Fed Agrees to Currency Swaps

Central banks have been making efforts to promote liquidity and stability during this financial crisis. One of the tools used to do this is the currency swap line. An agreement has been reached that creates access to lines between the U.S. Federal Reserve and access to euro, yen, pound and franc. Bloomberg reports on the hopes attached to these swap lines:

“Should the need arise, euro, yen, sterling and Swiss francs would be provided to the Federal Reserve via these additional swap arrangements with the relevant central banks,” the Fed said in a statement today. “Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets.” 

Euro Retreats in Forex Trading

Earlier, risk appetite seemed to be increasing in currency trading on the FX market. Now, however, things appear to be turning a bit. The U.S. stock market is in retreat this morning, and that is spurring demand for the U.S. dollar as a safe haven.

The euro is pulling back in forex trading as confusion and a bit of pessimism return to the financial markets. The U.S. dollar is back in demand as a safe haven. Part of the problem is that bank losses are expected to mount, and Quarter 1 earnings from companies are coming in.

With concern over company earnings, the stock market is pulling back. This means that currencies that rely on the return of growth to the global economy -- currencies like the euro and the pound -- are going to be seeing some trouble today in forex trading.

Risk Appetite Ramps Up on Currency Market

Risk appetite is ramping up on the currency market today. Indeed, even after last week's unemployment data, forex traders seem optimistic. Indeed, after the G20 summit in London last week, there is a renewed positivity with the currency market.

The U.S. dollar is on a roll against the Japanese yen, as risk appetite is the order of the day. Other currencies are also gaining against the yen as the carry trade gains popularity on the hopes that earnings can be made off of yield differences.

Optimism that nations around the world will support economic stimulus efforts is likely to keep risk appetite popular for at least a little while -- unless something happens to shake confidence in the global financial system.

Stress Testing Stress Tests: Regulators Try to Analyze Banks

Federal regulators are trying to figure out how to analyze the stress tests they instituted for banks a couple of months ago. The idea behind the stress tests for banks is to figure out whether or not a bank is likely to survive. Stress tests are meant to help the government figure out which banks are worth helping, and which would represent an endless money pit if the economy reached a certain "critical" point. Stock Market Funding has this on the point of stress tests for banks:

Regulators designed the stress tests to ensure that banks could survive -- and continue lending -- even if the unemployment rate were to rise above 10% and home prices to fall by an additional 25%. The tests, which were conducted largely by economists and experts using mathematical models, seek to determine whether a bank would need more capital to continue lending under such circumstances.

How to analyze these stress tests

The problem now, though, is in trying to figure out how to analyze these stress tests. The government is concerned with figuring out which banks are "worthy" of help, true, but a bigger problem looms: How to shore up lenders without appearing to be helping lost causes.

It all goes back to the matter of perception. As long as there is the perception that the financial system is sound, it is likely to remain so. However, if these stress tests aren't spun the right way, things could get ugly again. And no one wants that, especially since risk appetite is starting to make a solid comeback in many markets.

U.S. Dollar Gains in Currency Trading

The U.S. dollar is making gains today in currency trading. While the long-term forex trading forecast for the greenback is in doubt, short-term the dollar seems to be doing well. Most of the dollar's gains today are coming as a result of risk aversion.

April marks the release of Quarter 1 earnings on the stock market, and things are looking pessimistic for investors. The U.S. stock market is down as the Dow struggles. This means that forex traders are looking to the greenback for a safe haven. The U.S. dollar is up in currency trading against the euro, pound, loonie and Aussie.

For now, even though things may change in the future of forex trading, it appears that dollar strength isn't over yet.

U.S. Dollar Forex Trading Forecast: Consumer Confidence on the Rise?

The U.S. dollar forex trading forecast is about to get more interesting. Right now, it appears that consumer confidence is on the rise, which should be helpful to the U.S. economy in terms of recovery. GFT's Boris Schlossberg reports on the latest consumer confidence findings:

Despite the dour labor market data, today’s report indicates that US consumers are slowly beginning to return back to the stores, a development that should prove supportive to the overall US economy given the fact that consumption constitutes more than 70% of the GDP.

Schlossberg reports that consumer confidence has risen to 49.1, which puts it very close to the 50-point level that suggests boom/bust. The idea is that consumer confidence may have bottomed out.

What this actually does to the U.S. dollar in forex trading is another matter. Some feel that the greenback will benefit in currency trading from this positive economic news. Others feel that as soon as the recession starts abating, the dollar will drop as forex traders focus on fundamentals and show wariness for the large amounts of U.S. debt.

Canadian Dollar Continues to Drop in Forex Trading

Many currencies have been seeing success against the U.S. dollar in recent weeks on the FX market. The Canadian dollar, however, is not one of the currencies doing well in forex trading against the greenback. The loonie is struggling, as economic factors continue to pummel the currency on the FX market.

The economic forecast for Canada isn't that great, with spending, employment and construction all shrinking. Indeed, faced with continued economic weakness, Canada is going to join the ranks of countries engaged in quantitative easing. Of course, this decision is only creating more problems for the Canadian dollar in forex trading.

