4.13.2009

Dollar Strengthens Amid Holiday Trading

The movements we saw during Friday's trading session may be have been exaggerated on Friday and may be reversed. Today many trading desks will be vacant during the European trading hours. Traders should be aware of the volatile price swings that are prone to happen when there is a lack of liquidity in the forex market.



USD - Volatile Week Expected Due To Batch of U.S Economy Publications

Last week the USD saw rising trends against most of the major currencies. The Dollar rose significantly against the EUR and the GBP; however it dropped against the JPY.

The greenback rose on relatively positive data from the U.S economy, which came over the past week. The most surprising indicator was the U.S Trade Balance. The Trade Balance measures the difference in value between imported and exported goods and services during the month of February. Expectations for this report suggested that the deficit should slightly expend from 36.0B to 36.6B. However, the real result was shocking and stated that the U.S deficit has dropped to a merely 26.0B, which makes a nine-year low for this indicator. The immediate reaction for this publication was of course a massive uptrend for the Dollar, in light of the stunning figure. However, in a wider perspective, traders should suspect a reversal of the trend.

The reason is simple; usually when the deficit shrinks it is due to expanding export activity, which signals a strong and healthy economy. The problem is, when looking more in-depth at the numbers, it's very easy to see that the real reason for this figure is not growth in exports, but rather a weakening of imports, which is the U.S leaders worst fear. A significant drop in demand for imported goods and services means that U.S consumers are tightening the belt more and more, in order to cut back on expenses, which is the recipe for the elongation of the recession. By the time investors will get a better look at the full picture of this report, the USD might reverse trends.

As for the week ahead, a batch of data is expected from the U.S. economy. Traders are advised to stay alert for the Producer Price Index, which is an excellent gauge for U.S inflation. It is also recommended to look for the Building Permits publication expected on Thursday 12:30 GMT. This is one of the first inflationary and economic reports released as opposed to the different housing sector reports. It is highly regarded in the market traders should take advantage of its impacts. We may see the Dollar trading in a tight range of 1.3100 to 1.3400 this week.

EUR - EUR Dropping In Light Of Poor Data

Last week, traders who went short on the EUR may have been required to boost their equity. The EUR saw downtrends against all the major currencies, as the EUR/USD dropped below the 1.3100 level, and the EUR/JPY dropped below the 131.00 level.

The EUR depreciated on some negative publications which took place last week from the leading economies in the Euro-Zone. European Monthly Retail Sales decreased by 0.6% in February as opposed to January, for the first time in 4 months. In addition, the German Factory Orders, a report which measures the change in the total value of new purchase orders placed with manufacturers, continued the negative trend line, and dropped by another 3.5% in February, completing six consecutive months of negative figures for this survey. Another poor publication from Germany was the German Industrial Production, which fell by 2.9%, in accordance to expectations. This publication was the sixth negative figure in a row as well, further emphasizing the poor production conditions in Germany. Being the largest economy in the Euro-Zone, investors are responding with fears to the worrying figures, and the drop in EUR value was just a matter of time.

Looking ahead to this week, traders are advised to follow the European Consumer Price Indices scheduled on Thursday at 09:00 GMT. Analysts expect both indices to show that the inflation level in the Euro-Zone continues to moderately rise. However, in case the release will reveal European nations are suffering from deflation, traders are likely to see another drop in the value of the EUR vs. its major currency counterparts. Traders are also advised to look for the two speeches from Jean-Claude Trichet, the European Central Bank President, later this week, as lately his performances turned a great deal of volatility in the market due to his announcements.

JPY - JPY Appreciates Against All the Majors

After a long while, the Yen may have signaled its recuperation week after strengthening on all fronts. The USD/JPY pair was traded above the 100.00 level throughout most of the week, and the GBP/JPY dropped beneath the 146.00 level.

Last week as predicted, the Bank of Japan (BoJ) decided to keep its Interest Rate at 0.10%, the lowest in the industrial world. The main objective of the low Interest Rate is to keep the JPY weak, as the Japanese leadership puts it faith in the hope that a weak Yen will support Japanese exports, which in turn may be the primary tool to pull the economy out of recession. However, it seems that the low Interest Rate's effect has diminished, and now the JPY might be strengthening again. In this case, the BoJ is likely to use every trick in the book in order to keep its local currency's value as low as possible, and traders who'll catch their plans on time, could gain significant profits from this.

As for this week, the most significant publication from the Japanese economy will come on Thursday, as the Tertiary Industry Activity is expected at 23:50 GMT. This survey, which measures the change in the total value of the services purchased by businesses, is expected to drop by 0.7%. Such a result is likely to generate bearish trends for the JPY's pairs and crosses, as a decrease in business activity usually signals a turn for the worst in the local economy. A breach of the 101 resistance level is possible for the second week in a row.

OIL - Crude Oil is reaching for $53 a Barrel

Crude Oil underwent an extremely volatile session over the past week. The week began with falling prices, as a barrel of Crude Oil was traded for less than $48 a barrel. However, it went straight up from there, and a barrel of Crude Oil is currently traded for more than $51.00 a barrel.

Crude Oil has initially dropped after the International Energy Agency said that during 2009, demand for Oil is likely to fall to its lowest level in five years, as factories shut down and car sales tumble in light of the global recession. Later on Crude Oil's price had increased mainly due to the fact that the USD has limited its bearish trend. Considering that Crude Oil is valued in Dollars. A change in trends for the USD on many occasions has had the same effect on Crude Oil.

Looking ahead to this week, traders are advised to follow the news from the leading economies, especially from the U.S, and to keep in mind that the value of Crude Oil is highly influenced by the value of the USD. Crude Oil may be slightly overvalued now. A target price for the commodity may be $50.

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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!