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Home » Online Forex Trading Blog » Iran Questions Turn Currencies

Iran Questions Turn Currencies

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A new factor has joined the currency marketplace. On Monday, Asian equities gained strength on the news that the Geneva agreement, designed to curb Iran’s nuclear program and permit the flow of oil from the country, looked promising. The proposed agreement was good for the USD and not so good for the yen.

Japan, a large consumer of oil, saw its equity market get an immediate boost, but the yen fell sharply against the euro. At one point on Monday, Brent crude oil fell 3 percent. By the end of the day, Brent Crude recovered but still closed the day down 5 cents at $111.00.

US equities remained flat with the NASDAQ, the biggest equity market gainer of the year, briefly touching the vaunted 4,000 mark before backing off at the close. The dollar gained strength with the release of the initial 6-month pact. Most global equities were buoyed by the news of the accord.

But, the proposed deal which would curtail Iran’s enrichment program and permit UN inspectors to take stock of the country’s nuclear program in exchange for easing of punitive economic sanctions, approved by negotiators from Iran, France, Britain, China, Russia, Germany and the US has come under fire. Israel and Saudi Arabia lead the opposition internationally while the US Congressional members from both parties do not approve the pact.

Instead, many Congressional members propose more stringent sanctions citing a general distrust of Iran. The Iranian economy and populace has been devastated by the imposing economic sanctions. The Obama government has been secretly negotiating with Iran for about one year in advance of the weekend release. The pact was approved by Iran’s supreme leader, Ayatollah Ali Khamenei, who has insisted that the pact does not derail the uranium enrichment program.

Tuesday Mood Swing

On Tuesday, the possibility that the deal may have stronger-than-anticipated resistance at home and abroad weighed on the dollar, which was down against all major currencies except the Australian dollar.

On Monday, disappointing existing home sales and a general lowering of consumer confidence did little to discourage the optimism caused by the Iranian truce. However, on Tuesday an outstanding report about new home starts which exceeded more than 1 million, almost 100,000 more than projected, lifted equities slightly but could not support the USD.

A troubling component of the US banking industry surprised many analysts. Apparently, Americans are beginning to default on their home equity loans, many of which were initiated before the 2008 housing collapse. Many of these homeowners are remaining current on their first mortgages but are realizing that they do not have the equity in the homes to cover the second loans.

The US Office of the Controller of Currency has been advising banks that defaults were likely since the spring of 2012. This will be the next credit crisis major banks will have to face. And, the credit ratings agencies have voiced alarm at the situation.

Familiar names to the housing and mortgage crisis, including Bank of America Corp, Wells Fargo & Co, Citigroup Inc, and JPMorgan Chase & Co each own more than $10 billion of these home equity lines of credit. In some cases, the volume is much greater.

The home equity loan crisis is very real and not receiving the attention the crisis deserves. It is doubtful that the government will participate in any rescue so banks will have to negotiate the best settlements possible and absorb the losses. They certainly do not want any more real property on their books.

The Canadian dollar recovered after losing ground against the USD on Monday. On Tuesday the CAD was up 0.30 percent at $1.0539. Canada is staring at a housing bubble of its own. Prices have exceeded demand and Canadian banks have large exposure. This could weigh heavily on the CAD before long.

Against the USD, the euro gained lost ground in early trading. At $1.3557, the euro was up 0.30 percent. The GBP was also up 0.19 percent against the dollar to $1.6184. The yen bounced back against the dollar to 101.36 yen, up 0.30 percent. The AUD lost 0.41 percent to 0.91220 USD. The yen was flat against the euro at 137.3900 yen.    

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About the Author -

Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses. Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.

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