The one thing that is turning the world upside down

What happened in the span of three weeks that enabled the market to lose its confidence in a global recovery? For some months there, things were going well – numbers out of the US and Europe were promising, they did not give a clear cut date for when things will be back to normal, but they did leave many with a glimmer of hope that it will be soon.

I know I have been mocking all of those optimists in the past, and I am – but really? What is the turning point on the market sentiment, that has caused things to go south in Forex land?

It is not the Jobs numbers out of Europe and the US, if it were, then there would have been no hope in May or April either as jobs still fell hard – just not as hard as in June. It could not be the constant ramblings out of the BRIC’s about a new reserve currency for global consumption - this story has been playing out for six months and has been etched on every Forex online trader’s mind ever since – simply, it has been traded out already.

It cannot be the yapping from ECB president Trichet about how things are getting better later than expected – he did this twice and people expect it already from him.

So what can it be? The easiest answer is buried thousands of feet below us – the black gold, oil. I read an article on Sunday in the New York Times that spoke of how the ups and downs in the price of oil has really hurt the financial sector and its ability to stabilize.
As oil prices fluctuate up and down, losing more than 2/3rds of its highest value and then doubling from there and then dropping off 10% in a week, we see the lack of a pattern and hence - the problem.

Most thriving economies rely on energy to move, when the price of the primary energy source is uncertain from day-day, it makes planning for the future quite difficult. Forex traders and those in the Online Forex arena are not too familiar with this level of volatility.

While currency prices do fluctuate up and down, there are never these massive swings – but lately things have been changing, and I am not so sure this is a good thing for the overall Forex market.

One of the things that made the Forex great was the relative stability, and now it seems as if this era is over. Perhaps China, Brazil, India and Russia can make black gold their new reserve, perhaps this will help stabilize the price.

The idea that something like grease can affect change all over the world is humorous – I just don’t know if I should laugh or cry about it.

US Dollar on a See-saw Ride

The US Dollar jumped higher against most currencies on Friday after a data release showed that the rate of job losses in the US slowed more than expected last month.

The data capped a week filled with very strong data that suggested the US economy will recover before other economies, and that will lead to higher interest rates and boost the value of Dollar related assets.

This Forex trading pattern was a turn for the Dollar which has been trading down on good news during this crisis. This appears to mark a return to simple fundamentals where trades are made based on economic growth and interest rate speculation.

At the close, the Dollar was up 1.3% to the Euro to 1.4181, up 1.5% to the Japanese Yen to 97.54 up .92% to the British Pound to 1.6681, up .34% to the Canadian Dollar to 1.0811, up .6% to the Australian Dollar to .0837 and up 1.2% to the Swiss Franc to 1.0808. The Dollar did lose .3% to the New Zealand Dollar to .672 - it's only loss of the day.

Years of Colonialism is the Sterling's Saving Grace

Moody’s came back yesterday to haunt the British Treasury. Nearly six months after the rating agency lowered the rating on the sovereign nations debt, they came back yesterday with a warning that the country will be in negative territory for the next year to year and a half.

With all the whispering about the true state of the UK economy, publicly seen as stabilizing while privately seen as fledgling, the independent auditors at Moody’s has seemingly undermined political efforts to paint a brighter picture.

The result of this effort was a drop across the board in the Sterling, which has not performed as bad as it could have been after the parliamentary corruption scandal of the early summer. In fact, British lawmakers have been scarcely seen on television or the newspapers for that matter, keeping a low profile to avoid any further scrutiny that could bring back the calls for a House of Commons overhaul.

To this end, even the Exchequer, Alistair Darling and Prime Minister Gordon Brown have been less than visible since the scandal – only talking when necessary and not really saying much when they do.

It should not come as a surprise that Moody’s found the British economy in bad shape and is forecasting a bleak immediate future. With record unemployment, manufacturing and exports down to 50 year lows, cost of basic goods rising considerably and increasing poverty at the middle class level, it is a given that they are in trouble.

However, the opinion I hold on the fate of the Sterling in relationship to the current economic climate is bold, by any accounts, and contradictory to the Moody’s report. Here is why:

I believe that the Sterling is one of the most fairly valued currencies in the Forex online market at this moment because of Gold. The UK spent hundreds of years pillaging and plundering the nations of the world for every natural resource it could find, especially Gold.

So the past 60 years has seen the Brits give back the land they occupied, the deals did not include the treasures. The UK has by far one of the largest collections of Gold reserves, next to the Vatican of course, and the price of this precious metal has been on the rise topping $1,000 per ounce last week.

Even if the economy spends another two years in depression, the value of the Sterling can be stable based on their reserves. I am not a fan of the British economic policies and I do believe that the ease in which they have gone about spending citizen funds on bailouts has contributed to their situation, but I must respect the almighty Sterling – it has for a long time, and will for a long time to come, be worth every penny (or should I say quid?).

Impact of General Motors News on Forex Market

GM did it, they went bankrupt and left the US taxpayers with a 60% stake in a car company. If you consider the money they put into it before – ergo 20 Billion Dollars, they actually own more than 70%, but no matter, the deed was done and the affect on the mood and currency of the US is set. The dollar fell hard yesterday to new long time lows against a bunch of currencies – and in my opinion the pressure will be on it for some time.

You see while the street revels in the stock market gains from the past three months, up over 30%, many attribute that success to the light at the end of the tunnel. There is no real recovery yet, just glimpses of hope that there will be one soon and as an established investor would know, that is all the market needs.

The markets tend to exaggerate their movements, when things might be bleak they panic and sell and when the situation appears to have an end – even though it is not close – they buy. But the Forex Online Market is different; Forex markets cannot hide behind estimates and soft numbers, the market deals with reality mixed in with a little bit of fear. The truth about the US is that they are spending money like crazy, money their president admitted they don’t have, money that the entire world does not own – and as a result the interest rates on their debt instruments are raising. Inflation will hit the US – and most probably England for the same reason. How bad it gets depends upon how both governments handle crises like the GM bankruptcy in the future.

I am a capitalist. Company’s come and company’s go. If the US let them go before they interfered and committed so much money into it, the vacuum that is created will be filled by someone else. The land of opportunity is now stifling that, and it is the change from that value which might come back to bite them in the long run.