Risk Aversion Takes a Break

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.

No New Ideas From G7

The weekend G7 meeting, held in Rome, failed to produce any new ideas or policies and many economists consider the meeting a duplicate of the last meeting held in October 2008. Forex investment opportunities are getting harder to find and the dominant theme in currency markets has been risk aversion.

Britain’s Banks To Remain in Private Hands

The Pound once again fell against the dollar amid worries about Britain’s troubled banking sector and the failure of the G7 conference to address currency issues. British Finance Minister Alistair Darling reassured investors that Britain’s banks are best left in private hands amid concerns that Lloyd’s and it’s troubled division HVBOS could be nationalized. Lloyd’s shares fell 17% Monday.  Free markets, especially in the currency sector, have provided many Forex investment opportunities for both Forex brokers and investors.

Dollar and Yen Strong

Since the failure of the G7 conference to address currency issues currency markets have taken their cue from Equities markets. Both the US dollar and the Japanese Yen remain strong and continue to provide safe haven and Forex opportunity for investors. Jeremy Stretch of Rabobank said, “Clearly nervousness about the banking sector and general risk aversion is favouring dollar and yen over other currencies and continues to impact sterling.”

Weak Pound Helps Britain’s Foreign Trade

Many Forex traders had expected the G7 conference to address the Pound’s weakness which caused the Pound to rise against the dollar in Friday’s trading. While the troubled Pound may not be providing investors with Forex investment opportunities it has made Britain more competitive in foreign markets. G7 members said that fighting the global recession and stabilizing financial markets are the highest priorities.

Inaction by ECB

The Euro has fallen against the Pound due to inaction by the European Central Bank which is seen as behind the curve in implementing policies which could lead to monetary easing. The Bank of England will release the minutes of its February meeting on Wednesday and markets will be watching for a move to quantitative easing.

Since the G7 meeting did little to address currencies Forex brokers will be watching other markets for signs of Forex opportunities.

G7 Meets in Rome

The G7 meeting taking place in Rome this weekend is being watched closely by Forex traders seeking new forex investment opportunities in a volatile market. Many forex brokers were betting that the G7 conference will address what many consider to be the excessive strength of the Japanese Yen.

Markets React to US Stimulus Plans

The US dollar was lifted by the announcement by the US government of a plan to subsidize mortgages for homeowners and prevent default by economically troubled homeowners. Stock and commodity markets reacted positively to the news lifting shares on Wall Street and creating forex opportunities for brokers and investors. This weekend forex brokers and investors will shift their attention to the ongoing G7 conference which will undoubtedly affect currency markets and forex investment opportunities.

Japan to React to Excessive Currency Moves

Japanese Finance Minister Shoichi Nakagawa said that the Japanese government would act against excessive currency moves but said that singling out the Yen during the G7 conference would not work due to the spreading global economic crisis. Omer Esiner of Ruesch International stated, “People are selling the yen because I think investors are positioning in case the G7 mentions the currency as being too strong. It may a be a long shot, but I think that what’s keeping the yen weak.”

Investors Seek High Yielding Currencies

UK Chancellor of the Exchequer Alistair Darling indicated that any discussion of foreign exchange by the G7 conference would be “in general terms.” The Yen has fallen 1.4% in 2009 but in 2008 the Yen gained 23% due to the Yen’s safe haven status. Friday’s short lived return to risk taking provided many with forex investment opportunities provided by higher yielding currencies and emerging currencies such as the Brazilian Real.

Lloyds Banking Group Announces 8.5 Billion Pound Loss

The Pound fell after falls in UK bank stocks and after Lloyds Banking Group revealed a large loss related to Lloyds HBOS division. HBOS lost approximately 8.5 billion pounds in 2008 which sent Lloyds shares plummeting putting pressure on the Pound and any forex opportunities it may have provided.

US Markets Closed on Monday

Many analysts believe that currency markets will take their cue from equity markets. Equity markets got a lift last week from the news that the US government is going forward with its plan to subsidize mortgages which in turn benefited forex markets and provided many with forex investment opportunities. Trading is expected to be light on Monday with US markets closed for President’s Day.

Risk Aversion Returns

The dollar fell slightly against the troubled Euro as investors took advantage of Forex opportunities offered by currency markets earlier in the week. Risk aversion returned to currency markets after testimony by Fed President Bernanke and remarks by Treasury Secretary Geithner failed to calm investor dears and limited Forex investment opportunities for many investors.

Obama Plan Lacks Original Ideas

Market consensus was that the $2 trillion dollar rescue plan by the Obama administration addressed key areas needed to prop up the ailing banking industry but lacked original ideas and differed little from the policies of the Bush administration. The lack of original ideas signaled a return to risk aversion as Forex brokers sought out the safe havens of the dollar, Yen, and Swiss Franc.

