Why is the dollar regaining back its value in the Forex Market?
Martinghoul
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Because the sh1t is hitting the fan...
TheBramble
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Did I miss something?
Are you trading sub-1 minute?
Are you trading sub-1 minute?
B
Black Swan
hmmm...a 500+ point gain* v cable and 800+ v the Euro ain't that dramatic, still miles ahead of the year start where the Euro was sub 1300, but I'd agree with Martin, it *feels* all a bit weird atm. FX is a clusterfook atm (for me anyhow it's in big chunks, not smooth at all, I trade off 2-3hr TFs)..I know it's random but..
Oil is a big factor, also if an equities/commods crash is on the horizon then as an asset class could currencies make a 'come back'?
Oil is a big factor, also if an equities/commods crash is on the horizon then as an asset class could currencies make a 'come back'?
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meanreversion
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Why is the dollar higher against the euro? Tough one, seeing as everything is just rosy in Europe right now.
TheBramble
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I'm really missing something.
Higher than it was when?
24 hours ago?
3 weeks ago?
6 months ago?
Meaningkless without context of period of time being considered.
Higher than it was when?
24 hours ago?
3 weeks ago?
6 months ago?
Meaningkless without context of period of time being considered.
meanreversion
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Er, meaningless full stop I would say.
You are right TheBramble with regards putting the rise withing context, i was really refering to the last 3 - 4 weeks. Anyways I blogged about this very question and here is my take below:
If you are an ardent follower of the market, you would have picked up on the fact that the dollar had being in decline for the last few months. However the last few weeks has seen a reversal of fortunes for the dollar against its trading partners. Why is this?
To put the dollar within context, it bridged the lows made towards the end of 2009 round the later weeks of April 2011, but not the very lows made 2008. However it has now reversed and moved up in an uptrend.
We will look at it against the following back drop: - yield differentials, relative inflation rates, trade flows, and growth prospects.
Let’s look at yield differentials:
The FED as left the fund rates at the lows, set beginning of the crises as such this is not a reason for the increase in value. In fact the ECB has increased rates recently and is expected to increase rates in the coming months, while the bank of England and BOJ are still operating low interest rates.
How about inflation comparison and expectation?
Based on current inflation data for April 2011, the U.S is running at 3.1% year on year compared to 2.4% for Germany and 2.1% for France the two largest EU countries and compared to 3.3% for Canada, 4.5% for U.K and Japans April inflation is yet to be released by its march inflation was 0.3%.
When you compare these figures, and general expectation of inflation by the market, there is no specific reason why the dollar should gain value against any of its trading partners, apart from the UK, which has a markedly higher inflation than the U.S
Where do we then stand with trade flow?
The latest trade flow data released for March shows a trade deficit of $48.2 billion, which was marginally worse than expected. Hence we cannot expect this to be a defining factor for the increase in value for the dollar. However we have to be careful with regards the trade flow data figures as there lag by two months to current situation. However import and export prices for April shows import price increase of 11.1 % year on year compared to 9.6% year on year increase for exports, which will reaffirm the negative flow for trade. In addition demand for U.S securities was at $24 billion slightly below expectation, and far below levels posted late last year.
How about growth?
Well the trade flow pose a negative factor to growth, so we need to look at investments and consumption to see where we are. Construction spending improved for March and came in above expectation at 1.4%, factory order release for May also improved and posted an above expectation of 3%, although compared to Germany which posted a 9% manufacturing order increase and generally has a higher expectation for growth, the figures for the U.S are not outstanding.
In conclusion the reason why we see increase in dollar value is due to the risk aversion of the market due to the euro debt issue and some of the sharp reversal seen within the commodity market. As oppose to other fundamental factors that may impact currency move.
My daily blog http://www.gotofinancialtrader.com/apps/blog/
If you are an ardent follower of the market, you would have picked up on the fact that the dollar had being in decline for the last few months. However the last few weeks has seen a reversal of fortunes for the dollar against its trading partners. Why is this?
To put the dollar within context, it bridged the lows made towards the end of 2009 round the later weeks of April 2011, but not the very lows made 2008. However it has now reversed and moved up in an uptrend.
We will look at it against the following back drop: - yield differentials, relative inflation rates, trade flows, and growth prospects.
Let’s look at yield differentials:
The FED as left the fund rates at the lows, set beginning of the crises as such this is not a reason for the increase in value. In fact the ECB has increased rates recently and is expected to increase rates in the coming months, while the bank of England and BOJ are still operating low interest rates.
How about inflation comparison and expectation?
Based on current inflation data for April 2011, the U.S is running at 3.1% year on year compared to 2.4% for Germany and 2.1% for France the two largest EU countries and compared to 3.3% for Canada, 4.5% for U.K and Japans April inflation is yet to be released by its march inflation was 0.3%.
