The dollar fell for record low against yen since after the news on the US consumers view on the economy was said and it was since the middle of the great recession. On Tuesday it was noted that the Japanese currency, yen rose against major other currencies and it was seemed to be US consumer sentiment weak and also the euro debt crisis issue also seems to breakdown for a while.

The Conference Board Index said that the index value is low and it is marked to be far lower than that analysts have expected. The consumer sentiment has made it worse since March 2009. Yen seems to be the safer currency where the investors could invest because it is most likely to be lost in their value. Traders can also yen currency to invest in Japanese companies.

On Monday the dollar was at 76 against yen however at 3: 06pm that day it fell to 75.92 against yen which is about 0.08 yen low. Nevertheless, on Tuesday morning at about 11 pm to reached 75.71 yen, this is a record low for dollar. It was noted that the US economy is barely growing and that point has greatly supported yen to be improved in their currency value.

The statistical report tells that both dollar and yen currency is considered be the safer currency which value don’t rise or fall regardless of their economy weakness.yen appeal over the dollar weakness only when the US economy shudders.

European finance minister actually planned for a meeting to discuss and submit an issue report on debt crisis but it was canceled later and it was the one of reason that the euro plunged against the yen. Euro fell to 105.71 from 106.1. It was reported that it may even fall to 105.25 yen. Nevertheless in other forex trade it fell from $1.3931 to $1.3931.

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Although there seems to be a slower growth in the US economy, the growth stills happens to be persist. The report produced by the US government says that the dollar has risen against euro. The economic growth of the euro has been trembled not just by the dollar rise but also by some troubling signals from Europe.

The rise of euro was on late Tuesday to about $1.3246 however it fell from $1.3369 (Wednesday morning) to $1.3351 (late Wednesday). Survey on the service sector tells that the companies have expanded their business in the month of September when compared with august. In august the growth was at slower pace.

ISM (Institute for Supply Management) said the back to back orders are issued so that the economic growth of euro could be provided a way to pick up. Currency traders are much concerned about the euro debt problems and they are worried that if it would affect in any means.

Payroll report provided a statistics that the private companies have provided 91,000 jobs in the September and it has been little good compared with august. Nevertheless this report will not tend to predict the official government job report which would be given on Friday.

Dollar attracted the traders of various currencies towards itself by its development phase and the euro forex traders are yet to be alarmed to a fear that the crisis will however cause recession in Europe, which in turn will hurt the investors. Canadian dollar fell to $1.0432 from $1.0641 late Tuesday.

Dollar rose strong only against euro but it actually fell against major other currency. Japanese yen is at 76.96 from 76.72. Swiss franc has increased for about 0.0002 that is from 0.9240 to 0.9242. The British pound is at $1.5467. All of these rising growth happened on a same day and approximately at same time.

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Forex or Foreign Exchange Market is an international exchange market where currencies are bought and sold. The idea of Forex trading is very simple. In the Forex market you exchange one currency for another, when the price of this currency is low. You then exchange it back, when the price rises and in this way make money. With the inflow of excess cash you can expect debt reduction.

The buying and selling is done in pairs. Usually for investment purposes, four main currency pairs are used. They are as follows – the Euro against the US dollar, the British pound against the US dollar, the US dollar against the Japanese yen, and the US dollar against the Swiss franc. The Forex market is a 24 hour market and does not close down like a traditional stock market. Thus, it is not regulated or there are no international panels to settle disputes.

However, the market has a lot of advantages; some of them are as follows.

1. Suits small investors: When it comes to the Forex market a small amount of money can be used to invest and make profit from. In most places and companies you need abundant capital to make profits but in the Forex market you can begin with a small amount.

2. 24 hour market: Forex trading market offers a 24 hour trading opportunity. A Forex investor can trade any time of the day as per his convenience. This is a great advantage as the investors can go to the market when they have time. Somewhere in the world there are many buyers and sellers actively trading in Forex.

3. High Leverage: The Forex market offers its traders high amounts of leverage. This means that even if you invest small amounts, you may get huge benefits.

4. No limitations: Usually futures market contains certain constraints. These constraints are there to limit the number of transactions that you can make under certain price conditions. In some cases when the price of a currency rises or falls beyond a certain level then traders are restricted from applying for new transactions. This is done to control daily price volatility. In case of the forex market these trading constraints do not exist. So you as a trader can implement all your trading strategy.

