What's with the US dollar?! | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

US Dollar Index + AUD, CAD, CHF, EUR, GBP, NZD, JPY Dollar Index Indicators 22 replies

When do dollar bears become dollar bulls? 22 replies

Attachments: What's with the US dollar?!
Exit Attachments

What's with the US dollar?!

  • #1
  • First Post: Apr 1, 2011 12:02pm Apr 1, 2011 12:02pm
This month's NFP is the best number in almost 3 years. 216K jobs added and the majority of those in private sector jobs. Unemployment fell to the lowest since the recession was declared 8.8% The fed "gurus" are all talking about not just ending QE2 but also a possible rate hike by the end of the year.

The US recovery seems the strongest of all nations world wide, with the US stock market rallying to were it was BEFORE the Leman Bros. crash. The only thing lagging behind is housing and that is as expected when banks are still using the "liars log" method of accounting but that too will begin recovering soon.

All of this "fundamental" news would seem dollar positive yet the currency PLUNGED against the EUR...GBP...CAD...CHF...AUD...and even the Mexican Peso one hour after the NFP announcement.

What the f**k?!!

Can anyone explain this?
  • #2
  • Apr 1, 2011 1:06pm Apr 1, 2011 1:06pm
Quoting gspajon
This month's NFP is the best number in almost 3 years. 216K jobs added and the majority of those in private sector jobs....
Well yeah everything was going according to the plan with Fed Plosser being hawkish and good NFP numbers and USD was rightfully rising.

What happened was that speech from Fed Dudley ( yeah that yellow flag one. ) came out too much Dovish for the market and reversed all the effects of recent hawkishness seen in previous days.

It was a yellow flaged news but you see there are two parties in Fed's,... hawkish ones and Dovish ones. When a hawk speaks USD will go up and when a Dove speaks it will go down. QE2 and well QE3 are hot cakes atm in market so every one is looking upto what Fed's are hinting towards. So every Fed's speech is a red flag for volatility.

Hope it helped.
.
  • #3
  • Apr 2, 2011 2:43am Apr 2, 2011 2:43am
Quoting gspajon
This month's NFP is the best number in almost 3 years. 216K jobs added and the majority of those in private sector jobs....
well, my personal interpretation is that investors don't believe that this is a real recovery. The Fed pumped so much money into the system that they are at risk of a hyper-inflation. Banks are still not lending as they should be. You got a crisis going on in middle east, making price of oil shoot up. The recovery will slow down due to that. The US government has so much debt, it will be impossible to ever pay it back. Sooner or later the US will default.

For all those reasons I am a long-term bear for the USD until I see a change in fundamentals. And apparently most investors see it similarly.
  • #4
  • Apr 2, 2011 3:31am Apr 2, 2011 3:31am
Here is another point of view:

http://www.stansberryresearch.com/pr...VD/WPSIM304/PR
  • #5
  • Apr 2, 2011 3:51am Apr 2, 2011 3:51am
Quoting medici
Here is another point of view:

http://www.stansberryresearch.com/pr...VD/WPSIM304/PR
I totally agree with this video. Thanks for posting it.
  • #6
  • Apr 2, 2011 4:18am Apr 2, 2011 4:18am
the FOREX market doesn't move on fundamentals although obviously can play a role but at the end of the day its the people that move the market...

If you look back in history you will find countless examples of this where rate hikes have started a decline in currencies rather than expected appreciations.

Perhaps some people simply saw it as a good opportunity to sell dollars for some other currency.
Time hides Nothing
  • #7
  • Apr 2, 2011 4:25am Apr 2, 2011 4:25am
Quoting CindyXXXX
the FOREX market doesn't move on fundamentals although obviously can play a role but at the end of the day its the people that move the market...

If you look back in history you will find countless examples of this where rate hikes have started a decline in currencies rather than expected appreciations.

Perhaps some people simply saw it as a good opportunity to sell dollars for some other currency.
you confuse fundamentals with news. Fundamentals are long-term going over months to years.
  • #8
  • Apr 2, 2011 4:29am Apr 2, 2011 4:29am
Quoting Custos
you confuse fundamentals with news. Fundamentals are long-term going over months to years.
The "recovery" talked about in the first post seems like fundamental happenings to me?

