Dollar Rally Cut Short As Risk Evaluated And Data Disappoints

• Euro Held Back As CPI Raises Specter Of Ongoing ECB Rate Cuts
• Japanese Yen Torn Between Questionable Safety, Recession Reminders
• Canadian Dollar Takes Lead On Com Bloc With GDP Numbers

Dollar Rally Cut Short As Risk Evaluated And Data Disappoints

It was bound to happen – especially with substantial event risk drawing so close. The three-day rally that pulled the US dollar up from its two-and-a-half month lows was finally put off its pace Wednesday as currency traders gauged their exposure to the events due in the days ahead (G20 meeting and NFP release ) while once again taking stock of consequential data crossing the economic docket.

With little more than 36 hours to go until the Group of 20 leaders convene in London, traders are still trying to discern which currency is best positioned to benefit from a positive outcome and which offers the greatest level of protection from a crushing disappointment. While the dollar can weather both scenarios given certain consequences, the focus and uncertainty on the US, its dollar and policies make it a risky bet. We have outlined the situation over the past few days; but circumstances are ever-changing and policy makers are taking advantage of the market’s and media’s attention to air their demands, tout their efforts and offer their forecasts ahead of the gathering. There was yet another round of this grandstanding today. Reflecting the resistance building in the Euro Zone, French Finance Minister Christine Lagarde said the country’s representatives would walk out of the April 2nd meeting if their “deliverables” are not met. While this was largely focused on beneficial, regulatory changes; it is nevertheless telling of the attitude that these officials will take to a conference that has historically fallen short in developing policy.

Along, different lines Japanese Prime Minister Taro Aso has perhaps shown his lack of confidence in a global solution by announcing he has set his ministers to work to develop a third reiteration of financial stimulus by mid-April. This is a reasonable effort however considering the likelihood that officials will be able to come to an agreement over a one-day meeting and with respect to forecasts for global growth. The World Bank lowered its growth forecast for 2009 down to a 2.1 percent slump while the OECD projected a 4.3 percent plunge for its 30 member group along with expectations for 36 million unemployed within the G7 by the end of 2010. With all this under consideration, we have to remember that the US is the world’s largest economy and likely has the most to gain from global coordination. Should the world’s largest economies work together to correct some of the underlying, global problems, it could more surely lead to positive results and remove the defacto responsibility that the United States has taken to correct a world-wide problem in addition to its own troubles. And, lest we forget, there is the Russian and Chinese proposal for a new world reserve currency. If this suggestion is shot down, it could still hurt the dollar by stalling discussion on other topics.

When everything is said and done, the G20 meeting could have a substantial and lasting impact on the dollar’s future - but so too will the more mundane data that continues to cross the wires. The indicators released this morning reminded market participants that the worst of the recession has not passed us. Topping the docket this morning, the Conference Board consumer confidence report ticked higher for its March reading; but not enough to make up for that fact that it is just off a record low. Americans saw employment and conditions deteriorating to new lows through the month, but were slightly less pessimistic about the future. This is likely due to hope placed in the government’s efforts to date, but such influence through general data has not yet been confirmed. The S&P/ CS housing market inflation report was more straightforward on its negative bias with its 25th contraction on year-over-year data to a record low. Looking ahead to tomorrow, ISM manufacturing and construction spending data will redefine growth forecasts; but we should also take count of the preliminary jobs data ahead of Friday’s NFPs.

Euro Held Back As CPI Raises Specter Of Ongoing ECB Rate Cuts

We were reminded today that there is more event risk on Thursday than just the G20 meeting. For the euro, there is an event that can carry just as much market moving potential and ultimately provided a clearer sense of direction: the ECB rate decision. Still a day away, we were reminded by of the pending policy announcement by around of key data that will no doubt factor into President Trichet and company’s decision. Further diminishing the argument that inflation is a realistic concern for the medium-term time frame the central bank monitors, the Euro-Zone CPI flash estimate for March cooled to a 0.6 percent pace of year-over-year growth – its slowest pace on record. And, while inflation was subtracted from the equation, the intensity of the Euro Zone’s recession was leveraged. Germany, Europe’s largest economy, reported joblessness jumped 69,000 through the current month for the worst contraction in four years and fifth consecutive increase. With the unemployment rate rising to a nine-month high 8.1 percent, it is hard not to forecast a deepening recession for Europe and the need for further easing from the ECB.

Japanese Yen Torn Between Questionable Safety, Recession Reminders

Yen traders have historically ignored Japanese economic data because the currency was playing a larger role in the FX market (recently as a funding currency for the carry trade or a safe haven). Ever since the 4Q GDP numbers rocked confidence in the currency’s ability to offer shelter from the financial torrent though, we have seen a greater interest in fundamentals. Today’s flow reminded investors that Japan is not immune to the global financial and economic crisis; and moreover that it stands to perhaps suffer far more than many of its large counterparts. From a wide range of data, the consumer was one of the key focuses. The jobless rate rose to a four-year high 4.4 percent through February while household spending dropped for a 12th consecutive month and income contracted at its fastest pace in five years. The other highlight was factory activity. The first quarter Tankan figures generated significant surprise. The confidence gauge for manufacturers fell to a record low according to the survey owing to the severe domestic recession and plunge in export demand. This report led to an immediate 125 pip drop in USDJPY.

Canadian Dollar Takes Lead On Com Bloc With GDP Numbers

Over the past few weeks, the approach of the Group of 20 meeting has led FX traders to focus on the most liquid currencies and more vocal members of the assembly. However, we should not overlook the opportunities and threats within the commodity bloc. Considered to be two of the strongest economies in the global rout, both Canada and Australia showed there is always reason to doubt today. From Canada, January GDP dropped 0.7 percent to maintain the longest recession on recent record and print the worst year-over-year contraction since 1991. The Aussie dollar responded to RBA Deputy Governor Battellino’s forecasts for negative growth over 2009 and a round of concerning data. Private credit growth slowed to its worst pace since 1994 while retail sales dropped the most since July of 2000.

Written by John Kicklighter, Currency Strategist
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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.

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Good luck to everyone!