Forex Investment and Currency Trading

China announced a substantial fiscal stimulus package over the weekend. While the exact amounts and funding remains unclear at this stage……the underlying tone hints at aggressive fiscal expansion going forward.
After China, Germany remains the last major current account surplus country without
substantial fiscal expansion plans.
Fiscal expansion in China should be accompanied by FX strength.
Fiscal expansion in the US could also lead to further USD strength in the near term.
But given the still large external deficit, concern over Dollar negative - twin deficits- could
intensify.
FX impact of fiscal stimulus in EM countries depends on commodity exposure, external
balances and credit contraction.

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The space between….New weaker economic data and more fiscal spending globally.  This is the space we are in today with no news of consequence other than headlines already out – as the China spending on infrastructure is the focal point for all markets.   The risk of the market still being bearish and giving up on rallies seems high and many folks remain particularly cynical about the ability to spend the crisis away.  The AIG bailout, the downgrades of more EM nations, the very weak European production data, and the surprise cuts from Taiwan – none of that news helps the [...]

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Central bankers communicate with the markets in a number of ways, and their comments can provoke market reactions similar to major economic data release – by that, we mean sharp initial price movements followed by continued volatility or a potential change in direction.

Rate decisions: Interest rate setting committees of central banks meet at regularly scheduled times. At the conclusion of a meeting, they issue a formal announcement of the policy decisions made at the meeting. They can raise, lower, or hold interest rates steady. They can also make changes to reserve requirements or liquidity operations.
Policy statements or guidance: Along with [...]

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A few weeks after releasing its semi-annual World Economic Outlook, the IMF found it necessary to publish a revised outlook following the developments in October. World growth for 2009 has been slashed to 2.2% (from 3.0%), with growth in advance economies expected to contract by 0.3%, the first annual decline during the postwar period. Canada will be one of the few major advance economies skirting a recession, with Europe, the UK, Japan and the US all expected to record negative growth in
2009. The IMF noted that “the economic outlook is exceptionally uncertain”, but added that despite “forceful policy responses”, “there [...]

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Currency markets have been hammered by the ongoing credit crisis, distracting investors to some extent from Tuesday’s US Presidential Election. Historically, a Democratic Presidency with a Democratic Congress has been negative for the USD in the past, while a Republican Presidency with a Democratic Congress has also been negative for the USD. In any case, whoever wins this week will face bleak near-term economic prospects. The US budget deficit is likely to expand significantly. Fundamentally, the policy combination of looser monetary and fiscal policies is offsetting for the exchange rate. Near term, de-leveraging and repatriation may continue to support the [...]

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