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By Vincenzo Desroches
Created on: June 11, 2010
Current version 1.0 : June 11, 2010 -- initial release
There has been talk recently of currency traders becoming interested in the Euro again. After its steep fall over the last month the currency has been extremely oversold. As with any market even the most oversold currencies will have minor up trends as traders who were short close out their positions and take profits. That is the more likely scenario with the Euro as there has been no new positive or negative talk about debt issues surrounding European Union nations. The less bad news that comes out of Europe the more bullish traders will become on the currency. It also appears that most of the debt stricken countries in the E.U. have come forward and announced their problems, asking for financial assistance from their neighbors.
Adding to the bullish case for the Euro, many of the big exporting nations in Europe favor the use of a single currency. Having the Euro cover almost the entire continent makes import and export transactions between countries more efficient. If the major exporting nations had to deal with a few of the European nations having weak currency, it would be less favorable for them to export goods. In the long run it is more beneficial for those nations in debt to receive help in the form of loans, and then work on a repayment plan. This will help those in debt become healthy again, while keeping the same currency throughout so not to disrupt trade.
However, the minor rebound in the Euro against the U.S. Dollar did not help the currency gain ground against other major pairs. The Canadian Dollar has still continued to strengthen against most major currencies including the Euro. The strength, due in part to rising oil prices, and the overall strength seen in the Canadian economy, should last for quite some time. The Canadian dollar has held its value well over the past few years, as it has issued no warnings over debt issues.
The U.S Dollar remains almost at par with the Canadian Dollar, moving back and forth over the parity line since the beginning of April. The movement of this currency pair can be easily tracked online with forex charts. Using charts gives currency traders a picture in their head of the where the price has been trading over the past time frames, and helping develop an idea of where the price will trade in the future. This currency pair should remain relatively stable, as both countries are fundamentally strong with many natural resources.
The British Pound has the potential to move lower over the next few months if the BP oil spill is not contained. Many British citizens have their retirement pensions invested in BP common stock. As the price of the stock continues to take a beating, this will make a dent in all the pension portfolios. If the pensions lose a good sum of money, then those who are due to receive their payout at retirement will not get all the money they might have been promised. This will lead to less spending in the British economy as early as right now; because of the worry they will not get their full payouts in the future.
The United States government has also meddled in the idea that the dividend BP pays its shareholders be suspended. The money that is supposed to pay dividends will then be used to help fund the cleanup efforts. England also faces debt problems, as they too were caught up in the financial crises, with many of their national banks taking huge losses. At the moment the price of the U.S. Dollar against the Pound is holding steady, and just off the lows of the year. Currency investors will have to watch this one closely, as I feel it has the potential to move downward against all major currencies.
Address comments to Vincenzo.
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