MasterForex: Risk aversion dominates, keep an eye on high-risk currencies - Forex trading platform

by master0722 on 2011-08-03 15:50:17

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Yesterday in the foreign exchange market, although the U.S. Senate passed the proposal to raise the national debt ceiling and cut deficits with a vote of 74 in favor and 26 against, followed by President Obama signing the bill, which allowed the U.S. to avoid default at the last moment before the August 2nd debt deadline, the limited content of this proposal itself, combined with poor economic data from various countries recently, led the foreign exchange market to still be dominated by risk preference sentiment.

Due to concerns about a global economic slowdown, global stock markets experienced collective declines, with all three major U.S. indices closing down more than 2% on Tuesday, while Germany's DAX index also fell 2.26%. Under the dominance of risk aversion sentiment, the U.S. dollar, Japanese yen, and Swiss franc strengthened. Risk aversion has been a factor we have emphasized recently; after the U.S. debt ceiling proposal was introduced, we pointed out that the plan was not ideal, and the originally anticipated decrease in risk expectations might not occur, a fact that has proven our interpretation quite correct. Essentially, the U.S. debt plan is a half-finished proposal, with core issues postponed until the end of the year for resolution, unlike what Obama described as a decisive proposal. This indicates that risk aversion sentiment will continue throughout the second half of the year.

Additionally, the International Monetary Fund reported yesterday that it had lowered Australia’s 2011 GDP growth forecast from 3% to 2.0%, believing that the Australian dollar is overvalued by up to 20%, partly due to the country’s interest rate levels being higher than those of other developed economies. With the global economy slowing down, Australia may face difficulties in raising interest rates and could even begin cutting rates next year, meaning the Australian dollar will likely have limited room for appreciation moving forward.

EUR/USD:

This morning, the euro weakened again, retreating below 1.42. Overall, the euro remains in a weak position due to increased demand for safe-haven assets. The euro is still expected to decline further, with support currently located near the 1.40 psychological level and short-term support around 1.4150. If the short-term support breaks, one can consider going short, maintaining an overall strategy of selling on rallies.

USD/JPY:

Reports indicate that Japanese authorities have exchanged views with the U.S. regarding intervention in the foreign exchange market, and the U.S. has agreed to Japan's direct intervention in the forex market. Therefore, chasing USD/JPY lower is not recommended; however, shorting at higher levels can be considered but must be accompanied by strict stop-losses. The safest approach is to wait for Japanese government intervention and then enter trades accordingly. Individual investors should follow the actions of the Japanese government, as they have the ability to print unlimited yen, and their dollar reserves are also quite substantial.

GBP/USD:

The pound sterling showed relatively stable movement, with investors seemingly getting accustomed to poor British economic data. However, the pound remains bearish overall, with support located near 1.6250. It is suggested to go short near 1.6280-1.6290, but if the price breaks above the upper limit, it would be wise to remain on the sidelines.

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