Tag Archives: forex article

Social trading is here to stay for long – why?

Social media has altered the ways we used to share with each other at a globe level. Interconnectivity of the world has grown more powerful now that a major share of the global population is interacting via some form of social media on a regular basis.

Social trading changes the old trading ways

Social media has been an online revolution that has grown into a huge industry all over the globe. It has even made its way through the world of forex trading. A major segment of the global population can now explore immense possibilities across the online trading platform.
Trading has gone a step further towards democratization with the help of Social Trading.

Social Trading is a good option that allows traders to connect with others directly so that they are able to imitate real trades, consider market analysis and updates and communicate ideas.

Traders are said to benefit much out of social trading once they consider it within their current trading strategies. It has become important for all traders to understand what social trading is and how they could utilize it for their benefit. They must discuss a few of the risks associated with social trading and how these risks could be avoided. Prior to using a social network for trading, relying on other traders and considering their skills and experiences, it is truly important for a trader to do a thorough research just in the way they will do for other forex strategies.

Social Trading isn’t going to leave the market so soon. The financial world has rarely seen a more disruptive technology than this one. On the contrary, much of the unresolved issues that the financial world has seen till date have been addressed by it quite comfortably. Without Social Trading, it wouldn’t have been possible for us to address a few trading needs so effectively.

A few of the needs that have been addressed by social trading are as follows:

1) Transparency – There has always been a need to make financial services more transparent till the time the new regulations showed an option to address this need for transparency. These days, social trading enables us to be more transparent by imposing certain regulation on trading means.

2) Risk Mitigation – The risk that traders are willing to take can be controlled by them once they take part in Social Trading. For those individuals that wish to take part in the market trades without posing as traders will also find this a safer option.

3) Market Access – Participants of institutional or retail trades aren’t able to access all financial markets. Forex is one such market that seems tough for them to trade in; they can only participate in it as a trader. Social Trading is one good option for them to gain access to the trading market before they actually become traders.

There are a number of things that need to be taken care of before Social Trading becomes an important segment of future trading ways. All the key regulatory bodies must accept social trading as a proper form of trading. All agencies that follow social trading find it to be a long educational process. A majority of traders have turned optimistic about it. The participation cost and extra transparency are two key factors that address various social trading issues, but that can be discussed in a separate article.

The Last Currency Standing

norwegian krone

By Eric Roseman, editor, Commodity Trend Alert

As I look at the world’s major economies, all I can see is a bar full of drunks.

Whole drunk economies, who do nothing but sit at the bar and guzzle shots of stimulus like only true alcoholics can.

And who’s behind the bar, serving up stimulus shots like its last call?

Why central bankers of course. Bartenders like Bernanke and Trichet have been “serving” since late 2007.

Sadly, it doesn’t look like this worldwide party bar is going to close anytime soon.

So what happens when these whole economies get so drunk that they start to trip over themselves? What happens to the rest of us stuck holding currencies from these drunken nations?

Let’s put it this way. It’s not going to be pretty.

The best thing you can do is hold the one “sober” currency left in the world. As far as I’m concerned, it will be the last currency standing when this stimulus finally exposes the drunks for the reckless nations they are.

Don’t believe me? Let’s take a closer look at the facts…

41 Out of 43 Countries Now Drunk on Debt

Each week, The Economist magazine tracks the economic statistics of 43 nations.

Amazingly, only two countries in that universe sport twin surpluses or positive trade and budget balances. And of those two, only one country makes that special grade in the OECD or the Organization for Economic Co-operation and Development.

That country is Norway.

No other country among the world’s mature or even emerging economies can claim twin surpluses. That’s huge.

It’s important because drunken nations are now fighting sovereign debt crises in the EU. These countries are fighting with the market as bond investors continually demand higher rates to take on their risk debt.

As you may know, I’m a commodity guy myself. I usually look at energy companies, food items and precious metals for the long term.

