Here's an interesting question for discussion/debate. I get asked this one quite frequently, so I thought I'd put it out to the group for your input & insights. After all, I'd hate to think I'm giving people one-sided answers based upon my own (mis)perceptions.
Out of the following, what is likely to be the safest base currency for forex accounts to be denominated in over the next few years: USD, EUR, GBP, CAD, JPY? (I know currently AUD and NZD look the strongest, but not everyone offers them.)
Here's my take:
USD: Obviously taking a tumble, one that's perhaps long overdue. Some argue we're at the bottom so it can only go up from here. But... a budget deficit which continues to break all world records and is currently over 6% of the GDP is worrysome. The economy is far from healed (and housing shows NO signs of improvement). Many are waiting for shoe #2 to drop. And what happens if oil is no longer priced in Dollars or more countries begin to adopt a new reserve currency? (Some have already, on both counts.)
CAD: Canada shows some promise. After all - they have oil, and everyone else wants some. But you don't often hear discussions about oil or reserves being priced in CAD, and the monthly chart currently has quite a kangaroo tail (plus many other signs of reversal). And what if the Amero turns out to be more than rumor? Then you're right back to dealing with the USD issues (assuming CAD is not already feeling the weight of them).
JPY: The monthly chart looks the safest - we're in a tight rage and don't have the wild swings of any of the other currencies. But what happens when that range breaks? Applying the old saying "if the country was a company, would you buy its stock?", I'd have to say I'm not very impressed by the current product offerings, pipeline, or future prospects. Plus they import all their oil and are facing growing competition on their exports from China, Korea, and several other places.
That brings us to the last two choices:
EUR: Many think the Euro might replace the USD as either reserve currency or oil pricing base, or both (added demand). 2nd most frequently traded currently, 2nd largest liquidity. Deficit has been shrinking steadily since 2001, currently 0.3% of GDP. Used in 15+ countries, pegged by another 10 (diversification, not reliant on a single economy). Should fare well in the new "green" economy. That's the good part, now the bad. Just completed an 8-year-long Fib pattern and is WAY overdue for a correction (overbought for 24 months). ECB has pledged to intervene at levels above 1.60. Yes, they're growing and adding countries - but which countries? May strain the economy rather than help it. Risk of political instability also. May be safer over the longer run, but will obviously drop some in the more immediate term, likely worrying clients.
GBP: Currently holds slot #3 as most often used reserve currency, slot #4 in terms of trading & liquidity (after JPY). Deficit has been steadily growing since 2000, with the exception of Q1 2008 due to BoE interference. Current deficit is 2.8% of GDP, but last year's was nearly that of US. Used in only 1 country, has 3 more which are pegged to it (technically neighboring islands - "countries" is a bit of a stretch). Dependant upon a single economy only. Certainly not "exciting" - but we're not after exciting, we're after stable. BoE certainly invented central banking and is the oldest in the world. They've been around the block and know how to deal with crisis. Technically, the monthly G/U chart just broke above major resistance which also passed the test as support, and Fibs say plenty of room left for growth the next 2-3 years. Additionally, the EUR/GBP monthly chart favors the GBP as well. But what happens after that? What are the competitive prospects? Well, UK also has a very forward-looking and "green" economy developing, and they also have a bit of oil (North Sea). Anything else?
And... so... I'm left wondering. The fundamentals (and logic) certainly seem to favor the Euro, but the Sterling looks far better from a technical & historical perspective.
What would you do?
Out of the following, what is likely to be the safest base currency for forex accounts to be denominated in over the next few years: USD, EUR, GBP, CAD, JPY? (I know currently AUD and NZD look the strongest, but not everyone offers them.)
Here's my take:
USD: Obviously taking a tumble, one that's perhaps long overdue. Some argue we're at the bottom so it can only go up from here. But... a budget deficit which continues to break all world records and is currently over 6% of the GDP is worrysome. The economy is far from healed (and housing shows NO signs of improvement). Many are waiting for shoe #2 to drop. And what happens if oil is no longer priced in Dollars or more countries begin to adopt a new reserve currency? (Some have already, on both counts.)
CAD: Canada shows some promise. After all - they have oil, and everyone else wants some. But you don't often hear discussions about oil or reserves being priced in CAD, and the monthly chart currently has quite a kangaroo tail (plus many other signs of reversal). And what if the Amero turns out to be more than rumor? Then you're right back to dealing with the USD issues (assuming CAD is not already feeling the weight of them).
JPY: The monthly chart looks the safest - we're in a tight rage and don't have the wild swings of any of the other currencies. But what happens when that range breaks? Applying the old saying "if the country was a company, would you buy its stock?", I'd have to say I'm not very impressed by the current product offerings, pipeline, or future prospects. Plus they import all their oil and are facing growing competition on their exports from China, Korea, and several other places.
That brings us to the last two choices:
EUR: Many think the Euro might replace the USD as either reserve currency or oil pricing base, or both (added demand). 2nd most frequently traded currently, 2nd largest liquidity. Deficit has been shrinking steadily since 2001, currently 0.3% of GDP. Used in 15+ countries, pegged by another 10 (diversification, not reliant on a single economy). Should fare well in the new "green" economy. That's the good part, now the bad. Just completed an 8-year-long Fib pattern and is WAY overdue for a correction (overbought for 24 months). ECB has pledged to intervene at levels above 1.60. Yes, they're growing and adding countries - but which countries? May strain the economy rather than help it. Risk of political instability also. May be safer over the longer run, but will obviously drop some in the more immediate term, likely worrying clients.
GBP: Currently holds slot #3 as most often used reserve currency, slot #4 in terms of trading & liquidity (after JPY). Deficit has been steadily growing since 2000, with the exception of Q1 2008 due to BoE interference. Current deficit is 2.8% of GDP, but last year's was nearly that of US. Used in only 1 country, has 3 more which are pegged to it (technically neighboring islands - "countries" is a bit of a stretch). Dependant upon a single economy only. Certainly not "exciting" - but we're not after exciting, we're after stable. BoE certainly invented central banking and is the oldest in the world. They've been around the block and know how to deal with crisis. Technically, the monthly G/U chart just broke above major resistance which also passed the test as support, and Fibs say plenty of room left for growth the next 2-3 years. Additionally, the EUR/GBP monthly chart favors the GBP as well. But what happens after that? What are the competitive prospects? Well, UK also has a very forward-looking and "green" economy developing, and they also have a bit of oil (North Sea). Anything else?
And... so... I'm left wondering. The fundamentals (and logic) certainly seem to favor the Euro, but the Sterling looks far better from a technical & historical perspective.
What would you do?