Forex Trading Secrets: How to Profit from the G8 Summit

Forex Trading Secrets: How to Profit from the G8 Summit
From the beginning of the week until 06:00pm GMT Thursday, virtually every currency was rising against the U.S. dollar. Demand for riskier, higher yielding currencies like the AUD and NZD, along with concerns about growing US debt and future inflation, drove the USD lower despite better than expected news on retail sales and unemployment. Even the lower yielding euro and British pound were in strong multi-day up trends against the USD. Crude oil continued its surge upwards (over 100% since the beginning of the year) as the weakening dollar (in which oil is priced) and lower than expected inventories continued to feed its uptrend.
Then around 06:00pm GMT the dollar got stronger. Why?
Mr. Geithner Goes To Beijing: The Dollar Love-Fest, Part I
Think back to the beginning of June, when Treasury Secretary Geithner made his first trip to China. The Chinese have been one of the principal buyers of US bonds for many years. Thus a very large portion of their cash reserves are in U.S. dollars. Given the rapidly plummeting value of these holdings due to exploding levels of U.S. debt and money supply, they were not pleased, and no doubt wanted to, ahem, politely but firmly express their concern. In order to set the proper mood, in the days prior to the meeting, they publicly suggested replacing the dollar as the world’s reserve currency. No doubt poor Tim got an earful, and perhaps learned a few new Chinese expressions beyond polite greetings and goodbyes (though perhaps common to Chinese translators of Gangsta Rap).
Not surprisingly, then, Geithner proclaimed that the U.S. would support the dollar. Fed Chairman Ben Bernanke chimed in a few days later with similar words, though he did backtrack ever so slightly by mentioning something about the banks still possibly needing some help. Reuters mentioned that Chinese and other unnamed “Asian monetary officials” (happy to play their part in covering their own assets) would continue to buy Treasury bonds even if the U.S. lost its AAA rating.
Given at least these token signs of support, the USD strengthened for a few days, as the below hourly chart of the EUR/USD shows in the early days of June.