A Forex View From Afar

Economic Valuations The currency impact

It is pretty clear now the major economies; Euro-zone, Japan, US, Canada, UK and Australia, are heading towards a slowdown. In the last week the market saw confirmation for each of them. Today, the list culminated with the European economy having a negative quarter, lead by its powerhouse: Germany.

From a big-picture perspective the Japanese economy is still suffering from the last recession and still has not totally recovered. The Australian economy has almost two decades of continued growth and this might help weather the financial crisis with more ease. Canada will reborn from its ashes once the U.S. economy expands (it is a unwritten rule). The UK and Euro-zone will probably suffer for some time, as the European consumers, known for their pessimism, can only make things worse.

With all of this the U.S. economy may be facing another issue in its expansion process. The economy was helped in the last quarter by strong a export industry growing under the blanket of a cheap Usd, and in doing so adding an important number of points to the GDP read. The second quarter was helped by the rebate checks. The tax rebate helped a lot the second quarter GDP read, but it will not be there to support the next quarters. Some have even suggested, including Mr. Bernanke, that the tax rebate re-distributed the growth perspective from Q3 and Q4 to Q2. Another tax rebate or tax cuts to encourage spending will have terrible effects in the long run.

As the global economy slows, so will the US exports. In Europe there was a real belief that emerging countries will support the demand side, but up until now it seems there was not too much help when it was needed. Furthermore, how we said earlier the

All this tells reveals that the future is not bright, no matter what economy we are looking at, in regard to easily valuing currency pairs; matching debt loads against low growth, or cheap exports against internal consumption is a complex path, and one that is likely to lead to more volatility on the four hour charts. Right now however, the dollar has it.

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