Posts Tagged "currency choices"

Tapering at last

Posted by on Dec 20, 2013 in Commentary, Featured, Market News, News

Tapering at last

The biggest talking point among traders for several months now has been “When will the FED start tapering?”.  At least we know the answer now. Wednesday’s FED meeting announced a reduction in the amount of money being thrown at the market, reduced by $10bn a month from $85bn to $75bn. This really is a symbolic gesture. In the overall scheme of things, a reduction of $10bn a month being pumped into the US economy is neither here or there. The economic output of the US economy is well over $15,000bn and growing strongly. The other aspect of the FED announcement was not to expect any changes to interest rates anytime soon. This is a factor in most western economies at the moment – a strong growth in demand and GDP is not filtering through to prices. Interest rates are the weapon to slow demand and prices. Until the growth in the economy starts to take up the slack capacity in the economy, we can expect interest rates to remain low. Once the threat of inflation looms, that is when we can expect real interest rates to rise. For now, the FED has set the path into 2014. This has at least given the markets some direction. This should lead to a gradual strengthening of the USD against other currencies. Now compare the US economy with Europe and the Eurozone specifically. Which one would you want to invest in? A stagnant economy trying desperately to come up with something to stimulate growth, or an economy that has already achieved that as an outcome. With that statement, it won’t take too much to work out where I figure the Euro is heading over the next few...

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Just like buses – central banks announcements

Posted by on Jul 9, 2012 in Featured, News

Just like buses – central banks announcements

Last week was notable for news affecting the value of major currencies. We waited all week for announcements from central banks and just like buses, three came along at once. The Bank of England’s announcement to print another £50 billion was anticipated. The markets knew that was going to happen. At the moment of the announcement, a small blip in the value of GBPUSD just confirmed the inevitable. The European Central Bank then duly obliged with a quarter point cut from 1%. This bit was expected by the market. The Euro went into free fall on the back of the ECB reducing the overnight rate to 0%. Even a lay person looking at a chart for EURUSD around lunchtime on Thursday will see how the Euro fell off the cliff. The Bank of China was the third bank to change interest rates. It was unscheduled and unexpected as they cut interest rates by just over a quarter of a percentage point. Three arriving at once. It is these unexpected elements of interest rate policy that give most cause for concern. The ECB with a 0% overnight rate and the Bank of China, needing to stimulate growth in the worlds second largest economy. With pessimism the order of the day, traders can at least remain optimistic. The more changes that are made, or deemed necessary, the more currencies will move. The more they move, the more trading opportunities there are for us to profit in the...

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Mirror, mirror on the wall, who’s the fairest currency of them all?

Posted by on Jun 6, 2012 in Commentary, Featured

Mirror, mirror on the wall, who’s the fairest currency of them all?

It’s been an interesting few days. Friday started with gloomy news from the UK manufacturing sector. GBP unloved as the UK remains recession bound. Then the news from the USA. Non-farm payroll figures upstaged the UK in their disappointment. Cue USD joining the ugly currency parade. So now we have EUR, GBP and USD in this parade. The Swiss National Bank decided a while ago to limit the value of the Swiss Franc by linking it to the value of the Euro. The setting of a “floor” rate of exchange effectively fixes the value of the Swiss Franc, so better add CHF as well. With four of the five major currencies in the parade, that leaves the Japanese Yen. Rumours circulated that the Bank of Japan were buying dollars and selling yen in the market to stabilise the value of the yen. Further intervention to weaken the yen cannot be ruled out. The great mining economies Australia and Canada are affected by China. The rate of slowdown in China is not proving supportive to either AUD or CAD, although the reduction of interest rates in Australia lifted the currency a little. At some point, further economic stimulus through the printing of money seems inevitable, certainly in the UK and probably in the USA. This ties back to my previous post where I asked “What is a Euro worth?“. I’ve placed trading on the back burner for a couple of days. Instead, it’s been an amazing short break celebrating the Queen’s Diamond Jubilee. Cheers....

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What is a Euro worth?

Posted by on May 25, 2012 in Commentary, Featured

What is a Euro worth?

I spent yesterday with many other traders at a trading conference in London. An enjoyable day in good company listening to some very good presentations and panel discussions. Naturally, there were many questions about the Euro and Greece’s (future) participation in it. It is fair to say that pretty much everyone in the room (there were a couple of hundred or more) had a negative view of  the value of the Euro. But why? What is a fair price? Hasn’t all of the downside risk already been priced in? Wouldn’t the Euro be stronger without Greece? Once you start asking these questions, you start to realise that every trader has a different opinion. But the herd mentality of trading is carrying the Euro worth ever lower. So how low can it get? Back in October 2000, €1 was priced as low as US$0.8225. That puts today’s price some 50% higher than October 2000. If the Euro is a dead currency, it is significantly over priced right now. The market has taken account of this though and is not assigning the Euro to the bin, at least not just yet. To put a fairer price on the Euro, you have to look at the other currency choices. The US Dollar remains the world currency and the currency of choice. And yet they keep the printing presses rolling, lowering the real value of the dollar. Then there is GBP (£ sterling). Having spent much of the past decade between $1.40 and €1.50 to £1, the Euro has appreciated in value. Look to the devaluation of sterling for the reasons, caused by running those printing presses again (a.k.a. quantitative easing). The more the subject is examined, the more different opinions emerge. Forex trading is evidence based on what is happening right now, not what might happen next month. Successful traders trade facts, not opinions. There is only one fact, that’s the current price. As for the price next week,  I’ll have a better idea at the end of next...

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