U.S. Dollar Forex Trading Forecast

There are thoughts that, in spite of some optimism in the financial markets today, the U.S. dollar may still see a little more strength in the forex trading forecast.

Even though U.S. dollar weakness is mostly apparent for now, there are thoughts that enthusiasm for equity rallies and commodity gains could lead to an oversold situation.

Long-term, U.S. dollar weakness is widely expected. However, in the short to medium term, there is a chance that the greenback still has a little strength left in currency trading.

February Existing Home Sales Move Higher

February existing home sales in the U.S. made solid gains. An increase of 5.1% on the month is helping return some of the optimism to the financial markets.

The housing sector has been considered one of the fundamentally important things to the U.S. economy. Along with the stability of the banking system, the housing market is considered essential to recovery from the recession.

It is likely that the rise in existing home sales is due to the affordability of homes that have dropped in value, or that are bought as foreclosures or short sales. No matter the reason, though, some are seeing the latest U.S. existing home sales as a reason for optimism.

Australian Dollar Gains on FX Market as Carry Trade Resumes

The Aussie is gaining in currency trading on the FX market today, beating the U.S. dollar and most other major currencies. For the most part, the Australian dollar is superior in forex trading thanks to the fact that most of the other major currencies are near 0%.

Aussie is make especial strides against the U.S. dollar, the carry trade being one of the most popular moves today. GFT's Boris Schlossberg urges caution on the Australian dollar in FX 360. One never knows when the global economic landscape will change:

However, the flow into the AUD/USD  is based in the assumption that the RBA is finished with its monetary easing policy, a thesis that could prove decidedly false if global economic demand does not rebound by the middle of this year. For the time being, investor optimism is buoying the unit although the 7000 level will prove difficult to overcome is equity flows turn negative once again.

Obama Administration Offers Specifics for New Rescue Effort

Earlier today, the Obama Administration unveiled specifics about a bank rescue initiative meant to help get bad assets of bank balance books. Stock Market Funding reports on some of the amounts of money involved with the latest bank rescue effort:

The administration also said Monday that the initial effort could grow to $1 trillion in purchases eventually, as the program proves successful in attacking the bad-books problem that has been at the heart of the worst banking crisis the United States has seen in seven decades.

The thought remains that as bad assets are removed from balance sheets, lending will increase between banks -- and also between banks and consumers. This is considered vital to getting the economy moving again.

As a result of the confidence felt by the financial markets on this plan -- and the details given by the Obama Administration -- it is thought that perhaps dollar weakness really is about to settle in to stay.

China Will Continue to Buy U.S. Debt

Certainly, China doesn't want to call in all of its currently outstanding U.S. debt. The interest payments must be terribly profitable, and those very payments stop of the U.S. somehow ends up defaulting due to countries becoming jittery and demand pay back. But there has been some concern in recent weeks about whether the Chinese will continue to buy and hold U.S. Treasuries.

This week, though, officials in China have been taking some pains to assure the U.S. that Treauries are still an integral part of the Chinese investment plan -- especially in terms of foreign reserves. But Hu Xiaolian, Vice Governor of the People's Bank of China, also pointed out that it would be keeping tabs on the profitability, stability and safety of U.S. government debt.

The news is likely to be calming to many, but at the same time China still plans to diversify its investments. China is in a position to take on a little more risk in its portfolio, and that means that the country is ready for more profitable investments, such as those in Europe, other currencies and energy ventures.

And, of course, it also means that the U.S. will remain economically beholden China, unable to force its political will on what many are saying will be the economic superpower of the 21st Century.

Forex Trading Forecast: Japanese Yen

The forex trading forecast for the Japanese yen is one of more weakness in the currency market. The yen carry trade is returning as optimism slowly makes a comeback to the financial markets.

Recently, the yen -- along with the U.S. dollar -- has been seen as a safe haven currency. However, as economic stimulus measures start to take effect, and optimism about global economic growth returns, the yen is no longer needed in such a capacity.

