Forex Volume is Down - What are the Implications?

According to a recent report by the Reserve Bank of Australia (RBA), forex volume is down in nearly every major category. “However, turnover declined by over 20 per cent between October 2008 and April 2009 to US$2.5 trillion, to be at its lowest level in over two years, a move reflected in all six markets indicating global, rather than location-specific, causes. The largest markets – the United Kingdom and the United States – experienced the sharpest percentage falls.”

The report was based on a survey of the world’s six largest forex trading hubs - US, UK, Japan, Canada, Singapore, and Australia - and produced a few interesting revelations. The first is that forex volume peaked well after other capital markets. This can probably be attributed to the notion that there is never a bear market in forex. In other words, after stocks and bonds began to collapse in the summer of 2008, investors embarked on a mission, unprecedented in its speed, to move capital from risky countries to safe-haven countries. This switch, by definition, required the forex markets to facilitate.

This point is further illustrated by the fact that, “the decline in turnover of spot and forwards occurred somewhat later than that in foreign exchange swaps and derivatives….Spot turnover reported in October 2008 was likely to have been supported by large cross-border capital flows as investors sought to reduce risk by repatriating foreign investments. In addition, the high frequency and impact of news at the height of the crisis would have generated the need for investors to frequently adjust their positions.”

The final revelation is that the change in forex volume was not always commensurate with changes in trade volume. A general relationship between trade and forex turnover has been observed, although speculators ensure that currency is exchanged much more frequently than actual goods and services. The two currency pairs registering the greatest unbalance are the CHF/USD and CAD/USD. Forex volume for the former fell much more sharply than trade, while the opposite is true of the latter. One can only speculate as to why this is the case. As for the CHF/USD, forex volume probably suffered disproportionately more because both the Swiss Franc and US Dollar were perceived as safe haven currencies, in which case it would be relatively less useful to exchange them for each other. In the case of the CAD/USD, meanwhile, it makes sense to view the imbalance in terms of the spectacular decline in trade, which was largely a product of declining commodity prices.

It’s impossible to predict whether forex volume will remain depressed. Given the efforts underway to increase regulation and curtail leverage, I don’t personally expect volume to recover for a while. As for the implications, the less might be to stick to the majors. If volume is declining, it will probably affect emerging market currencies most. Lower liquidity might translate into higher volatility. However, it’s worth pointing out that volatility has been declining ever since it skyrocketed after the collapse of Lehman Brothers last fall. In that case, it might be that investors are behaving more prudently with less funds to trade with.

Forex Markets Indifferent to Bernanke Nomination

Earlier this week, President Obama officially nominated Ben Bernanke to a second four-year term as Chairman of the Federal Reserve Bank’s Board of Governors. The reaction was relatively muted, perhaps because most pundits had already anticipated the news. Bernanke himself probably sealed his own re-appointment with the public relations campaign he embarked on last month, ostensibly to offer a rationale for his response to the credit crisis. “In a profound departure from the central bank’s tradition as an aloof and secretive temple of economic policy, Mr. Bernanke has plunged into the public spotlight to an extent that none of his predecessors would have contemplated.”

Most of the sound-byte reactions came from politicians, and focused on whether he deserved another term, rather than the potential ramifications of his re-nomination. Heavyweights Barney Frank and Christopher Dodd both offered tepid support. Ron Paul referred to the news as irrelevant. Meanwhile, “European Central Bank President Jean-Claude Trichet on Tuesday said he was ‘extremely pleased’ by President Barack Obama’s decision.”

The reactions from investors, likewise, ranged from ambivalent to moderately supportive. Equity markets rose to a 2009 high the day after the story broke, while the Dollar fell slightly. The re-appointment was deliberately awarded five months ahead of schedule in order to help the president’s credibility with investors. Fortunately (or unfortunately, depending on how you look it), the fact that the markets didn’t react much, shows that they don’t really care. In other words, “President Obama overstated matters when he said that Mr. Bernanke had kept us out of a Great Depression” not only because “this remains to be seen,” but also because the ebbs and flows of GDP are contingent on more than just monetary policy.

Regardless of how much credit Bernanke actually deserves, he will certainly have his work cut out for him in his second term. “Bernanke’s Next Tasks Will Be Undoing His First,” encapsulated one headline. At some point, the Fed must raise interest rates, return credit markets to normal functioning, and remove hundreds of billion of dollars from the money supply.

