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.

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.

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.

Risk Appetite/Aversion a See Saw Act

Lately risk appetite and risk aversion have been performing a see saw act. One week its risk aversion, the next, returning risk appetite. Obviously a return to risk appetite will provide investors with more Forex opportunity than risk aversion. Traditionally the US dollar and the Japanese Yen benefit from risk aversion as investors seek a safe haven from uncertain and volatile markets. Currency strategist Matthew Strauss had this to say about changing risk appetite, “

Japan’s action earlier in the day had contributed to some risk-taking, but investors are still cautious. I wouldn’t put too much into today’s lower risk aversion, because risk appetite can change overnight.”

Higher Yielding Currencies Benefit

On Tuesday a modest increase in risk appetite benefited some higher yielding currencies such as the New Zealand and Australian Dollars as investors took advantage of Forex investment opportunity caused by a global rise in stock markets. All eyes are on the newly confirmed Treasury Secretary Timothy Geithner. Investors are hoping Geithner will move quickly to address the worst economic downturn in decades.

Japan Rescues Troubled Companies

The Japanese government launched a $16.7 billion dollar plan to buy shares in many troubled companies affected by the economic downturn. The move heightened risk appetite and sent investors to the Forex opportunities offered by higher yielding currencies. The Nikkei exchange rose almost 5% during the day on Tuesday. Matthew Strauss, currency strategist at RBC Capital Markets, stated, “We’re seeing a slight increase in risk appetite as most stock markets have risen and therefore we’re seeing dollar/yen gain a little bit.”

Euro Posts Slight Gains

The Euro rose for the first time in weeks and many short term investors took advantage of the Forex opportunity offer by the slight gain. Gains are expected to be short lived as data from the Euro Zone continues to be troubling. Investors will be watching for developments coming out of the Federal Reserve meeting which begins Wednesday and is expected to last two days. Any actions taken by the Fed are bound to affect currency markets and the Forex opportunity they provide.

No ‘Obama Bounce’ in Markets

Many investors were expecting what has been called the ‘Obama bounce’ in markets. Instead the S&P fell to an inauguration day record. Actually, based on 5 decades of data the Dow fell more often than it rose on Inauguration Day. Since by and large Forex markets follow equity markets there has been a slide in major currency pairs and limited Forex opportunity.

Dollar Declines Against Yen

The dollar has risen against the Euro and British pound but it has declined against the Japanese Yen. The dollars performance reflects a flight to safety and does not reflect optimism but pessimism. Newly elected Obama inherits an economy in shambles and many think that the first 100 days of a new administration can define a presidency. Obama is expected to announce many reforms and new monetary policies that can either increase or decrease Forex opportunities.

History On Obama’s Side

Historically Stocks rose in the first 100 days of a President’s term 11 out of 16 times. Political party doesn’t really matter but of the 5 times that equities dropped in the first 100 days, 4 out of the 5 were during Republican Presidencies. The good news is that although Obama has been handed a dismal economy, history is on his side and many economists expect to be celebrating a stronger stock market after the first 100 days of his presidency. Currency markets will most likely follow suit resulting in increased Forex opportunity.

World’s Eyes on Obama

The global economic news has not been good and the world’s eyes are on Obama and the United States which is seen as very proactive in addressing the global recession. In contrast the Euro Zone and the UK are seen as behind the curve in taking necessary action to stem the growing Euro Zone recession. In his inauguration address Obama state, “Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age.”

Obama Administration to Make Economy First Priority

It is a given that the Obama administration will make the economy their first priority. A strong US economy is necessary for the function of the global economy. A smoothly functioning global economy translates into increased Forex opportunities for investors. At present all eyes are on Obama and the new administration.