Sudden USD Weakness Shakes the Market

Investors fled the USD en masse yesterday after the U.S. Federal Reserve stated that it would begin quantitative easing - basically printing money - in order to revive the U.S. economy hopefully by the beginning of next year. After such a devastating loss in value, traders now have the opportunity to discover a new range for the value of the USD and will begin to do so throughout the rest of this week. Once stabilized, the USD may in fact begin to climb back up as it returns to safe-haven status in the coming weeks.

USD - Dollar Plunges on Federal Reserve Plan

The greenback dropped on Wednesday, hitting a 2-month low against the EUR on speculation the Federal Reserve is debasing the U.S currency. The Fed has said that it will buy $300 billion of long-dated U.S. Treasuries over the next six months to boost the U.S. economy, thus contributing to the Dollar sell-off. As a result, the USD may extend further losses as the Fed is preparing to flood the market with Dollars. This move is likely to diminish the appeal of the Dollar as a safe-haven and lead to further weakness of the U.S currency; it might slide to $1.37 per EUR in the upcoming days.

The Dollar was traded at $1.3485 per EUR yesterday, after depreciating as much as 3.6%, the biggest intra-day decline since September 2000! It earlier reached $1.3535, the weakest seen since Jan. 9th. The USD has also weakened 2.4% against the JPY, falling to 95.69 Yen, and against the British Pound Sterling down 1.2% to $1.4224, in yesterday's trading. The surprisingly strong move by the Fed comes after central banks in Britain, Japan and Switzerland have embraced some form of quantitative easing, the process of flooding the banking system with funds to promote lending when interest rates are already at zero.

The Federal Open Market Committee (FOMC) said in its statement yesterday that the central bank will buy longer-term U.S. government debt and purchase an additional $750 billion of agency mortgage-backed securities, in a policy known as quantitative easing. In its statement at the conclusion of its 2 day policy meeting, the Fed indicated that it is more pessimistic about economic outlook. Officials removed language saying they expected the economy to recover later this year.

However, some analysts have said that the Dollar weakness may not last long given the worsening economic conditions throughout the world. In their view, the Dollar will continue to be seen as the safest store of value at this time of contracting global growth and its role as a funding currency outside of Europe will lend it support during the crisis. The return of investor risk aversion and all the major central banks embracing quantitative easing will cause safe-haven seeking flows to resume and may push the U.S. dollar higher back toward its long-term fair value of $1.20 this year.

EUR - The EUR Rallies as a Result of Dollar Weakness

Yesterday, the EUR rose the most against the U.S. dollar in almost nine years, after the U.S. Federal Reserve said it will buy government debt, while the European Central Bank (ECB) has remained reluctant to match the Fed's steps. The EUR traded at $1.3493 rising as much as 3.7%, its biggest intra-day advance since 2000.

Analysts say that traders should expect the EUR to keep overshooting for now with the EUR/USD back toward $1.40. The EUR also jumped to its highest in three months against the JPY, climbing above 130.00 Yen. The ECB President Jean-Claude Trichet has said that the central bank is studying at the moment whether to take complementary measures that won't necessarily be the same as other central banks; the bank's benchmark rate is at 1.5% compared with 0.1% in Japan and as low as zero in the U.S. Economists expect that the ECB will now have to react rapidly to the Fed's monetization of government debt by also embracing quantitative easing with an announcement likely as early as the ECB's next meeting at the start of April.

The EUR also advanced versus the British Pound to its highest level in 7 weeks to 94.16 pence, after a government report showed unemployment increased in February at the fastest pace since at least 1971. The market is still very much concerned about the British economy and that there'll be more problems in the housing and banking sectors, analysts have said. The U.K economy will probably contract into next year after most of the Group of Seven (G7) economies begin to recover, economists predict.

JPY - Yen Remains Weak as BoJ Holds Rates Unchanged

The Bank of Japan (BoJ) said it would increase its purchases of government bonds from banks by nearly a third, pumping cash into the economy to help ease the worst recession since World War II. The central bank kept interest rates unchanged at 0.1% Wednesday, but also forecasted that the economy would remain under stress in the new fiscal year and said that substantial liquidity is required to ensure stability in financial markets.

The Yen-selling was limited, however, with repatriation by Japanese investors ahead of the fiscal year-end at the end of this month preventing the currency from falling too much. Against the EUR, the Yen steadied but remained weak, with the EUR staying close to an earlier 11-week high of 128.83. Against the Dollar, the JPY was up significantly trading around 95.50, after the USD dropped in value following announcements by the Fed about quantitative easing. The BoJ said overnight it was holding interest rates steady at 0.10% and increasing its outright buying of Japanese government bonds to 1.8 trillion Yen ($18.28 billion) per month from 1.4 trillion Yen. Yet the JPY showed little reaction to this news, as other central banks, notably in the UK and Switzerland, have already announced aggressive monetary easing measures.

Crude Oil - Crude Oil Prices Reverse Losses

Crude Oil prices rose more than 2% to above $50 a barrel on Thursday, after a surprise move by the Federal Reserve to buy government bonds revived hopes the battered U.S. economy could soon begin its recovery. Oil's rebound was also supported by a sharp drop in the USD, which posted its largest percentage drop since 1985, as the Fed's move, aimed at resuscitating lending, prompted a sharp fall in market interest rates.

The U.S. Federal Reserve on Wednesday stunned markets by announcing it would pump another $1 trillion into the ailing U.S. economy by buying long-term government debt for the first time since the 1960s, and by expanding its purchases of mortgage bonds. Still, analysts cautioned that a continued weakness in Oil demand could limit Crude's gains in the near term. Slowing demand and rising inventories have helped drag Crude Oil off record highs over $147 a barrel struck in July as the economic meltdown hit consumption across the globe. But oil prices, which sank to levels below $35 last month, have since stabilized in the $40-$50 range, as the Organization of Petroleum Exporting Countries (OPEC) cut output by 4.2 million barrels per day and vowed on Sunday to achieve stricter enforcement of existing curbs.

Article Source - Sudden USD Weakness Shakes the Market
Sudden USD Weakness Shakes the MarketSocialTwist 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!