Dollar “Nationalized” For The Weekend

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The US dollar fell off a cliff against all the currencies. The fall began at 16:50 GMT, during the time that financial stocks plunged at Wall Street. The nice gains that the dollar made during the week were erased in 15 minutes, and the fall continues. 

EUR/USD leaped 200 pips, from around 1.2650 to 1.2865 at the time of writing. GBP/USD jumped about 120 pips: from 1.4320 to 1.4440. USD/JPY fell by around 130 pips, from 94 to 92.70. 

And the greatest move of the day was at the might Alps: USD/CHF made a stunning 300 pips (!) plunge from about 1.18 to under 1.15. Amazing.

The US dollar fell also against the minors: Canadian, Australian and Kiwi dollars all beat the US dollar.

And why did this happen: The only thing I can relate to is the fall of the financial stocks in Wall Street. CitiGroup and Bank of America are on the verge of being nationalized. It looks imminent. Now, maybe traders fear of a deeper collapse in the American financial system.

Note that it came near the twilight zone, when Asia is already enjoying the weekend, European markets are closing and the New York session is far from the beginning.

Earlier, the dollar extended its gains on strong CPI. That belongs to the past…

Any good explanations to this dramatic fall are most welcome.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

4 Comments

  1. hi

    there is a good explanation,we should see $ @1.20 or 1 but how this could happen,it can not be done in oversold condition,so be ready to sell @ monday.

  2. Casey Stubbs on

    I am amazed to see such a strong move. Do you know how much money was taken out of the dollar today? I don't have any idea but it was alot.

    I can't figure it out.

  3. U.S. dollar will consolidate recent gains and outperform the euro

    U.S. dollar bear’s case: Obama warns of trillion dollar deficits for years to come just as the Congressional Budget Office estimates the 2009 U.S. deficit at close to 1.2 trillion U.S. dollars, before the stimulus package. At 75% of GDP, the gross national debt is 10.6 trillion U.S. dollars. As the global recession widens and deepens; foreign government buyers of U.S. treasury debt may refrain from further purchases at record low yields and instead opt to rescue their own ailing economies. Funding huge U.S. deficits will become increasingly difficult as the formerly eager buyers of China, Japan, the Middle East, etc all turn inward to focus on domestic spending initiatives.

    Without a “coalition of the willing” ready to lend to America, treasury prices may soon begin to fall from their lofty highs and yields track higher, forcing the Federal Reserve to monetize the debt and vastly increase the supply of money in circulation. Debt monetization occurs when the Federal Reserve purchases government debt from the Treasury and prints money. It appears that Uncle Sam might be the lender of last resort to Uncle Sam when all else fails. This could ultimately jeopardize America’s sovereign debt rating and send the U.S. dollar over a cliff with inflation to skyrocket.

    In the immediate aftermath of the credit bubble burst and the evaporation of over 7 trillion U.S. dollars of stock market wealth in the U.S., the conditions for inflation are not yet present in spite of humongous deficit spending and monetary expansion. However, at some point the total debt and unfunded liabilities of the U.S. government (exceeding 50 trillion U.S. dollars) will become sufficiently alarming to its creditors, and a substantial rise in interest rates will be necessary to forestall a precipitous fall in the U.S. dollar.

    Over the past 35 years, the cyclical pattern of the U.S. dollar has historically provided a 7-9 year of peak to trough (and vice versa) performance. Based on the above chart, it is possible that the U.S. dollar has made its most recent cyclical low of 70 in 2008 and is now attempting to move higher, although many skeptics question the fundamental soundness of the currency in light of a much weakened U.S. economy and the ever greater indebtedness of its public and private sectors.

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