Dollar Falls Against Euro and Yen

The US dollar was mixed on Friday’

s trading, falling against the Euro and Japanese Yen but gaining against the Pound. The failure of congress to pass the automaker bailout has Forex traders closely monitoring financial and stock markets. The failure of the bailout has caused uncertainty in financial markets and it was revealed that General Motors has retained bankruptcy counsel.

US Retail Sales Fall

There was additional bad news for Forex traders as recently released figures show US consumption contracted for the fifth straight month in November. The US Commerce Department reported that retail sales fell 1.8 percent during the month and consumer spending is predicted to remain down through the years end and into 2009. On the positive side electronics, furniture, clothing, sporting goods, and general merchandise sales all rose slightly during November.

Some economists believe that the gain is a result of heavy discounting and promotions by retailers during the holiday shopping season. Forex traders would be well advised to watch retail sales figures as these figures could provide Forex traders and investors with a gauge of consumer spending and how long the recession in the US will last.

Fed Expected to Announce Further Rate Cuts

On December 16th the Federal Reserve is expected to announce further rate cuts and some predict a rate of 0.50% after the cuts are made. The decision is considered important not only because of historically low rated but the expected FOMC’

s ( Federal Open Market Committee) statement may signal that the Federal Reserve is done cutting rates. Forex traders and investors should watch these developments closely. The news could have major consequences for the US dollar on Forex markets globally.

The coming week could well determine the dollar’

s short term future and reveal just how bad the US recession has gotten. The automaker bailout is still unresolved and markets are sure to react. Forex traders. and investors should watch closely!

Markets React to Obama’s Plan

In a move that has Forex traders watching markets closely, President Elect Obama announced a massive infrastructure spending plan. Markets reacted quickly and several construction related stocks rose dramatically. Companies associated with large construction projects, such as Dow component Caterpillar and Terex Corp, were among the top gainers. Shares in energy and engineering companies also benefited.

Risk Aversion Easing

Market reactions signaled an easing of risk aversion causing the dollar to fall slightly on Forex markets. Robert Blake, senior currency strategist at State Street Global Markets stated, “With the news that a very large fiscal stimulus package is being planned by the Obama administration, investors are starting to anticipate less bad news in 2009, and that has generated a pop in risk appetite.”

Forex traders are expected to take advantage of the opportunities provided by the increase in risk appetite.

Obama to Create 2.5 Million Jobs

President Elect Obama, who takes office Jan. 20, has talked of plans to create 2.5 million new jobs by 2011 and to fund the largest infrastructure investment since the 1950s. The plan is expected to create in excess of 2.5 jobs greatly needed after the US posted dismal employment figures for September, October, and December. The plan is expected to cost $500 billion dollars.

Dollar and Yen Slightly Lower

The slight ease of risk aversion sent the dollar and the yen slightly lower on Forex markets. The proposed infrastructure plan lifted global stock markets, spurring investors to reduce holdings of safe-haven dollars and take on more risk. Forex traders are sure to welcome the increased risk appetite on global Forex markets.

Forex Traders Watching Markets

While it is expected that the global recession will last well into 2009 the easing of risk aversion is sure to send many Forex traders and investors in search of new Forex opportunities. Forex trading can be very risky but the opportunities are increasing as governments around the globe struggle to end the global recession.

US Loses 500,000 Jobs in November

Recent economic figures from the US have been dismal at best. The US shed almost half a million jobs in November alone. US automakers appeared in front of congressional committees to ask for a $34 billion dollar bailout. The failure of the ‘big three’

automakers could possibly result in the loss of over 2 million jobs in the US and would ravage many communities dependent on the auto industry.

Forex Traders Closely Following Bailout Talks

Last Friday the Dollar fell to 91.58 yen after data from the US reflected the loss of slightly over 500,000 jobs in November which put pressure on the dollar. Forex traders have been closely watching the auto bailout talks and the possible effects on the dollar.

