Articles

The average person experiences the value of currency as fairly stable from day to day. The price of a cup of coffee every morning is around $1.50, the fixed-interest car payment and mortgage are the same every month, and for a salaried worker, even the paychecks are identical. The fact that the value of currency is constantly fluctuating in relation to other currencies only seems to matter for most people when planning a foreign trip or making an internet purchase from a foreign website. This limited view, however, is mistaken. The indirect impact of exchange rates and their fluctuations extends much more broadly and deeper in ways that affect several of the most important aspects of our economic lives—like how long it takes to get a...

The currency price of one country becomes stronger or weaker against another country's currency on a daily basis, but what exactly does that mean for those who don't trade in the forex market? Currency exchange rates affect travel, exports, imports and the economy. In this article, we'll discuss the nature of currency exchange and its broader impact on people and the economy. For the sake of this article, we will be using the relationship between the Euro and the U.S. dollar as our primary example. More specifically, we will be discussing what happens to the economies of the U.S. and Europe if the Euro trades markedly higher against the U.S. dollar. Although the Euro has recently lost ground against the U.S. dollar (1 USD = 0.89 EUR)...

Following a move to the USA, it led me to thinking more about the world of Forex Markets and how it has such a huge impact on all of our lives as a result of its movement, yet so few of us are even aware of just how important this impact really is. Whether we like it or not, when we live in a particular country and are earning and saving as much of that nation’s currency as we can, we are effectively long that currency. If you live in Great Britain, then basically you are long GBP. If you live in Japan, you are long the Yen. And, if you live in the USA, you are long the dollar and you have a passive interest in the value of the dollar going up. Think about it like this: if you bought a stock and owned it for the long term, you are long...

First of all, congratulations to everyone who made money on the recent Japanese Yen rally. One of my students caught some nice chunks of the recent move lower in USD/JPY, earning 70 pips and 85 pips on successive trades. Way to go, M! The recent strength in the Japanese Yen created some terrific moves, but we should keep things in perspective - the gains made during the recent move lower in NZD/JPY (New Zealand Dollar/Japanese Yen), GBP/JPY (Great Britain Pound/Japanese Yen), and EUR/JPY (Euro/Japanese Yen) and other Yen pairs are nothing compared to the huge profits earned by long-term traders who were short the Japanese Yen when these pairs were rallying. For a case in point, have a look at the daily chart of NZD/JPY (see figure 1)...

Shorting the Japanese Yen has been one of the best and easiest Forex trades over the past six months. Japan's anemic benchmark interest rate of 0.25% makes it an easy target for the "carry trade", allowing Yen bears to collect interest on their trades. Banks, hedge funds and other traders have shorted JPY vs. higher yielding currencies such as the Great Britain Pound, the New Zealand Dollar, the Australian Dollar, and the Euro to take advantage of this interest rate differential. This has ignited a downtrend in the Yen, which has been exacerbated as these institutional traders add to their short positions. Fears that the Bank of Japan would embark on a campaign of interest rate hikes, which would make the carry trade less viable, has...

The emerging market meltdown that occurred between May 12 and June 13, 2006, had an impact on currencies, the carry trade and incredible growth in derivatives over the last decade, as described in Part 1. In summary, here are the issues we will be examining in part 2. An index that has been uncannily accurate in providing advance warning of emerging market trouble and what it is saying now. What the yield curve inversion for the third time in the last six months means. How accurate has it been in the past in warning of a pending slow down? Based on the importance that real estate and related construction activities play in economies around the globe, what impact will a real estate correction have? Real wage growth, a principal...

A look a the current market correction - the 'canary correction' and what may have caused it. When the Morgan Stanley Emerging Markets Index Exchange Traded Fund (EEM) hit an all-time high of $111.10 on May 9, 2006, it marked a meteoric rise from its humble launch price of $33.37 a little more than three years before. Volume had also grown exponentially from a mere 36,300 shares on April 11, 2003, to an average daily exchange of more than 3.5 million shares by early May 2006. caption: Figure 1 - The Morgan Stanley MSCI Emerging Market ETF (EEM) dropped sharply between May 9 and June 13, 2006. May registered the biggest monthly decline in the history of the index, and the drop was only half over. Chart provided by www.Genesisft.com...