9.25.2010

Forex Weekly Trading Forecast - 09.27.10

US Dollar at Risk of Declines as Fed Hints at Fresh Quantitative Easing

Fundamental Outlook for US Dollar: Bullish

- US Federal Reserve hints at further Quantitative Easing, Sinks US Dollar
- Home Sales data remains near record-lows, bodes poorly for economic outlook
- Positioning and signs of reversal nonetheless warn of potential US Dollar recovery

The US Dollar finished sharply lower against all major forex counterparts on a week of mediocre economic data and a noteworthy shift in rhetoric from the US Federal Reserve. The highly-anticipated Federal Open Market Committee (FOMC) interest rate announcement and statement forced sharp moves across financial markets. Officials strongly suggested that they stood ready to restart Quantitative Easing (QE) measures if the need presented itself, and an especially dovish tone on inflation implied that such a move could come sooner than later. Given that the US Dollar fell precipitously on the first wave of QE, the prospect of QE Part 2 could spark continued USD weakness against major counterparts.

Market focus on the Fed’s next moves will make US economic data especially market moving, and a relatively busy calendar in the week ahead could bring sharp US Dollar volatility. Second revisions to Q2 Gross Domestic Product data may be the highlight of the coming days of trading, but traders should likewise watch for surprises out of earlier-week Consumer Confidence figures and end-of-week ISM Manufacturing data.

Market reactions will likely be linked to implications for the Fed’s next monetary policy moves. US Dollar moves on Consumer Confidence and GDP results should subsequently be straightforward; disappointments should force USD declines while positive surprises would likely see the Greenback rally. This should also roughly prove true for market reactions to ISM Manufacturing data, but any particularly large shifts in the “Prices Paid” index could blur implications for the Dollar. Consensus forecasts for all of these economic releases point to deterioration in economic conditions. Such bearish expectations leave plenty of room for positive surprises, but continued disappointments in US economic data hardly inspires confidence in prospects for the week ahead.

Short and medium-term momentum favors US Dollar declines, but the threat of sharp upward corrections grows as sentiment hits further USD-bearish extremes. Our most recent FX Options and Futures weekly report underlines the fact that many speculators are betting on further Greenback weakness. Said traders are usually in the right direction of the trend, and we have accordingly called for USD weakness. Yet traders should be careful of chasing US Dollar declines amidst high risk for corrections and monitor position risk accordingly.

Euro Rally Increasingly Suspicious as Fundamentals Remain Anchored

Fundamental Forecast for Euro: Neutral

- European Union members continue to issue debt at exorbitant rates; but investors ignore this concern
- Germany’s IFO Business sentiment survey provides the euro temporary fundamental footing
- How far can EURUSD run? After forging four-month highs, overhead resistance has lightened up

For those that follow the macro trends behind the currency market, it is difficult to reconcile the euro’s remarkable climb to new highs with the lingering financial and economic troubles that this economy continues to face. Nonetheless, the currency managed a week-end rally against its benchmark counterpart (the US dollar) Friday to close at its highest level in five months. Now, with EURUSD standing just below the highly visible 1.3500 psychological level (and 50 percent Fibonacci retracement for you technical traders), there is a distinct bite of speculative momentum to the otherwise remarkable two-week bullish bias the market was already touting. However, traders are a flippant crowd; and considering the euro is leveraging much of its performance on the sentiment of the crowd, forging further ground when the unit is already at such extraordinary highs will carry with it exceptional level risk.

There are a few primary drivers that can sustain or undermine the euro’s performance going forward. One uncertainty that seems to have lost much of its potential influence over future price action is the financial predicament individual EU members and the region as a whole faces going forward. Though there are few scenarios going forward where the euro-region will find itself unscathed in its fight against budget deficits balanced against slowing economic activity, market participants are proving to defer to the here-and-now rather than concern themselves with what lies further down the road. This is fortunate for bulls as it diverts attention away from lingering concerns over Portugal’s lack of progress on cutting its own budget gap (the government recently upgraded its deficit assessment) and Ireland’s liability in preventing Allied Irish from sinking its entire financial system. Helping to remove an otherwise consistent threat, there are few scheduled sovereign debt sales by the most troubled EU member economies. Italy has penciled in three consecutive days of auctions and Spain is on the books for one.

