Forex Thoughts

• 2 min read

It looks like a BIG correction is happening in the forex markets right now and yours truly is taking it on the chin. The USD is gaining strength and the AUD, GBP, EUR, JPY, and CHF crosses are all down. The reason why the USD is rallying is because of the interest rate reductions by the Bank of England and Canada; these reductions reduce the rate differentials between the currencies and strengthen the greenback. I suspect that this could accelerate if Australia decides to do the same at their next meeting.

I should've expected a rally in the USD because it dropped too far and too fast once the support broke but I expect the rally to be short lived. There's too many problems with the US economy and the trend for lower interest rates seems to be down, of course things will get better one day.

My thoughts on forex are that we'll see parity in the AUDUSD pair next year and I'm guessing the EURUSD will take out $1.50 before being exhausted. But these are the forex markets and you never know!

The good news about all this volatility is that I'm getting destroyed right now in my carry trade experiment. I'm learning that carry trading is an entirely different animal, with entirely different strategies and money management. The reason that this makes me happy is because I won't be doing any trading of this type when I open my next Forex account next year with about $10k of cash. However, that won't deter me from learning more about it! :)

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