Forex Trading

Economic and financial conditions are worsening. And, despite the global effort to stabilize markets and revive growth, it is only a matter time before feeble optimism gives way to fear once again. Indications of building strains are visible in economics, market operations and certainly price. Looking at the market’s more traditional asset classes, the sense of risk aversion is unmistakable.

• Mounting Strains In Global Financial Markets Threaten To Topple Government’s Efforts To Revive Sentiment
• Nationalizing Major Financial Firms And Need For Emergency Aid In Eastern Europe Reveals Desperate Circumstances
• Another Wave Of Interest Rate Cuts Highlights The RBA’s Decision To Pass

Economic and financial conditions are worsening. And, despite the global effort to stabilize markets and revive growth, it is only a matter time before feeble optimism gives way to fear once again. Indications of building strains are visible in economics, market operations and certainly price. Looking at the market’s more traditional asset classes, the sense of risk aversion is unmistakable. The FTSE 100 has closed pushed to six year lows, the Dow Jones Industrial Average has outpaced its slump in the great depression to close for 12 year lows and the Nikkei 225 is just off of levels not seen in over a quarter of a century. However, there is a reserve to these declines as investors hold back from fully divesting themselves. This endurance cannot hold up though should the signs of systemic risk build. World-wide, treasury prices are forging new highs, default protection on corporate debt is pushing records and liquidity is prized as a safe haven quality over traditional notions of what is risk free. This is what he have seen in the currency market. Once the most prominent funding currency and refuge in times of uncertainty, the Japanese yen has been unseated by skeptical markets. And, as the market tries to discern the risk laden currencies from the risk free with interest rates deflated, we have seen the Carry Trade Index left to chop. Nevertheless, the ultimate break will genuinely reflect the true sentiment of the crowd.

Despite their best efforts, governments are fighting trends in economics and investor sentiment that perhaps cannot be artificially curbed. Starting with the global recession; there is little doubt from market participants or policy officials that the world wide economy is on pace to suffer a far worse contraction through the first half of this year than what has been confirmed through the end of 2008. This translates into rising unemployment, a surge in bankruptcies and defaults, and a plunge in consumer spending which naturally reduces potential returns and the availability of credit. With the threat of a global depression at hand, we have seen policy makers take increasingly drastic steps to rescue their own economies. Stimulus packages have ballooned for the US, Germany, UK, Japan and others. Taking the last steps available to them through traditional policy channels, central banks issued another round of rate cuts this past week – leaving some boards looking at quantitative easing as the next option. Perhaps the most controversial move though is the trend towards nationalization. This is a last resort for any free-market economy; and though only a very few deals have been defined as such, their presence is growing (Lloyd’s, Citi, AIG, etc). Looking ahead, there are two major events that look as if they could fundamentally shift sentiment: the potential collapse of some Eastern European economies and the G20 meeting in early April. From the latter, a plan to address the global impact of the economic and financial crisis may genuinely turn things around.

Written by John Kicklighter, Currency Strategist
Article Source - Mounting Strains In Global Financial Markets Threaten To Topple Government's Efforts To Revive Sentiment