Threat of the U.S. Auto Bankruptcy Boosts the Dollar

Turmoil in the U.S. auto industry had currency traders moving into safe haven positions of the Dollar and Yen. Further equity losses also contributed to a lack of confidence in the global economy and lower risk taking.

USD - Threat of Auto Bankruptcy Spurs Dollar Buying

The Dollar continued its appreciation yesterday as fears of bankruptcy filings in the U.S. auto industry sparked safe haven currency bets. Losses in U.S. equity markets triggered by autos and bank worries also helped to bring traders to the Dollar. The EUR/USD finished the day at 1.3190 from 1.3268, while the GBP/USD ended at 1.4256 from 1.4276.

Yesterday there was little reason for Forex Traders to take positions in riskier currencies. Over the weekend Treasury Secretary Geithner said some banks may need further capital injections. Also shaping the markets was the Obama administration's position that it may prefer a bankruptcy filing of an auto maker versus further bailouts. Now a looming threat of a General Motors or Chrysler bankruptcy filing hangs over the head of the market. A situation like this could have a detrimental effect on the financial markets as the debt of these two companies is widely held throughout the global financial system.

Looking to today's trading, traders should be aware of the release of Canadian monthly GDP at 12:30 GMT. The USD/CAD appreciated by 1.2% today as the market anticipates a contraction of Canadian GDP by 0.6% in January. If the result comes in worse than the forecasted value, look for the USD/CAD to rise close to the 1.2700 resistance level.

EUR - Is Inflation a Concern for the EUR?

The EUR appears to be in a correction as the currency's gains on the Dollar are unraveling. The currency has slid the past 2 days amid concerns of future monetary policy moves by the European Central Bank (ECB) and a drop in risk tolerance. Yesterday the EUR finished lower against the Dollar while the EUR/GBP fell to 0.9250 from 0.9312.

Market forecasts have the ECB slashing rates by another 50 basis points later this week. However a debate still rages whether the ECB will take further measures to ease the strained European credit markets through a program of buying long term government bonds. This would follow a move taken by the U.S. Federal Reserve and Bank of Japan. Yesterday ECB President Trichet addressed the European Parliament and said that the European economy has weakened since the beginning of the year. Also notable was the downgrade of the sovereign debt rating of Ireland.

Today the EUR may be impacted by the release of the yearly CPI Flash Estimate. It is an early indicator of inflation in the EU. Trichet yesterday mentioned that there is no significant risk of deflation and the ECB has set a target rate of inflation near 2%. The Flash Estimate is forecasted to rise by 0.7%. A higher number that contradicts Trichet's statement yesterday may hurt the EUR further during today's trading.

JPY - Yen Boosted by Risk Adverse Trades

Yesterday the USD/JPY saw heavy volatility on the heels of the Obama administration favoring an orderly bankruptcy of the American auto manufactures and large losses in equity markets. The pair ended at 98.15 from 97.75. The EUR/JPY also experienced heavy volatility yesterday, reaching as low as 126.40 to close at 130.05 from an opening price of 129.76. This was the strongest the Yen has been against the EUR in the past 11 days.

In early morning hours of the Japanese trading session, the Yen began to slip after Japanese unemployment numbers came in worse than expected. Some economists believe that unemployment rates may not yet have peaked. As the number of Japanese exports continues to decline, manufacturers will eventually cut back on costs in the form of further workforce reductions. Traders will be watching for the release of the Tankan Manufacturing Index later today. It is a key gauge of market sentiment in the Japanese economy. The release of poor results for this indicator could send the Yen lower against the other majors.

Oil - Crude Drops below $50

The price of Crude Oil has once again dropped below the psychological price level of $50. Crude Oil shed 4.5% yesterday as fears of bankruptcy for the Big 3 American auto manufacturers hurt the demand for Crude and sent equity markets lower. The recent recovery in the Dollar has also been a source of restrain in the price of Crude Oil.

The market has once again sent the price of Crude lower as the global economy shows very few signs of recovery. Continued job losses and equity losses have dropped the price of Crude Oil from last week's high of $54. Traders may not see any support today as the U.S. CB Consumer Confidence will be released today at 2:00pm GMT. Don't be surprised to see a gloomy reading from American consumers. This may send Oil lower today, near the $48 price level.

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Euro Zone Annual Inflation Set to Print at Record Low March (Euro Open)

The Euro corrected higher in Asian trading but the economic calendar threatens a sustained rebound as expectations suggest annual inflation fell to the lowest since the introduction of the single currency in March. Overnight data showed Japan’s labor market continued to weaken in February while expectations of economic growth remained near record lows among New Zealand’s businesses.

Key Overnight Developments

• Japan’s Labor Market Continues to Suffer as Recession Deepens
• Cheaper Yen Boosts Manufacturing for Second Month in February
• New Zealand’s Businesses Expect Demand Will Not Recover in 2009
• Euro, British Pound Correct Higher Against USD in Overnight Trading

Critical Levels

The Euro corrected higher in overnight trading, adding 0.5% against the US Dollar. The British Pound followed suit, testing as high as 1.4340 against the greenback. The single currency has slid -2.4% while sterling dropped -1.3% in the past two days as risk aversion returned to financial markets.

Asia Session Highlights

Japan’s labor market continued to deteriorate in February: the Jobless Rate ticked up to 4.4%, the highest in 2 years, while the ratio of available jobs to seeking applicants dropped to 0.59, much lower than economists expected and the lowest since 2003. The theme at work is a familiar one: dwindling overseas sales are pushing Japanese companies to cut back production, boosting unemployment to put downward pressure on consumption and thereby on overall economic growth. Indeed, Household Spending shrank for the 11th consecutive month to register at -3.5% in the year to February.

Ironically, the sheer depth of the current malaise may help to spur an eventual recovery. Increasingly dismal economic data has eroded the Japanese Yen’s heretofore iron-clad status safe-haven status, sending the currency tumbling by a hefty -12.2% to date from the peak high January. Sustained downward momentum will encourage overseas sales by making Japanese goods cheaper for foreign buyers, breathing new life into the export-dependent economy. In fact, sentiment in the manufacturing sector is already beginning to reflect some early signs of improvement, with the Nomura/JMMA PMI ticking higher for the second consecutive month in February. Separately, Japan’s Finance Minister Kaoru Yosano said the government would complete a new stimulus package aimed at preventing the economy from “falling apart” by mid-April. Yosano said last week that spending as much as 20 trillion was “not out of line”.

In New Zealand, NBNZ Business Confidence ticked marginally higher to -39.3 in March from -41.2 in the preceding month. Most tellingly, the outlook component measuring expectations of future activity printed at within a hair of the 21-year low recorded in two months ago (-21.2 in March versus -21.5 in December). The reading suggests firms remain deeply pessimistic about the trajectory of the antipodean economy in the next 12 months.

Euro Session: What to Expect

Signs of deepening recession will be on display in European hours: Germany’s Unemployment Rate is set to rise to 8.0% as the economy sheds 52k jobs in March while Italian Retail Sales shrink for the fourth straight month, dropping -2.0% in the year to January. Acute economic slowdown will weigh on price growth, with initial estimate of March’s Euro Zone Consumer Price Index set to show annual inflation slowed to the lowest since the introduction of the Euro. A survey of economists conducted by Bloomberg expects the economy will shrink by a whopping -2.8% this year, threatening to put inflation into negative territory and amplify the malaise as of falling prices encourage consumers and businesses to wait for the best possible bargain, perpetually putting off spending and investment.

For their part, the European Central Bank is expected to respond with an additional 25 basis point interest rate cut on April 2nd, with borrowing costs set to bottom at 1% through the second quarter. The ECB’s hesitation to commit to more aggressive stimulus (as has been done by their counterparts in the US, UK, and Japan) may pose substantial political risks down the road: calls to un-tether national monetary capabilities from Trichet’s measured approach are likely to find greater favor as the downturn hits home for an increasing percentage of Europeans, threatening to aggravate electorates against currency union. The reality of this structural threat to the Euro was reinforced as the ECB President visibly tried to downplay it in a recent Wall Street Journal interview.

