Euro Rebounds Against US Dollar as Stock Markets Correct Higher (Euro Open)

The Euro advanced in overnight trading, adding as much as 0.8% against the US Dollar as corrected higher across Asian exchanges after yesterday’s selloff. Japan’s Leading Index slumped to the lowest since 1986, pointing to deepening recession. UK Industrial Production and German Current Account data are on tap in European hours.

Key Overnight Developments

• Australian Economy to Shrink 1% in 2009, Says NAB
• Japan’s Leading Index Falls to Lowest in 22 years
• Euro, British Pound Rise in Overnight Trading

Critical Levels

The Euro advanced in the overnight trading, reaching an inter-session high at 1.2680. The British Pound also pushed higher initially but gave up nearly all the gains ahead of the opening bell in London. For complete analysis of all the major currency pairs, please see the latest weekly technical outlook report.

Asia Session Highlights

Australia’s Business Confidence improved in February according to National Australia Bank (NAB), rising to -22 from a record low at -32 in the previous month. Still, the reading is firmly in negative territory and the overall trend is pointing decidedly lower. Indeed, NAB revised down its forecast for economic growth, saying output will shrink -1% through 2009 (versus previous forecasts of a -0.25% decline). Australia’s GDP shrank than economists expected in the fourth quarter, printing down -0.5%. An index of leading indicators compiled by the Westpac Banking Corp suggested the economy will shrink at an annual pace of -1.2% in the first half of 2009. Although the Reserve Bank of Australia said that the effects of monetary and fiscal measures already in place will “provide significant support to domestic demand over the period ahead”, overnight index swaps price in 100 basis points in additional easing over the next 12 months.

Japan’s Leading Index fell more than expected to print at 77.1 in January, the lowest since November 1986, signaling the world’s second-largest economy is set to sink even deeper into recession. The reading is a composite of 12 leading indicators and is aimed at showing the trajectory of the economy over the coming six to nine months.

Euro Session: What to Expect

Germany’s Current Account surplus is set to narrow in January to print at 9.2 billion euro from 12.3 billion in the preceding month. The seasonally adjusted decline in exports (-4.0%) is set to outpace the drop in imports (-3.5%) on dwindling demand for German manufactured goods. Indeed, factory orders have fallen -27.7% and industrial production has shed -12.0% in the year to December. On the capital side of the equation is likely to add to downward pressure: German stocks slipped -10.7% through January while the Euro lost -7%. The overall external balance for the Euro Zone has trended lower, down -67.3% through 2008. Meanwhile, the US trade gap has considerably narrowed, with December result showing the smallest monthly shortfall in nearly 5 years. From a long-term perspective, this implies a net outflow of money from the regional bloc and into the States, making for structural downward pressure on the EURUSD exchange rate.

In the UK, Industrial Production is set to fall -10.0% in the year to January while Manufacturing Production drops -11.7% in the same period. Dwindling global demand has weighed heavily on British industry and is likely continue to do so as 2009 brings the first global recession since World War II. This suggests firms will continue to reduce capacity and lay off workers, pushing the unemployment rate beyond the 9-year high at 3.8% registered in January. Job losses will weigh on disposable incomes, trimming spending and slowing the pace of economic growth. Indeed, the International Monetary Fund has predicted that the UK will see the deepest recession of all the G7 nations. In an effort to check the downturn, the Bank of England cut rates to a record-low 0.50% and signaled it would pursue quantitative easing. The implications of this could spell trouble for the British Pound. Manually expanding the money supply may prove profoundly inflationary as the eventual recovery materializes, eroding the currency’s value if lending rates do not rise fast enough to drain excess liquidity. Policymakers’ recognition of a rebound tends to lag behind its actual beginning, threatening to put the BOE behind the curve. On balance, this suggests the risks are to the downside in the long term sterling outlook.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Rebounds Against US Dollar as Stock Markets Correct Higher (Euro Open)
Euro Rebounds Against US Dollar as Stock Markets Correct Higher (Euro Open)SocialTwist Tell-a-Friend

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!