The single currency improved from an eight month low against the Dollar in the markets recently after decreasing by the most in close to 10 months, a direction of the market speculators say should really persist until Europe acts to try and solve its debt crisis.
The single currency’s slide highlighted some of the most tumultuous times on record for global markets as concern of a Greek debt default & the Fed’s gloomy prognosis for the American economy triggered huge demand for dollars & safe haven Treasury debt.
As a forex trading guide, the Dollar is enjoying its best month in over 16 months against a wide trading range of currencies whilst the Australian dollar, a proxy for worldwide growth, has gone the opposite way, notching its worst week since May 2010.
Some market chatter that the ECB was contemplating stimulus measures to help the economy deal with the sovereign debt crisis gave the single currency a modest boost.
Talk of European Central Bank help was vague, nevertheless speculators said they doubted it would stretch to a near term rate cut, especially as the ECB coordinates, over the next month, a transition from its departing president, Trichet, to Mario Draghi, his successor.
The French government lowered its growth forecasts for 2013, 2014 & 2015 after a downgrade of its estimates for this year & 2012. French banks are big holders of Greek bonds.
The US Fed unveiled a program, named “Operation Twist” by market participants, aimed at putting more downward pressure on longterm rates over time & help the battered housing sector.
The Federal Reserve said it would launch a new $400 bn program that will tilt its $2.85 tn balance sheet more heavily toward longterm securities by selling short term notes & using those funds to buy longer dated Treasuries.
An important dollar positive by product of the Fed’s program is higher near term interest rates. Also supporting the US dollar is the fact that the US Federal Reserve chose not to increase the supply of money.
Like the Dollar, the Japanese yen tends to be in demand when worldwide risk appetite rises & traders unwind trades that had been financed with cheap US dollar or yen denominated loans. Nevertheless a robust Japanese currency hurts Japanese export data & puts under pressure its already fragile economy. The authorities intervened to weaken the Japanese yen in August, although the effect was fleeting. Note that you can trade dollar/yen markets with Spreadex.
Speculators said US dollar demand should really stay fairly strong in light of the Federal Reserve’s warning of “significant” risks faced by the economy.
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You should always invest using capital that you can afford to lose; before making any trades make sure that you recognise the risk. Be aware that Contracts for Difference Trading and Spread Trading might not always be suitable for your trading strategy; where you think it is necessary obtain independent trading guidance.