In Switzerland, the UBS Consumption Indicator is likely to continue lower in February after unemployment rose to 3.4%, the highest in nearly 3 years. The metric is a composite of five proxy indicators including new car sales, overnight hotel stays and credit card transactions.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Zone Annual Inflation Set to Print at Record Low March (Euro Open)
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Greenback Rallies on Speculation the ECB will cut Rates to Its Lowest

The Dollar rose 0.2% against the EUR as weaker than expected Euro-Zone industrial orders and German inflation data undermined recent investor confidence and favored the safe haven greenback. The ECB is pressured to follow the Federal Reserve in buying bonds to lower Interest Rates, a policy known as quantitative easing. Along expectations that it will cut its main policy Rate by half a percentage point to a new record low of 1%, the market is keen to see how far it might follow other central banks such as the Fed in taking unconventional steps to shore up the economy

USD - Could the Dollar Continue Its Bullish Trend?

Last week gave some extraordinary opportunities for Forex traders to make profits from going long on the U.S Dollar. The two leading fronts on which the USD marked unique gains are against the EUR and the GBP.

It appears that the USD saw this bullish trend as a result of some unexpected positive news, especially regarding the housing sector. Last week, both the Existing Home Sales, and the New Home Sales, delivered better than expected figures, reflecting in 4.72M residential buildings that were sold during February, and in 337K new single-family homes that were sold during February as well. This data came as a big surprise, as analysts had quite gloomy predictions for the two reports, and therefore turned a very strong uptrend for the Dollar. In addition, as you all must remember, this entire recession began as a result of a deep crisis in the U.S home sector, and now a series of positive result from that sector has managed to elevate the USD so rapidly. Another positive data which came last week were the Durable Goods Orders indices which delivered both much better than expected figures. Whilst analysts anticipated negative growth in the total value of new purchased orders for durable goods during February, the real figures showed almost 4.0% growths.

As for the week ahead, two major events will most likely determine the Dollar's direction for the upcoming week. The first will be the Pending Home Sales which is currently expected to continue to positive line of the housing sector; however a surprising negative result could create some worries among investors regarding the U.S economy. The second major news event will of course be the Non-Farm Employment Change, expected on Friday, 12:30 GMT. as proven many times before, investors are putting a lot of faith in the credibility of this survey, and as such react immediately to its results.

Traders are advised to follow those two leading economic indicators as they are likely to set the tone for the USD trading this week.

EUR - Would the ECB Cut Interest Rates to 1.00% Later On This Week?

An extremely volatile week, which included many ups and downs, concluded with a deep drop for the EUR. The EUR/USD dropped to almost 1.32, and the EUR/JPY fell below 129.50.

The first reason for the EUR drop was the strengthening Dollar, which rose against the EUR as well. The second and even greater reason was the unwillingness of the European Central Bank (ECB) to create a rescue plan for the European Nation, which could somehow imitate the American plan. Investors are now seeing the U.S economy as a dynamic, flexible economy, in which its leaders are doing all they can in order to salvage the situation while they can. On the other hand, the European monetary system is beginning to be seen as a conservative organization, which is reluctant to react to the rapidly changing conditions of the global economy. Investors are thirsty for a European rescue plan, and if one shall arrive, it will probably signal an uptrend for the European currency.

As for this week, the ECB will announce the new Minimum Bid Rate on Thursday, and is widely expected to cut Interest Rates by 0.5% to merely 1.00%. Some might say that this move is too little, too late, as the U.S, Japan and Great Britain have all lowered their Rates below 1.00%, without succeeding in making a real change in their economies. Nevertheless, if indeed the ECB will decide to cut Interest Rates, an immediate reaction of a drop in EUR value is expected.

Forex traders are also advised to follow Jean-Claude Trichet's speech on Monday, as he may discuss the possibility of cutting Interest Rates. Such comments could have massive influence on the market.

JPY - The JPY Looks to Halt Its Bullish Momentum

Over the last trading week the JPY saw rising trends against the EUR and the GBP, and experienced mixed results vs. the USD. The JPY underwent it most remarkable bullish trend against the EUR, as the EUR/JPY dropped to the 129.40 level.

Last week the Japanese Trade Balance showed a difference of -0.04T between exported to imported goods during February. Although this is a negative figure, it was much better than the -0.29T which was expected. This indicator has an immense impact on the Japanese economy as it relies greatly on its export activity. Also last week, the Tokyo Core Consumer Price Index, which measures the change in price of goods and services, rose by 0.4% in March, also indicating that the Japanese economy is on the phase of expanding, and not contracting.

As for the week ahead, most of the impacting data will be delivered from the Euro-Zone and the U.S economy. Nevertheless, traders should follow the Tankan Indices, which are expected on Tuesday night. These surveys cover a wide range of the local manufacturers, and thus have a large impact on the Yen. Analysts forecast extremely negative figures for the indices, and such result might generate a bearish trend for the JPY.

OIL - Will Crude Oil Reaches Below $50 a barrel?

Crude Oil prices has dropped dramatically just before the weekend. After peaking at over $54 a barrel, Crude Oil is currently traded for $51.50 a barrel. Crude Oil prices fell predominantly as a result of the surging Dollar. Crude Oil is priced in Dollars, and as such, a rising trend for the USD tends to have to opposite affect on Crude Oil.

Another data that helped to lower Oil prices was the U.S Crude Oil Inventories indicator from Wednesday, which came higher-than-expected, reflecting 3.3M additional barrels of Crude Oil held in inventory by commercial firms from the previous week. The combination of high supply and strong Dollar are a simple formula for dropping Crude Oil prices.

As for this week, traders should follow global economic news, especially from the U.S, as they are likely to determine Oil prices. Traders are advised to keep notice that for as long as the USD continues to appreciate, Crude Oil prices might continue to decline, as low as $50 a barrel!

Article Source - Greenback Rallies on Speculation the ECB will cut Rates to Its Lowest.
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US Dollar Extends Gains as Stocks, Commodities Tumble in Asian Trading (Euro Open)

The Euro and the British Pound slipped as much as -0.6% against the US Dollar in overnight trading as a slump in risky assets fueled demand for the safe haven asset du jour. Stocks fell for the first time in six days across Asian exchanges and commodities followed on speculation that persistently sluggish economic growth will curb demand.

Key Overnight Developments

• Japan's Industrial Production Falls to Record Low on Weak Overseas Demand
• Australian Home Sales Rise on Rate Cuts, Government Grants

Critical Levels

The Euro and the British Pound slipped as much as -0.6% against the US Dollar in overnight trading as a slump in risky assets fueled demand for the safe haven asset du jour.

Asia Session Highlights

Japan’s Industrial Product shrank fell -38.4% in the year to February, setting a new record low. The theme at work is a familiar one: dwindling overseas sales are pushing Japanese companies to cut back output, boosting unemployment to put downward pressure on consumer spending and overall economic growth. Later this week, the Tankan survey of business confidence is expected to show sentiment is at the worst in over three decades. Policymakers have scrambled to check the deepening downturn: the Bank of Japan has agreed to expand liquidity-boosting measures while the Finance Minister has pushed for trillions of yen in additional fiscal stimulus. Ironically, the sheer depth of the current malaise may help to spur the recovery. Increasingly dismal economic data has turned risk-averse investors away from the Japanese Yen, sending the currency tumbling by a hefty -12.2% to date from the peak high January. Sustained downward momentum will encourage overseas sales by making Japanese goods cheaper for foreign buyers, breathing new life into the export-dependent economy.

In Australia, HIA New Home Sales grew 3.9% through February, boosted by aggressive interest rate cuts as well as cash handouts to first-time home buyers put in place as part of the Prime Minister Kevin Rudd’s fiscal stimulus package. The Reserve Bank of Australia has trimmed benchmark borrowing costs to 3.25%, a 45-year low, while the government has tripled the available grant for home buyers to A$21,000. Additional monetary stimulus is also expected, with overnight index swaps pricing in 50 basis points in rate cuts over the next 12 months.

Euro Session: What to Expect

Euro Zone Economic Confidence is set to remain at a 24-year record low for the second consecutive month in March. The reading is a composite of several surveys measuring the confidence among consumers as well as the industrial, services, and construction sectors. The result reflects expectations that the current economic downturn will continue in the near to medium term.

