IBTimes: What is your professional background?
Zoe Fiddes: Zoe is part of Easy Forex Trading Ltd office in London and has a number of years’ forex trading experience. Prior to joining easy-forex in 2009, Zoe worked as a forex dealer at CMC Markets and began her career with World First. At easy-forex, Zoe is responsible for providing UK clients with market information, market education, training sessions and seminars. Zoe holds a BSc degree in Mathematics from the University of Bath, UK.
IBTimes: There are many political issues in Europe right now; the bailout of Ireland was in the spot lights last week, Greece is still problematic. Trading the Euro became very difficult these days. Can you say what traders need to consider, if they want to trade the Euro pairs?
Zoe Fiddes: Ireland remains in the spot light; on Sunday prime minister Cowen agreed the bail-out which could be as large as €100 billion and yesterday the S&P downgraded the country to A from minus AA on debt and troubled banking concerns. This is a sure sign of cracks in the EU economy. It is not just a question of is Greece still problematic or what will happen next in Ireland but we also have to consider other EU countries which are seen as high risk such as Spain and Portugal, we could see a domino effect. How much can the European Union and International Monetary Fund afford to lend?
Zoe Fiddes: Euro pricing has become extremely volatile. Traders need to identify what the herd is thinking; bad news from the Euro zone will reflect on the currency. A trader's strategy will depend on if they are a short, medium or long-term trader. Most traders at easy forex are day traders; a day trader should analyse the charts in various time frames and if a trend can be confirmed then only look to trade in that direction, with the tide of the market. But, rather than jumping in, choose good entrance points to decrease risk. Risk management is essential in the case the trend reverses, it only takes some unexpected news, a price shock and not enough sellers to absorb it to change a bear market into a bull market.
IBTimes: The Greek bond yields remain 7 month after its bailout very high. And interestingly the 5 years credit-default swaps for Greek government debt have risen since last week. It seems like the markets still doubts in the Greece solution. Can Greece become again dangerous for the Euro zone?
Zoe Fiddes: Irelands bail-out has lead to the rise in government credit default swaps across Europe. The reason for the rise is because investors are concerned that bondholders will be forced to share the burden of the EU deficit. Merkel, the German Chancellor, yesterday made a statement that she wants all new euro-region bond buyers to accept liabilities starting in 2011. Merkel's comments sparked a bond sell-off.
Zoe Fiddes: The Greek bailout continues since the €110 billion is provided in tranches. The crisis was larger than initially expected and so far the rescue has failed to restrain borrowing costs leaving investors with no confidence in the country's economy. Furthermore Athens is concerned that its third tranche of the bail-out may be blocked; this could trigger a default in the countries debt. Greece is likely to miss some of the budget targets set for this year and hence face tougher conditions to convince other EU countries, who contribute to the rescue funds, that they can pull through this. For now the outlook is gloomy and bond yields and the cost of insuring Greek debt against default will remain high.
IBTimes: How do you think about the Qe2? Will the US Dollar get a hyperinflation out of that?
Zoe Fiddes: QE2 has been introduced by the FED simple because there is nothing else they can do; normally they would lower interest rates but since these are close to zero this is not an option. It is a last resort; apart from a possible QE3 or a promise to keep interest rates close to zero for a long time - regardless of inflation. It is a fine idea to inject cash into the system so banks are willing to lend more money and it will be cheaper for companies to raise capital which leads to economic growth, and everyone is happy. Unfortunately, things are not always that easy and the idea comes with a potentially dangerous consequence; if the increase in supply is in excess of what is required it will cause hyperinflation which usually leads to economic depression. QE in effect erodes the real value of money hence we would expect an increase in inflation and the FED are hoping for an increase in economic growth to go hand-in-hand with this and hence on the road to recovery. However, if economic growth does not occur then the effects of QE will cause problems and they need to come up with a plan B which is likely to have severe economic costs and risks.
IBTimes: What will be the consequences for the world economy?
Zoe Fiddes: The US dollar has global importance; it is the most used currency in international transactions and constitutes more than half of other countries foreign exchange reserves. The behavior of the dollar affects equity markets, bond markets, interest rates, commodities worldwide. If the FEDs measures cause a weaker dollar it would impact the global market, and countries may face a tougher 12 months than the one they have just been through.