Dollar Rises Slightly

The US dollar rose slightly Thursday signaling a return of risk appetite for Forex traders and Investors. Another factor cited was the reluctance of the Federal Reserve to purchase long dated treasuries. The Fed also kept interest rates near zero and stated they were willing to purchase long term treasury debt is it would help to thaw credit markets.

Rise in Stocks Helps Dollar

Many Forex traders and investors fear an inflated Fed balance sheet which could cause the Fed to print more money to keep a dismal economy going. The decision of the Fed coupled with a rise in stocks and financial shares helped to bolster the dollar on forex trading markets. The perception that the new Obama administration was moving quickly to address toxic assets held by banks also helped the dollar.

Yen Edges Lower

The Yen edged lower on Forex trading markets as a slight return to risk appetite had Forex traders and investors seeking higher yielding currencies. The Japanese Yen has long been considered a safe haven currency for forex traders and investors and fluctuates because of Forex traders and investors tolerance for risk. The dollar rose 0.2 % to 90.52 Yen.

Markets Volatile

Forex markets have been doing a juggling act lately. Risk appetite and risk aversion are constantly shifting, often shifting daily. Forex trading under these conditions can be stressful for Forex traders. The global economic crisis has caused markets to perform in ways not seen before and each day brings new data that affects Forex and other financial markets. Forex traders have their work cut out for them this year!

Euro at One Week High

In what has to be an astounding piece of news for those who follow Forex trading, the Euro rose to a one week high against the US dollar and the Japanese Yen. Forex traders believe that the rise was caused by recent data by the German IFO economic research institute that showed that the business climate index exceeded expectations for December, the first improvement in eight months.

Rise Not Sustainable

The unexpected rise against the Yen was due to easing risk aversion. Many analysts and Forex traders credited the German government’

s stimulus plan for raising business confidence but at the same time warned against becoming too optimistic about the German economy. Audrey Childe-Freeman of Brown Brothers Harriman in London stated, “It’s a short-term relief to see that there hasn’t been a further deterioration from the December reading but whether it is sustainable is rather debatable. We can’t get carried away. The core data for Germany remains poor and the outlook for the German economy remains rather bleak.” She also stated that the rise was caused by a weak Euro and low oil prices.

Japanese Move Increases Risk Appetite

The Japanese government announced a plan to inject capital into struggling companies which caused some Forex traders and investors to engage in riskier trades which benefited the Euro and the struggling British Pound. There was some selling of the US dollar by Forex traders as they waited for the results of a two day meeting by the Federal Reserve which begins in Wednesday. Many Forex traders are waiting to see if the Fed will engage in more quantitative easing measures designed to help the overall economy.

Markets Still Volatile

In today’

s economy Forex trading requires nerves of steel. Markets are extremely volatile and the flight to risk aversion or risk appetite seems to change from day to day. Despite the global economy savvy Forex traders and investors are still able to turn a profit.

Dollar at Record High Against Pound

On January 23rd the US dollar reached a 23 year high against the British Pound and a six week high against the troubled Euro. With no major U.S. data scheduled for release, Forex traders and investors took their cue from the UK and euro zone. In the past week Forex traders saw dismal economic data coming from the UK and the Euro Zone.

UK Economy Contracts

Both the Euro and the Pound fell to new lows after recently released data showed that the UK economy contracted by 1.5 percent in the fourth quarter which was more than analysts expected and confirmed a recession. Forex traders took little comfort from Euro Zone data that showed that the Euro Zone manufacturing and services sectors contracted at a slightly slower rate in January, and remained deep in recessionary territory.

Yen Seen as Safe Haven

The euro fell 1.4% against the dollar to $1.2808, while the Pound fell to $1.3502, a 23 year low. Forex traders and investors took advantage of the Japanese Yen’s safe haven status sending the Yen to record setting levels against the Pound and the Euro. Marc Chandler head of currency strategy at Brown Brothers Harriman stated, “The U.S. dollar and Japanese yen are higher against the major and most emerging currencies as they continue to benefit from the weak financial and economic environment.”

Geithner’s Statements Affects Markets

U.S. Treasury Secretary Nominee Timothy Geithner stated that a strong dollar is important to US interests which had an effect on currency markets and helped to bolster the Dollar. For Forex traders the Pound has been nothing buy bad news in recent trading. The Pound slipped further against the Yen to 118.87.

