Euro Problems Continue in Forex Trading

Euro problems continue in forex trading on the currency market. In currency trading, the euro continues to struggle against the greenback. Two main problems are causing downward pressure on the euro against the U.S. dollar in FX trading today:

The biggest issue right now is probably #2. The euro zone economic policy is uncertain, leading to worries about the state of the economy. Economic stimulus measures haven't been actively adopted, and debate continues over monetary easing. This uncertainty means that the euro is likely to continue struggling in forex trading.

Dollar Gains in FX Trading

The U.S. dollar is up against the euro in forex trading today. The euro is slipping below 1.3000 against the dollar in FX trading. Indeed, the dollar is dominating on the currency market, gaining against the sterling as well.

Greenback is gaining in currency trading this morning mainly on risk aversion. Against the sterling, dollar is gaining as concerns about the stock market and the economy mount. Against the euro in forex trading, the U.S. dollar has an edge in terms of economic stimulus. Euro zone policy makers continue to bicker over course of action, leaving the euro the only major currency not backed by some sort of dramatic economic stimulus effort.

The U.S. dollar is likely to remain ahead in forex trading as long as the economic outlook appears in doubt -- and as long as the U.S. economy is considered better off than the euro zone economy.

The dollar's success is also affecting oil prices in commodities trading, helping send them lower.

Sterling Continues to Struggle in Currency Trading

Late last week, the sterling made a run at 1.5000 in currency trading on the FX market. The pound couldn't manage it, and as a result fell to the dollar in forex trading. Now sterling is solidly below that psychological mark, hovering around the 1.4600 mark.

Most of the problems besetting the pound right now in currency trading have to do with the economy. Economic news the first half of 2009 is expected to be grim. Additionally, the pound is tied to risk appetite in forex trading, so bank stress tests and other stock market news is likely to put pressure on the British currency.

There are some signs, however, that the British economy could be stabilizing, leading to speculation that things might start improving in the latter half of 2009.

Will The Government Lose Big Time on TARP?

Back in fall 2008, the program known as TARP was approved by Congress. The idea was to allow money for banks in trouble at special rates, in exchange for assets. However, even with assets, TARP stands to lose money. BusinessWeek reports on the issues behind possible TARP losses:

Although the Treasury has been taking stock and warrants in companies in exchange for TARP funds, from the start the value of assets it has received has been much less than the TARP money it has doled out. For every $100 of TARP money disbursed, the government has gotten stock and warrants worth just $66 at the time of issuance, [Elizabeth] Warren said in an Apr. 15 interview with Jon Stewart on The Daily Show. The value of those assets has deteriorated further since being issued, she said. 

Of course, there is a possibility that these assets could be worth quite a bit down the road, if the government is willing to hold on to them long-term. However, it will require a substantial turnaround in the stock market -- especially in the financial sector -- for these assets to be worth much of anything. Until then, taxpayers are likely to remain in the hole.

Swiss National Bank Continues Efforts to Weaken Its Currency

The Swiss franc has been lower in currency trading on the FX market recently -- and that's just how officials in Switzerland want it. Indeed, many countries want weak currencies during times of recession. Switzerland is just one of the few willing to intervene in order to get a lower currency.

In the first quarter of 2009, the Swiss National Bank bought $5.84 billion worth of euros in order to help keep its currency lower. The hope was also to help stave off deflation in the economy. Bloomberg reports on the activities of the Swiss in forex trading:

“It shows that they intervened in March,” said Marcus Hettinger, a currency strategist at Credit Suisse in Zurich. “That’s a pretty big move in euro holdings in the quarter. The stronger the franc gets, the greater the risk they’ll intervene again.”

It is clear that Switzerland is no longer content to offer the safe haven currency of choice; indeed, it appears that the Swissie is likely to be kept artificially low for the duration of the recession.

Australian Dollar Continues Steady Rise

The Aussie is rising steadily in currency trading on the FX market. Indeed, ever since the Australian rate cut a couple of weeks ago, the down under currency has been gaining in forex trading.

Even as the carry trade unwinds, the Aussie continues to find support in currency trading. However, risk aversion isn't all gone, reports the Forex Blog:

A pickup in risk aversion in recent weeks has definitely reinvigorated interest in comparatively risky currencies such as the Australian Dollar.

And, the Aussie probably benefitting from the fact that it has a higher yield than assets from other G10 nations -- especially the U.S., Japan, Canada and Britain, which are all below 1%.

U.S. Dollar Pulls Back in Forex Trading

Yesterday, the U.S. dollar was gaining in forex trading as risk aversion sent traders looking for a safe haven. Today, the story has changed. With the stock market on the rebound and Treasury secretary Timothy Geithner sounding optimistic, risk aversion is making an appearance.

Right now, dollar bears are in control, sending the greenback lower in currency trading on the FX market. With focus back on a stock market that is rebounding, and concern about the fundamentals of debt in the economy are a major issue.

However, true economic recovery is a long way off. Before the recession actually ends, we are likely to see some more see-sawing on the financial markets.

Bank of Canada Cuts Interest Rates

Today, the Bank of Canada made a surprise announcement: It announced a cut to interest rates. The rate cut puts Canada on par with the U.S. and Switzerland with the lowest interest rates in the G10.

Canada's new rate is now 0.25%, and it joins the ZIRP crew. The move was made in an effort to help stimulate growth in the Canadian economy. Economic data continues to show weakness, and Canada is trying to keep things moving.

As one might expect, the interest rate cut caused the loonie to lose ground to the U.S. dollar in forex trading on the currency market. Indeed, the Canadian dollar relies heavily on its export economy for success in currency trading, and the global recession has take a lot of that support away.

Forex Trading Forecast: U.K. Pound

The forex trading forecast for the U.K. pound is likely to be determined by the housing market and other economic indicators. Today, on word that the real estate sector has improved, sterling has improved against the dollar -- and the euro -- in currency trading.

However, it is important to take this news with a grain of salt. The Forex Blog reports on how to view the recent bounce in forex trading for the U.K. pound:

In short, it’s difficult to ascertain whether the Pound’s recent upside is a product of technical factors or a genuine improvement in the fundamental situation. On the technical side, the currency had probably become oversold from irrational risk aversion, and the current rally could represent a pullback. Until there is definitive evidence that the British economy has turned the corner and/or that the BOE plan shows signs of success, I would advise skepticism.

Until things start turning around for the economy, things are unlikely to truly improve in currency trading with the sterling.