On balance, risk trends are likely to emerge as the primary driver of forex price action. Stocks fell for the first time in six days across Asian exchanges as fears of deepening recession returned to the forefront and drove investors back towards safe-haven assets. The MSCI Asia Pacific Index slipped 2%. Comments from Jamie Dimon and Ken Lewis, CEOs of JPMorgan and Bank of America, further weighed on confidence. Dimon said March was “a little tougher” while Lewis said his bank’s lending book was not as good in the last month of the first quarter as the first two. Commodities followed equities lower on speculation that persistently sluggish economic growth will curb demand. US equity index futures are down about 1% ahead of the opening bell in Europe, suggesting the selloff is set to continue and implying the US Dollar is likely to extend recent gains.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Extends Gains as Stocks, Commodities Tumble in Asian Trading (Euro Open)
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Forex Trading Weekly Forecast - 03.30.09

Dollar Trend May Be Redefined By G20 Meeting And NFPs

Fundamental Outlook for US Dollar: Bullish

- The market weighs the possibility and consequences of a move away from the dollar as the world’s reserve currency
- A rebound in risk appetite threatens to undermine the greenback’s safe have status
- Technicals show the dollar on the verge of either a major breakout or trend revival across the majors

There is so much event risk looming next week for the US dollar that it is difficult to discern what the primary fundamental driver for the world’s most liquid currency will be. Will the greenback be evaluated for the pace of its recession within the global slump? Can the currency’s safe haven status rise above all other concerns like it has for most of this year? Or, is the threat that the most actively traded fiat money on earth might lose its sacrosanct status as the world’s reserve currency too monumental to avert our attention from? These are the pinnacle of fundamental drivers in the currency market and there is certainly a hierarchy of importance; but which one takes the reins on the dollar may fall to a specific set of circumstances.

In determining the greatest threat to the US dollar, we can learn from the financial crisis that has plagued the markets now for more than a year-and-a-half. Through tumultuous 18 months, investors have had to deal with diminishing returns, soured risk trends and a global recession. However, the real panic set in when the true functioning of the markets were called into question. When liquidity in the credit markets were threatened, the markets went into a tailspin. For the dollar, the loss of its reserve status would be its equivalent to disaster. Trough all its other guises (funding currency, carry currency, safe haven, etc), the greenback has always found demand through its use as store of wealth for central banks and as the international currency for commodities and other global goods. There has long been an argument to trade the dollar in for something else to set the global standard. Just a few years ago, the calls were for the dollar to be replaced by the euro; and now in these times of turbulence, the prevailing sentiment is for a basket. The IMF and China among others have vowed to bring this demand up at the G20 meeting on Thursday; but will this see a popular vote? Unlikely. This could have untold effects on a global market that is already suffering. On the other hand, should this burden be lifted from the dollar’s shoulders, the currency could find the impetus to rally.

If the G20’s only focus and influence were over the safe haven status of the US currency, it would be easy to lay out clear scenarios for price action following the event. Any real changes to its role in the global market place would send it plunging; and its passing without incidence would allow lead to a rally. However, it isn’t that simple. Policy makers will cover more than just the dollar at this meeting. Their real purpose for the gathering is to try and develop a global resolution to the world’s economic and financial troubles. There have been calls for greater fiscal spending, larger bailouts and other unique solutions; but there has so far been little cooperation beyond coordinated rate hikes and bolstered swap lines. Ultimately, for the dollar, it will come down to whether there is any meaning joint efforts to come out of this meeting at all. If there are, any plans will be judged on their ability to relieve the US from shouldering the responsibility of turning the global economy around all by itself. Alternatively, empty words and promises will once again call on its safe haven roll.

Both reserve currency and safe haven roles are relatively new market dynamics. In contrast, economic growth is a constant for fundamental traders. In all the commotion towards the end of the week, the monthly non-farm payrolls report should not be overlooked. Economists suspect another 660,000 Americans lost their jobs through March. This would bring the tally since the recession officially began on January 2008 to well over 5 million. Numbers like these still need to be measured against global benchmarks, but this does not provide the dollar any solace. With other indicators like consumer confidence, ISM manufacturing, ISM services and construction spending, this looks to be a week that will give a very rounded and timely measure of economic activity.

Euro May Fold Under ECB Cuts And A Building Recession

Fundamental Outlook for Euro This Week: Bearish

- German business confidence drops to a 26 year low – support for a recovery waning
- European manufacturing and service sector activity rebounds slightly…but from record lows
- Euro’s late-week decline suggests dominant downtrend may have been revived

It was a late break for the euro this past Friday; and a meaning full one at that. Against its US counterpart, the European currency finished more than a week of congestion near multi-month highs with a plunge that called into question the underlying health of the euro. This uncertainty is warranted considering the development in fundamentals behind the scenes over the past weeks and months. Whereas the euro was once treated like a currency that could weather the worst of the economic storm, retain its relatively high yield and show the solidarity of its union structure; we now see that the Euro Zone is in just as bad a shape as its global counterparts. There is a wide range of data, rate decision and the G20 meeting all penciled in this week; and there is little room for the euro to find significant benefit from any of these events.

A global affair, the market will likely forgo its immediate concern for any other market drivers until the Group of 20 summit is concluded and the full extent of their plans are announced on Thursday. Ultimately, the aim is that all economies would benefit from a global effort to turn the world-wide recession around and stabilize the financial crisis; but some will benefit more than others. So far, European leaders have committed less to their regional economy than the US, UK or China. This has been a point of contention for the IMF, US President Barack Obama and UK Prime Minister Gordon Brown who have all called on the Euro Zone to commit more of their budget to financial stimulus; and all have been rebuffed. Everything else being equal, if the global economy started to turn around today, the Europe would be in a great position with relatively less money tied up in deficits and less of their financial system in the hands of the government. However, if leaders do cave to these pressures, then the potential for a quick rebound will be lost.

Another euro advantage that has been slowly deflated is the steady decline in the benchmark lending rate. Before the European Central Bank began to hit its stride with aggressive rate cuts, President Trichet’s promise to target inflation led many to believe that the euro would maintain a positive yield spread over its US and UK counterparts through the life of the current recession. This was another potential catalyzing benefit of the economy that could leverage a rebound in the euro should risk appetite recover. However, the main rate has since tumbled. Currently at 1.50 percent, the policy group is expected to cut another 50 basis points off their target – bringing them within the pull of the near-zero level that has captured so many others. Trichet and some other policy members seem acutely aware that there is no real benefit to cutting rates beyond a certainly level; but the group seems to have already sounded the warning.

With the G20 meeting and ECB rate decision both due on Thursday, that leave a lot of the week open to other fundamental swells. Of course, in the lead up to the aforementioned event risk, the response to more mundane event risk will likely settle. When removed from these two releases are removed from the equation though, we can see a significant amount of data that can help define the next leg of Europe’s recession. Euro zone sentiment readings (consumer, business, economic), final readings on sector activity gauges, employment, inflation and retail spending will provide a clear bearing for 1Q GDP.

Japanese Yen Could Rise as Technical Positioning Hints at Correction

Fundamental Outlook for Japanese Yen: Bearish

- Japan’s FinMin Says Economy Needs Trillions in New Fiscal Stimulus
- Merchandise Exports Boosted by Cheaper Currency in February
- Annual Retail Sales Fall Most in 7 Years

The Japanese Yen may correct higher as technical considerations temporarily overtake momentum from increasingly grim fundamental news. The economic calendar offers a familiar picture in the coming week: dwindling overseas sales are pushing Japanese companies to cut back production capacity, boosting unemployment to put downward pressure on consumer spending and overall economic growth. Indeed, industrial production is set to shrink at an annual pace of -38.1% in February, a new record low, while the Tankan survey of business confidence is expected to show sentiment is at the worst in over three decades. Meanwhile, labor market readings are seen deteriorating yet again while Household Spending falls for the 11th consecutive month in the year to February.

Importantly, while the data docket is definitively dour, it offers little that has yet to be priced into the Yen exchange rate. The markets have known for some time that the Japanese economy is in shambles: the currency’s safe haven status began to erode weeks ago when it was revealed that the economy shrank over 12% in the fourth quarter to enter the deepest downturn since the 1970s. The continuous barrage of dismal data has somewhat desensitized investors at this point, leaving the door open for a technical correction. To that effect, we see that the trade-weighted Japanese Yen index (measuring the value of the currency against a basket of top counterparts) has put in a convincing Bullish Engulfing candlestick pattern at a key pivot level that has acted has acted as both significant support and resistance since early October of last year. This hints persuasively at the possibility of a rebound, giving long-term Yen bears a second chance to enter the broad down trend.

British Pound May Remain Under Pressure As Fundamentals Weaken

Fundamental Outlook for British Pound: Bearish

- UK Inflation Unexpectedly Rose In February to 3.2%
- Retail Sales Fall To Lowest Level Since 1995
- U.K. GDP Contracted By The Most Since 1980

The British Pound has come under pressure as the U.K. economic recession continues to deepen. The only bullish data for the currency was a unexpected increase in February consumer prices to 3.2% from 3.0% which put inflation back above the BoE’ 1-3% target range. However, Governor Mervyn King quickly dismissed the numbers as a by product of recent sterling weakness and held to the central’s banks predictions that inflation would eventually undershoot their target. The 4Q GDP figures were revised lower to -1.6% from 1.5% as the economy contracted by the most since 1980. Retail Sales in February falling to their lowest level since 1995 gives little hope that the U.K. economy can look to domestic growth to help lift them from the current downturn. A deepening recession and falling prices has kept deflation concerns alive and may force the MPC to consider increasing the amount of quantitative easing that they implement.

