Stocks & Commodities V. 24:9 (14-16): Forex Focus by Darrell Jobman
Access to foreign exchange trading has opened up exciting trading options for the retail trader. You can now trade alongside corporations and institutions in a highly liquid market that is global, traded around the clock, and highly leveraged. Before jumping into this market, however, we must understand the factors that affect the forex market. With that in mind, STOCKS & COMMODITIES has introduced Forex Focus to better prepare the retail trader to participate in the currency market.
Euro Sparkling, But Faces Long-Term Challenges
Here’s an overview of the Eurozone. With a lack of confidence in the US dollar and central bank diversification away from the US currency, the euro is in position to make further gains over the next few months, to at least 1.30 against the dollar. The Eurozone area, however, faces tough decisions on economic reform, and government weaknesses in the major economies will make it even more difficult to secure approval for key measures such as labor market reforms. Without reform, Eurozone growth is likely to falter quickly in the face of higher interest rates, with the European Central Bank (ECB) taking a firm stance that realistically could normalize interest rates to at least the 3% level by year-end.
Eurozone growth and prospects for the euro will be particularly vulnerable if there is a downturn in global growth. In these circumstances, there would be pressure for a renewed cut in interest rates and action to curb euro strength. There will also be longer-term concerns over the balance of payments position and, at the extreme, fears that Italy could leave the euro arena. Euro gains, therefore, could prove to be fragile and temporary, with confidence faltering from late 2005.