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[PanMarcepan]

Source: BBC News

"The dollar has hit a series of historic lows against just about every currency. But the reasons behind the falls are not obvious.
BBC News Online explains" ?

http://news.bbc.co.uk/2/hi/business/3303549.stm

[PanMarcepan]

So...I calculated the percentage gain of the the single currency vs dollar from MAY 2002 until TODAY. It’s not including highs, it’s by today’s price.


Single currency gain vs US dollar since May 2002 up today in order


AUD/USD 45% (from 0.5340 to 0.7790)

EUR/USD 43% (from 0.8840 to 2690)

USD/CHF 34% (from 1.6600 to 1.2340)

GBP/USD 30% (from 1.44 to 1.8732)

USD/JPY 26% (from 132 to 105.4)

USD/CAD 19% (from 1.59 to 1.33)

You can calculate yourself it’ll take 15 min

The correction would be EUR/USD because hit the high of 1.29 that will give 45% but today is 43%.

I understand the US weakness to all currencies.
I understand the AUD strength with its booming economy
I understand CAD weakness because depends on US.
JPY would be higher if not BOJ, I understand too.
CHF is an average and is Proxy for US dollar, I understand too.

But I don’t understand why GBP didn’t gain vs US as much as EUR
Good economy, high interest rates?

Any comments on GBP or other Currencies?
Any comments about EURO vs US ( will it go to 1.50) ?
Any comments when the Dollar decline will end ?

Kind Regards
Pan

[eternalfuture]

panmarcepan,

Perhaps with a wider usage of euro, such as a reserve currency (there's been some talks about pricing oil in euros, too!), gave the single currency a better bargain than british pound.

Look at this forum. How many people favor trading euro to usd than pound to usd? I think for this forum members, euro seems to be more attractive than pound.

As our community reflects the bigger, global, forex community, it would be also reflect the global preference for euro than poundsterling.

As for euro to 1.50 against dollar, yes, it could, technically. Why not? Nothing's impossible here. But when it will reach that point? I think approaching 1.3000 there would be more and more verbal interventions from the ECB. 1.3500 will make them sweat. For this half of the year, 1.3500 may be my upper-most possible target. Beyond that, I'm not certain. Unless, Eurozone could be less dependent on American markets, then I'd say, not only 1.3500, 1.4000 is not too hard to handle!

But let's get back to the present conditions. Europe's growth is not as brisk as U.S. That makes 1.3500 a pretty too much for a target. At least, for now.

When the USD fall will stop? When the Fed hiked the interest rates up to match other major countries interest rates (EU, Australia, and U.K.), thus narrowing the yield differentials. Of course, that would have to assume that the other major central banks do not hike the rates too.

Why would I hold USD if I could gain more by holding Australian dollar and British pound? Until anyone could give a reason why someone should hold USD instead, then the USD will stop falling.

Cheers!

[PanMarcepan]

I don’t understand your statement “Eurozone could be less dependent on American markets” ?

Can you give me some numbers why is dependend?

88% % of Eurozone GDP depends not on exports but on domestic demand within a Eurozone. The Europe Exports account only for only12% of the GDP ! It’s less then US.

The only country in Europe that depends on Export are Germany but most of the exports from Germany go to Eurozone any way.
Not to mention they are focusing on exports to China rather US.
On the other hand in US
the flow masked a structural problem with the US economy – a current account deficit that is due to reach $500 billion this year, requiring $1.7 billion of capital flows each working day to cover it. As this money dries up, the deficit is being revealed, pushing the dollar down.
It is drying up because international investors, frightened by the recent string of accounting scandals in the US, are wondering whether American businesses are really as strong as they appeared. The plunging US stock market no longer looks like a safe place to put money.


Kind Regards
Pan

P.S. Please don't give me 1990 numbers, 2002 and up.

[PanMarcepan]

Definition of Deficit for some that might wonder what it is?

A current account deficit means that a country is consuming foreign goods and services beyond its ability to pay; as a result, it finances those purchases by borrowing the savings of other countries through, for example, bond issues that are held by foreign central banks or investors.

[socrates]

Pan

Please excuse my ignorance here if I am off the track.

Your question
But I don’t understand why GBP didn’t gain vs US as much as EUR
Good economy, high interest rates?