As for news, its not the first time positive news has seen the opposite to what the report suggested... When every man and he's dog is long something its inevitable that this bubble will burst, short term OR long term...

Like I said, quite simply if I was looking to sell dollars for whatever other currency that seems to be the perfect time... Market value is in the hands of the deepest pockets
Time hides Nothing
  • #9
  • Apr 2, 2011 5:01am Apr 2, 2011 5:01am
Quoting CindyXXXX
the FOREX market doesn't move on fundamentals although obviously can play a role but at the end of the day its the people that move the market...
Why do they move the market? What makes them move it?

Obviously they dont move it to get their car parked or something.
.
  • #10
  • Apr 2, 2011 5:13am Apr 2, 2011 5:13am
Quoting Custos
well, my personal interpretation is that investors don't believe that this is a real recovery. The Fed pumped so much money into the system that they are at risk of a hyper-inflation. Banks are still not lending as they should be. You got a crisis going on in middle east, making price of oil shoot up. The recovery will slow down due to that. The US government has so much debt, it will be impossible to ever pay it back. Sooner or later the US will default.

For all those reasons I am a long-term bear for the USD until I see a change in fundamentals....
What are saying is a very longterm fundamental view. But the question Gspajon asked was just about that small intraday event.

On intraday basis News, rumors, Option barriers and things like trendlines etc does effect price behavior but in the long run price will eventually move towards its fundamental value or say perceived fundamental value.
.
  • #11
  • Apr 2, 2011 5:20am Apr 2, 2011 5:20am
Quoting nasir.khan
Why do they move the market? What makes them move it?

Obviously they dont move it to get their car parked or something.
.
lol maybe they do!

Maybe they move it to get a ship load of cars parked in a foreign country I guess there's many reasons. All I was saying is that yes when interest rates are high of course this will attract money flows but to what extent? How much is too much? Whilst its a logical assumption its certainly not some rule that the market lives by... As money shifts to one side there is someone on the other side and as it gets to extremes the ones on the other side go far beyond quiet speculaters and uninformed traders, someone needs to step in to supply the extra liquidity but the boat is only so big and if too many people board that boat it will sink... And it does.

The funny thing about currencies is that their unlike any other instrument.. You buy shares when you want some equity in some company, you buy bonds when you want a safer return on investment, you buy futures or options to perhaps hedge a risk of the future... But in all of these things what is the common denominator?

MONEY

Currencies are a catch 22 and that's what makes them so fascinating, fundamentals make sense but I think people confuse relative currency values (currency pairs) with the fact that they are simply a means to an end.

An individual currency will hold some unknown value... But the way they are traded as we know are in relation to some other currency of unknown value. When interest rates rise why does this GENERALLY increase a currency against its crossed values?

Its not because the currency has grown in value actually its becasue people start converting their Pounds, Yen, Euros for that currency which in turn creates a demand for it... The real value is in the Cash investment of that currency. Not in he currency cross itself as illusive as it may seem.

What am I saying??? Something like simply a transaction from one currency to another creates a demand and conversally supply for the respective currencies in that pair... Nothing less. The cross rate you see is simply displaying the price at which you can do this, the exchange rate available for you. The currency pair itself is not an instrument or an asset, its simply a link to other (foreign) assets.

I don't want to be preaching to you guys cause I'm not pretending that I know any more than you do I'm more just getting some thoughts on paper, not trying to be patronizing, just to be clear. Feel free to rip that shit to shreds I'm in the mood for some banter.
Time hides Nothing
  • #12
  • Apr 2, 2011 5:47am Apr 2, 2011 5:47am
Quote
lol maybe they do!

Maybe they move it to get a ship load of cars parked in a foreign country I guess there's many reasons. All I was saying is that yes when interest rates are high of course this will attract money flows but to what extent? How much is too much? Whilst its a logical assumption its certainly not some rule that the market lives by... As money shifts to one side there is someone on the other side and as it gets to extremes the ones on the other side go far beyond quiet speculaters and uninformed traders, someone needs to step in...

I agree that increasing interest rates does not mean a universal rule to the markets to rise and shine. Our own PKR has a interest rate of around 12% and yet it falling against dollar no matter what.

