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The Dollar Was Up, But Will It Stay Up And For How Long?

The USD gained against the EUR on Tuesday, and it had to do with the Federal reserves language and future startegy along with a few other stabilizing moves. Although, it’s always expected that the Fed’s actions will move the dollar either up or down based on the reaction to the Fed’s policy moves; it seems that the Federal Reserve is trying to make sure that the USD does strengthen against foreign currencies. The Federal Reserve can exacerbate or diminish the effects of the economy’s effect on a currency depending on its actions, especially if they are appropriate and with good timing. As we previously discussed that the overriding health of the economy is what we like to base our trading strategies on, you can take some short term positions that will make you a nice return if you’re quick in acting and reacting with Fed’s moves. With these sometimes violent swings, it’s the quick and the dead when trading currencies, so we like to look at long term approaches.

We’ve often discussed the USD versus the EUR, but there are always multiple currencies that you should be following at all times, including the JPY and GBP. Even a small economy can have a great effect on other economies in the laggard economy’s geographic location. This is crucial when a single economy that is beginning to experience difficulty can have an adverse affect to its neighboring economies and ultimately drag down that neighboring country’s currency. A case in point is that there are bigger cracks starting to show up in the United Kingdom’s property and mortgage lending markets with property values declining in the first 2 quarters of this year and mortgages becoming harder for first time buyers to qualify for. This could be a mirror of what happened here in the US that completely devastated the economy and pushed the dollar even further down against its foreign counterparts. This could then effectively domino into the rest of Europe with a possible result in the USD rising against both the GBP and later the EUR.

This is not a sure bet, so you’ll need to keep a close eye on what the Bank of England does in addressing this as well the European Central Bank because they could end up following the US decline. If they address the imminent issue that relates to their property markets, then they could avoid a currency meltdown by having to drop their interests rates to lower levels. It will be interesting to see how things fair over the next 6 months, because with the uncertainty that is brewing on multiple continents, you may see very different outcomes. For those of us in the US that have successfully ridden our own economy down and are looking for a little more strength in our currency, we may have a better perspective of the possible currency collapses in other parts of the world. This could mean a dollar rise, but the ultimate question is when and for how long, so you can take advantage. We wish we had a definite timetable for this scenario, but sometimes things move slower than you expect and sometimes faster than you expect. Watch foreign housing markets as cues for your currency trading strategies.