Forex Response to Default on United States Debt
http://www.forexconspiracyreport.com/forex-response-to-default-on-united-states-debt/
As the comedy on Capitol Hill threatens to miss the spending limit deadline, a Forex response to default on United States debt looms closer and closer. Traders expect the USD to fall in the short term and correct when a deal is reached. However, many believe that the United States has reached a point of such poor governance that the current spectacle will be repeated again and again. Technical traders know that market history predicts Forex trends both in the short and the long term. Add to this the fact that a small group of politicians have found a way to repeatedly hold the government and American people hostage. Traders will take this fact into consideration as they will tend to look to other currencies as safe havens in times of trouble. The Forex response to default on United States debt is likely to be permanent.
Who Gets Hurt in the Short Term if the USD Falls?
In years after World War II both Japan and Taiwan developed into exporting nations who prospered by selling goods to North America and Europe. They basically wrote the book on currency manipulation in order to keep the Yen or Taiwan dollar cheap in relation to the USD in order to keep their products competitive. As Asia has developed South Korea, Singapore, India, and China have followed suit. Currently Asian nations hold about $5.7 Trillion in currency reserves, most in US dollars. Japan holds currency reserves as well but because of the safe haven strength of the Yen the nation would rather hold Yen than dollars. China has about $3.5 Trillion by itself. On one level these currency reserves are good for the nations holding them as the reserves act as a cushion against economic events. However, if the US dollar falls in a Forex response to default on United States debt the losses across Asia and especially in China could be huge. If the dollar plunges, the cost of imported goods will go up making things more expensive in the USA. However, that might not last a long time.
Who Profits in the Long Term if the USD Falls?
The United States has exported much of its industry because it has been cheaper to manufacture overseas and import back into the USA. A cheaper dollar will make it more cost effective to produce goods at home for local consumption and even export the same goods across the world. This would, in the end, result in a more competitive America and an eventual recovery of the USD. The result for Asian exporters would be a loss of the value of their currency reserves as held in US dollars and a loss of their markets in the USA.
Trading the Forex Response to Default on United States Debt
Forex traders make money by trading ahead of the Forex curve. Our advice is always that a trader needs to do his own fundamental analysis. However, if the boys in Washington do not get their act together, the USD may go into free fall. If that is what is going to happen then it is time to short the dollar or buy puts on the dollar in Forex options trading. If or when a short term settlement is reached there will likely be a rally of the dollar and those who go long or buy calls at the right time could prosper. Then, if the current scenario plays out repeatedly the USD may well go into a long term decline and lose its status as a favored and safe haven currency. Traders would benefit from such a trend by selling short on any temporary upswings and buying when the fall resumes. As always,do your own research first before trading currencies.
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