Forex Trading Strategies Blog

The German economy’s expected zero growth in Q4 of 2005 did not affect the Euro to a great extent as the European Central Bank is likely to raise interest rates in March. The overall growth of the 12 member Euro Zone was down to 0.3% after it experienced a 0.6% growth in Q3 of 2005.

At present, the European refi rate is at 2.25% and the market has factored an increase of 25 basis points, which has enabled the Euro to hold grounds at the 1.19 euros to the dollar. While the overall economic sentiment for the Euro zone is positive, the rate hike is to guard against any possible increase in inflation.

To read more about the Euro and the Euro zone, click here

This week it was reported by the International Monetary Fund (IMF) that the total amount for the world’s Forex reserves has reached an all-time high of four trillion US dollars.

According to analysis of the quarterly report released by the IMF, the Forex reserves increased by 2.4% since the last quarterly statement. This represents an increase of 95 Billion US dollars. This amount shows a tripling of the Forex reserves of 2000, which was then reported to be 1.88 Trillion US dollars.

The major currencies in the Forex reserves are the US dollar, the Euro, UK Pound Sterling, and the Japanese Yen. The US dollar consists of 66.2% of the Forex reserves, while the Euro, Pound Sterling, and Yen, make up 24.3%, 3.6%, and 3.7% respectively.

The currency market continues to look for direction. After reaching 27 month high against the Yen and 2 year high against the Pound Sterling the US Dollar traded downward. Recent data suggests the US real estate market appears to be cooling quicker than expected, which in turn might make the fed be a bit more cautious with raising rates. Bloomburg reports:

The dollar dropped against the euro and the yen after an industry report showed U.S. home sales in October fell more than analysts forecast.

The report may damp speculation about how many more times the Federal Reserve will raise interest rates. The Fed has lifted rates 12 times since June 2004 to 4 percent from 1 percent, helping the dollar gain more than 15 percent against the euro and the yen this year.

Read more: Dollar Declines After U.S. Home Sales Fall More Than Forecast