Forex Trading TV Video Blog

Yesterday, the Dollar gained as investors withdrew from emerging-market assets to the safety of U.S. government debt, in what is set to be the worst financial crisis since the Great Depression. However, while the greenback has appreciated against high-yield currencies, it fell against the Yen. Yesterday’s U.S. jobless data intensified concerns and signaled more trouble for the labor market, which has shed more than 1 million jobs so far in 2008. The report showed that the number of Americans filing for first time jobless benefits spiked to 542,000 last week, more than analysts had expected.

The Dollar advanced against a basket of major currencies, as investors reacted anxiously to the recession by removing their money from risky assets, such as stocks, commodities and high-yield currencies and investing their money in U.S. government bonds and Japanese Yen, which many are borrowing cheaply to finance investments elsewhere. As a result of disappointing U.S. economic data, the USD depreciated against the JPY. Analysts forecast that the bear market will probably continue lending more support to the Japanese Currency. The USD was last down 0.9% at 95.01 JPY; while against the EUR it was at $1.2514.

Meanwhile, concerns regarding the prolonged U.S recession continue to influence the markets. Investors remain nervous about the U.S. automakers, which are seeking $25 billion in emergency loans from Congress, and the viability of banking giant Citigroup, whose shares slid to a 14 year low on Thursday. Based on this data the Federal Reserve had issued a report stating that the U.S. economy is likely to contract in the second half of 2008 and first half of 2009, raising the prospect of a further reduction in the benchmark Interest Rates from an already low of 1%.

The situation in Europe and Asia appear to be even gloomier. Major central banks have been slashing Interest Rates aggressively in an attempt to boost their economies. Figures published this month show that Japan and the Euro-Zone already fell into a recession in the 3rd quarter. According to analysts this may lead to continued gains for the Dollar vs. most currencies, save the Yen.

My Forex Blog

It has been about 4 months since the USD began appreciating with no apparent stops, and several of our traders are finding themselves a bit confused in light of these radical changes.

Let’s try to understand what the main reasons are for this turn of events, and also a special bonus – how you can predict sharp reversals using technical measurements.

Well first, let us understand something. When you hear on the news that the Dollar is gaining strength, it usually mean that the EUR/USD pair is sliding, as this pair is the main gauge for the two leading currencies. Many of the other pairs are acting in accordance simply because the EUR/USD has a heavy impact on the other currencies. However, the USD/JPY cross is a great example that the USD is not appreciating at all fronts and that its strength is still limited.

There are two main factors that are raising the USD so extensively against the EUR. First of all is the basic assumption that most investors are sharing. Their assumption is that every unfortunate data or announcement that comes from the U.S. is affecting predominantly the emerging economies around the globe, especially the leading European nations. This assumption is based on the fact that the U.S. is considered to be the leading force that turns the wheels of global industries. For this reason, the U.S. economy is taken to be one that has better chances to sustain the upcoming turmoil. Furthermore, it is viewed as one which entrepreneurs might continue investing in throughout these difficult times.

Investors around the world are currently seeking to only hold on to their capital, and the U.S is considered to be the relatively safest economy. They are assuming that any mishap that might happened to the U.S. will probably be similarly seen in the Euro-Zone, and therefore even when the U.S. is publishing troublesome data, they are still more concerned with its effects on the rest of the world, and not particularly on the U.S.

The second factor is the ongoing drop in demand for commodities, especially Oil. As we all know the price for a barrel of Crude Oil has recently dropped beneath $55. This has an immense impact on the Dollar, as Crude Oil is traded in U.S. Dollars. As long as Crude Oil demand continues to slide, the USD is expected to continue its bullish trend against the major currencies.

Now, as promised, the special bonus. Most of you are probably familiar with the “W, M” structures on the charts, which are considered to be the most accurate technical tool in the attempt to predict that a reversal is forthcoming. Well, if you’ll open the weekly EUR/USD chart on the ForexYard platform and will zoom out as much as possible, a beautiful view will appear before your eyes. Starting on February 10th an “M” structure began forming on the chart, and was validated on August 24th, as the “M” structure was completed. At this point the EUR/USD was traded at the 1.4700 level, 2200 points above its current rate. Now here’s a thought, if you would have predicted this formation and opened a small position worth only $50,000, right now your profit would have been around $11,000! Sometimes dreams can come true, but without the right tools, you will miss these great opportunities.

My Forex Blog