Will the Foreign Exchange Market Be Great in 2008?

Predictable indicators seem to point toward a good year for informed currency traders. The Foreign Exchange Market will remain an exciting – and promising – arena for the serious investor.

Volatile and uncertain: these seem to be the sentiments governing the Markets at the beginning of 2008. Concerns about recession in the United States, fueled by the embattled subprime industry, rising fuel costs, cautious consumers, and a litany of other financial worries. The Fed has responded with unprecedented swiftness and purpose, slicing its rate by 125 base points in a matter of days. The current administration, along with Congress, promises rebates to American taxpayers to stimulate the economy.

Add to the turmoil the fact that this is an election year, and it appears that the uncertainty and uneasiness in the major markets will continue for at least the first quarter of 2008.

Five Keys Trends to Look for in the Year Ahead

>>The US dollar should strengthen throughout the early part of 2008
>>Global equity markets are hampered by a credit crisis, but should be considerably bolstered by the recent decisive actions taken by the Fed
>>All asset classes should continue to experience volatility due to the current uncertainties aforementioned
>>The persistent rise of the euro coupled with a softening US economy should slow down the euro economy in 2008
>>The Japanese economy, as always heavily reliant upon foreign demand, will find itself in a precarious position in 2008, given the growth concerns in the global market

A Look at the US Economy

Generally, the prospects for economic growth in the second half of 2008 appear brighter. As the Fed’s rate cuts take effect and the housing industry stabilizes, uncertainty is sure to ease.

The optimism, however, may be tempered by the increased oil prices and the adjustments of adjustable rate mortgages. The pressure on the housing market and the potential for outright declines in housing prices may also keep the economy at bay. Couple these concerns with an expected slight increase in unemployment and slightly smaller increases in wages, and we can look ahead with cautious optimism at best.

The Impact on Currency

The downtrend of the dollar appears to be nearing the end of its course. Many expect the current downtrend to be followed by an about face and a pronounced uptrend. A soft landing by the US economy should temper the rise of the dollar, whereas a slip into recession would fuel it.

Predictable indicators seem to point toward a good year for informed currency traders. The Foreign Exchange Market will remain an exciting – and promising – arena for the serious investor. The major central banks have moved to pacify jittery investors and smooth the boiling waters by injecting liquidity. When the financial sector finds its footing and the spread between the central bank rates and the money market rates closes, nerves will settle and stability will follow.