But in addition to owning gold and a basket of commodities for diversification purposes, my favorite currency remains the Norwegian krone.

It’s no doubt the last currency standing in a world full of drunks.

Again, the Norwegians have the only positive trade and budget surpluses in Europe. More specifically, the krone is the only currency in the western hemisphere to sport a trade and budget surplus! That’s enough to put it on my buying list.

But then you must take into account that Norway is a major oil exporter.

I’m bullish on oil, and longer-term I think natural gas will make a comeback. And Norway just happens to be the largest oil and gas exporter in Europe and the ninth largest producer in the world.

That makes the Norwegian krone an oil play.

In fact, the performance of the krone is highly tied to not just oil revenues, but the cyclical nature of the global economy. The currency also shines thanks to Norway’s fiscal surpluses and Norway’s strong external account.

But there are other reasons to love the krone as well…

Twin Surpluses Reign

Norway is the only nation in the world that has a 9.4% budget balance as a percentage of its gross domestic product (GDP). And its trade balance represents 13.1% of GDP, according to The Economist.

Those are impressive numbers, especially in a world drunk on debt.

On top of that, Norway’s sovereign wealth fund (that’s mostly oil profits) manages more than US$500 billion in assets and ranks as the biggest in Europe.

Combined with the bullish outlook for oil and gas over the long-term term, Norway is a great place to park some currency diversification.

Indeed, in a world full of drunks, the Norwegian krone seems to be the only sober currency left that’s not drunk on its own debt. Go long the Norwegian krone now to profit.

Best Regards,

Eric Roseman
Editor, Commodity Trend Alert

I’m No Dollar Permabull. I Just Go with the Facts!

green dollar sign

by Bryan Rich

Bryan Rich

I’ve given plenty of arguments in my Money and Markets columns over the past couple of years as to why I think the pontifications about the dollar’s demise are greatly exaggerated. The fact is, the dollar is still with us! And it’s been trending higher against a basket of most widely-traded currencies since the global crisis erupted.

Make no mistake: I’m not a permabull on the dollar. I simply side with the evidence. And on a relative basis, given the scale of global economic problems, the dollar is still a front runner in the least ugly contest.

Here are three reasons why …

Reason #1:
Money Is Moving Out
of Emerging Markets …

The wave of monetary policy tightening in the emerging market world is threatening a sharp slowdown in what has been a refuge of growth in the midst, and wake, of one of the worst global economic downturns on record.

With the writing on the wall, stocks in these markets have rolled over. Several have already visited double-digit loss territory for the year — including the likes of Chile, Indonesia and India.

And capital has moved away from these countries in favor of the developed markets — the precise opposite flow most experts were expecting for 2011. In fact, the weekly outflows in emerging market ETF’s hit record levels earlier this month.

With that, I think the dollar has the fuel to make its next leg higher. And I think it can go a lot further and extend a lot longer than many people expect. Especially when you factor in that the U.S. is expected to outgrow the UK, Japan and the euro zone this year by nearly 3 to 1.

Meanwhile market interest rates in the advanced economies have screamed higher in recent weeks, but the impact has not yet been felt in the dollar.

Reason #2:
The Dollar Is Losing Merit
as a Funding Currency …

Both the Swiss franc and the Japanese yen were the most widely-used funding currencies when the carry trade (i.e. borrowing low yielding currencies to fund the purchase of high yielding currencies) was at peak popularity.

This is because, while most global short-term interest rates were near or well above 5 percent in the late stages of the global credit boom, interest rates in Switzerland and Japan were still closer to zero. And that made it most appealing to borrow Swiss francs and yen to fund highly leveraged carry trades.

But with other developed-market interest rates scraping along the bottom in recent years, there have been other alternatives to fund carry trades — namely U.S. dollars.

