4.10.2009

Dollar Rises Despite Increased Risk Taking

The greenback continues its correction as better unemployment numbers and rising import prices helped to strengthen the Dollar yesterday. Liquidity may be thin during today's trading due many European firms closed for holiday. However, this may only increase price volatility, creating the potential for traders to take advantage of other's missed opportunities.



USD - The Greenback Heads for Its Weekly Gains

The U.S Dollar advanced against the EUR and the Yen on Thursday as better than expected U.S. weekly jobless claims helped spark a rally in the market, rekindling appetite for riskier assets. A batch of economic data including a dip in jobless claims and a rise in import prices, have improved sentiment for the greenback. In afternoon trading, the USD was 0.8% higher versus the yen at 100.46, while against the EUR the U.S currency rose to 2-week high to $1.3110.

The Dollar also surged after Wells Fargo & Co., the second-biggest U.S. home lender, reported a first quarter profit that beat the most optimistic Wall Street estimates, which point to an easing in the financial crisis. The greenback has risen 2.8% against the European currency this week, the most since the period ended Jan. 9. The improved trade deficit dynamic was Dollar positive, as the U.S. trade deficit in February unexpectedly narrowed to the lowest level in 9 years analysts have said. The narrowing U.S. trade deficit may further support the Dollar as the U.S. spends fewer greenbacks in international markets to buy foreign products.

Currency movements may be volatile in Asian and European trading today as the Easter holiday in the region reduces liquidity amid thin trading volume, exaggerating market moves. This can give volatility traders good reason to enter the market today as the Dollar could extend its positive momentum into the holiday weekend. The EUR/USD could trade as low as the 1.0350 support level today.

EUR - EUR Falls on Speculation the ECB Will Lower Its Benchmark

The European currency lost 0.4% versus the USD, down to $1.3112 and eased 0.1% to 131.94 Yen yesterday, on concerns the Euro-Zone economy would skid more deeply into recession in the coming months. The market has been watching for signs the European Central Bank (ECB) will take unconventional steps to improve credit availability after similar moves by the Federal Reserve and other major central banks.

European Central Bank President Jean-Claude Trichet said the central bank still had some leeway to cut its main Interest Rate from its record low of 1.25% and that benchmark rate below 1% is still open for debate. The central bank would lay out plans for possible unconventional monetary policy measures at its next meeting on May 7. However, Trichet would not give any further details.

Meanwhile, the British pound had also sunk to $1.4663, compared to $1.4704 late Wednesday. Earlier Thursday, the GBP was little changed against the Dollar after the Bank of England left its key lending Rate unchanged at an all time low Thursday and said it would continue buying government bonds and other assets. Policy makers were widely expected to stay on the sidelines after an aggressive series of Rate cuts slashed the bank's benchmark from 5% to 0.5% since October.

JPY - Yen Drifts on Market's Slow Activity

The Yen drifted against the Dollar on Thursday, holding on to gains made the previous day as currency market remained quiet, unwilling to build positions ahead of earnings reports by major U.S. banks next week. The Yen was flat against the USD at 99.85 yen after rising about 0.8% on Wednesday. The Japanese currency fell as low as 101.45 on Monday to strike a 6-month peak. The Yen was also unchanged against the EUR, settling at 132.50.

Data on Thursday showed Japan's machinery orders, a leading indicator of corporate spending, unexpectedly rose in February, a rare positive sign as the country suffers its worst recession since World War Two. Traders said expectations of the stimulus package helped the Yen's rebound against the Dollar and the EUR but investors may refrain from pushing it higher past the 101 level.

OIL - Oil Breaks $52 a Barrel

Crude Oil prices rose nearly 5.8% on Thursday, fueled by a rally on Wall Street and data showing that the number of workers filing new claims for unemployment benefits fell last week. Adding support to Crude, the UK consultancy Oil Movements said on Thursday that Organization of Petroleum Exporting Countries (OPEC) production will fall 280,000 barrels per day (BPD) in the four weeks ending April 25th. OPEC has agreed to slash 4.2 million BPD of crude output since September to counter falling prices and match slumping world demand.

Oil prices had also climbed Wednesday on weekly Energy Information Administration data showing a smaller-than-expected suppl in U.S. crude inventories and a big slump in distillate stocks. The market reacted violently as optimism in equity markets about the U.S. economy carried over into Crude. The U.S. Economic data that showed crude-oil supplies increased 1.65 million barrels to 361.1 million last week, the highest since July 1993.

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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!