Toxic Debt Could Exceed $4 Trillion Worldwide

One of the issues of great interest to the global economy -- and to the currency market -- is that of toxic debt. Toxic debt are those loans that banks hold that are likely to default. These are sometimes also referred to as toxic assets.

Concerns about toxic debt focus on the fact that as long as banks continue to absorb losses from these loans, the financial system remains in turmoil. This spills over to the FX market and affects which currencies gain and which fall.

The International Monetary Fund, however, has released a report that indicates that toxic debt could reach $4 trillion worldwide. Deterioration in U.S. assets alone is expected to be about $2.2 trillion by the end of 2010.

Until banks can get this toxic assets off their balance sheets and begin moving on, there is a good chance that the current upheaval will remain in full force.

BerkShares and Detroit Cheers: Local Currencies Attempt to Keep Money in the Community

Back during the Great Depression, many communities began circulating their own currencies in order to help local economies and keep business transactions in town. Now this trend is re-emerging as the popularity of local currency systems grows.

One of the latest attempts at a local currency is now being used in Detroit. Detroit is now creating a currency known as Cheers to be used at local businesses. Detroit is one of the hardest-hit metro areas in the U.S. due to recession, so it is little wonder that businesses are trying to encourage some sort of spending in the local economy.

Detroit follows in the footsteps of other local currencies, such as Totnes in Britain and BerkShares in Massachusetts. These communities have been experimenting with local currencies for quite some time. And, while some local currencies were started in order to combat globalism and big box chain stores, now these currencies are springing up in order to combat recession and help boost local economies.

Bank of England Keeps Rate Steady

The Bank of England revealed that it is keeping interest rates on hold right now, at 0.5%. This is not really unexpected, since the BoE has been reluctant (though not as reluctant as the ECB) to cut interest rates.

Instead, the Bank of England has renewed its quantitative easing efforts, joining such countries as the U.S. and Japan. The U.K. pound has moved lower in forex trading as a response to continued emphasis on quantitative easing.

Japanese Yen Falls to U.S. Dollar, Euro in Forex Trading

Japan recently unveiled an economic stimulus plan that has a great deal of focus on quantitative easing. The new plan is expected to help stimulate the Japanese economy, even while it undermines some of the fundamentals though the addition of more government debt.

With the news of the Japanese stimulus plan, combined with better than expected trade data from the U.S., the yen is falling in currency trading. The euro is also gaining in forex trading against the yen, bouncing on better than expected economic news.

Thigs have been volatile for the Japanese yen lately, with safe haven instincts battling with concerns that maybe the yen is no longer the haven it used to be. Additionally, there have been efforts made by the Bank of Japan -- without direct intervention -- to keep the yen weak in currency trading.

Euro Rangebound in Forex Trading

After making some small gains, the euro is finding itself rangebound in forex trading on the currency market today. Attempts to overcome resistance set at around 1.3300 in currency trading have failed, and the euro is languishing.

Right now, there is low volatility on the FX market, even with the latest FOMC meeting minutes release. The news wasn't especially new or ground-breaking, and the Fed took great pains to justify its quantitative easing efforts.

The euro is expected to improve in the future, however, as the global economy improves. Some of the current troubles faced by the euro in forex trading may be due -- in part -- to concerns that economic recovery won't really begin until the end of this year or the beginning of next year.

FOMC Minutes Reveal Concerns About the U.S. Economy

The latest FOMC minutes offer a look into recent decisions by the Fed. Efforts to stimulate the economy by easing credit market conditions are not working as well as hoped, and this has the Fed concerned. Indeed, the quantitative easing associated with buying long-term Treasuries was a main focus of minutes. GFT's Kathy Lien reports in FX360 on the importance of this part of the Fed's actions:

However the most important part of the FOMC minutes was their rationale for buying longer term U.S. Treasuries. The Fed was willing to risk their credibility of maintaining long-run price stability in order to achieve the benefits of purchasing Treasury Securities. Unlike purchases of other specific assets, purchasing Treasuries would have effects across a variety of markets and should ease financial conditions generally while minimizing the central bank’s influence on the allocation of credit. FOMC members agreed that substantial purchases of a range of longer-term assets are appropriate. 

The dour outlook expressed in the FOMC minutes is likely to have an effect on the stock market and other financial markets. If there are concerns about the financial markets and economic recovery, this could lead to the U.S. dollar gaining in forex trading as safe haven demand picks up again.

Even with all of the debt the U.S. is racking up as part of economic stimulus, the dollar is still seen as one of the most stable currencies in the world, and the taxpayer base as one of the most reliable. Even with China casting doubt on U.S. assets, most people in the world trust them. So it is no surprise that during this recession the U.S. dollar has been viewed as a safe haven currency.

Indeed, it will be when solid signs of economic recover start to show themselves that the greenback will sink back into weakness in currency trading on the FX market.