Could this have something to do with Blair siding with Bush on the war situation while most of Europe were against it?

[Mongoose]

I understand the AUD strength with its booming economy

The Australian economy is not exactly booming. The reason for the rising AUD is because of people buying gold, and rising interest rates.
As for the USD weakness, while I am not a fundamental trader, the reason is that the US have a huge debt over it's head and it's devaluing its dollar. They have to bring in a whopping $1.77 billion per day just to stop the debt from increasing. The unfair thing is that the on one hand the engines of any capitalist economy is the risk takers, and the government have taken on plenty of risks that have not returned a +ve cashflow, hence the debt is mainly from one government department to another. It's the poor ol' Mrs Smith who ends up with the bill. The gorernment can't help her pay her bills, but they also have to up the interest rates on Mrs Smith's loan to help pay their debts. Mrs Smith finds herself living on a tight budget, and consumer spending takes a dive, which is the largest part of the GDP.
The USD will continue to decline, and only one organization on this planet has the money to dig them out of this hole.

Mongoose

[currencia]

REFCO sends out this email on WHY WEAK USD and WILL IT CONTINUE:
**********************
How will the US Presidential Elections Impact the Dollar?
The Presidential Election and the Dollar: The devil you know versus the one you don't
FX market watchers looking for clues from the upcoming US presidential elections between George W. Bush and John Kerry in November may be met with a distinctly one-sided story. While expectations for a Bush win could signal further dollar weakness ahead, a Kerry victory could signal even more.

George W. Bush: The devil you know
Considering solely the economic policy implications of a Bush victory, the market might reasonably expect the dollar to continue its downward trend against its major counterparts.

In response to sizable job losses in several swing states, Bush has sought to make job creation a key domestic priority, evidenced by a $23 billion proposal for job training and employment assistance in fiscal year 2005. Given the stagnant labor market, the Administration would be ill advised to do anything other than maintain its “soft dollar” policy that has been enhancing the competitiveness of American manufacturers and multinationals.

With a steadily weakening dollar, manufacturers enjoy greater pricing advantages over foreign competition while American companies operating overseas translate foreign currency revenues into ever higher dollar profits. To the extent that a weak dollar can help spur payroll growth before November, in the days and months leading up to the election the Bush team can be expected to stay the course on dollar policy in an effort to increase corporate profits and generate jobs in battleground states like Ohio, Pennsylvania and Missouri.

Moreover, the continuation of other Bush fiscal policies aimed at stimulating growth could also be viewed as potential medium-term dollar negatives. Bush's bid to make permanent the tax cuts from his election-year plan threatens to erode confidence in the greenback by creating persistently wider fiscal deficits.

John Kerry: The devil you don't
Expectations for a second Bush term would mark a continuation of the economic status quo, namely a currency policy in tacit support of a weaker dollar. Yet expectations for a Kerry win may lead to uncertainty and speculation that could drive the dollar even lower. The key lies in the market's perception of Kerry's views and intentions on free trade.

Taking a page from his father's 1988 campaign against Michael Dukakis, Bush will likely employ a strategy that paints Kerry as a liberal protectionist aligned firmly with labor union interests and against free trade. On its face, this may seem somewhat difficult given Kerry's moderate voting record in the Senate—on free trade he has been in favor of NAFTA, fast-track presidential trade authority, and permanent normal trade relations with China.

In contrast however, Kerry's recent stance as Democratic presidential nominee takes him much more left of center. While the Bush Administration recently decried “economic isolationism” and recent Congressional action to limit offshore outsourcing, Kerry, in a trade policy pledge, vowed to enact a 120-day review of all existing trade agreements to make sure that they are enforceable and balanced for American workers—hardly a ringing free-trade endorsement. As for offshore outsourcing, Kerry has come out against its use in government contracts and favors a Consumers' “Right to Know” on Call Center Workers policy aimed at stifling the movement of these jobs abroad.

An Expectations Game
The allure of the US economy and its markets stems from their flexibility, adaptability and openness. Protectionism is an antithesis to all of this, and the dollar tends to deteriorate when financial markets sense even a trace of it. All else equal then, the dollar will rally as fears of protectionism fade.

