Barack Obama in China - Will US Dollar (USD) Stop Going Down very soon?!

by Vahid | Forex Market Analysis and Signals | Wednesday, November 18th, 2009

Barack Obama Asian trip which is the most important events of the week and was started 4 days ago from Tokyo and continued with attending APEC members meeting in Singapore, now has reached its main stage in Beijing. Obama’s strategy in China that is completely different from the previous American presidents is the most significant aspect of this event. In spite of America’s $1000 billion debt to China, George Bush never wanted to know and treat China as a big and strong economic power in the world. However, Barack Obama not only had a completely different behavior, but from the beginning of his trip, he has emphasized all the time that he is so interested in more development and progress of China and also all other Asian developing countries.

Yesterday, Barack Obama had several meetings with China’s president, Hu Jintao, and he really treated Hu Jintao as the president of a big economic power in the world. Although no details are published about Obama’s meeting with Hu Jintao, according to diplomatic resources of China, there is no doubt that Hu Jintao has complained  to Obama about a few important things. One of them is the increasing amount of U.S. Budget Deficit that hit record $438 billion for year and so the US excessive debt volume to China. The other thing is the last US government decision about applying custom tax on some of Chinese products like automobile tires or some steel industry products, to support the US industry. From the China government point of view, these decisions are against the liberal economic criteria and also the World Trade Organization rules. One of the other things that Hu Jintao may have complained about, is the USD low and decreasing value. US dollar is 2/3 of China’s foreign currency reserves including all the investments that China has in US. With 2 trillion and 270 billion dollar foreign currency reserves, China is the biggest US creditor. So it makes sense that China to be worried about the volume of the money that US owes them.

So what will happen to USD? Will it keep on going down or Obama will change its direction when he goes back to US?
(please read this article too: EUR/USD Rally - Who Wants Euro to Go Up Against USD?)

Lets take a look at the charts and see how they look like.

This is EUR-USD monthly chart. As you see there is a support line that has already been broken and it is working as a resistance line now. EUR-USD is retesting the broken support line. Lets have a closer look and see if EUR-USD has reacted to this line so far or not.

This is the same chart, but with a higher magnification. As you see the last month candlestick (October) reacted to this line strongly. It had almost broken above the line but suddenly went down and closed below it. This month candlestick is also doing the same. If USD value keeps on going down, EUR-USD may break above the line and then this line will act as a support again. On the other hand, based on Obama’s negotiations with China, it is possible that they stop the USD value from going down and push it a little up to please China. If so, EUR-USD will stay below the broken resistance line. Let see!



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10 Comments:
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Comment by King
2009-11-18 18:17:50

Hey vahid
from what the chart is showing us, even though the pair is retesting the broken support line which is now acting as resistance, the price of the pair is ascending along the line moving higher.
In regards to the situation with Obama and china, if Obama decides to weaken the dollar in order to please china of the money owe to them, this will create a disaster for the USA since other investor will take their investment and business elsewhere since the value of the usd will be to high. But as you said, we will see!

King

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Comment by Vahid
2009-11-18 19:23:56

In order to please China, USD value has to be strengthened not weakened ;)

Reply to this comment
Comment by King
2009-11-18 20:25:34

Sorry vahid
I meant to say strengthened!
Typo

king

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Comment by Dave
2009-11-18 20:46:49

China is loosing to much just in the interest alone. I believe the USA will have to strenghten its dollar and soon.

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Comment by alex
2009-11-18 22:03:17

We don’t have to please China or anybody else…

Reply to this comment
Comment by Vahid
2009-11-18 22:15:56

It is not bad to please the others. It is necessary to respect the others because of economical and political relations.

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Comment by William
2009-11-19 02:07:06

I believe that social mood (socionomics) will determine the value of the Dollar. Neither China nor the USA can influence the value exept by direct intervention and that will create a whole new set of problems. Study of the Wave Principle suggests that social mood has turned negative and the coming C or 3 wave in the stock market will influence the currency market…

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Comment by Vahid
2009-11-19 11:08:20

Raising the interest rate by USA will increase the value of USD because investors stop buying Euro againt USD and they will have more tendency to invest in US. It is very easy to increase the USD value overnight by increasing the interest rate. But this will not be any help for US because at the same time it raises the value of US debts.

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Comment by Dezo
2009-11-19 05:43:15

Good article Vahid. That diagonal S/R became R line. Technically E$ can turn around / in uptrend now/ and start dropping . In the long run $ is done. US gov. is bankrupt , the only way to avoid default on their debt is to devalue the$. That is what Bernanke is doing. We’re in a weird and unpredictable situation where the fate of the Us and the $ is in the hands of China and other Asian countries / banks/

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Comment by Vahid
2009-11-19 11:12:10

You are right. I think US will default finally and China will be the end loser because they can not do anything when they see US is not able to pay off the debts.

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