Euro/Dollar Ready to Break Support

Am I the only one seeing this? While the Euro has been gaining on the US currency for some days now, it would seem that the bearish stock markets have helped the dollar to move to its support. The Dow Jones Industrial Average fell sharply today, and it is the index which is most likely to influence the dollar. Since the mid-1990s, the index has shown a strong positive correlation with the greenback as foreign investors purchased US equities. Three major forces affect the Dow: 1) Corporate earnings, forecast and actual; 2) Interest rate expectations; and 3) Global considerations. Consequently, these factors channel their way through the dollar. Looking at the chart a support line break would seem likely as stock markets go down. Tomorrow will be an exciting day because a break will trigger a lot of stops.

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They offer links to market scans, stockscreeners, heatmaps, a trading blog, research, current watch lists, market analysis, insider trading, investor fear, spread trading, commitment of traders, and what do you know.. even an automated forex systems :-)

FX volume grew in 2008

According to a report released in April by Connecticut-based financial advisory firm Greenwich Associates foreign exchange volume has increased by 15% from 2007 to 2008. The growth is surprising considering the 28% contraction of hedge fund activity in the forex market last year. Volume generated by hedge funds nearly tripled from 2006 to 2007, and at the time represented 20% of total global forex volume. However, trading volume generated by other market participants increased, including a 43% jump in the retail space and 21% growth by pension funds. Electronic foreign exchange volume received a boost in 2008 as well, growing 37% year-over-year to comprise 53% of total global exchange volume. The report attributes much of the growth to an influx of investors seeking liquid markets and a ‘plain vanilla’ asset class. However, it also claims bid-ask spreads have increased. And despite the argument investors may have fled the turmoil in other markets across the globe, the forex market hasn’t remained unaffected in this respect. Higher volatility and fewer dealer desks have widened spreads, and growing concerns over counterparty risk have made dealers wary of doing business with each other. So are we likely to see conditions worsen for retail traders that are used to getting better offers from year to year? We shall see what will drive the trading retail market.

EURUSD rising

Why is the dollar weakening while the Euro is getting stronger? Aren't we in this financial crisis together? Yes, but the US is getting the blame - rightfully. So you would expect international investors to distrust American financial institutions while moving their money elsewhere, like in the Euro zone.

Let's do a quick recap on the recent history of the EURUSD: in December a strong rally brought the pair to almost 1.48 (US Dollars for a Euro). Not long and it came crashing down again and fell to a bottom at 1.2450, then followed 1.37 in March and now we are back ober 1.36. Above the current level there is the resistance from the last major high. Reasons stated for volatility is the Federal Reserve with a policy of printing money in order to buy government bonds. The trend is expected to continue because - like during the great depression - the US has an interest in devaluing the currency in order to pay back debt, most prominently to the Chinese.

US Dollar at another high

The US Dollar closed the week at another high after rallying up for some days now. In fact Friday saw the biggest gain in almost two months. See chart if you don't believe me. What does this mean for us? Well, if the dollar keeps going up, US products are going to be more affordable for outsiders. That's a good thing. More foreigners will buy more of our stuff. But there is a downside: whatever we buy in a foreign country will be more expensive. Even crude oil is more expensive even though it is paid for in US dollars. But producers in other parts of the world have to accept our dollars and exchange it into their currency. If the dollar is worth less they will want more dollars to make up for that. So we end up paying more.