3.23.2009

US Dollar Lower as Risky Assets Extend Gains on Japanese Stimulus Plans (Euro Open)

The US Dollar slipped -0.5% against major currencies as stock markets advanced in overnight trading on news of a possible new 20 trillion yen fiscal stimulus package. Euro Zone’s trade figures are on tap in European hours, with expectations calling for a -1.9 billion euro deficit in January.

Key Overnight Developments

• ECB’s Trichet Defensive on Sluggish Stimulus in WSJ Interview
• Japan’s FinMin Says Economy Needs Trillions in New Fiscal Stimulus
• US Dollar Sold As Risky Assets Advance, AUD and NZD Lead Gains

Critical Levels



The Euro gapped higher at the weekly trading open and added as much as 0.9% against the US Dollar. The British Pound also advanced against the greenback, rising as much as 0.8%. The Dollar sold off as risky assets rallied on news Japan introduce further fiscal stimulus.

Asia Session Highlights



Speaking in an interview with the Wall Street Journal, European Central Bank President Jean-Claude Trichet was seemingly on the defensive about his reluctance to follow counterparts in the UK and the United States down the path of quantitative easing, snapping “I said clearly that we could decrease [interest rates] again…we will continue to do whatever we think optimizes our own situation.” Most critically, Trichet clearly alluded to allegations that monetary stimulus is not everything it could be amid deepening recession, saying, “One element which has to be taken into account is that the risks of the central banks and the risks of the governments are, in the euro area, clearly separated without combination of risks or blending of responsibilities." This looks like a clear attempt to talk down building popular discontent with the ECB across the euro region. Calls to un-tether national monetary capabilities from Trichet’s measured approach are likely to find greater favor as the downturn hits home for an increasing percentage of Europeans, threatening to turn electorates in the most troubled member states against currency union altogether.

In Japan, Finance Minister Kaoru Yosano said the economy needs a new fiscal stimulus plan, noting that a figure of 20 trillion yen ($209 billion) is “not out of line”. The news encouraged risk appetite across financial markets in overnight trading, pushing the MSCI Asia Pacific Stock Index 1.5% higher and contributing to rallies in the Australian and New Zealand Dollars. US equity index futures are up close to 1.8% ahead of the opening bell in Europe.

Euro Session: What to Expect



The Euro Zone’s seasonally adjusted Trade Balance is set to show a -1.9 billion euro deficit in January, the third consecutive month in negative territory, suggesting trading terms deteriorated -12.8% from a year before. 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 (the broadest measure of cross-border money flows) 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.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Lower as Risky Assets Extend Gains on Japanese Stimulus Plans (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!