Oil, Other Factors Shift the Playing Board

There has been an incredible movement in the forex market this week, and it is the second round of changes that will re-shape the forex world for the duration of the global slowdown. Unlike the previous week, major developments were not mainly the product of the financial panic. Instead, traders shifted their attention to worsening economic fundamentals across the globe.

The euro fell against a wide variety of currencies, including the pound, US dollar and a basket of Eastern European currencies. Hungary’s forint was the big winner, beating back the flight to safety and concerns that the global economic slowdown would be particularly harsh on the Hungarian economy. Today the forint posted a massive 3.8% gain. Most Eastern European currencies edged up less than 1%, with the Czech korona being the only major loser, falling .7% against the euro.

There is little doubt, though, that the region’s currencies won’t be able to hold up for long, at least against the euro. Access to credit will be particularly scant for the region’s businesses, and several bond agencies announced today that they are reviewing the region’s governments’ debt with an eye towards possible downgrades.

A similar fate fell on South Korea’s won on Thursday, as S&P warned that many of the nation’s banks may be unable to refinance their debt.

New Zealand and Australia’s currencies also suffered from concerns about how vulnerable their economies are to a global recession. Today’s events reinforce a suggestion made earlier on this page: After the Australian currency bottoms out in the near term, look to place some long-term money in the Aussie, as the price of gold starts to make the currency look very attractive again.

The Canadian and Russian currencies, meanwhile, took a tough beating this week as oil tumbled to below $70 a barrel for the first time in recent history.

Norway’s currency took a similar hit on the forex market, losing over 3% of its value on Thursday against the dollar.

South America’s economies fared better on Thursday, as Mexico and Brazil’s central banks stepped in and purchased each over two billion and one billion dollars worth of their currencies, respectively.

That being said, earnings season may be tough for the real, as currency fluctuations and poor forex decisions throw off domestic firms’ third quarter profits.

In all, much of the shifted trader attention can be attributed to chairman Bernanke’s purposefully dour assessment of economic fundamentals. This re-orientation of market focus can be seen as the fed chairman’s way of smoothing out the inevitable fall in US markets resultant from the coming horrid macroeconomic news.

Be wary of the commodity currencies, and watch for a few short spikes in the euro over the course of a longer decline versus the dollar.

The economic fundamental news will continue to dominate until the relief package begins to be actually implemented.