Trading currencies is all about speculation, and speculation is all about making the most of market volatility to secure short-term gains. Individual traders have learned that betting on fundamental trends in the forex market is better left to the large hedge funds and international banks that have poured inordinate resources into funding broad-based research activities. Attempting to compete on this level is spurious at best, but when long-term global trends are expected to last for many years to come, perhaps, a review of potential opportunities might prove advantageous.
Decades of off shoring activities, the favored cost cutting ritual employed by Western companies for the past forty years, has dramatically shifted the world’s manufacturing base to China and its surrounding neighbors in Asia. The IMF confirmed these trends in its “World Economic Outlook”, released in April 2010, and projected them to continue unabated for the next five years. Emerging market real GDP growth rates will double or even treble similar rates in developed countries. Investors that jumped on the emerging-market bandwagon at the turn of the century have profited handsomely, but recent attention and demand have made current investors wary of near-term returns. Many have exited the arena, awaiting an anticipated market correction of price levels.
The Red line represents the real GDP growth experienced in and projected for the emerging and developing economies of the world. A divergence from the advanced economies in 1990 is evident, and the eye can easily draw a trend line for the Red data that is positively sloped and improving over time. The opposite is true for the Blue line, the metric for North America and Europe. Recession was present here, and the trend line favors a negative or declining slope posture. GDP forecasts for the Western world for the next five years are below 2.5%, the level necessary to generate jobs for new entrants into the workforce.
Decades of off shoring activities, the favored cost cutting ritual employed by Western companies for the past forty years, has dramatically shifted the world’s manufacturing base to China and its surrounding neighbors in Asia. The IMF confirmed these trends in its “World Economic Outlook”, released in April 2010, and projected them to continue unabated for the next five years. Emerging market real GDP growth rates will double or even treble similar rates in developed countries. Investors that jumped on the emerging-market bandwagon at the turn of the century have profited handsomely, but recent attention and demand have made current investors wary of near-term returns. Many have exited the arena, awaiting an anticipated market correction of price levels.
The most compelling evidence for the impact of these global trends may be found in the following chart within the IMF report:
The Red line represents the real GDP growth experienced in and projected for the emerging and developing economies of the world. A divergence from the advanced economies in 1990 is evident, and the eye can easily draw a trend line for the Red data that is positively sloped and improving over time. The opposite is true for the Blue line, the metric for North America and Europe. Recession was present here, and the trend line favors a negative or declining slope posture. GDP forecasts for the Western world for the next five years are below 2.5%, the level necessary to generate jobs for new entrants into the workforce.What are expectations after 2015? The Global Research division of Standard Chartered PLC, a leading international bank with over 90% of its profits in Asia, responded with their own research last November, a 152-page tome entitled “The Super-Cycle Report”. Their economists took the foundation provided by the IMF and extrapolated their vision out to the year 2030. They foresee enormous global growth over the period, exemplified by volatility as the world accommodates the emergence of a new world order. They forecast that China will overtake the United States as the leading economic power in 2020, and nearly double the U.S. output by 2030.
The anticipated transition is portrayed in the table below:
According to the report, China will be the clear winner due to its comparatively faster growth and expected appreciation of its currency by 25%. India, which is not even ranked in the Top Ten above, will also ascend to take over a solid third position, favored by its young population demographics and prevailing higher growth rates.
Gerald Lyons, the lead economist for the group, stated in an interview with Bloomberg that, “We believe that the world is in a ‘super-cycle’ of sustained high growth. The scale of change over the next 20 years will be enormous.” He went on to add that the China economy “is “unbalanced” and faces considerable risks, including a widening of imbalances, asset bubbles, over-capacity and rising bad loans which could lead to a serious decline.” Inflation is already a concern today.
Currencies will also play a dramatic role in this transition, taking center stage as international trade puts pressure on attempts to peg or fix exchange rates. The Chinese Renminbi is expected to strengthen to 4.39 to the Dollar, as opposed to 6.57 today. The Rupee will also follow suit, strengthening from 45.5 to 34.0 by 2030.
How can a forex trader use this information to his or her advantage? Trading currencies is all about speculation, and volatility always augurs well for the speculator. The current forecast suggests a constant rollercoaster ride. Trading opportunities will be plentiful if and when these forecasted conditions pan out.
copied from http://cmvlive.com/business/small-business/1009-do-global-trends-favor-forex-trading-for-the-long-term
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