The EUR Stronger Than the Dollar Means the Forex Trade Will Proceed, Although in a Slow Down
It has long been accepted that the European Central Bank's (ECB) "quantitative easing" policy is most likely the reason why Europe's currency got stronger against the dollar. That the ECB expanded the supply of money to prop up the Euro against the US dollar certainly does not necessarily mean that other countries are forced to follow suit, as many economists and analysts believe.
The problem is that the stimulus has already run its course. The ECB is now planning to increase the amount of money available, leaving the new market to be flooded with money.
Many different theories exist as to why this happened. Some believe that it was purely a result of the fact that the stimulus plan had given a lot of people more money and then redistributed it over several time frames, while other claim that the increase in demand, which should have increased the value of the Euro over time, actually pushed the EUR lower. One theory that is hard to dismiss is that the appreciation of the Euro is due to the fact that the money supply increases over a longer period of time than a traditional interest rate policy.
Another interesting aspect of this problem is that many feel that one of the great problems that European countries face when it comes to their monetary policy is that they cannot determine the right time to turn off the printing presses. Some feel that the Federal Reserve's ability to control the money supply through interest rates has also played a role in why some of the money created from Quantitative Easing is left on the sidelines.
In addition to the possible effect of Quantitative Easing on the Euro, there are also many traders that feel that the stronger Euro is due to the fact that China wants to help their own economy out by pushing their currency higher, as it would obviously be beneficial for China as well. Even though this is mostly due to speculation, many argue that the Euro might continue to rise.
For the Forex trader, a sharp decline in the Euro may be an indication that Forex trading is slowing down. But there are also many who feel that the dollar continues to strengthen and will continue to strengthen.
One important thing to remember is that the EUR is considered a safe currency because of the fact that the exchange rate is always higher than the cost of gold. The stronger the value of the Euro, the cheaper the cost of importing and exporting gold.
One currency that is often very good for buying and selling with is the USD. This is because the exchange rate of the USD usually goes up when the Euro goes down.
Some traders feel that the price of gold goes up and down in a wide range. They feel that gold prices can go down and go up at the same time.
Another way to see if the EUR will depreciate is to know about the strength of each of the currency pairs. The strong dollar currency pair goes up when the EUR goes down.
Forex traders are well aware of all these things. Some understand that the EUR is stronger than the other major currencies and that it is still available to buy and sell at much cheaper prices compared to the Euro.
The bigger question in the minds of the Forex traders is, how long will it take before all the buying and selling will cease? It is a big factor in how the Forex market operates.