World Currency Market Report

Currency market participants have been repositioning and our models are signaling to do the same. The drivers are several key fundamental influences:

• The G-7 coordinated intervention to weaken the yen.

• Fed officials have been voicing concern about QE2 (Quantitative Easing) signaling that economic stimulus may end early and that monetary tightening will follow. A more hawkish Fed outlook will be good for the dollar and bad for stocks and commodities that have been driven up by easy money policies.

• S&P downgraded the credit ratings of Portugal and Greece. There is concern that the terms set out in the euro zone’s newest plan to resolve the crisis will only increase the likelihood that Portugal and Greece will have to restructure their debt. 

• China’s foreign exchange regulator, the State Administration of Foreign Exchange, is requiring Chinese banks to cut their short U.S. dollar positions by half! 

With the ECB on the path to repeat its mistake of 2008, by raising rates in the face of building economic threats, look for the dollar to strengthen against the euro and yen.  Meanwhile, expect most countries with trade surpluses to continue to absorb the burden of currency appreciation against the major developed market currencies.

Editor’s note: Weiss Research Analyst, Bryan Rich, recommends several moves you can make with currencies to position your holdings with an eye to these market changes. If you’d like to get Bryan Rich’s complete analysis with trading details, you can subscribe to World Currency Trader.