These are a few of the main advantages of the Forex market. You may invest and earn huge profits which will help you in debt reduction. As the market is so flexible you may benefit a lot from it.

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The movement of any currency is governed by many factors like demand and supply, country’s economic health, trade balance etc. One such significant determinant is the commodity price.

Oil and gold sectors influence the currencies in a big way. Knowledge of these sectors and their performance help the forex traders in understanding the movement of the currencies. Some currencies like USD, Australian dollars and Canadian dollars exhibit high correlation with these commodities. Whereas Swiss francs and Japanese yen are not much sensitive.

The oil prices are very dynamic. This is an important indicator of country’s economic health. Oil is traded throughout the world in dollars. OPEC countries enjoy when the prices of oil increase. Whereas the importing countries bear the consequences. When the dollar rises the crude oil prices tend to rise. The oil dependent economies like US, India have to shell out more money, hence weakening of the currency.

Different currencies are affected in a different way by the oil prices. This depends upon the fact whether the country is oil exporter or an importer.

Canada is an Oil exporter. Any fall in the demand leads to fall in the dollar rate. As the demand rises, the economy revives and hence the exchange rate. When the oil prices go down the importers like Japan tend to gain. Canada and Saudi America are major exporters. Canada is a regular exporter of Oil to US because of geographical proximity and political stability. The currency pair rate USD/CAD is inversely proportional to the oil prices.

The Japanese economy is affected in a different way by the oil prices. The reason is that Japan is one of the major importers of oil. The upward trend in oil rates has a severe impact on the economy of the country. The currency pair CAD/JPY moves up as the oil prices go down and moves upward as the prices decrease. Japan is highly dependent upon imports for energy requirements. The country is able to regulate the currency rate by other means like monitoring the interest rates.

Thus, currencies can be traded wisely if their correlation with commodities is understood.

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Forex is the foreign exchange market. It is the largest financial market in the world and allows the trading of currencies of different countries.

Large businesses, corporates, institutions, governments, banks etc are the active participants in forex trading.

However of late, forex is also witnessing trading by retail traders i.e. Individuals.

Forex trading can only take place in pairs. It is for this reason that the understanding of currency correlation is of immense importance.

Correlation is basically interdependence.

Following points must be remembered:

•    Interdependence between two traded pair is currency correlation.
•    The value of correlation can vary form –1 to +1.
•    When the coefficient of correlation is positive the currency pair move in the same direction.
•    When it is –1, it implies that the pairs are moving in the opposite direction.
•    When the coefficient is 0, they are moving at random, not having any significant effect on each other.
•    In order to make profits out of forex trading, we must know the currency correlation.
•    A track of the correlation of the currency pair, in the recent past, should be kept.

We can understand it by studying the following example.

We trade British pounds for a Japanese Yen. The pair is represented as GBP/JPY. The 2 currencies in a pair have an impact on one another. However, other currency movements also influence the pair.

The trading of other currency pairs, BGP/USD and USD/JPY   influences the pair GBP/JPY.

Let us assign names to currency pairs GBP/JPY as A
And BGP/USD becomes B

If the correlation is positive and is 0.96 .It means that both pairs are moving upwards and at the same pace.
However if it is 0.24, although the coefficient is positive the pace is not the same. Thus we can buy the pair moving slowly.

Similarly, the fast moving can be sold.

The technical analysis needs to be correctly interpreted .The currency correlation guides the trading decisions.

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Currency exchange is an important aspect of international business. Economic development, trade, tourism, finance and many other important aspects of the world economy are dependant on this.

The main global currency is the U.S. dollar (USD). This means that it is the currency held by governments and organizations around the world to fund international trade and financial transactions. Many global commodities, such as oil and gold are valued by the U.S. dollar.

Currencies can be distinguished as either floating currencies or fixed currencies based on their exchange rate regime. Currency of the European Union, the Euro is rapidly becoming a dominant global currency. A huge percentage of daily trading on the foreign exchange is made up by the Euro and the U.S. dollar. This is according to the Bank for International Settlements, based in Basel, Switzerland.

In the rest of Europe, the British pound (GBP) and the Swiss franc (CHF) are strong currencies that remain outside the Euro zone although the United Kingdom and Switzerland are members of the EU.

A powerful global currency The Japanese yen (JPY) dominates Asian markets and challenges the Euro and the U.S. dollar for world dominance.

