US Recovers Slightly To Start the Week

Tuesday, 12 October 2010

The USD gained a little bit of needed support to start the trading week Monday – as traders decided that the sell off of the currency had gone too far. As expected, the G7 currency meeting on the weekend reminded many that a currency war is certainly still on the cards after fierce negotiations failed to reach a solid plan of attack (hardly surprising).

As at 2:50pm Hong Kong time on Monday, the USD/JPY was trading at a woeful 81.40 – far below the levels many traders thought the currency pair could reach. In fact, it has been interesting to note that the Japanese Foreign Ministry hasn't intervened yet – potentially as a result of the currency and G7 meetings taking place over the weekend. However, if the currency pair stays at that level for a sustained time, there is almost no doubt that the intervention will eventuate.

One might ask – what is really driving the currency weakness at the moment? The answer is almost certainly the poor performance of the USD.

There is almost no doubt that it is solely the USD which is driving real change in the currency markets at present. The latest figures from America – the non-farm payrolls – showed that the country lost even more jobs in the most recent month. The total now stands at 393,000 jobs lost since June 2010 – a result which ultimately should have been the opposite (i.e. more jobs being awarded than those being taken away).

As you can imagine, these latest figures have people on edge – especially traders. The key question at the moment has now shifted to whether or not the Fed will look upon that most recent jobs number and take quantitative easing steps.

If the rhetoric at the G7 meeting was anything to go by, it might only be a matter of time before further steps are taken to encourage the US economy to get back on course for long term growth.

But where does this position it in the Forex market? Unfortunately, the answer is that it places it ill side of most other countries – which for the most part have experienced a fairly confident level of economic growth in the last few quarters.

Sure – the US has also experienced growth on the whole, but the sustainability of that growth (with the current trend in jobs figures) – is looking increasingly more difficult and shaky each and every day.