Could It Be?

Is this the end of the bear market? I doubt it. This seems to me to be more of a bear market bounce, better known as a suckers rally. I don't believe we have seen the bottom yet. Watch the dollar in the coming weeks, I think we will continue to see it trade in the same range it has for most of the summer. We will see another run at Eur 1.60 which would be a great opportunity to add some long term EUR/USD shorts and make some money this fall/winter. I believe black gold (oil) will also tease us a bit. Beware of the false bottom!

Forex, Oil, Banks, & The Dollar

What a web we (the US) weave. This is a most interesting time in the currency world. Has the oil bubble burst? Is the US economy hit rock bottom? Will the dollar regain its place in world economics? I do not pretend to know the answers to any of these questions, I really do not care. As a forex trader I just trade what I see. All traders should trade what they see. The fundamentals behind all of these questions are fascinating and do play a part in my overall strategy. Notice in a previous post I recommended to be careful of any long term dollar short. I still hold that view. I do believe we will see the greenback start to gain back some of it's prestige. The thing you must remember is it's in the best interest of almost everybody to have a strong dollar. Notice recent reports out of the Eurozone, they want a stronger dollar. China wants a stronger dollar as they have a fortune in dollars and a weak buck makes no sense for them, it lessens there holdings.

Has the oil bubble burst? I believe what you are seeing is a technical pull back. I do believe we are near the top of the range for oil but I don't believe we'll see any kind of burst. Remember where oil was last year at this time and give it some thought. Is this recent pullback the bubble bursting? No, oil would have to fall quite a bit more for any talk of bubble bursting to make any sense. What will be the downfall of oil is the renewed efforts to lessen the dependence on oil. This is what the Saudi's are worried about. I see it in everyday conversation with ordinary people.

There is still much pain to be felt in the US economy as more banks will fail because of the mortgage mess and unemployment will remain high. However, the worst may be over for the US economy. Now it's time for other world economies to feel the pain. We(USA)are already dealing with these issues, the rest of the world will have to deal with them too.

Fannie And Freddie

Will Fanny and Freddie fail? We all better hope not. Freddie and Fanny have about half the mortgages in the USA to a tune of almost 6 trillion dollars. If these should fail the US will plunge into a depression. No recession, straight into a depression. The government is already taking steps to ensure this doesn't happen. The Federal Reserve Bank of New York has been granted authority (by the Federal Reserve) to lend to the two companies should the need arise. The government will do whatever it takes, even if it requires a takeover.

The failure of IndyMac has everyone waiting for the next shoe to drop. What caused the failure? It was another classic run on the bank. With customers pulling out their funds, the bank simply ran out of money. Will more fail? I am under the assumption that there will be more bank failures. I don't believe that any big names will go down although there has been some speculation that WAMU is in some trouble.

How does this affect the greenback? It is hard to say. I think there will be a bit more pressure on the dollar in the short term, but we should see the dollar start to strengthen as we get into the third quarter barring any huge failures(Freddie, Frannie). Play it as you see it, I would however be wary of any long term dollar shorts at these levels.