Dollar Experiences Big Drop Against Euro and Yen

Yesterday, (Dec, 17, 2008) the US dollar experienced one of its biggest one day drops against the Euro and fell to a 13 year low against the Japanese Yen reducing the Forex opportunities that the dollar has provided during the last 3 months. Some analysts cited near zero interest rates announced by the Federal Reserve and the plan to print vast sums of cash as reasons for the sudden decline.

Fed Willing To Take Risks

The drops hastened the dollar’s decline after the dollar enjoyed months of solid gains and underscores the risks the Federal Reserve is taking to jump-start the U.S. economy through aggressive monetary policy. . On Monday the Fed reduced rates from 1% to a target range of 0 percent to 0.25 percent and at the same time promised to increase the money supply.

Investors Dump Dollars

While the actions may aid economic recovery they may also decrease the value of the dollar as investors anticipate less interest on their dollar-denominated investments and more bills in circulation, making each one worth a bit less and limiting some Forex opportunities. Investors have responded by dumping the dollar and taking advantage of the Forex opportunities that other currencies provide.

If the dollar continues to fall it could affect the confidence investors have in the value of American currency and the Forex opportunities it has provided investors in recent months. Further declined in the dollar could cause foreign investors to dump U.S. stocks and other assets, whose value would be worth less in Euros or Yen. A rise in the value of other currencies could slow economic recovery in Europe and Asia because it would make their exports more expensive in the United States.

Recession Fears

This year the dollar has been on what one economist called a ‘roller coaster’ with the dollar rising and falling against other currencies which began when investors saw the US economy slowing. By autumn investors began to grasp that Europe and Japan were facing recessions as bad or worse that the US recession and the flight to safe haven currencies helped the dollar to stage a rally and provided many investors with Forex opportunities.

Some Predict Dollar Surge

Some economists are predicting a surge for the dollar as the Fed’s aggressive policies show signs of lifting the US economy. In the mean time Forex traders and investors will be watching out for FX opportunities as they occur.

Housing Starts Plunge

Housing starts data released by the US were worse than expected and have had a negative effect on the dollar and the Forex opportunities it has provided recently. The data showed U.S. housing starts and permits plunged to record lows in November.

Euro Up Against Dollar

The Euro traded at $1.3727 up 0.1% after falling in earlier trading and weaker Euro Zone figures. US housing starts fell 18% to a seasonally adjusted annual rate of 625,000 units down from 771,000 units in October. Wall Street analysts had predicted 740,000 starts in November.

Brian Dolan, chief currency strategist at Forex.com stated, “The housing starts data is another bad sign for the overall U.S. outlook. There’s zero sign of any stabilization, dashing what had been some optimism that we were perhaps bottoming out (in the housing market).”

Dollar Benefits From Risk Aversion

Recently the dollar has benefited from risk aversion and has been seen as a safe haven for investors and has provided many with Forex opportunities despite the weak economic data from the US. Many see an uncertain future for the dollar but for the present it continues to provide a safe haven and Forex opportunity.

Exciting Week Ahead!

The coming week promises to be an exciting one on Forex markets around the globe. Several countries will be releasing figures related to employment, production and other indicators that affect Forex opportunity. These figures will affect all global markets and could signal either a return to risk aversion or increased appetite for risk. Forex trading requires a close monitoring of world markets to seize Forex opportunities as they occur. Here is this week’s schedule—

Monday December 15

00:01 United Kingdom Rightmove House Price Index –

December

08:15 Switzerland Producer and Import Prices –

November

13:30 United States NY Empire State Manufacturing Index –

December

14:00 United States Net Long-term TIC Flows –

October

14:15 United States Industrial Production –

November

17:30 European Monetary Union ECB Trichet’s Speech

Tuesday December 16

00:30 Australia RBA Meeting’s Minutes –

December

09:30 United Kingdom Consumer Price Index –

November

n/a United Kingdom BoE Inflation Letter

11:00 European Monetary Union Employment Change - 3Q

13:30 United States Consumer Price Index –

November

13:30 United States Housing Starts –

November

19:15 United States Fed Interest Rate Decision

Wednesday December 17

Germany Consumer Price Index –

November

Germany Preliminary Purchasing Manager Index Manufacturing –

December

Germany Preliminary Purchasing Manager Index Services –

December

Euro Zone Preliminary Purchasing Manager Index Manufacturing –

December

Euro Zone Preliminary Purchasing Manager Index Manufacturing –

December

United Kingdom Bank of England Minutes

United Kingdom ILO Unemployment Rate (3M) –

October

European Monetary Union Consumer Price Index –

November

United States Current Account - 3Q

Thursday December 18

07:15 Switzerland Trade Balance –

November

09:00 Germany IFO - Business Climate –

December

09:30 United Kingdom Retail Sales November

10:00 European Monetary Union Trade Balance n.s.a. –

October

13:30 Canada Leading Indicators –

November

15:00 United States Leading Indicators November

15:00 United States Philadelphia Fed Manufacturing Survey –

December

23:50 Japan All Industry Activity Index –

October

It will be a busy week for Forex traders and investors. These figures could well determine the future of currencies on global markets and affect Forex opportunities. Of course savvy traders will spot Forex opportunities as they occur following the release of these economic figures.

Britain Closer to Joining EU

In an address onFrench radio European Commission President Jose Manuel Barroso said that the British government was “closer than ever before”

to joining the European Union. Barroso stated that many British politicians were considering the move because of the global economic crisis. Despite these statements the British government denies that policies are likely to change in the near future.

Pound Pounded on Forex Markets

Should the British government change policies and join it would have to adopt the Euro as its currency and could cause a disruption in Forex markets. At present the Pound has taken quite a pounding on Forex markets and has provided limited Forex opportunities for traders and investors.

Adopting Euro Unpopular in Britain

Opinion polls suggest that any vote on dumping the Pound and adopting the Euro would be lost and in the UK the Euro has not been a significant political issue for years. During the radio interview Mr. Barroso acknowledged the fact that a majority of the British public oppose joining the Eurozone. Mr. Barroso also said that recent economic uncertainty had made the currency a far more attractive option. While the Euro is down on Forex markets it continues to provide significantly more Forex opportunities than the beleaguered Pound.

In the radio interview Mr. Barroso said “I’m not going to break the confidentiality of certain conversations, but some British politicians have already told me, ‘If we had the euro, we would have been better off’.” I know that the majority in Britain are still opposed, but there is a period of consideration under way and the people who matter in Britain are currently thinking about it.”

Political Opposition to the Euro

The opposition Conservative party opposes the adoption of the Euro. Shadow foreign secretary William Hague stated, “It is extraordinary that certain politicians are whispering to the EU Commission about joining the euro behind the British people’s backs.”

Britain is a country grounded in strong traditions and opposition to adopting the Euro is strong.

A European Commission spokesman stated “Member states would benefit from a country like Britain being in the euro.” The EC has long wanted Great Britain to join the EU and believes that Britain would benefit from adopting the Euro.

Dollar and Yen Strongest Currencies

Despite the economic situation in Britain and the limited Forex opportunities the Pound presently provides, it is very unlikely that Britain will adopt the Euro in the foreseeable future. At the present time the US dollar and the Japanese Yen are the strongest currencies and are providing both Forex traders and investors with plenty of Forex opportunities.

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.