Now that is changing …

As market interest rates have risen across the board in recent weeks, and as the bond markets have begun pricing in more risk and more inflation pressures, so has the appeal of higher market interest rates in the U.S. — like a 10-year Treasury sniffing toward 4 percent.

Consequently, we’re seeing the early stages of the “carry trade of old” return. And this dynamic has been most clearly expressed in the dollar/Swiss franc and dollar/Japanese yen exchange rates.

The dollar has broken eight-month downtrends against both the Swiss franc and the Japanese yen. And given the Swiss exposure to European sovereign debt crisis and Japan’s problematic fundamental outlook, this trend break for the dollar could prove the early stages of a long-term trend change.

Reason #3:
The Charts Confirm the Dollar
Is in a Good Spot to Buy

When we hear a report from mainstream media on how the dollar is faring, it’s typically a reference to the trading performance of the dollar index. While currencies are only valued on a relative basis, against the value of another currency, the index is a gauge of how the dollar stands against a basket of widely traded currencies — namely the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc.

You can see in the chart below that the cycles on the dollar index tend to last around 7 years on average. And based on this history, the cycles continue to argue the buck is less than half-way through a bullish cycle. To be sure, it’s been a choppy one.

But the dollar continues to trend higher, making higher lows along the way. And I think we can see a new high in this cycle this year. That’s 15 percent higher from current levels.

Long Term Dollar Cycles

For more perspective, the following weekly chart going back to the failure of the Bretton Woods system shows the historic bottoming formations in the dollar over the past 40 years.

This chart is designed to look back and see what happened to the dollar in the past when the chart pattern looked like it does now. You can see the slope of this current uptrend (in the green box) is consistent with prior bottoms, particularly the bottom in 1978 (the white box), which initiated a big bull cycle in the dollar.

Dollar Index Weekly

Finally, the next chart shows the last two, dollar cycles. You can see the key channel support for the dollar (the red channel), which presents an extremely attractive low risk/high reward place to buy dollars.

Dollar Index Weekly

So when you add it up all the evidence, despite its naysayers, and the avalanche of challenges surrounding its future, the dollar is looking more and more appealing to global investors.



This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

The Rebel Currency Trade of 2011

British Pound Symbol

Sean Hyman, Editor, Currency Cross Trader

I’ve always been a pretty independent thinker.

It used to get me into trouble in school. Needless to say, my principals knew me on a first name basis. I was always being called down to the office for one reason or another.

The irony is I did okay in school – as I talked back to my teachers. I just never believed in the system.

Like many entrepreneurs, I couldn’t focus on what my teachers told me I had to study in school. They kept telling me to think like everyone else, and I kept rebelling.

Honestly, I haven’t changed much. I still challenge authority – just in a more productive way. In fact, it’s the reason I’ve been successful over the last 20 years in the markets.

More specifically, it’s why I’ve picked straight winners for my currency subscribers in 2011. Let me explain…

Why Rebels and Currrency Profits Go Together

For the past decade, I’ve used my rebellious nature to stubbornly challenge what everyone tells me “must be” right in the currency market.

When the masses have been selling, I’ve been buying. That’s one characteristic of a successful trader. You have to be willing to dive in when everyone else is running for the exits.

As I mentioned, my Currency Cross Trader subscribers have enjoyed all winners this year (four in a row). When we first entered these positions, even my own subscribers balked at these trades.

No one agreed with me. But you see, I recommended they buy when seemingly “no one” wanted to buy. In other words, I was buying at a discount. And it paid off – we grabbed two 100 pip winners right off the bat in 2011. (That’s two 70% winners for you non-currency traders.)

Again, this is where independent thinking can save you – it helps you buy the most “hated” positions out there and grab the most profits.

That brings me to the latest currency that’s starting to pop up on my radar. It’s the British pound (or GBP in the currency market). I can’t find hardly anyone who likes the British pound right now…and honestly for good reason.

First of all, traders believe the problems in Europe will devastate the fragile economy of the U.K.