But this is easier said than done: “If the Fed shifts too quickly from the role of savior to that of strict disciplinarian, it risks aborting the recovery and tipping the nation back into a recession, essentially repeating mistakes made in 1937 after the economy had begun to rebound. If the Fed moves too slowly, it risks the kind of intractable inflation it experienced in the 1970s and fueling another bubble.”

The consensus is that, for better or worse, he will err on the side of price stability, perhaps at the expense of economic growth. “A Fed chaired by Ben Bernanke will follow a policy uncomfortably tight as the 2012 election looms into sight. Bernanke has espoused a commitment to low inflation over his entire career,” argued one economist. Meanwhile, the markets aren’t expecting rate hikes at least until 2010, although Bernanke, himself, has conveyed a sense of optimism - and hence hawkishness - about a quick exit from recession.

What does all of this mean for the Dollar? It’s impossible to say exactly, and depends largely on whether Bernanke can unwind the easy money policy of the last year just as deftly as he deployed it.And of course, there is the wild card of the US National debt, and the potential for a loss of confidence to induce a run on the Dollar, which even Bernanke would be powerless to solve.

Carry Trade Still Popular, but Doubt is Growing

It’s safe to say that the inverse correlation observed between the Dollar (and also the Yen) and global equities is largely a product of the carry trade. “The U.S. stock market bottomed and the U.S. Dollar Index peaked almost simultaneously in March. While U.S. stocks are up more than 50% in that time, the Dollar Index (which measures the greenback’s value against the euro, the yen, the British pound, the Canadian dollar, the Swedish kroner and the Swiss franc) is down nearly 12%,” observed one analyst.

On one level, this represents a return to 2008, prior to the explosion of the credit crisis, when carry trading was THE dominant theme in forex markets. However, there is one important difference. While the Dollar and Yen were the funding currencies then and now (due to their low interest rates), there has been a slight shift in the currencies selected for the opposing/long end of the trade.

Traditionally, the most popular long currencies were those of industrialized countries, rich in commodities and backed by high interest rates and often rich in commodities. To be sure, these currencies have shined in recent months, certainly due in part to speculative (carry) trading. “Strategists at Wells Fargo Bank in New York ‘believe that the gains in the dollar-bloc currencies (Australia, New Zealand, Canada) have run ahead of the gains in commodity prices.’ ” The Bank of Canada also noticed that “At the time of its last statement, oil prices were about $75 a barrel, but now they are in the $60-to-$65 range. That suggests the currency’s appreciation has outpaced the demand for its commodity exports.”

But the run-ups in the Kiwi, Aussie, and Loonie have been overshadowed by even more rapid appreciation in emerging market currencies. This shift is largely a product of changes in interest rate differentials, which are now gapingly large between developed countries and developing countries. Compare the 2.75%+ spread between the US and Australia, with the 8.5% spread between the US and Brazil or 12.75% between the US and Russia. For investors once again becoming complacent about risk, the choice is a no-brainer.

Still, some analysts are nervous about this change in dynamic: “While the new carry trade may be less leveraged, it’s an inherently riskier bet. As such, it’s more vulnerable to the kind of swift unraveling of risk appetite observed across all nations and sectors in 2008, but which occurs with far more frequency in emerging markets.” Meanwhile, emerging market stocks have behaved volatilely over the last few weeks (with Chinese stocks even entering bear market territory), and some investors are concerned that they may be temporarily peaking. There are also signs that bubbles may be forming in carry trade currencies, with bullish sentiment at high levels. Accordingly, one strategist suggests waiting out a 5% pullback in the Australian dollar, and a 10% pullback in the New Zealand dollar before going back in.

There is also the outside possibility that the Fed will raise interest rates, which would crimp the viability of the US Dollar as a funding currency. Granted, it seems unlikely that the Fed will tighten within the next six months, but investors with a longer time horizon could begin to adjust their positions now, rather than wait until the 11th hour, at which point everyone will be rushing for the exits.

Introduction to Trading Forex

Foreign Exchange

This short introduction explains the basics of trading Forex online, a brief explanation of the markets and the major benefits of trading Forex online. There are also two scenarios describing the implications of trading in a bear as well as a bull market to better acquaint you with some of the risks and opportunities of the largest and most liquid market in the world.

