A Forex View From Afar

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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”.

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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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