Forex Trading

Forex trading has been quite volatile lately as a result of the sovereign debt crises currently unfolding in Greece . Many fear that this crisis in Greece is going to spread to other EU countries that are deep in debt such as Spain, Portugal and Italy . As a result of these problems, the Euro currency has plunged nearly 11% against the US Dollar . When looking at this situation we need to ask ourselves the following questions : Is the Euro sell off complete and is the strength in the US Dollar because of the United States strong fundamentals or the Euro’s weakness? The reason these are important questions is because the answer to the second one will greatly impact how we answer the first .

I would argue that the US Dollar is simply benefiting right now because of Euro weakness and Euro weakness only . Consumer spending in the US economy has picked up steam only because for some time the rates have been near 0% from the Federal Reserve . What will happen when the Fed is forced to raise rates ? Will the US economy be able to withstand that kind of head-wind ? More than likely, no. You have to keep in mind that there is more spending right now by consumers because many consumers are simply walking away from other payments, such as mortgage, auto, and credit card payments. This leaves the consumer with extra income that they otherwise would not have so they’re able to spend more on other items like dinner out, new clothing, and the newest technology items. Here we go with the punch-drunk consumer once again . The last Federal Reserve boom that was inflated was not sustainable and again, it won’t be sustainable. In the next several years, default or inflation are the US Dollar’s only options and both of the options will lead to disaster.

When doing forex trading the goal is to make some money. There is no bias . We want a profit from the foresight we have. Thus, the answer to the second question is that the Euro is over sold and will hit a bottom at some point . Probably around 1.2300-2400 . In reality, do you think that the world’s 3rd largest economy, Germany , will allow the currency to fail? Probably not. More than likely they won’t. This happens to be why they are not printing even more Euros and helping Greece bail themselves out. The problems in Greece will cause the Euro to become even more sound as a currency. Investors around the world will know that there is safety in the Euro because when they face problems they will deal with a loss in the short term to preserve their health in the long term . Thus , their economy may be having problems, but all of this will make their monetary unit better . The opposite is true in the United States situation . Money is being printed to avoid short term problems , but this leads to problems with the health of our economy and the US Dollar.
After looking at all that , we are close to the point where you’ll get the Euro for a great bargain that you should take advantage of in your own forex trading. Not only for the reasons we’ve talked about , but market psychology tells you this as well . The professionals buy when there is a free fall just as the average person is catching wind of the crisis and comes in off the street to go short the move that has already happened . This pattern has happened many, many times , and as long as limbic systems are part of human physiology it will continue to occur .