3.23.2009

A New Valuation for the Dollar

The announcement of a quantitative easing program by the Fed sent the Dollar dramatically lower against the major currencies. Traders may look to compound on the large price adjustment as short term forecasts are predicting further weakness in Dollar denominated pairs.



USD - USD Strength Not Likely to Return this Week

Last week's decision by the Federal Reserve to buy up U.S. Treasury securities has generated one significant result: an across-the-board sell-off of the USD. Jumping an unprecedented 334 points against the EUR directly following the announcement last Wednesday, the Dollar has continued to take hits through the end of last week and today. Two primary results occurred as a result of this sell-off. The first, as was just mentioned, was a volatile decreasing movement in the Dollar's pairs and crosses. The second was a subsequent rise in the value of commodities like Crude Oil, which hasn't seen such an upward movement since September.

With the global economy worsening consistently over the previous few months, major economies, such as the United States, are taking whatever measures they can to salvage their economic systems before a collapse takes place. One investment maneuver undertaken by many traders during economic hard times is to invest in a safe-haven currency, like the USD. This explains the influx of Dollars being purchased over the preceding months, which likewise drove the value of the USD to an inflated high. One perception of the recent turn of events might state that the USD is not crashing down or weakening, but rather, returning to its more realistic value.

One thing many forex traders can be sure of is that the downward movement of the USD is not likely to cease in the short-term. At the moment, the U.S. Federal Reserve is basically printing almost $1 trillion worth of new currency. Regardless of any speculation about future price levels, the present moment dictates that the greenback must come down, at least for now. The economic calendar might lend some strength to the USD in the form of potentially positive housing data, however. Could this information be enough to prevent the continued fall of the Dollar?

EUR - Will the EUR Hold its Recent Gains?

A bullish EUR appears to be the order of the day lately. After the U.S. Federal Reserve announced its quantitative easing program, the EUR climbed to a high not seen in months against its primary currency rival, the USD. Shooting above the 1.3700 mark last Thursday and Friday, the pair appears to have settled down slightly at the beginning of this week starting with a small increase in value from 1.3582 to 1.3656 so far. Against the Pound, the EUR has also seen some small gains in today's early trading hours; currently trading at 0.9416.

While many analysts anticipate the USD to grow significantly weaker in the coming days, there is also talk of similar quantitative easing strategies being implemented in the Euro-Zone by the European Central Bank (ECB). If such a move were to be taken by the ECB there is a possibility of a mad dash to sell-off the EUR similar to what occurred to the USD last Wednesday. Could there be a race to the bottom between these 2 currencies?

Most importantly this week, traders are going to see a sizeable amount of economic data from the Euro-Zone, primarily on Tuesday with the announcement of multiple French and German manufacturing and production figures. If we see a continuation of negative data from this region, there is a high possibility of the Euro-Zone implementing measures similar to what the Fed did for the U.S. economy. If this happens, expect the EUR to put a halt to its recent gains, and most likely reverse against most of its pairs and crosses by sometime this week or next.

JPY - Yen Weakness Prevalent at the Start of this Week

The JPY has seen some odd behavior this past week. Appreciating against the USD directly after the announcement of the Fed's new quantitative easing program, the JPY actually lost value against most other currencies. This highlights two important analytical points. First, the USD's recent weakness is due to the Fed's program and not a coincidental strengthening of other currencies. Second, the JPY is in fact weakening as a result of monetary policies undertaken by the Bank of Japan (BoJ) recently.

Trading up at 96.38 against the USD, and down at 131.82 against the EUR, the JPY may actually begin to post steady losses throughout this week due to recent actions by the BoJ to lower the value of the Japanese currency in an effort to boost exports. A steady release of economic figures this week may demonstrate the inherent weakness of the JPY and thus push its value lower against all currency pairs, or it could show that the Japanese economy is beginning to rebound and thus spark a trend reversal for the Yen. Only time will tell.

OIL - Oil Rises beyond $50 a Barrel; Upward Movement to Continue?

As part of the weakening USD seen last week, the price of Crude Oil has seen a corresponding increase in value. The price for a barrel of Crude Oil climbed above the $50 mark last Friday and appears to be continuing in an upward direction. No doubt the quantitative easing taking place in the U.S., thereby weakening the Dollar, has carried an impact on the price of this commodity since it is traded in Dollars.

Secondly, the price for a barrel of Crude Oil is affected by supply as much as it is affected by the strength of the USD. With production cuts beginning to take effect, the Organization of Petroleum Exporting Countries (OPEC) has declared that Crude Oil prices appear to be stabilizing and may return to a more suitable price level in the nearest future. As long as the USD continues to weaken and equity markets remain in a somewhat bullish posture, the price for a barrel of Crude is not likely to go south anytime soon.

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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!