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Dec 12

Fiscal Cliff and the Affect

The Euro is a great place to store money right now for a few reasons. The biggest of these factors is the so called “fiscal cliff” deadline that is quickly approaching for the United States. Because the U.S. and the Euro are the two most widely traded currencies, the amount of traders going to the Euro instead of the dollar are very likely to push the price of the Euro upward, at least for the foreseeable future. Let’s look at why the fiscal cliff is so important to currency exchange rates and why you should avoid the dollar as a result.

The fiscal cliff is the shorthand term for the immense tax increases that will go into effect once the year 2012 ends. The problem isn’t quite clear cut here, however, and it’s this uncertainty that has people pulling money out of the dollar and into the Euro. The fiscal cliff is going to have good repercussions, too, despite all of the bad press that it has received. For example, the average person will see their tax rate go up by over $2,000 per year, but at the same time, the U.S.’s federal deficit should be reduced by about half over the course of the first few days of 2013.

This news, when viewed in this light, should be enough to spark more interest in the dollar. After all, the U.S. national economy is going to have a lot more funds coming in and its debt burden will be greatly reduced. This all spells out a better future for our government’s solvency. Even if the amount that the average person has for discretionary spending goes down, the government will be much better off.

But, like all things Forex related, the picture is not quite so clear. Yes, the federal deficit will be reduced, and this is a good thing, but the average person and even many companies will be hit hard. Less discretionary spending means less money for trading, and this is enough to drive prices down, including the price of the otherwise stable U.S. dollar.

It’s this uncertainty that is currently shaping Forex trading. Experts acknowledge both the good and the bad, and for the most part, they are not positive just what this means for the dollar long term. Uncertain news is bad news in this case. People that are not sure where to invest or more likely not to invest at all. Reduced amounts of trading in regards to the U.S. economy means a weaker dollar. Add to this the fact that the Euro has steadily been increasing in price over the last week, and there are a lot of indicators saying that this trend will continue to occur. In this regard, fundamental analysis is more important than technical analysis, just because the current events and economic forecasts are going to influence the dollar’s activity until some sort of clear resolution is arrived at. Until this happens, technical indicators will not have the same weight that they usually have.

The dollar might be the world’s most highly traded currency, but the recent events have made it so that there are plenty of better places to currently store and grow your wealth. The Euro is the most obvious haven for Forex traders at this moment.