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)
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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.

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Good luck to everyone!