Forex Trading

How long do policy officials have to revive economic growth and stabilize the financial markets? How much worse can conditions become if the global leaders cannot come to a significant, joint policy response to the world’s ills?

• Finance Ministers And Central Bankers Are Running Out Of Time To Revive Growth And Sentiment
• Switzerland Adds Currency Intervention To The List Of Desperate Steps Policy Makers Are Willing To Take
• If GE Loses Its Top Credit Rating, It Won’t Be Long Before Unstable Economies Meet The Same Fate

How long do policy officials have to revive economic growth and stabilize the financial markets? How much worse can conditions become if the global leaders cannot come to a significant, joint policy response to the world’s ills? These are the questions the market is grappling with now; and ‘just how bad can things really become’ may be a question traders have to seriously consider over the coming weeks and months. While the fundamental outlook for general risk trends is not encouraging, carry interest received a significant boost this past week. The Index jumped over 650 points since last Friday, marking a notable break above resistance in the pressure-ridden, falling wedge formation that had taken responsibility for the steady downtrend in carry interest (and thereby sentiment) since the October panic. However, this break is hardly confirmation of a rebound in optimism. The breech relieves the stress on the market to force a major trend; yet the index is still entrapped within long-term congestion. Such sentiment is reflected in the market’s more risk-sensitive asset classes. The Dow has recovered from a 12-year low, Treasuries have pulled back from record highs and the safe-haven US dollar has eased of its own three-year highs. Furthermore, some condition indicators have shown significant improvement: currency market volatility has certainly stabilized; risk reversals show are returning to neutral levels; and yields are starting to return.

It is easy to be comforted by the recovery of such notable indicators and markets; but the broader trends must be taken into account. A week’s rebound in equities and pull back in the US dollar mean little when they are still set within major trends and only arms distance from their respective extremes. Realistically, these are cautionary improvements as the market awaits clear fundamental shifts that signal a tangible recovery in economic activity as well as lender and investor confidence. Over the past few weeks, there have been signs of both improvement and deterioration. Quantitative easing, sizable stimulus packages, government guarantees and efforts to boost reflect a broad array of policy aimed at curbing the worst recession since WWII. However, these efforts have not been universal. Whereas the US and UK have acted quickly and aggressively to their swelling problems; both Japan and the Euro Zone have lagged with their own responses. Without a unified response to this global problem, there is little doubt that conditions will worsen. Recently, the Asian Development Bank has suggested lost asset value could top $50 billion and the World Bank has projected the first global contraction since the 1930’s. Momentum behind this recession is being fed by the slump in investment and consumer spending, which itself is largely based on sentiment. With production and consumption slowing, major corporate bankruptcies becoming more frequent and now whole economies on the verge of default, drastic measures must be taken to prevent what could become a global depression.

Written by John Kicklighter, Currency Strategist
Article Source - Finance Ministers And Central Bankers Are Running Out Of Time To Revive Growth And Sentiment