However, it is likely that Japanese leaders are not too concerned about this. Japan likes the yen to be relatively weak, giving the country an edge when it comes to exports.

Timothy Geithner Wants New Powers for Government

Timothy Geithner is scheduled to testify before Congress today, expanding on plans for the economy. One of the things he is likely to call for is expanded powers for the government when dealing with non-bank financial institutions.

Geithner's reasoning is that without the ability of the government to intervene and seize failing non-bank entities (notably AIG), the entire U.S. economy is at risk. The FDIC can already take over failing banks, ensuring that they do not cause turmoil. Geithner would like to see similar powers to seize large insurers and other non-bank financial institutions that are on the verge of failure.

It remains to be seen how the financial markets will view this particular suggestion of Geithner's. It comes on the heels of a vote of confidence from Wall Street with regard to the Treasury's latest bank rescue plan, and on supportive words from President Barack Obama on 60 Minutes.

Euro Zone Business Activity on the Rebound

Euro zone business activity is starting to show a slight rebound. Indeed, economic data in both France and Germany are showing some positive signs. These are the two largest -- and most important -- economies in the euro zone. This is leading to speculation that, perhaps, the euro may have reached a bottom against the U.S. dollar.

The euro is still weaker against the sterling in currency trading, however. Britain has been rather aggressive about its economic stimulus measures, employing the quantitative easing that the euro zone leaders have shunned since the beginning of the global financial crisis.

The improvement in the economic data is causing European Central Bank governor Jean Claude Trichet to declare a sort of victory with regard to his policy. GFT's Boris Schlossberg reports, in FX360, the two sides to views about the euro zone economic data:

Today’s data while hardly inspiring does suggest that business activity in EZ's two most important economies may have found a bottom for the time being and could validate Mr. Trichet point of view. Still, the undeniable aspect of today’s reports is that EZ continues to suffer from a very sharp reduction in demand and even if the recovery come it is likely to be very slow and tepid.

While things might look good for now, it may not last in the short term. Long term against the U.S. dollar, however, the euro is likely to regain the upper hand in forex trading.

Will the Hong Kong Dollar Link to the Chinese Yuan?

Even though control of Hong Kong lies with the Chinese government, it is still considered largely autonomous. Hong Kong has its own chief executive (Donald Tsang), and its own currency -- as well as independent financial markets.

Down the road, though, Hong Kong is considering a link to the Chinese yuan in forex trading on the currency market. At some point, the yuan (also called the renminbi) will become fully convertible. At some point, global economic pressures and trade will force the Chinese to allow the yuan to float -- at least partially -- in currency trading.

When that day comes (and it will probably take a few more years), Hong Kong will likely consider a link to the Chinese yuan. It does make sense, since the two are so closely connected. But for the foreseeable future, speculation about a link between the Hong Kong dollar and the Chinese yuan is likely to remain just that: speculation.

U.K. Pound Gains Against Euro in Forex Trading

The British economy has been struggling a great deal in recent months. The Bank of England has been trying a number of strategies in an effort to stimulate the economy, from direct interest rates cuts to quantitative easing. There have been some clues that the efforts have been helping, but one of the major clues appeared today in the form of the inflation report.

Inflation jumped to 3.2% in Britain, surprising many economists and analysts. This inflation is still above the target rate set by the BOE. The news is spurring a rally by the sterling in currency trading.

Indeed, with data out of the euro zone weaker than what is coming out of Britain, it isn't surprising that the U.K. pound is gaining against the euro in forex trading. Also supporting the sterling in currency trading is the significant stock market rally yesterday. Risk appetite could be making a comeback, and that is usually good news for the U.K. pound.

U.K. Pound Pulls Back a Bit in Currency Trading

The U.K. pound has pulled back a bit in currency trading on the FX market today. Thanks to a bit of turmoil in the financial markets, risk aversion is making an appearance after retreating for several days.

Sterling is dropping in FX trading on the news that Timothy Geithner thinks that a Chinese global currency plan might have merit. His comments about exploring such an arrangement sent uncertainty throughout the financial markets.

