Your Own Forex Reviews and Market Updates

The Sesterii – a new currency just for Southern Europe?

A cut to Spain’s credit rating yesterday, coming just mere days after a downgrade to that of Portugal and Greece, fueled fears that the Euro Zone’s debt crisis is widening at an alarming pace – sending tremors of volatility across the forex market.

The Euro touched on a new 12-month low, after Standard & Poor downgraded Spain’s credit rating from AA+ to AA and said the outlook on the country’s debt is negative. The single European currency traded at as low as $1.51240, on the forex market, as concern that Europe’s deficit crisis may widen damped the appeal of assets in the 16-nation region. The S&P’s latest stab at the European continent, in addition to early downgrades this week to Portugal and Greece, exasperated fears that the Euro Zones debt crisis is spreading.

Between Germany insisting that Greece agree to “terms” before handing over their share of the bailout fund, and the IMF now reporting that the Greece’s bailout package could total to €120billion ($150 billion) over three years – nearly three times the amount previously pledge- its seems as if Europe has been sucked up in into a black hole of utter disaster.

While the Euro became a rival to the US dollar after the common currency’s inception in 1999, the debt crisis that began in Greece, a country that accounts for less than 3% of the nations GDP, shows just how easy it is to shake the common currency. The euro’s 11% decline in the past six months (on the forex market) made it the worst performer among its 16 most-traded peers.

According to Sudeep Singh, a hedge fund manager who has treaded in emerging markets for 17 years, European nations are constrained by the Euro because they can’t reduce the costs of their goods and services with a cheaper currency. The credit ratings of Spain and Portugal were cut this week amid concern Greece’s difficulty to pay its debt will spill over to Spanish and Portuguese markets.

An alternative is needed to let Greece and other European nations devalue their way to financial health. According to Mr. Singh, Europe needs to split its currency into two classes to provide an alternative for struggling nations such as Greece and Portugal. He proposes calling the new currency the “sestertii” after the Roman Empire coin once used across southern Europe.

“In every other emerging-market crisis there’s been a currency devaluation, a debt restructuring and tighter new fiscal policy. Greece and the others can’t become competitive without a cheaper currency.” Sigh said “There are differences, and screaming differences, that have now been shown between the regions of the euro-zone,” he said.

The European Central bank has already said that expulsion of Greece from the Euro –Zone is legally impossible – replacing the European common currency that’s been in place since 1999 is getting less far-fetched, Singh said.

Tags: EUR/USD, Euro, euro zone, Forex market, Greece and the euro, greek debt crisis, IMF

FX Today-Greece Passes Key Financial Test

Greece raised 1.56bn Euros today in an over-subscribed bond sale that was a key test of investor confidence in the debt-laden country. Today’s sale was the first bond issue since the announcement two days ago by European leaders of a 45bn Euro safety net for Greece. Greece’s debt management agency had originally sought to raise 1.2bn Euros from the issue.

However Greece did have to agree to pay a higher rate of interest to investors than in previous bond issues as doubts remain that the country will be able to extricate itself from the debt crisis that has shaken the Euro. The yield on 12-month bonds was 4.85%, and on 6-month notes it was 4.55%. This compares with a yield of 2.2% paid on 12-month bills and 1.38% on 6-month bonds from an earlier issue in January.

Following a brief rally on the forex market, the Euro  fell to a session low against the US Dollar of USD1.3598, from a near one-month high of USD1.3691 on Monday.

It is thought that Pacific Investment Management (Pimco), the world’s biggest investor in bonds, may have shunned the issue. Mohamed El-Erian, Pimco’s chief executive, said yesterday that the Euro Zone’s rescue package did not address Greece’s fundamental crisis.

“Based on what we know right now, we would not be a buyer [of the Greek bonds]. We are very cautious toward Greece and we are in a ‘wait and see’ attitude and we would like to see greater evidence of adjustment on Greece,” he said.

That was followed today by a recommendation by ABN Amro’s private bank to avoid Greek bonds because it was still unclear whether Athens could carry out its promised reforms. “We are far from done on the fiscal adjustment in Greece,” the bank’s chief investment officer Didier Duret said.

Prime Minister George Papandreou needs to raise 11.6 billion Euros by the end of May to cover maturing debt, with another 20 billion Euros required by the years-end to pay interest and finance this year’s deficit. Last week the government estimated its 2009 budget shortfall would be 12.9% of GDP, the biggest in the Euro’s history and more than four times the EU’s 3% limit. The previous forecast had been 12.7%.

Some analysts believe the latest bond issue went smoothly because the treasury bills have short maturities. However, Greece will soon have to raise another 10bn Euros via longer-term bills, which will test investors’ appetite for locking in their money for a longer period.

Tags: EUR/USD, Euro, euro zone, Forex market, greek debt crisis

Using a 24 hour market to your advantage

As a result of the Forex’s “open all-the time” policy and being that on different ends of the world the same moment can be in the middle of the day or the middle of the night, the Forex trading day is comprised of three primary trading windows. 

The windows, identified as the Asian, European and American sessions, are the times when trading is most active in each major area of the world – when it is daytime in China, the Asian session is most active and so on. 

The overlap between the different zones is typically the most traded; this overlap of one zone’s end of day and another’s beginning of the day typically sees the highest volume.

The European window begins at roughly8am GMT, being that the Forex market is a non-stop event, there is no precise second this starts as with the Stock Exchanges. We can tell a little before this session opens how the market will react. 

It is possible to track the mood of the market as it crosses the time zones.  How it held up through the Istanbul and Moscow regions is usually a good indicator of how it will begin in Europe. 

The trend that it opens with in the Eurozone typically lasts for several hours and then factors such as economic reports and data anticipation take over to shape the market for that day. 

Meanwhile in Asia, late night traders are beginning to forecast their strategies for the morning Asian session which will feed off of the European and American sessions to map out a direction for itself. 

The American session and European session overlaps are typically seen as the most volatile and voluminous.  It is when the market tends to make its most drastic moves of the day in the shortest amount of time. 

It is where money is made and lost in split seconds, and price spikes are the norm.  Trading in this time can be tricky and can be highly rewarding – the key to making it a success is to understand the overall trend from Europe and Asia and knowing what is on the calendar for this day.

Forex trading can be a challenge, but understanding basics like this can make it a much more rewarding experience.