UK Banking Sector in Trouble

The Pound has been under severe pressure recently as concerns about a very weak economy have combined with concerns about the UK’s troubled banking sector and the state of government finances. Forex traders said the Yen remains a safe currency due to increased risk aversion by investors caused by concerns about the deepening global recession. Forex traders were also on the lookout for signs that the Japanese government may intervene to stem the Yen’

s rise.

Forex traders and investors have the unenviable task of monitoring extremely volatile currency markets. 2009 promises to be a very interesting year!

Policy and Personnel Changes

Forex traders and investors are sure to watch the actions of the new Obama administration and how markets respond. Obama has inherited the worst economy since the great depression. With a new administration come policy and personnel changes. Obama’s cabinet selections are now being confirmed by congress. Obama’

s pick for Treasury Secretary, Timothy Geithner, had a confirmation hearing Wednesday before the Senate Finance Committee.

More Funding Necessary

Former Federal Reserve chairman Paul Volcker, testifying in support of Geithner, stated that “several trillions of dollars will be necessary” from the Federal Reserve to revive the U.S. financial system. Volker also said, “Obviously, commitments made of that magnitude raise very large questions, there are also risks of undermining confidence in the dollar and raising the fears of future inflation.”

Chinese Largest US Debt Holders

As any Forex trader knows, if foreign investors were to quickly sell their large holdings of Treasury securities, it would wreak havoc with U.S. finances and drive down the value of the dollar. At the present time, Chinese investors are the largest overseas holders of U.S. Treasury bonds with $682 billion invested. Japanese investors own $577 billion dollars worth of Treasury Bonds.

Dependence On Foreign Investors Growing

Many economists and Forex traders fear that a massive selloff of Treasury Bonds by foreign investors could affect the value of the US dollar and further damage the US economy. With a stimulus program costing $800 billion dollars, costly wars in Afghanistan and Iraq, and future obligations of social security, the dependence on foreign investors is growing.

Baucus Slams ‘Mutual Addiction’

Finance Committee chairman Sen. Max Baucus, D-Montana, noted what he called “this mutual addiction”

between the United States and China. Simply put, Americans buy Chinese products and in return Chinese investors fund US spending by buying US backed securities.

Geithner’

s nomination will be voted on next week so it is too early to tell just what actions he and the new administration will take in addressing economic problems. At present, the US dollar is strong on international currency markets and Forex traders and investors will be watching the new Treasury Secretary closely.

Pound at Seven and a Half Year Low

On Wednesday the Pound dipped to a seven and a half year low against the Dollar and the Euro amid concerns over massive losses in the British banking industry and a deepening recession in the Euro Zone. The Japanese Yen held firm against other major currencies bolstered by safe haven buying and concerns by Forex traders and investors over the UK banking fiasco and a fall in US shares.

Bank of Scotland Posts Biggest Losses in British History

Wall Street greeted the Barack Obama presidency with a record Inauguration Day drop in shares amid new signs the global bank crisis was far from over. The Bank of Scotland posted the biggest bank losses in British history and is facing a government takeover. The prospect of credit downgrades of several Euro Zone countries has Forex traders watching markets closely. European Union predicted Monday that the 16-nation euro zone economy will shrink 1.9 percent in 2009.

Many EU Countries Facing Downgrades

Countries facing downgrades include Spain, Greece, Ireland, and Portugal. There are rumors that Britain is also headed for a downgrade. Credit ratings downgrades can make it more expensive for countries to borrow money and often dampen investors’ enthusiasm for the country. The European Commission said that the EU is facing a “deep and protracted recession.” The EC also forecast that the economy in the 16 nations that use the Euro will shrink by 1.9% in 2009, with the entire EU contracting 1.8%. The figures are a drastic cut from its earlier forecasts of 0.1% for the Euro Zone and 0.2% for the European Union.

EU in For Prolonged Recession

Forex traders and investors have been flooded with bad news from the Euro Zone and the UK. Most economists believe that the EU and the UK face a long and severe recession which is bound to affect Forex trading for a prolonged period. The EU is also predicting that 3.5 million jobs will be lost in 2009 with a resulting drop in consumer spending.

Dollar and Yen Safe Havens

At present it would appear that many Forex traders and investors are seeking the safe haven of the US dollar and the Japanese Yen. Many investors are hoping that the Obama administration can reverse the global recession but most predictions for 2009 are not positive. 2009 promises to be an exciting year for those engaged in Forex trading.

Yen Falls in Monday’s Trading

The Japanese Yen has fallen on early Monday trading because of the return of risk appetite in global markets. Forex traders report that a rally in share prices helped risk appetite return and boosted higher yielding currencies. US financial markets are closed for the Martin Luther King holiday and trade is expected to be light.

