Forex Investment and Currency Trading

Global market conditions remained extraordinary in October with implied volatility skyrocketing. Strength in the US dollar was driven by four factors: global de-leveraging, repatriation, liquidity shortage and downside surprises outside of the US. Of these, the series of measures by the US authorities have dealt with the liquidity shortage. US short-term deposit and borrowing rates have come down sharply, although from 3M out they remain elevated compared to the Fed Funds Target Rate (FFTR). Lower interest rates have removed some of the support from the USD. In addition, global investors are sitting on very large cash levels and will have [...]

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Despite numerous downside risks to the US economy and the likelihood of yet more Fed rate cuts before year end owing to the rapid deterioration of the domestic economy, USD has managed to shed its six-year bear market, a trend that is likely to continue. USD gained as the economic outlook elsewhere deteriorated as, if not more, quickly. This suggests policy rate spreads will narrow as the Fed was far ahead in creating stimulative monetary conditions in cutting rates by 375bp. The Fed does face pressure to lower rates further before year-end, but its easing cycle is close to the [...]

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As much as we like to think of the forex market as the be-all and end-all of financial trading markets, it doesn’t exist in a vacuum. You many even have heard of some these other markets: gold, oil, stocks, and bonds.
There’s a fair amount of noise and misinformation about the supposed inter-relationship among these markets and currencies or individual currency pairs. To be sure, you can always find a correlation between two different markets over some period of time, even if it’s only zero (meaning, the two markets aren’t correlated at all).
Be very careful about getting caught up in the [...]

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1 - 3 Month Outlook:
USD suffered staggering body blows in July with the collapse of IndyMac, the third largest banking failure in US history, and a near-death experience by mortgage giants Fannie Mae and Freddie Mac. USD wobbled and net USD shorts did increase, but USD did not test the March 17 low of 70.7. Its resiliency lends support to the view that USD bottomed in Q1. With confidence unstable, USD might struggle to show steady gains over the next 1-3 months, but it is poised to advance.
The response by Congress and the Administration to the Fannie Mae and Freddie [...]

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