Dollar Decline Might Be Attractive

Category: Finance, Currency Trading.

The Dollar again grabbed the headlines last week as it hit all time lows. against the Euro and levels not seen in generations against the Pound& Canadian Dollar.

The Dollar again grabbed the headlines last week as it hit all time lows. against the Euro and levels not seen in generations against the Pound& Canadian Dollar. The reason for this drop in the medium term has been the gradual weakening of. the US economy as it tries to fight the effects of the credit crunch and a. The reason for this drop in the medium term has been the gradual weakening of. the US economy as it tries to fight the effects of the credit crunch and a. housing slump. S regions posting. declines. Recent Case- Schiller data showed that US house prices fell for. the eighth consecutive month with most of the country& #1041; ─ ≥. On Thursday, banking stocks suffering their worse fall for years as.

This comes on top of. a recent 57% drop in third quarter profits compared to last year. US giant Citigroup was battered by analysts down grades. Citigroup. are now in danger of dropping out of the top 10 US companies by market. capitalisation. To cap all this negative data, former Fed chairman Alan Greenspan went on record as saying that the US trade. gap implied dollar erosion and with an accelerating decline. Top of the list Exxon Mobil also disappointed with below. estimate earnings despite record oil prices. Of course the short term reason for the drop in the dollar last week was the. widely expected quarter point cut in interest rates by the FOMC.

One economist called the wording as& #1041; ─ �subtle as a sledge hammer& #1041; ─. � because of. the bold way it indicated that this was the last cut for a while. Notable. however, was the unusually hawkish language that accompanied the statement. Hawkish. comments from the MPC combined to send the USD/ GBP exchange rate within. touching distance of$ 09 to the pound. S high and the Nasdaq to fresh new highs for 200On. Equity markets initially greeted the FOMC decision positively, pushing the S& P. 500 past last week& #1041; ─ ≥. Thursday, however all the good work was undone as earnings fears and the. reduced probability of further cuts brought out the sellers in force. This time it was. hardly reported.

The. fall was of the same magnitude as the mauling on the 19th of October which. brought out lots of shock headlines in the mainstream press. When the press gets hold of something, it may pay to go the. other way. Notable announcements next week are UK industrial production figures on. When the same thing is met with silence it could be time to get. genuinely worried. Monday, US Non- farm productivity figures on Wednesday, trade balance numbers. and consumer sentiment data on Friday. T even mentioned the MPC and ECB interest rate decisions on. In all it looks a data heavy week and. we haven& #1041; ─ ≥.

Thursday. ECB president Trichet is. speaking after the statement. The consensus estimate is that both central banks will announce no. change statements, but as ever it is the reading between the lines on the. next decision that will cause the excitement. Last week& #1041; ─ ≥. Friday& #1041; ─ ≥. S German PMI figures were well below estimates, which might call. into question the widely held view that the next ECB move will be up.

S payroll numbers indicated that there may be life in the US economy. yet. S accelerated. decline may not come to fruition, particularly against the Euro. The dollar may have further to fall, but perhaps Greenspan& #1041; ─ ≥. If the ECB. keep rates on hold over the coming months, or even cuts them, as some now. think they might, then the dollar& #1041; ─ ≥. Therefore, a long term trade that picks up on the possibility of a slower. S decline could become more measured.

Dollar decline might be attractive. If the dollar falls only a little bit more, stays still or. strengthens against the Euro then the trade wins. Traders ar BetOnMarkets. com predicts that. a no touch trade on the EUR/ USD with the trigger set to 50 over 180 days. pays a 78% return. The trade is not without. its risks, but that is reflected in the price.