3.24.2009

U.S. Toxic Debt Plan Spurs Market Optimism

U.S. Treasury Secretary Timothy Geithner unveiled plans last week for a public-private partnership of investors buying out toxic banking and housing debt. Since that time, investors have been in a frenzy to sell off the USD and buy into various private investments, creating a rally on Wall Street, and intense volatility in the forex market. The recent make-or-break attitude of forex traders has generated such volatility that it could bring many investors back into the fold in order to capture profits from the large price swings which have occurred.



USD - Dollar Moves on U.S. Banking Plan

The Dollar recorded a volatile trading session as the U.S. Treasury Secretary Timothy Geithner unveiled plans for a public-private partnership to buy the toxic debts of U.S. banks. In effect, Geithner's speech led to a rally on Wall Street that resulted in a 7% rise in the Dow Jones and other indices. The other big factor that helped spur a rally on Wall Street was better-than-expected U.S. housing data. This showed a 5.1% increase in Existing Home Sales from January to February. As a result, the Dollar cut its losses that it made earlier on in the trading session against currencies such as the EUR.

The Dollar ended yesterday's trading session with some mixed results against its major currency crosses. The Dollar closed down 9 points against the EUR to 1.3654. The Dollar gained 139 points against the Japanese Yen, as the USD/JPY rate approaches the 100.00 mark again. However, against the British Pound, the Dollar made some big losses. The USD dropped about 170 points to close at 1.4683 against the GBP. This comes about as Britain's stock market and currency reacted very positively to the banking plan from the U.S.

Looking ahead to today, there are a number of economic news events and data releases coming out of the U.S. The House Price Index (HPI) and Richmond Manufacturing Index are set to be released at 14:00 GMT, and will be the two of the biggest indicators from the States. However, the news event that may have a very large impact on the Dollar and its main currency pairs in today's trading is Federal Reserve Chairman Ben Bernanke's speech around the same time. This speech is very important as he well be testifying with Timothy Geithner about the controversial American International Group (AIG) bailout. Traders are advised to watch closely, as this may lead to great volatility in Dollar trading.

EUR - Pound Jumps on U.S. Bank Rescue Plan

The Pound made very impressive gains in yesterday's trading, as the U.S. Treasury Secretary Timothy Geithner unveiled an impressive and detailed banking plan to rescue U.S. banks, and uplift the U.S. housing sector. This led to the biggest rally on Wall Street since October. As a result, Britain and Euro-Zone stock markets made big gains as well.

The Pound rose by 170 points in Monday's trading to close at 1.4683 against the USD. This was mainly owed to the fact that investor confidence poured back into the Pound as British banking shares soared in yesterday's trading. Also, the Pound has been undervalued against the Dollar as of late. Against the EUR, the GBP gained an impressive 103 points to close at 0.9310, as the EUR/GBP has moved away from parity yet again. Also, news that Germany's economy will decline by the most in the Western world this year, and unemployment in the Euro-Zone's largest economy will reach 5 million by the end of 2010, helped push down the EUR/GBP. The GBP also rose by about 350 points against the JPY to close at 143.35, as traders dropped safe-haven assets in Monday's trading.

Today, there is plenty of economic news coming out of both Britain and the Euro-Zone that will determine the GBP and EUR levels by the end of today's trading. From the Euro-Zone, there are the Euro-Zone Flash Services PMI, Flash Manufacturing PMI, and Current Account figures that are expected to be published simultaneously at 9:00 GMT. From Britain, the most important news will be the Consumer Price Index (CPI) figures and Inflation Report Hearings at 9:30 GMT, and the Bank of England (BoE) Governor Mervyn King's speech at 15:30 GMT. All these news events will be important in helping set the strength of the GBP and EUR in this week's trading.

JPY - Yen Plummets against Dollar and EUR

The Yen plummeted against its major currency pairs in yesterday's trading as investors ditched safe-haven assets for riskier ones. The Japanese stock market made notable gains too as the U.S. Treasury Secretary unveiled plans for a public-private partnership of investors buying out toxic banking and housing debt. This was the dominant factor leading to U.S. and global stock market rallies, and the ditching of safe-haven assets in yesterday's trading. The Yen was also hit hard yesterday; as the government seeks everything in its power to reduce the value of the JPY in order to spur Japanese exports.

The Yen closed down by 139 points against the Dollar in Monday's trading at the 97.74 level; the USD/JPY could be reaching the 100.00 mark in the near future. The EUR rose by 180 points against the Japanese currency to close at 133.47, as the safe-haven currency was dropped yesterday. Against the Pound, the Yen dropped a massive 350 points on Monday to close at 143.35. This comes about as the British currency reacted extremely positively to the banking news coming out of the U.S. As the Japanese economy continues to deteriorate, despite improvements from the U.S., expect the JPY to lose more ground against the major currencies in the coming days.

Crude Oil - Protests in Brazil and Increased Demand Help Raise Oil Prices

Crude Oil prices hit $54 yesterday, before settling at $53.62. This price is the highest Oil has been since December 2008, but still significantly lower than last July's high of $147 a barrel. Crude prices increased yesterday for a number of reasons. However, the 2 main factors were the U.S. banking plan unveiled by U.S. Treasury Secretary Geithner to buy toxic banking assets, and the better-than expected housing data. Also, there were protests in Brazil, which have been going on for 5 days, which have helped put upward pressure on Crude prices.

China announced yesterday that demand for Oil increased by 0.5%, marking a recent reversal. The underlying reason that has led to stability in the Crude Oil market is the supply cuts by the Organization of Petroleum Exporting Countries (OPEC). It seems their strategy has worked, and if they continue to cut the supply, Crude prices are likely to rise further. Additionally, if the U.S. continues to publish good data, and Obama shows that he is able to lead the world out of recession, then Crude prices may hit the $58-$60 price level by week's end.

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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!