As an additional aid for those who are new to Forex, there is also a glossary at the bottom of this text which explains some of the terms used in connection with currency trading.

Overview

Foreign exchange, Forex or just FX are all terms used to describe the trading of the world's many currencies. The Forex market is the largest market in the world, with trades amounting to more than USD 3 trillion every day. Most Forex trading is speculative, with only a low percentage of market activity representing governments' and companies' fundamental currency conversion needs.

Unlike trading on the stock market, the Forex market is not conducted by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the Forex market is a 24-hour market.

Trading Forex

A currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a cross (for example, the euro/US dollar, or the GB pound/Japanese yen.). The most commonly traded currencies are the so-called “majors” – EURUSD, USDJPY, USDCHF and GBPUSD.

The most important Forex market is the spot market as it has the largest volume. The market is called the spot market because trades are settled immediately, or “on the spot”. In practice this means two banking days.

Forward Outrights

For forward outrights, settlement on the value date selected in the trade means that even though the trade itself is carried out immediately, there is a small interest rate calculation left. The interest rate differential doesn't usually affect trade considerations unless you plan on holding a position with a large differential for a long period of time. The interest rate differential varies according to the cross you are trading. On the USDCHF, for example, the interest rate differential is quite small, whereas the differential on NOKJPY is large. This is because if you trade e.g. NOKJPY, you get almost 7% (annual) interest in Norway and close to 0% in Japan. So, if you borrow money in Japan, to finance the trade and buying NOK, you have a positive interest rate differential. This differential has to be calculated and added to your account. You can have both a positive and a negative interest rate differential, so it may work for or against you when you make a trade

Brief history of Forex trading

Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.

Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.

Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.

At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.

In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.

Brief history of Forex trading

Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.

Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.

Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.

At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.

In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.

The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.

But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.

THEMES TO WATCH – UPCOMING SESSION

Market Comments:

More gyrations in the Asian session arrived like clockwork as rumors emerged of Chinese plans to tighten capital requirements for banks, a move that could threaten the recovery in Chinese asset markets. So Asia closed on a bit of a sour note, Later, however, it was the very strong preliminary European PMI manufacturing and services data that had the risk-takers swarming around the punch bowl once again for another dose of bullishness. It appears that the major US and European equity markets want to test the highs for the cycle again after the recent correction lower, and this is equating to a testing of the low for the US dollar.

It's tough going for the bears here - the very final retracement levels are arguably still in place for the last shreds of hope that we could yet see a follow up move in the USD to the strong side, but if the risk elephants keep trampling the bearish camps here, it appears we will have to test to new lows in the USD if equities burst to new highs. Sentiment and positioning seemed to stretch for us to want to switch sides for now. Yes, there is no absolute reason we can't continue on to 1100 in the S&P and 1.50 in Euro if current market conditions hold - the first six months of 2008 showed us how long fantastic delusions can hold in the marketplace (the idea that the US meltdown could be contained and that the rest of the world could simply ignore its center of gravity). But it is our firm belief that the market has really moved dangerously out of line with reality.

Watch out for Bernanke's appearance at the Jackson Hole conference today. This is traditionally a more informal conference that gathers Fed governors, other bureaucrats and figures from the private sector to discuss major economic issues and monetary policy. It is a chance for Bernanke to give a high profile speech about monetary policy and where it is going, if only in very broad-strokes. Still, after having engineered this recovery with unprecedented stimulus. It certainly bears watching for any hint of Mr. Bernanke's thinking as market perceive that we are one stop from economic nirvana and a full-bore recovery, while we suspect that the Chairman has his worries. The Fed managed to keep the US economy from disappearing off the map, and it will remain highly dependent on Fed and government actions to keep it alive - it is still on life support. Any hint at removal of life support at some time down the road could test the market's mettle.

USDCHF just touched new lows for the year as we are writing this and EURCHF touched its 200-day moving average in today's trade as well - where are you, SNB? EURSEK is punching through to new lows since last November today, as CEE currencies continue to recover from their recent consolidation due to the rampant risk-taking. In other action, gold popped almost 20 dollars higher off the day's lows and crude is making a run at $75 as all market's are now joining in on the "greenback punching bag" game today. This market is fearsome for the fearful. Let's see how we end the week. Next week's event risk calendar looks fairly light, with the most interesting data points the German IFO and US Consumer Confidence (after the ugly preliminary Michigan data for August.) In the meantime, have a wonderful weekend.