If we want to ascertain the euro’s bearing and pace, the best place to look is the dollar. Or, more specifically, we should be looking at EURUSD. Though the shared currency has shown significant progress against many of its counterparts (positive sentiment arguably helps this particular currency the most because investor concern was the cause of its deterioration), a considerable share of its strength can be ascribed to the outflow of capital from the greenback. Investors are moving out of the dollar (or more precisely Treasuries and other dollar-based assets) for fear that the extraordinarily loose monetary policies the Fed has adopted will devalue the nation’s assets. For bulk investment funds and reserve assets, liquidity is essential. Naturally EURUSD being the most liquid currency pair and considering Europe maintains one of the most open markets in the world, it is a natural destination for capital.

As for scheduled event risk, the docket is loaded with notable market-movers and subtle backdrop performers. If we are looking for short-term volatility, the German GfK consumer confidence survey, CPI and unemployment change figures all have a level of prestige. If we want to follow long-term trends, we will look to the M3 figure as an objective inflation gauge and EZ sentiment readings for growth potential.

Japanese Yen Could Strengthen On Safety Flows Despite Active BoJ

Fundamental Forecast for Japanese Yen: Neutral

- BoJ Intervenes for Second Time?
- All Industry Activity Index Rises 1.0% as Expected
- Technicals Point Toward Continued Yen Strength

Reported BoJ intervention during Friday’s Asian session generated a brief bout of across the board yen weakness, but the move was quickly retraced as cautious markets were favoring safety. The Asian currency would ultimately lose ground against several counterparts, as a positive U.S. durable goods orders report generated broad based risk appetite. A disappointing U.S. new home sales report would add to the prevailing outlook for additional QE from the Fed, the potential for additional stimulus only added to support for equity markets, and succeeding where the central bank failed. However, the dollar continued to be punished by the prospect of FOMC purchases, causing it to remain flat on the day against the Yen.

The Yen’s strength against the dollar has raised concerns amongst policy makers with Governor Masaaki Shirakawa stating in an interview that the central bank needs to monitor risks to Japan’s economy, exports, and corporate profitability. Board member Ryuzo Miyao also expressed concerns in a speech stating that “We’re entering a situation where we need to pay more attention to downside risks.” He would also acknowledge that the buying of Japanese Government bonds is one policy action that the central bank will consider at their next meeting. It could be an interesting meeting considering the recent activity of the central bank, especially since today’s Yen weakness has also been attributed to the possible resignation of Governor Masaaki Shirakawa. The monetary authority head is scheduled to speak on September 25th and 27th which could present event risk for the yen if he sheds light on his status, intervention or QE.

Continued risk appetite could be the best case scenario for policy makers as it will lead to flows out of the safe haven currency as traders look for higher yields. However, the potential for growth concerns to re-emerge is high considering central banks are beginning to lean toward additional stimulus. The fundamental calendar is full of key gauges that will provide insight into the economy, despite their lack of market moving potential. The prospect of action from the central bank may give additional weight especially the CPI report. Signs that deflationary pressure are growing could force the central bank’s hand, especially if the Tankan readings point toward slower activity. Early forecasts are for consumer prices to remain unchanged at -0.9% with manufacturers becoming more optimistic. A lower jobless rate, higher retail trade, plus improvements in industrial production and housing starts are expected. If a rosier growth picture emerges, then the monetary authority could stay on the sidelines, leaving the yen at the mercy of broader trends.

British Pound Rally Could Falter As Economic Outlook Deteriorates

Fundamental Forecast for British Pound: Neutral

- Mortgage Approvals By Major U.K. Banks Expand Less-Than-Expected
- Public Sector Borrowing Rises At Record Pace in August
- BoE Votes 8-1 to Maintain Current Policy, Andrew Sentance Dissents

The British Pound advanced to a fresh monthly high of 1.5815 on Friday and the exchange rate may continue to trend higher going into October as it breaks out of a narrow range. The GBP/USD cleared the 38.2% Fibonacci retracement from the 2009 low to high around 1.5700, and the pound-dollar may work its way back towards 1.6000 as it pares the decline from August. However, as the economic docket is expected to reinforce a weakening outlook for the region, the developments could curtail the recent strength in the sterling as investors weigh the prospects for a sustainable recovery in the U.K.

