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It’s not the end of the world

Written by A Forex View From Afar on Friday, July 11, 2008

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It’s not the end of the world as we know it and it’s not the end of the financial world. More likely, it’s close to zilch with what is happening right now. The market had already received the antidote for both bankruptcies and high oil prices.

Fannie Mae and Freddie Mac may collapse, but so what? The government/Fed will soon jump to rescue the company to prevent a financial meltdown. Those two companies that did nothing more then fuel the housing boom are now feeling the effects of their own actions.

We must think that behind the companies’ portfolio lies thousands if not millions of families that need to have a roof above their heads. Behind those families and their house contract lies hundreds of investments banks, that won’t be let down by politicians that happily accept donations in their campaigns.

We already had one bailout, and things started to look much better soon after that. It was Bear Stearns back when the Fed first opened the door to their merger and investments office. The same department is probably rubbing their hands for another “acquisition” right now.

Apart from the shareholders, not too many people should worry about the outcome. Bear Stearns was the cause that confirmed the “too big to fail” is really too big to fail, there are no exceptions are made here. If things get worse, it’s very likely the same thing will happen, a bail-out will be signed in a matter of hours of the news that insolvency is here.

The two realtors companies triggered a chain reaction: euro at 1.59, aussie a new top, even the old and tired pound advanced, and of course oil was allowed to get close reaching the $150 barrier.

The question now arises of how long the euro can actually hold this valuation, since the Euro-area is slowing? There are already some voices saying that Q2 GDP will be close to nothing in the euro region. A weaker euro will drag oil lower too, that is of course if nothing further happens again in Nigeria or Iran.

So it’s not the end of the world. Things will resume the normal trend in the following weeks as the muddy water gets clearer. I’m really getting the impression this is the final push for the euro and aussie, keep an eye on the 4 hour charts for a little failure sometime this week.

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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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