3.24.2009

US Dollar Follows Familiar Pattern, Declines as Asian Stocks Rise on US Bank Plan (Euro Open)

The US Dollar returned to a familiar pattern in overnight trading, falling in tandem with rising stock prices as the US bank rescue plan boosted risk appetite. The greenback notably deviated from this dynamic in New York hours when the plan was first revealed. Euro Zone Current Account and UK Consumer Price Index releases headline the calendar in the European session.

Key Overnight Developments

• Japan’s Finance Ministry Asked BOJ to Buy Corp Bonds, Say Meeting Minutes
• US Dollar Lower Overnight as Asian Stocks Rise on Geithner’s Bank Rescue Plan

Critical Levels



The Euro added as much as 0.5% while the British Pound added a full 1% against the US Dollar as the safe-haven currency declined in tandem with stock gains across Asian exchanges. The greenback had deviated from the inverse correlation with risk in US hours, rising along with stocks, but returned to form in the overnight session.

Asia Session Highlights



Minutes from the last meeting of the Bank of Japan revealed that the Finance Ministry asked the monetary policy body to “expand the scope” of its corporate bond purchase program to channel more liquidity to cash-starved firms and promote lending and investment. Policymakers worked out the details of the bond-buying scheme as well as agreed to extend currently running programs to purchase commercial paper and offer unlimited collateral-backed lending to the private sector. Some BOJ members expressed concern that firms may develop an over-reliance on the bank’s current liquidity-boosting measures and suggested that an “exit strategy” needs to be formulated.

The US Dollar shed as much as -0.3% in the overnight session as capital flowed out of the standby safe-haven bid and into risky assets. Asian stock exchanges extended the rally sparked on Wall St after US Treasury Secretary Geithner announced a $1 trillion scheme to rid banks of toxic assets. The MSCI Asia Pacific Index added 1.3%.

Euro Session: What to Expect



January’s Euro Zone Current Account reading is likely to see the deficit widen after showing a -7.3 billion euro shortfall in the previous month. Earlier this week, the trade balance portion of the metric printed worse than economists predicted, showing a -10.5 billion euro deficit versus -9.0 billion expected. Trading terms deteriorated -24.1% from a year earlier as the deepening global downturn dwarfed overseas demand for European products. Indeed, export volumes rose just 4.0% through 2008, the least in 5 years. The capital side of the Current Account equation is unlikely to offset losses from the trade component: the MSCI index of Euro Zone stock performance slipped -7.7% while the Euro shed -6.9% against other major currencies through January. Meanwhile, the external balance has been improving at an accelerating pace in the US: the bilateral trade gap with the European Union narrowed to just -$3.5 billion in December, the smallest monthly shortfall since September 2001 while the overall Current Account gap shrank to a 5-year low of -$132.8 billion. A widening deficit in the Euro area coupled with a contracting one across the Atlantic implies a net outflow of capital from the currency bloc and into the States, extending our medium-term expectations of EURUSD downside into the long-term outlook.

In the UK, anemic economic growth is set to bring inflation lower, with the Consumer Price Index expected to decline to just 2.6% in the year to February, the lowest in 11 months. Minutes from the last meeting of the Bank of England revealed that policymakers voted unanimously to cut interest rates by 50 basis points and begin quantitative easing, committing to spend 75 billion pounds to buy government bonds fearing that price growth may slip well below the 2% target rate this year. Economists forecast benchmark rates to remain at 0.50% through the first quarter of next year as inflation comes in at just 1% in 2009 and 1.6% in 2010.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Follows Familiar Pattern, Declines as Asian Stocks Rise on US Bank Plan (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.

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!