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How to Trade Forex

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.

The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.

The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.

Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements

Canadian Interest Rate Decision, Bernanke Testimony & Australian CPI…all important today!

The Canadian rate decision will be out at 9am EST today. It shouldn’t be anything “earth shaking” with such low rates already. However, what could be…are any comments that they make. So have your ear atune to that.
Bernanke will testify at 10am EST today. Oh, he’s going to tell us how he’s going to be able to “reign in inflation” before it gets out of hand…and that’s his job to do so. However, I’ve never seen the U.S. Fed be “proactive” and “preemptive” yet.
They always “react”. So once again, they will be too late and inflation will get much higher than it should before they can get it under control. Nonetheless, if his “talk” is convincing, it could move the dollar today.
Then at 9:30pm EST tonight, you’ll want to pay attention to Australia’s CPI number. This will tell you a lot about the future direction of interest rates there, in my opinion. Also, their Assistant Governor of the RBA will speak at 10pm EST. So see if there’s anything “enlightening” that could move the Aussie dollar.
Lots to watch for today. Should be interesting. I’m still generally bullish on EUR/CHF and bullish (a buyer of) AUD/USD at this point.

Sean Hyman

Buy EUR/CHF in newly established uptrend with “blessing” of the Swiss central bank, while earning daily interest too!

By Sean Hyman | July 22, 2009

The best of all worlds…

Trade a pair that recently broke into a new uptrend. Trade it because the Swiss are intervening in their currency to weaken it and boost the EUR/CHF pair. Trade it to earn intereest daily with little downside likely.
Take your pick, on your reasoning…personally, I trade it for all three reasons. Click on the chart to enlarge it. You’ll see that the daily downtrend is broken by almost any measurement you can think of. It’s above its red downtrend line, above its 50 SMA, also above its 200 SMA (long term moving average).

Then check out the 4 hour, 40 day chart below. You can buy the breakouts of these red downward corrections and get in “in a timely fashion”. Click on the chart to enlarge it.

At the “Economic Turning Point”?

If we’re at the “economic turning point” as I believe we are…then that will be bad for the dollar, yen and Swiss franc but will be particularly good for those currencies that tend to be influenced by inflation, commodities and risk taking…which would be the Aussie dollar, New Zealand dollar, Canadian dollar and British pound…and arguably in that order.As an additional note, if this is true…then the natural course of “Swiss franc weakness” may kick in and help the Swiss central bank out with a weaker franc. They’ve been proactively “selling francs” but there may come a time (and we could be there now) that the market actually kicks in and “aids” their intervention efforts for a weaker franc to the euro in particular. If so, between their collective “franc selling” and the market’s turning point…it could bode well for those that are long (buyers of) EUR/CHF. The Swiss are attempting to put in a floor on the EUR/CHF pair around 1.50-1.51. So anytime it gets to around the 1.51 region, one could go long the pair with a wide stop and low number of lots and probably experience a good “upside to downside” risk ratio

I’ll also note that, so far, the Swiss have been able to reverse the daily downtrend on the EUR/CHF pair and have “held the line” quite well so far. You can look at it from most any aspect you wish and it still holds true. The pair is technically above its downtrend line, 50 SMA, 200 SMA, etc…all of which are bullish for the EUR/CHF pair. See the chart below. Click on it to enlarge it.

Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.html

British Pound Soars on Better than Expected Jobless Claims Data!

By Sean Hyman | July 15, 2009
In recent months (since February, to be exact)…the unemployment claims for the U.K. economy have fallen quickly after February’s huge spike higher. There was an improved revision to the previous month’s data 30.8K and also a better number this time (23.8k) vs. 41.4K expected. The lower the number, the better…in the case of unemployment numbers.
You can see this visualized on the chart below. (Click on the chart to enlarge it). You’ll see that unemployment claims are headed in the right direction (south) and that’s good for their economy and the Pound!

Tags: blog, British, data, dollar, economy, forex, forextrading, GBP-USD, Hyman, lower, pound, Sean, Sean Hyman, time, U.K., unemployment

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Central Banker Bollard gives the “Green Light” to New Zealand’s Economic Recovery!

