3.16.2009

US Dollar Lower as Stocks Rally in Asia, Higher CPI Not Good News for Euro Zone

The US Dollar retreated as stocks moved higher on Asian exchanges on optimism fueled by an unexpectedly civil summit of G20 finance ministers, a neutral stance on oil production from OPEC, and a reassuring tone to in US Fed Chairman Ben Bernanke’s interview on CBS’ 60 minutes. The annual pace of Euro Zone inflation is set to rise but its unlikely coming from an economic rebound.

Key Overnight Developments

• UK House Prices Fall at Record Pace for Second Month in March
• G20 Finance Ministers Civil But Short on Substance at UK Summit
• Bernanke Says Recovery to Begin in 2010 Only if Banks are Stabilized
• Euro, British Pound Reverse Early Losses Against the US Dollar

Critical Levels



The Euro pared early losses late into the overnight session, climbing back over 1.29 having tested as low as 1.2834. The British Pound not only recovered from an early -0.8% drop but managed to move into positive territory above the 1.40 level against the US Dollar. The US Dollar retreated as stocks moved higher on Asian exchanges on optimism fueled by unexpected civility at an informal summit of G20 finance ministers, a neutral stance on oil production from OPEC, and a reassuring tone to an interview with US Fed Chairman Ben Bernanke on CBS’ 60 minutes.

Asia Session Highlights



UK House Prices fell -9.0% in the year through March according to Rightmove, an online listing of for-sale properties. The pace of decline is effectively unchanged from the previous month’s record-setting -9.1%, suggesting the real estate slump that has eroded household wealth and cut consumption is showing now signs of abating. Market research agency GfK has predicted that a staggering 40% of British mortgage holders to be in negative equity by the end of this year, compounding already significant downward pressure on spending from rising unemployment with disastrous results for economic growth. A survey conducted by Bloomberg puts the output drop at -2.7% through 2009 and the International Monetary fund reckons the UK will face the deepest recession among the G7 nations.

An informal summit of finance ministers from the G20 struck a conciliatory tone after US Treasury Secretary Tim Geithner ignited tempers by calling on Europe to do more in fiscal stimulus to help support US efforts to revive global growth, specifying that governments should look to commit 2% of GDP in 2009 and 2010 in spending and tax cuts. The communiqué following the meeting introduced a “twin-track” approach of immediate stimulus and financial system repair in conjunction with medium-term goals of strengthening regulatory oversight. Importantly, the document seemed big on generalities, espousing such admirable intangibles as taking “whatever action is necessary until growth is restored” but offering little in terms of concrete policy prescriptions. This meeting was designed to set the stage for a sit-down of the G20 heads of state in April.

US Federal Reserve Chairman Ben Bernanke gave his first interview since taking up his post to CBS’ 60 Minutes. The Fed chief said that economic growth will likely find a bottom this year and begin to recover in 2010. However, Bernanke cautioned that, “recovery is not going to happen until the financial markets and the banks are stabilized.” The chairman indentified a “lack of political will” as the biggest threat to putting the economy back on track.

The Organization of Petroleum Exporting Countries (OPEC) decided to keep production quotes unchanged, sending the price of crude oil tumbling to test as low as $43.85/barrel.

Euro Session: What to Expect



The Euro Zone Consumer Price Index is set to show that the annual pace of inflation rose to 1.2% in February from 1.1% in the previous month, the first tick higher since price growth peaked at 4% in July 2008. Indicators measuring business and consumer sentiment extended months of losses to set new all-time lows in the same period, so it seems unlikely that this inflation will be of the benign variety that comes with renewing vigor in economic activity. Rather, rapid depreciation may be the reason for the higher CPI reading. On average, the Euro has fallen 15.1% against the currencies of the regional bloc’s top five import partners, raising the cost of foreign-made goods for consumers on the continent. The implications of this trend could be quite ominous considering the pace of price growth is rising even as the economy sinks deeper into recession, limiting the ability of the European Central Bank stimulate growth through monetary policy for fear of letting inflation skyrocket. Where some countries are worried about deflation (falling prices), it seems the Euro Zone could see stagflation (rising prices and falling output) as a real threat in the near term.

Separately, fourth-quarter Euro Zone Employment figures are set for release. The jobless rate grew 6.6% to the highest in over 2 years through the last three months of 2008, raising the likelihood of a down print for today’s release.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Lower as Stocks Rally in Asia, Higher CPI Not Good News for Euro Zone
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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!