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Currency Trading Choppy on Stimulus

NEW YORK ( TheStreet) -- With central banks across the world remaining committed to accommodative policies, expect trendless and choppy currency markets to persist into 2014.

Last week, Janet Yellen, the nominee to head the Federal Reserve, told the Senate Banking Committee that stimulus is still needed to fuel the economy. The market saw that as bearish for the U.S. dollar, which was sold against other currencies. Central banks from Europe to Japan have made similar commitments to stimulus, which should make for volatile trading among currency pairs.
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The dollar may be at historically low interest rates, but many view the U.S. economy as being relatively stronger than the economies in the European Union and Japan. U.S. nonfarm payrolls handily beat expectations for October, while growth and consumer demand for Europe and Japan came in less than expected in recent weeks

With all three central banks remaining committed to stimulus well into the future, investors in currency markets can be easily swayed by the sentiment of the moment compared to fundamental data.
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The chart below is of CurrencyShares Euro Trust (FXE). The euro/dollar cross shows how two loose policy currencies can trade in volatile ranges.

After the financial crisis of 2008, both central banks eventually tried to help the economy by dropping rates and purchasing bonds. The question was no longer which bank would raise rates first, but rather which economy was relatively stronger.
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Since traders are basing decisions solely on volatile data and flipping sentiment from month to month, trading has remained choppy and trendless for years

With central banks publicly stating in the last few weeks that stimulus is still the preferred choice, expect choppy, trendless trading to continue in currency markets well into 2014.

At the time of publication, the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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