Ben Bernanke Thinks the Recession Could End This Year

Ben Bernanke went on 60 Minutes and said that he thinks the recession could end this year. GFT's Boris Schlossberg points this out about the likely direction the Fed will take from this point going forward:

Chairman Bernanke’s focus on repairing the financial system as the primary key to reviving the US economy suggests that the Fed will continue its monetary easing policies for the foreseeable future and most likely indicates that the upcoming FOMC meeting this Wednesday will re-affirm the Fed’s commitment to quantitative easing.

It will be interesting to see whether he is right about the recession -- and what a return to global economic growth will do to the strength of the U.S. dollar on the forex market.

One of the main concerns in terms of economic fundamentals right now is the attractiveness of U.S. government debt. Last week, the U.S. auctioned off large amounts of U.S. Treasuries, and they were rather popular -- even with low yields. U.S. government debt is still considered a "safe" investment. However, it may not remain a desirable investment.

The biggest holder of U.S. debt is China, and Premier Wen Jiabao made it rather clear last week that his country may not continue buying up U.S. government debt. Indeed, the announcement comes not too long after China announced plans to diversify its investments into Europe and into energy concerns. Clearly, China has other interests beyond supporting the consumerist needs of the U.S.

Another problem is that U.S. Treasuries are flooding the market in order to fund economic stimulus efforts. Eventually, as risk appetite returns, U.S. assets will not be as desirable. And the fundamental fact of U.S. debt will make the dollar weaker going forward in forex trading.

Learning Forex Trading with a Demo Account

Because currency trading is so volatile, and because it's always a good idea to know your market, a demo account can be a good idea. When you learn forex trading with a demo account, you get a good idea of how the market works, and you learn some of the ins and outs that are unique to the currency market. I have enjoyed reading about the forex adventures Dustin at Happiness is Better has been having.

Dustin is learning forex trading with a demo account right now. As soon as he feels comfortable with the whole thing, he's going to start using real money to trade. One of the more interesting points he makes in today's update is this one:

An equity position of less than $15,000 means that if I were to “cash in my chips”, I would actually lose money on the entire deal. However, that is not how I learned to trade. I will wait until the trade is positive.

He makes a good point. Even though sometimes it is a good idea to cut your losses and try and make up for it later, in some cases -- especially during volatile times like these -- you might as well wait until the trade goes positive. Of course, the risk is that the trade doesn't go positive and you lose even more. But those are the mistakes a forex demo account can help you work out. Well, as much as they can be worked out. There is no full-proof way to always make money when forex trading.

Japanese Yen Down Against U.S. Dollar in FX Trading

The U.S. dollar is gaining against the Japanese yen in FX trading on the currency market this morning. As risk appetite returns cautiously to forex trading, safe haven currencies are not particularly in favor. The yen is one of the few currencies right now falling to the U.S. dollar in FX trading.

Thanks to a slight return to the carry trade, and some desire for risk, the Japanese yen continues to weaken. For the most part, confidence remains in the stability of the Japanese banking system overall, but forex traders are looking to increase their gains a little bit today -- and that means taking a few more chances as confidence begins to increase.

Another issue is that the Bank of Japan is considering lending to banks in order to flood the market and add liquidity. This would dilute the value of the yen further.

Reserve Bank of Australia May Cut Rates Further

The Reserve Bank of Australia has not ruled out further rates cuts, even though the board recognized that recent efforts have been having the intended effect. After recently cutting rates, there is still room for more Aussie rate cuts, since the RBA rate is higher than many other rates in developed nations. GFT's Boris Schlossberg reports in FX360 on the positive effects of recent rate cuts on Australia's economy:

The ease in monetary policy has had had an immediate impact on Australian housing market as the country’s banks have been able to lower mortgage rates by 375 basis points since the RBA rate cuts began in November. Australia is one of the few G10 members with a predominantly adjustable mortgage rate housing market and therefore aggressive monetary policy easing quickly translates into lower monthly mortgage bills for most Australian consumers.

The Australian dollar remains relatively popular amongst forex traders as well. This is because with a 3.25% yield, the Aussie is one of the high yielders. Australian assets are offering more than such currencies as the U.S. dollar and even the euro.

Korean Won Drops in Currency Trading

The Korean won is struggling in currency trading on the FX market right now, due largely in part to a dollar shortage. Liquidity problems are causing problems in South Korea right now, reports the Forex Blog:

Ultimately, the Won’s decline is being driven by an acute shortage of Dollars. A relatively large portion of Korean public and private debt is denominated in foreign currency. The collapse in liquidity spurred by the credit crisis and consequent decline in bank lending have made it very difficult for South Korean borrowers to procure the requisite Dollars to repay their loans, causing a large imbalance in the supply and demand for the Dollar within Korea

This issue is probably not limited to South Korea. Many Asian currencies have this same trouble in forex trading. This is because the U.S. dollar -- for now -- is the reserve currency of choice. With dollars (and U.S. Treasuries) being used to help stabilize other countries and markets, it is not much of a surprise that dollar shortages are affecting emerging market currencies in Asia and elsewhere.

