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The Two "Loser" Forex Currencies to Own

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The Two "Loser" Forex Currencies to Own

Post by Sean on Tue Dec 09, 2008 9:07 am

Tis the Season to Spend - Right?
Why the Credit Crunch Will Steal Holiday Sales and Push Two "Loser" Currencies Higher

By Sean Hyman

Good Day Currency Traders!

Every year, retailers usually count on the holiday season to push their books back into the black. But of course, this year is anything but "usual."

German retail sales have fallen for a sixth straight month. Hong Kong just reported its weakest retail sales growth in five years in October (most recent data available).

Retail sales in the U.S. aren't any better. Black Friday may have surprised the experts with higher numbers, but still overall sales are down for the year (down 0.8%).

Currency traders watch the retail sector because stronger sales often push currencies higher or lower in the short-term.

Over the long haul, consumer consumption also has a significant effect on a country's currency. Consumer consumption drives stocks higher or lower, which always influences the currency market (traders run to certain currencies when stocks are rising or falling).

Also, in the long-term consumer consumption tells you how consumers "view" a particular economy. If consumers are willing to spend, the economy has a more positive sentiment backing it. And vice versa.

And this year, everyone is watching retail sales to see if the credit crunch will steal Christmas sales from the retail sector.

Can You Really Have Strong Holiday Numbers When
Everything is 70% Off?

So back to the numbers: For now, sales are up, but the question is...how much are retailers really making on those sales? Retailers are now forced to slash prices up to 70% to draw in the shoppers. Even if they are moving products out the door, stores are making hardly any profits.

Plus, add in the 6.7% unemployment rate (another million people could lose their jobs between now and the end of the year), a massive housing slump and one of the worst bear markets in history, and it looks like retail numbers will be dismal at best.

In fact, America's Research Group has already forecasted that this holiday season would mark the first decline in sales in almost a quarter century (for holiday spending) as the U.S. economy shrinks.

Retail Sales Slump As a Symptom of a Slowing, Global Economy.

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Wal-Mart's Gain is Macy's Loss!

Who is most likely to make it through this okay? Oh, guys like Wal-mart, T.J. Maxx, Big Lots, etc. Those that sell things cheaply (very cheaply) will likely get through this season the best. Shoppers think of places like this when they feel the need to stretch their dollars.

In fact, some call Wal-Mart a recession-proof business because it offers all the needs and wants at reasonable prices.

This deep-discounting theme will hurt most retailers out there and make for sluggish economies all over the world.

Many central banks are already preparing for the worst. In fact, Australia cut their rates by 100 basis points and New Zealand cut a whopping 150 basis points. Britain's central bank cut by 100 basis points and the ECB cut by 75 basis points.

All of these major economies are feeling the heat. They wouldn't be cutting as aggressively if they believed their economies could easily pull out of this slump. So it will be a tough holiday season all around the world.

Sluggish Economies Steal Investors from the High Yielders

As central banks slash rates, the traditional high-yielding currencies are quickly losing their investor appeal. After all, who wants to invest in a riskier currency, when you can't even secure a higher yield?

On the contrary, it's the traditional "low yielders" that are profiting from this crisis. The Japanese yen is already leading the charge. And it's not done yet. I see the yen heading higher until we find a bottom in stocks.

The U.S. dollar is right behind the Japanese yen. During this credit crunch, there has been an enormous demand around the world for U.S. dollars. Many countries are having a hard time getting all of the U.S. dollars that they need in order to buy goods that are priced in dollars, especially commodities such as oil.

This has put a demand upon the buck that probably won't subside until stocks bottom.

The highest yielding currencies will likely suffer the most at the hands of the yen and U.S. dollar (such as the New Zealand dollar and the British pound, etc.).

Therefore, until we stop seeing panic selling in the stock markets, we won't see anything happening in the favor of the higher yielding currencies. This will continue to put pressure on all high-yielders until investors see the crisis dissipating.
American Consumers Hit On Every Front

Right now, you have the U.S. consumer getting hit literally on every front: their jobs, their homes and their stocks. These are the three main sources of wealth for the American consumer. So if these assets are "deflating" before their eyes, it doesn't take a rocket scientist to figure out that they are going to shut their wallets rather quickly this year.

Therefore until this curse of deflation is reversed, expect the low yielders to rally while the high-yielders suffer.

In this race, the yen will come in first place, the U.S. dollar will be a close second, while every other currency will follow - way off in the distance.

Best Regards,


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