Geithner’s Remarks Short on Substance

Treasury Secretary Geithner’s remarks were seen as short on substance and detail and disappointed many who had been waiting for specific details on the bailout plan. Adam Fazio of CIBC World Markets stated, “People were expecting the government to come up with details on how to fix things. And it doesn’t sound that more details about the plan are forthcoming, so I think there is more risk inherent in the market.”

BOE To Take Extraordinary Measures

The Pound fell further after a bank of England report suggested that extraordinary measures are needed including monetary easing. Forex opportunities were limited by the global flight to safety on currency exchanges. Market uncertainty remains about the fate of the $838 billion stimulus package passed by the US Senate on Tuesday. Both houses now have to haggle over details of the plan causing further delay and limiting Forex opportunities.

Markets Volatile

Markets remain volatile and Forex traders and investors took advantage of the Forex opportunities earlier in the week when risk aversion eased. Markets were waiting for both Bernanke and Geithner to outline and provide details of the US bank rescue and stimulus plans. The return to risk appetite during this short period provided many Forex opportunities for investors. Markets remain uncertain and the sooner the US congress acts, the better.

Geithner and Bernanke Fail To Provide Specifics

After aslight return to risk appetite on Monday and Tuesday risk aversion returned with a vengeance after remarks by Federal Reserve President Bernanke and Treasury secretary Geithner failed to provide specifics about the rescue packages proposed for the troubled US banking sector. This, in turn, resulted in diminished Forex opportunities. The proposed bailout packages were seen as short on specifics and long on promises.

Plans Not Living Up To Expectations

The long awaited remarks from Geithner said that the US government was considering setting up a public and private fund to buy over $1 trillion dollars worth of toxic assets from banks. The plan was seen by many as fumbling by the Treasury and gave the impression that months into the financial crisis the Fed was still struggling to come up with a coherent plan. This sent many Forex traders and investors to the safe haven and Forex opportunities the Dollar and Yen provide in times of crisis. Matthew Strauss of RBC Capital expressed the thoughts of many when he stated, “Geithner’s new bailout plan did not live up to expectations, by a large margin, and his comments that the government “will have to try things we’ve never tried before” and “we will make mistakes” did not exactly instill market confidence.”

Bank Rescue Plan Disappoints

Earlier in the week the Australian and New Zealand dollars had provided Forex opportunities to many investors but the uncertainty resulting from Geithner’s remarks sent many back to the safe haven and limited forex opportunities offered by the Dollar and the Yen. The US Senate passed an $838 billion dollar stimulus package but this was overshadowed by disappointment over the bank rescue plan.

Bank of England Expected to Lower Rates

Both the House and Senate will now have to debate the details of the plan causing further delay and limiting Forex investment opportunities for many investors. In the UK the Bank of England is expected to lower its growth estimate and there is speculation that the bank may follow the Federal Reserve in cutting rates to zero and possibly adopt quantitative easing.

Risk Aversion Dominant

Risk aversion has been the dominant theme throughout the global financial crisis and has limited Forex opportunity for investors. Returns to risk appetite have been short lived but many investors have been able to snatch up what Forex opportunities were available during these short lived periods. It is becoming obvious that this crisis will take longer to fix than was once thought.

Waiting on Stimulus Details

Markets have been waiting for US Treasury Secretary Timothy Geithner to unveil the proposed bailout plan. Originally the announcement was supposed to take place on Monday but an article in USA Today reported that Mr. Geithner will postpone the announcement until Tuesday. The Obama administration said that on Monday they will focus on convincing the Senate to pass the economic recovery package. Currency markets have also been waiting for Geithner’

s announcement which could either expand or contract Forex opportunities.

Geithner Meets With President’s Working Group on Financial Markets

Geithner met with a little known group known as the President’

s Working Group on Financial Markets. The group was formed in 1987 after a stock market crash and focuses on government response to financial market crises. Markets have been in a sort of limbo since Friday and all eyes are on Washington. It is hoped that the stimulus package will provide investors with new Forex investment opportunity.

Risk Appetite Up

Last week was an active week for Forex trading. The Bank of England cut rates to a 300 year low, the European Central Bank did not cut rates as expected, and the US released dismal employment data. Markets were active and provided investors with several Forex investment opportunities. The Japanese Yen and the US dollar were slightly down and investors took advantage of the Forex opportunities offered by the Aussie and New Zealand dollars. The troubled British Pound rose after the announcement of rate cuts by the BOE.

There was a slight return to risk appetite which opened Forex opportunity to many investors. Risk aversion has been the dominant theme during the global economic crisis and any return to risk appetite is good news to investors.