The U.K. also has too much debt…too much Quantitative Easing, too high taxes, many major political mistakes in my opinion, etc. However, what you have to remember is that the “best buys” are always when things are still looking dark and sentiment is still very ugly.

Why the Most Hated Currency Is
Making a Comeback

Currency investing at the core is very simple.

As inflation rises to unacceptable levels in a particular country, then that country’s central bank raises interest rates to slow down the inflation.

Currency traders love collecting higher yields on their positions. So as a central bank hikes rates, currency traders quickly buy up that country’s currency. Therefore money starts to flow into a currency as a result.

The pound has been falling compared to pretty much every currency right now. The pound has been dropping against the yen, Swiss franc, Australian dollar, etc.

So almost no one is expecting this picture to change. But it’s about to – thanks to inflation.

In the U.K., inflation is getting out of hand. The central bankers at the Bank of England have sat on their hands as long as they possibly can. Now they must act and hike rates to battle this inflation.

I’m not the only one who thinks so either.

Recently both the Bank of England and the European Central Bank have been talking about fighting inflation in the area. In fact, Mervyn King, Governor of the Bank of England, just sent out an Inflation Report on February 16th to explain why inflation is this high.

Anytime U.K. inflation grows above 3%, Governor King gets out his pen and starts explaining. You see, the U.K.’s annual year over year inflation target is 2%. But right now, it’s literally double that at 4%.

Governor King predicts it could go as high as 4.4% this year alone. That’s a problem that the central bank will have to solve.

A Lesson from the Middle East:
You Can’t Let Inflation Run Wild

You can’t play around with inflation. If you let it get out of hand, you can have rioting in the streets like we’re seeing in the Middle East right now.

That’s an example of “inflation gone wild” and the social unrest that comes from people when they spend most of their money on the basics.

So if you want to remain in power and not have a revolt on your hands…rule number one is “control inflation.” And that’s what the Bank of England will be forced to do at some point this year.

When that happens, the pound will rally regardless if it’s the most “hated” currency (outside the U.S. dollar) or not.

Even before that happens, the “smart money” at the major financial institutions will start buying up the British pound unannounced. As usual, they will want to quietly accumulate this currency before everyone notices. That will force the pound to rally ahead of time.

I believe it’s going to catch many off guard, as the masses are still pouring out of the pound. I’m just waiting patiently as the crowds run franticly away from the pound…for the “right time” to buy up the pound.

Mark my words: It won’t be too long before I’m buying.

Thanks for reading!

Sean Hyman
Editor, Currency Cross Trader

Rollover Interest – Become Your Own Bank 365 Days a Year

carry trade yen dollar
By Sean Hyman, Editor, Currency Cross Trader

Dear Sovereign Investor,

When I was young, probably 9 or 10 years old, I revered my grandfather, Dwight Meeks.

A man with an 8th grade education, my grandfather was an extremely successful landlord in our little town of 16,000 people. He used to say…

“If you can learn to spend less than you make and put the difference in something that will go up over time, you’ll become rich over time.”

What was my grandfather doing? He had found a way to become his own bank. He made his money earn interest and work for him.

So after years of saving and living beneath his means, he built up some nice interest. That interest allowed him to eventually buy more than 100 rental houses in our town.

He was so well known in our little town that you would think he was the mayor. But no, this was just a smart man who learned the power of compound interest.

That way, he was working and so was his money. Most people work for money… but never have money work for them. He learned the value of doing both. It made him rich and famous (at least in our little community).

Even as a kid, I was in awe. I wanted to do the exact same thing. It took me a couple decades – but I figured it out.

A Secret My Grandfather Missed in
the Currency Markets

In my early 30’s, I discovered a completely unique way to become my own bank. Up until that point in my life, I was a stock trader. So I was used to my stocks paying me quarterly dividends four times a year.

But in my 30’s, I learned about the currency market and how you could earn “daily interest” through your Forex account on currency trades.

