It would appear that the European Community $1 trillion dollar bailout package is not going to help the Euro. The downward direction of the Euro was briefly halted when last week’s the bailout promised to help the PIIGS and Forex situation. However, the price for guaranteeing the debts of Portugal, Italy, Ireland, Greece, and Spain will be that the value of the common currency will suffer. National debt has a way of doing that. Although the Euro briefly flirted with $1.30 last week with the bailout announcement it is back down to $1.27. Many are betting that the downward direction of the Euro will not stop until the Euro settles in at the level it began in 1999, less than $1.20.

Although a strong currency is a measure of the economic health of an economy it is also an impediment to exporting that economy’s products. This is why Japan and then Taiwan and then China have traditionally purchased dollars. The dollar is, in fact, a good place to hold wealth. However, these countries have tried to hold the dollar up in value to make their products more competitive in the North American market place. Now, with a slide in the Euro, the Common Market’s exports will be cheaper and more competitive. That fact could be the salvation of the weaker economies on the continent if they are able to bring in foreign exchange and boost employment. In Forex trading the Euro it may be wise to expect a continued slide to less than $1.20. On the other hand, if the continent becomes more competitive again, one might just see the common market currency start to rise again in the next year or so.

Good Forex advice is to watch the markets and trust them more than any “expert” advice. If everyone knew where the Euro is heading there would be no need for a foreign exchange market. Even though the fundamentals of European debt suggest a continued slide of the Euro the smart trader will rely upon technical analysis of the Forex market in order to buy or sell Euros. Although the temptation for American traders may be to trade the EUR/USD pair it is not necessary. Trading EUR/JPY or EUR/GBP may be more profitable depending upon how the Japanese or British economies do coming out of the recession.

As always success in Forex means a plan and a method. This includes trading the apparent, continued downward direction of the Euro. Whichever currency pair one trades it is essential to be familiar with the economics, politics, and monetary policy of that nation. Then the trader can work on comparisons in understanding the fundamentals of the relationship. Meanwhile the trader must stay current on pricing and price patterns. Because price patterns repeat themselves is why technical trading works. Being current with current price patterns and knowledgeable about how to trade them will help the trader in dealing with the downward direction of the Euro.

More Resources

• Ken Rogoff Says ECB’s $1T Bailout Package Just a ‘Fig Leaf’
• GMTV Ryan Mack Bailout.wmv | Stimyoul.us
• Reaction to Greece Bailout Package | Kathy Lien
• EAC 2010/11 budget targets operationalization of common market | Afrique Avenir
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• mToH: Common Market- Connect For
• EAC budget estimates for FY 2010/2011 of US$ 59,963,040 presented to EALA / Chairperson of EAC Council of Ministers Commends Heads of State for making the Community more united and stronger / Budget focuses on 24 priority regional integration areas &laquo
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The dollar has been granted another reprieve from its predicted demise. US Treasuries were selling well last week as another flight of capital sent investors to buying the 30 year long bond. A strong dollar and lower commodity prices are definitely linked as the Consumer Price Index (CPI) only went up 2.2% in the last twelve months. Virtually that entire rise was in the cost of oil. As the price of oil has dropped the CPI is moving sideways. The predicted inflationary surge tied to increased US debt has not happened, at least yet. A strong dollar and lower commodity prices looks, to many, to be the order of the day, week, month, and years going forward. Otherwise why would all of those folks be buying 30 year treasuries? For traders in the Forex markets it would seem that, for the time being, good Forex advice is not to short the dollar.

A strong dollar and lower commodity prices will be a boon for US consumers, reducing the cost of their purchases and, maybe leaving room for savings. The prospect of a stronger dollar does not bode especially well for selling US products overseas and could well end up worsening the US balance of payments. It would seem that investing in the US and buying dollars are bad ideas except that both of these seem to beat the alternatives. The Euro is still sliding and China’s interest rate hikes to quell inflation may cause as much as a 40% drop in property values. This could, it would seem, make investment in Chinese real estate and other projects less appealing.  Does that mean the Yuan will become less valuable? Maybe by the time the Chinese decide to let the Yuan float with the market it will not go up but will go down. To some degree it may seem that understanding the Forex markets can get tougher each day. However, the market functions just fine, thank you. It responds to the buying and selling of millions of trades every day reaching a moving price consensus on every currency pair traded.

The point of this is to trade the currency market and not to worry about it. The market will hold up fine even as one currency suffers and another prospers. A stronger dollar and lower commodity prices mean one set of things to US citizens, investors, and those interested in buying US products. It means another set of things to those traders who trade a currency pair that includes the dollar. Whether a trader is Forex trading the Euro or concerned about the Yuan exchange rate versus the dollar it is the market moves and market reaction that is important. The dollar, Euro, Yuan, and the rest will all be at some set of exchange rates next year or decade but they will have to get there and money is to be made in the unevenness of the processes. Knowing where the action is, as in the decline of the Euro, or where it might be, as in the goings on in China and its real estate market will prepare the trader to be in the right place at the right time. Then he or she will need to apply the fundamentals of technical trading to profit from what the market does every day with issues such a stronger dollar and lower commodity prices.

More Resources

• DailyFXTeam: Short term U.S. Treasuries mixed, long term debt gains: 2-year Note to 0.763, 10-year Note to 3.171, 30-year Bond to 4.070.
• Fresh concerns about the health of Europe’s economy leads investors to buy Treasurys
• Market Concerns Push Treasury Bond ETFs Upward | ETF Trends
• Futures Lower Today – Oil Gold Commodity Prices Down In Asia and Europe | Top Feeds News
• Commodity Prices — May 25th 2010 | Commodity Blog
• Japan’s Nikkei 225 Gains as Yen Weakens, Commodity Prices Rise | GoldTradingCalls.com
• Chinas Stock Futures Rise as Euro, Commodity Prices Increase | American Financing Articles
• Singapore Releases April 2010 Consumer Price Index | Gov Monitor
• 68. Trading the News – The Consumer Price Index (CPI) – Cool Great Stuff | Finance
• Sticky-price CPI up slightly in April… Wait, what?