Risk is back on: forex traders go for euro and others

David Hobart

The new foreign exchange trading week seemed to indicate an ushering back in of risk after a few days of unusual market behaviour.

The single European currency seemed to be back in demand on Monday morning, at least to enough of a degree that it could hold firm against others.

According to some media reports, Germany – which is the largest economy in Europe – is considering creating a stimulus package to help its sluggish economy along.

In the short term, a report from the German central bank, the Bundesbank, due out this morning could entrench the suggestion that a stimulus is on the way.

However, the moves were not enough to actively lead to profit for the dollar, and instead simply let it stay firm.

It went down by 1% over the course of the last trading week, but it managed to hold off in its pair with the US dollar when trading kicked off in London today. It was seen at $1.1094 at one stage.

Elsewhere, China announced that it would reduce the prices of business borrowing – a move which helped those currencies that tend to rise when growth is on the cards.

The US dollar, which last week was in the spotlight due to the US economy’s ongoing trade skirmish with its rival China, was a little less high profile today.

However, this is likely to change over the course of the week. Jerome Powell, who chairs the Federal Reserve central bank in the country, is expected to use a speech later in the week to outline his plans to cut interest rates further down the line. He will speak at the Jackson Hole Symposium, which is a major central banker event in North America expected to attract attendees from around the world.

According to one report, the markets expect that by the end of 2019 interest rates could be cut by what works out at 67 basis points.

The dollar index, an artificial tool which tracks how the greenback is performing in direct relation to some of the world’s other major currencies, was slightly up when the week’s trading began earlier today. It was seen at 98.201. This was near to the fortnightly high point of 98.339, which it saw towards the end of last week.

The next issue for the dollar to deal with will be the decision on Huawei. It was announced this morning that the US government would not make a choice on the Huawei issue for another three months or so. The move is significant, given the context of the US-China trade battle.

Trump has repeatedly described Huawei, which is a Chinese telecommunications firm, as a threat to US security.

He has since forbidden American companies from doing business with the company, and it remains unclear what the company’s long term strategy might be.

In terms of forex market consequences, the afternoon could see a move away from the riskier currencies which appeared to gain some appeal over the course of the morning.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

David Hobart
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