I was fascinated. I’d never heard of anyone earning DAILY interest except for my bank.

If fact, after I heard this, I assumed this meant I could earn interest on each business day (5 days a week). But no! It was even better. With currency trading, I could earn interest seven days a week!

It’s a little-known fact in the currency market, but you can earn what’s called “rollover interest” on certain high-yielding currencies. All you have to do is hold these currency pairs overnight. Then your FX dealer pays you for holding these pairs.

I couldn’t believe it. This was simply amazing. How many investment strategies let you earn income every 24 hours that’s paid out five times a week? Not many.

Let me explain how it works…

The Nuts and Bolts of Being Your Own Bank

All you have to do is open up a Forex account with one of the brokers like FXCM, DBFX, Forex, etc. You can do this online through their websites.

Once you’ve funded your account… all you have to do is buy a high interest bearing currency vs. a low interest bearing currency.

For instance, the Australian dollar earns about 4.75% and the U.S. dollar earns less than 0.25%. So buy buying the AUD/USD pair, you’re earning 4.75% but only paying out 0.25% of that. So you’re netting roughly 4.50% on the position just from the interest differential alone.

Even better, you’re earning interest not on the amount you put down on the trade, but on the large position you’re controlling with your trade.

While you may only have a few hundred dollars of your money tied up in a $10,000 trade (by buying 1 mini lot), you’re earning interest on the position as if you owned the entire $10,000 position outright. Yet it only took a few hundred dollars in your account to control that position.

Now that’s exciting… putting up a few hundred dollars to earn interest on $10,000. I’ll do that all day long!

With most of the major economies yielding 1% or lower, the clear leaders in the “yield game” are Australia and New Zealand. They stand out above the rest.

Japan, Switzerland and the U.S. are the lowest yielders to pair against these high yielders. And with the distinct downtrend in the dollar, it’s made it the number one candidate.

When the Cash Register Rings Each Day

Okay, so you open your account online and you fund your account (via wire, credit or debit card, etc.). Then you’ve bought your first interest bearing pair… for instance, AUD/USD.

So when do you starting getting interest delivered to your account? This will happen at the end of each international trading day, which is at 5pm EST.

Your firm takes a snapshot of your account at 5pm EST. If you’re still holding the position at that time, then your account will be credited with that day’s interest on your position usually within the next hour or two.

It’s at that moment that you’ve just become the bank.

Imagine earning interest 365 days a year like a bank. When you sleep, you’re earning interest. When you’re on vacation, you’re earning interest. When you’re working… so is your money, at the same time.

Once you allow the interest to stack up over the course of a year or two, you’ll start to realize why some call “compound interest” the 8th wonder of the world.

Have a Nice Day,

Sean Hyman
Editor, Currency Cross Trader

Stocks versus FOREX Trading

forex vs stocks

Overview of stock trading

Stock trading involves the purchasing and selling of stock shares for the purpose of financial gain. As there is no real “trading” involved such as what you would experience with baseball cards or sports memorabilia, the terminology “stock trading” is a misnomer. In the financial and investment world, stock trading refers to the buying and selling of shares of stocks, nothing more.

Overview of FOREX trading

FOREX trading refers to the purchase and sale of foreign currencies in the foreign exchange market also referred to as the FOREX or FX. This is a decentralized market that operates on an over-the-counter format of trading foreign currencies. The market also determines what the relative values these different currencies are while worldwide financial centers act as anchors for the trading of these currencies between currency purchasers and sellers on a 24-hour basis.

