Euro Dollar Fundamental Question

[Lacanau]

I was doing some reading on the current 'fiscal cliff' situation the US is in. And I started to try and put together major financial events to market shifts.

So looking back to 2008 with the whole Freddy Mac and Fannie Mae incident where the market collapsed in the US, why is it that I see a sharp drop on the EURUSD Monthly from July to November 2008?

By my logic, 1 Euro would be worth US dollars because of its sharp decline in value, especially with all the media coverage on the event. So why is it I see the pair drop? Is there something I'm not getting here?

Cheers,

 

[Rhody Trader]

At that point the markets were largely in panic mode and money was flowing into the safe haven of the USD.

 

[SlowlyButSurely]

I am of the opinion that the markets these days are rather simplistic in how they view events, known as Risk On Risk Off (check it out, there is a lot written on it by large institutions). In a situation such as that the market would have gone to 'risk off' mode and moved investments to US gov bonds, Bund etc as well as the safe haven currencies; JPY, CHF, USD.

 

[NVP]

hey all ........i run a little thread here at T2W to do with strengthmeter trading

heres the action in 2008/9

as you can see most currencies got dumped in later 2008 as yen and usd went ballistic and the dow fell.........(risk off)

then as the market recovered in 2009 it all reversed and traders shorted the Yen and USd to trade equities......

of course it was more complex than that then .......and indeed now......but sometimes people like to call it simplistically and this graphically shows the action well

if its any consolation the blue Euro was probably a "lesser casualty" than other currencies.....like the red GBP who got really stuffed in that 2008 fall........!

remember its all about gradation of strength in currencies......not absolutes

N

 

[SlowlyButSurely]

hey all ........i run a little thread here at T2W to do with strengthmeter trading

Nice, is that a custom indicator? I have seen something similar in the past but not quite the same. If it was custom was it hard to code?

 

[Lacanau]

hey all ........i run a little thread here at T2W to do with strengthmeter trading

heres the action in 2008/9

as you can see most currencies got dumped in later 2008 as yen and usd went ballistic and the dow fell.........(risk off)

then as the market recovered in 2009 it all reversed and traders shorted the Yen and USd to trade equities......

of course it was more complex than that then .......and indeed now......but sometimes people like to call it simplistically and this graphically shows the action well

if its any consolation the blue Euro was probably a "lesser casualty" than other currencies.....like the red GBP who got really stuffed in that 2008 fall........!

remember its all about gradation of strength in currencies......not absolutes

N

Thanks for your reply NVP, i did have a couple of questions though:

What do you mean by risk off? Is this where people rush for safe assets to hold their cash? And even with the US in such turmoil, surely this wouldnt trigger such a large rise in the value of the dollar? Even if it is about the gradation of strength in currency (another concept I would like you to explain further if you could )
If it is as you say the change in strength relative to the other currency, then what would be a fundamental reason behind a much larger drop in the value of the euro compared to the dollar?

When you said in 2009 people started shorting yen and dollar to trade equities, I assume you are talking about hedging out currency risk when trading equities? Could you elaborate further?

I know it may seem a lot of questions but i'm keen to understand your perspective. Thanks