickly responded to Bernanke’s speech and investors took advantage of the Forex opportunities offered by the dollar’s strength. Also adding to the dollar’s rally was the fact that the US trade deficit narrowed in the month of November to the smallest level since June 2003.

UK Trade Deficit Highest In 300 Years

One of the biggest stories in the news was that the UK trade deficit for the month of November hit the highest level since the country began keeping records in 1697 over 300 years ago. According to the British Retail Consortium, retailers suffered the worst Christmas on record. The Japanese Yen gained against all the major currencies but the biggest gain was against the British Pound. Against the Yen the Pound is at its lowest in 30 years. The Yen continues to offers investors with some Forex opportunities.

This week promises to be an interesting one and investors are sure to be on the lookout for any Forex opportunities that may arise. At present all eyes are on the European Central Bank and economists are speculating on how many basis points the bank will lower rates.