The final 2Q GDP reading for the U.K. is expected to show the economy expanding at an annualized rate of 1.7%, while total business investments is projected to contract 1.6% from the first three-months of the year. In addition, separate reports by the Bank of England are anticipated to show a GBP 2.9B decline in housing equity withdrawals, while mortgage approvals are forecasted to increase 47.0K in August after expanding 48.7K in the previous month. The data could spark a bearish reaction in the British Pound as growth prospects deteriorate, and an unexpectedly downward revision in the growth report or a smaller-than-anticipated rise in mortgage lending could stoke a reversal in the GBP/USD. If we see a retracement unfold over the following week, we would expect an initial test of the 38.2% Fib at 1.5700, but a sharp decline could lead the exchange rate to fall back towards the lower bound of its recent range around 1.5300.

Nevertheless, members of the BoE may change their tone towards future policy as inflation continues to hold above the government’s 3% limit for inflation, and hawkish comments from U.K. policy makers could stoke a rise in interest rate expectations over the coming months. MPC board member Andrew Sentence argued the central bank should gradually normalize monetary policy “soon” as the recovery takes hold, while his former colleague Kate Barker said the scope to increase quantitative easing looks “less certain” given the stickiness price growth. As the risks for inflation become an increased concern, members of the MPC may heed to Mr. Sentence’s call in order to give the central bank increased flexibility in managing monetary policy over the medium-term.

Canadian Dollar Underperforms and Outlook Remains Bearish

Fundamental Forecast for Canadian Dollar: Bearish

- Canadian Retail Sales disappoint markets
- Technical studies suggest Canadian Dollar may lose further

Pronounced US Dollar weakness meant that the Canadian Dollar finished the week higher against its namesake, but the Canadian currency underperformed all other G10 counterparts and relative weakness suggests risks remain to the downside in the week ahead. Relative disappointments in Canadian Retail Sales and Consumer Price Index data affected market expectations for the future of domestic interest rates. Overnight Index Swaps now price in a 20 percent probability that the Bank of Canada will raise interest rates at their next meeting—down from a 50 percent chance at the end of last week. Bearish US Dollar momentum suggests that the USDCAD could fall further, but the Canadian Dollar’s inability to capitalize on Greenback weakness raises risks of upward correction in the USDCAD.

A relatively empty week of Canadian economic event risk means that the USDCAD will likely trade off of US economic developments and moves in very highly correlated Oil prices. A potential exception comes in the form of monthly Canadian Gross Domestic Product data due the morning of the 30th. Though the month-on-month GDP figures are not known to move currencies, recent focus on Canada’s economic fundamentals may make any surprises market-moving. On the US economic docket, a slew of end-of-month economic data could potentially alter forecasts for US growth and affect financial markets.

The Canadian Dollar previously rallied against the Greenback and other major currencies on evidence that it was decoupling from a slowed US economy and showed solid growth prospects. Yet more recent economic data reminded markets that Canada remains fairly sensitive to economic developments in its southern neighbor. Disappointments in US economic data would likely force the USDCAD lower, but any especially strong surprises would likely mean that the Canadian Dollar could continue underperforming against other major counterparts.

As it stands, it is difficult to call for substantial US Dollar recovery against any major currency. Yet the Canadian Dollar may continue to underperform more broadly as markets digest a relative slowdown in Canadian economic recovery. Such underperformance would likely mean that the USDCAD continues to trade in a wide range through the foreseeable future.

Australian Dollar: Trends Higher But a Reversal May Be On the Horizon

Fundamental Outlook for US Dollar: Neutral

- Australian Dollar 9650 Is Resistance
- Australia Ready to Raise Rates if Growth Trends Hold, RBA Minutes Show

The Australian dollar has rallied against the U.S. dollar this week, climbing some 2.36 percent, and finishing as the sixth best performing G-10 currency through Friday’s close. The economic docket in Australia was relatively light this week but the RBA’s minutes from September suggests that policy makers may hike rates twenty five basis points at its next rate decision meeting on October 4th. At the same time, the single currency is benefiting from a change in sentiment as concerns of another downturn in the global economy fade (for now).

