subject: Where Next for the Forex Markets? [print this page] Where Next for the Forex Markets? Where Next for the Forex Markets?
One of the central reasons for the huge rally of 2009, aside from the natural rebound from the lows, was the vast, practically free, amounts pumped into the system by the various central banks around the world.
This free liquidity, if you can call it that, has had one or two repeats. The ECB's 750bn injection since May this year comes to mind, but this will be as nothing if America does decide to do a 'Quantitative Easing II'.
The equity market bulls are attempting to stay in ahead of any Federal Reserve statement, which is driving up stock markets. This is being assisted by economic data from September and October which is not quite as bleak as the May to August releases.
This clearly is a risky game to be playing as the rumours coming from the US on a new stimulus package are not actually new policy statements but might simply be crude currency manipulation.
America wants the Dollar lower and more Quantitative Easing would be able to deliver this. However the next best thing is the rumour of more money which appears, at the moment, to be accomplishing this goal, without actually costing a cent.
Consequently, the Greenback continues to be the whipping boy in the currency markets.
Goldman's have announced their predictions for the next 6 to 12 months. This will cause the Dollar to weaken further. Whilst I'm unwilling to say whether they are be right or wrong, the simple fact is that a lot of people listen to Goldman's.
The Single Currency seems to have the bit between its teeth and, whilst it is clearly overvalued, as is the Yen and Swiss Franc, the weight of money keeps driving it higher.
If the Federal Reserve really does print more money, the Goldman targets may arrive sooner than the estimated six months. On the other hand, we may get a 'buy the rumour sell the fact' situation. The Dollar may turn straight back round and embark on a surge. If everything was predictable, though, we would all be very rich indeed.
The Single Currency is not far off $1.400 so the forex markets may target this with a squeeze and look for stops and option covering above the mark.
According to a Financial Spreads report, "the Sterling market look to be much more of a problem. Whilst the Greenback was has been slumping against the Swiss Franc, Yen and the Euro, the Pound was failing to make much headway".
In fact, for both spread betting and CFDs, whilst the EUR/USD has rallied around 10% since the end of August, Sterling has struggled to make it far past 3%. There is a worry that, if the market doesn't go in the expected direction, it will find it much easier to go the other way.
If, hypothetically, the US Dollar does find some strength, we may see Sterling falling further than the Euro in the resulting bounce.
The Yen is once again at a 15 year high against the Dollar, despite the fact that markets are still nervous regarding the possibility of further Bank of Japan (BoJ) intervention.
We are now back at the level where the BoJ bought heavily a few weeks ago: 82.80/85. If the BoJ does not show its hand again, and prices dip just a little, we may find the cross falls quickly to the all time lows at 79.70 from April 1995.
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