For Australia, New Zealand and Canada their currencies are known as dollars and these dollar currencies are commodity-based, which means their value floats with the value of the country’s foreign trade. Nicknames of these currencies are the Aussie, the Kiwi and the Loonie.

Currencies are the emerging economies in South America, Africa and Eastern Europe is most exciting now. There are a number of factors which affect the value of a currency like the political conditions of a country, economic situation, perception from outside, demographics, war and conflicts, weather factors such as drought, famine, tsunami, earthquake, floods and so on and education, natural resources, isolation vs. openness

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The year 2008 was bad, to put it mildly, in terms of recession and economic downturn/ slowdown in the United States of America. It was no different in the year 2009, perhaps even worse, it seemed as if the economy of the US was in a free fall. It is therefore not at all surprising that US dollar lost lots of its sheen and hence its value. To rouse the economy of the country the Government went ahead with another cut in the interest rates of the Federal Reserve. It was or rather is a misconception that these stimulus packages offered by the Government to bail out the economy will further plunge the value of US dollar.

It is not surprising to predict that the year 2010 will see the US dollar making a very strong recovery as compared to its counterparts (other strong currencies). We have started seeing the US dollar making a recovery in the past fifteen to twenty days and the year ahead seems to bring a lot cheer to those who have kept their cool and held on to the US dollar. It is also not astonishing and surprising to note that the last two quarterly results have been on the positive side and this has given the fillip, which was required for the US dollar to bounce back.

The positive sentiment of the recovery of the US dollar can be seen in the international currency market if you take a closer look at the figures and charts (international currency rates and charts). US dollar against European Euro, US dollar against Japanese Yen, US dollar against Australian dollar and US dollar against UK’s pound, etc. are all showing a positive tilt in favor of the US dollar. All you have to do is take a closer look at the increasing strength of the US dollar against most of the other strong currencies of the world.

A fair bit can be interpreted through the following figures: US dollar in comparison to the Japanese yen, as on date is 90.840 (bidding price) / 90.850 (asking price) and that of the Australian dollar in comparison to the US dollar is 0.8862 (bidding price) / 0.8866 (asking price). These two examples clearly show that the dollar is steadily gaining ground and the year 2010 will see a strong US dollar once again.

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Demand for safety rose today as concerns among investors that Chinese lending limits announced this week by the nation’s government may impact the global economic performance, allowing the yen to beat all of the main traded currencies in

foreign-exchange markets today.

The yen gained today versus greenback as reports in the world’s wealthiest country came slightly below forecasts, also showing a slow down in the inflation. The euro declined sharply versus the Japanese currency as concerns regarding Greek’s budget deficit are still affecting the outlook for the European currency, causing an outflow of capital towards the safety provided by yen-priced assets. China’s lending restrictions will affect not only the Asian economic region, but the economy in a global scale, as Chinese trading is well spread around the world, and these measures can slow down the economic recovery expected for 2010.

Traders became more risk averse with the new Chinese banking policy, and that’s positive for the yen, according to specialists. The yen had been trading at record lows versus commodity related currencies like the Canadian dollar and the side effects of Chinese statements gave a breather for the Japanese currency.

EUR/JPY traded at 130.57 as of 16:01 GMT from an intraday rate of 131.85. AUD/JPY declined to 83.83 from 84.80

If you want to comment on the Japanese yen’s recent action or have any questions regarding this currency, please, feel free to reply below.

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The Japanese currency declined in the beginning of this Thursday’s session on Australia’s better than expected employment data, which increased attractiveness for riskier assets as the South Pacific economy recovery improves confidence among traders.

The yen, known as the best refuge currency for times of uncertainty, declined today as unemployment surprisingly fell in Australia, bringing Japanese investors to buy riskier assets overseas, as the Australian economic recovery indicates better economic conditions not only in the South Pacific region but also among its main trading partners.

AUD/JPY traded at 85.01 as of 02:35 GMT from a previous rate of 83.89 in the intraday chart.

If you want to comment on the Japanese yen’s recent action or have any questions regarding this currency, please, feel free to reply below.

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The Australian dollar climbed after employment figures were published in the country with

better-than-expected numbers, adding confidence that the economic recovery in the country is accelerating its pace, spurring demand for assets in the South Pacific region.

After unemployment in Australia declined to 5.5 percent and surprised forecasts that expected an increase, the Aussie dollar gained versus most of the main traded currencies, specially lower-yielding options like the Japanese yen, impacted by the growing risk appetite in Australia.

