The Global-View.com Month Ahead Currency Outlook is prepared weekly by the trading professionals at GVI Forex. For information on the GVI Forex Service Click Here Forex markets remain thin and illiquid. It will still take a while for markets to return to normal. Market instability continues to be driven by the recent sell-off in equity markets. It has now become a reflex reaction to buy USD and JPY when equity prices weaken. Weakness in share markets has resulted from worry about the soft global economy. When bids and offers drop out of the markets, prices can go anywhere massive swings have been seen in the latest week in the EUR, JPY and GBP. The past two weeks has seen another coordinated round of interest rate cuts culminating in a surprise -150bp easing by the BOE, and cuts by the ECB and SNB. The ECB continues to be criticized by forex traders as being out of touch with reality. It continues to worry about inflation as the European economy slips into recession. This lack of respect for the central bank has become a weight on the EUR. There has been a key change in the focus of worry in the markets. Now that international banking system has been stabilized, the next worry is about the global economy. As noted, the trading pattern remains the same. On equity weakness, the markets run into the JPY, presumably to pay off JPY financing that had supported carry trade positions. The next step often is then to liquidate EUR longs against the JPY. This cross trade then drives the EUR/USD pair lower. So the major currency relationships are being driven by stocks. For the moment, economic fundamentals and interest rate differentials have been moved to the sidelines. This is called �deleveraging�. The commodity currencies remain volatile as well and trade inversely with the USD. These have been very unstable markets for most currency pairs and are likely to remain that way until this financial crisis has started to fade away. Al the major central banks are on board efforts to stimulate the global economy. Only the ECB is felt not to be participating wholeheartedly. The threat of coordinated central bank intervention has eased. Equity or forex market intervention, or even market controls remain a risk. Time will tell. This is not a time to be placing big bets.
Click on chart for two year history
Click on chart for two year history
Click on chart for two year history
Click on chart for two year history