Bailout Would Prevent Dollar Decline

Takahide Nagasaki, chief foreign exchange strategist for Daiwa Securities said that with the recently released jobs data and the finalization of an auto bailout agreement the risk of a sharp decline in the dollar will recede in the near term which should be comforting news to Forex traders. Nagasaki also stated that the dollar could come under pressure if the market’

s focus shifts back to US economic fundamentals.

Some Forex traders said that uncertainty over the fate of U.S. automakers was unlikely to disappear immediately and predicted the dollar may fall further against the Yen before the end of December. A further drop of the dollar against the Yen could lead to market intervention by the Japanese government similar to the one in 2004.

Obama Says Economy Will Get Worse Before it Gets Better

The US automakers bailout talks have had Forex traders keeping a close eye on political developments in Washington. The recent statement by president elect Obama that the economy will get worse before it gets better has had a psychological effect on global Forex traders and global markets. At present the Bush administration is still calling the shots and it is anybody’

s guess what will happen between now and January 20th when Obama takes the oath of office.

Forex Traders Paying Close Attention to Auto Bailout

Forex traders around the world are following the progress of talks between the US congress and the three major American automakers. The influence of the US auto industry extends into almost every facet of the US economy. The future of the US auto industry could have a profound effect on the US dollar and forex trading globally.

Automakers Employ 2.5 Million

The automakers employ approximately 2.5 million people directly millions more at businesses that service the auto industry. The failure of the US auto industry would have a catastrophic effect on the US economy and result in millions of lost jobs. This, in turn, would send the US economy into a downward spiral that could be irreversible.

Execs Offer Plan

After the public relations disaster that was the last meeting between lawmakers and the chief executives of the auto industry the executives eschewed corporate jets for the trip to Washington. This time the automakers have a plan that includes restrictions on executive compensation and golden parachutes which have caused widespread resentment among the public.

Fear of Economic Collapse Spurs Bailouts

Although free market advocates have objected to the bailouts, arguing that bankruptcy would be a more effective way of sorting out problems in the auto industry, fear of economic collapse makes it likely that the bailouts will go forward. Forex traders and investors have been watching economic news from the US with great interest. The Bush administration opposes the automaker bailout suggesting that the industry take $25 billion in loans to retool aging factories. The administration also remains opposed to the $700 billion dollar bailout for financial institutions.

US Economic Data Weak

Economic data from the US has been weak and many leading economic indicators have been worse than expected. All indicators point to a recession that may take years to recover from. In the meantime Forex traders have been taking advantage of the strength of the US dollar on currency exchanges. Recession fears and risk aversion have been major factors affecting the performance of the dollar and how long this will last is anybody’s guess.

Dollar Continues To Gain

The US dollar continued its astounding gains against the Euro for the third week in a row with Forex traders and investors seeking the safety of US government backed assets. The Japanese Yen continued its gain against the Brazilian real and the Mexican Peso as Forex traders and investors sell high yielding assets and pay back loans with the Japanese Yen.

Risk Aversion Still Prevelant

According to currency strategist Jacob Oubina, “Risk aversion is still prevalent.” The dollar traded at $1.2582 against the Euro up 0.2% from $1.2605 on Nov. 14. The Intercontinental Exchange’s Dollar Index which tracks the Dollar against the Euro, the Yen, the British Pound, the Canadian Dollar, the Swiss Franc and Sweden’s Krona rose to its highest level since April 2006 pointing Forex traders towards the Yen and the Dollar. According to JP Morgan the Yen will continue to advance against the Dollar and the Euro towards years end.

Bank of Japan Continues Low Rates

The Bank of Japan kept its lending rate at 0.3% and said it will consider putting more money into the financial system to prop up the Japanese economy that has already descended into a recession. Japan’s low interest rates have attracted Forex traders taking advantage of the low rates. Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co. stated, “There’s strong possibility that the yen will continue appreciating as the global recession may deepen. “It’s an environment where losses in cross-yen currencies are likely to be even bigger than those in the dollar-yen.”

