3.25.2009

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.

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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!