Threat of the U.S. Auto Bankruptcy Boosts the Dollar

Turmoil in the U.S. auto industry had currency traders moving into safe haven positions of the Dollar and Yen. Further equity losses also contributed to a lack of confidence in the global economy and lower risk taking.

USD - Threat of Auto Bankruptcy Spurs Dollar Buying

The Dollar continued its appreciation yesterday as fears of bankruptcy filings in the U.S. auto industry sparked safe haven currency bets. Losses in U.S. equity markets triggered by autos and bank worries also helped to bring traders to the Dollar. The EUR/USD finished the day at 1.3190 from 1.3268, while the GBP/USD ended at 1.4256 from 1.4276.

Yesterday there was little reason for Forex Traders to take positions in riskier currencies. Over the weekend Treasury Secretary Geithner said some banks may need further capital injections. Also shaping the markets was the Obama administration's position that it may prefer a bankruptcy filing of an auto maker versus further bailouts. Now a looming threat of a General Motors or Chrysler bankruptcy filing hangs over the head of the market. A situation like this could have a detrimental effect on the financial markets as the debt of these two companies is widely held throughout the global financial system.

Looking to today's trading, traders should be aware of the release of Canadian monthly GDP at 12:30 GMT. The USD/CAD appreciated by 1.2% today as the market anticipates a contraction of Canadian GDP by 0.6% in January. If the result comes in worse than the forecasted value, look for the USD/CAD to rise close to the 1.2700 resistance level.

EUR - Is Inflation a Concern for the EUR?

The EUR appears to be in a correction as the currency's gains on the Dollar are unraveling. The currency has slid the past 2 days amid concerns of future monetary policy moves by the European Central Bank (ECB) and a drop in risk tolerance. Yesterday the EUR finished lower against the Dollar while the EUR/GBP fell to 0.9250 from 0.9312.

Market forecasts have the ECB slashing rates by another 50 basis points later this week. However a debate still rages whether the ECB will take further measures to ease the strained European credit markets through a program of buying long term government bonds. This would follow a move taken by the U.S. Federal Reserve and Bank of Japan. Yesterday ECB President Trichet addressed the European Parliament and said that the European economy has weakened since the beginning of the year. Also notable was the downgrade of the sovereign debt rating of Ireland.

Today the EUR may be impacted by the release of the yearly CPI Flash Estimate. It is an early indicator of inflation in the EU. Trichet yesterday mentioned that there is no significant risk of deflation and the ECB has set a target rate of inflation near 2%. The Flash Estimate is forecasted to rise by 0.7%. A higher number that contradicts Trichet's statement yesterday may hurt the EUR further during today's trading.

JPY - Yen Boosted by Risk Adverse Trades

Yesterday the USD/JPY saw heavy volatility on the heels of the Obama administration favoring an orderly bankruptcy of the American auto manufactures and large losses in equity markets. The pair ended at 98.15 from 97.75. The EUR/JPY also experienced heavy volatility yesterday, reaching as low as 126.40 to close at 130.05 from an opening price of 129.76. This was the strongest the Yen has been against the EUR in the past 11 days.

In early morning hours of the Japanese trading session, the Yen began to slip after Japanese unemployment numbers came in worse than expected. Some economists believe that unemployment rates may not yet have peaked. As the number of Japanese exports continues to decline, manufacturers will eventually cut back on costs in the form of further workforce reductions. Traders will be watching for the release of the Tankan Manufacturing Index later today. It is a key gauge of market sentiment in the Japanese economy. The release of poor results for this indicator could send the Yen lower against the other majors.

Oil - Crude Drops below $50

The price of Crude Oil has once again dropped below the psychological price level of $50. Crude Oil shed 4.5% yesterday as fears of bankruptcy for the Big 3 American auto manufacturers hurt the demand for Crude and sent equity markets lower. The recent recovery in the Dollar has also been a source of restrain in the price of Crude Oil.

The market has once again sent the price of Crude lower as the global economy shows very few signs of recovery. Continued job losses and equity losses have dropped the price of Crude Oil from last week's high of $54. Traders may not see any support today as the U.S. CB Consumer Confidence will be released today at 2:00pm GMT. Don't be surprised to see a gloomy reading from American consumers. This may send Oil lower today, near the $48 price level.

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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.

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!