The minutes from the Reserve Bank of Australia this past week showed an aggressive stance towards further tightening by the central bank. The RBA stated that they see slightly stronger domestic conditions versus the previous month, and went onto add that higher rates are likely if growth trends continues its course. The increase in borrowing costs will ensure that inflation remains consistent the bank’s target, RBA said. In turn, the Aussie rallied against the struggling U.S. dollar as traders’ priced in an increased chance that policy makers will raise its key overnight lending rate next month. According to the Credit Suisse overnight index swaps, traders believe that there is a 60 percent chance of a rate hike to 4.75 percent from its current level of 4.50 percent. It is also important to look at the Sino-Australian relations due to the fact that China is Australia’s largest trading partner because of China’s demand for iron ore, natural gas, and coal. Though China is not ready to tighten policy, the economy looks to be heading the right direction as growth continues to be supported by its exports market, which has climbed 34.4 percent in August. However, disappointing Chinese PMI manufacturing and leading index reports may weigh on the Yuan in addition to the Aussie. Strength in the Australian dollar is not solely due its domestic strength, but is also attributed to optimism in the global economy as fears of a double dip recession dissipate.

Taking a look at price action, the AUDUSD has rallied to the highest level since 2008. In turn, the exchange rate continues to trade in overbought territory, which is indicative of a correction to the downside. However, traders should not overlook a period of consolidation followed by another rally as recent developments points to additional gains. For example, my user defined the Parabolic SAR crossover signaled for an advancement in the pair on September 1st, and has yet to reverse course, while our speculative sentiment index now stands at -3.7, pointing to further increases in the pair.

New Zealand Dollar Unable to Join Rally as Rates, Growth Dim

Fundamental Forecast for New Zealand Dollar: Bearish

- New Zealand growth sharply underperforms, drives the kiwi dollar lower
- NZDUSD advance can’t surpass resistance. Is this technical ceiling too much too conquer?

Risk appetite was ramped up this past week; and many assets capitalized on the improved sentiment. However, there was a distinct performance difference between those assets that rallied in the face of fundamental concerns and those that are natural optimism bedfellows due to their investment status. The former crowd marked true breakouts and showed an effort to jump start new trends while the latter struggled to extend their performance. The kiwi dollar has its feet in both pool; but that doesn’t mean the currency comes out with a net benefit. Against the worst performing unit though the period (the US dollar), the commodity currency has found itself walled in by 0.74 resistance. Heading into the new weeks, speculative interests have already passed the breakout phase and are now going to have to stir up momentum. Will the New Zealand unit find enough of a risk current to carry it to its own rally?

First and foremost, the concern for the kiwi is the intensity of risk trends. The remarkable breakout from the S&P 500 and EURUSD was perhaps the best catalyst the broader FX market could have asked for in terms of speculative leverage. Missing the opportunity to produce a critical break on NZDUSD through this momentum is a significant oversight. From here, speculative interest will be responsible for carrying optimism to new heights; and considering there are few legitimate sources for positive sentiment, the conviction that does develop will lack. Furthermore, we see that the relatively high-yield currency is sliding fast against the fundamentally-unstable euro, the pound and even the low-yield Japanese yen. If there isn’t a spark of demand from one of this pairs, there certainly won’t be a wave of kiwi buying across the broader market.

Another interesting assessment of the kiwi can be made in its comparison to the Aussie dollar. Both are investment currencies; but we have seen the RBA maintain a hawkish bias whereas the RBNZ this past week threw the breaks on its hawkish commentary. Furthermore, growth in Australia is still running at a robust pace as the gas station to China while New Zealand has seen its growth pace slashed. Yield isn’t the only concern for the markets at this point. The demand is for those investments that can produce the highest yield or have the greatest potential for appreciating from depressed levels. Why establish a yield position with the kiwi when the Aussie is more stable and maintains a higher yield? And, why go long the New Zealand dollar when it is already at marked highs and currencies like the euro are still significantly depressed. In the absence of overwhelming momentum for yield and risk, the kiwi may flounder.

Gold Likely to Extend Gains Amid Uncertainty, $1300 Looms Ahead

Fundamental Forecast for Gold: Bullish

- Gold Vulnerable as ETF Holdings Lag Price Gains
- Dovish FOMC Pushes Gold to New Record High

Gold prices continued to edge higher last week, touching a new record high of $1300 in Friday’s trade. The yellow metal seems to reflect the shaky climate prevailing across financial markets more than any other trading instrument. Indeed, short-term correlation studies show only tenuous links between gold and most other benchmark assets as investors bank on its store-of-value properties amid continued uncertainty about global growth and inflation trends. In fact, gold ETF holdings rose to a record-high 67.2 million ounces last week.