But the thing is as you said people move the marts, so until it makes sense to them to keep on buying or say until the reason to buy is there they will buy and actually they should keep buying but what matters in the end is that who can first see underlying fundamentals are changing and get out at the right time. So again its all about fundamentals. Yeah people move markets but what move people in the long term is Inflation, IRD, Growth, Employment, The effect of Black Swans on Economy etc so all fundamental.

Quote
The funny thing about currencies is that their unlike any other instrument.. You buy shares when you want some equity in some company, you buy bonds when you want a safer return on investment, you buy futures or options to perhaps hedge a risk of the future... But in all of these things what is the common denominator?

MONEY

Currencies are a catch 22 and that's what makes them so fascinating, fundamentals make sense but I think people confuse relative currency values (currency pairs) with the fact that they are simply a means to an end.

An...


Actually Cindy its a very interesting question.

Whats the price of money (not the currency pair on MT4 but the 100$ note in your wallet)?

Everything has it own price/cost like gold, silver, cars, mobiles, computers etc. But whats the price of money?

Ofcourse its the interest rate + amount of money being printed + underlying risk associated with holding the currency ( the reason PKR is not rising against USD. lol) + anything else that i dont know.

So could there be an equation based on above to come up with true value of money?

Ahhh ofcourse Cindy we are just having a light discussion,.. nothing else.
.
  • #13
  • Apr 2, 2011 6:28am Apr 2, 2011 6:28am
Quoting nasir.khan
I agree that increasing interest rates does not mean a universal rule to the markets to rise and shine. Our own PKR has a interest rate of around 12% and yet it falling against dollar no matter what.

But the thing is as you said people move the marts, so until it makes sense to them to keep on buying or say until the reason to buy is there they will buy and actually they should keep buying but what matters in the end is that who can first see underlying fundamentals are changing and get out at the right time. So again its all about fundamentals....
Yes Nassir agreed, but say the reason for a weak US dollar was due to a bunch of BIG American investors taking their cash out of US equities and placing them into Australian equities, as long as the AUS equities are still rising more than the US equities regardless of US fundamentals those investors if they belief the AUS equities are still strong will keep their AUS investments becasue its not the AUS dollar their interested in (even though their demand for it may have raised the AUS against the USD) its the AUD equities... If their weight is say a big percentage of perhaps hedge and mutual funds then this weight will not be counteracted until something with as much force starts demanding USD. In fact a strong USD may lead to more AUD investment if they believe its a good opportunity to jump in as most everyone else are buying (based on fundermental factors).
Time hides Nothing
  • #14
  • Apr 2, 2011 9:39am Apr 2, 2011 9:39am
Quoting CindyXXXX
The "recovery" talked about in the first post seems like fundamental happenings to me?

As for news, its not the first time positive news has seen the opposite to what the report suggested... When every man and he's dog is long something its inevitable that this bubble will burst, short term OR long term...

Like I said, quite simply if I was looking to sell dollars for whatever other currency that seems to be the perfect time... Market value is in the hands of the deepest pockets
well, he was talking about how all the fundamental news are positive for the USD. But that might be very different from the longer term fundamentals, which investors are looking at.
For example: If you print insane amounts of money and pump it into the economy, then all other fundamental news items will not be worth anything, cause investors can sense that these positive news are short-lived and sooner or later the real fundamentals (inflation and hyperinflation) will come out.
So when markets don't move on news, then there is a stronger fundamental reason behind it that the market is not moving, cause investors sense that this is not the end of the story.

Well, I just think most people confuse news with fundamentals, but actually they are only a very small part of fundamentals. That is why news have sometimes no effect on the market, cause investors are looking for other things to change.

Not sure if I made myself clear.
  • #15
  • Apr 2, 2011 9:43am Apr 2, 2011 9:43am
Quoting nasir.khan
I agree that increasing interest rates does not mean a universal rule to the markets to rise and shine. Our own PKR has a interest rate of around 12% and yet it falling against dollar no matter what.