Even though the U.S. dollar dropped against the euro in forex trading, the pound isn't gaining that much on the dollar. And the sterling is falling to the euro.

The U.K. pound has pulled back a bit in currency trading on the FX market today. Thanks to a bit of turmoil in the financial markets, risk aversion is making an appearance after retreating for several days.

Sterling is dropping in FX trading on the news that Timothy Geithner thinks that a Chinese global currency plan might have merit. His comments about exploring such an arrangement sent uncertainty throughout the financial markets.

Even though the U.S. dollar dropped against the euro in forex trading, the pound isn't gaining that much on the dollar. And the sterling is falling to the euro.

Timothy Geithner Outlines Bill for Seizure of Non-Bank Financial Institutions

Timothy Geithner has been busy this week, making statements and unveiling plans. Today he revealed the outline of legislation the Treasury Department is planning on sending to Congress soon. The bill is meant to give the government the power to seize control of non-bank financial institutions on the verge of collapse. Some of the requirements are set forth in The Wall Street Journal:

Under the bill, the Treasury secretary would have to make "triggering determination" before invoking resolution authority. The secretary would have to find that the firm is in danger of becoming insolvent, that its insolvency would have serious adverse effects on the economy and financial stability, and that taking emergency action would avoid those adverse effects.

"The decision whether to provide financial assistance to the institution or to put it into conservatorship/receivership will be made by the Secretary and the FDIC, and will be informed by the recommendations of the Federal Reserve Board and the appropriate federal regulatory agency" if different from the FDIC, Treasury said.

German Ifo Stabilizes; Euro Moves Higher in Forex Trading

The German Ifo is showing a measure of stability right now, and that is sending the euro higher in forex trading on the currency market. Indeed, with signs of economic stability showing in the euro zone, the euro is well on its way back to 1.4000.

Right now, there isn't any remarkable improvement, but signs of stabilization are seen as positive. Indeed, the stabilizing effect in the euro zone is prompting the EU presidency to deride U.S. economic policies, insisting that they will lead to further problems.

The European Union has been reluctant to spend a great deal on economic stimulus, even as American economic stimulus efforts move toward $12 trillion.

Is The U.S. Actually Considering the Chinese Global Currency Plan?

U.S. Secretary of the Treasury, Timothy Geithner, said today that he is willing to "explore" a plan proposed yesterday by the Chinese with regard to a global currency. He thinks that SDRs might have merits in some cases.

What it this exploration amounts to, however, is really verbal appeasement. The Financial Times reports on the qualifications that accompanied Geithner's response:

But Mr Geithner said any change would be evolutionary and that the synthetic currency, called the International Monetary Fund Special Drawing Rights (SDRs), would not replace the dollar.

He said there would be no "global monetary union" and the future of the dollar in the world system would rest on the US government’s ability to overcome the financial crisis and then put its fiscal house in order.

Of course, such platitudes did little in terms of actual comfort for those worried about just such a global monetary union. Geithner's comments served to send the U.S. dollar lower in forex trading as well, as the comments brought focus again to the massive amounts of debt the U.S. government is piling up.

China Calls for a New Global Reserve Currency

After World War II, the economically powerful nations got together at Bretton Woods to try and hammer out a monetary system. What they decided on, basically, was to make the U.S. dollar the world's reserve currency. The dollar would be tied to gold, and the other currencies would be tied -- within a fixed rate of exchange -- to the dollar. This system came to an end in 1971 when Nixon effectively took the dollar off its by then tenuous tie to gold.

But the U.S. dollar remains the most popular currency in the world -- the world's reserve currency. And the currency by which commodities (such as gold and oil) are priced.