Looking ahead, next week’s economic calendar promises plenty of scheduled event risk to keep markets engaged in the debate about the depth of the likely slowdown on tap in the second half of the year and its implications for the recovery at large. US releases remain of central concern as the health of the world’s largest consumer market remains a proxy for worldwide performance. The final revision of second-quarter GDP figures is expected to confirm previous estimates of a 1.6 percent annualized increase in the three months through June, but timelier indicators offer a mixed picture. Personal Income is set to tick higher for the second month while Personal Spending matches the largest increase in four months in August. However, it’s tough to feel sanguine about such results considering Consumer Confidence is due to decline in September having advanced in the preceding month, hinting the gains in income and spending may not prove lasting. On balance, September’s ISM outcome may prove to define the trading week, with the report set to show US manufacturing growth has faded to the slowest pace in 10 months.

Beyond the States, the Tankan Survey of sentiment among Japan’s export-sensitive manufacturers will offer a reading on the vitality of global demand, with expectations pointing to relative optimism on the forward-looking Outlook gauge and a continued acceleration in capital expenditures. China’s Manufacturing PMI will serve much the same purpose, with forecasts calling for the pace of industrial-sector growth to rise for the second consecutive month in September. While seemingly encouraging, these outcomes may not prove to meaningfully underpin optimism considering the murky US economic landscape coupled with signs of European slowdown evidenced the last batch of PMI figures and the steady slide in the Baltic Dry Index – a measure of international trade activity – which finished last week at the lowest in over a month.

On balance, it seems the path of least resistance points toward a continuation of gold’s gradual ascent, with conflicting economic data flow seemingly assuring steady investment demand as markets remain wanting of trend-defining clarity on the medium-term path of global growth.



By David Rodriguez, Quantitative Strategist; John Kicklighter, Currency Strategist; John Rivera, Currency Analyst; Ilya Spivak, Currency Strategist; David Song, Currency Analyst and Michael Wright, Currency Analyst
Article Source - Forex Weekly Trading Forecast - 09.27.10
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9.24.2010

EUR to Benefit from American and Japanese Bank Moves?

With rising fears about additional monetary easing by the Federal Reserve, speculators have begun to exit many of their USD positions in favor of higher yielding assets. Bank intervention in Japan also has many investors weary of entering yen positions in the near future, but poor fundamentals out of Europe have traders just as concerned about their investments in the euro zone, but have the added benefit of less government tinkering. The EUR's best bet for the moment could be to lie low and reap the benefits of a rapidly dropping USD and JPY.



USD - USD Stable despite Monetary Easing Speculations

The US dollar has been holding steady against most of its currency rivals, despite fundamentals showing a shift away from the safety of the greenback. A positive jobs report pushed the USD/CAD towards 1.0380, while conflicting reports out of Europe have the EUR/USD stalling at 1.3340 and the GBP/USD appearing to consolidate just below 1.5700.

With rising fears about further monetary easing by the Federal Reserve, speculators have begun to exit many of their USD positions in favor of higher yielding assets. A narrowing of the yield gap between the US and Japanese bonds also put pressure on the greenback as traders exited their carry trades, adding downward momentum to the dollar.

Today's durable goods orders out of the United States have a chance to add modest support to the USD if the figure is in line, or above, expectations. Rising durable goods orders is representative of increased demand for US manufacturing goods and services, which has a residual effect across the American economy.

EUR - EUR Gaining Amid Global Monetary Changes

The euro's rise continued in today's Asian trading sessions, but some analysts have begun to anticipate a softening of the EUR in the hours ahead. The EUR/USD saw a healthy 60 pip gain since the opening of the Asian session, currently trading at 1.3350. The EUR/GBP also rose modestly, sitting just above 0.8505.

Bank intervention in Japan has many investors weary of entering yen positions in the near future, but poor fundamentals out of Europe have traders just as concerned about their investments in the euro zone. Today's German Ifo Business Climate report could show a minor decline in economic sentiment in the region's largest economy. However, most analysts do not expect the Ifo report to carry much weight given the load of speculation emerging from the US and Japan.

With Japanese bank interventions and potential monetary easing by the US Federal Reserve, the euro's best chances of weathering the storm may be to lie low and do what it can to downplay its negative data releases. No news may be the best news for the euro zone's single currency for the moment.

JPY - JPY on Shaky Ground; Traders Awaiting Second Wave of Bank Intervention

The Japanese yen slumped against the US dollar and the EUR in today's early trading on speculation Japan is selling its currency after intervening in the market last week. The yen slid 1% to 85.22 per dollar from 84.38 in New York yesterday, however, it since stabilized back around $85.

