User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Friday December 19, 2008 - 23:17:16 GMT
Global Forex Trading -

Share This Story:
| | Email

Forex Research - The Basics of Quantitative Easing

The Basics of Quantitative Easing

Last Updated 12/19/2008 5:46:30 PM EST (GMT +5)


CURRENT US INTEREST RATE: 0.25% Traders Favor No Rate Cut in January
  1/28 Meeting 3/17 Meeting
NO CHANGE 82.0% 67.9%
CUT TO 0BP 18.0% 14.0%
INCREASE TO 50BP 0.0% 18.1%
INCREASE TO 75BP 0.0% 0.0%


It has been an extremely volatile week in the currency market.  On Monday, the EUR/USD was trading at 1.3364 and shortly after the European open on Thursday it hit a high above 1.47.  However since then it has reversed violently to end the week back at 1.39.  This type of price action is characteristic of an illiquid market that is uncertain about how to react to the drastic measures taken by central banks around the world.  There was no US economic data released today, but there are reports that the White House has given $17B in loans to the Big 3 automakers.  The US dollar strengthened against all of the major currencies except for the Japanese Yen.  Next week is a lightened trading week with the Christmas holiday.  US economic data is therefore jammed into Tuesday and Wednesday.  We expect the final figures for third quarter GDP, housing market numbers, personal income, personal spending and durable goods next week.  The data should continue to reflect the weakness of the US economy.  

Oil Prices Hit $33 a Barrel

Oil prices have dropped to $33.87 a barrel and in retrospect, it is almost hard to believe that the price of crude was more than $140 a barrel this summer (gasoline prices were greater than $4.00 a gallon). Since those highs, oil prices have plunged more than 78 percent and gas prices are down more than 50 percent. If we discount the run up in the first half of the year, we have still seen a 55 percent drop in oil prices since January. Crude prices matter for a variety of reasons. Lower oil prices help to cushion the ever dwindling pocketbooks of US consumers. In addition, oil has a direct correlation with consumer prices. With CPI falling for 2 consecutive months, the risk of deflation is growing. Take a look at the strong correlation between the price of oil and consumer prices.  

The Basics of Quantitative Easing

Quantitative Easing (QE) are the latest buzz words in the financial markets.  It is important to become intimately comfortable with these words because they will be the catch phrase of 2009 thanks to the latest interest rate cuts by the Federal Reserve and the Bank of Japan.

What is Quantitative Easing?

Quantitative Easing is a monetary policy tool that central banks use when they run out of room to cut interest rates.  The word “Quantitative” refers to the money supply and easing money supply means to increase it.  For many people, this term is new and with good reason because it was only coined by the Bank of Japan in 2001 after they took interest rates to zero. When that happened, they obviously had no more room to cut rates, which made Quantitative Easing their Plan B. Quantitative Easing basically involves printing money to buy a variety of securities with the end goal of flooding the financial markets with cash or liquidity.  By doing so, it increases the amount of currency in circulation which reduces the value of the currency and boosts inflation.  A good way to look at this is if there were only 100 signed Babe Ruth baseball cards worth $1000 each in the world and all of a sudden another 1000 signed baseball cards were discovered, then you would expect each baseball card to now be worth a lot less.  Having more baseball cards in the market at lower prices hopefully spurs more activity in the baseball card market.  In many ways, the goal of Quantitative Easing is the same. By the flooding the market with liquidity, the central bank aims to promote lending and prevent a shortage in the future.  Of course Quantitative Easing is much more involved than baseball card trading.  

What Outcome Can Be Expected from Quantitative Easing?

