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.

About ForexTrading.com

ForexTrading.com is owned by Saxo Bank A/S. The purpose of ForexTrading.com is to give information on Forex and access to trade Forex online. ForexTrading.com is the entrance to Saxo Bank, a major trading provider for Forex, CFDs, Futures and Managed Funds to private and institutional clients. Saxo Bank has won many of the trading industries' most prestigious awards for it's innovative trading technology and services.

Saxo Bank is a fully licensed and EU-regulated international investment bank, headquartered in Copenhagen, Denmark. Founded in 1992, Saxo Bank has risen to become a leading international investment bank and Internet trading provider to both private and institutional investors.

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.