To be sure, Bush is not the staunchest of free trade defenders—witness the Administration's disputes over Chinese textiles and only recently lifted global steel tariffs—yet the Administration has hit the right notes on free trade that the market has so far deemed credible. In political terms, Bush has distanced himself from the protectionist label through repeated statements in favor of free trade and the expansion of NAFTA.

Of Kerry the market seems less sure—as a candidate who has recently railed against offshore outsourcing, Kerry, deservedly or not, is quickly becoming a symbol of free trade barriers and protectionist policies.

Given this uncertainty and expectations of more isolationist policy, all other things unchanged, the effect on the dollar at this point would likely be negative under a Kerry victory scenario—possibly more negative than if Bush were to win.

Fundamentals dictate that the dollar will remain on a downward path regardless of a Bush or a Kerry victory. Expectations—whether they are for the “soft dollar” status quo in the event of a Bush win, or for “protectionist” trade policies in the event of a Kerry win—should contribute to a lower dollar in the run-up to the election. But the issue is one of degree, not direction. Depending on the polls, a market spooked by the harm a President Kerry may cause to US trading relationships could lead to an acceleration of dollar weakness leading into November.
***********************

The author of this article is obviously biased in their views for a purposeful weak dollar. On the one hand we need weak dollar in order to make US MADE products more competitively priced for export and to make imported products made elsewhere more expensive in America. The goal? HELP TRADE DEFICIT WOES.

However, there is always a flip side. Interest rates are zip. This means foreign dollars get parked elsewhere and it means retirement monies saved no longer get enough interest income to support the retiree.

The author totally neglects the issue that whilst US corporations may earn more biz overseas, they quickly learn that even more profits can be made if the product is produced overseas. Whilst there, they can see that even goods sold in America can be serviced from abroad with cheap labor a well; so service jobs for US customer support fly overseas.

Moreover, now that the US corporation is all set up and making huge dollars overseas, WHY BRING THE PROFITS HOME! leave the profits offshore. This then leads US corporations to discover that american profits at home can be manipulated to go to zero by paying a high price for products coming into this country compared to the cost of overseas production, thus showing huge profits abroad and zero profits at home. RESULT: pay no US income tax via one route or another!

To add insult to injury, what few dollars america has left is being poured into foreign wars and foreign aid.

REFCO's article about weak dollar if Bush gets re-elected and even weaker dollar if Bush gets unre-elected is rather shallow.

Just as soon as the retirees burn up the principal of their retirement capital to survive day to day, interest rates will rise. When interest rates rise, the real estate bubble will BURST big time. This means foreclosure and banckruptcy for the everyday Joe american who has a lot less jobsto go around.

This all reminds me of Old Faithfull in Yellowstone about to burst in an eruption that will pale Mount St. Helens.

Maybe REFCO thinks interests rate ought be a negative 3%. Where did it get Japan?

In summary: "Nice fix we got ourselves into now Ole". You add the characters in your vision of this quote.

This republican war hawk who trades without fundamentals thinks George Bush has caused more deficit damage to little ole America than all the previous presidents of the US COMBINED!

George's new fundamental answer? "Go live on Mars!".

What U all are seeing is the rape and pillage of the american economy on a grand scale of unprecedented proportion. There is no plausible salvation in site. Like trading a pitchfork where the price candle gets boxed into a corner and it is time to trade, the american economy is boxed into a corner with no way out. It is time to put on your financial flack jacket with all diligence and speed. It better be a flack jacket better than the one we give our troops in Iraq.

REFCO's dollar value vis-a-vis the elections 2004 article is all wet. The dollar will rise despite what the result to retirees, american workers, and a bursting real estate bubble will be. The fat cat corporations and the politician cronies will have their tax free money offshore aplenty.

The pillaging of america and the war of the worlds is at hand and and can be seen blow-by-blow in real time on the 6 o'clock news daily. A smart, capable forex trader can make hay in the face of all this adversity, but not by listening to the REFCO article.

So much for Currencia's fundamentals for trading. Back to reading the charts and cleaning up on euro short trades from the 129.50.

Good trading to all.

[janco]

I enjoy always your posts!

Best regards,

Janco

[eternalfuture]

Hello, everyone, just wanna respond to the Currencia's post...

