In many ways, trading the Forex in 2009 was a wild ride…
The year began while capital markets were still in chaos and investors were withdrawing funds from virtually every market and parking those funds in US Treasury Securities. As this trend gathered momentum, the Dollar continued its rally against almost all world currencies; with the exception of the Franc and the Yen. This happened to such an extent that short term rates briefly dipped below zero.
However, as investors grew more and more comfortable with risk, they reversed the flow of funds which caused a rapid appreciation in every single currency against the Dollar. By the summer, currencies and asset prices had risen by such an extent that investors began to fear the formation of bubbles as they should have. For example, the Japanese Yen touched an all-time high against the Dollar in November.
Towards the end of the year, the rally against the Dollar started to lose steam as investors began to worry they had gotten ahead of themselves. In addition, the prospect of interest rate hikes was moved to the forefront, thanks to early action by the Bank of Australia. While it’s clear that the Fed won’t be moving to tighten monetary policy anytime soon, investors have been forced to re-evaluate their short-Dollar carry trade positions within this context.
Also, lets not forget the intervention of the NFA into the many aspects of our trading systems. In May it would no longer allow US Forex brokers to offer a hedging option to its customers. Then in August, the NFA changed the way brokers account for customers trades with a new FIFO ruling which would cause chaos with tp and sl orders. And for its final act of 2009, it mandated that the greatest leverage US brokers can offer is 100:1. Whether these changes are good for the end-user (Forex trader) is beside the point. This is just another example of “Big Brother” messing around in and messing up the free market system… in my humble opinion!
Best Regards,
Mark D. Carlson