Forex Seer

There are ill winds blowing once again from Europe. There is incessant talk in the financial markets of a looming bailout of Ireland, one of the EU members most severely affected by the global financial crisis and a local real estate bubble that has exploded. What was once deemed to be a powerful economy now seems to be unable to pull itself out of the financial stagnation in has fallen into. Even severe austerity measures by the government in Dublin have proven to be ineffective… at least so far.

What does this mean for you as a Forex trader? It means that the Euro is once again on shaky ground and that my earlier euro prediction for 2010 may be on track to fulfillment once more.

Should Ireland require a bailout similar to the one Greece received earlier this year, it is not certain that it would be easy to get. Germany who contributed much of the sum that was given to Greece will not relish the prospect of another bailout. On their parts, EU officials have made various assurances in recent days that Ireland does not need such a bailout and that these is little room for concern. So far, it seems that the fear and uncertainty in the markets has calmed down. The only question is for how long?

What is clear is that the value of the Euro still depends on the fate of its weakest members: Greece, Ireland, Spain, and Italy. It is what happens there that will affect the future of the Euro much more than what occurs in the bigger european economies. It is importan for Forex traders to be aware of the news coming from Europe and to be attentive to any resurgence of uncertainty as to the state of EU economies. There will be market price fluctuations that will present a lot of opportunities in the near future.

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It seems that the Federal Reserve bank may be suffering from schizophrenia: just a few days ago, the FED announced that it will flood the US economy with an extra $600 billion dollars and buy back debt that’s circulating in the market. This was done in the hope that it will accelerate the stagnant recovery of the US economy.

However, it was clear that this influx of money will make the US Dollar much less valuable in relation to other currencies. As is usual in most markets, the more there is of something, the less it is valued. And indeed, the US Dollar lost ground versus the Euro and the Yen, among others.

Today, however, the US Dollar gained a lot of ground versus both the European and Japanese currencies following the forceful remarks of Richard Fisher, Dallas Fed president who assured that the FED supports a strong dollar, one with a good purchasing power.

It’s a bit hard to see how this statement can be made while the actions of the FED indicate otherwise. After all, just last week there was indication that there would be more influxes of dollars into the market should the need arise. Such action will weaken the dollar. There is little doubt of that.

This speaks volume as to the precarious state of the US economy these days: the recovery is shaky and the FED has few weapons it can employ other than pumping more money into the economy. The desire to keep the dollar strong and the need to aid the economy are antagonistic. What will become the actual policy of the FED in the near future is left to be seen and greatly depends on the economic data that will come.