Euro Could Hit $1.33 by Summer’s End

Andrew Wilkinson of Interactive Brokers Group is predicting that the euro could fall as low as $1.33 by the end of summer. Arguments in favor of the euro include the fact that the Euro Zone has been more temperate in addressing the recession than the US and the UK both of whom have injected billions into their economies in attempts to address the financial crunch and credit crisis. Many economists have been concerned that the injection of such massive sums would bring about inflation but last Friday’s US employment indicate that the economy is recovering and inflation is not a threat.

Downward Pressure on the Euro

Many Federal Reserve figures have argued that the slow rate of recovery block inflationary threats. As if validating the Fed’s position U.S. interest rate futures fell last week. The Euro Zone is widely seen as behind the curve in addressing the recession and many believe that this lack of action will put downward pressure on the euro.

Other factors affecting currency exchange rates include Tuesday’s auction of $37 billion in 3-year Treasury bonds. The auction was well received and investors snapped up the short term T bills. If past results are any indicator the auction of 7 and 10 years bonds will in all likelihood attract investors.

Weak Stocks Boost Yen

Weakening stock markets have put downward pressure on the euro which has fallen against the Japanese yen as safe haven demand increases. Many analysts see economic performance in the Euro Zone as weak. In an article published by Finnish newspaper Uutispaeivae, European Central Bank member Erkki Liikanen said that the economic recovery of the 16 nation Euro Zone would take some time. The US dollar is expected to hold recent gains and Richard Grace of Commonwealth Bank of Australia stated, “The case is building for an eventual turn higher of the dollar. The U.S. economy is improving and the economy will likely emerge from the global recession ahead of Europe.”

Quick Forex Tip: Electronic currency trading offers many advantages to the average investor. Anyone can learn how to trade currencies by using one of the many excellent training programs available online for free. In addition many retail forex brokers provide potential investors with training programs and demo accounts. Electronic currency trading offers recession proof trading because in the currency market when one currency falls another rises giving the savvy trader the opportunity to profit from the move.

Markets Benefit From Recovery

Last week’s good news from the US raised investor confidence and provided many with new forex opportunities. In the US the unemployment rate fell for the first time in fifteen months and fewer jobs were lost than expected. Emerging markets are starting to benefit from the recovery. Nick Chamie of RBC Capital stated, “Emerging markets are hopefully going to benefit from a global recovery that gains a bit more traction in the second half of this year.”

Recovery Dollar Positive

Stocks rallied across the globe and the US dollar reached a seven week high against other major currencies. The British pound was pressured downward by the news that the Bank of England intends to engage in more quantitative easing. The Japanese yen fell against most major currencies as Japanese investors sought higher yielding assets overseas. US Treasuries posted their weekly increase since 2003 making them more attractive in this week’s upcoming auction. Ulrich Leuchtmann of Commerzbank AG stated, “The recovery is setting in relatively quickly. It’s positive for the dollar in the long term because when the economy recovers it’ll be clear that the U.S. is coming out of the crisis better.”

Dollar Returning to Fundamentals

Many investors are returning to the view that good economic news should benefit the dollar rather than pressure it downward as it has in the recent past. The dollar index rose 0.8% last week to 78.975 reducing safe haven demand for the greenback. Many forex experts see the dollar returning to fundamentals. Stephen Gallo of Schneider Foreign Exchange remarked, “This is monumental, This would mark a sea change in how speculators trade economic data and the overall view of the U.S.”

Full Calendar This Week

The coming week promises a full economic calendar. On Tuesday the Federal Reserve begins a two day meeting, on Wednesday June’s international trade data is scheduled for release, and Friday will see the release of July consumer prices, industrial production and consumer sentiment.

Quick Forex Tip: There are many factors that affect currency exchange rates and those who want to trade forex markets should be familiar with them. Economic factors are probably the most important in determining the value of a currency. Political conditions can also affect exchange rates. Those who want to trade forex markets would be well advised to keep abreast of current political and economic events. Thanks to the internet, those with the right knowledge and an internet connection can join this exciting market and take advantage of the lucrative opportunities it can provide for investors.

Commodity Based Currencies Big Winners

Better than expected data from investment banking giant Goldman Sachs and positive US retail sales data have prompted a slight rise in risk sentiment among forex traders and investors. Currency exchange rates have been affected with commodity based currencies like the Aussie, Canadian, and New Zealand dollars have been the big winners. After six straight weeks of declines the Canadian dollar rose 1.3% to C$1.1353 against the US dollar. The yen fluctuated against the US dollar and euro as investors bet that the Goldman Sachs data indicated that the financial industry is recovering.

Volatile Trading Expected

Investors by and large still remain somewhat cautious and some analysts expect volatile trading throughout this week. Meg Browne of Brown Brothers Harriman & Co. stated, “The market’s hesitant because we’ve got more results out there and Goldman was one of the stronger companies. Things are better. It doesn’t mean we’re out of the woods, but things are in a better state.” Goldman Sachs, JPMorgan Chase & Co. and IBM are some of the 30 odd companies in the Standard & Poor’s 500 Index due to release second quarter results this week.

New Zealand Economy Improving

The pound rose 0.3% to $1.6274 after the Royal Institution of Chartered Surveyors said home priced rose for the first time in twenty months. The New Zealand dollar rose 0.8% against the yen to 59.23 after a statement by New Zealand’s Reserve Bank Governor who said that the New Zealand economy is likely to recover quicker than the economies of New Zealand’s trading partners.

Geithner Committed to Strong Dollar and Deficit Reduction

Addressing investor concerns about huge US deficits Treasury Secretary Timothy Geithner said in Jeddah, Saudi Arabia, that the US government is committed to a strong dollar and that he is “very committed” to cutting the US deficit. Despite the economic optimism some experts counsel caution and see current data as not sufficient to support current optimism. They also predict volatile currency trading this week

Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.

Dollar’s Reserve Status Safe For Now

The G 8 summit this week is the focus of Forex traders and investors and those who follow currency movements. There has been speculation that China or Russia would force a discussion of the US dollar’s reserve currency status but according to a statement by an unnamed source the reserve status of the US dollar will probably not be mentioned in the final communiqué issued by the group. According to the anonymous source, “It is expected to be mentioned and discussed remotely.  But the discussions have not yet reached the level of putting it in writing in the communiqués.”

China Says Dollar is Still Important Reserve Currency

The G 8 summit will also include Brazil, India, China, Mexico and South Africa and Egypt. This summit dubbed the ‘G 14’ will meet on July 9th to discuss climate issues, trade and financial issues. China has asked for a discussion of proposals for a new global reserve currency or currencies. In a reassuring statement Chinese Vice Foreign Minister He Yafei told the press, “The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come. You may have heard comments, opinions from academic circles about the idea of establishing a super sovereign currency. This is all, I believe, now a discussion among academics. It is not the position of the Chinese government.”

Canada Says Dollar a Stabilizing Force

Canadian Finance Minister Jim Flaherty joined in the discussion saying that the US dollar has been a stabilizing force during the current global recession. Flaherty said he expects a general discussion of foreign exchange rates during the G8 summit but is unsure if the results of that discussion would be in the final communiqué. This weeks meeting will start with the G 8 nations meeting alone and later meetings will include representatives of emerging nations.

Quick Forex Tip: Euro currency trading requires a lot of research and investors must keep track of economic information from the twelve member nations. The economy of just one nation can affect the euro’s exchange rate.  In 2010 political uncertainty and deficit concerns about Greece caused the euro to fall considerably in global forex markets. Euro currency trading can be exciting and very lucrative for investors who have done their homework.

Rising Risk Appetite Pressures Dollar

A smaller than expected rise in US inflation boosted hopes that recovery is underway and put downward pressure on the US dollar. Rising risk appetite has pressured the dollar for the past few weeks as investors sell the dollar in favor of higher yielding currencies. Brian Dolan of Forex.com stated, “We’re seeing dollar weakness because the idea is that inflation is not pretty evident right now and that is seen as a positive in terms of the growth outlook and risk appetite.”

Markets Due For Correction

Mixed economic data from the US in recent weeks has left forex traders unsure how to trade the US dollar. The euro to dollar rate fell by 0.1% to $1.3828. The Australian dollar and the euro have been rising since March as signs of recovery emerged paring safe haven demand which traditionally helps the dollar. Some analysts advise caution and believe that hopes of recovery are premature and equity and currency markets need a pause or correction so investors and traders can assess global recovery.

BRIC Summit Fails to Address Dollar

Despite remarks by Russia’s president questioning the dollar’s reserve status this week’s meeting of BRIC (Brazil, Russia, India, and China) nations the group issued no statement regarding the dollar’s reserve status. The group of nations is demanding greater say in the world’s financial system. The remarks by the Russian president pressured the dollar in Tuesday’s treading and affected currency exchange rates. Masafumi Yamamoto of Royal Bank of Scotland in Tokyo stated, “At the end there was no strong comment to play down the role of the dollar. The global financial markets are in correction mode.”

Investors Unwinding Safe Haven Positions

The euro rose 0.2% to $1.3860 after heading for a monthly low of $1.3747. The euro has gained 11% against the dollar since March and hit a yearly high of $1.4339 this month. The dollar has fallen against major currencies as investors unwind safe haven positions in favor of higher yielding assets.

Quick Forex Tip: The forex market offers investors the opportunity to profit even during a recession. If one currency rises another must fall creating constant opportunities for savvy investors to profit from currency moves. It is not difficult to learn how to trade forex currency and there are many very well written and user friendly learning programs and training courses available for free on the internet.  Besides training, the most important thing those who trade forex currencies must learn to follow political and economic news and interpret the results and the affect current events will have on forex markets.