Forex Trading Weekly Forecast - 03.23.09Written by John Kicklighter, Danial keven, John Rivera, Ilya Spivak, David Song, Currency Analysts
US Dollar Losing Its Economic, Safety And Reserve Advantages
US Dollar Losing Its Economic, Safety And Reserve Advantages
Euro Forecast to Gain Against US Dollar, but Doubts RemainJapanese Yen Weakness May Continue as BoJ Buys
Deepening RecessionSwiss Franc to Reverse Gains as Risky Assets Lose MomentumCanadian Dollar Underperforms on Fundamental
ForecastAustralian Dollar May Benefit As Inflation Concerns RiseNew Zealand Dollar’s Rally Needs Favorable Data To Survive
The US dollar was put through the ringer this past week as market participants were left to wonder where the currency would find strength as its primary, fundamental pillars started to give way. There is no better gauge for the health of the greenback than price action itself. The dollar index suffered a 345 pip decline through Friday’s close – the biggest weekly drop in years.
The US dollar was put through the ringer this past week as market participants were left to wonder where the currency would find strength as its primary, fundamental pillars started to give way. There is no better gauge for the health of the greenback than price action itself. The dollar index suffered a 345 pip decline through Friday’s close – the biggest weekly drop in years.US Dollar Losing Its Economic, Safety And Reserve Advantages Fundamental Outlook for US Dollar: Bearish - UN panel and Russia prepared to recommend abandoning the dollar as the world’s reserve currency- Fed holds rates, announces quantitative easing and a sizable increase to MBS purchases- Industrial production runs its worst slump since 1975 suggesting the worst of the recession has yet to be seen
The US dollar was put through the ringer this past week as market participants were left to wonder where the currency would find strength as its primary, fundamental pillars started to give way. There is no better gauge for the health of the greenback than price action itself. The dollar index suffered a 345 pip decline through Friday’s close – the biggest weekly drop in years. And, though the retracement of the past two weeks has unwound a significant share of the previous eight months’ of bullish trending; the pull back may not stop there. As fear settles and global policy officials attempt to stabilize the financial and economic crises, the market will grow increasingly critical of the stalwart dollar. With a clear field of view, traders will take weight of the United States position in the recession curve; the unit’s status as a safe haven; and more importantly, its role as the world’s reserve currency.
Of these three critical themes, the threat to the dollar’s standing as the world’s primary store of wealth is the most elemental. One of the primary reasons (aside from being backed by the largest economy in the world) the greenback has dominated as the world’s most liquid and actively traded currency is the fact that nearly ever central bank and financial player transacts through it. With this standardization, the dollar lines reserves, is used to purchase commodities and is used as a benchmark for currency pegs among other things. This is why suggestions that the Commission of Experts on International Financial Reform panel will recommend to the UN that the dollar be abandoned as the world’s currency reserve carry’s so incendiary. This is not the first time an official or group has called for such a move; but the argument has not been made under the level of stress the markets are currently experience. With so many ‘too-big-to-fail’ market structures and participants having succumbed to this crisis, there is little reason why such an out-dated norm will not be reconsidered. In fact, the argument for a basket of currencies taking the place of sole dollar is so persuasive that the topic will also come up at the G-20 summit on April 2nd – where anything official will likely take place.
In the meantime, fundamental traders will focus their attentions on the greenback’s fading appeal as a key safe haven currency. It was the height of the panic back in October that really cemented the currency’s place as a harbor for the world’s money. Fear left investors with one concern; and that was capital preservation. Offering the deepest pool of liquidity and the backing of the world’s largest government, US Treasuries (and by proxy, the dollar) was bought at a furious pace. However, in the months that have past, the market has cooled off. Traders and money managers are still worried about protecting their funds; but they are doing so with a mind for potential return and the long-term viability of their investments. Over the past weeks, the US has had to inflate its balance sheet, take up the reins of quantitative easing, take over two corporate credit unions and battle a deepening recession. This is not the laundry list of a safe, long-term investment.
And, when these two major market dynamics are not in play, dollar traders will fall back on the now-ubiquitous recession contest. Negative growth is universal problem; but there are nonetheless leaders and laggards in this race. After the first, aggressive round of policy action from US officials, market participants were ready to believe that the US was perhaps ahead of the recession curve. However, as the economy nears depression levels and promising alternatives emerged (like Australia), this notion began to fade. This is where next week’s docket comes into play. Final GDP, recent consumer spending and housing data will all add to the debate. - JK
The US dollar was put through the ringer this past week as market participants were left to wonder where the currency would find strength as its primary, fundamental pillars started to give way. There is no better gauge for the health of the greenback than price action itself. The dollar index suffered a 345 pip decline through Friday’s close – the biggest weekly drop in years. And, though the retracement of the past two weeks has unwound a significant share of the previous eight months’ of bullish trending; the pull back may not stop there. As fear settles and global policy officials attempt to stabilize the financial and economic crises, the market will grow increasingly critical of the stalwart dollar. With a clear field of view, traders will take weight of the United States position in the recession curve; the unit’s status as a safe haven; and more importantly, its role as the world’s reserve currency.
Of these three critical themes, the threat to the dollar’s standing as the world’s primary store of wealth is the most elemental. One of the primary reasons (aside from being backed by the largest economy in the world) the greenback has dominated as the world’s most liquid and actively traded currency is the fact that nearly ever central bank and financial player transacts through it. With this standardization, the dollar lines reserves, is used to purchase commodities and is used as a benchmark for currency pegs among other things. This is why suggestions that the Commission of Experts on International Financial Reform panel will recommend to the UN that the dollar be abandoned as the world’s currency reserve carry’s so incendiary. This is not the first time an official or group has called for such a move; but the argument has not been made under the level of stress the markets are currently experience. With so many ‘too-big-to-fail’ market structures and participants having succumbed to this crisis, there is little reason why such an out-dated norm will not be reconsidered. In fact, the argument for a basket of currencies taking the place of sole dollar is so persuasive that the topic will also come up at the G-20 summit on April 2nd – where anything official will likely take place.
