Forex Trading TV Video Blog

The strong selling of USD was boosted yesterday after hopes that a possible rescue plan for ‘Ambac Financial Group’, the second largest U.S. bond insurer, would help limit the damage from the ongoing credit crisis. Also yesterday, the US Existing Home Sales for January fell to the lowest level in 9 years while prices slid for the 7th consecutive month, posing a threat to consumer spending; the largest part of the enormous US economy. By the end of the day, the USD remained range bound vs. the EUR, while appreciating the most against its’ high-yielding counterparts, most notably the JPY. Economic data from the US now shows the effects of the worst housing recession in 25 years have spread into other areas of the economy. The Fed Bank of Philadelphia’s general economic index fell this month to -24, the weakest reading in 7 years. With other major sectors such as Employment, the financial markets and business investment; the Fed now has more than just the housing market to contend with when making its monetary policy decision. Currently, the market is pricing at a 65% chance that the Fed will lower its Interest Rate by another 0.25%. Today, traders may expect to see an overall increase in volatility as the US economic calendar filled with eventful releases like the PPI, National Home Price Index as well as the Consumer Confidence data, later in the afternoon. We expect the USD to rally on the back of stronger inflation numbers but weaker consumer confidence could cap the currency’s rise.

The last few weeks have been characterized by Dollar negativity and even despite small gains last week look forward for future downwards pressure on the USD.
A major concern has become the severity of the problems in the US economy and how the Fed can solve such issues to bring some stability to the failing dollar. Last week’s data from virtually every economic sector in the US reflected the growing instability in what once was the benchmark of global economies.

The Fed’s main intervention has been its monumental cuts in US interest rates, as they have been sliced 225bp over the last 7 months. Today’s Existing Home Sales index should give us a good measure of how well it has worked. With lower interest rates, the housing market should expect to see a boost; however expectations have the index down 1.8% to 4.8M. Some felt the rate cuts would spur on new buyers in the market, specifically low income buyers who wouldn’t necessarily be looking as hard if it weren’t for the combination of low prices and low interest rates.

With the dollar already at dangerously low levels versus the major currencies to start the week, any more negative data will likely drive the dollar to record lows versus the EUR and a handful of others. Remarkably, the greenback has pulled itself out of such holes in the recent past, climbing from record setting lows to the EUR to storm back under 1.45. With the week set to see forecasted drops in Durable goods, GDP, Chicago PMI, personal income and spending as well as what will likely be negative comments from several Fed Governors, the dollar looks set to make a slight bearish push before Fed Chairman Ben Bernanke’s Wednesday remarks. Generally Bernanke does enough to reassure dollar investors to push the legendary currency back up to more respectable levels, regardless of the overall negative outlook on today’s US economy. Look for a falling dollar before pressure from Commodities prices drives the greenback up before weeks end.