2011 Top MarketPulse FX Stories

2011 was a year of momentous social, political, natural and economic turmoil the world over. The word “crisis” appeared again and again in headlines. While protests raged and governments collapsed, several unimaginable natural disasters gave poignant reminder that, in the grand scheme of things, human life is frail but the human condition resilient.

We wanted to share with you a few of the standouts from our blog over the past year. Here are some of our most popular postings based on number of views, starting with the earliest and moving forward chronologically.

Interest Rate Outlook for 2011
With a new year upon us, currency traders are once again turning to the old crystal ball in an attempt to predict interest rate actions for the major economies. While there are many storylines to watch as 2011 unfolds, two narratives in particular are expected to garner the most attention – the long-awaited recovery in the US, and the ongoing credit crisis in the Eurozone.

Dollar not Sick it’s Terminal
This week the dollar has had the classic opportunity to rally aggressively. Global risk appetite has subsided, commodity currencies have fallen and investors were willing to take profit. Instead, we have witnessed only a feeble attempt to rise. The dollar is more than sick, it’s terminal. Expect the fears of a debt default and reserve diversification to weigh heavily on the global ‘reserve’ currency. Investors are demanding higher yield to account for that risk and QE2 has done a good job in keeping them artificially low. Asian Cbanks are keen to diversify their dollar denominated reserves into other currencies like the EUR, CAD or other higher yielding currencies.

Time to load up on the EURO again
The EUR has held despite this week’s theatrics. Greek restructuring is apparently off the table, for now at least. In translation, the ‘strong advice and preference of the ECB has prevailed’ over Euro politicians grandstanding. There are even some tentative signs in Greece that a compromise is attainable between the government and opposition. However, this does not mean there will be no restructuring later on. Politicians and policy makers seem to be deluding themselves, systemic risk is real and may eventually be uncontrollable. For now, rather than painting over, they prefer whitewashing the problem.

EURO Panic Attack is Only a Step Away
The big dollar has traded surprisingly poorly despite the lukewarm news on Greece and global equities just about finding their feet in the overnight session. Any negative news from the ‘vote’ or the EU Leaders Summit later in the week will trigger a strong wave of selling and risk aversion driving markets into a new selloff. The panic attack is only a step away.

Sell EURs and Shut Your Eyes?
This month and year may be winding down, but the heat on the Eurozone is certainly becoming more intense. Investors are trading up against some key support levels for the currency, levels that when breached could see another decent run to the downside. Historically, the risk reward of holding large positions this time of year tends not to be worth it. The aggravation and headaches of trying to comprehend some of the currency moves, which tend to be driven by lack of liquidity, year-end positioning and the turn, usually dissuades most from having larger positions. Mind you, this negative EUR run has technical ‘stamina’ and traders are required ‘to pay to play,’ otherwise we will end up talking about the ‘opportunity cost’ or the big one that got away!

Where to sell the EUR again?
Even with Euro risk sentiment remaining on the back foot, the Euro periphery bond deals are getting done, but at a price. Now that there are more sales coming down the pipe, more concessions will be expected. The market was not that impressed with Italy yesterday, however, she came and delivered. It’s her 2012 issues we should be more worried about. Already this morning, Spanish bond yields managed to hold steady before the country’s final debt sale of this year; while with no sign of the debt crisis easing, Bunds remained supported by investors seeking safer liquid assets ahead of year-end.

Here are two standout postings on infographics and currency tools, which continued to be especially popular with our readers:

U.S. Debt Ceiling: Infographic
The U.S. debt has become a ferocious beast with an insatiable appetite. In 2010, mandatory spending grew nearly 15 percent over the previous year and totaled $2.17 trillion. Interest on the national debt– also a mandatory expenditure – cost American taxpayers $164 billion that year. Discretionary spending was also up significantly in 2010, increasing almost 14 percent over the previous year to $1.38 trillion.

Forex Correlation Heatmap and Correlation Table
Some currency pairs tend to move together in the same direction. Other currency pairs tend to move in opposite directions. Understanding how currency pairs tend to move relative to one another can be used in a number of different ways. It can be used to analyze how diversified your Forex portfolio is and, indirectly, your risk profile. It can also be used to understand how to enter into hedging trades.

As 2011 comes to an end, the team at MarketPulse FX would like to wish you a Happy 2012. We hope you continue your trading journey with great success.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza