British Pound in Play with UK Economy to Shrink Most in 28 Years (Euro Open)

The British Pound may see significant selling pressure in European hours with advanced estimates of first-quarter Gross Domestic Product set to show that the economy shrank -1.6% to bring the annual pace of decline to a whopping -3.8%, the worst result in nearly 28 years. Sterling slipped below 1.47 in overnight trading to shed as much as -0.6% against the US Dollar.

Key Overnight Developments

• US Dollar Looks Past Asian Stock Performance, Eyes G7 Summit
• Daily Telegraph Reports Moody’s May Cut UK’s AAA Credit Rating
• Euro Range-Bound, British Pound Lower in Overnight Trading

Critical Levels

Japan’s All-Industry Activity Index reversed lower to print at -2.0% in February after improving in the preceding month. The Industrial Production component led declines, falling -1.77% as weak overseas demand amid deepening global recession continues to push manufacturers to cut back output. The Corporate Service Price Index fell at a slower pace than economists expected, shrinking -2.1% in the year to March versus forecasts of a -2.6% result.

While still unsubstantiated by the principals, the Daily Telegraph reported that Moody’s may cut the UK’s sovereign credit rating from its current AAA on concerns about the booming government deficit. Standard and Poor’s, another rating agency, has already lowered the ratings of Spain, Ireland, and Greece.

On balance, major currencies kept near familiar levels through the overnight session in anticipation of the upcoming meeting of G7 finance ministers in Washington, DC. Deflation, unemployment and toxic bank assets remain pressing concerns despite recent optimism and the markets will be looking for assurances that policymakers are prepared to offer more stimulus to support economic expansion in the months ahead. The forthcoming event risk seemed to eclipse a down day across major Asian stock exchanges, with the safe-haven US Dollar oscillating in a well-defined 0.3% range.

Euro Session: What to Expect

Germany’s IFO Survey of business confidence is expected to print at 82.3 in April, a reading within a hair the previous month’s record low at 82.1. The forward-looking Expectations component of the survey is seen rising for the fourth consecutive month, hinting at improvement in firms’ 6-month outlook. Still, the reading is expected at 82.6, a print below the 100 “boom-bust” threshold, suggesting conditions are still deteriorating albeit at a gentler pace. Indeed, a survey of economists conducted by Bloomberg forecast the Euro Zone’s largest market will continue to see deep contraction for the remainder of this year, with a return to positive growth delayed until the first quarter of 2010. Most notably, the economic recovery in the US is expected to outpace that of Europe, suggesting Federal Reserve will lead the ECB in raising interest rates, thereby putting downward pressure on the EURUSD exchange rate.

In the UK, advanced estimates of first-quarter Gross Domestic Product are set to show that the economy shrank -1.6% to bring the annual pace of decline to a whopping -3.8%, the worst result in nearly 28 years. NIESR, a think tank, has said the economy could “continue to decline for up to another year” while the International Monetary Fund revised down their UK economic growth projections by -1.3%, calling for the economy to shed -4.1% through 2009. Signs of deepening recession weighed heavily on the British Pound earlier this week as the unemployment rate rose the highest in over a decade, pushing the currency’s average value down -1.5% against major counterparts. If this pattern is to continue, sterling could see heavy selling in the coming session. A separate report is likely to show that Retail Sales grew 1.1% in the year to March, a notable improvement from the previous month’s 0.4% result. Still, the metric has been trending firmly downward since May of last year and the expected upswing will hardly amount to a break from that trajectory. Looking ahead, the aforementioned weakness in the labor market is likely to maintain downward pressure on disposable incomes, discouraging spending.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound in Play with UK Economy to Shrink Most in 28 Years (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.


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!