US Bailouts Calm Financial Sector

In the US, government aid to the financial sector calmed investors and lifted US shares signaling a return of risk appetite. Some Forex traders remained cautious about the sustainability of gains in share prices due to the ongoing global recession. Yousuke Hosokawa, senior manager at Chuo Mitsui Trust and Banking Co. said, “The currency market lacks direction and is moving within limited ranges. Gains in U.S. shares were within the range of rebounds and the U.S. financial sector still faces difficult times.”

Bank of America and CitiGroup Report Losses

Bank of America and Citigroup both reported multibillion dollar quarterly losses on Friday and Citigroup said it would split into two operating units adding to concerns about the US banking industry. Forex Traders were also keeping to the sidelines ahead of President-elect Barack Obama’s inauguration on Tuesday.

Dollar Climbs

The Dollar rose 0.4% from late New York trade on Friday to 91.03 Yen while the Euro climbed 0.7 percent to 121.50 yen. The Dollar Index, or DXY, which measures the value of the Dollar against several major currencies, was down 0.7 percent at 83.587.

Advances by higher-yielding currencies

Forex traders reported advances by higher-yielding currencies such as the Australian and New Zealand dollars which are seen as a measure of risk appetite. The Australian Dollar rose 0.8% to $0.6786 and against the Yen was up 0.4$ at 61.78 Yen. The New Zealand Dollar rose 0.6% to $0.5511 and 0.2% to 50.15 Yen.

New Administration, New Policies

For Forex traders and investors the last two weeks have been exciting with market changes almost daily. The incoming Obama administration in the US is sure to have Forex traders and investors keeping a close watch on markets and how they react to the new policies proposed by the new administration.

Greece’s Debt Rating Downgraded

Things just seem to be getting worse every day for the beleaguered Euro. Recent data from the Euro Zone has been dismal at best. In the latest round of bad news for the Euro Standard and Poor’s downgraded Greece’s sovereign debt rating putting even more pressure on the Euro.

ECB Cuts Rates

The long awaited rate cut by the European Central Bank was realized today (Jan. 15^th, 2009). The central bank cut rates by 50 bps to 2.0%. Many Forex traders expect the ECB to cut rates even further in the near future. In mid-morning trading in New York, the euro fell to a five-week low of $1.3048. News of a request by the Bank of America for more government aid added to concerns about mounting credit losses in the financial sector. This, in turn, depressed risk appetite sending forex traders and investors to the dollar seeking a safe haven.

ECB ‘Behind Curve’ Addressing Problems

Jessica Hoversen, a fixed income and currency analyst at MF Global Ltd. in Chicago stated, “As problems in the U.S. financial markets elevate we are seeing again risk aversion-mode in currency trading. And in that mode, the dollar benefits. On top of that, there’s no doubt the ECB is behind the curve, which does not help the euro.” During the global financial risk aversion has helped the US dollar to retain its strength.

ECB’s Rates Lowest Ever

The ECB, which has been seen by many Forex traders as slow to lower borrowing costs, reduced interest rates to 2.0 %from 2.5 %, its lowest rate ever. ECB president Jean-Claude Trichet has sent mixed signals about the timing of the next rate cut. Many Forex traders see Trichet’s talk of both inflation and growth risks and see concerns about inflation as misplaced. Economic data from the Euro Zone is deteriorating and many Euro Zone countries have seen their credit ratings cut or are at risk of future cuts.

Many Forex traders have seen the ECB’s stance as inflexible and consider the Euro Zone behind the curve in addressing economic problems. This week has been a wild ride for Forex traders and investors.

Job Losses Not as Bad as Projected

The Dollar rose Friday as data released by the US showed that job losses were not as bad as had been projected. Forex traders had positioned themselves for a dismal non-farm payroll report. A report released earlier in the week had stated that job losses had reached 693,000. Many of those short trades were squeezed when the government reported a figure of 524,000, slightly better than the market’s revised 550,000 forecast.

Dollar ‘Dodges Bullet’

Nick Bennenbroek, head of currency strategy, at Wells Fargo in New York said, “The dollar has dodged an economic bullet. Even though the report was generally discouraging, the headline payrolls decline was broadly as forecast. And perhaps most significantly for the dollar, we don’t think today’s report will accelerate further monetary easing from the Federal Reserve.”