The U.K. PMI readings for manufacturing and services are expected to slightly improve to 35.0 and 43.5 from 34.7 and 43.2 respectively. However, both sector will have contracted for an eleventh month putting off any hopes of a recovery until 2010. Additionally, consumer confidence, and mortgage approvals are expected to remain near record low levels while house prices are forecasted to drop another 1.5%. The dour fundamental data will put greater importance on the success of the central banks efforts to stimulate lending. However, the central bank has had mixed results with their Gilt auctions which has led them to scale back their efforts a bit, which is disappointing markets and increasing fears that their efforts may not have the predicted impact.

Sterling/dollar has found support at the 50-Day SMA at 1.4266, a break below the technical level could lead the pair to test 1.400. The 100-Day SMA capped the Pound’s gains midweek and if bullish sentiment should return the level may remain formative. Until we see a clear break above that level downside risk will remain for the pair.

Written by John Kicklighter, John Rivera, Ilya Spivak and David Song, Currency Analysts
Article Source - Forex Trading Weekly Forecast - 03.30.09
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Dollar to Move Today on Release of Economic Data

The Dollar has seen increased strength as rising U.S. equity markets helped to erode the dramatic price declines from the previous week. Trading will end this week as a slue of economic data due to be released today will provide ample opportunities for traders to enter the market on higher than normal volatility.

USD - Dollar Recovery Continues

The Dollar rose yesterday against most of its major rivals as riskier currencies fell out of favor. Despite strong gains in U.S. equities, the Dollar gained ground as the likelihood of further European Interest Rate cuts loom over the currency markets. At the end of the Thursday's trading, the EUR/USD was little changed, despite high volatility most of the day. The USD/JPY closed higher at 98.32 from 97.77. Against the Pound the Dollar also finished higher at 1.4481 from 1.4585.

The dramatic sell off of the Dollar appears to have ceased as yesterday's trading was characterized by reduced market risk and future Interest Rate levels. The Dollar was sold heavily last week, sparked by the announcement that the Federal Reserve will begin a quantitative easing program. Slowly the currency markets are returning to relatively normal trading patterns as traders see little reason to take risks on higher yielding currencies in the face of the economic downturn.

Today's trading may be characterized by a glut of economic indicators surrounding consumer spending and attitudes. Due today are personal spending numbers and a revised consumer sentiment report. A better than expected result in the data releases could provide another boost to the Dollar as the currency continues to recoup its losses from last week. Look for the EUR/USD to drop below the 1.3500 level today.

EUR - EUR Set for Further Rate Cuts

The EUR experienced mixed results yesterday as the market begins to price in potential Interest Rate cuts to the European currency. Minor declines were seen against the Dollar, but the EUR climbed consistently against its other currency crosses. The EUR/JPY finished the day higher at 133.41 from 1.3267, and the EUR/GBP ended up at 0.9368 from 0.9301.

Market participants are set to start pricing in the potential for another Interest Rate cut by the European Central Bank (ECB). The ECB is scheduled to meet next week to decide if European Interest Rates will need to be trimmed from their current rate of 1.5%. One politician weighing in on the matter was British Prime Minister Gordon Brow. In a press conference; Brown said he expects that the European benchmark rate would fall below its current level. Perhaps Prime Minister Brown is short on the EUR for obvious reasons.

Traders today will want to pay attention to a few important releases from the Euro-Zone economy and Britain. From Europe we will see new industrial order numbers. This indicator is forecasted to show worsening numbers that highlight the deep recession that plagues Europe. Also we will have Britain's current account figures released. This number may have the potential to surprise the market. Better than expected results could add some buoyancy to the GBP against the EUR in today's European trading session.

JPY - Yen Foresees New Resistance Level

The Yen suffered during yesterday's trading; sliding against the Dollar, but in early morning hours of the Japanese trading session the trend began to reverse. Recent gains in equity markets have proven to be troublesome for the Yen. The Japanese currency has traditionally been used as a safe haven asset, but recent safe haven currency movements have not been kind to the Yen. Perhaps this is due to the underlying weakness in the Japanese economy and the rapid decline of the country's export sector.

The Yen slid against the Dollar to 98.32 from 97.77. Against the Pound the JPY finished down slightly at 142.40 from 142.63. The JPY's most notable loss was against the EUR, as the EUR/JPY level finished up 74 pips at 133.41. The financial year in Japan wraps up at the end of March. With the New Year coming, so may be the 100.00 Yen mark against the Dollar. The resistance level is significant as the USD/JPY has not touched on this valuation since the beginning of November.

Crude Oil - Crude Oil Prices Soar

The price of Crude Oil soared in Thursday's trading session, adding to big gains in the past several weeks. Crude prices finished up slightly over $1.50 or 3% at $53.81. Helping the commodity continue its price appreciation has been the recovery of U.S. equity markets from their New Year lows. What has also helped Crude prices as of late is the increased optimism by from investors, which was initiated last week by a string of positive economic data releases from the U.S.

An uptrend is showing in the last two weeks of trading with a host of a number of factors working in favor of rising Crude Oil prices. The rally in stocks has correlated with the rise in price of Crude Oil. It has also raised hopes that a spike in demand may be coming along with it. Adding support to the price appreciation has been the steadfast commitment by OPEC to continually reduce the supply of Crude Oil. Combine this with a weak U.S. Dollar and it makes for a rally in the price of Oil. Traders may look for a short term price cap of $55 to take profits.

Article Source - Dollar to Move Today on Release of Economic Data
Dollar to Move Today on Release of Economic DataSocialTwist Tell-a-Friend

Pound Moves up Cautiously as Risk Aversion Declines

Since touching a fresh 24-year low in the beginning of March, the British Pound has recovered strongly, rising 5% against the USD in a matter of days. Analysts are at a loss to explain the sudden strength of the Pound, outside the confines of the safe-haven hypothesis: “The risk premium that sterling has taken on works both ways, and you can see sterling outperforming whenever risk appetite picks up.”

As another analyst points out, however, ascertaining the role of risk aversion in the markets has become somewhat circular: “Observers…draw this assessment purely from price action. Rising equities means the market is less risk averse. And the way we know there is less risk adversity is that the stocks have rallied.” Applying this argument to forex, softening risk aversion is contributing to a stronger Pound. At the same time, observers point to the rising Pound as a signal that risk aversion has softened. In short, the safe-haven trade is surely not the most convincing explanation.

In fact, by all accounts, the Pound should be falling. The latest data shows that retail sales plunged by 1.9% on a monthly basis. GDP is projected to fall to such an extent that “in 2009 Britain will slip to 12th place (from 7th in 2007) among the 15 ‘old’ members of the European Union, behind all except Spain, Greece and Portugal.” Meanwhile, the Central Bank of the UK has warned that Britain’s government finances have become so fragile that the government will have difficulty carrying out new spending plans. Investors have taken note, and demand for the latest auction of UK government bonds is believed to be the “lowest in history.”

Given all the bad news, perhaps the Pound’s recent rise can be best attributed to technical factors. “The $1.45 level represents so-called resistance on a descending trend line connecting the January high of $1.5373 and the February peak of $1.4986.” Given that the Pound has since sunk back below $1.45, it can be reasonably discerned that a cluster of sell orders were executed at this level.

Over the longer-term, the prognoses for the UK economy generally, and the Pound specifically, are not good. Thanks to a low exchange rate, inflation is actually rising. It is perhaps a welcome development, since it indicates that the UK was (temporarily) averted deflation, but it could also be a product of the quantitative easing plan announced earlier this month, whereby the Bank of England will flood the banking system with newly minted money.
Pound Moves up Cautiously as Risk Aversion DeclinesSocialTwist Tell-a-Friend

Euro Higher as Stocks Rebound But Data Threatens with German CPI to Hit 6-Year Low (Euro Open)

The Euro rose against the US Dollar in overnight trading as Asian stocks extended the biggest weekly rally since late August 2007. The single currency may see pressure in the coming session with Germany’s Consumer Price Index set to print at the lowest in 6 years.

