USD/CAD Rates May Extend Fall As RSI Dives into Oversold Territory – The last few weeks have seen a number of bearish ETFs such as the PHLX, NUG and others all suffer significant losses. Many investors were expecting a fall in commodity prices after a prolonged period of stable growth. Some analysts even went as far as suggesting that the Federal Reserve was about to embark on a large scale quantitative easing (QE) program.
The reality was much different and it seems the current economic conditions are not conducive to the currency markets continuing at the same levels it has been. With the US economy growing stronger, many investors are choosing to hang on to their money rather than moving into the forex-trading business.
In the past, the stock market always rose and there were no signs that this was going to change with the US economy performing in an uptrend. With the stock market dropping and the unemployment rate falling in the first quarter, many investors have been reluctant to take the plunge into the market. If you can put money into a safe and secure asset, it makes sense to go ahead and do so.
Even though the dollar is currently showing signs of weakness, the EUR/USD and the USD/JPY remain relatively strong with the S&P 500 Index (SPX) now showing positive results. There is also a small amount of strength in the Japanese yen.
In addition to the weak dollar, investors have been watching for indications that the Federal Reserve may be planning to embark on a QE program, as it looks like they may be preparing to do so. However, there have been some signals coming from Europe that may indicate that it is not the case and that the Fed may have to wait for Europe’s situation to resolve itself before deciding to implement its QE plan. This is due to the fact that the European banking system is not very well positioned to absorb large amounts of money in order to stimulate the economy.
It should be noted, though, that there is a large amount of buying pressure in the European bond market and this could mean that investors will continue to pull money out of the bond market over the course of the coming days and weeks. The European banking crisis is something that may last until the end of next year, however, which means that it will probably be another three or four months before we see any significant changes to the stock market.
In the mean time, the Federal Reserve will keep interest rates where they are and will continue to do all it can to keep the European central bank happy by making sure that interest rates continue to be as low as possible. While the euro is already weakening, the Federal Reserve will continue to do its best to make sure it remains in a position to absorb even more foreign investment than it does today.
In addition to the weak dollar, investors have been following the developments in Japan for the past several months and there have been some signs coming out recently that the yen may be losing some of its strength against the EUR/JPY and may even begin to weaken against the USD. However, this is due primarily to the recent announcement that the Bank of Japan will be purchasing some large quantities of bonds that will help to offset some of the impact that the government debt crisis is having on the country’s GDP.
While the news was positive for the Japanese economy, many analysts have noted that the central bank may not be ready to allow the currency to drop too far against the EUR/JPY and will likely keep the level at around one hundred to two hundred and fifty to one hundred and forty US dollars per EUR. and that is about the same as it has been for a number of months.
When the news of the Japanese announcement was announced, the market began to react positively and there was a rush to sell off, but it has since slowed down significantly and has stabilized slightly. Since the announcement, many traders have been using the news as a way to predict that the euro will soon fall and will eventually become stronger against the dollar as well.