4.02.2009

Euro Selling Likely If Central Bank Remains Soft on Interest Rate Cuts (Euro Open)

The Euro is likely to see significant selling pressure if today’s interest rate announcement sees the European Central Bank maintain a reluctance to commit to aggressive monetary stimulus as traders price in a longer path to recovery as well as the political implications of inaction.

Key Overnight Developments

• Australian Trade Surplus Higher Than Expected on Gold Export Demand
• New Zealand Commodity Export Prices See First Rise in 8 Months
• Euro, British Pound Rise as Asian Stocks Follow Wall St Higher

Critical Levels



The Euro added as much as 0.5% in overnight trading while the British Pound advanced 0.4% as stocks pushed higher across Asian exchanges, weighing on the safe-haven US Dollar. The MSCI Asia Pacific Index surged 3.6%, following a rally on Wall St sparked by better-than-expected US economic data and encouraging comments from US Treasury Secretary Geithner, who said global stimulus efforts are showing “traction”.

Asia Session Highlights



Australia’s Trade Balance showed a much greater surplus than economists expected, printing at A$2.1 billion in February versus expectations of a A$0.7 billion result, the seventh consecutive month in positive territory. The improvement was driven by a -3.5% drop in imports while exports increased for the first in fourth months, adding 7.7%. The uptick in outbound shipments was driven by a 55% surge in gold, likely driven by demand for store-of-value assets as central banks around the world buy billions in government and private-sector debt with printed money to lower borrowing costs and boost access to lending (a practice commonly referred to as “quantitative easing”). Importantly, it remains to be seen if gold demand has staying power as it becomes clear that rapid inflation is not entirely guaranteed as a consequence of quantitative easing. Still, trade data may continue to improve as lackluster consumer spending amid the deepening economic downturn pressures import volumes lower.

The ANZ Commodity Price Index of New Zealand’s top export goods saw positive gains for the first time in 8 months in March, rising 1% following a -4.6% drop in February. The CRB/Reuters Commodity Price Index jumped 2.9% through March as risk appetite rebounded across financial markets. Importantly, we continue to see substantial reasons conclude that the upswing in risky assets is temporary in the scope of a larger down trend: growth forecasts remain grim for 2009, suggesting weak demand will weigh on prices for some months to come. The recent appreciation of the New Zealand Dollar will also hurt the export sector, making the antipodean nation’s good more expensive to foreign buyers. A trade-weighted average of the currency’s value rose 11.7% in March.

Euro Session: What to Expect



The interest rate decision from the European Central Bank is the clear standout on the economic calendar for the forthcoming session. A survey of economists conducted by Bloomberg expects Jean-Claude Trichet and company to slash rates by 50 basis points to put overnight borrowing costs at 1%. Overnight index swaps tell another story however, with traders pricing the likelihood that only 25 basis points will be shaved off the benchmark rate. Interest rate futures offer a third scenario, showing traders are betting on a 75bps reduction. Mixed signals ahead of the release are likely to spark volatility with some traders caught on the wrong side of the market when the news hits the wires. The press conference following the initial announcement holds even more potential to stir price action. The ECB has been under the gun recently for being too timid in offering monetary stimulus as the Euro Zone sinks deeper into recession. Trichet has been teasing the market with promises to “study unconventional measures” beyond lowering the benchmark lending rate and sounded clearly defensive about criticisms that he is not doing enough in a recent Wall Street Journal interview. This will be his chance to give the markets something tangible; if it is wasted, the Euro is likely to see significant selling pressure as traders price in a longer path to recovery as well as the political implications of inaction. Indeed, grumbling electorates are likely to become more receptive to the notion that national monetary capabilities should be un-tethered from the ECB’s measured approach as the downturn hits home for an increasing percentage of Europeans, posing a serious structural threat to currency union itself.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Selling Likely If Central Bank Remains Soft on Interest Rate Cuts (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!