Risk aversion seems to be taking a short rest as investors seek Forex opportunities offered by high yielding currencies. The US dollar fell on Friday as news of talks between the US government and Citigroup about funds needed to recapitalize raised expectations on Wall Street and opened the door to increased Forex investment opportunities.

Clinton’s China Visit ‘Reassuring’

Investors are reacting positively to the attention the Obama administration is giving to the troubled US financial sector. Secretary of State Hillary Clinton urged the Chinese government to continue investing in US treasuries pointing out that “our economies are so intertwined” and that if the US was not able to finance deficit spending “it would not be in China’s interest.” Her remarks were well receives and markets responded providing forex investment opportunities in global currency markets.  The official English-language China Daily called the visit ‘reassuring.’

Yen Declines

The dismal economic news from Japan caused the Yen to decline and lose some of its safe haven status in currency markets. Gold rose to $1’006.42 on Friday as many Japanese firms transferred funds into gold which historically is considered a safe haven commodity.

Possible Austrian Credit Downgrade

The dollar’s decline benefited many other currencies such as the Euro and Swiss Franc and forex brokers were quick to take advantage of forex opportunities offered by other currencies. The Euro fell against the dollar on Monday as ECB President Jean-Claude Trichet voiced concerns about the possible downgrade of Austria’s AAA credit rating. Austria would join several Euro Zone countries with downgraded credit ratings which have put downward pressure on the Euro.

US Will Not Nationalize Banks

Stocks rose after the US government announced it would have a 40% stake in CitiGroup easing fears of total bank nationalization and resulting in increased risk appetite and forex opportunities. Joe Manimbo of Ruesch International stated, The Citi report “has improved risk appetite and we’ve seen the dollar extend some of the losses incurred last Friday. In the absence of U.S. data today, that’s setting the tone for a weaker dollar.”

Increased Risk Appetite

Increased risk appetite usually means increased Forex opportunity as investors sell safe haven currencies and seek out the forex opportunities offered by higher yielding currencies. Some economists are predicting a turnaround in the US economy by the fourth quarter of 2009. Let us all hope they are correct in their predictions.

An Unexpected increase in the number of home sales and stimulus measures taken by the US government caused the US dollar to fall as investors assumed more risk taking. Stock markets were up on Tuesday and Forex markets reacted quickly as Forex traders took advantage of new Forex opportunities and dumped the Dollar and Yen.

Rising Equities Fuel Forex Opportunity

Andrew Busch of BMO Capital Markets had this to say, “If we have stabilization in the equity markets, then the fear that caused people to buy U.S. dollars as a safe-haven goes away.” In New York the ICE Futures U.S. dollar index, which measures the Dollar against major currencies fell 1.4% to 84.872 DXY and investors took advantage of newly created Forex opportunities. Mr. Busch also stated, “I’m seeing stabilization in the equity markets and it has to do with the much better-than-expected pending home sales. This is consistent with what we saw with existing home sales and it comes on the heels of a better-than-expected ISM manufacturing number yesterday.”

Stocks Up

US stock markets reacted positively to the news that a group of Republican Senators are offering a $445 billion alternative stimulus plan. The troubled Euro rose 1.5% against the Dollar $1.3038 and the Dollar fell 0.2% against the Yen to 89.29. A return to risk appetite means that Forex brokers will be seeking out newly created Forex opportunities. Speaking about the effects of risk aversion on the Dollar Matt Esteve of Tempus Consulting said, “Euro/dollar has been trading on the back of risk aversion and sentiment in the past couple of days. Any news that brings risk aversion lower and helps lift stocks at this point will hurt the dollar.”

Pending Home Sales Rebound

Pending home sales in the US rebounded in December as prospective home buyers took advantage of lower interest rates and depressed home prices. The news was surprising amid massive job losses in the US and a troubled economy. The Euro rose slightly but any Forex opportunities were mitigated by concerns about rate cuts by the European Central Bank.

Slight Return to Risk Appetite

Good news has been rare and a return to risk appetite, no matter how slight, is always welcome. Many traders will be taking of increased Forex investment opportunity offered by changing conditions.

On Monday the US dollar made sharp gains against the Euro and the Japanese Yen prompted by the stimulus plan announced by the incoming Obama administration and the anticipated cuts by Central banks. Investors were pleased by the Forex opportunities offered by the new administrations plans to institute a proposed stimulus package that could be worth up to $775 billion. The Obama administration is also seeking $310 billion in tax cuts.

Fed and Treasury Pro Active Addressing Crisis

Ron Simpson, director of currency research at Action Economics had this to say, “The combination of tax cuts, infrastructure spending and job creation under the Obama stimulus package takes out some of the pain from the economic recession we’re in. The Federal Reserve and U.S. Treasury are being pro-active in dealing with this crisis. I think at some juncture, the U.S. efforts would turn the economy around quicker than many of the other countries and that should be dollar-positive.â€



Yen at Three Week Low

The Yen fell to three week lows as risk appetite and Forex opportunity returns amid hopes for global economic recovery and stock market gains. Some analysts believe that the Euro’s recent gains were too fast given the dismal state of the Euro Zone economy. Against the yen, the dollar climbed to 93.56 yen its highest since December 8. The Japanese currency gained 19% in 2008 as investors sold assets financed with the Yen’

s cheap rates and took advantage of the Forex opportunities offered by the Yen.

ECB Says More Rate Cuts Needed

The Euro fell after ECB Vice President Lucas Papademos said that more rate cuts may be needed to shield the Euro Zone from a deeper recession. Previously ECB officials have resisted aggressive rate cuts. Figures released Monday showed consumer price growth slowing in December and similar Spanish data showed inflation tumbled to a 10-year low. These figures are putting pressure on the Central Bank to cut rates further.

