15, February 2013

EUR/USD (a 4-hour chart)

EUR/USD (a 4-hour chart)

The world economy is on the verge of currency wars and the front lines are formed with one goal - to restore economic equilibrium. Properly executed technical devaluation measures aimed at precisely that. This is a new era of currency wars. In the past, the country directly controls the value of their currency to trade wars and the things like this. But currency war today is a result of non-traditional monetary policy of the central banks, which indirectly affect the value of the currency of the country. G7 has worked hard to defuse the fears of investors about the currency war, but the last comment stirred up confusion in the market - the opposite market reaction to unintended response.

On Tuesday, the group said that "fiscal and monetary policy should be directed to the devaluation of currencies" - a statement that was sent to Tokyo. Shinzo Abe, the new Prime Minister of Japan is accused of manipulating the value of the yen to gain unfair competitive advantage in international markets. Shinzo constantly reiterates that its policy is not to devalue the country's currency, and the deflation ... and currency devaluation - just a consequence of this goal .... Really? Japan may be in the spotlight today, but in fact it is not the only country involved in this fight.

Success in Europe, seem, in this respect is not so obvious, but politicians have a similar goal in mind in recent years... This idea may be supported by recent comments Mario Draghi (head of the European Central Bank), who stated that if the value of the euro is too expensive and continuing its growth the trend will negatively affect the overall economic growth. The same can be said about the United States with a new "infinite QE" Fed. The list goes on ...

G20 meet in Moscow this week, so the question is how they will react and what they can actually do when central banks indirectly affect the exchange rate? Everyone is trying to devalue their currency, and we need to understand how to navigate in this tension, because it will inevitably lead to increased volatility in the markets. Understanding that volatility will increase, allows currency traders to prepare for this ...

Generally it is quite strange that the markets so optimistic before the fact that in the 4th quarter. 2012 recession showed the U.S., UK and Eurozone. The data for the euro area came yesterday, and it is expected to decline by 0.4% q / q, the strongest since the crisis is likely to affect the output data if not in all markets, at least for the euro. Probably in the next few days, EUR/USD drops to 1.3250 and below.