The Forex Daily Digest - June 10, 2009

The markets shrugged off the possibility that ten of the nation’s major banks will pay off their TARP loans after being given the permission to do so by the U.S. Treasury Department. Ten other big banks/lenders have a tougher pathway before they will be able to repay. The Fed approved capital-raising plans for these firms earlier this week which must be completed by Nov. 9th in order to obtain consent from the Treasury to pay back the government TARP money.

The USD showed some weakness in Tuesday’s trading, reversing an increase it has been showing recently. There apparently is some hesitancy among foreign currency traders to short the dollar prior to the Group of Eight meeting in Italy which is scheduled for Friday and Saturday. In other European events, the British pound bounced back above $1.62 after British Prime Minister Gordon Brown faced a potential revolt against his leadership by members of parliament from his own Labor party. Gains in the euro were briefly overturned after the German Economics Ministry announced that industrial production fell more than expected in April. And a former Bank of England policy maker, David Blanchflower, said the central bank may develop and widen its program of buying assets with newly created money as the British economy contracts.

U.S. economic reports scheduled for today include the Treasury Budget numbers, expected to come in at a minus $181.0 billion. The Fed’s Beige Book will be released in the afternoon and the week’s Crude Inventory figures will also be released. Last month Crude Inventories were up 2.87 million barrels. By the way, crude oil futures will start the day’s trading above $70 a barrel for the first time in seven months, lifted by weakness in the dollar as well as the Energy Department’s forecasts of higher fuel prices on the horizon.

Here’s one of the week’s most interesting stories. The International Monetary Fund said that it’s possible to take the “revolutionary” step of creating a new global reserve currency which would replace the dollar over a period of time. Russian President Dmitry Medvedev questioned the USD’s future as a global reserve currency and said using a mix of regional currencies would make the world economy more stable. Although it’s not something that’s imminent, keep a close watch on this story to see how it plays out in the coming months (and years).

Commodity heavy Canada saw its currency increase in value this week after the price of oil continued rising. The loonie is up about 10 percent this year on the assumption that an economic recovery in the U.S. economy will benefit Canada. By the way, Canada ships more than three-quarters of its exports to the U.S.

China is releasing its grip, at least a little bit, on the use of foreign exchange to encourage domestic firms to make overseas investment, as the country attempts to expand the use of its huge Forex reserves. The State Administration of Foreign Exchange (SAFE), the Chinese Forex regulator, that it would begin to allow all types of firms in China to invest their Forex earnings in overseas branches.

As the global economy continues to pick up, the ability to flourish in the Forex market will be enhanced. It was released this week that consumer confidence was up two points in the latest reporting week – that is huge! Just as Canada is banking on a U.S. recovery to help them out of their doldrums; so is the rest of the world. As this starts to occur, the dynamics of the Forex market will change and can offer you even more opportunities. You don’t want to miss this. I say it everyday but I am compelled to say it again – don’t lose your focus. Keep your eye on the ball and watch for the impending setups. Listen to our traders daily on the JDfn Internet broadcasts and learn from their experience. This is a unique time in history and this period will have massive impact on the world’s Forex markets.

Happy Trading –

James Dicks