Is there logic to Fridayâ€™s move in the Dollar? Despite
atrocious job numbers and indications of a deepening American recession the
Dollar gained against all of its competitors except the Japanese Yen.
The United States unemployment rate jumped 0.4% to 7.2% in
December. In February of last year the rate was 4.8%. In eleven months the
percentage of the work force seeking but unable to find work has increased by
50%. American job rolls shed 524,000 paychecks in December with an
additional 154,000 jobs lost in October and November according to the revised
statistics. Employment in all categories except health care and
government declined. Bad as the December numbers were they will probably worsen
in the next three months as revisions and late reporting add to the
total. The US economy shed 2.6 million jobs in 2008. This was the worst
one year total since 1945, when 2.75 million jobs were eliminated as war
production ended with victory in World War Two.
Yet in the face of these miserable statistics, or maybe
because of them, the Dollar scored. The Euro lost 2.2% against the US currency,
the British Pound 1.3%, the New Zealand Dollar 1.0%, the Australian Dollar
1.3%. On the principle trading side the Dollar gained 2.25% against the Swiss
Franc and 0.7% against the Canadian Dollar. Only the Yen moved higher
against the US currency appreciating 1.5%.
There are three rationales operating behind this Dollar
move, each offers a different explanation for the currency effects of the world
economic situation. We can call them the trade positioning and Yen cross
crowd; the safe haven players; and the US recovery first nationalists.
For very different reasons each of these explanations boosts the Dollar when US
economic news is poor. Perhaps it is surprising that negative economic
news puts all three explanations in the strong Dollar camp but the logic is not
The trading factor is simpleâ€”it is the yen crosses.
Even if it makes no comparative economic sense for the Yen to have strengthened
four figures against the Euro because of poor US job figures the reaction of
the cross traders is by now an ingrained feature of the currency markets. â€˜Risk
aversionâ€™ is the current shorthand for this reliable short term trade. If
economic calm is ascendant or the news is moderate buy the crosses, if the
reverse occurs, sell the crosses. Is this an image of the relative economic
strengths of the Eurozone and Japan or a reflection of central bank rate
policy? No. This is a straight forward reactive trade that has worked for
years. This â€˜risk aversionâ€™ selling in the yen crosses is the standard trading
response to worrisome economic news. Though it is not a specifically
pro-Dollar trade the over Dollar component of shorting the Yen crosses supports
the Dollar against the Euro. Selling the Euro/Yen weakens the Euro
against the Dollar and the British Pound as well as the Yen. That
weakness is reflected in the Euro US Dollar rate as well as the Euro/Yen rate.
On Friday the movement in the Euro after the Non Farm
Payrolls release mimicked the Yen crosses. The top in the crosses and the
Euro came at the same time, just after the NFP release. The percentage of the
peak to trough drops in the crosses and the Euro was similar: Euro/Usd 2.45%;
Euro/Yen 3.17%; Stg/Yen 2.77%; Aud/Yen 2.97%; Nzd/Yen 2.60%. These Yen crosses
depreciated an average of 2.88%. The Euro fell 2.45%. The Euro/Usd
declined 85% of the average drop in the Yen crosses. In contrast the
Usd/Yen fell only 1.66% or 58% of the average in the Yen crosses.
A much greater percentage of the drop in the Yen crosses was
absorbed by the Euro against the Dollar than was absorbed by the Dollar against
the Yen. The Dollar gained 2.45% versus the Euro today but only lost
1.66% versus the Yen. One could say this puts a figure, at least for Friday, on
the value of the second and third rationales for Dollar strength in the face of
bad news. It is a measure of the combined safe haven and recovery first
aspects of the competition between the US Dollar and the united European
Another way to think about the impact of Yen cross trading
on the Dollar is to imagine a Dollar move that stemmed from a factor which had
minimal impact elsewhere -- say an unexpected Fed rate hike. Under those
circumstances you would probably see a fall in the Euro against the Dollar
and a rise in the Dollar against the Yen while there might be little movement
in the Euro/Yen.
The key fact in assessing the unequal effect of increased
United States economic risk on the Dollar is that US Economic risk is really
world economic risk and as such it affects all currencies.
The second rationale is commonly called the safe haven or
the flight to safety trade. The haven sought is comparative. There
has been no country and certainly no industrial country that has not been
touched by the recession and the financial crisis. If the US economy is
headed for a deep recession the rest of the world will not escape. If the world
financial system is suffering a prolonged credit drought the US has the
greatest resources to overcome it. In this view it is the US, with the largest
and most productive economy, the worldâ€™s reserve currency and the most stable
political system, that has the best chance of avoiding disaster.
The last rationale is more optimistic. The American
Government recognized the severity of the financial crisis before any
other. It has done more and is planning to do more than any other
advanced economy. The economy is the first task for the new Obama
administration. The Federal Reserve has been more active in gauging and
surmounting the financial turmoil than any other central bank. Recessions, even
depressions do not last forever. When the world economy finally turns around it
will be led by the United States. Eventually US economic numbers will turn
positive. Will Eurozone numbers then still be mired in decline? And if they are
will the Dollar commence a powerful rally? This rationale is a vote for the
financial flexibility and economic potential of the United
It is peculiar that unrelievedly bad American economic
reports serve to support Dollar. But the logic does not focus solely on
the US but on the US role in the world economy. If the world economic
system is headed for years of turmoil then the US is best positioned to weather
the disaster. If the world is plunging into a deep recession then the US
is best equipped to emerge first. These are not facts; they are
perceptions. They may turn out to be true or they may not. But for
the time being they are the rationales behind trading decisions. In the
comparison between the US and its trading partners the Dollar still looks like
the best bet to currency traders.
IMPORTANT NOTICE: These
comments are for information purposes only. Past results are not necessarily
indicative of future results. FX Solutions, LLCï¿½
believes that customers should be aware of the risks associated with
over-the-counter, spot Forex. Forex trading is highly speculative in nature
which can mean currency prices may become extremely volatile. Forex trading is
highly leveraged, since low margin deposits normally are required, an extremely
high degree of leverage is obtainable in foreign exchange trading. A relatively
small market movement will have a proportionately larger impact on the funds
you have deposited. You may sustain a total loss of your funds. Since the
possibility of losing your entire cash balance does exist, speculation in the
Forex market should only be conducted with risk capital you can afford to lose
which will not dramatically impact your lifestyle.
To the best of our ability,
FX Solutions believes the information contained herein is accurate and true. We
reserve the right to make corrections and/or update the material when deemed
necessary. Therefore, FX Solutions assumes no responsibility for errors,
inaccuracies or omissions in these materials.
Distributed by: FX Solutions, LLC., Saddle River Executive Centre, One Route 17
South, Suite 260, Saddle River, NJ 07458
Forex Trading News
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
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."
Elevate Your Trading With The Amazing Trader!
The Amazing Trader includes:
Actionable trading levels delivered to YOUR charts in real-time.
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.
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.
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 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 Global-View.com.
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 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.
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.
Global-View.com 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 Global-View.com. 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.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.