In the meantime, fundamental traders will focus their attentions on the greenback’s fading appeal as a key safe haven currency. It was the height of the panic back in October that really cemented the currency’s place as a harbor for the world’s money. Fear left investors with one concern; and that was capital preservation. Offering the deepest pool of liquidity and the backing of the world’s largest government, US Treasuries (and by proxy, the dollar) was bought at a furious pace. However, in the months that have past, the market has cooled off. Traders and money managers are still worried about protecting their funds; but they are doing so with a mind for potential return and the long-term viability of their investments. Over the past weeks, the US has had to inflate its balance sheet, take up the reins of quantitative easing, take over two corporate credit unions and battle a deepening recession. This is not the laundry list of a safe, long-term investment.
And, when these two major market dynamics are not in play, dollar traders will fall back on the now-ubiquitous recession contest. Negative growth is universal problem; but there are nonetheless leaders and laggards in this race. After the first, aggressive round of policy action from US officials, market participants were ready to believe that the US was perhaps ahead of the recession curve. However, as the economy nears depression levels and promising alternatives emerged (like Australia), this notion began to fade. This is where next week’s docket comes into play. Final GDP, recent consumer spending and housing data will all add to the debate. - JK
US Dollar, Japanese Yen Fall as Treasury's Plan Spurs Investor Optimism, 6.84% Rally in DJIA
The US dollar and Japanese yen were the weakest of the majors as the “safe havens” didn’t stand to benefit from a rebound in risk appetite. The improvement in investor sentiment that sent high-yielding currencies surging and the DJIA up 6.84 percent was spurred Treasury Secretary Tim Geithner’s announcement of the government’s plan to remove toxic assets from the books US financial institutions. The plan includes investor financing for up to $1 trillion in purchases of illiquid real-estate assets, with a portion of the funding coming from remaining TARP funds and part relying on funding from the Federal Reserve and debt guarantees by the FDIC. The ultimate goal of the plan is to restore faith in the health of US banks so that they will not only lend to eachother, but also lend to businesses and consumers, and subsequently bring down borrowing costs. Since the plan depends on private investors stepping up to the plate, it will likely take time for any sort of results to be reflected in the credit markets, but based on the rally in US equities, especially financial shares, stock traders seem to have given this plan their seal of approval.Meanwhile, US economic data was surprisingly strong, as the National Association of Realtors (NAR) reported that existing home sales unexpectedly rose 5.1 percent in February, bringing the annual rate of sales up to 4.72 million from 4.49 million. A breakdown of the report shows that total inventories went unchanged at 9.7 months, with single family supplies down to 9.1 months from 9.2 months and condo/co-op supplies up to 14.7 months from 13.4 months. Interestingly enough, median home prices rose slightly to $165,400 from $164,800, but in the grand scheme of things, values are still down a whopping 15.5 percent from a year earlier. Regardless, it seems that the combination of more affordable homes along with lower borrowing costs and tax credits from the government’s fiscal stimulus plan have helped to plant the seeds of recovery in the sector. That said, climbing unemployment will impede all of those other factories and as a result, the US is unlikely to experience any sort of true rebound in home buying until the recession comes to an end.Related Articles: US Dollar Weekly Trading Forecast, Japanese Yen Weekly Trading Forecast
The US dollar and Japanese yen were the weakest of the majors as the “safe havens” didn’t stand to benefit from a rebound in risk appetite. The improvement in investor sentiment that sent high-yielding currencies surging and the DJIA up 6.84 percent was spurred Treasury Secretary Tim Geithner’s announcement of the government’s plan to remove toxic assets from the books US financial institutions. The plan includes investor financing for up to $1 trillion in purchases of illiquid real-estate assets, with a portion of the funding coming from remaining TARP funds and part relying on funding from the Federal Reserve and debt guarantees by the FDIC. The ultimate goal of the plan is to restore faith in the health of US banks so that they will not only lend to eachother, but also lend to businesses and consumers, and subsequently bring down borrowing costs. Since the plan depends on private investors stepping up to the plate, it will likely take time for any sort of results to be reflected in the credit markets, but based on the rally in US equities, especially financial shares, stock traders seem to have given this plan their seal of approval.Meanwhile, US economic data was surprisingly strong, as the National Association of Realtors (NAR) reported that existing home sales unexpectedly rose 5.1 percent in February, bringing the annual rate of sales up to 4.72 million from 4.49 million. A breakdown of the report shows that total inventories went unchanged at 9.7 months, with single family supplies down to 9.1 months from 9.2 months and condo/co-op supplies up to 14.7 months from 13.4 months. Interestingly enough, median home prices rose slightly to $165,400 from $164,800, but in the grand scheme of things, values are still down a whopping 15.5 percent from a year earlier. Regardless, it seems that the combination of more affordable homes along with lower borrowing costs and tax credits from the government’s fiscal stimulus plan have helped to plant the seeds of recovery in the sector. That said, climbing unemployment will impede all of those other factories and as a result, the US is unlikely to experience any sort of true rebound in home buying until the recession comes to an end.Related Articles: US Dollar Weekly Trading Forecast, Japanese Yen Weekly Trading Forecast
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