When you compare these figures, and general expectation of inflation by the market, there is no specific reason why the dollar should gain value against any of its trading partners, apart from the UK, which has a markedly higher inflation than the U.S
Where do we then stand with trade flow?
The latest trade flow data released for March shows a trade deficit of $48.2 billion, which was marginally worse than expected. Hence we cannot expect this to be a defining factor for the increase in value for the dollar. However we have to be careful with regards the trade flow data figures as there lag by two months to current situation. However import and export prices for April shows import price increase of 11.1 % year on year compared to 9.6% year on year increase for exports, which will reaffirm the negative flow for trade. In addition demand for U.S securities was at $24 billion slightly below expectation, and far below levels posted late last year.
How about growth?
Well the trade flow pose a negative factor to growth, so we need to look at investments and consumption to see where we are. Construction spending improved for March and came in above expectation at 1.4%, factory order release for May also improved and posted an above expectation of 3%, although compared to Germany which posted a 9% manufacturing order increase and generally has a higher expectation for growth, the figures for the U.S are not outstanding.
In conclusion the reason why we see increase in dollar value is due to the risk aversion of the market due to the euro debt issue and some of the sharp reversal seen within the commodity market. As oppose to other fundamental factors that may impact currency move.
My daily blog http://www.gotofinancialtrader.com/apps/blog/
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B
Black Swan
LOL, I didn't see that one coming, genuinely thought it was a new kid asking a decent Q for a change...
meanreversion
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Are you auditioning to write a column for the FT?
You're thinking of reasons to fit the story as it's already happened - how does this help us to trade profitably?
You're thinking of reasons to fit the story as it's already happened - how does this help us to trade profitably?
B
Black Swan
If the FT published 5hite journalism like that I'd right in there asking for a freelance bit of work..
Nope don't write for the FT and certainly not thinking for reasons to fit a story, i just go with probabilities thats all is just my approach. I like to first understand what is going on and then take a position.
For what is worth, i am bearish the dollar on a medium to long term, however flat shorterm. Bear in mind i am mainly a position trader.
For what is worth, i am bearish the dollar on a medium to long term, however flat shorterm. Bear in mind i am mainly a position trader.
meanreversion
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Agreed ... makes Joe Ross look like the genesis of wisdom ...
meanreversion
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You talk like an economist, not a trader. There are plenty of economists who make money, but their delivery is usually a little more polished than yours
I think the dollar was over sold. There was a long trend of sh!t news coming out for the USA apposed to the signs of stabilisation, growth, and interest rate expectations coming out of Europe. It doesn't look like europe is going to fix its turds and recover from the situation very quickly. One thing I have noticed in the fx markets is that old news is easily forgotten. The USA is in the sh!tter but current events put those turds in the back seat for a while. The big guns also seem to run back to the $ regardless of it's situation when other assets start smelling bad.
B
Black Swan
I'm with Saddam, Gaddafi, Ahmadinejad, Dominic Strauss Khan and the Chinese...the dollar is not even worth the paper it's printed on. I suspect once QE3 happens (or versions thereof) the dollar will find another leg down..but wtf, who knows eh?
The problem is the USA have their fingers in so many pies. They should have crashed and burned long ago yet their currency still holds a respectable value. I can't help but wonder how deep the rabbit hole goes in terms of their control in the world.
B
Black Swan
Well you've no doubt read the theories regarding Gaddafi wanting a new League of African nations with its own currency backed by; oil, minerals and diamonds and potentially only selling oil to the Chinese.."lets take the son of a bitch out" and DSK challenging the dollar as the worlds' reserve currency "let's ruin the son of a bitch"..IMHO we're watching the end of an empire, but they won't go down without a fight to the death. The only power the US has is default, bullying with their crusading armies and nukes. I happen to think they've done China with their useless treasury bills, how much foreign reserves does China now hold, $4trl?
tswhtf if oil is eventually priced in Euros, or a basket of currencies weighted to become the new reserve currency, Americans paying $7-8 a gallon at the pump by not being in control??!! Wow..
They produce 5% of the world's oil yet consume 25% and produce the same percentage of waste and pollution. 5% of the planet's population consuming 25% of its resources and creating 25% of its waste and emissions is simply unsustainable. The changes the USA have to go through over the next few decades are going to get very ugly as they keep on with the theft of others resources just to keep the wheels of their commercial interests turning, and without the MIC unemployment in the USA would rise 30%; how bizarre is that, they have to keep selling arms and creating havoc to stop unemployment rising exponentionally...
This isn't a nation or mindset that'll take well to leccy powered cars and wind turbines, yet they could and should have been leading the world on renewables. Instead we get i-pod and MS and their military industrial complex..
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