Thursday, May 27, 2010

Euro Gains On U.S. Dollar as China Soothes EU Holdings Fears

After China denied it was going to divest of its huge holdings in the euro, the euro had a rare day in making gains against the U.S. dollar, at least in the recent weeks.

The U.S. dollar skyrocketed when news China was going to take measures to shrink its exposure to European debt. Once the reports were denied, the dollar went backwards while euro rebounded.

Currencies have been fluctuating wildly on the forex recently, and every bit of news related to the sovereign debt crisis in Europe moves them up and down, depending on what is the flavor of the hour.

Currency traders of course love this; at least those that know what they're doing, as volatility is the friend of the expert, and that's when they make the most money in their currency bets.

The story of the Forex is the euro, and the story of the euro is the sovereign debt crisis. As the sovereign debt crisis goes, so will go the euro, U.S. dollar and the yen.

The U.S. dollar and the yen are joined to the action because they are the currencies of choice investors go to when fears pervade the markets.

Gold is a wiser choice, but some, unbelievably, haven't caught on to that yet.

Other currencies play a part of course, but these three will always be in the euro and EU debt crisis story as it continues to unfold, along with gold, which a growing number of investors are treating like an alternative currency.

No comments: