3.06.2009

US Dollar Ignores Asian Stock Drop as Forex Traders Brace for NFP (Euro Open)

The “safe-haven” US Dollar failed to see a boost as Asian stock markets followed Wall St lower with traders looking ahead to a record job loss in February’s Non Farm Payrolls report. UK Producer Prices and Switzerland’s Consumer Price Index are on tap for release in European hours.

Key Overnight Developments

• Asian Stock Drop Ignored by US Dollar as Markets Look to NFP
• British Pound Rises, Euro Confined to Familiar Ranges


Critical Levels



Overnight trading saw the Euro keep to the consolidation range established in the US session, oscillating below the 1.26 mark. The British Pound advanced higher, adding 0.4% on the US Dollar. For complete analysis of all the major currency pairs, please see the latest weekly technical outlook report.


Asia Session Highlights



Risk trends faded into the background in the overnight session as forex traders looked ahead to tomorrow’s Non Farm Payrolls release. The cues from stock exchanges were decidedly negative: shares traded lower across Asian exchanges following a 4% drop on Wall St. Financials led the selloff after it was revealed that the US administration’s mortgage rescue plan would effectively be confined to loans owned by Fannie Mae and Freddie Mac, leaving banks like Wells Fargo (which owns 16% of the mortgage market) in the cold. Downward pressure was compounded as Moody’s downgraded JPMorgan, the heretofore beacon of financial stability, while the chairman of the FDIC said its deposit insurance fund may become insolvent by the end of this year. Interestingly, the flight from risky assets failed to boost the US Dollar (the current safe haven du jour) as the markets braced for the US economy to shed -650k jobs in February.

Euro Session: What to Expect



Switzerland’s inflation is set to come to a standstill with the Consumer Price Index expected to print at 0.0% in the year to February. The growth outlook remains decidedly bleak, with a survey of economists conducted by Bloomberg calling for GDP to contract at an increasing pace through the third quarter of 2009, meaning inflation could well turn negative in the near to medium term. This poses a serious threat to consumption and investment because if individuals and businesses expect prices to fall in the future they will perpetually delay spending to get the best possible deal, putting the brakes on economic growth altogether. Indeed, Swiss National Bank Vice-Chairman Philipp Hildebrand has even suggested forex market intervention to check the deflation threat.

In the UK, the Producer Price Index is set to add a meager 0.1% through February to bring the annual pace of wholesale inflation to an 18-month low at 3.1%. The metric foreshadows further downside in consumer prices, the headline inflation gauge, as firms pass on lower manufacturing costs through cheaper finished products. On balance, the metric is unlikely to have much of an immediate impact on British Pound price action after the Bank of England suggested it was done cutting interest rates after the last reduction to a record-low 0.50%. The policy statement accompanying the rate decision warned of the potential dangers of taking borrowing costs too low and signaled that Mervyn King and company would now embark on a policy of quantitative easing.

The implications of the central bank’s new policy could spell trouble for the British Pound. Manually expanding the money supply may prove profoundly inflationary as the eventual recovery materializes, eroding the currency’s value if lending rates do not rise fast enough to drain excess liquidity. Policymakers’ recognition of a rebound tends to lag behind its actual beginning, threatening to put the BOE behind the curve. On balance, this suggests the risks are to the downside in the long term sterling outlook.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Ignores Asian Stock Drop as Forex Traders Brace for NFP (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!