A Forex View From Afar

A Trader's Look At A Trader's Life

Forex Analysis

Written by A Forex View From Afar on Sunday, December 30, 2007

Bhutto’s son and husband to lead party

FT.com Back to www.TheLFB.com

Political turmoil in Pakistan deepened as Benazir Bhutto’s son Bilawal, a 19-year-old student at Oxford, was surprisingly chosen to succeed the slain opposition leader as chairman of Pakistan’s largest party

Benazir Bhutto’s son Bilawal Bhutto Zardari, a 19-year-old student at Oxford University, will succeed the slain Pakistani opposition leader as chairman of Pakistan’s People’s Party. His father, Asif Ali Zardari (L), was named joint chairman

Update on the new King of Currencies

Written by A Forex View From Afar on Saturday, December 29, 2007

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Go back 5 years and there were hardly any Euro Reserves at all, the US$ dominated. In a relatively small time-frame the German Mark morphed into the Euro, and dragged with it a lot of Sovereign Currencies that were also strong on their own right. This is not about the strength of the US Nation, it is about the Global use of the US Dollar now changing.

Although the Dollar still retains 63% of Reserves, it has lost 4% a year to the Euro. In 5 years time, if that rate continues, it will be close to 50% Euro Reserves. Who knows what will happen, the fact is though it has been an impressive move from the Young Buck. Right or wrong, good or bad, the fact is that the Dollar is no longer 'all dominant' overseas. There will always be a place for it, but in reality the Global Markets are changing, and although it may not be palatable, the Dollar really is not as well respected as it once was.

Nothing to do with patriotism, just stating that there is not the same sentiment towards the Dollar that there used to be. We are not even referring to the $ strength or weakness, in this case we are referring to that fact that not long ago it would have been unthinkable that a brand new currency could grow so quickly.

When trading we really need to separate the country from the currency. Emotional attachment can wreck what may otherwise be good judgement. A weak Dollar does not mean a weak Nation, it means that the notes we carry around are worth 75.50% (the value of the Dollar Index on Friday) of the value of the Dollar in March 1973 when the Index was formed. That is a weakening in the currency that cannot really be argued, can it? It may be no wonder then that there is a diversification from the $; it has been too long used as a vehicle to hedge forward commitments, and a bastion of resort to buy debt from one of the most stable Nations globally.

Without the US Treasury Notes being so sought after as a safe haven, (and they can only be bought in US$'s), goodness know at what value the Dollar would be.

Why not let the Euro take the strain? The greatest periods of US economic strength, have come from periods of US$ weakness. The only downside seems to be pride.

It may not been good form for the Treasury to admit what seems blatantly obvious. Just the same as the Fed stopped reporting Money Supply figures, because the 'cost of producing the data did not warrant the end result'. Ha, what a joke, the Fed seems to have stopped printing Money Supply numbers so that we remain unaware of how many notes are getting printed under the Fractional Banking system. How much does the Fed hold in Reserve? Outside of the 50% of US Government debt that it holds? The Government's Banker holding 50% of the Governments debt? Ok, no wonder that the Money Supply reports stopped.

The Credit and Sub-Prime issues were fed by a lack of transparency, the same may now be happening to the Dollar, who really knows what its value is when it is unclear as to what is actually backing each note printed. No Dollar Bashing, no America Bashing, just asking what most seem to be unconcerned about. I want to know how much the Dollars that I save for my children will be worth when they need it, and without that knowledge I'm not ashamed to say, I'll save half of it in Euro's and swallow the initial exchange rate going against me.

My Views On 2008. Make a note and we will compare what you think will happen.

Written by A Forex View From Afar on Friday, December 28, 2007

At his time of the year we take stock of our 2007 business and set forth the 2008 targets, over the next few weeks some Members of the Analyst Team will be sharing their thoughts. We start the series with a view from Eastern Europe and Buzau Sebastian’s thoughts.

“2007 was a good year for Dollars Bears and Commodity Traders, and up until a certain point, it was good for Stock Traders too. The Dow Jones Industrial rose up to 14000, which is 1700 points higher than the beginning of 2007.

Weak Dollar

For 2008 I see a bad year too for the dollar, history telling us that every Rate Cut cycle held some years before reversing. The US still has a big debt, overseas Investors lost their desire for Treasury Bonds, as seen in the recent TIC Data, and so long as the US Consumer buys more than they can afford, the Trade Balance will only continue to grow.

Since 2008 is an US election year most do not expect the Government to cut its spending, or to have a tight fiscal policy that would otherwise lead to a reduction in Credit. Interest Rates are low at this moment and they seem to be heading even lower, which will only increase the availability of Credit, thereby increasing demand. All of this will only lead the dollar index moving one way; lower.

Strong Euro

In comparison the Euro-Zone fundamentals, its Business Cycle and sentiment are very good at this moment. A favorable Trade Balance with such a strong currency shows that the Economy is in a very good shape. The Euro Zone has a favorable labor market, with the Eastern Europe ready to push qualified workers to the industrial Central and Western Europe. Europe’s Central Bankers are more confident than ever, the last meetings showed that the Members are very confident in the Euro’s strength.

One particularly thing that must be noted by Traders is that the European Union is the only one showing Inflation, outside of Energy, and holding Rates (until now) when the rest of the world are cutting.

The only negative really for the Euro seems to be the politicians, who more and more and picking on the strong Euro and its impact on Exports.

For me 1.5000 and beyond is the target. I also do expect 1.70 to be touched for Eur/Usd.

Gold Hedge

Gold is the favorite tool to hedge Dollar weakness, and so I see a good year for Gold Traders and with it a good year for the Australian Dollar. Even if I don’t expect for gold to under the same rally as 2007, I do expect some testing of the 900-950 area.

