4.15.2009

Financial Firm's Profits Help to Sway the Dollar

Many traders are looking towards Wall Street's reported earnings before placing their forex trades. The Street has been influencing currency moves and with the announcement of some of the world's largest financial firm's first quarter results this week, currencies may find direction based on their profits and losses.



USD - Nerves on Wall Street Continue to Move Currencies

The U.S. currency continues to strengthen given the recent demand for riskier currencies. Falls in equity markets have driven traders to reduce their positions in riskier, higher yielding currencies. Many of the uncertainties in the currency markets are due to earnings season on Wall Street.

This week brings quarterly results from a number of financial companies, including U.S banks Citigroup and JP Morgan Chase. And the markets are waiting for the U.S. corporate earnings season to get into full swing. Some market players think this week's reports could show signs that the worst of the financial crisis is over, which means that the USD may still surpass its major counterparts before the end of this trading week.

Last week, the USD rose against the Yen, buoyed by a rally in U.S. shares after positive earnings guidance from U.S. bank Wells Fargo. Analysts' expecting that if U.S. earnings results show signs that the U.S. is pulling away from the worst of the economic downturn, risk appetite is expected to grow, putting more pressure on the Yen and also providing a lift to the Dollar.

EUR - The European Currency Rebounds against the Dollar

In yesterday's trading the European currency extended its gains vs. the greenback, rising 1.4% to $1.3363. The British pound also took more ground, rising 1.3% to $1.4842. Against the Japanese yen however, the EUR declined the most in a week before Germany's Federal Statistics Office releases its report on wholesale prices Wednesday, supporting the case for the region's central bank to cut Interest Rates. The price figure is expected to slump 7.1% in March from a year earlier.

However, Europe's single currency may weaken during the next few days on concern European Central Bank (ECB) officials this week will signal they may keep lowering rates to support growth. ECB President Jean-Claude Trichet already said last week the central bank is studying unorthodox ways of boosting the European economy. Some in the market continue to hold the view that the EUR remains laden by expectations of another Rate cut and the prospect of unconventional monetary easing, and the EUR is likely to halt its gains versus the Dollar, in the nearest future.

JPY - Carry Trade has is Again a Trader's Favorite

The Yen has begun to strengthen from a 5-month low versus the Dollar last week as fears of a prolonged recession are driving traders to the Yen. The currency is often seen as safe haven plays in the forex market. Traders may have been a bit premature in driving up higher yielding currencies as global equity markets went on a tear the past month and a half. There has been very little concrete evidence of a sustained economic turnaround. This in turn has once again provided a boost to the Yen as a safe haven currency.

The return of the carry trade is again becoming widely popular. Japanese Interest rates once again are in the basement and there are other nations providing significantly higher rates of returns. Due to the weak Yen, many traders have jumped back into this type of strategy and it has provided healthy returns the past two months. This could be a signal of the global economy returning to the previous economic cycle.

Oil - Crude Oil Inventories to be Released Today

The commodity is still recovering from its 5% plunge in price after the International Energy Agency slashed its forecast for Crude demand in 2009. The Agency predicts a drop of 2.8% in global demand for Oil. Crude Oil has not been able to steadily trade above the $51 price level, though Oil has risen over 10% this year. It appears traders are waiting for signs of a significant economic recovery. Many analysts have claimed a bottom has been reached in Crude Oil trading, though that remains to be seen. A fair value for Crude Oil may be $45.

Today the market is anticipating the release of the weekly U.S. Crude Oil inventories report from the Energy Information Agency. Traders are expecting Crude stocks to rise by 2 million barrels this past week. A reading above this mark may help to send the price of Crude lower, perhaps below the $50 mark once again.

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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!