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A question for you FOREX traders out there.



May 14, 2009 – Comments (6)

Assuming an inflationary global depression, all currencies would be worth less, but not at the same percentage. If all currencies weakend at the same percentage, inflation would have no impact. I've been wrangling with this for a while now, and I'm not sure what to look for. At first I though debt-holders would be a good choice, but China is the biggest debt holder and is tied to the dollar. Most debt-holders are net exporters, but import staples, most notably water. Of the emerging economies, China and Russia are likely to see civil unrest in a depression. I'm sure there are some fundamentals. But I'm not able to think this through.

I'll be totally in precious metals if the worst occurred, but I'm assuming that the country with the strongest currency would rebound faster. Would the volatility in currencies increase enough to make sure that there weren't any winners? Assuming that larger countries shun free trade in that scenario, does that allow their currency to rebound faster or does that allow countries trading globaly to rebound faster in a free market?

 Any advice or links would be appreciated.


6 Comments – Post Your Own

#1) On May 14, 2009 at 9:44 PM, MGDG (32.83) wrote:

I would try not to spend too much time analyzing which currency would prevail. You may find by the time you figure it out, the conditions that brought you to your conclusion of which currency should prevail would change, leaving you to start over. The Central Banks could also manipulate just enough to delay the move you were expecting or even cause it to move against consensus opinion just long enough to wipe out your capital (400 to 1 leverage will do that) or cause you to enter a series of failed trades. Instead just follow the trend up or down in the currency making the biggest move. I have 2 trades in my FX account that I've been running since 4/20 where I'm shorting the USD vs the CAD and the AUD. They both have a nice uptrend and are making me Mega Moola right now. I couldn't begin to tell you why or how long they will continue, only that I'm profiting on the move for however long it may last. My opinon is the uptick in commodity prices have reversed the free fall in the foriegn currencies of commodity rich countries.

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#2) On May 14, 2009 at 9:46 PM, mode7 (< 20) wrote:

China would definitely see civil unrest, maybe in the next decade even without a worldwide depression.

Maybe research the Euro? It has it's own built-in diversification, but you'd need to look at the health of all the countries that use it. For reference, maybe compare the economic collapse in Iceland to the current situation in Ireland, I kind of wonder if Ireland didn't adopt the Euro, how much of a similar situation they would be in as Iceland.

I think another angle is to research the US dollar being the currency du jour for purchasing oil. That should keep an equilibrium between US inflation, oil prices, and the value of other currencies unless more oil exporters swap to using a different currency (maybe the Euro?)

Just some ideas to scatter on the table...

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#3) On May 15, 2009 at 7:47 AM, BravoBevo (99.97) wrote:

Chris:  You asked "Would the volatility in currencies increase enough to make sure that there weren't any winners?"

No, there will definitely be winners and losers.  The winners are the nations with an internal growth engine comprised of a burgeoning population that is aspiring to become middle class (a chicken in every pot; a tv in every home; a car/motorcycle in every garage; a cell phone in every teenager's pocket), which in my opinion, favor the "BRIC" countries.  BRIC stands for Brazil, Russia, India and China. Each of those four countries have pros and cons as to why it will be the next big thing.

Interestingly, just last night I had found and reprinted a currency article for posterity.  Enjoy and best wishes to you.

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#4) On May 15, 2009 at 8:37 AM, portefeuille (98.93) wrote:

On oil price and currencies (why does it matter in which currency oil prices are denominated ...) you might have a look here (The oil market currency risk).

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#5) On May 16, 2009 at 5:29 PM, ChrisGraley (28.49) wrote:

Good stuff guys and thanks. My interest is to see which country is hurt the least. They should recover faster and predict recovery for the others. Obviously there is a lot more to it than that, but it's good starting place at least.

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#6) On May 16, 2009 at 6:43 PM, portefeuille (98.93) wrote:

South Korea used to leading somewhat I think ...

The following is from this recent article:


"At best we've seen early signs Canada and the U.S. may be entering a period of more moderate decline rather than growth, but in East Asia we're seeing convincing signs that they are past the trough," said Shenfeld.

"They are already rebounding in China, Korea and perhaps Japan as well from deep troughs in the case of Japan and Korea."

The OECD found China's composite of leading indicators rose by almost a point in March, the second consecutive month of growth. The rebound was less pronounced in the U.K., France and Italy.

"Weak though these signals are, they are present in the majority of the (composite leading indicators) component series for these countries," the organization said in a news release.

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