Currency Market: It's All About Economic Stimulus Exit Strategies

The forex trading forecast right now is all about exit strategies from economic stimulus. Indeed, with slow economic data, many forex traders await decisions from central banks and policy statements that may indicate that it is time to think about exiting economic stimulus efforts. GFT's Kathy Lien reports in FX360 on what to look for this week with regard to the currency market:

With 3 central bank interest rate decisions on the calendar, this should be one those weeks where relative growth and speculation about who will be the first to exit from their ultra easy monetary policies will dictate the flows in the currency market.

Another bit of news making waves is a report from a U.N. panel about the U.S. dollar. For the first time, a multinational panel is bashing the U.S. dollar's prominence as a global reserve currency. This is sending the greenback lower on the currency market and causing general upheaval right now.

U.S. Dollar Struggles in Forex Trading

The U.S. dollar is struggling mightily in forex trading on the currency market this morning. A number of factors have combined to send the greenback down in currency trading, especially against the euro and the sterling.

GFT's Boris Schlossberg offers some insight in FX360 on the drop by the greenback in currency trading:

No love for the dollar in the currency market tonight as the greenback was gang tackled on all sides, pushed lower by budding risk appetite, better economic data out of Europe and Australia and a United Nations report that called for a reduction in the dollar’s prominence as an instrument of global trade. The UN report – the first multinational statement on the issue – argued that dollar’s status as the world’s reserve currency should be subject to reconsideration in light of the major imbalances in global trade that have produced the current financial crisis.

This whole thing appears to be changing the way financial markets are working right now. Or at least enhancing the way they normally work. The comments, and the risk appetite (in addition to being a safe haven currency, gold is also hedge against inflation), have sent gold up above $1,000 per ounce, and has many talking about what could be used as a new global reserve currency.

Are the dollar's days numbered?

European Currencies Rangebound in Forex Trading

The sterling and the euro are taking a breather in currency trading on the FX market today. After yesterday's rally as risk became popular, it is little surprise that European currencies are rangebound in forex trading today. The U.S. dollar is stabilizing, and forex traders are considering the next move.

Yesterday's rally by European currencies was prompted by some hope for economic recovery (dashed a bit by U.S. consumer credit news) and by a desire to sell the dollar in the wake of comments from a U.N. panel about the greenback's fitness as a global reserve currency.

However, things are changing again today, and forex traders are looking at other factors. Action Forex reports on the attempts to make the rally last -- and the inability to follow through:

Overall, the currency market showed some signs that it wants to sell the dollar during the early European session, but it failed make the move as both the S&P futures and crude oil could not find the strength to make new lows. Shortly after that failure to sell commodities, the major pairs started moving side-ways, within the range already developed during early European and Asian sessions.

So, today, it is likely that there will be some consolidation as rangebound European currencies continue to search for purchase in forex trading.

U.S. Dollar Finds Stability in Forex Trading

The U.S. dollar is finding stability in forex trading on the currency market today. After yesterday's U.S. dollar struggles, the greenback is taking a bit of a breather.

Indeed, yesterday's risk rally, in which European currencies moved higher and commodities made a run, has come to a close. Now forex traders and other investors are taking stock of the situation, and things are calming down.

For now, there is likely to be some consolidation. The news out of Australia, not to mention the large decline in consumer credit, is an indication that consumers in developed countries are retrenching, and that it may take some time to reach a new level of global growth.