Who is winning the currency war?

Market Pulse: November 5

Last week the EUR/USD Forex pair opened at 1.29490 and closed at 1.28370. The USD/JPY opened last week at 79.790 and closed at 84.470.

Over the past year we have seen the U.S. dollar rise and fall, as did the euro and yen. Looking at Japan, we know that when the yen gets to high, their exports suffer and while 50% of Japan’s economy may be built on consumers spending in Japan, its lifeblood is its exports. So, we have seen the BOJ take steps to keep the Yen down. This has not been an easy task as the euro is having trouble because of the European debt crisis, and Ben Bernanke keeps up with QE 1-2-3. The Fed knows a weaker dollar helps U.S. exports. The Fed also knows that 70% of the U.S. economy is based upon consumer spending (this is questionable by some). And what about the euro? Well, the largest economy in the Eurozone of course is Germany and they have seen a contraction of manufacturing. If you remember when the euro was up at 1.48000, Germany probably saw a drop in exports. So now we are seeing three of the world’s largest economies trying to manage their currencies, however the euro is not just Germany’s currency. Germany can push policy in the Eurozone to lower the euro, but unlike Japan and the United States, needs support of the other member countries. The balancing acts by these powers have brought solid opportunities to currency trades worldwide. 

Looking at the EUR/USD daily chart, you can see ADX numbers at 19.1 and rising reflecting a weak trend, but DI- is now over DI+ with an increasing DI Differential. MACD is bearish with today’s price action pushing MACD below the zero-line of the histogram, and Stochastics are oversold.

On the daily chart of the USD/JPY, you can see ADX at 69.4 reflecting a very strong trend. MACD is bullish but is dropping divergence on today’s price action, and Stochastics are overbought.  

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