Risk Appetite Produces Forex Opportunities

Risk appetite is back with all the forex opportunity that a return to risk taking brings. The Yen fell against the dollar and other major currencies as US regulators announced plans to inject new capital into the US banking system and dismal economic data continues to come out of Japan.

Weaker Yen

Richard Franulovich of Westpac Banking Corp. stated, “There is an improvement in risk appetite today, and that’s filtered though in terms of dollar strength versus the yen. The yen is weaker off the back of improved sentiment on banking stocks and the potential for some government involvement.”

Forex brokers sought out higher yielding currencies and the Forex opportunity they provide investors.

Eastern European Central Banks Pledge Cooperation

The Polish zloty, Hungarian forint and Czech koruna rose against the troubled Euro as central banks in Eastern Europe promised to coordinate efforts to support their currencies. The Polish Zloty gained 4% against the Euro and investors were quick to take advantage of the forex opportunity this move offered investors. Polish central bank governor Slawomir Skrzypek stated that “an intensification of information exchange and coordination of action”

will assist regional Central Banks to support their respective currencies. The retreat from safe haven currencies is expected to boost Forex opportunities for several emerging currencies.

Return to Risk Aversion Predicted

Some forex brokers predict a return of risk aversion. Paresh Upadhyaya, senior vice president at Putnam Investments stated, “The dollar-yen seems to be following the yield spread. The recent yen weakness isn’t the start of a new trend. The yen is likely to strengthen in the second quarter because of continued uncertainty and risk aversion.”

The Euro fell after ECB President Jean-Claude Trichet stated that credit flows in the Euro Zone are declining.
While this latest return to risk appetite will probably be short lived savvy forex brokers will be quick to spot and take advantage of any Forex opportunities that present themselves. Hopefully future economic data will point to a recovery from the global recession.

Geithner Delays Speech

The US dollar weakened slightly Monday February 9th amid uncertainties about the Obama administration’s financial stimulus package and bank rescue package. Treasury Secretary Timothy Geithner had planned to announce details of the plans on Monday but delayed his remarks until Tuesday leaving markets in limbo and limiting Forex opportunities.

Compromise Needed

The Obama administration is pressing legislators to settle their differences and agree on the much needed rescue plans. During the past few months the US dollar has provided both a safe haven and Forex opportunities for investors. The US is seen as very aggressive in addressing the economic crisis and most analysts believe that the US will be the first industrialized nation to recover from the global recession.

Geithner’s Delay Hurts Dollar

Throughout the crisis the US dollar has benefited from its safe haven status as has the Japanese Yen. Geithner’s delay in announcing the details of the plan has hurt the dollar and the Forex opportunities it provides. Omer Esiner, of Ruesch International stated, “I think it did highlight the troubles the Obama administration faces in finding non-partisan support for the stimulus package. And that has pressured the dollar.”

Elevated Risk Appetite

Last week saw elevated risk appetite and increased Forex opportunities. Economic data from the UK and the Euro Zone helped both the Euro and Pound to rise slightly for the first time in weeks. The Yen also was under pressure as investors sold off the Yen and took advantage of the Forex opportunities offered by higher yielding currencies. The Bank of England cut rates to a historic low which helped the troubled Pound in currency markets.

Tuesday will be a busy day for forex trading. On Tuesday the details of the US’s economic rescue plan will be announced. Currency markets will respond and investors will be watching for Forex investment opportunities related to Geithner’s remarks.

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!

If you are familiar with currency markets and the Forex opportunities they provide, you have probably heard the term ‘leverage’

several times. Leverage is a very important part of Forex trading and it is important for would be Forex traders to understand it. Leverage can be a double edged sword leading to impressive profits but also to equally impressive losses.

Leverage is the ratio of the invested amount versus the trade’

s actual value and leverage can help the trader increase Forex opportunities while investing. Forex brokers usually provide their clients with the option to trade with borrowed capital which can greatly increase the value of whatever trades are made.

If a Forex trader is trading with a ratio of 1:100 or X100 that means that for every dollar invested the broker invests $100. If the client invests $100 they will control a trade of $10,000. Obviously this increases the trader’

s Forex opportunities but it also increases the risk involved. Slight fluctuations can cause a trader to either gain significantly or lose very quickly.

Currency fluctuations are measured in pips, which is the smallest change in currency price and could be the second or fourth decimal place of a price depending on the currency pair. This is why it is necessary to trade in large amounts using leverage and increasing the trader’

s Forex opportunities. When dealing with large amounts of currency like $100,000 (a standard lot) minute changes can produce significant profits.

It is wise to use leverage cautiously. Beginners are cautioned against using excessive leverage until a thorough knowledge of how currency markets work and how to take advantage of Forex opportunities when they occur has been achieved.

Some Economists Predicting Dollars Sharp Decline

Some economists are predicting that because of a deepening recession and low interest rates the dollar could see a sharp decline on Forex markets in 2009. Recently risk aversion and de-leveraging has helped to prop up the dollar and provided many with Forex opportunity.

Dollars Gain Artificial

The dollar has gained 20% against major currencies since July but many see the gain as artificial and predict a correction once extreme risk aversion eases and global markets stabilize themselves. Bob Sinche, head of global FX and rate strategy at The Bank of America in New York stated, “Foundations for the dollar’s recent rally have not been solid. The result of repatriation, deleveraging, quantitative easing and a major scarcity of dollars. But now we are bound for a correction.”

Mr. Sinche also predicted that the dollar could be trading at 1.38 by the end of December and could go as low as 1.44 to the euro by the first quarter of 2009. Of course the shift will provide savvy investors with Forex opportunities.

Risk Aversion Easing

Goldman Sachs strategist Abby Joseph Cohen stated that the dollar is now at the level it should be. Some experts see extreme risk aversion easing and combined with low interest rates and a declining economy could put downward pressure on the dollar. Most currency strategists in a Reuter’

s poll released on Wednesday said they expect volatility in the euro, sterling and yen against the dollar to decrease in the next few weeks. This shift could provide increased Forex opportunity for those who know how to invest in volatile markets.

Dollar Providing Safe Haven and Forex Opportunity

2009 promises to be an interesting year for Forex markets. The levitating act of the US dollar has provided many investors with a safe place to park their money and still provides plenty of Forex opportunity. How much longer this will last is anybody’

s guess.