4.16.2009

British Pound in Play with UK Retail Sales to Shrink For First in Four Months (Euro Open)

The US Dollar reversed early overnight losses for a net flat result against the Euro and the British Pound ahead of the European trading open. Seesawing price action closely followed Asian stock exchanges, initially rising on an optimistic US Fed Beige Book survey but giving up gains as China’s first-quarter GDP underperformed expectations.

Key Overnight Developments

• NZ Manufacturing Contracts for 11th Consecutive Month in March
• UK Annual Retail Sales Fell in March on Jobs Outlook, Says BRC
• US Dollar Reverses Early Losses as China GDP Weighs on Stocks

Critical Levels



The Euro initially extended NY-session gains against the US Dollar, testing as high as high as 1.3268 before tumbling -0.5% to yield an effectively flat result ahead of the London trading open. The British Pound followed a similar dynamic, testing as high as 1.5068 before reversing course late into the session. Seesawing price action closely followed Asian stock exchanges – shares initially rose as the US Fed’s Beige Book survey revealed sings that economic turmoil is moderating but the gains were erased after China’s first quarter GDP grew less than expected, adding 6.1% (versus forecasts calling for a 6.2% increase).

Asia Session Highlights



New Zealand manufacturing sentiment improved a bit in March according to Business NZ, a lobby group, as their Purchasing Managers Index rose to 40.7 from 38.9 in the previous month. On balance, the shallow uptick is unlikely to be of lasting significance: the metric remained below the “boom-bust” 50 level for the 11th consecutive month, suggesting business activity was still contracting through March, albeit at a slower pace. Further, the metric has been treading water below 42.6 since hitting a record low at 35.1 in November of last year, suggesting a meaningful rebound is far from assured by the March result.

In the UK, the BRC Retail Sales Monitor revealed transaction values declined -1.2% in the year to March. The metric has fallen in 9 out of the past 10 months. BRC director Stephen Robertson said “Customers are still worried about jobs and their own finances - so they’re keeping spending under tight control.” The unemployment rate ticked up to a 10-year high at 4.3% in February and is expected to average as high as 7.3% this year. Job losses are likely to weigh on disposable incomes, discouraging consumption and weighing on overall economic growth. A survey of economists conducted by Bloomberg forecasts total output will shed -3.6% in 2009.

Euro Session: What to Expect



The final revision of the Euro Zone Consumer Price Index is expected to confirm the annual inflation rate slowed to 0.6% in the year to March, the lowest since the introduction of the Euro. A survey of economists conducted by Bloomberg suggests deepening recession will see the currency bloc’s economy will shrink by a full -3.0% this year, threatening to put inflation into negative territory. Despite the dour outlook, the European Central Bank cut interest rates less than economists expected earlier this month, although bank president Trichet did say that rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.

Tumbling inflation is also to be noted in Switzerland where Producer and Import Prices are expected to shrink at annual pace of -2.4% in March. The reading suggests continued downward pressure on consumer prices (the headline inflation gauge) after CPI slipped into negative territory for the first time in 5 years to print at -0.4% in the year to March. Weakening domestic conditions will add to external downward pressure on price growth: a survey of economists conducted by Bloomberg suggests that the economy will shrink -2.5% this year, the most since 1975, threatening to entrench deflation expectations. This stands to commit the mountain nation to a long-term stagnation as consumers and businesses perpetually put off spending and investment to wait for the best possible bargain. Although the central bank had previously committed to a very aggressively dovish stance including quantitative easing and currency market intervention, the latter part of the plan may now be off the table considering commitments made at the recent G20 summit in London.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound in Play with UK Retail Sales to Shrink For First in Four Months (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!