Surprising Jump For US Home Sales

The dollar fell slightly against the Euro as surprising jump in pending US home sales had many Forex traders taking advantage of newly minted Forex opportunities. The gain was limited as many Forex traders waited to see what actions the European Central Bank would take on Thursday.

Bank of Japan to Buy Shares

The Bank of Japan announced it would buy 1 trillion Yen ($11 billion USD) of shares held by Banks in Japan. The move helped to boost risk appetite although many believe Forex opportunities provided by this move will be limited. US stocks rallied and currency markets reacted with more Forex investment opportunities.

Risk Appetite Returns

In New York the Euro edged up 1% against the dollar, trading at $1.2979. The dollar was down 0.3% against the Japanese Yen at 89.14. Pending US home sales jumped 6.3% in December as home buyers took advantage of lower interest rates and declining home prices. US banks have tightened credit requirements and the new loans are seen as solid investments. Matt Esteve of Tempus Consulting explains how the news has affected Forex opportunities, “Euro/dollar has been trading on the back of risk aversion and sentiment in the past couple of days. Any news that brings risk aversion lower and helps lift stocks at this point will hurt the dollar.” Esteve also predicted that the Euro could trade as high as $1.3250 in the near future.

Bad Euro Zone News

In Europe pressure is on the European Central Bank to cut rates further because of weak economic news coming out of the Euro Zone. German retail sales fell for the third straight quarter and producer prices in the Euro Zone fell 1.3%. All this has weighed heavily on the Euro and limited whatever Forex investment opportunities it could provide investors.

Once again we are seeing a fluctuation between risk appetite and risk aversion. These days even the slightest bit of good news has investors searching for whatever limited Forex opportunities are out there.

Coordinated Rescue Plan in Europe

Following an announcement of a coordinated European bank rescue plan the Euro rose against the Dollar. It is thought by some economists that the European rescue plans have reduced the dollar’s attractiveness as a safe haven. Since mid September the Euro had fallen against the dollar and now that credit markets are beginning to function again Forex traders are more confident of the Euro. A stronger Euro could provide investors with Many Forex opportunities.

US Injects $250 Billion Into Banks

On Tuesday two events gave investors more confidence in both stock and currency markets. The first was the US plan to buy $250 billion dollars worth of interest in major banks. It is hoped the additional capital will unfreeze credit markets and help businesses to obtain short term loans necessary for day to day expenses. Treasury Secretary Paulson noted that it is now up to these banks to resume normal lending practices in an effort to stimulate the economy. The success of the plan is dependent on banks resuming normal lending and a failure to do so would cause the plan to collapse.

Lower LIBOR Rates

Traders also received good news from the London Interbank Offered Rate in the form of substantially lowered rates that indicate the acceptance by the London banking community of global bailout plans. Again the successes of the bailout plans depend on banks resuming normal lending practices.

Read the full story