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.

Pound Gains on Friday

On Friday the Pound gained on both the US dollar and the Euro as Forex brokers anticipated that the Pound’s weakness would be discussed at last weekend’

s G7 Meeting in Rome. Strong performances by global equity markets had Forex brokers and investors taking advantage of the Forex investment opportunities offered by higher yielding currencies. Investors were also nervous that currency market volatility would be addressed particularly the weakness of the Pound and the strength of the Japanese Yen.

Risk Aversion Still Dominant

The slight return of risk appetite Friday had Forex brokers taking advantage of forex opportunities available in global currency markets. While risk aversion has dominated forex markets throughout the global economic crisis even the slightest return of risk appetite has investors snapping up any and all forex opportunities.

China to Have More Flexible Exchange Rates

G7 conference attendees promised not to resort to protectionist measures as they strive to boost their economies. The move by China towards more flexible exchange rates was complimented and the currency could provide investors with forex investment opportunities. A statement released by the G7 conference stated, “The G-7 remains committed to avoiding protectionist measures, which would only exacerbate the downturn, to refraining from raising new barriers.”

China May Power Global Recovery

China stopped pegging its value to the US dollar in 2005 and the new policies will allow the Yuan to appreciate and possibly provide forex investment opportunity. Many nations have accused China of manipulating its currency to gain an advantage in global trade. Since 2005 the Yuan has gained 21% against the dollar. Many look to China’

s still thriving economy to power global recovery.

Currency Issues Not Addressed by G7

No other currencies were mentioned in statements by the G7 group and many Forex brokers do not expect a lot of activity in Monday’

s trading partially due to the fact that US banks and markets are closed for the Presidents Day holiday.

G7 Meets in Rome

On Friday the US dollar gained against the Yen and fell against other major currencies including the troubled Euro. All eyes were on the G7 conference taking place this weekend in Rome. The G7 meeting is expected to influence currency markets and affect forex investment opportunities. A G7 statement released late Friday mentioned no specific currencies except China’

s Yuan. China has committed to more flexible exchange rates which could lead to a stronger Yuan and increased forex opportunities provided by the currency.

Japan to Move Against Excessive Currency Moves

Many forex brokers thought that the statement would specifically mention the Japanese Yen but no statement was forthcoming. Japanese Finance Minister Shoichi Nakagawa stated that the Japanese government will move against excessive currency moves. British Chancellor of the Exchequer Alistair Darling said that any discussion of currencies would be “in general terms.”

Stocks to Influence Forex Opportunities

Many forex brokers believe that there would be no mention of the Pound and the Yen and expect Forex markets to follow the lead of equities markets which will enable them to predict forex investment opportunities. Shaun Osborne of TD Securities stated, “We are still hinging on risk appetite and we are keying off equities. That story on mortgage subsidy gave equities a lift including the dollar versus the yen and there’s still some carry-over from that.”

Markets React to US Stimulus Plans

The US dollar and the Japanese Yen traditionally signal either risk aversion or risk appetite. The rising number of mortgage defaults in the US has caused a credit crisis with many banks unwilling to lend which has crippled the global economy. Markets were pleased with the news that the Obama administration has proposed a plan to help prop up the troubled US housing market.

Investors Remain Cautious

There were signs of optimism Friday but many investors remained cautious waiting for news from the G7 conference. Even a slight short lived return to risk appetite provides investors with increased Forex opportunities. Trading is expected to be light on Monday as US markets close for President’

s Day. The G7 conference ends Sunday and Forex brokers will be waiting for the final statements from the meeting. Hopefully we will see news that indicates a turnaround in the global economy.

Geithner’s Remarks Seen As Short on Substance

Equity markets failed to respond positively to Treasury Secretary Timothy Geithner’s remarks which were short on substance and details about the bank rescue package. Risk aversion returned limiting Forex investment opportunities for investors. There had been a slight return to risk appetite while markets waited got Fed President Bernanke’s and Geithner’s remarks and testimony in front of a House committee.

Geithner Not Seen as Confident

Market perception was that Treasury Secretary Geithner was not completely confident that the rescue package would work and skeptical Forex brokers sought out the safe haven and Forex opportunity provided by the dollar and the Japanese yen. Kathy Lien of GFT Forex in New York said, “Overall, what we’ve been seeing…is that (U.S. Treasury Secretary Timothy) Geithner is not 100 percent confident in their own plan and that’s causing investors to be skeptical as well. We’re still seeing risk aversion … and that’s sending investors back into the safety of the U.S. dollar and the Japanese yen.”

$1 Trillion New Lending Proposed

On Tuesday the US Treasury Department introduced a plan to clean up to $500 billion in toxic assets from banks books and an expanded Federal Reserve program to support $1 trillion dollars in new lending. Fed President Bernanke’s testimony did little to inspire investor confidence and this translated into somewhat limited Forex investment opportunities.

Risk Appetite Vanishes

The short return to risk appetite earlier in the week had investors taking advantage of the Forex opportunities offered by higher yielding currencies such as the Aussie dollar and the New Zealand dollar. The lack of confidence in the rescue package had investors returning to the safety of the US dollar and the Japanese yen.

Economic Recovery Will Take Longer

Many Forex traders and investors now believe that economic recovery will take much longer than was originally thought. Forex brokers will be watching the progress of the Obama administration closely and searching for Forex opportunities whenever possible.

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.