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Why The Bad Unemployment Numbers are Good for the US Dollar |
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by John Jagerson
The increase in unemployment claims today brought the aggregate number up even further. That is certainly not a good sign for the USD... or is it? This gets to the root of an issue many traders struggle with in the forex. They deal with a news announcement all by itself and try to draw conclusions about its affect on the relevant (in this case the USD) currency. We have talked about not trading the news in a vacuum before but today's release is another great example of why this matters.
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 If we look back in recent history to see what the USD did during periods of "high" unemployment in the US we see a higher probability for a stronger dollar (2003 being a big exception) than a weaker one. One of the issues relates to the fact that the world economy (for good or ill) is a USD centric one. When things are bad in the US they are usually just as bad if not worse around the globe. That is the situation we are in currently. The bad news from the US is matched and in many cases exceeded by how bad the news is from everywhere else.
For example, right now we are seeing a collapse in many developing economies and emerging crises in Asia. This uncertainty seems to indicate a likelihood for strength in the USD as capital moves from riskier to safer assets. Besides the natural flow of capital into "safer" assets, the United Bank of America (errr, I mean the United States of America) is still performing a huge fundraising effort to try and solve the credit crisis and stabilize the global financial markets. That debt will be purchased in USD driving demand for the USD in the intermediate term. This analysis matters as you try to plan your investing. Looking at the fundamentals helps to establish your trading bias.
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