Watch the USD/CAD and EUR/USD in order to watch for any changes to these critical price levels. A major impact on currency values can occur quickly when central banks purchase large amounts of assets in a short amount of time.
Understanding the direct impact to the market, the longer-term trends to come, and how the current trend will affect future events are important for buying options.
Even with the largest purchases of US dollars from the central bank the new BoC bond purchase programs are beginning to make a significant impact on the currency markets. These purchases are very small in relation to the current levels of buying, however they are impacting the current and future market. Today’s action from the central bank that is open to the public as well as another announcement by the Fed are allowing for large interest rate increases to be implemented. The dollar has risen sharply today and this move is going to cause some major fluctuations in the market.
Price levels can easily be affected when a currency value is much lower than it should be. As the dollar increases the benefits are offsetting the negative impacts of central bank purchases. USD/CAD Levels to Watch Following New BoC Bond Purchase Programs – These purchases can create a market decline because the move is going to have a huge impact on the market as a whole.
When central bank purchases are made the balance between inflows and outflows of the global financial system is increased. The current downward trend in the EUR/USD/JPY rates are directly influenced by these central bank purchases. USD/CAD Levels to Watch Following New BoC Bond Purchase Programs – The recent level of the USD/CAD has taken a significant hit due to the increase in purchases from the BoC and the Fed.
A critical trend that can be identified by watching the USD/CAD and EUR/USD rates as a result of the recently announced buy programs is an increase in the likelihood of a rate increase in the near future. When the US economy begins to improve and global confidence in the US dollar increases the dollar goes up. This is because the stronger the economy becomes the greater the demand for US Dollars. There is a lot of money being created out of thin air by the central banks as they purchase large amounts of assets.
USD/CAD Levels to Watch Following New BoC Bond Purchase Programs – The issuance of new bonds in recent weeks from the BoC is likely to cause a gradual increase in the EUR/USD levels. When a central bank begins to issue large amounts of bonds to support a government, it is likely to cause a rise in the prices of the two currencies. This is true because these governments can easily balance their budgets through the purchases of bonds from the central bank.
Another factor that will affect the USD/CAD and EUR/USD rates in the near future is the strength of the trade environment after the bond purchase programs that were announced recently. These programs are going to be used to stimulate the financial markets. The stronger the trade environment continues the higher the prices will rise.
A strong foundation for the USD and AUD is found in the structure of the central bank. Central banks do not create paper currency so they can not control the supply of the currency. They only issue these notes to meet the need for liquidity in the financial markets.
By controlling the supply of the currency they are able to influence the exchange rates. One of the most important aspects of the current bond purchase program is that they will likely stimulate the foreign exchange rates. The FED is attempting to regain some confidence by helping to stabilize the foreign exchange markets.
When the central bank purchases large quantities of bonds and securities there is a direct impact on the value of the currency. As the USD increases the AUD declines. When the USD/JPYEN trades at a high level, it makes the AUD look like a bargain. Because of the direct impact that the central bank purchasing programs will have on the currency market traders have begun to take note.