But the thing is as you said people move the marts, so until it makes sense to them to keep on buying or say until the reason to buy is there they will buy and actually they should keep buying but what matters in the end is that who can first see underlying fundamentals are changing and get out at the right time. So again its all about fundamentals....
I think the value of money is the same as the value for any other commodity.
The scarcer it is and the more people want it, the higher it is priced.
  • #16
  • Apr 2, 2011 9:48am Apr 2, 2011 9:48am
Quoting CindyXXXX
What am I saying??? Something like simply a transaction from one currency to another creates a demand and conversally supply for the respective currencies in that pair... Nothing less. The cross rate you see is simply displaying the price at which you can do this, the exchange rate available for you. The currency pair itself is not an instrument or an asset, its simply a link to other (foreign) assets.
I don't agree with that. Currencies are commodities like everything else. As long as people want it, and as long as it is scarce, it is a commodity or asset.
  • #17
  • Apr 2, 2011 9:57am Apr 2, 2011 9:57am
Fundamentals are precicesly what move the currency markets. Stong ecconomies have strong currencies...look at Australia, Canada, Sweden, and Brazil. This is of course assuming "Pure" fundamentals, and no goverment interference.

What constitutes government interference? Good question. Japan has done it...the last time with the aid of the G7. Does monetary policy constitute goverment interference? Gray area as far as I can see. Interest rates do affect currencies in that they affect their intrinsic value by way of how much a government is willing to pay if you buy their currency. This is of course related, once again, to how strong the ecconomy is percieved to be.

Enter weak ecconomy and or boom/bust cycle. When everything crashes and burns, the goverment (as stated by the US) feels it has a "duty" to intervene to stabilize its banking system or everyone will have money that is worthless in the eyes of the rest of the world. Banks need money to pay their debts...money they don't have...so the goverment "eases" the sisutaion by printing more money...necessarily creating more debt...thereby lowering the value of the currency...blah blah blah.

All that being in the past, enter an ecconomy that has now looked at the edge of the cliff and turned around. No matter what you use the measure it the US ecconomy IS improving fundamentally. Are there still problems...of course. But it is certainly better off than 2 years ago when the EUR was at 1.18.

The nagging thing has always been jobs...jobs...jobs. But now those are improving and have been so for 6 months, and WAY better than 2 years ago when the dollar was way stonger.

So why does an improving ecconomy (arguably the strongest in the world) result in a steadily declining value in its currency?
  • #18
  • Apr 2, 2011 10:13am Apr 2, 2011 10:13am
Quoting gspajon
Fundamentals are precicesly what move the currency markets. Stong ecconomies have strong currencies...look at Australia, Canada, Sweden, and Brazil....
I think it is the overwhelming debt. In March the US actually almost had to declare bankruptcy, cause it reached a certain debt level. But congress raised the allowed debt level. I think nobody thinks that the US can ever pay back its loans. That is why the value is declining.

And printing insane amounts of money, which inflates the currency endlessly doesn't help much either.
  • #19
  • Apr 2, 2011 10:13am Apr 2, 2011 10:13am
Quoting Custos
I don't agree with that. Currencies are commodities like everything else. As long as people want it, and as long as it is scarce, it is a commodity or asset.
I can't argue with that but still, its a very generalized statement for the reasons I mentioned before... Is it the currency being demanded or what the currency can buy? (other assets)..... To take another angle people don't need to convert one companies share into another to obtain the desired share, and that I guess is my point.
Time hides Nothing
  • #20
  • Apr 2, 2011 10:22am Apr 2, 2011 10:22am
Quoting CindyXXXX
I can't argue with that but still... To take another angle people don't need to convert one companies share into another to obtain the desired share, and that I guess is my point.
Okay, let's go with that. If you want something you always need to convert the commodities or assets you have.
normally we convert money into things we wanna have, be it shares, gold, oil, products,...
But if you have lots of oil and want to buy some crops, if the other party agrees, you can exchange oil for crops.
You can also exchange your car for a motorbike
You can exchange apple shares for microsoft shares. In fact when there is a takeover, the shareholders of the company which got taken over get shares from the new company in exchange for their old shares (no money involved).
you can exchange the products you produce for products other people produce.
Money is just a commodity which most people accept in the exchange.
If we wouldn't have money, then it is hard to find another party to do an exchange with.
But no matter what, if you have a commodity and want another you anyways need to convert it. Be it money, shares, products, or whatever.
0 traders viewing now