Advantages and disadvantages of stock trading

There are 3 primary advantages to stock trading which include the following:

  • Better returns on investment – actively trading shares of stocks oftentimes produces more profitable results than purchasing and holding them
  • Familiarity with big name companies – stocks which are the most commonly traded involve the more recognized companies such as Cisco, IBM, Microsoft, etc.
  • Wide range of choices – there are literally thousands of different stocks listed in the different markets around the world and the prices of these stocks are constantly moving in one direction or another so you just need to find them

Naturally, where there are advantages, there are disadvantages to be aware of. These include:

  • Costs involved – despite the fact that you can trade online without encountering the normal broker fees and commissions, this still adds to day-trading costs overall
  • Leverage – the maximum leverage you can achieve in the stock markets is 4:1 meaning that you can trade $100,000 in shares with a $25,000 investment which is extremely low compared to FOREX or futures trading
  • Uptick rules where short-selling is concerned – this basically means that you have to wait until the price of a stock begins to increase before you can consider short selling your shares

Advantages and disadvantages of FOREX trading

There are 4 advantages and 3 disadvantages to FOREX trading compared to other types of investing including:

  • Ability for going short – there is no structural bias in the FOREX market which means that you can profit whether the market is falling or rising
  • Leverage – you can leverage your investment up to 100:1 and generate a huge profit from a small investment
  • Liquidity – trade executions are nearly instantaneous and involve little slippage
  • Trends in the market – interest rates and the strength of a country’s economy determine currency values

Now for the disadvantages of trading in the FOREX market:

  • Brokers – you have to use a broker meaning that there will be commissions and fees to pay
  • Leverage – high leverage ratios oftentimes equate to huge risk
  • Spread – since you have to employ the services of a broker, you cannot trade at interbank rates

Why is the Euro Going Down


When Western nations such as Australia and the US see their economies recovering and their job cuts slowing, it is easy for forget that many countries are still struggling with the effects of the Global Financial Crisis, several years on. For example, the Euro has seen some significant losses against the US dollar and this is due only in part to the Greek crisis.

Rather, this could be just the beginning of the collapse of the Euro all together if precise action is not taken, since a number of other member countries such as Spain are also struggling with high debt levels. As the Euro struggles to recover, that recovery is made even more difficult due to the lack of investor confidence – while the US Federal Reserve has been long established, the Euro is relatively new to the market and doesn’t offer the predictability or instill the trust of the Fed.

Plus, the Euro is going down in relation to the US dollar which is seeing increased demand thanks to European companies investing in the US dollar to get better value from their investments. US companies are also pulling out of foreign investments to secure their capital base at home and this shows a rise in the dollar value, when compared to the Euro.

The Euro in 2010

The European currency is constructed with a common central bank, but no common treasury and with a fixed exchange rate, a country is not able to depreciate their currency. Also, in the US, American states can benefit from transfer payments if they are worse off than other states, but that practice is not seen in Europe. As a result, the Euro has been severely tested and the Greek crisis has put the currency on its longest losing streak against the dollar since November 2008.

Even though it is predicted that Greece will survive its fiscal crisis, there are concerning budget deficits in other Euro-region countries such as Spain. Other countries facing similar difficulties to Greece could force the Euro to fail if institutional measures are not taken. The European finance ministers pledge to safeguard the financial stability of the Euro as a whole, but the currency may still disintegrate if the next step towards political union is not taken.

Options for EU Countries

EU countries are especially weak thanks to a single monetary policy, yet maintaining different fiscal policies. Despite this, the EU leaders have promised action to help Greece control its budget deficit, which could involve other EU countries selling their Eurobonds. This would allow Greece to refinance around 75% of its maturing debt and meet its targets, and the rest of the country’s needs can be met internally. Higher value added taxes are also being considered on luxury goods and energy products, and if enough progress isn’t seen from these measures, Greece will have to cut its capital spending.

Euro-area officials are also considering a plan to grant Greece approximately 25 billion Euros if required, and the funds may be coming from state-owned lenders such as Germany’s KfW Group. A tax on financial transactions may also be imposed to deter speculation on currency trading.

Why is the Euro Down?

Investors the world over know that Greece is in financial trouble and many are pulling their money from Greek markets, while European Union officials aim to instil confidence in investors. It is the investors who are pulling out who are creating the financial instability which has caused them to pull out in the first place.

