Outlook 2008

Outlook 2008

Unlike the beginnings of 2007, the trading year of 2008 is a bit harder to predict. There are two key factors that make predictions a bit more difficult: The Credit Crisis and Government Intervention.



Credit Crisis in 2008

As detailed in many earlier newsletters, the Credit Crisis hurts trading due to the wild and large moves in a short period of time. For day-traders (EurAsia Strategy) these types of market conditions are the perfect storm with large moves and shorter stop losses. For the Swing trader (On Target Strategy) and the long-term trader (Premier Strategy), trading is a bit more difficult as stops usually widen and accuracy drops. The Credit Crisis in 2008 could be the cause of some rough trading, but it could also be the catalyst that moves markets into profits. The key is the “Carry Trade”. Literally trillions of dollars have been made on currency cross pairs namely GBPJPY, EURJPY, NZDUSD, and AUDJPY in what is called the Carry Trade Currencies. These currencies when bought pay a good interest just by holding them in your portfolio, therefore investors from the stay-at-home daytrader to large worldwide corporations have invested in these currencies sending them through the roof over the last 18 months. These runs have been triggered by interest rates. The Credit Crisis changed the playing field almost overnight. If there is fear of mortgage foreclosures in the United States, Great Britain, or the Euro Zone, then investors flight to quality – moving funds to the strongest currency – is the Japanese Yen (JPY). When people begin to sell in masses the Carry Trade positions, and begin buying the Japanese Yen, the floor lets go on the Carry Trade. We saw this happen three times in the last half of the year of 2007: second week of August, first part of November, and first part of December. To give you an example of the drastic fall, the NZDUSD in August gave back 110 percent of its annual gains in a matter of a few days (Over 18%). The flip side is that within two months the NZDUSD returned back to its highs again – this drawdown and return to original value is where the Premier Strategy really thrives.

Regards
Forex.DelijaWorld