4.03.2009

ECB Surprises the Market and Traders Anticipate Non-Farm Payrolls

A surprise 25 point basis point Interest Rate cut by the ECB is being digested by the currency markets. But traders won't have much time to pause as the high impact Non-Farm Employment numbers are released later today.



USD - USD Weakens from Negative U.S. Data and Positive EUR News

The USD experienced a rather rough day of trading yesterday, with a substantial loss to the EUR and GBP. After the European Central Bank (ECB) failed to reduce Interest Rates as deep as forecasted, there was a modest rebound in the value of the EUR against its primary currency pair, the U.S. Dollar. Ending Thursday at 1.3456 against the EUR, and 1.4731 against the GBP, the greenback has seen better days.

Two rather important currency valuating events have taken place over the previous few weeks. The first was the announcement of quantitative easing by the U.S. government, an event which dropped the value of the USD to the 1.3700 price level against the EUR. This loss was held in check, however, as most investors anticipated a similar move by the ECB. As this was not forthcoming this week, the second event was a renewed sell-off of USD in exchange for higher yielding assets on Wall Street as well as a buy-up of more unique currencies as a hedge against the perceived future weakness of the current safe-haven currencies.

As this week comes to an end, there is still room for a market shock during Friday's trading hours. With a calendar chalk full of important events, traders are highly advised to participate in the heavy news-trading day ahead of them. The U.S. government will be releasing its monthly Non-Farm Employment Change report at 12:30 GMT alongside the announcement of the U.S. unemployment rate. A disappointing payrolls report could send the EUR/USD above the 1.3500 resistance level tested in the early hours of the Japanese trading session.

Later in the day, Federal Reserve Board Chairman Ben Bernanke will be delivering a speech titled "The Fed's Balance Sheet" at the Richmond Federal Reserve Bank's Third Annual Credit Market symposium. Traders often use Bernanke's testimonies and speeches to speculate about future monetary policy decisions by the Fed, generating high market volatility during these events.

EUR - EUR Gains Strength as Risk Appetite Increases

The EUR gained momentum throughout today's trading hours as the European Central Bank (ECB) left room for future monetary policy adjustments by only reducing Interest Rates by a 25 basis points, from 1.50% to 1.25%, yesterday. Forecasts were for a reduction of half a percentage point in expectation of the ECB taking quantitative easing measures similar to those in the United States. As this was not yet forthcoming, the EUR has rebounded slightly to the 1.34 price level against the USD.

When the United States announced its plans for quantitative easing, there was a heavy sell-off of the USD, but the losses the greenback experienced to the EUR were held in check by the assumption that the ECB would follow the States with an announcement of a similar initiative. Now that the ECB has rejected the notion of deep rate cuts followed by quantitative easing, at least for the time being, the sell-off of USD, the purchase of EUR, and the increase in risk appetite have wrought havoc in the forex market in the form of heavy volatility. Those who benefited by going long on the Dollar throughout these past few months may want to consider changing tactics for the time being.

The British Pound also made moderate gains, at least against the USD, as some housing data released yesterday generated a stronger movement towards less liquid assets and a short-term rebound in confidence. Following tomorrow's release of inflationary data from Europe and Britain, traders will get a glimpse into what may be occurring at the start of next week. The Pound could continue its recent bullish run against the EUR below the 0.9100 mark.

JPY - Japanese Yen Continues to Deteriorate

The Japanese Yen has seen better days. Over the past week this island economy's currency has consistently depreciated against the majors, losing considerably against the USD and EUR. The level of this depreciation does not appear to have any stops in the making. Japan has maintained a posture of weakening its currency to boost exports, but the added weight of an unwinding of JPY safe-haven trades may have pushed its value lower than anticipated.

The resultant free-fall in the value of the JPY has begun to shake the confidence which many investors had in the island economy and expectations are now sliding further into the red for the economy's recovery. With little economic news being released by Japan, the end of this week's trading will likely see a continuation of this falling trend in JPY crosses. Against the USD, the JPY could finally settle above the 100.00 Yen level today.

OIL - Crude Oil Prices Stabilizing as Dollar Relationship becomes More Solid

The price of Crude Oil has become much more predictable this past week. With a sharp appreciation following some negative U.S. data, the value of Crude then continued to sink back below $50 a barrel. However, as the USD weakens once more, the price of Crude has once again made a jump in the direction of the mid-$50 price range. Crude Oil's value has begun to react much more realistically to the value of the Dollar; this in turn brings a level of stability to Oil trading in the commodities market, which traders can benefit from greatly.

With Crude Oil Inventories falling slightly this past month, there is a perception that demand has slightly increased in the short-term, while long-term demand remains negative. As the Dollar continues to weaken, traders will most likely see the value of Crude Oil climb back towards $55 a barrel through next week, unless the Dollar gains back its recent losses.

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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!