Housing Data Sends U.S. Dollar Lower Against Euro in Forex Trading

Today, housing market data showed an improvement in starts. This is the first positive data in eight months, and it is having an effect on the U.S. dollar against the euro in forex trading -- sending the greenback lower.
Indeed, with housing market data showing positive, the U.S. dollar is less in demand as a safe haven investment. Instead, both the sterling and the euro are gaining in forex trading on the news.

Other economic data, such as the inflation report, are being combined with the housing market news to provide the Federal Reserve some breathing room. The board is meeting today to make some policy decisions with regard to interest rate (which will likely remain where it's at) and buying U.S. Treasuries. GFT's Kathy Lien offers this insight in FX360 into what is likely to be the next move by the Fed:

For the Federal Reserve, who will be making a monetary policy decision tomorrow, the uptick in the housing market and the tepid inflation pressures are welcome improvements, reducing their need to jump the gun and announce a new program to buy long term U.S. Treasuries. Instead, we expect the Fed to buy themselves time by continuing to postpone any new plans until they see how the economy absorbs their recent stimulus.

It appears that with some optimism returning, the U.S. dollar is set to weaken in currency trading on the FX market. Risk appetite is returning, and traders are looking to take more risks. Additionally, focus will be returning to the fundamentals. With the overwhelming debt burden facing the U.S., and with some question as to how long other countries will continue to buy U.S. Treasuries, there are questions about the long-term outlook for the dollar.

Bank of Japan Increases Quantitative Easing Efforts

The Bank of Japan has announced plans to increase its quantitative easing efforts in an attempt to help stimulate the economy. Here are some of the highlights of Japan's plan to ease monetary policy beyond straight up rate cuts:

These efforts are meant to add liquidity and stability to the Japanese financial system. As far as the Japanese yen is concerned, this is likely to mean more weakness in forex trading.

Is The U.S. Dollar a Measure of Economic Sentiment?

One of the more interesting developments to come out of the recent financial crisis has been the connection between the dollar in forex trading and general global economic sentiment. Indeed, greenback in currency trading has turned into a sort of measure of how people feel about the global economy.

When the dollar is doing well in forex trading, it seems to be an indication that sentiment with regard to the global economy is negative. Buying up stable U.S. assets is an indicator that investors are concerned and interested in a "safer" investment that helps them create capital. When pessimism abounds, the greenback gains in currency trading.

On the other hand, things change when optimism prevails. The U.S. dollar begins to weaken in forex trading when investors feel good about the chances of economic recovery in the relatively near future. Investors feel a little bit better about coming economic growth and begin to take bigger risks on currencies and other investments that provide larger returns.
Going forward, it will be interesting to see how long this connection lasts.

Job Losses Hit U.K. Pound in FX Trading

Economic fundamentals in Britain are showing deterioration at an increased rate right now, bringing the sterling lower in currency trading. One of the biggest hits to the U.K. pound in FX trading, though, has been the job loss data just released. Indeed, the unemployment number was much higher than expected, and that is causing the bottom to pretty much drop out from under the sterling in currency trading.

This comes as optimism had begun to return to the markets. The U.K. pound has been supported recently in FX trading by higher equities -- especially in the U.S. Unfortunately, for the sterling, the reprieve is over and economic realities are ready to re-assert themselves.

Unemployment is an important part of the economy. As an indicator, it offers clues as to future consumer spending and other economic factors.

Swiss Franc Remains Down in Currency Trading

One of the interesting truths about these times is that most countries want a weak currency right now on the FX market. During times of economic crisis and turmoil, weak currencies are at an economic advantage. 

This is just what the Swiss franc is looking for. The Swiss National Bank has done what the Bank of Japan was too afraid to do: Intervene directly in the FX market and force the Swissie lower in forex trading.

Even with Switzerland's surplus, the SNB felt it necessary to essentially devalue its currency. And, while some feel it was a selfish move on the part of the Swiss, others look at the decision in a more altruistic light: Many Eastern European concerns owe money in Swiss francs. With a lower Swissie in forex trading, these economies may see some relief.

Will the Japanese Intervene Like the Swiss?

The Japanese yen remains around 100 in forex trading on the currency market, and this is fueling speculation that maybe the Bank of Japan will intervene directly in the currency market. This speculation has strengthened since the Swiss National Bank blatantly began FX market interference.

Political reasons, though, are likely to keep the Bank of Japan from interfering with the yen, no matter how much it may want to. At any rate, the question of intervention is still entertained by some forex traders. The Forex Blog offers this interesting paradox with regard to the Japanese yen in forex trading:

The likelihood of BOJ intervention is paradoxical. If investors fear intervention, they will sell the Yen, and in turn, minimize the need for intervention. On the other hand, if investors remain skeptical of intervention, they may buythe Yen, which could actually impel the BOJ to intervene.