While this vicious cycle is part of the reason the value of the Euro is down, investors are also selling up because they believe Greece is broke. As a result, it is a natural instinct to withdraw funds from a government which is in debt, and can’t handle its own finances, let alone your investments. It was in fact the Greek government’s irresponsible spending which lead to their current situation, where they continued to spend more than they made, and saw their debt levels reach approximately 94% of their GDP. It was at this point that investors wanted their money back.

At the same time, the fiscal policy of the US has raised their debt to 87% of their GDP and if current trends continue that rate is expected to be 95% by the end of 2010 and 105% by the beginning of 2011.

Solutions to the Falling Euro

In December 2010 the proposals to increase the bailout fund found a voice when the Belgian finance minster Didier Reynders backed the move as a chair on the EU’s economic affairs council. However, the German chancellor Angela Merkel does not see any need to increase the rescue fund which is already at 440 billion Euro. Merkel has also dismissed the creation of a Europe-wide bond on the basis that the bloc treaties do not allow for the creation of such a bond.

However, the rules which govern the operation of the rescue fund mean that the Eurozone is unable to lend the entire 440 billion Euro amount and if Spain and Portugal needed rescue funds, greater lending capacity would be required. At the same time, a Europe wide bond was rejected as a the solution to the Greek crisis in May 2010 on economic and legal grounds.

Instead, a more comprehensive solution is needed to effectively stabilize Spain and Portugal, and in turn strengthen the Euro. Where one European country after another is treated in the crisis does not offer a viable solution.

Currently, mass purchases of bonds by the European Central Bank have decreased borrowing costs for Spain and Portugal, who cannot expect the same bailout assistance offered to Greece and Ireland. Instead, a proposed Italy-Luxembourg plan was put forth to create a European bond which would allow the struggling countries to borrow at lower rates. However, the German finance minister is opposed to this plan, saying that as the interest rate risk is distributed to all Eurozone countries, it would not meet the EU budgeting rules.

The Irish government is working to regain control of its economy and presented its austerity budget plan to parliament which aims to cut 6 billion Euros of spending in 2011 and 15 billion Euro in the following four years. Ireland also maintained low corporate rates, despite opposition from France and Germany during the bailout.

The Future of the Euro

Despite plans, talks and proposals, the fate of the Euro still looks to be in doubt, with nearly $8 billion from traders and hedge funds being bet against the Euro, which is the biggest short position in the single currency since its launch. The build up of the net short positions is made up of more than 40,000 contracts traded against the Euro and shows investors are not confident that other European countries can manage their fiscal problems after the Greek crisis.

As a result, foreign business is likely to be much more wary about investing in the Eurozone and will require significant hedging of the currency. However, as the hedges are harder to get, foreign investments could cease all together, adding to the Euro’s problems.

The future of the Euro will be determined by the likelihood of a wave of sovereign defaults and what the Eurozone is willing to do to prevent these. For the Euro to survive a sovereign debt restructuring, a significant restructuring of the public and private debt in the struggling countries is needed. It is quite likely that there will be a wave of sovereign defaults because there is always an inherent danger in lending to sovereigns as they lack collateral. As a result, the security of their creditors is dependent on them being able to sell their debt to others for a good return.

The confidence of the creditors comes from the sustainability of the economy in relation to the prospective growth, and the interest rate. if growth is low, and interest rates are high, a larger surplus is required and the greater these costs are, the less confident investors will be. With rising ratios of debt to GDP, high interest rates and poor growth outlooks, options are not attractive to investors.

Since the funds on offer at the moment are not enough to finance all of the weak countries, the Eurozone will need to make changes to prevent future defaults. As a result, the restructuring of sovereign debts could trigger a wave of debt restructuring and see another tangent of the Global Financial Crisis. What is needed are transfers from the credit worthy to stabilize the un-creditworthy and the more swiftly that happens, the more likely it is that the Euro will return to normal sooner.

