Europe may be have a tough time sorting out its economic mess, but the euro is in rally mode, and it's likely to continue as the European Central Bank and the Fed keep juicing up their currencies, says Dean Popplewell of OANDA.
Gregg Early: I’m here with Dean Popplewell, who is the Chief Currency Analyst with OANDA. I think today, more than ever, foreign exchange trading has become one of the biggest and most popular vehicles out there for trading and simply for investors even at this point.
Maybe it’s best to start with a basic question with everything going on in the markets as we see them in Europe. We have the euro collapsing, and the United States, and then you have China moving into the picture. You have developing markets. What is it that you’re looking at today that most interests you, Dean?
Dean Popplewell: Well, as you correctly mentioned there, the three dynamics of Europe, North America, and obviously China in the fray.
The euro seems to be the currency of choice at this moment in time, and what we have seen over the last six or eight months, it’s certainly the euro under constant pressure to the Eurozone debt crisis issues. Obviously, the debt-laden countries like Spain and Italy and Greece themselves having financial problems investing in the fixed-income markets.
The euro tends to be the currency of choice amongst most investors out there, either to speculate or to avoid, certainly, and with China on the back burner and concerns there on growth, people are also looking at emerging markets as well. The issue of a low-yield environment in other asset classes like fixed income certainly allows trading in currencies to become more attractive for the average investor.
Gregg Early: Now, there’s been talk recently that Japan seems to be coming back and has greater inroads to China than ever before, and that with the infrastructure spending after the tsunami and all that, Japan is looking up. Are you seeing any interest in the yen, or that still a fundamentally dead currency, for the most part?
Dean Popplewell: It’s not a fundamentally dead currency. The actual appreciation on what we’ve seen over the last eight months or so is obviously a major concern, both to the Ministry of Finance and The Bank of Japan.
The currency is being used traditionally as a safe-haven currency, and it’s becoming far too strong for Japan’s trade interests. Globally, investors tend to use it as a certain, safe-haven vehicle, and obviously the stronger the yen has become, it’s a detriment to global trading from Japan’s perspective.
On the flip side of that, people have also been using other safe-haven currencies like the US dollar...but what we’ve seen over the last month or so is certainly a huge reprieve in the euro, mostly on the back of what the ECB is trying to implement with its OMT and bond buying initiatives that they’re hoping to implement and help alleviate the debt financing issues and concerns of the euro-periphery countries.
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Tickers Mentioned: FXE