A Forex View From Afar

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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.

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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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