By Sean Hyman | July 14, 2009

Last night, New Zealand’s central banker stated that “early signs of a global recovery have emerged” and that “New Zealand looks likely to start recovering ahead of the pack”How’s that for an “economic green light”? Pretty good, huh…

More specifically, he stated that their economy will start growing in the final quarter of this year. He’s still likely to keep their interest rates low until late 2010 though (because the economy needs further stimulus).
Bollard also expressed his interest in a weaker NZD dollar, however, I’m not so sure he’s going to get that wish granted with a speech like last night’s speech.
Sentiment improves when economic growth resumes. On top of that, New Zealand still has the 2^nd highest interest rate of any industrialized nation, so the “carry traders” may still bid up his currency while at the same time selling the U.S. buck or yen!
A recent Westpac report expects that their economy will grow 2.6% next year (more than twice the pace it forecast in April). Again, another “big plus” for the carry traders that live the Kiwi dollar (NZD).
So far, the New Zealand dollar has gained a whopping 17% on the U.S. dollar in the past 6 months. With reports like this from Westpac and Bollard, that trend is more likely to continue than to abate!
So while Bollard calls recent gains in the New Zealand dollar “unhelpful”…he may find that it becomes even more “unhelpful” in the weeks/months to come!
As things get “booming” again, it looks like he could increase the minimum capital requirements of banks to reign in excessive lending by making them hold more money in reserves. So he will be able to pull in the reigns a bit when the time comes…but possibly not enough to deter more Kiwi buying!

By Sean Hyman | July 13, 2009

Whoa! What a difference a day makes. Overnight the news came out that Prime Minister Aso of Japan has called an election for August 30^th. The way the polls are going, I see that the Japanese are once again disgruntled with their Prime Minister.
I must say, they go through these guys like water! However, this election will likely end the Liberal Democratic Party’s near half-century rule.
Aso also plans to dissolve the lower house of parliament next week.
If a new party gets in power (and that appears to be almost guaranteed), then one thing they are shooting for is a diversification of Japan’s reserves. It appears everyone is jumping on the “dollar bashing” bandwagon lately.
Japan’s opposition party, that is leading in the polls, said that the nation should consider shifting its reserves away from the dollar and buy International Monetary Fund bonds.
The problem? They are the 2^nd largest holder of dollars and U.S. Treasuries outside of China (which has already announced plans to do what Japan is now suggesting too)!
So let’s see…China, Japan, Brazil, Russia and India have now all basically “signed on” to the “dollar dumping” party.
This will continue to hurt the sentiment for the dollar and weigh it down. China has over $2 trillion in dollar reserves now and Japan still has over $1 trillion in dollar reserves, so just between the two of them, we’re not talking about any small sum.
I don’t think I’d want to be on the opposing side of their “trade” either. Therefore, the dollar’s days/weeks/months ahead of it are looking more “grim” all the time.
Therefore, look for the U.S. Dollar Index to continue to plummet overall and for other foreign currencies to continue to rise up against it over time.
Sean Hyman
www.forextradingblog.com

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The Swiss confirm that they are intervening when the Franc strengthens!

By Sean Hyman | July 10, 2009

The Swiss are intervening in their currency when they notice the franc’s strength. This is likely to continue until their economy no longer suffers from the franc’s appreciation OR until global economic growth is solidly underway to where traders are “franc sellers” once again as they seek out higher yielding currencies at that point. Here’s the Bloomberg article that confirms the Swiss actions: http://www.bloomberg.com/apps/news?pid=20601083&sid=ad95AZDGUM9s So while many pairs are falling lately, the Swiss are attempting to put a floor under EUR/CHF in particular. If they are successful, then one could pick up some meager rollover interest daily with minimal downside risks when compared with other currency pairs out there.
Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.html
Also, get a free, real time demo trading station here: http://www.fxedu.com/practice-forex-account
Sean Hyman
www.forextradingblog.com

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Rumors of more Swiss Intervention in EUR/CHF. U.S. Weekly Unemployment Claims Improve!

By Sean Hyman | July 9, 2009
Rumors of Swiss (SNB) intervention catapulted EUR/CHF upward about 60 pips within minutes. Also, the U.S. Weekly Unemployment Claims was quite a bit lower than last time and lower than expectations. So that’s a great improvement. Unemployment Claims came in at 565k vs. 608k expected and 617k the previous month.

Tags: CHF, EUR, fxedu, intervention, lower, minutes, mywealth, pip, pips, Sean Hyman, Swiss, time, U.S., unemployment

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