Recent Developments in the US Dollar

Guest post by  Forex Training Worldwide

Although currencies can be traded purely using technical analysis most successful traders still remain aware of current fundamental standpoints and world economic matters. Although a first class degree in economics isn’t required to be a profitable trader, one does have to understand what factors are influencing current market movements.

The US dollar and its country’s economy are one of; if not the largest influencer of currency values from around the world, so the US economy is something that we all need to be aware of.

Since the start of March 2012 the US dollar has been driven mainly by remarks from the FED Chairman Mr. Bernanke and a potential reversal in the policies of the US central bank. With a still lacking US economy, Mr. Bernanke’s comment didn’t do much to point towards improvement. In the current market investors have been enjoying the low rates and have been snapping up risk correlated investments at a good rate in comparison to their cost of borrowing. This all changes if Mr. Bernanke starts to reverse its current policies.

The US dollar is very cheap at present and it looks as though it will continue to be for a long time into the future. Although this is a sign that the US economy is struggling, investors have kept equities and risk related assets well propped up. With Mr. Bernanke showing no signs of more quantitative easing or raising of rates, albeit he did mention that the rates remaining so low for much longer isn’t set in stone; and they might leap higher sooner than expected. If rates were to rise, investors could find themselves in hot water, stuck in a slowly recovering economy with increasing rates which realistically provides little incentive for further investment in risk.

Early March 2012 had a busy week with US central bank meetings and the monthly NFP report. All eyes were (and still are) on the Fed and its rate decision; any change could be a large ‘game changer’ in the currency markets.

Recent price movements in the US currency have left it failing to break the 1.3500 level against the Euro and through 80.00 against the Japanese Yen – the first time we have seen this level in the last 6 months. Analysts are predicting a further bullish sentiment with targets of 85.00 – 90.00 over the medium term. The British Pound has been range bound against the US dollar with eyes waiting for price to break below 1.5800 or above 1.5950. Only time will tell.