Japan has yet to express satisfaction at the current value of its currency. This has led many speculators to anticipate a second wave of bank intervention sometime in the near future. The speculation alone has helped drop the yen against many of its currency counterparts. But should the Bank of Japan (BOJ) intervene in the market once more, traders are likely to see a very sharp drop in the value of the yen, primarily against the US dollar.

With no news expected out of Japan before the weekend's close, European and American reports will likely control today's movements, setting the pace for early next week. Traders would be wise to follow today's two leading events, the German Ifo Business Climate and the US Core Durable Goods Orders report.

Crude Oil - Crude Oil Fundamentals Could Be Weaker than Many Expected

The price of Crude Oil continues to float between $73.50 and $76.50 as markets digest the impact of Japan's bank interventions and speculation about further monetary easing in the United States. The summer driving season in Europe and America did little to support oil prices this year. Fundamentals remain weak for Crude Oil, and few expect growth levels to return to pre-2007 levels anytime soon.

With the current price of Crude Oil trading just below $75.00 a barrel, there appears to be technical pressures mounting to push the price higher in today's trading. Retreating optimism in Europe and a possible boost to American manufacturing growth both provide fundamental support to oil prices, but the specter of additional quantitative easing in the United States remains overhead.

Traders appear weary of purchasing the dollar, and the expected result should be a rise in oil prices. On the contrary, though, the support currently being experienced seems softer than expected and has many analysts concerned that fundamentals are in fact weaker than most have forecast.

Technical News

EUR/USD

The price of this pair has been floating in the over-bought territory on the daily RSI for some time now, suggesting strong downward pressure. A fresh bearish cross on the daily Stochastic (slow) supports this notion. As the price tests an important psychological barrier near 1.3350, going short may be a wise tactic for fast profits today.

GBP/USD

The recent uptick on this currency pair has just pushed the price into the over-bought territory on the daily RSI, suggesting an increase in downward pressure today. The price has also recently turned downward and exited the over-bought territory on the weekly RSI, suggesting that a cascading downward movement may have already been initiated on a larger time-scale. Going short may turn out to be the preferred strategy before the weekend's close.

USD/JPY

The price on the USD/JPY has recently shifted into an upward direction on the weekly RSI, also just exiting the over-sold territory, suggesting a rise in upward momentum. With impending bullish crosses on the daily and weekly MACDs, it may turn out that bullishness is on the way. Traders may want to take advantage of this movement by entering long positions on this pair throughout the day.

USD/CHF

This pair continues to decline, pushing the price into the over-sold region on the daily RSI, and even deeper into the weekly RSI, indicating that an upward correction is expected. An impending bullish cross on the daily Stochastic (slow) supports this notion. Going long may not be a bad idea.

CHF/JPY

The movements of this pair seem to suggest that the price has reached a recent high which is unsupported. The 4-hour, daily and weekly RSI show the price as over-bought, while the daily Stochastic (slow) and MACD have impending bearish crosses. Forex traders may want to evaluate their positions on this pair, especially since it appears that a bearish correction may be imminent. Going short on this pair could turn out to be an excellent gamble before the weekend's close.

Article Source - EUR to Benefit from American and Japanese Bank Moves?
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9.23.2010

Dollar Declines to 5-Month Low Against the EUR

The US dollar traded near a five-month low versus the EUR before a U.S. report today that may show existing home sales are close to a 10-year low, adding to signs the world's largest economy is struggling to recover.



USD - US Dollar Extends Losses

The US dollar fell against most of the major currencies on Wednesday, a day after the Federal Reserve said it was ready to take further action to boost the U.S. economy and fend off any deflationary threats. As a result, the dollar fell to its lowest level versus the yen since Japan intervened last week and closed around 84.50. The dollar experienced similar behavior against the EUR to trade at session highs above 1.3400.

The U.S. Federal Reserve's policy-making open market committee on Tuesday set the tone after it said it was prepared to take new stimulus measures if necessary. While the Fed left interest rates at record lows, it suggested further credit easing in a statement. Those measures would likely include buying treasury bonds, causing the market to brace for further dollar losses. The Fed comments will likely keep the dollar weak in the near-term, as the bank's stance is expected to keep downward pressure on U.S. interest rates, analysts said.

Today's Unemployment Claims and Existing Home Sales releases are expected to have a strong impact on the US currency. Any result could be a surprise, and the dollar could go either way as a result. In any case, traders are unsure how the market will react to today's data. A weak report could feed risk aversion, boost Treasuries and actually aid the US dollar. Then again, a better than expected result might be seen as a sign of relative US economic strength, and lift the dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the dollar's expense.

