Bradley Gilbert provides analysis of the currency market: the crisis continues...

The choppy trading activity we have seen in the foreign exchange markets over the past six months looks set to continue as the two heavyweights battle it out to see who has the weakest economy – and currency. In one corner we have the euro, flanked by the EU/ECB/IMF; and in the other corner we have the USD, shadowed by Ben Bernanke and the Federal Reserve. At present it’s too hard to call. Both economies are on the ropes, rolling from one problem to the next.

As tiresome as the offshore crises are, it’s extremely important to maintain concentration and focus because these two currencies are a massive part of the global market. The USD is involved in 86 per cent of all forex transactions, whilst the euro comprises 37 per cent of all forex transactions. The EUR/USD is by far the most-traded currency pair and is a major driver of all currency correlations, so it’s very important to know where this currency pair is going.

The question is: will the EUR/USD come off hard as Europe implodes, with one country meltdown after another, or will the major debt issues in the United States dominate and cause the euro to rally?

Clues to the currency pairs direction comes from the timing of the issues and the delivery of the planned – albeit short-term – rescue packages...

Excerpted from an article originally published in the Sep/Oct 2011 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2011, Your Media Edge Pty Ltd.
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