Granted that Quantitative Easing has only ever been implemented once in Japan, there is not much precedent. However with that in mind, we are sure that the Fed analyzed the outcome of Japan’s zero interest rate policy before bringing US interest rates within a whisker of Japan’s 2000 levels.   The Bank of Japan embarked upon this new concept in monetary economics in its effort to fight a frustrating period of economic stagnation and decline in 2001 which lasted until 2006.  With rates at 0% the central bank was forced to implement some new level of policy to fight the wave of deflation that had plagued the country. Deflation, another renewed catch-word in today’s economic climate, is an overall decline in prices over an extended period of time. We are all familiar with how disastrous an inflationary state can be on an economy, unfortunately deflation is no different. The cause of the phenomenon is when consumers become so resistant to spending that sellers are forced to continuously cut prices. In Japan, the BoJ accomplished their easing targets by expanding the limits as to the types of securities that they would purchase; for instance buying long-term treasuries, asset-backed securities, equities, and new levels of commercial paper. This is all in an effort to flood the financial system with so much excess reserves and liquidity that they would be forced to resume normal lending situations. In the first year of Quantitative Easing, USD/JPY fell 18.5 percent.  This means that the Japanese Yen weakened against the US dollar, which is a textbook reaction to Quantitative Easing.  The Nikkei also dropped 28 percent.  Between 2002 and the end of 2004, USD/JPY fell 22 percent as the Japanese economy began to stabilize.  During that same time the Nikkei recovered 20 percent, but not before it fell another 20 percent.  Although it has been heavily debated whether Quantitative Easing drove the turnaround in the economy, most people agree that it put a halt to deflation.   

Fed’s Version of Quantitative Easing

With US interest rates pretty much at zero, the Federal Reserve has informally adopted its own version of Quantitative Easing.  Some people may even argue that the Fed has been pursuing this strategy for months now.  In conjunction with the Treasury department, the Fed has doubled their balance sheet in the past 3 months to more than $2 trillion.  They have done this by purchasing direct equity investments in banks, easing standards on commercial paper purchases, made efforts to relieve institutions of their toxic asset-backed securities and is now considering buying Treasury bonds and agency debt.  By buying these assets, they are adding money into the financial system.  Like the Yen, Quantitative Easing exposes the US dollar to significant downside risks, but it is also the step that the central bank needs to take to stabilize the US economy and to prevent a deflationary spiral.


Of all the major currency pairs, the EUR/USD has seen the most dramatic move this past week.  The currency pair ended 550 pips higher, which is impressive in its own right but not when compared to the 1,300 pip trading range this week.  This volatility stemmed from surprising moves by the Federal Reserve and the European Central Bank.  On Tuesday, the Federal Reserve cut interest rates by 75bp, which was larger than the market expected and yesterday, the European Central Bank cut the deposit rate while boosting the emergency lending rate. These two moves had offsetting impact on the EUR/USD as the ECB reconsiders cutting interest rates in January.  Although the EUR/USD has fallen significantly, we believe that there could be a bounce in the coming week.  The Eurozone current account figures is the only piece of economic data worth watching and given the improvement in the trade balance during the month of October, we could actually see stronger numbers.  


Despite the significant volatility in the currency market, the British pound remains very weak.  Since the beginning of the month, the currency has fallen close to 13 percent against the Euro and remains not far from its 6 year lows against the US dollar.  For the second day in a row, the UK has reported better than expected economic data.  Yesterday it was Retail Sales; today it is a surprise boost in consumer confidence. The GfK Consumer Confidence Survey rose to -33, surpassing estimates that the number would fall to -39. Even though the figure is still severely depressed when compared to figures released only a year ago, any positive news is warmly accepted. Declines in energy prices and reductions in sales taxes are most likely the culprits for this development. Reports also showed that Total Business Investment was much better than expected on a year-over-year basis. However, we are still waiting to see if any of this news reflects itself in GBP/USD which keeps barreling downwards. Although next week’s holiday limits the amount of new economic releases, the UK will be releasing GDP and the Current Account on Tuesday.


