WHAT GIVES? (The Inside MarketS Game)

Lately, some people have wondered how the U.S. Dollar can be UP against the Japanese Yen; but, DOWN against the EURO. Well, it’s not necessarily that our Dollar has gone up or down against either currency. Foreign Exchange (the relative conversion of one to another) is basically a two-way street. That’s why I try to always talk or write about The (Financial) MarketS. (Notice the plural here.)

The Bank of Japan, its Central Bank (like our FED), has been trying to weaken the Yen so as to give its Economy a jump-start by making exports more attractive–basically, cheaper to people in foreign countries who deal with other currencies. At the same time, the Markets seem to believe that the EURO is now stronger, against the USD, than it had been. Personally, I don’t see why the EURO has strengthened, since among the 17 European Countries, that use the common currency, only Germany and France seem to be showing positive GDPs, but only to a minimal degree.

When after four years working in Manhattan, I started working in Miami (January 1977), I had to reinvent myself–since I was entering the Bond Business. Little-by-little over the years, I began to realize the value of a solid grounding in interest rates–and the inter-relationships of the various Financial Markets. Lower interest rates in Japan, due to its decade-long Deflation, makes its currency weaker.

In Europe, however, I just can’t figure why the currency is stronger. I can only believe that it might be because many ForEx players are assuming that the EURO has been down for so long, that it can only start moving higher…eventually. Wishful thinking? (Don’t deal in Foreign Exchange unless you’re ready to play with The Big Boys, or else you could get suckered-in.)

The actions of a Central Bank (Monetary Policy), like the BOJ, can effect a country’s currency. Likewise, Fiscal Policy (spending and budget) can impact a country’s economy and it’s currency, as can trading agreements, changes in government and (as Washington clearly demonstrates) political dysfunction.

The Stock Market certainly operates in this all-encompassing financial environment. That’s why on certain “minor” holidays (i.e. Columbus Day), when the Stock Market might be open, and the banks closed, Trading Volume is generally extremely light. Keep in mind that, when the Banks are closed, the Bond Market would be closed. Each market tends to keep an eye on the others; so, if the Stock Market cannot monitor interest rates, it loses a key tool in its outlook–somewhat like flying blind. Major changes in Commodities (i.e. Oil, Gold, etc.) can also factor-in; but, perhaps to a somewhat lesser degree.

As always, the Markets can be fickle, since there are always Buyers and Sellers–and each will have their own motives, objectives and expected outcomes. So, don’t Buy or Sell based on Emotion. Oftentimes, things can look different if you “sleep on it” (your intensions), and re-consider the next trading day. Look to the Long-Term, not the day-to-day moves. And, if you DO move on emotion, just due so gradually.


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