Forex Strategy

The storm after the calm

While most forex traders were able to grab a week’s holiday and a bit of relief from the turbulence of the past couple of months on the foreign currency trading markets, this week sees a return to stormy waters in forex trading. While everyone was relieved that the US didn’t default on its loans, news this week is that all is not well in the Federal Reserve. The Dollar has had more ups and downs than a fairground ride over the last week, with the majors oscillating wildly ahead of what promises to be a volatile week.

Forex traders are waiting on the Federal Reserve Chairman Ben Bernanke’s Friday speech at the Jackson Hole central bankers’ summit, to try and anticipate which way the financial winds will blow and whether the Dollar will stabilise. Last year, the speech marked the early announcement of QE2 – the $600-billion second round of quantitative easing that set the stage for forex trading strategies across financial markets for the next 10 months. Traders are hoping that Chairman Bernanke’s speech on Friday will do the same and bolster the faltering global recovery.

In Europe, German Chancellor Angela Merkel ruled out the introduction of “Eurobonds” as a way of boosting market confidence and encouraging the top Euro Zone economies to lend to its poorer neighbours such as Greece, Portugal and even Italy. Chancellor Merkel said in an interview that the introduction of Eurobonds would require treaty changes that would “take years” to implement and may even violate the German constitution. So while France and Germany have been actively seeking solutions to the Eurozone’s woes, it seems that there are limits as to how far the two leading economies will go to bail out their neighbours.

In the UK currency trading is going though its usual August lull, with the Pound remaining relatively flat in trading against both the Dollar and the Euro. However, after this week trading across the board kicks back into gear, and it will be worth watching how the Pound performs against the Dollar in particular, depending on the contents of Federal Reserve Charirman Bernanke’s speech at the end of the week.

Over in the Far East, the Tiger had a slight stumble as Thailand announced a slowdown in economic growth during Q2. The figures dropped from 2.6% in the three months to the end of June, down from 3.2% in the first quarter. The Bank of Thailand has raised its benchmark interest rate eight times since July 2010, with the latest hike taking the cost of borrowing to 3.25%. But analysts predict that the weaker-than-expected data may force the central bank to change its stance. As a result currency trading in the Far East primaries was slow last week, but all eyes are now on China, and their reaction to the Jackson Hole speech. China is still jittery about the US’s ability to pay its debts, and is going to need a considerable sweetener if its confidence in its largest trading partner is to return to normal.

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