US loses 1.9 Million Jobs

Although the figures in the job report were not as bad as predicted many analysts and Forex traders believe that there is plenty of bad news for the US and its currency. The 7.2 percent unemployment rate was the highest in 16 years and the US has lost 1.9 million in the last four months. Total job losses for 2008 were 2.6 million, the largest decline in 63 years. Kathy Lien, currency researcher at GFT Forex, stated, “There was nothing good in the report, The U.S. is in recession and in previous recessions, job cuts have lasted for at least 15 months.”

Many Forex traders have observed that the US has suffered 12 straight months of job losses. Despite the figures the dollar is still holding its own on currency markets and Forex traders expect this to continue in the immediate future.

ECB to Reduce Rates

The US dollar gained in the last three trading sessions amid more signs of economic weakness from the Euro Zone. Many experts expect the European Central Bank to reduce rates further. The dollar benefited from the expected stimulus plan and Forex traders and investors expect the plans announced by the incoming Obama administration to help the US to recover from the recession faster than other countries.

Euro Hits Three Week Low

The Euro hit a three week low against the dollar after a fall in euro zone inflation prompted speculation that the ECB would continue to cut rates. Boris Schlossberg, director of currency research at GFT Forex stated, “It’s more of a euro sell-off than a dollar rally and has something to do with the fact that markets do not believe the ECB can maintain interest rates above 2 percent for much longer. On the other hand, the Obama stimulus package has also helped the dollar. The hope is that the stimulus plan would enable a quick U.S. economic rebound.”

Dollar Rises Against Yen

Losses in the Euro prompted dollar gains and the dollar rose above 94 Yen, the highest in a month and the dollar index was at a three week high. According to Forex traders the Euro was down 1.5% to $1.3397, it’

s weakest in a month.

Dollar May Experience Pullback

Volatility in Forex markets has kept Forex traders on their toes. Many believe that given the dollar’

s recent gains the currency is due for a short term pullback. A Brown Brothers Harriman research note stated, “Short-term momentum studies are over-extended, suggesting operators may find it difficult to substantially extend the dollar’s gains scored in Asia and Europe.”

Bad News From Euro Zone

In a statement that made Forex traders take note Adam Cole, global head of currency strategy at RBC said, “The balance of news from Europe is so poor that the market is perceiving that the ECB is behind the curve.”

The ECB is expected to cut rates by 50 basis points or more next week in an attempt to bolster the beleaguered currency.

Forex traders and investors globally are watching the United States and its monetary policies. Many expect the US to recover at a faster pace than Japan and the Euro Zone. Hopefully they will realize their expectations.

Outlandish Claims

We have all seen the advertisements for Forex software that promises huge returns with little or no risk. Never mind the fact that Forex trading requires a lot of education, discipline, and plain old hard work. As Forex trading becomes more popular Forex scams are becoming more common. Beginning Forex traders are often seen as easy marks by scammers due to the fact that the Forex market is not regulated and is international in scope.

North American Securities Administrators Association Warning

The Forex market has been plagued by swindlers who prey on the gullible and the greedy. According to the North American Securities Administrators Association, “In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists.”

Fake Websites

Potential Forex Traders should be aware that anyone can register a domain name and set up a legitimate looking website for only a few dollars a month. Many of these websites have a professional appearance and typically promise huge returns with no mention of possible losses in Forex markets. Forex markets are like any other market and involve both gains and losses.

Many scammers hawk software that promises miracles. A quick Google search will turn up thousands of others making the same claims. Often these scammers are selling software that can be found on the internet for free. A thorough investigation of Forex software is time well spent.

The Case of Russell Warren Brent Cline

Russell Warren Brent Cline is a typical Forex scammer. A former house painter, he set up Orion International in Portland Oregon in 1998. He promised returns anywhere from 60% to 200% with very little risk, because of his sophisticated trading techniques. In 2002 he told investors that he had lost their money due to poor trades (he was a house painter, remember?) and ‘typographical’

errors. It is estimated that 600 investors lost $27 million. Most of the money was spent on luxury cars, private jets, real estate, boats, and an astounding $12,000 for pornography. Cline is currently serving his sentence in a Federal prison.

Investigation is the Key

Forex scams are common and potential Forex traders should investigate any and all offers through the CFTC (Commodity Futures Trading Commission) which has just set up a special task force to deal with growing foreign exchange fraud. A legitimate company will be registered with the CFTC or will be a member of the National Futures Association. Forex trading can be extremely rewarding and many Forex traders achieve great success in currency markets. Use common sense and check out the Forex trader you will be doing business with and get in there and trade!