In an uprecedented move the US treasury has, to all intents and purposes, nationalized two of the biggest banks in America, known as Freddie Mac and Fannie Mae. In a move which will cost dozens of billions of dollars, the US treasury made clear that it will not stand idly by while these 2 financial giants fall and take with them the entire financial sector.
Despite the sarcastic view of Jum Rogers which said that this move meant that the United States has become more communist than China I believe that the US treasury did the right and responsible thing.
All over the world stock markets reaffirmed my opinion by rising nicely. The reason for these rises was the realization that the US government is going to put up a hell of a fight to avoid or limit the recession which is looming over it.
What has this to do with us Forex traders?
A lot. If you’re interested in the USD, you should definitely keep you eye firmly set on what’s happening in the US economy. If Freddie and Fannie would have gone belly up, the dollar would have plummetted. There’s no question about it.
While there are still troubling signs in the American economy, it seems that the government has got its hand firmly on the reigns and will not let the ship go down without exerting all its financial clout and influence.
In the short run, at least, I believe that the USD will continue to strengthen in relations to the EUR and other currencies since the financial crisis which has hit America is yet to hit them. When it does, the market emotion will go in favor of the USD.
Those are just my 2 cents worth.