In the world of politics, what politicians promised would not be the one they deliver.
This probably apply to U.S. politics, too.
The promises of both presidential candidates – Bush and Kerry – might seem to be easily applied to the real world. However, it also might be inapplicable, or applicable but with disastrous result.
U.S.’s Achilles heel’s are the deficits, and lack of hiring.
Lack of hiring, is caused by several issues:
Expensive labor costs – the labor benefits in the U.S. seem to be expensive. They are perhaps too expensive to make local companies decided to shifts production offshore, using foreign labours, which are cheaper.
As Currencia pointed out, several of these companies’ profits may or may not be sent home. Some would be held offshore for, perhaps, reinvestment. When corporate taxes in U.S. are uncompetitive compared to the ones offshore, the flow of the profits repatriation would be decreasing, and in the end, everything gained offshore stays offshore. The worse would be what gained in local operations shipped offshore.
According to a recent survey, however, more offshore activities have been planned by U.S. companies, despite falling rate of costs saved. Around two years ago, cost-saving for going offshore was around 50%, currently it reduced to around 10-20%. Nevertheless, the plan to go offshore remains.
As long as U.S. remains incompetitive in terms of labor costs and corporate taxation, jobs will remain shipped offshore. Of course, not every company has the privilege to go offshore, due to the initial costs for going abroad.

Another cause could be lack of skilled labor. Based on the recent Fed’s Philadelphia survey, a problem causing the company getting reluctant to hire despite vacancies is lack of skilled labor. Job market reform may be needed to fix this. Instead of training people to shoot bad guys, it would be wiser to train people to produce things such as goods and services at tip-top quality.

Then, there’s the cost of productivity and technological advances. The world has enjoyed a rapid technological advance. Computerization (including internet) has demolished the borders between nations. Things can be produced at less time, and less labor (as machines get more and more sophisticated). Accompanied by low interest rates, companies would prefer to hire robots than human capital. Robots don’t complain, they don’t require health benefits, they also don’t sue their bosses. They also produce more, and faster, with less supervision, and no incentives. They can work all day long without complaining. Fortunately, this technological breakthrough is still rather limited to manufacturing industries. Service sector remains human-intensive, so far.

I can’t imagine what would it like when the whole production process becomes mechanized. All work done through machines. As robots becoming cheaper (it would be going cheaper after an expensive price tag at the beginning of the robot age), the technology will become widely accessible. Forget moral responsibility about providing welfare to fellow humans. Humans tend to be greedy. Then, even with maximum training of human capital, it still can’t compete with machines. What would politicians do then? Ban all scientific research especially on manufacturing technology?

Let’s face it, we are not ready to compete with machines.

Those are the factors that I believe contribute to the lack of job hiring: expensive labor costs, lack of skilled labor, and technological advances (which in turn improve the productivity). I haven’t think of anything else than those three.

As for protectionism, in a world of free trade, some like Bush and Kerry still shifting blames to other countries like India and China. Fed governor Cathy Minehan and Fed President of St. Louis William Poole already expressed that protectionism is not good. Minehan explicitly said that over the long-term, offshoring is beneficial. Poole criticize the proposal that if approved by the Congress, would penalize U.S. companies that send the jobs offshore. He said that it would be bad economic policy as it would be at odds fundamentally with efficiency and productivity gains that a free market will yield. Greenspan also said that. U.S. cannot just putting pressure on China and India, U.S. must find a way to improve domestic economic conditions. So far, everybody seems to be doing nothing to improve the labor market. As if everybody is waiting for a miracle to pop out. The only solution to the problem, to them, would be to push China to the wall.

Labor has become the spotlight in U.S. political world, only as we near the election. Where was Bush a year ago? Where was Kerry a year ago?

Mounting deficits, low interest rates, assets bubbles, lack of hiring, all can be summed up into: economical armageddon.

Yeah, dollar rather recovering lately against euro, but there’s nothing new under the American sun. There’s only a growing anxiety among Bush Administration because if jobs still anemic, the chance for re-election would slowly disappear.

Debts will have to be paid, interest rates can hardly be cut again. When the rates are hiked, the cost of borrowing would increase, damaging the borrowers and possibly bursting the assets bubble, which also equally disastrous. U.S. cannot go with current interest rates, and it cannot go with even lower rates, and worse, there is a gloomy consequence if the rates are hiked.

I think even Greenspan doesn’t know when the rates will be changed.

I guess that's all. Maybe I missed something.

Cheers!