AUD/CAD traded at 0.9579 as of 02:27 GMT from 0.9504 hours before the employment figures were published in Australia.

If you want to comment on the Australian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

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Risk aversion declined significantly today after China set a new reserves requirements for banks in the country, allowing the yen to outperform all of the 16 main traded currencies in

foreign-exchange markets, as pessimism surged.

Equities markets in Asia and globally declined today, raising demand for the yen, as China set a minimum of 16 percent of reserves that large banking corporations in the country must have, in order to avoid a credit bubble as the one that caused the global slump in late 2008. The yen is considered the safest refuge in currency markets for turbulent times and benefited from today’s negative scenario, as China’s policy decreased demand for high-yielding assets, which were trading high since the beginning of the year. The Australian dollar posted the sharpest losses versus the Japanese currency as loan approvals in the real estate sector declined.

China’s strict regulations declined optimism that were fueling demand for higher-yielding since the last week, according to analysts. The yen had declined significantly after several sessions losing versus most currencies, as today’s shift in markets sentiment was a good opportunity for it to level up.

AUD/JPY fell to 84.23 as of 15:45 GMT from a previous rate of 85.53 in the intraday comparison. CAD/JPY followed the same trend at 87.72 from 89.08.

If you want to comment on the Japanese yen’s recent action or have any questions regarding this currency, please, feel free to reply below.

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Understanding forex quotes can be quite challenging and it may take some time while you can master the implications of these quotes.

A forex quote is always measured in respect of two currencies, where one currency is being sold and the other is being purchased. Also, there are two prices namely, the bid price and the ask price, one is the selling rate and the other is the buying rate.

Let us take a live example of a Forex Quote. If the forex quote of US dollar and Japan Yen. Now if the quote is USD/ JPY 106.52/56. There are two currencies involved here, base currency and the quote currency. The base currency is always equal to 1.  The number of the quote currency reflects how many quote currencies can be bought with 1 unit of base currency. In our example, it would tell us how many Japanese Yen can be bought for 1 USD.

106.52/56 actually means 106.52 and 106.56.

The bid price tells us the price at which the base currency will be bought. The ask price reflects the selling price of the currency.

So, 106.52/56 USD/ JPY actually means that 1 US dollar can get you 106.52 Japanese Yen. Alternatively, if you want to buy US dollars, you pay 106.56 Japanese Yen to get 1 USD.

The price differential between the ask rate and the bid rate is called ‘spread’. Each unit of 0.01 is called ‘pip’. If we take the example of 106.52/106.56 USD/ JPY, then the pip is equal to 4.

The most commonly traded currencies are US dollars, UK Pounds, Japanese Yen, Swiss Franc, Euros and Australian Dollars.

At times, the pip can be as low as 1 pip. For other less traded currencies, the pip may be more. However, small pip does not reflect less profit. If the volume of your trading is enormous, one pip can also translate into huge profit or losses.

Most dealers deal in 100000 or more USDs and the trading would take place several times in a day and hence even a small unassuming pip can mean huge amounts.

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Credit risk or counter party risk arises out of the potentiality that outstanding positions on currencies will not be honoured as per contract due to a deliberate or unintended activity by that counter party. This is where the role of the clearing houses comes into action and forex trading takes place in regulated exchanges where trades are settled by the clearing houses. The concern for credit is minimized in this way. Credit risk can be replacement risks and/or settlement risks which are described below.

Replacement risks:

This occurs when the books of counter party are found to be unbalanced and shows a difference similar to the outstanding amount to the insolvent party. New transactions are entered into to re-balance the counter party’s books.

Settlement risks:

This occurs due to difference in time zones of different countries. Currencies are credited at different times during the day. This starts with Australian and New Zealand dollars, then Japanese Yen and other Asian currencies, after that the European currencies and lastly the US dollar. A party could be declared insolvent just after the payment has been made to it but before its own execution of payments.

The credit risk could be minimized by the credit worthiness of the related parties. Credit lines should be implemented with the investment banks, commercial banks, trading companies and the banks’ customers between each other for trading purposes. Constant monitoring of the financial strength of the counter party is required to be undertaken. The currency portfolio market value and the forecasted portfolio exposure to be taken into account by the end users for assessing the credit risk involved. For assessing credit risk, techniques such as probability analysis over the time – to – maturity of the outstanding position could be in use. Netting is also used which amounts to a single transaction per end of day to settle the net positions with one another. In this case trade by trade settlements are avoided totally. In times of liquidity crunch faced by banks a common reserve pool formed by groups of large banks could provide a short term backing.