China ready for a new global reserve currency

China wants all of that to change. With U.S. assets becoming less valuable almost by the day, and China poised to become the world's next economic superpower, it is no surprise that Chinese officials are pushing against the U.S. dollar as the reserve currency of choice. GFT's Kathy Lien describes the fight between the U.S. and China over the dollar in FX360:

Last week, China’s Premier expressed their concern about their holdings of U.S. debt. Yesterday, Central Bank Governor Zhou released a paper calling for the IMF to create a “super-sovereign reserve currency,” a proposal that is backed by countries like Russia. Although part of their concern can be attributed to the weakness of the U.S. dollar, China’s comments are probably more politically motivated. Having grown into an economic powerhouse over the past 3 decades, they now have greater ambitions for the Chinese Yuan. At the same time, they want to reduce the global significance of the U.S. dollar and in turn, put themselves on a more level playing field.

China is asking for a reserve currency that is based on shares held by IMF members. These would be called special drawing rights. These rights would be used to effectively supplant the U.S. dollar as a major reserve currency. International trade, commodity pricing and accounting would all be based on this reserve currency.

As one might expect, U.S. leaders are not very fond of the idea. And it is unlikely that China can force it through anytime soon. However, the precarious position of the U.S. economy, and the dollar's likely fundamental weakness in the future, could lead to adoption of some sort of similar system down the road. At the very least, China is likely looking to use the Chinese yuan to supplant the U.S. dollar as a reserve currency.

China is rising. And, with China as our biggest debt holder, the U.S. is in no position to make any demands. While other nations (well, other than Russia and a few others) are unlikely to accept such a drastic step right now, China could be trying to pave the way for the future.

Forex Trading Forecast: Asian Currencies

The forex trading forecast for Asian currencies is looking up, now that there is an expectation of dollar weakness. While the greenback is up today in currency trading, the forex trading forecast isn't nearly so positive.

Risk appetite is making a return to the currency market. Not only does risk appetite help the carry trade, but it also helps emerging market currencies. Right now, Asian currencies are expected to see a rather rapid rise in the future. Bloomberg illustrates this point using the South Korean won:

“What’s behind the rapid gain in the won is the global dollar weakness,” said Jeff Kim, a currency dealer with Korea Exchange Bank in Seoul. “As the won fell at the fastest pace, it’s rising at that speed now.”

Even so, forex trading remains volatile, and care should be taken with regard to the currency market. It is possible that the risk appetite is quickly replaced by risk aversion, and that could result in a complete reversal of currently expected forex trading trends.

U.S. Economy Dips

Numbers are still coming out regarding the U.S. economy in 2008. The latest numbers are that Quarter 4 numbers for last year illustrate a decline at a pace of 6.3%. This represents the largest contraction in about 25 years.

Concerns that the economy hasn't improve in Quarter 1 of this year are lending some help to the U.S. dollar in forex trading today. The euro is down on its own weak economic data, but the euro doesn't have the distinction, yet, of being a safe haven currency.

The U.S. dollar is gaining right now, though, as a curious mix of optimism (shown by a higher stock market opening) and caution (over the economic data) combine to give the greenback a boost. How long it will last is a matter that has been the subject of speculation for some months now.

German Consumer Confidence Drops

The most important economy in the euro zone is the German economy. Germany has the largest economy in Europe, and exerts a great deal of influence over the rest of the euro zone. As a result, the euro depends heavily upon economic data out of Germany for its success in forex trading. Right now, that data is looking a little weak.

Yesterday, it appeared as though German Ifo data was stabilizing. Today, though, consumer confidence information is changing the story. With weaker consumer confidence -- and analysts still waiting for a bottom -- the euro is slipping in forex trading.

Stabilization is still expected, but the levels are low, and not likely to provide a whole lot of help and support to the euro. However, things could change in the futute as the economy improves and focus shifts to fundamentals. Because the euro zone has much less debt than the U.S., that could lead to strength for the euro in forex trading for the long term.

New Zealand Dollar Heads Higher in Currency Trading

Right now, the New Zealand dollar is heading higher in currency trading. Indeed, the kiwi is the biggest winner in forex trading at the moment. The main factor is optimism right now. With global equities on the rise, risk appetite is returning to the financial markets, albeit in fits and starts and with a certain amount of caution.

Due to the interest in making a little bit more with one of the highest yielding currencies among the G7, the carry trade is back on. Forex traders are using the yen carry trade to send the Australian dollar higher in currency trading.

