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.

Global Recession Deepening

Signs that the global recession is deepening have investors seeking the Forex opportunity and safety that the US dollar and securities offer. The dollar strengthened Tuesday (Nov, 18) as recently released US economic data sent Forex investors and traders scurrying for the safety of US backed assets. Economic data from the Eurozone and Japan pointed towards a continuing recession in the third quarter and US data showing a decline in home prices added to the unease of Forex traders and investors.

Investors Pull Out of Stocks, Commodities

The dollar has rallied and investors are pulling money out of commodities, stocks and high-yield currencies and placing it in safe haven assets such as US Treasury bonds. Chuck Butler, president of Everbank World Markets in St. Louis. Stated, “More and more, the data that comes out points to a long, protracted recession and none of that is going to do risk taking investors any good.”

Dollar Remains Reserve Currency

According to the US Treasury foreign investors bought $143.4 billion of U.S. securities in September, the largest inflow since early 2006. The UD dollar remains the world’

s reserve currency and continues to offer investors Forex opportunities that other markets cannot match. Testifying before congress Federal Reserve Chairman Ben Bernanke reassured congress that massive demand for the dollar means it remains secure as the world reserve currency and will be providing investors with Forex opportunity.

Dollar Trading Higher Against Yen

In late afternoon trading the dollar fell traded 0.6 percent higher against the Yen but fell short of its session peak. Aversion to risk usually benefits the yen as investors who borrowed it at low interest rates to take advantage of Forex opportunities elsewhere are forced to buy it back to cover their positions. Robert Blake, senior currency strategist at State Street in Boston stated, “We are not … out of the woods yet in terms of risk aversion. We’re kind of still cautious about the environment, where discretionary risk taking in the currency market has been fairly limited.”

Forex Traders, Investors Wary of Risk

As long as Forex traders and investors remain wary of risk the US dollar is set to provide the most Forex opportunity for both. Investors will continue to leave volatile stock and commodity markets and flee to the safety the US dollar and Japanese Yen provide.