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Let’s start with the fact that our previous forecast was confirmed at the auctions on Friday the U.S. dollar continued to strengthen against the Japanese yen, but the upward movement has slowed down near the 92.20 level and has started a correction, which is still going on …

USD / JPY

Current price levels are still located above the moving averages with periods of 34, 55, 89 and 144, which is directed upwards and point to the continuing bullish sentiment.

The MACD histogram is located in the positive zone, but their attempts to cross the signal line downwards, and thereby generate a signal to sell the dollar / yen.

Stochastic Oscillator out of the overbought zone and has already formed such a signal, since the beginning of the% K line falls below the% D.

Therefore, we expect that the correction will continue and increase, if it is punctured by the level of support 91.30, which could open the way for the bears to the levels of 90.80 and 90.40.

At the same time we must not forget that the aggressive buyers of the dollar / yen can return to the market, if would be punctured 92.20 resistance level.

Levels of resistance: 92.00/10, 92.50, 92.70, 93.00

Current price: 91.76

Support levels: 91.50, 91.00, 90.70, 90.50, 90.20/00

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USD/JPY

Current price levels are still located above the moving averages with periods of 34, 55, 89 and 144, which is directed upwards and point to the continuing bullish sentiment.

The MACD histogram is located in the positive zone, located above its signal line, continues to rise and thus sends a signal to buy the dollar / yen.

Stochastic Oscillator re-entered the overbought zone and formed a similar signal, since the beginning of the% K line rises above the% D.

Therefore, we expect that growth in dollar / yen will continue, but the immediate goal of bulls is located on 92.50.

Levels of resistance: 92.00/10, 92.50, 92.70, 93.00

Support levels: 91.50, 91.00, 90.70, 90.50, 90.20/00

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If you are new into the Forex trading and want to gain some quick knowledge on the Forex trading then in that case here are some basics to help people like you. The Forex market is somewhat different than other markets and one need not open for the market to open. The reason being somewhere on the globe its morning and thus the market is in swing there, unlike the stock market so you have a 24/7 exposure to the market. Under mentioned are some of the market timings.

Tokyo

• Open – 23:00 (GMT)
• Close – 8:00 (GMT)

London

• Open – 7:00 (GMT)
• Close – 16:00 (GMT)

New York

• Open – 12:00 (GMT)
• Close – 21:00 (GMT)

The real tempting fact related to the Forex market is that as per the Central Bank Survey, that was conducted to compute the number of total international settlements closed. It was 1.9 trillion in 2004. To give you an idea of how big this is, I would say this daily volume is more than 20 times the stock trading volumes at the NYSE and the NASDAQ combined.

If you still do not think that Forex trade is not lucrative enough then, the facts that you would be able to short sell a currency pair without waiting for the up ticks to happen. And with Forex trading you have all the liberty on earth to short or long sell the currency pair at free will. As there are no exchange guided norms for the daily activities related to Forex trading. As there are guidelines, in the case of the stock trading, should do the magic. Talking of pairs it’s absolutely important that you have some idea about the currencies and the pairs.

The Forex currency quotes are as follows:

US Dollar – USD;  Euro – EUR;  British Pound – GBP;  Japanese Yen – JPY; Swiss Franc – CHF;  Canadian Dollar – CAD; Australian Dollar – AUD;  New Zealand   Dollar – NZD.

The Forex currency pairs are as follows:

1. Euro Dollar – EUR/USD
2. Cable – GBP/USD
3. Swissy – USD/CHF
4. Loonie – USD/ CAD
5. Dollar Yen – USD/ JPY
6. Aussie Dollar – AUD/ USD
7. Kiwi Dollar – NZD/ USD

While trading in Forex a standard lot is of 10000 base currencies, but it differs depending on the platform and this standard size is thus not a fixed size. Forex trade would always include a bid and an ask price. Bid price is the price at which the trader is willing to sell and the asking price is the price at which another trader is willing to buy.

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The staggering impact of US economy meltdown continues to haunt international forex markets and different stock exchanges across the world. Basically, US Dollar which is considered to be the most powerful currency in the world and continues to dominate the forex markets have been on a weak run ever since the sub prime meltdown hit the US economy around early 2008. Ever since forex markets have witnessed weakening inter currency transaction volumes and sales force.