EUR - EUR/USD Hits 5-Month High

The EUR experienced a bullish trading session yesterday, as it appreciated in most of its major currency pairs. The 16-nation currency extended gains versus the dollar during yesterday's trading session, rising to its highest level in five months to trade above 1.3400 amid a broad sell-off in the USD. The European currency finished around 60 pips higher against the JPY to finish yesterday's trading session at the 113.30 level.

The pound slipped against the EUR on Wednesday to the lowest level since May, after the report showed the British budget deficit widened in August more than expected, increasing the possibility of further budget spending cuts. The EUR/GBP reached today 0.8560, the highest level since May 28th, after it dropped to the intraday low of 0.8462.

The UK public sector net borrowing was £15.9 billion in August, compared to the borrowing of £14.1 billion in a year ago. The current budget posted the deficit of £13.3 billion in August. Analysts say that the pound may fall further versus the EUR.

JPY - Yen Makes Big Gains on Dollar

The Yen rose on Wednesday to its highest level against the dollar since Japan intervened last week, fuelling speculation of more intervention after the Federal Reserve raised expectations it would print more dollars to help the U.S. economy. The USD/JPY fell yesterday as low as 84.26 before correcting itself. Currently the pair is trading around the 84.60 level.

Top Bank of Japan officials flagged rising risks to the nation's growth as the yen climbed in the aftermath of the US Federal Reserve signaled its willingness to consider more monetary stimulus. The remarks came a week after Japan sold yen for the first time in six years in response to a strengthening currency that threatened to derail the economy's recovery. The BOJ may be pressured to consider further liquidity injections after the government's decision to intervene and the Fed's signal it may ease more.

Many traders expect Japan to step in between 83.00 and 85.00 yen. They said the authorities had called banks to ask if they will be staffed on Thursday, a Japanese national holiday, in an apparent attempt to keep traders cautious over intervention.

OIL - Crude Oil Rises Above $75 a barrel

Oil prices rose above $75 a barrel Wednesday, boosted by a weaker dollar. But gains were limited by a report showing an unexpected rise in US supplies last week, a sign demand for crude oil may not be improving.

Oil and other commodities denominated in dollars for global trading tend to rise when the U.S. currency falls as they become cheaper for holders of other currencies. A move away from dollar-based pricing of the world's leading commodity could further weaken the greenback.

As for today, traders should pay attention to the US Crude Oil Inventories report as it tends to have a large impact on Crude Oil prices recently, especially for the short-term.

Technical News

EUR/USD

After a strong rally over the last few days, the pair is finally seeing some downward correction with some room for the trend to continue. Looking at the daily chart, a breach of the upper Bollinger Band is evident with the RSI for the pair floating in the overbought territory. A bearish cross is evident on the 4 hour and 8 hour chart's Slow Stochastic. Going short with tight stops may be preferred for the day.

GBP/USD

The pair is currently range trading between 1.5630 and 1.5690 with most indicators in neutral territory. The RSI for the pair floats near the overbought territory on the 4 hour and daily chart indicating some downward movement may still be expected from the pair. Going short with tight stops for the day may be advised.

USD/JPY

After a strong downward move some correction may be expected for the pair as the RSI is floating in the oversold territory on the 4 hour and 8 hour charts and a bullish cross is evident on the 8 hour chart's Slow Stochastic. Going long for the day may be a good option.

USD/CHF

A breach of the lower Bollinger Band is evident on the daily chart with the RSI for the pair floating in the oversold territory on the 8, 4 and 2 hour charts. Furthermore, a bullish cross is evident on the 8 hour chart's Slow Stochastic. Going long with tight stops may be advised for the day.

AUD/CAD

After a long bullish run, some correction may be in store for the pair. A bearish cross is evident on the daily chart's Slow Stochastic with the RSI for the pair floating in the overbought territory on the 4 hour, 8 hour and daily charts. Moreover, a breach of the upper Bollinger Band can be seen on the daily chart, indicating an imminent downward move. Forex traders are advised to go short for the day.

Article Source - Dollar Declines to 5-Month Low Against the EUR
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What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.


The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

Forex Turnover

Forex Turnover
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.

Currencies

Currencies
List of most popular currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.

Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.

Good luck to everyone!