Energy Play

Same thought for Oil as Gold really; I don’t expect to see such a rally as in 2007 but neither do I expect it to stay lower than the 70$ area. In 2008 I see more trading in a range, due to the fact that expensive Oil will only develop the search for an alternative fuel sources, like Hydrogen or Ethanol. A good year for both Oil and Gold may create a strong demand for Canadian dollar.

Yen Buying

The Sub-prime problems brought big problem in the market, along with it plenty of insecurity and vagueness. As long that continues it will be felt by the Traders I don’t see any good moves from the Stock and Equity markets. We need to keep in mind that US was heading (until now) towards possible Recession, three periods of GDP negative reads, and that is not a good environment for Corporate profits.

With the Stock market not moving any higher next year, the Yen will be the big winner.

I lay it all down, only time shall prove me wrong”.

The King Is Dying, Long Live The King.

Written by A Forex View From Afar on Friday, December 28, 2007

The US$ share of global foreign-exchange Reserves fell to the lowest level since records began in 1999, as international demand for U.S. assets slumped after the subprime-mortgage market collapsed.

The USD accounted for 63.8% of Reserves at the end of September, down from 65% at the end of June, the International Monetary Fund said today in Washington. The share of Euros increased to 26.4%, from 25.5%.

The figures suggest central banks diversified out of the dollar as it fell to its weakest in a decade. Investors sold a record amount of U.S. securities in August when defaults on subprime mortgages rippled through financial markets and the Federal Reserve signaled it would cut Interest Rates.

Ten Trading Rules

Written by A Forex View From Afar on Friday, December 28, 2007

A Video Review of the ten most important rules that MUST be followed whenever possible.

The Fed, Inflation, and the Blame

Written by A Forex View From Afar on Friday, December 28, 2007

Inflation is the loss of purchasing power of any given currency and/or the general rise in prices. The "or/and" is because even great economist can't give an exact definition of inflation because of its "hidden ways" to appear and its diverse outcomes.

But what economist have agreed upon is that inflation is seen as a necessary evil. We can't have growth without some inflation; but too much seriously affects the economy. The 1980 crisis’ were caused by inflation, economists say.

Inflation has been among us from the longest times; its first recording are from the Roman Empire. By replacing the amount of silver in the Roman coins, with other cheaper raw materials, the Roman population started to lose its faith in coins.

Inflation sources vary, and its effects are wide ranging, and this has been creating a big debate and has split the economist’s word in two big camps: Keynesian and Monetarist.

This is not the place to be continuing this debate, after all we are trading and not writing economy essays. It may be worth mentioning however that the Keynesian group puts the cause of inflation on the shoulder of aggregates demand (meaning goods and services). At the same time the Monetarist approach took form, lead by Milton Friedman, saying that inflation may be caused by an increase the money supply relative to the money demand.

The modern view of inflation is viewed as a combination of both Keynes and Friedman’s work, but in modern times it now tends to lean more towards Friedman.

Forex Traders use Consumer Price Index data to measure inflation in the US, and the Harmonized Index of Consumer Prices to measure inflation in Europe. Since all major Central Banks have inflation target strategies, inflation is very important for Traders. It is important to note that Fed does not have an inflation targeting strategy, but even Mr Bernanke is a well-known promoter of inflation targeting.

If a Central Bank, through various methods, sees inflationist pressures it will take constraining measures on the economy, like raising Interest Rates, by reducing credit availability or by fiscal policy. Researchers have shown that monetary politics will need, on average, 18 months (over 4 quarters) to take effect.

This means that the cause of the Inflation that we see today is probably because of poorly taken monetary decisions over the last year and a half, or from extremely unusual commodity price moves; it is one or the other it seems.

Traders can be heard to say that a Central Bank will not raise or cut because of the currency impact. This is a wrong judgment; the role of a Central Bank is to watch inflation and not to monitor the currency market (which is a free floating environment). Central Banks have thousand of way to influence the currency market, starting from the simplest, like verbal intervention, to more complicated and complex schemes. Interest rates are raised/lower due to inflation anticipation.

Massive inflation is called hyperinflation, this usually happens during wars. The worst of all form of inflation is stagflation, in which inflation is high and the growth is either very small or negative. High inflation requires high interest rates, while to promote growth over medium-long term lower interest rates are required. This is what makes stagflation so difficult to cure.

The opposite of inflation is deflation, what the Japanese economy has been struggling for decades with now.

Socially, inflation is the population’s loss of faith in money, and thus a loss of faith in the Central Bank. This is a major event and must be avoided with all costs. Welcome to the world of the Federal reserve; a cut in rates is needed to stave off a Housing recession, but a rate increase is also required to tame inflationary Energy costs.

About A view From a Afar Forex Trading Blog

Written by A Forex View From Afar on Tuesday, December 25, 2007

TheLFB Team & The View From Afar Blog

The Blog Site is for Traders, it is full of Opinion, and tells things as Traders want to hear them; Direct and Brutally Honest for Forex Trading.

TheLFB was formed by Institutional Traders and Business professionals who were looking to give something back to others. TheLFB Team comprises a mixture of Analysts and Business Professionals who have built and worked in Trading Rooms Globally, and have been involved in the development of Fortune 500 companies. The main LFB website is fun, bright and clean. There are specific areas that cater to all skill sets; Blogging, Analysis, Economic Calendar, Trade desk, Virtual Trade Room, Daily Broadcasts, Trade Alerts, the list is wide and varied.
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© 2008 A Forex View From a far Trading Blog

TheLFB Team & The View From Afar Blog

© 2008 A Forex View From a far Trading Blog

Trade Desk View

Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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