Forex Market News
Hello dear readers, welcome to 2015. Much of what was happening to the end of last year still continues into this year and should continue for some time yet. I am talking the two major stories, being oil and greenbacks.
Both these stories are well known now but they are not slowing. Oil was down another 4% overnight to 46.25 (WTI) and the two major currencies that is effecting (the Canadian Loonie & Norwegian Krone) both are under severe pressure. Oil is tipped to hit 40 and now calls are of 20. Either way, there is more downside to come for oil.
The US dollar domination has been on a run since mid-2014 and there is no stopping it. Nothing on the horizon to warrant it. The US is on a charge and looking to raise rates mid-year, when all other economies are struggling or lowering rates. All that money Bernanke printed is flooding back to the good-ol’ Uncle Sam after years of propping up emerging markets. There is a risk however, and that is that the yield curve in the US falls into contango. Banks need long dated maturities to be priced higher than the short term dated maturities so that they can lend money out and still make a profit. If the market is in contango they cannot do this. Therefore the growth cycle will be hindered. The thinking is that after 6 years of the market being “forced” by the Fed into a normal backwardation yield curve that the market will naturally cycle into contango now that the Fed’s foot is off the short end.
There is another issue too. That is that as the flow of money exits emerging markets (Russia mainly but others such as Venezuela, Mexico, Philippines), those markets will not have the funds to make debt repayments and therefore could default. Much like what happened in the 90’s with Argentina and Russia. In fact a lot of commentators/economists are liking the “Nasty Nineties” to the “Twittering Teens”. Those “Naughty Noughties” had a great time in the middle.
So, the greenback run should continue for much of the year with little pullbacks on the way, but there are some hurdles to possibly overcome.
Elsewhere, there is the ECB/Euro debacle and the looming Greek election, but more on that tomorrow.
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