Good News For the Pound

The British Pound, which has taken quite a pummeling on currency markets got a bit of good news and achieved a two month high against the equally troubled Euro. The Pound also rose slightly against the Dollar as the Bank of England cut rates to a 300 year low. In am move designed to alleviate the effects of the ongoing global recession the BOE cut rates to a historic low of 1%. Stock markets were also up signaling a return to risk appetite and increased Forex opportunity.

ECB To Cut Rates in March

The European Central Bank which has been seen as behind the curve in addressing the recession in the Euro Zone failed to cut rates but indicated a slight rate cut in March. Although the BOE’s decision and the return to risk appetite produced increased Forex investment opportunities concern still remains about the state of the British banking sector. Trevor Williams, an economist at Lloyd’s stated, “The economic woes that have paved the way to today’s base rate decision will not disappear overnight. So the real question is where do we go from here?”

Pound Expected to Decline Again

Against the Pound the Euro declined to 87.33 pence and the Pound rose against the US dollar to $1.4662. Many economists believe the Pound will continue to decline during the next few months and provide limited Forex opportunity. Many currency strategists predict the Euro will also decline in the near future and the economic outlook for the Euro Zone looks bleak.

Yen Falls on Return of Risk Appetite

Some traders have been dumping the Yen and taking advantage of the Forex opportunities offered by higher yielding currencies such as the Aussie and New Zealand dollars. Credit markets continue to be impaired on both sides of the Atlantic although the US is moving to address these issues. On February Treasury Secretary Geithner will announce plans to stimulate the US banking sector.

Stock Markets Performing Well Despite Data

Stock markets have been performing surprisingly well despite the dismal news from both the US and Europe and this ,in turn, has affected currency markets and provided Forex brokers with increased Forex opportunities.

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.

Soros Most Successful Currency Trader

George Soros has made billions trading currencies. He is probably most famous for ‘breaking the Bank of England’

in 1992. Mr. Soros is notorious for taking advantage of Forex opportunities. Mr. Soros achieved fame when he took advantage of an astounding Forex opportunity and sold short $10 billion dollars worth of British pounds forcing the Bank of England to withdraw the Pound from the European Exchange Rate Mechanism and to devalue the Pound. He is estimated to have made $1.1 billion from this move.

Soros Says Euro May Not Survive

Obviously when Soros speaks currency markets listen. As a man who knows a Forex opportunity when he sees one his words carry great weight. Recently Mr. Soros Recently Mr. Soros made remarks to the effect that the Euro may not survive the current crisis unless the European Union insists on an international agreement addressing toxic assets. Mr. Soros stated, “One would need a type of agreement on lost capital, so that the burden is shared, and in which every country is part of, otherwise more countries will suffer. The EU should do this. If they don’t do this then the euro may not survive the crisis.”

Markets React to Remarks

Forex markets immediately reacted and the Euro declined against the US dollar and the Japanese Yen limiting any Forex investment opportunities it may have provided. Since Mr. Soros is probably the most successful currency speculators in history his words carry great weight.

Safe Haven Buying

Adding to the pressure on the Euro ECB President Jean-Claude Trichet stated that policy makers could lower the central bank’

s rates further. Dismal US unemployment figures and stock losses sent investors to the safe haven and Forex opportunity that the US dollar and the Japanese Yen provide in troubled markets.

Soros Says Another Great Depression Coming

Mr. Soros has also stated that the US banking system needs $1.5 trillion dollars to be rescued and that the current economic crisis could be worse than the great depression of the 1930’

s. Hopefully he is incorrect on both counts!

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.