Coming in very close to the US Dollar in terms of currency strength are the British pound sterling and the Euro. In terms of intrinsic value, the Great Britain Pound, as it is more popularly known, is stronger than the Dollar. Of all international forex markets and stock exchanges, the London Stock Exchange assumes great importance on overall global bourses. This has become all the more important after the US economy turmoil.

In terms of currency value, the EURO rates almost same as the US Dollar. However its world wide acceptance and circulation among all European Union countries make EURO a significant moving force behind international currency sale/purchase price indicator.

Apart from the above three currencies there are few Asian countries whose currencies have a significant bearing on the global forex markets. Most significant among them is the Japanese YEN. Although the intrinsic value of YEN is much lower compared to the US Dollar, but still Japan’s stock exchange and forex market has a significant bearing on the overall stock exchange movements, else where in the world.

Of all the developing nations across the world, Indian economy needs special mention. Indian stock market too, has evolved over a period of time and the Indian Rupee has matured as a currency. In fact, the Indian Stock market is considered to be the safest bet for investment purposes by most leading Foreign Institutional Investors (FIIs).

The price indicators and variations in different forex markets across the world are complex and are driven by a combination of economic, political and socio-political factors. Whatever be the prime reason, there is always a spiraling effect, which means if there is one event which has pulled a particular forex market up, similar effects would be felt elsewhere and vice-versa.

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The US Dollar surged higher to start the trading week as stocks sold off across Asian exchanges, boosting demand for the safety-linked currency. The British Pound bore the brunt of the greenback’s assault as risk aversion compounded last week’s dovish rhetoric from the Bank of England.

Key Overnight Developments

• Pound Tumbles Despite BOE Backtracking on King’s Comments
• Japanese Yen Surges on Safety Demand as Stocks Plunge in Asia

Critical Levels

The British Pound and the Euro both suffered sharp losses in overnight trading as stocks tumbled in Asia, driven lower by Friday’s disappointing US economic data, sending the MSCI Asia Pacific regional benchmark index down 1.2% and boosting demand for the safety-linked US Dollar.

Asia Session Highlights

The British Pound raced sharply lower in early trading as currency markets seemingly concluded that the Bank of England suspiciously “protests too much” after the UK Times Online cited unnamed sources at the central bank as saying King was trying to talk down sterling last week. The Pound began to accelerate lower last Monday after the BOE released an article titled “Interpreting Recent Movements in Sterling” as part of its quarterly bulletin which argued that the inability of drying up capital inflows to finance the current account deficit could mean a fall in the “the long-run sustainable real exchange rate”. Sterling bears were given extra fuel last Thursday when Governor Mervyn King said rebalancing the UK economy was “very necessary [and] the fall in the exchange rate that we have seen will be helpful to that process” in an interview with The Journal.

Reserve Bank of Australia Governor Glenn Stevens struck a hawkish tone at a testimony to the Senate Committee in Sydney. Stevens said that Australia’s recession has been mild and the economy has done “quite well” as government stimulus “materially” supported growth, adding 2-3% to local demand. On interest rates, Stevens said that benchmark borrowing costs are “unusually low” and will need to go back to normal levels, adding that inflation targeting will guide the timing of adjustment to “more normal levels”.

Euro Session: What to Expect

A preliminary estimate of Germany’s Consumer Price Index is set to show that prices fell -0.2% in the year to September, marking the third consecutive month that the EU-harmonized metric has printed in negative territory. A reading in line with expectations is unlikely to prove market-moving: economists have called for year-on-year CPI to shrink -0.3% through the third quarter, and averaging September’s would-be reading with those recorded in the previous two months yields just about that outcome. The coming months present an opportunity for volatility, however: consensus forecasts have inflation coming back into positive territory in the fourth quarter and averaging around 1.2% through 2010; if this proves too rosy as the economy falters anew after the boost from fiscal stimulus (both at home and abroad) and the inventory cycle fizzles out, a drop in inflation expectations stands to prolong the slump in the Euro Zone’s largest economy. Indeed, consumers and businesses have little incentive to spend and invest in the present if they reckon prices will be lower in the future, bringing economic activity to a standstill. This will mean the ECB will keep interest rates at current lows longer than nearly all of its major counterparts (with the exception of Japan and Switzerland), weighing down the Euro.

Written by Ilya Spivak, Currency Analyst
Article Source – Pound Tumbles, Dollar Surges as Risk Aversion Hits Currency Markets (Euro Open)

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