How will this recession affect the USD....

[mrgreen]

Can someone please explain to me how the US going to recession will affect the forex market? Ok the ideology is that the USD will weaken to many other currency, but i thought if the US economy weakens so do other countries economy follow suit.......so how can this rumors of the USD falling more than 1000pips to many other currencies be substantiated? Thanks

 

[Woodcrusher]

Well, the recession will also lead to a decline in trust in the USD. So many states could exchange there USD savings with other currencies, like China did. As you can see today, the EUR/USD has climbed to new highs.

 

[digforpips]

Can someone please explain to me how the US going to recession will affect the forex market? Ok the ideology is that the USD will weaken to many other currency, but i thought if the US economy weakens so do other countries economy follow suit.......so how can this rumors of the USD falling more than 1000pips to many other currencies be substantiated? Thanks

Well...we are in an axiomatic moment concerning the global economic landscape. Many countries in the past had their currencies pegged to the US dollar and therefore, when the US interest rates were lowered other countries followed suit. The result would be maintaining the balance of trade. A stronger currency cn often be detrimental to world economies. ie if the EURO gains strength, US is less likely to buy european products because they are more expensive. This presented a problem because the US has been the biggest consumer of goods in the world. We are observing a change here.

What happens if the US dollar gets weaker against other currencies but the world economies continue to gain strength? ....This is what we are seeing. Could we continue to see the downward spiral of the US dollar and US economy now that the world says "Hey...we don't need the USA"? Are they saying that? perhaps...only time will give all of the real answers.

 

[DaveO]

mrgreen.

This subject is immenseley complexed. There are so many things that affect the USD and going into recession of its own does not necessarily mean the USD will continue on down to zero over the coming years, albeit that is the most common consensus amongst leading economists in the bear camp. And lets face it, we are in a bear market now with stock indices, possibly for many years to come. Personally I think we may well see the day when the currency is once again underpinned with gold.

Does it matter to a trader what the fundamental outlook is on large timeframes ? I think not. No market ever goes up or down in a straight line. Our job as traders is to identify and profit from the intermediate and shorter term swings. In that context we have the opportunity to profit both long and short whatever the larger timeframe may be. If you are a very long term investor, that is different, but this platform is all about shorter term trading and traders.

I suspect you are interested in fundamentals in general and if so I would highly recommend you read John Mauldin's weekly letter which is free and goes out to over a million sophisticated subscribers. John is now rated second only to Warren Buffett. He was writing about the impending credit crunch all of 3 years before it started last August 07. You can go to the following address to subscribe.

Thoughts from the Frontline

I think if you are prepared to invest some time each week reading these reports you will ultimately become very well in tune with the complexities of different relationships and the various scenarios for our future. The future of all mankind on this planet, not just the USA. This should not in any way effect your short term trading but it can be extremely interesting and thought provoking for the larger picture.

I hope this might help and wish you the best.

David.