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The credit crisis may not be over, but it’s doubled by inflation

Written by A Forex View From Afar on Thursday, June 26, 2008

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Just a while ago the investment world thought they had got rid of the credit crisis and everything was running smoothly, however, it seems as though the crisis just does not want to give up so easily, and now the sub-prime fiasco is now backed by inflation.

It looks now as though it is an unstoppable duo, credit and Inflation, for the world economies, but most for all for the U.S. one. The credit crisis keeps consumer away from loans, while at the same time inflation strains their pockets. I have already laid bare my thoughts on oil and commodities, and it seems that more and more analyst share the same opinion: there is still room to run. Having crude oil trading at $140 per barrel, despite the numerous verbal interventions, can be a good reason to say the commodity market may not have ran out of bulls yet.

Banks and financial company’s credit ratings have been downgraded, sending down the major market indexes. The S&P is heading towards the low of this year, while the Dow Jones is touching the lowest point since September 2006. European shares saw an imposing sell-off, closing the session more then 2% off, while Asian shares barely closed on the green, after 6 days of continued selling.

The problem is now that the tight credit conditions and expensive commodities, translated in $4 gas, are reaching consumer’s pockets. In a recent survey, 7 out of 10 consumers replied that higher gas prices caused them "financial hardship". This is the last thing the US economy needs, consumers that stop spending. Consumers less willing to spend will be immediately be felt in the GDP and growth numbers, dragging down the potential economic development.

This a pessimistic scenario. I’m still remaining optimistic on the US economy, especially on US shoppers unique ability to spend. I’m still bearish over the long term on commodities, but probably my dollar view will need some little tweaking to adjust to the new FOMC statement, and on the other various factors. The weekend is near, the time when thoughts are consolidated and trends are broken. Who knows what will hit next week, outside of the ECB and Aussie rate decisions?

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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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