Even though it is unlikely, the idea of the possibility of Bank of Japan intervention continues to fascinate forex traders. The Japanese like a weaker currency for the export advantages. But as long as the desire for a safe haven continues to decline, it is unlikely that the Bank of Japan will have to resort to currency market intervention to keep the yen down.

Jobless Claims Fell Last Week

Unemployment appears to be slowing as jobless claims fell last week. Continuing claims are still setting records, but there are hopes that all jobs data will start to show a decline in unemployment soon.
Measures of quantitative easing, taken to help stimulate the economy, might filter through as companies are able to retain employees. Additionally, economic stimulus measures aimed ot job creation may also ease the unemployment figures.

Euro Forex Trading Forecast: 1.40?

The euro forex trading forecast is starting to look up again. There is speculation that, with the U.S. dollar likely to weaken, the euro could reach 1.40 in currency trading on the FX market.
Indeed, it is quite likely that the euro will continue to move higher in forex trading as economic stimulus measures take effect and as the U.S. Federal Reserve engages in quantitative easing. GFT's Kathy Lien reports on the euro in forex trading in FX 360:

The EUR/USD is on a tear, having rallied more than 600 pips or 5 percent over the past 24 hours. The significance of Fed's actions continue to resonate over the currency markets and even though we have already seen parabolic moves in the pair, I think it will head higher.

Will Congress Tax AIG Bonuses?

As the calls for AIG blood continue, the House of Representatives prepares to vote on the issue of taxing AIG bonuses. It's not just AIG bonuses, though. All companies receiving bailout money would be subject to the taxes. 

Additionally, there are thoughts that these particularly decisions might lead to government seizure of financial institutions that are on the verge of failure. Stock Market Funding reports on the issue of taxing bailout funds -- as well as government seizure of private institutions:

The taxes would apply to all companies receiving government bailout money, but they are clearly geared toward AIG. President Barack Obama, who took office just under two months ago, told reporters Wednesday that his administration was not responsible for a lack of federal supervision of AIG that preceded the company's demise.

But Obama added, "The buck stops with me." Obama said his administration was consulting with Congress on creating a new "resolution authority" to seize giant institutions like AIG -- including all their toxic assets -- whose collapse in normal bankruptcy could cause calamity in the financial markets.

Quantitative Easing: Is It Over for U.S. Dollar Strength in Forex Trading?

The Federal Reserve can't really lower interest rates any more -- they are already effectively at 0%. So the tool left to the Fed in an effort to increase liquidity and try to get the economy moving again is quantitative easing. 
$1.25 trillion in new purchases
The Fed is going on a shopping spree, prepared to spend more than $1 trillion. Here is a breakdown of the shopping list:

It's all about getting the money moving in an effort to stimulate the economy. But it brings up questions about funding this massive effort. More than $11 trillion has already been committed to economic stimulus efforts so far, and things are starting to look a little scary.
On top of concerns about funding this particular spending effort, there are additional concerns about who will continue to hold U.S. Treasuries. China is diversifying, and Japan may not want to keep holding onto U.S. assets that are increasingly diluted in value. GFT's Boris Schlossberg reports on the possibly positive outcome for the U.S. economy:

Fearing that US may not be able to attract enough foreign capital to finance the ambitious fiscal spending plans put in place, the Fed effectively made itself the buyer of last resort for US Treasuries. So far the gambit has worked with yields on the 10 year bonds dropping by nearly 50 basis points in one day. If the Fed can maintain US bonds yields at the current low levels, it would succeed in minimizing the cost of financing the massive US fiscal deficits and more importantly will be able to monetize most of the toxic debt in the US financial system without triggering serious inflation.

U.S. dollar fundamentals
Irregardless of whether the efforts at quantitative easing help the economy, things are in motion in terms of U.S. dollar strength. All of this debt and spending are resulting in weaker fundamentals for the U.S. dollar. These efforts may help restore confidence and risk appetite, but that just means that the greenback will no longer be wanted as a safe haven currency in forex trading -- that desire is already waning.
Instead, forex traders will start looking at the fundamentals, and see lots and lots and lots of debt. And that means that the U.S. dollar may be weak for some time to come. Good thing our leaders actually want a weak currency...

Commodity Pairs in Currency Trading

The forex trading forecast for commodity currencies is looking pretty good right now. The Canadian dollar, New Zealand dollar and the Australian dollar are all gaining right now.

Commodity prices are on the rise now that there is not much emphasis on the U.S. dollar as a safe haven currency. Risk is returning to the FX market to a certain degree, and investors are starting to look for larger returns.

Canadian Dollar Gains in Currency Trading

The Canadian dollar is gaining in currency trading on the FX market. Thanks to increased retail sales, the loonie is gaining in forex trading on hopes that the economy may still be moving. Kathy Lien reports in FX360 on the retail sales from Canada:

Slowing economic growth and the highest unemployment in 6 years has not prevented Canadians from shopping. Retail sales rose 1.9 percent in the month of January after falling 5.2 percent the previous month. Excluding autos, retail sales only increased 1.3 percent after falling 3.1 percent in December.
It will be interesting to see whether the Canadian economy keeps on moving.