Many expect the costs of borrowing to fall sharply to 1.75%. Tightening conditions may prompt the ECB to cut rates more aggressively than expected and may also cause a drop in the Euro Dollar rate. Hopefully these moves will create more Forex opportunity for both traders and investors.

The US dollar gained early in 2009 as investors sold Euros after data showed a deepening recession in the Euro Zone. Forex investors and traders also realized that the Euros gains in November were unsustainable. Low trading volumes during the holidays also affected currency markets and the Forex opportunities they normally provide. Dustin Reid, director of Forex strategy at RBS Global Banking & Markets stated, “Indeed markets are thin as many are opting to take today off. “As a consequence, we will not likely see full liquidity back into markets until next week or possibly even the week after.”

Eurozone Manufacturing at 11 Year Low

Euro Zone manufacturing activity fell to an eleven year low which was well below market forecasts. Recently investors have taken advantage of the Forex opportunities offered by the Euro as the US Federal Reserve cut interest rates to near zero, while the European Central Bank has adopted a more gradual approach to cutting interest rates.

Daragh Maher, currency strategist at Calyon in London stated, “Currency markets will struggle to balance the Euro’s upside from interest rates not being cut aggressively with the concern that the economy is destined for a sharp deterioration on the back of this measured policy reaction.”

Pound Falls Further

The Pound fell after data revealed a dismal image of the economy in the UK. Recently the Pound had cone close to parity with the troubled Euro. British mortgage approvals fell to record lows in November and a survey conducted by the Bank of England said that credit conditions will tighten over the next three months. Home prices also declined 2.2% in December.

Dollar Still Offers Safe Haven

Many investors are once again taking advantage of the Forex opportunities and safe haven offered by the US dollar. Market activity is traditionally slow during the holiday season and it is expected that markets will return to normal activity this week.

The US dollar fell to a two week low against the Euro as the US automaker bailout helped calm investor fears and lowered risk aversion. The easing of risk aversion could mean increased Forex opportunity for investors and traders. Kathy Lien, director of currency research at GFT Forex stated, “The bailout has been hanging over the market for the past few weeks and when it happens, it will reduce a big uncertainty in the markets, driving equities and the major currencies higher against the dollar and the yen.â€



Signs of Increased Risk Appetite

The Standard & Poor’s 500 index was up 1.3 percent a sign of increased risk appetite. That led to an easing of the move to unwind carry trades which use the low interest rate Japanese Yen to fund the purchase of higher yielding assets. A 1.1 percent drop in U.S. wholesale inventories, which was larger than expected, posted a record decline in sales as petroleum sales and inventories declined producing Forex opportunities for the Euro against the Dollar.

Bank of Japan Intervention

Some analysts expressed fears of an intervention by the Bank of Japan to prevent too much Yen strength after Bank of Japan Governor Masaaki Shirakawa said he was watching Forex markets carefully. The Yen traditionally is used in carry trades and investors take advantage of the Yen’

s low rates and the Forex opportunities it provides.

Forex Traders Watching US Auto Bailout

Forex traders were watching carefully to see if the if the US House of Representatives would approve the automaker bailout which includes conditions to provide low-interest loans to thwart a threatened industry collapse if one of the three U.S. automakers were to fail. Many believe that the bailout will do little to improve the ailing auto industry and will do little to ease the global recession.

Creation of Forex Opportunities

Any loosening of risk aversion is bound to create Forex opportunities for those savvy enough to spot and take advantage of those opportunities. Some economists expect risk aversion to remain high and believe that risk assets are not justified by the condition of the global economy. It remains to be seen how bailout of the ‘big 3’

will affect Forex markets.

The US dollar fell against some major world currencies as investors anticipated the imminent US automaker bailout. US president elect Obama also announced massive infrastructure projects to help jump start the troubled US economy. The announcements boosted stock markets globally and helped to ease risk aversion. The dollar has done well on Forex markets and has provided many investors with much needed Forex opportunity.

Ease in Risk Aversion

The rise in benchmark world stock indexes sent the low-yielding Japanese yen and U.S. dollar lower against currencies offering higher interest rates and higher risk signaling an ease in risk aversion among investors. Many investors are pinning their hopes on the auto industry bailout and Obama’

s massive job creation plan. Markets were also affected by announcements by governments in Asia and Europe of measures to combat the growing economic crisis.

Risk Appetite Growing

Vassili Serebriakov, currency strategist at Wells Fargo Bank said in a note to clients, “Extensive infrastructure investment proposals reiterated over the weekend by the U.S President-elect Obama, the largest in 50 years, have spurred risk appetite in the equity markets and the dollar and yen are sliding. Some of the optimism is also sourced to the fact that the US auto industry appears likely to avoid bankruptcy - at least for now.â€

 The easing of risk aversion will mean increased Forex opportunities and may stimulate Forex trading.

Auto Bailout and Obama’s Infrastructure Package Affecting Markets

Hopes for the Automaker’s bailout gained ground after Friday’

s dismal employment figures encouraged congress to take action to shield the economy from the credit crunch and a global recession. Marc Chandler, global head of currency strategy at Brown Brothers Harriman stated, “President-elect Obama’s plans to introduce the largest infrastructure package since the 1950’s and progress on an auto sector rescue package have captured the market’s imagination and is weighing on the dollar.”

Risk Appetite Provides Forex Opportunity

Despite the Dollars drop most analysts do not expect the dollar to lose significant ground because investors still remain concerned about the possibility of a deep global recession. In the meantime any easing of risk aversion is bound to create Forex opportunity for investors who have done their homework.

Many analysts remain wary of the bad news from the global economic front and predict that risk aversion will continues for the immediate future. Other analysts believe that even the slightest easing of risk aversion could provide many with Forex investment opportunities.