The Forex Facts Behind the FATCA Bill

FOREX MARKET The Forex Facts Behind the FATCA Bill

By now you have most likely heard of FATCA or the HR 2847 bill out of the United States. It went into full effect July 1, 2014 and the overhanging question is will it create a domino effect of changes within the U.S. dollar and its currency counterparts? Is this a real scare or the Y2K phenomenon of the currency wars? 

The goal for eager investors amid this highly speculated situation will be to prepare for money-making opportunities no matter how the actual bill affects the USD (be it positive or negative).

For a brief overview, the U.S. is the world’s reserve currency as other globalized nations have held bulk U.S. dollars to supplement their own currencies. The U.S. has enjoyed this pedestal for more than two decades. However, actions are being taken by other countries that lead speculators and contrarians to wonder if a “perfect storm” is approaching and if the HR 2847 bill will mark the tipping point.

Reuters  noted actions including:

1) direct trade agreements between China, Australia, Europe, and other globalized countries to bypass the exchange of goods in U.S. dollars,

2) a controversial energy deal recently signed by Russia and China for export oil and natural gas,

3) continued sanctions from the U.S. and Europe against Russia for its actions in the Crimea secession, putting further pressure on Russia to boldly look at USD alternatives.

On top of this, The Wall Street Journal’s Market Watch recently warned of an artificial Tech 2.0 equities bubble in desperate need of a technical correction to achieve equilibrium as the market is over 30 percent overextended according to the report .

The list goes on, but the point is that actions are being observed globally and they are all potentially pointing to a dethroning or denouncement of the U.S. dollar. Dating back to 2011, the U.S. Dollar Index (USDX) has witnessed a swing of 1,687 points. Within the past year (July 2013 to October 2013) the USDX has experienced a 38 percent correction to the downside (July’s high of 11009 to October’s low of 10354) (see figure one). Such a sharp correction has had a dramatic effect on the purchasing power of the USD. If this is hard to fathom, just think about how far $20 goes at a grocery store today versus what it could buy you in the early 2000s. If it weren’t for BOGO sales at the local grocery store, most prices of essential products would seem unreasonable and unaffordable and the FATCA bill is rumored to be making matters far worse.

FOREX MARKET The Forex Facts Behind the FATCA Bill