Japan's $154 Billion Stimulus Plan

As the global recession deepens, it is no surprise that a number of countries are taking action. For many countries, the only path left to economic stimulus is quantitative easing. Japan is one of those countries; one of the weapons to be used in order to combat the recession is a $154 billion economic stimulus plan.

For Japan, this is fairly huge. The $154 billion represents about 3% of the country's GDP. There is a tax break for gift money that parents can give their children to buy a home, and there are loan guarantees for financial institutions that want to buy stocks.

More details are expected to be unveiled tomorrow, including measures that should help lending to businesses, unemployment benefits and support the development of solar energy. Japanese officials know that taking on this debt may not be great for the underlying fundamentals of the economy. However, reports the Financial Times, they insist that things could be much worse:

Using fiscal policy aggressively “will damage the already poor fiscal position but tolerating extended deflation and recession would probably be worse for the path of government debt,” he said.

Japan plans to issue bonds in order to help pay for the spending spree. The reasoning behind the increased spending is remarkably similar to that used by the U.S. when defending its large economic stimulus plan spending.

Forex Training: Technical Analysis

One of the ways to increase your chances of success in forex trading is to develop a strategy. One way that you can develop a currency trading strategy is to use technical analysis to determine when to enter or exit a trade.

Technical analysis

Technical analysis is basically the study of charts. You use this method to study what currency prices are doing, and to determine whether one currency is more likely to rise or fall against another. It is based on current and past performances.

You can use technical analysis by drawing trend lines on charts, and by using such techniques as Elliott Wave and Fibonacci to decide when and where to enter or exit a trade. When you develop a forex trading strategy based on the charts (hard data that shows what the currencies are doing), and stick with it, you are more likely to post earnings on a regular basis. Of course, there is no full-proof way to profits, and you are just as likely to lose. A strategy on helps you increase your chances.

Sterling Rangebound in Currency Trading

Even though the U.K. pound is lower against the U.S. dollar in FX trading, it isn't that much lower. Actually, it appears as thought the sterling has settled into a rather wide range in currency trading. FX Street reports on the range expected of the U.K. pound:

"Initial resistance stands at 1.4683 but real test (triple top and upper limit of current range) comes at 1.4778." Said Peter Rosentreich, analyst at ACM - Advanced Currency Markets. On the downside, he expects crucial levels are 1.4620 (recent low) and more importantly a strong floor at 1.4583.

Even so, the U.S. dollar is heavily favored right now in FX trading -- and for good reason. Indicators are that the U.S. economy is improving, while the British economy continues to languish. Until the British economy starts to see some improvement, sterling is likely to remain down in currency trading.

U.S. Dollar Gains in Forex Trading

The U.S. dollar is gaining in forex trading this morning on the news that the U.S. economy is improving. Earnings reports yesterday, especially from Wells Fargo and other financial institutions, are spurring optimism.

Indeed, it's an interesting dynamic today in currency trading on the FX market. Even though risk appetite has improved, the greenback is gaining. Recently, the U.S. dollar has been benefiting from its status as a safe haven currency.

However, it is possible that forex traders are more comfortable with the U.S. dollar right now because the economy is showing signs of improvement while other economies -- especially the euro zone economy -- continue to show weakness. The euro is struggling in forex trading on economic weakness.

Until other economies start to show strength, the U.S. dollar will probably be preferred in forex trading. The underlying fundamentals (like national debt) are not terribly important right now while it appears that things are strengthening for the U.S. on the surface.

Euro Weakens in Currency Trading

Yesterday, the euro was largely rangebound in forex trading on the currency market. Today, though, the euro is moving lower. With concerns over the direction the European Central Bank will be forced to take, it is little surprise that the euro is struggling in currency trading.

Right now, the main concern is that the ECB will be forced into quantitative easing. European leaders have been slow to engage in aggressive economic stimulus, and they have also lowered interest slowly and grudgingly. However, speculation is circulating that the ECB will have little choice in the immediate future. 

The euro zone economy continues to weaken, and it appears that the staid efforts up to this point have not been as effective as leaders would like. As a result, the euro is being punished in forex trading, and there is a good chance it will continue with its losses until more aggressive economic stimulus measures are adopted.

Chinese Yuan Forex Trading Forecast

It is true that individuals cannot trade the Chinese yuan (sometimes called the renminbi) on the FX market. However, movements by the yuan do affect the currency market, and impact other currencies. Right now, the Chinese yuan forex trading forecast is likely to be one of stability. Bloomberg reports on the Chinese yuan in forex trading:

“China’s policy of keeping a relatively stable currency will continue for at least a year,” said Lian Ping, chief economist at Shanghai-based Bank of Communications Ltd., part- owned by HSBC Holdings Plc. “Declines in exports won’t be reversed very soon, although the pace of the drop will be slower in coming months.”

The fact of the matter is that the Chinese yuan is not a free-floating currency, and the government has an extraordinary amount of control over it. As a result, it is possible for China to keep the yuan relatively stable. And right now it is likely to remain somewhat weak since the government wants to help exporters maintain an edge in this global economy.