The yen isn't the only currency falling to the kiwi in forex trading, though. The euro and even the aussie are both faltering against the New Zealand dollar's success in currency trading.

The Fed and the U.S. Treasury are "All In"

Right now, the name of the game is economic stimulus. It has been for quite some time now, but the Fed and the Treasury seem to have become really serious recently. FX Street reports that these two agencies are "all in":

The Fed and the US Treasury are now throwing everything into the battle to eliminate dislocations in the financial system, avert a deflationary spiral, and generate growth again over the medium term. Their reasoning is that the US remains mired in a deep recession.

From new initiatives to quantitative easing, the Treasury and the Fed are implementing new programs and increasing the money supply at an unheard of rate. Indeed, there are concerns about the national debt and the fundamental effects these efforts will have down the road.

But, overall, Wall Street seems happy with the moves, and equity markets have been gaining. But other economic indicators -- like GDP and unemployment -- remain a problem.

Japanese Yen Forex Trading Forecast

The Japanese yen forex trading forecast is looking stronger right now. As Japanese officials blast the Chinese plan for a global reserve currency based on IMF drawing rights, the yen is moving higher. Yen is especially high against the euro in forex trading right now, as the 15-nation currency takes a beating over remarks made by the German Finance Minister.

Indeed, the yen is moving higher as Japanese officials assure the markets that currencies will not be a major topic of discussion at an upcoming G20 meeting.

The Japanese yen forex trading forecast is calling for some further gains, especially against the euro. With the euro likely to be forced into quantitative easing -- despite EU leaders' reluctance -- the yen is likely to remain stronger against the euro.

U.S. Consumer Spending on the Rise

Even as the savings rate in the U.S. continues at near 14-year highs, consumer spending is on the rise. Indeed, with inflation creeping back into the U.S. economy, it is no surprise that consumer spending is increasing. But it might be a little early to proclaim the U.S. economy on the road to recovery. The economy still has to overcome the contraction experienced in the last part of 2008, and struggle through this first quarter of 2009.

Indeed, even if consumer spending does increase, it will still have a ways to compensate for spending decreases at the end of last year. The Financial Times reports on U.S. consumer spending trends:

Economists expect that consumer spending could increase by an annual rate of 1 per cent in the first quarter of this year after falling by 4 per cent during the second half of last year.

Another hurdle to U.S. consumer spending is likely to be the fact that personal income fell in February. Personal incomes are on the decline -- thanks to job loss and pay freezes.

Sterling Holds Its Own in Currency Trading

The sterling is holding its own in currency trading against the U.S. dollar right now. Even though the U.K. pound should be dropping in forex trading right now, it is making a small gain on cautious optimism.

There has been a slight return to risk appetite on the currency market, and that generally favors the sterling. However, it may not last. With retail sales continuing to drop, and with expectations for British GDP falling, there isn't much to support the U.K. pound in forex trading at the fundamental level.

Another thing that might be helping sterling is that the euro is falling so precipitously in forex trading against the U.S. dollar right now. That is bringing some of the focus off the problems facing the U.K. pound.

Euro Plummets in Forex Trading

Just as Timothy Geithner sent the U.S. dollar roiling the other day when he talked about considering China's proposal for a new system of reserve currency, today's remarks by the German Finance Minister have sent the euro plummeting in forex trading.

Peer Steinbrueck made comments about the stability of the euro today, and that is sending the euro down dramatically against the U.S. dollar in currency trading. GFT's Boris Schlossberg reports on the German Minister's remarks in FX360:

“Germany, as a member of the EU, has a massive interest in the credibility of the Stability and Growth Pact, which as you know is not taken so seriously by some," Steinbrueck said in a speech to parliament. "If it is not taken seriously, I am telling you, the euro will have trouble one day in terms of its own credibility and stability."

This underscores the importance of what financial leaders have to say. When they make comments, they either instill confidence or fear into financial markets. When the comments are mostly about currencies, forex trading is affected.