Euro To Gain as Much as 16% Next Year

Some analysts predict that the Euro may gain as much as 16% against the US Dollar next year due to demand for oil in China. The Chinese demand could drive up prices making the US dollar less attractive to Forex traders and investors. The Chinese economy is expected to expand in the coming year. The dollar may weaken as Forex traders demand higher returns.

Forex Traders Still Making Money

At present stock markets continue their chaotic performance making Forex markets and exchanges more attractive to investors. Savvy Forex traders are still making money and offering investors opportunities not available in stock and commodity markets.

We have all read about the recent strong performance of the US dollar and the Japanese Yen on Forex exchanges. Forex traders and invest0

Dollar Value and FX Traders

The US dollar has been the world’

s reserve currency since the Bretton Woods agreement reached after World War Two. Most governments maintain currency reserves in US dollars. There are many factors that determine the exchange rate of the dollar and Forex traders are constantly monitoring information from a variety of government and private sources.

The Federal Reserve

Forex traders and economists watch information released by the Federal Reserve which sets interbank lending rates and controls the supply of US dollars worldwide. There are several less well known economic indicators that help to determine the value of the dollar.

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Coordinated Rate Cuts

Following the lead of the Federal Reserve, central banks around the world announced rate cuts designed to lift the global economy in the face of a recession. The Fed slashed rates to 1.5%, while the Bank of England cut its rates to 4.50%, and the European Central Bank cut rates by half a point to 3.75%. Swiss, Canadian, Chinese, and Swedish banks also announced rate cuts. The Bank of England also stated that inflation was likely to rise to 5.0% in the near future but would decline as soon as lower oil prices and the Immense UK bailout take effect in the real economy. The UK bailout also allows for the partial nationalization of troubled banks.

Cuts Fail to Calm Investors

The cuts failed to calm investors in volatile markets and most world markets saw losses despite the rate cuts. The actions of American and European banks appear to be part of a global strategy that uses aggressive monetary policy and taxpayer recapitalization of ailing banks, generating cautious optimism among economic analysts. Said Jim O’Neill, chief global economist at Goldman Sachs, “The gravity of the times requires out-of-the box responses. Atop of all the other things we have seen this week, it gives me great confidence.”

The gravity of the world economic situation is cause for concern among forex traders and investors both large and small.

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Bailout Fails in the House

The failure of the US House of Representatives to pass the 700 billion dollar bailout bill sent shockwaves through world financial markets. The bailout bill is unpopular with most Americans and most politicians are reluctant to go against the wishes of a majority of their constituents. Forex traders and markets were left in limbo and the prognosis for the US dollar is negative despite a slight rally against the Euro earlier in the week.

The Senate Vote

On Wednesday, October 1^st the US senate will vote on the proposed bailout plan with several modifications. The vote will take place after sundown out of respect of the Jewish holidays of Rosh Hashanah. The bill includes a provision raising the FDIC insurance cap from $100,000 to $250,000. The Federal Deposit Insurance Corporation was created by Franklin D. Roosevelt’

s administration in 1933 after numerous bank failures eroded public confidence in the banking system.

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Forex Traders and the US Economic Crisis

The recent crisis in the US has Forex traders and investors in a serious quandary. Despite a short rally the dollar has been taking a serious beating on currency markets. The Forex market as a whole still remains a place where astute investors and fx traders can still find opportunities.

Political Haggling and the Markets

Unfortunately for international markets, political haggling over the details of the bailout are expected to last longer than predicted. The Bush administration faces some opposition from members of their own party and there are fears that the opposition will use this opportunity to tack on unrelated amendments to the bailout legislation. There are also fears that political maneuvers will delay a vote and effectively stop the 700 billion dollar bailout.

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