Competitive Devaluation of Forex Currencies
http://www.theforexnittygritty.com/forex/competitive-devaluation-of-forex-currencies
Today in the world of Forex exchange trading there appears to be a competitive devaluation of Forex currencies. That is to say, more and more central banks are buying other currencies, setting low interest rates, or running up debt as a means of reducing the value of the home currency. To understand how this competitive devaluation of Forex currencies will play out let us first look back in history. As Japan rose from the ashes of World War Two it built its economy on exports to North America and Europe and later to the rest of the world. Cheap and poorly made products were the first wave and then Japan emerged as a maker of high end electronics, automobiles and more. When Made in Japan was and meant cheap it was easy to sell low priced goods to willing customers in the USA especially. When Japanese goods improved and become more expensive Japan had to find a way to keep prices down and exports up. Thus Japan bought foreign currencies, primarily US dollars and by way of currency manipulation kept the Yen low and kept its exports flowing. To a great degree the current competitive devaluation of foreign currencies is an attempt to follow the Japanese model. But, how is that going to work out? And what should someone who speculates on foreign currency rates do, to profit in the coming weeks, months, and years?
2. • Today in the world of Forex exchange
trading there appears to be a competitive
devaluation of Forex currencies.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
3. • That is to say, more and more central
banks are buying other currencies, setting
low interest rates, or running up debt as a
means of reducing the value of the home
currency.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
4. • To understand how this competitive
devaluation of Forex currencies will play
out let us first look back in history.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
5. • As Japan rose from the ashes of World
War Two it built its economy on exports to
North America and Europe and later to the
rest of the world.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
6. • Cheap and poorly made products were the
first wave and then Japan emerged as a
maker of high end electronics,
automobiles and more.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
7. • When Made in Japan was and meant
cheap it was easy to sell low priced goods
to willing customers in the USA especially.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
8. • When Japanese goods improved and
become more expensive Japan had to find
a way to keep prices down and exports up.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
9. • Thus Japan bought foreign currencies,
primarily US dollars and by way of
currency manipulation kept the Yen low
and kept its exports flowing.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
10. • To a great degree the current competitive
devaluation of foreign currencies is an
attempt to follow the Japanese model.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
11. • But, how is that going to work out? And
what should someone who speculates on
foreign currency rates do, to profit in the
coming weeks, months, and years?
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
12. • What Is Good for One
Is Good for Two, Three,
or Four
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
13. • Currency devaluation as national policy
worked for Japan and then for Taiwan,
South Korea, and Mainland China.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
14. • The problem may have started when
China industrialized and started trading
with the rest of the world.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
15. • Its economy grew and attracted
investment.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
16. • China flooded the world with underpriced
goods and may well have been part of the
cause of the worst recession in 75 years.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
17. • The result of the recession was and is that
North Americans and Europeans are
buying less from China, South Korea,
Taiwan, and Japan and thinking seriously
about devaluing their own currencies.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
18. • The stated reason for devaluing Western
currencies is to stimulate Western
economies.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
19. • However, a beneficial side effect of these
policies is to make it profitable to bring
industry back to the West.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
20. • Now we are not talking about half a dozen
strong economies manipulating the
currency markets.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
21. • We are seeing the USA and EU, far and
away the two largest economies in the
world, seeking to devalue their currencies.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
22. • Who will win this competitive devaluation
of currencies? And how can a Forex trader
make a profit?
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
23. • Long Term Trends and
Short Term Detours
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
24. • Fundamental analysis of Forex pairs tells
us where the eventual relative values of a
currency pair will stand.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
25. • Technical analysis of Forex pairs is
essential to short term profits.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
26. • If the major economies choose to devalue
their currencies then we can expect to see
the USD and EUR being substantially
cheaper over time.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies
27. • However, when the US decides to ease off
on its stimulus program, for example,
expect a short term rise in the value of the
USD as interest rates rise in the USA.
http://www.theforexnittygritty.com/
forex/competitive-devaluation-offorex-currencies