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Monday, 29 Dec 2008
The End of 2008: Beginning of another Great Depression?
For the first time in decades economists are saying that we are heading for another Great Depression. With stocks continually sliding, sales dropping, and almost all global economies contracting simultaneously, these economists may not be far off with their assessment. It appears the one area left where investors can make money is in forex trading!
USD - USD Loses Strength as Holiday Shopping Disappoints Retailers
After the Christmas holiday passed, many retail stores were expecting a small reversal to the recent economic slump seen around the world. Post-holiday shopping discounts usually lead to a vast increase in consumer spending. This year, however, the credit crisis and economic recession have consumers worried about home financing and individual savings more than holiday shopping, and retailers are feeling the pinch.
For the first time in decades economists are saying that we are heading for another Great Depression. With stocks continually sliding, sales dropping, and almost all global economies contracting simultaneously, these economists may not be far off with their assessment. It appears the one area left where investors can make money is in forex trading. By bailing out of weaker or lower yielding currencies and buying into safe havens, such as the USD or EUR, thereby driving their value higher, traders can make substantial profits.
The USD appears to have lost strength over the holidays and is now trading near the 1.4200 level against the EUR. Supporting this notion is the weakness of the Dollar against the Swiss Franc, which currently trades below 1.0600. Today's rising Crude Oil prices may also indicate a depreciation of the greenback.
As far as USD trading goes, investors would be wise to pay attention to the movement of Crude Oil prices as well as the EUR this week as low volume holiday trading is still underway in the United States with the upcoming New Years celebration on Wednesday night.
EUR - EUR Decimates Competition Prior to 10-Year Anniversary
So far, the EUR has remained the currency-of-choice among many investors throughout this holiday season. In fact, it has almost obtained parity with the Pound Sterling and is steadily climbing against the USD, reaching almost as high as 1.4200. This upswing, if it continues, may indicate a trend that could climb as high as 1.4700 against the greenback; just in time for the New Year's celebration this Wednesday night.
New Year's Day, Thursday, also represents the 10th anniversary of the EUR's existence. Since its inception as an official currency, the EUR has helped lower inflation and increase free trade throughout Europe. Helping the continent regain the strength it lost during the decades following WWII, the EUR has been a stabilizing factor in an otherwise troubled economy. Now, with the global recession, the EUR appears to have become one of the safe-haven currencies of choice among investors as the U.S. markets grow weaker.
With little trading taking place because of the holidays, forex traders can expect to see a continuation of the trends currently in place. With the EUR strengthening across the boards, it may be a wise bet to keep an eye on this somewhat powerful currency. No doubt it won't be enough to prevent the next Great Depression, but it's enough for wise investors to make profits from trading.
JPY - Strengthening JPY a Bane to Japanese Exports
Any other central bank would look upon a strengthening currency as a blessing. Japan, however, may see it as a curse. As the Bank of Japan (BoJ) has intentionally held down the strength of its currency to boost Japanese exports, the recently growing JPY spells recession for the island economy. As exports fall, stocks aren't far behind.
The Japanese Yen was one of the more traded currencies this past week as the holidays closed down the banks throughout Europe and the United States. Despite this, however, the currency failed to see any heavy movement. It appears most investors were out of the market and those who were still actively trading were not large enough to really make an impact. The story won't be much different for the JPY this week. The market movers will be the USD and EUR up until the market closes on 31 December for the New Year celebration.
OIL - Recent Conflict over Gaza Strip has Oil Prices on the Rise
Investors almost witnessed the beginning of a price plummet for Crude Oil last week as most speculators were predicting that the Organization of Petroleum Exporting Countries' (OPEC's) production cut wouldn't be enough to quell the storm. Falling to as low as $36 a barrel last Friday, the price of Oil appears to have found some support today.
During today's early trading hours, investors witnessed the price of Crude Oil swing sharply back up to just under the $40 mark. It appears the recent conflict between Israel and the Gaza Strip has stirred the metaphorical hornet's nest that is the Middle East. Speculation about reduced supply has helped push the price of Oil upward more than the pronounced OPEC production cut did two weeks ago. If this movement sustains itself, and if the USD continues to weaken, traders may see the price of Crude Oil trade between $45-50 a barrel by January 1st.
The pair is in the middle of a steady uptrend, and is testing fresh highs on a daily basis. The very important key resistant level of 1.4150 has been breached and the pair is likely to continue its bullish trend. The Slow Stochastic on the daily chart shows that there is still more room to run and that going long is probably the best choice today.
The hourly chart is showing that the cable is trading in a range with no specific direction for the past 8 trading hours. The very strong support level of 1.4699 has been breached, and the bearish cross on the daily chart's Slow Stochastic indicates that a local bearish move might take the cable back to the 1.4600 levels as a first target price.
The 4 hour chart is showing that the pair still does not have a distinct direction, as the chart appears to be quite horizontal for the past week. However, a bearish cross on the daily chart's Slow Stochastic implying that a possible next move might be a bearish one. Going short with very tight stops might be a good strategy today.
The pair is floating within quite a wide range on the daily chart, and appears to be heading down at the moment. The Slow Stochastic of the daily chart is moderately bearish, and the RSI confirm that bearish notion as well. It appears that going short with tight stops might be the right strategy today.
The Wild Card
Gold prices rose significantly in the last two weeks and peaked at $885 for an ounce. However, daily charts' RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.