After a considerable rally the US Dollar starts losing its value again amid the strengthening of the common Euro currency. Moreover, it was mostly due to a stronger Euro that the US Dollar started declining in value.
European financiers’ decision to spend €40B on economic stimulation caused a chain reaction.
Investors instantly responded to the money inflow: major stocks around the world started growing, crude oil gained in value as well ($105/b).
Will the financial injection save the common currency?
According to the West European Association of Traders and Investors under , the EU economy is still at risk despite some minor successes. Greece together with other risky eurozone economies (with their huge public debts) can cause another major crisis.
Someone even gave those sick European economies a name – PIIGS (Portugal , Ireland, Italy, Greece, Spain ). These are the economies that undermine investors’ trust in Euro. Moreover, it is obvious, that the 40B spend by the ECB is a drop in the bucket, which cannot bring cardinal changes. The 4rth quarter of 2011 is expected to show whether the common currency has a future or not.
Numerous experts say that the eurozone economy is strong enough to guarantee the stability of its currency. Even despite the fact the Greek GDP is going to decline by 5%, the eurozone’s aggregate GDP is expected to grow by 1%. Moreover, the eurozone’s rate of inflation is as low as 2.5%, which also contributes to the stability of the common currency.
However, there won’t be any rapid strengthening of the common currency in Nov-Dec as the European import of energy carriers will grow, thus making US Dollar a little stronger.
The experts of the Department of report that the EUR index has come out of the defensive MF sloping channel (as shown below). According to the news technical analysis by Masterforex-V, the breakout is not enough to start a reversal (wave A). It is necessary to break above the MF pivot 2,2751 (as shown below). Otherwise, if the price breaks below 2,2445, the downtrend will be continued.
US Dollar prospects:
One thing is sure, the US Dollar won’t be stable in the coming months. The closer the end of the year is, the more volatile the US Dollar is.
Seasonality. At the end of the year the import/export of energy carriers usually grows. Energy carriers are sold for USD, thus contributing to the strength of the currency.
Global reserve currency. The US Dollar is some kind of “blood” for the “vessels” of the global economy. At this point, the US currency is irreplaceable. These are the figures confirming that:
· The global GDP is equal to $75 trillion, 20% of it belongs to the USA.
· The global currency reserves are approximately equal to $9.2 trillion, more than 60% of them are represented by USD.
· Some 70% of FOREX trading is performed in USD.
Riskless asset. So far there has been no new reserve currency. That is why it is too early to be concerned about the destiny of the US Dollar. Everyday use makes it more stable than most experts say it is.
Overcoming the budget deficit. Washington’s main concern is the USA’s huge budget deficit. The authorities are trying to reduce it by cutting numerous social programs. There seems to be some progress.
The experts of the Department of report that the USD index is forming a major downswing. If the price doesn’t’ break below 1.5681 and then breaks above 1,6459, that will be wave B (retracement). If the price breaks below the MF pivot 1,5681, the downswing will turn into wave C or a(C ) of the senior wave level (as shown below):
What factors influence the US Dollar?
According to the analytic team of Nord FX, there are some factors affecting and supporting the US Dollar:
The American currency is mainly affected by the country’s huge public debt (over $14 trillion). It is getting more and more difficult to service the debt. Sending cuts are good but are not a panacea. Sooner or later the US Fed Reserve may want to print more money, thus increasing the rate of inflation and weakening its currency. Moreover, there is a threat of a huge bubble in the US bond market. The Fed Res bought a lot of bonds, which may eventually lead to hyperinflation. Another risk is the economic upturn. In this case investors may switch to emerging markets with cheaper assets, thus making the local currencies stronger against the US dollar.
However, there are some factors supporting the currency:
The US Dollar is still the main global reserve currency. Amid the eurozone crisis and other economic problems around the world it is very difficult to find or create an alternative. That is why the US Dollar will be supported by joint efforts.
Another factor is cataclysms and armed conflicts around the globe. Strange as it may seem, they are making the US currency and bonds stronger as investors start seeing them as safe haven assets.
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What are the near-term prospects of the US Dollar?
