5 Reasons for the Fresh Global Gloom Boosting EUR, JPY, and Hitting the Rest
09/30/2015 9:00 am EST
For the benefit of all traders in the realm of forex, Yohay Elam, of ForexCrunch.com, shares five culprits he believes are behind the current crash that rocks markets and impacts all currencies.
The atmosphere in financial markets is dark, with stock markets falling all over the world. The source of the problem is China, but this is not new and now we haven more cracks. In currencies, the safe haven euro and yen benefit and rise against the dollar, while commodity currencies are crushed.
Here are five reasons for the current crash that rocks markets and impacts all currencies:
- Fed Serious About Rate Hikes: After Yellen made the case for a hike in 2015, Dudley repeated it, and finally, Williams echoed the same words, saying the US economy is able to weather a hike and even opening the door to a hike in October. Stocks don’t like higher rates.
- Carl Icahn: The billionaire is known as an activist in many stocks and he has now stepped up his game. In a short video that came out a short while ago, Icahn called danger ahead, he warns about falls in stocks.
- Big Rate Cut in India: The Reserve Bank of India cut the interest rate by 0.50% to 6.75%, surprising markets that expected only a 0.25% cut. India was supposed to be the bright spot in the BRICs, but the global economy and was cited by Governor Rajan.
- Glencore: The mining company is mired in debt and the fall in commodity prices is beginning to bite. The stock already suffered from the slide, but Monday it dropped nearly 30% in London trading, without any reason. It seems that the knives are out and not only on Glencore. The fall in this stock is challenging the one in Volkswagen and that’s no easy task.
- Copper Under $5000: This useful metal is often called “Dr. Copper” for its high correlation with the global economy. The sell-off in copper, related to China, of course, has fallen below the very round level of $5000 and also has a negative impact.
The yen is a traditional safe haven: interest rates have been low for quite some time and the Japanese currency served as a funding one.
The euro is a newcomer to the safe haven world and the root of this phenomenon lies with the ECB’s extreme easing: a negative deposit rate for over a year—and QE for six months and counting—make borrowing in euros quite cheap. Yet, in times of trouble, money is repatriated back to the old continent.
The fall in commodity currencies is easy to explain, especially in Australia’s case: the country down under exports copper among other metals.
By Yohay Elam, Founder, Writer, and Editor, ForexCrunch.com