4.01.2009

Euro Zone Recession Deepens with Unemployment Rate to Hit 2-Year High (Euro Open)

The Euro may come under fire as the Euro Zone Unemployment Rate rises to the highest in over 2 years, adding to evidence of deepening recession and bolstering expectations of a 0.50% interest rate cut later in the week. Overnight data showed Japan’s business confidence fell to a record low in the first quarter while Australian retail sales plunged the most in 8 years.

Key Overnight Developments

• Japan’s Business Confidence Drops to Record Low on Export Slump
• Australian Retail Sales Fall Most in 8 Years, Boosting Recession Fears
• US Dollar Scores Gains Against Euro, British Pound Despite Stock Advance

Critical Levels



The Euro slipped as much as -0.6% against the US Dollar in overnight trading, while the British Pound lost -0.3% to the greenback. Interestingly, Dollar gained even as Asian stock markets rose 1.6% on hopes that Japanese and South Korean automakers will earn market-share after the US administration threatened to let General Motors and Chrysler go into bankruptcy. The typical dynamic over recent months has seen the Dollar display an inverse correlation with stock markets.

Asia Session Highlights



Japan’s Tankan Survey of business sentiment collapsed to record lows as dwindling overseas demand crushed current and expected revenues. The report revealed that sentiment among large manufacturers slumped to -58, the lowest since records began in 1974. Large firms across the industry spectrum said they would cut expenditures -6.6% this fiscal year, suggesting the slump will continue to boost unemployment and weigh on spending. Yesterday, Finance Minister Kaoru Yosano said the government would complete a new stimulus package by mid-April aimed at preventing the economy from “falling apart”. Yosano said last week that spending as much as 20 trillion was “not out of line”.

In Australia, Retail Sales slumped much more than economists expected, falling -2.0% through February to register the largest monthly drop in over 8 years. Department store sales led losses, dropping -9.8%. Household consumption accounts for over half of the economy’s total output, suggesting the slump in spending is likely to push the larger antipodean nation into the first recession since 1991. Indeed, Reserve Bank of Australia Assistant Governor Ric Battellino noted yesterday that annual output is “likely to fall in 2009”. Overnight index swaps show the market is pricing in the likelihood that the central bank will cut interest rates by 50-75 basis points over the next 12 months. At this point, the RBA is one of only two central banks that are expected to lower borrowing costs in the coming year, hinting at implicit downward pressure on the Australian Dollar.

Euro Session: What to Expect



The flood of dour fundamental data continues on the European continent: German Retail Sales are set to slip -1.2% in the year to February and the Euro Zone Unemployment Rate jumps to 8.3%, the highest in over 2 years. Anemic economic growth has weighed on price growth, with initial estimates suggesting that annual inflation slowed to a record low 0.6% in March. Against this backdrop, the European Central Bank is expected to slash interest rates by 50 basis points later this week, taking borrowing costs to a record low of 1%. The ECB is treading carefully for the moment, reluctant to follow their major counterparts in the UK, US, and Japan down the road to quantitative easing. This may prove perilous politically as calls to un-tether national monetary capabilities from the Trichet’s measured approach find greater favor amid electorates increasingly burdened by deepening recession. This poses a structural threat to the very existence of the single currency, forcing the ECB president to try to talk down the critics in a recent Wall Street Journal interview.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Zone Recession Deepens with Unemployment Rate to Hit 2-Year High (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!