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Joined Apr 2008
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Status: The biggest Among Canhetas
|119 Posts
My little experience tell me to be aware. Most of the times the news dont have the impact that logic would sugest. Imagine if they cut, or the signal a strong cut in march?
This would kill the euro. at these levels. By the other way, when the moment comes that they signal no more rate cuts, maybe we visit 1.50s again.
Well obviously thats not the case that since currency trading is all about currency rates at the present time. That is why the Yen has been the strongest currency for about a year now. Because traders are running to a lower interest rate safer asset and stay away from risky high yielding assets. It is its low rate that is making so strong. Likewise the USD's extremely low interest rate, position as a safehaven currency, and low risk government bonds, have caused it to dramatically outperform the euro and gbp and thrive during bad economic news....
Ignored
The thing is lately when central banks have been cutting rates, the underlying currency has been getting stronger not weaker on the idea that cutting rates will be stimulative to the economy. Rates are not completely a non issue, but they won't always have the affect that supports the interest differential scenario. The USDJPY carry is dead, there is no difference in interest rates in those pairs - GBPJPY is almost in the same boat. The free money trade is too risky, considering how much the underlying currency rates have changed. I think right now, commodity prices, GDP growth, employment are key for forecasting currency strength going forward. Good luck.
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