Key Overnight Developments

• New Zealand Economy Shrank at Fastest Pace Since 1992
• NZ Trade Balance Rises as Imports Fall More than Exports
• Japan’s Annual Retail Sales Fall Most in 7 Years

Critical Levels

The Euro added 0.4% while the British Pound rose 0.3% against the US Dollar in overnight trading. The greenback retreated as stocks extended the biggest weekly rally since late August 2007, with the MSCI Asian Pacific Index trading 0.6% higher.

Asia Session Highlights

New Zealand’s Gross Domestic Product fell -0.9% in the fourth quarter, bringing the annual rate of decline to a 17-year high of -1.9% in the year through December 2008. Yesterday, the International Monetary Fund said they expect New Zealand’s economy to shrink about 2% through 2009, noting that “households are constrained by high debt levels, falling house and equity prices, and uncertain employment prospects.” Still, overnight index swaps suggest the market is pricing a limited scope to further interest rate cuts, calling for at most a 25 basis point cut in April and no net change in a year from now.

Separately, the Trade Balance deficit narrowed substantially more than economists expected in February, showing a monthly surplus of NZ$4.8 billion. The annual trade deficit, a more accurate measure of the trend in trade flows because of the volatility in month-to-month data, narrowed for the second consecutive month to print at –NZ$5.2 billion in the year to February. While this looks good on the surface, the improvement in the headline figure came not from robust export growth but rather owed to the impact of deepening recession on consumer spending. Indeed, imports fell at an annual pace of -14.2%, outpacing the -6.6% drop in exports.

In Japan, Retail Sales fell for -5.8% in the year to February, the most in 7 years. Dwindling overseas sales are continuing to push Japanese companies to cut back production capacity, boosting unemployment to put downward pressure on consumer spending and overall economic growth. Deepening recession is beginning to translate into deflation: the Consumer Price Index slipped into negative territory for the first time in 16 months in February, shrinking at an annual pace of -0.1%. The current downturn could substantially accelerate if expectations of falling prices become entrenched, encouraging consumers and businesses to perpetually put off spending and investment waiting for the best possible bargain, thereby putting the brakes on economic growth altogether.

Euro Session: What to Expect

Germany’s Consumer Price Index is set to add a meager 0.1% in March, bringing the annual pace of inflation to a 6-year low at just 0.7%. Anemic economic performance has pressured price growth lower as Germany struggles increasingly deepening recession. The economy shrank -1.7% in the fourth quarter and current expectations call a -2.5% contraction through 2009, the deepest downturn since World War II. The slump is set to push inflation into negative territory, threatening to amplify the current malaise as expectations of falling prices encourage consumers and businesses to wait for the best possible bargain, perpetually putting off spending and investment.

For their part, the European Central Bank is expected to respond with an additional 25 basis point interest rate cut on April 2nd, with borrowing costs set to bottom at 1% through the second quarter. The ECB’s hesitation to commit to aggressive easing may pose substantial political risks down the road: calls to un-tether national monetary capabilities from Trichet’s measured approach are likely to find greater favor as the downturn hits home for an increasing percentage of Europeans, threatening to aggravate electorates against currency union. The reality of this structural threat to the Euro was reinforced earlier this week as the ECB President visibly tried to downplay it in a recent Wall Street Journal interview.

In the UK, the final revision of fourth-quarter Gross Domestic Product is expected to confirm that the economy shrank -1.5% in the three months to December 2008, the most in nearly three decades. Retail Sales fell substantially more than expected yesterday as rising unemployment continued to weigh on consumption, threatening to deepen the current downturn. The IMF has predicted that the UK will see the worst recession among the G7 nations. Separately, the Current Account deficit is set to narrow to -5.9 billion pounds in the fourth quarter, down from -7.7 billion in the three months to September. The reading suggests that trading terms deteriorated at an annual pace of 12.1% through 2008.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Higher as Stocks Rebound But Data Threatens with German CPI to Hit 6-Year Low (Euro Open)
Euro Higher as Stocks Rebound But Data Threatens with German CPI to Hit 6-Year Low (Euro Open)SocialTwist Tell-a-Friend

Trader Sentiment And Risk Appetite Hinge On Next Weeks G 20 Meeting

The market’s barometers of risk are showing steady improvement, just like many key instruments; however, the burden of uncertainty and threats of financial shocks are just greater now than they were a few weeks and months ago. Market participants are now left to discern whether the rebound in relatively high yield/ high risk assets is genuine or a relief rally as the eye of the storm passes.

• Trader Sentiment And Risk Appetite Hinge On Next Weeks G 20 Meeting
• Will Global Policy Makers Agree On A Coordinated Effort And New Reserve Currency?
• Is Protectionism The Next Threat To Market Sentiment?

The market’s barometers of risk are showing steady improvement, just like many key instruments; however, the burden of uncertainty and threats of financial shocks are just greater now than they were a few weeks and months ago. Market participants are now left to discern whether the rebound in relatively high yield/ high risk assets is genuine or a relief rally as the eye of the storm passes. Taking measure, we can see that most of the favored gauges for market sentiment are producing impressive improvements. Each day the equity market climbs, news headlines splash impressive statistics of its performance. For example, now at a four-week high, the S&P 500 is working on its best monthly performance in 35 years. Elsewhere, credit default swaps have dropped to their lowest levels in five years while the TED spread (the difference between the rate on the three-month US government notes and equal tenor Libor) has held close to its multi-year lows. It is the currency market however that provides the most interesting readings as reflects the seeming rebound in risk while also showing the changes that have developed between a calm in current market conditions and those from just a few years ago. The Carry Trade Index is in its most consistent rally since Spring of 2008 while the DailyFX Volatility Index extends its drop from December highs. On the other hand, it is no longer clear which currencies are safe havens and which promise outsized returns. If the outlook for health of the global financial system and economy were clear, this would not be an issue.

Indicators are frequently misinterpreted; and sometimes lose their relevance in certain market conditions. Considering the fundamental uncertainty that persists across the world, it is prudent to remain skeptical of the immediate recovery of investment confidence that will precede an influx of capital back into the speculative markets. This past week, policy officials increased their efforts to prevent what is now a severe recession from turning into a depression. Definitions for this state are loose, but its essential components are a sustained downturn in growth; high volatility in exchange rates; bankruptcies; severe restrictions on credit; and stunted trade. All of these circumstances have been met to this point; and a few of them are set to deteriorate further. At this point, the health of the global economy and the flow of money is a problem that must be addressed by every nation. However, only a few major players have made the effort with introducing massive stimulus plans, funds meant to draw out toxic debt, guarantee sound investments and bolster liquidity. This is the contention that leaders from the US and UK will bring with them to the G-20 summit on April 2nd. If there is no tangible and coordinated plan to come out of these meeting of nations, this rebound in optimism may very well collapse. With growth expected to slow further in the first half of 2009, protectionist threats rising and options running short; the future is fragile.

Written by John Kicklighter, Currency Strategist
Article Source - Trader Sentiment And Risk Appetite Hinge On Next Weeks G 20 Meeting
Trader Sentiment And Risk Appetite Hinge On Next Weeks G 20 MeetingSocialTwist Tell-a-Friend


EUR/USD Volatility the Order of the Day

Many forex traders in the market would be blind to have not noticed the sharp volatile movements occurring in the world's primary currency pair: the EUR/USD. This tug-o-war between the two largest world currencies comes about as each side takes aggressive steps to combat the recent recession. As the U.S. continues to publish positive economic data, and the Euro-Zone considers taking steps similar to those taken in the States, this pair's sharp volatility will no doubt continue through to next week.

USD - Dollar Falls on Increased Risk Appetite

The Dollar finished Thursday's trading session lower against a number of its currency pairs after U.S. Treasury Secretary Timothy Geithner said he was open to expanding the use of the International Monetary Fund's (IMF) special drawing rights. As of yesterday's close, the USD fell against the EUR, pushing the currency pair to 135.69. The greenback experienced similar behavior against the CHF as the pair fell from 1.1299 to 1.1227 by day's end.

A disappointing Treasury note auction reversed an early rally in U.S. stocks, but investors ultimately shrugged off that disappointment and focused on the strong economic data. The government reported that New Home Sales in the U.S. unexpectedly rose in February from a record low, as plummeting prices and cheaper mortgage rates lured some buyers, while U.S. orders for long-lasting manufactured goods also unexpectedly rebounded in the same month.

However, demand for New Homes has been limited by the highest jobless rate in a quarter-century and shrinking household wealth, indicating housing may not rebound quickly even as steps to cut borrowing costs and reduce mortgage defaults take hold. Therefore, investors in the coming weeks may unwind their Dollar positions, as they realize that the U.S. economy has a long road ahead for economic recovery.

Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains. In the short-term, the Dollar may continue to fall against the EUR, as traders look to take-up riskier assets.

EUR - EUR Appreciates Despite Negative Figures

After a relatively negative news day in the Euro-Zone, the EUR still managed to appreciate against most of its currency counterparts. The EUR gained nearly 100 points versus the Dollar, and closed at 1.3569. Against the CHF it mainly fluctuated within a small range, as the pair closed at 1.5231. The EUR climbed against the Pound by an impressive 120 points to close at 0.9301. The European currency also made some impressive gains against the Yen, to close Wednesday's session 85 points higher at 132.67.

The major economic event that came out of the Euro-Zone yesterday was the German Ifo Business Climate data release. German business confidence fell to the lowest level in more than 26 years in March, adding to signs that the recession is deepening in the Euro-Zone's biggest economy. Analysts expect the negative data release to add additional pressure on the European Central Bank (ECB) to make another interest rate cut in the near future. This may affect the EUR in the long-term, but in the short-term forex traders are taking advantage of the EUR to make gains on the high yield of the currency.

Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the GfK German Consumer Climate at 7:00 GMT. Analysts are forecasting this figure to slightly decrease from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to bolster the EUR in the short-term. Traders are also advised to follow the Retail Sales figures coming out of Britain at 9:30 GMT, and the Unemployment Claims figures coming out of the U.S. at 12:30 GMT as these results may set the EUR's main currency crosses going into next week.

JPY - Yen Continues its Slide against the EUR

The Yen completed yesterday's trading session with mixed results versus its major currency pairs. The JPY was broadly unchanged versus the USD on Wednesday and finished the trading session at the 97.77 level. The JPY also saw bearishness against the EUR as the pair jumped by a notable 85 points to close at 132.67. Over the past month the pair has risen over 2,200 points as investors lost confidence in the Japanese currency. The JPY did make some impressive gains yesterday, however, against the GBP to close up nearly 90 points at 142.63. On a larger note, this only marks a slight reversal in the 2 currencies, as the JPY fell dramatically against the GBP in this week's trading.

Japan's export collapse may push sentiment among the nation's largest manufacturers to the lowest level in more than 30 years in March, triggering more investment cuts and job losses. Export declines have set new records each month since November, as U.S. and European consumers have retrenched. The collapse in U.S. sales forced Toyota to cut thousands of jobs and slash domestic production by half this quarter. The automaker may not raise output until after the 3rd quarter of this year. Today, forex traders are advised to follow data releases coming out of Japan, the U.S., the Euro-Zone and Britain as these results are likely to set the short-term strength of the JPY.

Crude Oil - Oil Prices Strong Despite U.S Crude Oil Inventory Rises

Oil prices remained strong yesterday, as they only slid 12 cents, even though U.S. Crude Oil Inventories rose by a higher-than-forecasted 3.3 million barrels. The International Energy Agency (IEA) said that the inventories rose to 356.6 million barrels, which is 15.6% above price levels from one year ago, the highest level since 1993. If it wasn't for the inventories data, Crude prices may have risen by several percent, as the U.S. released some impressive economic data. However, the New Home Sales and Core Durable Goods data helped prevent Crude prices from slipping on Wednesday.

It is important to take into account that Crude Oil prices have risen through the past 2 weeks, as the U.S. government plans to buy up toxic assets from banks. Additionally, the U.S. has continued to release a string of positive economic data. This has been compounded by a weaker Dollar that has also caused investors to flee to commodities such as Crude Oil. Furthermore, if the U.S. continues to publish more positive economic news, and if the American government continues to be aggressive in tackling the current financial crisis, then Crude prices may hit $60 Dollar by the middle of April.

Article Source - EUR/USD Volatility the Order of the Day
EUR/USD Volatility the Order of the DaySocialTwist Tell-a-Friend

British Pound in Play with UK Retail Sales to Shrink For First in Four Months (Euro Open)

The British Pound may see selling pressure in European hours with UK Retail Sales set to drop -0.4% in February, the first decline in four months. Overnight data saw New Zealand’s Current Account deficit widen to a record level in the fourth quarter while a leading economic index from the Conference Board added to evidence that Australia will see recession in 2009.

Key Overnight Developments

• New Zealand Current Account Deficit Widens to Record Level in Q4
• Australian Economy Shrinking At Pace Unseen Since 2001, Says Conference Board

Critical Levels

The Euro traded sideways in a choppy 60-pip range above 1.3550 in the overnight session. The British Pound inched higher, adding as much as 0.5% against the US dollar to test above the 1.46 level.

Asia Session Highlights

New Zealand’s Current Account deficit widened more than economists expected, showing a shortfall of –NZ$4.03 billion in the fourth quarter. In annual terms, the deficit widened to a record –NZ16.07 billion in the year to December. The deficit now amounts to 8.9% of the economy’s total output, the largest among industrialized countries, and is expected to remain higher than New Zealand’s counterparts at least through 2010. Standard & Poors has said that it may cut the country’s sovereign credit rating on concerns that it won’t be able to adequately fund the shortfall. If this proves to be the case, it will imply a net outflow of money out of the country and threaten the value of the currency. Adding to the dour outlook, the International Monetary Fund said today that it expects New Zealand’s economy to shrink 2% through 2009, noting “households are constrained by high debt levels, falling house and equity prices, and uncertain employment prospects.”

Australia’s Conference Board Leading Index fell for the fifth consecutive month in January, printing at -0.6%. The reading is intended to forecast how the economy will perform in the next three to six months. The component measuring new building approvals led the decline, reflecting the deepening global recession and credit shortage that has steered consumers away from big-ticket purchases. In a statement accompanying the release, the Conference Board noted that “the leading index is now falling at rates not seen since 2000-01,” adding to evidence that Australia will sip into recession this year. A leading index published by Westpac Banking Corp echoed the same sentiment last week, falling to levels “consistent with contracting economic activity.” Australia’s GDP unexpectedly shrank -0.5% in the fourth quarter, the first negative print in 8 years, with a recession confirmed should the economy contract again in the three months to March. Minutes from the last policy meeting of the Reserve Bank of Australia said the central bank has “flexibility” to cut interest rates further, with overnight index swaps pricing in 25-50 basis points in easing over the next 12 months.

Euro Session: What to Expect

UK Retail Sales headline the economic calendar in European hours, with expectations calling for a -0.4% drop through February, the first negative reading since September, to bring the annual growth rate down to 2.5% from 3.6% in the preceding month. Rising unemployment is likely to weigh on disposable incomes, pressuring spending lower. Private consumption is the largest component of overall economic growth, so weakness here bodes ill for Britain’s ability to climb out of the current downturn. Indeed, the IMF has predicted that this time around the UK will see the worst recession among the G7 nations. A final revision of fourth-quarter GDP figures later this week is set to show that the economy shrank -1.5% in the three months to December 2008, the most in nearly three decades.

Although consumer prices rose in February, the uptick is unlikely to be reflective of a rebound in economic activity. Rather, the rise probably owes to currency depreciation, making foreign-made products more expensive for British consumers. Indeed, the British Pound slipped -0.8% against the currencies of its top import partners in February and a hefty -29.5% through 2008.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound in Play with UK Retail Sales to Shrink For First in Four Months (Euro Open)
British Pound in Play with UK Retail Sales to Shrink For First in Four Months (Euro Open)SocialTwist Tell-a-Friend

Dollar Stalled By Threat to Its Reserve Currency Status

The Economy And The Credit Market

Last week, dollar traders and the broader market were surprised to see the Fed officially announce its intentions to buy Treasuries and double its purchases of mortgaged backed securities. This week, concern over the health of the US currency is far greater. Not only is the US economy ailing and its fiscal deficits ballooning; but now there are concerns that the world may eventually vote to replace the dollar as the world’s reserve currency with a basket or what China has called a ‘super-sovereign reserve currency.’ As the world’s largest holder of US Treasuries, their concerns are taken seriously; but this is an issue that has been made even more pressing by the fact that Russia and UN among others have voiced similar opinions. US President Obama, Treasury Secretary Geithner and the Fed’s Bernanke have all brushed off concerns over the dollar’s health and suitability; but this is no doubt going to be a topic brought up at next week’s G-20 meeting. Considering the group’s history of inaction however, the likelihood that such a drastic shift will be adopted is low.