The Canadian dollar did not escape today’s volatility in the currency market despite the offsetting factors of stronger consumer prices and lower oil prices.  On a monthly basis, CPI fell -0.3 percent, much less than the market’s -0.8 percent forecast.  However, the Bank of Canada’s preferred inflation barometer is annualized core CPI which rose to 2.4 percent from 1.7 percent in October. This figure is now hitting the upper portion of the BoC’s acceptable inflation range, indicating some pressure on the degree of future rate cuts. The jump is largely associated with higher food prices and the result of a weakening currency. Surprisingly, the possibility for scaled-back BoC monetary easing has translated into dollar gains. Any additional news from the region will have to wait until Wednesday’s release of the monthly GDP figure. AUD/USD and NZD/USD are also under pressure today. New Zealand Credit Card spending was decisively lower, declining to -7% after last month’s 1.2%. Economic data for next week is sparse, except for NZD Current Account on Sunday and GDP for Monday. Monday’s GDP figure will be crucial in validating the expectations for a quick New Zealand recovery.  In addition, Australia will release the Conference Board Leading Index on Monday.


For the second time this year, the Bank of Japan has cut interest rates.  This time they have brought rates from 0.3 to 0.1 percent, the lowest level since they abandoned their zero interest rate policy in 2006.  As we mentioned in yesterday’s Daily Currency Focus, the rapid appreciation of the Japanese Yen may encourage the BoJ to cut interest rates.  Physical intervention in the currency market is not usually effective and may actually be counterproductive.  Now that interest rates are practically at zero, the Bank of Japan is expected to adopt quantitative easing like initiatives once again.  The 20bp cut is only the first of the QE-like initiatives that the BoJ procured during its last meeting. In addition to the cut, the bank announced that they will be increasing the purchase of long-term Japanese bonds, easing the standards to which they buy JGB’s, and bumping up Commercial Paper purchases. These are all initiatives the bank took when they essentially founded the technique in 2001. As for the central bank’s next steps in the process, we could soon learn that they will begin purchasing equity shares in commercial banks and further expanding its bond purchases. Hopefully, through its experience, the BoJ will tweak their technique in an effort to restore economic conditions over a broader timeframe.

NZD/USD: Currency in Play for Next 24 Hours

The NZD/USD will be the currency in play on Monday. New Zealand will be reporting its Current Account Balance at 4:45 pm ET or 21:45 GMT and Westpac Consumer Confidence at 8:00 pm ET or 1:00 GMT.

Even after today’s downward pressure in the pair, NZD/USD is still holding itself within the Bollinger band buy zone. Support is being tested as we speak at the 0.5745 level, or the 38.2% retracement from the December 5th lows to yesterday’s highs. Price action is currently sitting at this level after failing to convincingly break earlier today. It is also important to note that the one-standard deviation Bollinger band lying below will be the next support area. For resistance, it is clear that the most immediate level is yesterday’s high. Before reversing, yesterday’s rallies were unable to break the 0.6081 level, which corresponds with highs placed in early November. However, if the 0.5745 level manages to retain its significance, it is possible, barring any unforeseen disastrous turn of events, kiwi could manage to retest yesterday’s highs.

About The Author

Lien has extensive knowledge within the interbank market, particularly in trading spot FX and options. She has written for numerous publications, is frequently quoted on financial media outlets, and is the author of several books, including Millionaire Traders. Read more >>

DISCLAIMER: This forum and the information provided here should not be relied upon as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. This forum and its information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision based upon this forum or any information contained within. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Kathy Lien will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Kathy Lien do not render investment, legal, accounting, tax or other professional advice. If such advice is sought, or other expert assistance is required, the services of a competent professional should be sought.





Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Tue 17 July 2018
AA 08:30 GB- Employment
A 13:15 US- Industrial Production
AA 14:00 US-Powell Testimony
Wed 18 July 2018
AA 08:30 GB- CPI
A 12:30 US- Housing Starts/Permits
AA 14:00 US-Powell Testimony
Thu 19 July 2018
AA 1:30 AU- Employment
AA 08:30 GB- Retail Sales
A 14:30 US- EIA Crude
A 12:30 US- Weekly Jobless
Fri 20 Jun 2018
A 12:30 CA- CPI/Retail Sales

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105