Alban is a personal finance writer at Home Loan Finder, a home loan comparison website.

A Very Brief History of the 2008 Global Credit Crisis And Where We Stand Today

The last two years has been the most intense time of global economic hardship since the Great Depression. When Lehman Brothers and Bear Stearns collapsed in the early fall of 2008, there was a period that lasted just a few days, when the global economic system was literally balancing on the precipice of complete failure. Fortunately, Central Bank leaders around the world joined together in an unprecedented movement of decisive action and slashed short-term interest rates to historically low levels. This swift action by financial and governmental world leaders literally saved the economic system.

Then, just a short 6 months later in March of 2009, the global recession began to bottom out. Equity markets began to rally as key economic data releases began to surprise the upside, economic growth began to take off again throughout developed nations, and the global economy continued to recover and move forward, albeit at a very modest pace, until another disaster struck in November of 2009. In late November it became clear that Greece and several other EuroZone countries were in serious danger of defaulting on large amounts of sovereign debt. This fear of default in Greece caused investors to make a run on the Euro. The Euro dropped ferociously from November of 2009 through June of 2010 as forex scalping traders and investors in general questioned the very existence of the EuroZone. During the worst of the Debt Crisis, there was talk that Germany and/or France may leave the EuroZone, or Greece, Spain, and Portugal may be kicked out. No one knew what was going to happen.

Finally in the late spring of 2010, after months of speculation and political bantering, the European Central Bank and the International Monetary Fund joined together and created a bailout fund for struggling EuroZone countries. This effort reassured market participants that there would be no EuroZone member sovereign default, at least in the short term, and the market began to cover its short Euro positions, and the Euro began a strong rally back up. Currently, the Euro has just finished a massive run against the U.S. Dollar in the months of June and July.

Now, two years later, each developed nation is emerging from the recession at a different velocity, which is making for some very interesting economic and political developments around the globe.

The EuroZone

In order for Greece, Portugal, Italy, Ireland, and Spain to receive bailout funds from the ECB and IMF, they have each been required to institute very strict fiscal austerity measures. In other words, the very loose fiscal budgets that have been in place for years in these countries (which are the very root of the Debt Crisis) have had to be modified significantly. These countries have had to initiate huge government spending cuts, which has set off riots and protests in every country. Minimum wages have been lowered, pensions have been cut, jobs have been slashed, and minimum retirement ages have been raised. These are just a few examples of the many cuts these countries have had to make over the last 2 months.

Many economists are concerned that these austerity measures will eventually weigh heavily on the economic recovery in the EuroZone in coming months. The idea is that if austerity measures are introduced when a country is still in a very weak state of recovery, as all these countries are, then the chance of falling back into economic contraction is very strong. Thus, the outlook in EuroZone is bleak.

United States

The U.S. economy appeared to be recovering quite nicely in early 2010. In fact, the Federal Reserve began closed door talks of when to possibly begin tightening monetary policy. These talks have all vanished in the months of June and July. In June, key economic data of the United States began confirming that the U.S. recovery was hitting a major wall. Currently, in early August it is clear that this slow-down is quite serious. The Federal Reserve has announced it will institute another round of quantitative easing in an attempt to stimulate the U.S. economy. The U.S. Dollar has been feeling the effects of these talks in forex trading, as the Dollar has plummeted in value versus the Euro and Pound in June and July.

The scary thing about the current global economic outlook for 2010 is that no one knows for sure what is going to happen. Two years after the Crisis erupted, experts are still very uncertain concerning the economic future of developed nations. In fact, Chairman Bernanke testified before Congress at the end of July, and in his testimony he declared the outlook for the U.S. economy is “unusually uncertain.” Unfortunately, it doesn’t seem that the history of the 2008 Credit Crisis has been fully written quite yet.