Stocks Rise Despite Figures

Defying conventional logic stocks rose on Friday despite dismal employment figures released by the US government. The report detailing the deterioration of the US labor market raised expectations that the government will pass the stimulus plan proposed by the Obama administration. Figures showed that 598,000 jobs were lost in January, the largest loss since 1971. A slight return to risk appetite has increased Forex investment opportunities in currency markets.

Return to Risk Appetite

Rising stocks signaled a return to risk appetite and increased the Forex investment opportunities provided by higher yielding currencies such as the Australian and New Zealand dollars. Lending rates in Japan are 0.1% as opposed to 3.5% in New Zealand. The Bank of England cut rates to a historic low of 1% on Thursday, the lowest in 300 years. The European Central Bank did not cut rates as expected but indicated that rates may be cut in March. European data showed that German industrial output fell by 4.6% in December, a larger than expected increase.

Waiting On Washington

All eyes are on the US as legislators struggle to pass a stimulus package. Congressional Republicans have expressed ideological opposition to the bailout plan while the Obama administration says it is needed to avoid an economic catastrophe. Forex opportunities may still be found despite the dismal figures from both sides of the Atlantic. Gregory Salvaggio of Tempus Consulting stated, “Looking beyond today’s terrible figures, everybody now expects the president’s rescue plan to pass and pass fast. That is helping lift stocks and is taking some risk off the table, which in turn leads the market to sell yen and buy back some dollars.”

Risk aversion and risk appetite have been doing a juggling act, going back and forth almost daily. Despite market conditions currency markets still provide Forex opportunities to traders and investors.

Unexpected Good News From the US

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.

The World Economic Forum

The recent decline in stock oil prices caused currency markets to react sharply limiting Forex investment opportunities available to investors. The gathering in Davos Switzerland of business and political leaders from around the world faces a forum dominated by a bleak global economy. The annual gathering which this year includes 40 heads of state and 35 central bankers and corporate heads will attempt to reach agreement addressing the worst financial crisis since the great depression of the 1930’

s.

Crisis Dominates Meeting

Normally the World Economic Forum is a celebration of capitalism, economic, and Forex opportunities but this year was different. This year the world’

s business and financial leaders must address a global economy in turmoil. At the opening session the leaders of Russia and China blamed the US for the global financial crisis and called for reform of the global financial system.

Criticism From China and Russia

Chinese Premier Wen Jiabao blames US banks for the crisis citing their “blind pursuit of profit” and “lack of self-discipline.” Many of those participating in online Forex trading are paying close attention to the Forum which is bound to affect Forex trading and markets. Russian head of state criticized the dependence on the US dollar as the world’

s reserve currency but his statements had little effect on the US dollar and the Forex opportunities it provides traders and investors.

Obama to Attend G20 Summit

Despite the criticisms it is thought that any attempt at reforming the global economic system will be dependent on the actions of the US which has the world’

s largest economy. The presence of the US government at the forum was thin and it is thought that when president Obama attends the G20 summit US plans for global economic reform will be revealed.

Uncertainty About US Policies

The lack of participation by the US has many Forex brokers wondering what future US monetary policy will be. This uncertainty has affected currency markets and reduced Forex opportunities for some traders and investors. News affecting currency markets has been fast and furious leaving those who engage in Forex online trading wondering what the US’

s next move will be.

Dollar Strong Despite Contraction

Despite a 3.8% contraction of the US GDP the dollar remained strong providing investors with Forex opportunity and safe haven. Analysts had expected a 5.5 contraction of the US economy and the news helped to bolster the dollar.  The dollar rose against the Euro and traded at 1.2800 in Thursday’

s late trading.

Rally May Not Last

The dollar remained stable against the Japanese Yen and traded at 89.95 Yen. Kathy Lien a researcher at Global Forex Trading stated, “The smaller drop in GDP drove the US dollar higher against every major currency except for the Japanese yen. However the dollar rally may not last because GDP is a backward looking number. We could still see a larger contraction in growth during the first quarter, especially with the amount of layoffs that have been reported thus far.”

More Unemployment In US

In the US layoffs are expected to continue which could affect the dollar and the Forex investment opportunities it has provided. Analysts say that both the dollar and the Yen are being driven by investor risk aversion as both currencies are seen as the safest in today’

s economic climate. A report quoting billionaire investor George Soros stating that he believes the Euro might not survive if the Euro Zone does not do more addressing the issue of toxic assets further weakened the Euro.

Euro Under Pressure

At present the perception is that the US was the first to deal with the credit crisis and that the US will recover sooner than the Euro Zone. This makes the dollar and the Forex opportunities it provides attractive to investors looking for a safe place to park their money. The Euro also came under pressure from reports that the European Central Bank may slash interest rates even further.

In today’

s markets negative data seems to be the rule rather than the exception. For those with patience and discipline Forex investment opportunities are still out there.