This morning, I read a fellow contributor’s post and it occurred to me that the opening paragraph had something to offer in the way of my advice yesterday. Here it is …
What if Greece’s credit crisis shifts from a problem to a contagion similar to the subprime mortgage market in 2008? What if the euro’s decline turns out to be something more than yet another one-month sell off? What if the erosion that the cyclical trend has shown this year really is a replay of 2008? (See TraderPlanet Today, Kevin Klombies)
The above are questions one needs to think about when looking down the line a bit, yes? One could add the items below to the list, as well.
The OECD [Organization for Economic Co-operation and Development] also cited a slow recovery in Japan as a possible threat to its economic partners, especially if global supply chains remain disrupted as a result. The effect would be all the more damaging if coupled with a bigger-than-expected slowdown in China, a spiraling sovereign debt crisis in Europe and/or persisting uncertainty over budget policies in the United States and Japan, the OECD warned.
Yet, even though these issues are important and hold potential danger for the market, and one should factor them into any trading plan, they are not the end of the story. Equally so, potential opportunity awaits as the world continues on the path of economic recovery.
The OECD said the U.S. and euro area economies were growing faster than expected in forecasts six months ago, although Japan’s economy was set to contract after the March earthquake, tsunami, and nuclear crisis. As a result, it said the U.S. Federal Reserve should look to raise interest rates this year, while the European Central Bank could afford to pause its tightening cycle for a while and Japan faced no pressure to act.
If the OECD is correct and interest rates do go up this year in the U.S. and the ECB backs off its recent upticks, a forex opportunity arises. If you believe that in forex trading, it is not necessarily the actual interest rate level that is important, but the anticipation of a rise in interest rates that attracts greater demand for a particular currency, then the above is in front of any potential U.S. dollar/euro trade.
In the widest sense, serious problems are in front of any trading plan, and that suggests caution until some of the big issues find some resolution; yet, and as well, the fundamentals of an improving global economic recovery are still in place, despite the current softness in some key manufacturing indicators around the globe. To me, this all suggests a wary eye is needed, but one should not cower. Tread lightly, trade carefully, and be prepared to move quickly when either opportunity is spotted or danger is imminent.
Trade in the day – Invest in your life …