A Closer Look At Financial And Consumer Conditions

Investor sentiment has improved rather rapidly over the past week; but the overall health of the financial markets is still in the doldrums. As the risk of protectionism rises and calls from economic leaders to other economic leaders to do more grow louder, the global nature of the financial and economic crisis has manifested itself. Recently, the US has taken its major counterparts to task for not increasing their efforts to brace their own economies; to which many respondents have suggested America is digging itself into a hole. Regardless of which side is correct, it is starting to look more and more like the US, China and UK are expected to take the lead for reviving the world.

As debate over the dollar’s role as a safe haven and reserve currency, the limits to US bailout efforts and the feasibility of sentiment in the financial markets rage on; the world’s largest economy is still dealing with what is likely its worst recession since the Great Depression and probably one of the worst contractions in the industrialized world. Over the past week, second tier data has started to hint at stabilization. Both factory orders and housing sales have shown significant improvements; but this comes within the worst trends on recent record. Until employment, consumer spending, mortgage approvals and construction improve, the trend is still down.

The Financial And Capital Markets

Capital markets have extended their biggest rally in months (and for some asset classes it has been the biggest rebound in years). Such an incredible rally has obvious led many market participants to question whether this is the sign of a genuine recovery that so many have been waiting for. However, when searching out a true source for investor confidence, there are few leads that promise to snuff out risk and revive expected returns. A frank assessment of the global economy leads us to a severe recession that is likely to grow worse before it improves. Hope for returns through increased fixed investment, rise in production (by way of demand), and an influx of capital into the markets is fleeting at this point. The most poignant factor for the health of the capital markets is investor confidence. Even if growth recovers and business revenues pick up; the bear market to this point has wiped out significant levels of capital and changed market dynamics permanently.

A Closer Look At Market Conditions

It is a common saying that there are rallies in a bear market. This is the adage to keep in the back of our minds as both the equity and commodity markets extend their aggressive rebounds. The surge in stocks has been particularly bold; so it stands to reason to be especially cautious. The S&P 500 is working on its best monthly performance since 1991 despite expectations for the US recession to deepen and obvious problems with global policy makers establishing a coordinated plan to turning the recession and financial crisis around. A rebound in commodities is more encouraging as its speculative interest is lower; but it still does not confirm a true recovery.

Though it is still uneven, risk trends are showing additional signs of improvement. Over the past week, there was a sharp drop in credit default swaps that can be attributed to the Fed’s announcement that it was doubling is purchases of mortgage-derived securities, additional details on the US plan for a joint public/private fund to purchase toxic assets by Treasury Secretary Geithner and the progress for a clearing house to be established for the otherwise frozen CDS market. However, these are all plans that could take some time to actually implement and take effect. In the meantime, recessions are worsening, global bickering is ongoing and credit-related institutions are failing.

Written by John Kicklighter, Currency Strategist
Article Source - Dollar Stalled By Threat to Its Reserve Currency Status
Dollar Stalled By Threat to Its Reserve Currency StatusSocialTwist Tell-a-Friend


Euro Threatened with IFO Business Confidence Set to Fall to Lowest in 26 Years (Euro Open)

The Euro may extend New York session losses in European hours with Germany’s IFO Survey of business confidence expected to drop to the lowest level in 26 years in March. Overnight data saw Japan’s exports boosted by the cheaper Yen in February while New Zealand’s consumer confidence fell on rising unemployment in the first quarter.

Key Overnight Developments

• Japan's Merchandise Exports Boosted by Cheaper Yen in February
• NZ Consumer Confidence Lower in Q1 as Unemployment Rises
• Euro Consolidates, British Pound Lower in Overnight Trading

Critical Levels

The Euro consolidated daytime losses in overnight trading, oscillating in a 50-pip range above 1.3445 to the US Dollar. The British Pound trended lower, losing as much as -0.3% against the greenback.

Asia Session Highlights

Japan’s Merchandise Trade Balance printed better than expected February, showing an 82.4 billion yen monthly surplus versus expectations of a -20.0 billion yen deficit. The improvement came as exports gained a modest 1.3% while imports plunged 22.4% from the preceding month. The uptick in overseas sales may have been encouraged by a -7.9% drop in the value of the Japanese Yen through February, making goods cheaper for foreign buyers. We had expected the improvement having noted after manufacturing PMI ticked higher for the first time in six months in the same period.

On balance, the overall trade landscape remains decidedly bleak: the decline in export volumes has nearly doubled that of the drop in imports in the year to February, falling -45.4% versus a -25.5% reduction in outbound shipments. Dwindling overseas sales are set to continuing to push Japanese companies to cut back production capacity, boosting unemployment to put downward pressure on consumption and overall economic growth.

Japan’s annual trade surplus with the US, its chief trading partner, shrank to the lowest in 11 years through 2008. The tightening trade gap implies a net outflow of money from Japan and into the US, putting arguing for long-term upward pressure on the USDPY exchange rate.

New Zealand’s Westpac Consumer Confidence fell to 96.0 through the first quarter, down from 101.3 in the three months to December 2008. Dour sentiment is to be expected considering the unemployment rate stands at a 5-year high of 4.6% and is expected to rise to a whopping 6.4% through 2009. Weak consumer spending will deepen the worst recession that the antipodean nation has seen in 30 years, with fourth-quarter GDP expected to issue the fifth consecutive decline later this week, falling -1.1%.

Euro Session: What to Expect

Germany’s IFO Survey of business sentiment is expected to see the headline figure drop to 82.2 in March, the lowest in over 26 years. That said the Expectations component of the reading designed to forecast economic performance for the forthcoming six months is seen improving to 81.5 from 80.9. The result mirrors current forecasts calling for the economy to return to positive growth in the third quarter of 2009. Still, annual economic growth is set to fall -2.5% this year, the deepest recession since World War II. Overnight index swaps see the market pricing in a full percentage point interest rate cut from the European Central Bank when policymakers meet again on April 2nd.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Threatened with IFO Business Confidence Set to Fall to Lowest in 26 Years (Euro Open)
Euro Threatened with IFO Business Confidence Set to Fall to Lowest in 26 Years (Euro Open)SocialTwist Tell-a-Friend

A Busy News Days Promises High Volatility

After yesterdays relatively calm trading session, today the economic calendar is filled with high impact data that threatens to sow large volatility into the market. From the wide range of news reports, ForexYard advises its traders to pay special attention to the German Business Climate, the U.S Durable Goods Orders, New Home Sales, and Crude Oil Inventories.

USD - Dollar Rises as Investors See U.S Recovery

The U.S currency extended gains on its Japanese and European counterparts Tuesday as optimism about a U.S. government plan to remove bad assets from banks' balance sheets prompted investors to resume safe haven bets on the Dollar. The USD rose versus the Japanese Yen to 97.87 from 96.94 Yen and against the EUR to $1.3464, up from $1.3633 late Monday. The Dollar also gained support from a growing view among market players that the Federal Reserve's quantitative easing (buying U.S. Treasury debt that would massively expand the Fed's balance sheet) would not undermine the valuation of the Dollar as many initially thought. The greenback however, slipped against the Pound, down to $1.4778, the lowest since Feb. 10th which was pushed up by an unexpected rise in U.K inflation.

The Fed's plan that was announced on Monday by U.S. Treasury Secretary Geithner has caused the Dollar to halt last week's slide, prompted as the Federal Reserve said its massive balance sheet expansion would include buying government debt. But despite the fact that the initial reaction to Fed quantitative easing was to sell the Dollar, some market participants reversed their views. Perhaps the U.S. will lead the global economy out of an economic recession. Although quantitative easing could lead to inflation as the money supply expands, economists said the other option is not to do anything, which could have more dire consequences for the dollar due to deflation and economic stagnation. It appears that in the long run the U.S. recovery plan has been benefiting the Dollar against both the Yen and the EUR.

EUR - EUR Slips vs. Dollar but Firm vs. Yen

The EUR came under pressure as Euro-Zone policy makers suggested Interest Rates in the region could fall further, just as data showed manufacturing and services sector activity continued to contract significantly. The currency fell 0.9% against the Dollar to $1.3508, down from the two month peak of $1.3739 touched last week. Against the Japanese yen the EUR rose 0.1% to 132.40 Yen having earlier struck 134.50 Yen. The European Central Bank (ECB) has announced that it has not used up all its room to maneuver Interest Rates. The news followed comments overnight from ECB President Jean-Claude Trichet, who again said the benchmark Rate could be cut to help kick-start the Euro-Zone economy.

