Confidence in Papandreou Weighing on Forex Trades?

On Tuesday night, George Papandreou, Prime Minister of Greece, survived a vote of confidence in Greece's parliament. The outcome of the vote was widely anticipated beforehand, as markets moved the EUR/USD pair higher and European stocks benefited. Yet, the vote may have had other affects traders may not have anticipated. The South Korean won advanced to a six-week high following the outcome of the vote, according to Bloomberg. Other East Asian currencies including the Malaysian ringgit, the Taiwanese dollar, the Philippine peso, and Thailand's baht also rose following the vote. This data appears to continue to support the dollar-as-a-safe-haven trade: when risks to the global economy appear, traders may run to the U.S. dollar; when the risks then subside, traders seem to abandon their dollar plays for riskier assets around the globe and in East Asia in particular. Even with the U.S. recovery slowing, the dollar remains a safe-haven. Traders who are bearish on the global economy, then, might want to consider moving into cash. Those who believe the global economy strengthens from here might wish to look elsewhere. Action Items Bullish: Traders who believe that the global economy will continue to expand going forward might want to consider the following trades:

• Buy iShares MSCI South Korea Index Fund EWY in a long South Korea play. EWY is up today, and may continue to rally further, as investors move into the riskier South Korean won.
• Short Power Shares DB US Dollar Bullish Index UUP in a short U.S. dollar play. If traders' confidence in the global economy grows, they may move out of the U.S. dollar and UUP may decline.

Bearish: Traders who believe that the global economy is due for a contraction may consider taking positions in the following:

• ProShares UltraShort Euro EUO is a short play on the euro. The euro may suffer if traders shift their capital to the U.S. dollar.
• ProShares Ultra Short Gold GLL is a short play on gold. As the dollar has declined over the past year, gold has strengthened. If the dollar strengthens from here, that trade may reverse and gold may decline.

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