The Fed Chairman Ben Bernanke just testified that more stimulus is required to keep the markets afloat and on a continued path to economic recovery. There are also signs, even in spite of the good earnings reports for last quarter, that the economy will take longer than expected to fully recover. Here is how to adjust your forex trading strategy accordingly, especially if you keep long open positions.
The job reports say the same story with a spike in new unemployment applications as well as a continued push to extend benefits to those who have been laid off and can’t find work. All the signs are pointing to a continue slug in our economy.
The Fed Chairman also said that they would intervene should the jobs crisis continues. They would probably lower interest rates so small businesses can more easily borrow money, so they can in turn hire new employees and create jobs.
Although the story in the US is one of a slow and sluggish recovery, the same is not true of the rest of the world. In fact, most of the developing world is close to getting back on it’s feet, not including the actual governments.
The signs that other economies are coming back is in the fact that the central banks and finance minister of most other countries are now advocating for austerity measures instead of stimulus. They are also talking raising interest rates, which some countries have already done, including our neighbors to the north, Canada.
What does all this mean? It means that most of the world is out of the recession and the US is going to be a while getting out. So look for the USD to slowly decline in value against other major currencies in the long term as investors get the reality check that the US will be slower to recover than other countries.
It’s a pill that I don’t think investors have really swallowed yet. Many don’t even see how well the other nations are doing because they are steeped in the bad news of the US economy.
If you are invested in a forex managed account, make sure your money manager is aware and trading accordingly. If he isn’t, you might get bit by a sense of inaccurate optimism.
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