On top of that, there was more negative news on the Euro-Zone economy, with key gauges of Euro-Zone services and manufacturing showing weal economic activity as firms slashed jobs and prices. The British Pound however, surprised with a rise of 0.7% against the USD at $1.4672 after data showed British annual CPI inflation rose to 3.2% in February from 3.0% in January. The Pound slumped 23% versus the EUR and 26% against the dollar last year as the U.K. economy slipped into its first recession since 1991 amid record losses at the nation's banks, prompting the Bank of England to cut the main Interest Rates to a record low of 0.5% in 2009. In yesterday's trading the GBP strengthened to 91.73 per EUR, the highest level since March 16, from 93.56 pence. Against the Yen, the currency jumped as much as 2.7% to 145.09, the strongest level since Dec. 1st. The U.K. currency may further advance against the USD toward $1.50 by May, if the GBP breaks through the key level of $1.4650.

JPY - Yen Declines as the Demand For Save Heaven Currency Diminishes

The Japanese currency inched up against the EUR and the AUD on Wednesday, pulling away from this week's five-month low as a drop in Japanese equities tempered buying of higher-yielding currencies. The yen climbed to 131.39 per EUR from 131.81 late in New York yesterday, when it touched 134.51, the weakest level since Oct 21st. Although the Yen has regained some ground after dropping on Tuesday to a 5-month low against the EUR and a 4-month trough versus the Australian dollar, it is likely to stay on the back foot, analysts have said. The JPY reaction was subdued to data showing Japan's trade balance returned to a surplus in February. The 82.4 billion Yen ($841.6 million) surplus contrasted with economists' forecasts for a deficit of 10.9 billion Yen. The surplus comes after Japan posted its largest deficit ever in January, when exports fell sharply due to a slowdown in the global economy.

The Yen role as a safe haven currency has apparently diminished, and there has been little reason for traders to buy the yen actively. Investors were also reluctant to buy the Yen with the Bank of Japan having raised the amount of government debt it buys outright to thaw credit markets. Instead, investors continue to favor currencies whose central banks have Interest Rates above zero and look unlikely to use quantitative easing to get their economies moving, such as the Australian dollar.

OIL - Oil Remains Steady Ahead of U.S. Supplies Data

Crude Oil prices rose slightly on Tuesday after U.S. stock markets bounced off their lows amid optimism that the government's plan to unburden banks of soured assets could help shore up the U.S economy. The gains were limited however, as dealers awaiting a round of U.S. Crude Oil Inventories data that analysts expected would show an increase in Crude stockpiles. Crude Oil rose to settle at $53.98 a barrel after hitting a 3 month high of $54.20 earlier in the day. Analysts said they expected Oil inventory data to be released by the U.S. Energy Information Administration on Wednesday to show a 1.2 million barrel build in crude stockpiles.

Energy demand in the world's biggest consumer economy has been hard-hit by the economic meltdown, buffering inventory levels as global consumption has been shrinking for the first time in a quarter century. Oil prices have climbed from under $33 last December, partly due to aggressive supply cuts from the Organization of Petroleum Exporting Countries (OPEC), but remain almost $100 below last summer's peak. OPEC agreed to hold output targets steady at its meeting in Vienna on March 15th due to concerns that higher prices may harm an ailing global economy. Ministers pledged to tighten compliance with record cutbacks agreed on last year to bolster Crude Oil prices.

Article Source - A Busy News Days Promises High Volatility
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ForexYard - Trading Made Easy

To make a living from Forex trading, you need a reliable trading platform that is easy and convenient to use and offers the same tight spreads to large and small players alike. You also want a system that offers the ability to test your trading approach before committing real money.

Forex Yard is an online foreign currency exchange trading service. It is designed so that a new trader can sign up and start trading in a matter of minutes. The service consists of online trading tools, access, and educational programs for both beginners and expert traders to use, as well as a downloadable software trading platform. The organization believes strongly in education as the best means to expert trading, so the learning tools are extensive. Based in Cyprus, Forex Yard was designed by professional Forex traders, as well as internet and financial sector specialists, and the service caters to international traders.

Advantages of using ForexYard

ForexYard is an online trading platform that offers variety in all aspects of the trade and this is why it has become one of the better known online foreign currency trading facilitators in today’s market. One of the clear advantages with their system is that you can use it pretty much anywhere there is an internet connection. The reason for this, is that you have the choice of trading using both a web based Java system and downloading ForexYard’s own free Forex trading software to your own computer . The web based Java system means you don’t need any special software which would restrict your online trading ability to your own PC or laptop. They also have free trading station software that you can also download, though this is not necessary to be able to trade. This provides you with more sophisticated decision making tools.

A very important feature on ForexYard is the ability to trade in commodities. Gold is a growth market during recession and Silver is likely to have a rally after dropping nearly 1/3 last year. Another one of the benefits of Forex trading is the massive amount of leverage that traders can employ. ForexYard gives its traders 200:1 leverage (meaning, a customer must have 0.5% of the value of their positions in their trading account in order to execute a trade.

ForexYard offers a neat little “virtual trading” demo-account facility. You can practice trade, using real-time quotes and full platform functionality, but only risking “pretend” money. This is a great way of testing out trading systems, particularly if you use technical analysis as your decision making tool. Finally, they dedicate a whole section of their website to Forex training and education. This includes a section on charts and technical analysis techniques.

Another attractive feature of their service, is that you can make a decision to sign up online and start trading within minutes using your credit card (Visa, MasterCard, Diners Club, Maestro) or bank wire to fund your account. You can make a decision to join them and be “out there doing it” almost immediately. They are also very big on credit card security and your personal privacy as well. With a “SuperMini” account, you can start trading with as little as $100.

ForexYard boasts that they never freeze their spread prices. This is common with other market makers when price spikes occur. A trader’s worst nightmare is getting frozen out and unable to exit when a sudden price move, either in your favor or otherwise, takes place. ForexYard has a policy of fairness for all. They want to provide their less experienced clients with every possible advantage and consequently, provide tighter spreads across the board. These were once only available to more experienced account holders, while less experienced clients were given spreads 1-3 pips higher. Their “universal pip rate” has dispensed with this discrimination, so that new traders receive exactly the same spreads as professional clients.

What ForexYard offers?

Guaranteed Limited Risk - If your equity drops below what you can cover then the deal closes out so you are not left owing.

Training - An excellent tutorial package allowing traders of all levels to learn and develop trading technique, this is totally free with ForexYard.

Security - Using the latest SSL encryption technology, you can trade safe in the knowledge that your personal details are protected by the latest anti-fraud techniques.

Customer Service - All traders have access to a dedicated, 24-hour Support Center. Here you can receive help on any technical issues with your account, plus up to date advice on the markets. This is extremely useful and important because the staff all has great experience in trading.

Languages - ForexYard trading platform is available in the following languages: Chinese, Turkish, Spanish, German, Arabic, English, French, Norwegian, Finnish & Swedish.

Depositing - The minimum deposit at ForexYard is $100 and they accept the following methods: Credit Card, Neteller, Wire Transfer, Paypal, Western Union, MoneyGram and WebMoney.

Types of Account

ForexYard Super Mini - ForexYard has an excellent starter membership called the SuperMini Account. These accounts are 1/10th the size of a Forex standard account meaning new Forex traders can start learning and earning, without a large initial outlay.

ForexYard Standard Accounts - ForexYard Standard accounts are set up for the more experienced Trader. There is more variety on the spreads with the standard size being 10,000 base currency per trade. That’s 10 times more than the Super Mini, so your risk is higher, but so are the gains.

VIP Services - ForexYard offers VIP services which are often described as Trading Big Guns. They offer consultation and will work to tailor a package that meets your trading needs.

What can we expect in the future?

You can expect the same high level of service you are used to with a lot of improvements. First and the most important one will be the introduction of EA (or Robots as they are also known). At the moment ForexYard doesn't support EA's, although they will be releasing a new account type on their platform shortly with a specific EA built in. I will be happy to let you know about this once the new account type has been launched so that you can start using this service.


ForexYard offers two different things that is considered to be absolutely necessary in any trading platform, customer support and all the help you need to gain more knowledge. It doesn't matter how long you have been trading on the Forex market, you will never get tired of knowing that you can pick up the phone, 24 hours per day and talk to someone about your account. The tutorials on ForexYard are also top notch and will help everyone, from the raw beginner to the seasoned trader. I highly recommend ForexYard to everyone because of their easy-to-use system which is suitable for beginner’s as is for expert traders. If you don’t have a trading platform yet or you aren’t satisfied with the current one, join ForexYard and I am sure you won’t regret it.

ForexYard - Trading Made Easy

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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.


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!