4.30.2009

Higher Euro Zone Inflation Unlikely to Signal Recession is Abating (Euro Open)

The Euro Zone Consumer Price Index is expected to show that the annual pace of inflation rose to 0.7% in April. However, it is far too early to say the rebound owes to a pickup in economic activity, and even more so premature to suppose that prices will continue to rise from here.

Key Overnight Developments

• UK Consumer Confidence Rises for Fourth Month in April, Says GfK
• Japan's Manufacturing Sentiment, Industrial Production Improve as Inventories Clear
• Australian Business Confidence Fell at Slower Pace in Q1, Says NAB
• Bank of Japan Holds Interest Rates at 0.10% as Expected

Critical Levels



The Euro was little-changed in the overnight session: prices initially rose to test as high as 1.3338 but retreated back below the 1.33 level ahead of the opening bell in Europe. The British Pound trended higher, adding as much as 0.6% against the US Dollar.

Asia Session Highlights



UK Consumer Confidence continued to advance for the fourth consecutive month in April according to GfK, a market researcher, rising to -27 from -30 in the previous month. The news is hardly encouraging, however, even if we assume that the metric has put in a bottom despite rising unemployment. Looking at a comparable period of low consumer confidence during the 1990-91 recession, we see that the GfK metric reversed upward in March 1990 but GDP follow suit only 6 months later and did not return to positive growth for a full two years down the road. The absence of expanding output will mean that the central bank is likely to maintain a very loose monetary policy, holding the British Pound back against the currencies of countries where economic growth and by extension interest rates will head higher sooner (most notably the US Dollar).

Japan’s Nomura/JMMA Manufacturing Purchasing Manager Index rose for the fourth consecutive month in April, printing at 41.4 from 33.8 in the previous month. The reading is still below the “boom-bust” 50 level, meaning the manufacturing sector is still contracting, albeit at the slowest pace since October of last year. The improvement reflected expectations that the breakneck pace of decline in output will begin to slow as firms deplete existing stocks of products and are required to replenish. Indeed, Industrial Production rose for the first time in five months in March, rising 1.6%, while inventories shrank for the third consecutive month and the inventory-to-shipments fell -4.9% from a record high. Still, the news is far from rosy: overseas sales remain lackluster as Japan’s top trading partners suffer acute economic slowdown, so any pickup in production can be expected to be shallow. This means firms are unlikely to re-hire labor en masse, keeping the lid on spending and thereby overall economic growth for some time to come. Japan’s Trade Ministry was reasonably unimpressed, calling output “stagnant”.

Australian Business Confidence improved as expected in the first quarter from the three months to December 2008 according to National Australia Bank (NAB). Importantly, the metric continues to show contraction with a print in negative territory. Indeed, NAB chief economist Alan Oster remained cautious after seeing an uptick in the March result, saying, “While an element of fear appears to be abating, the index is still quite low [and] points to falling demand in the first quarter.”

The Bank of Japan kept interest rates on hold at 0.10% as expected. The decision was unanimous and policymakers said they will leave their current 1.8 trillion yen government bond purchasing program unchanged. The Japanese Yen was little changed after the announcement with the outcome widely priced into the exchange rate for some time.

Euro Session: What to Expect



The initial estimate of the Euro Zone Consumer Price Index are expected to show that the annual pace of inflation rose to 0.7% in April from a record low of 0.6% in the previous month. As with the analogous metric from Germany earlier this week, it is far too early to say the rebound owes to a pickup in economic activity, and even more so premature to suppose that prices will continue to rise from here. Currency depreciation may account for the increase, making imported goods comparatively more expensive for European consumers. Indeed, the Euro slipped -1.4% on average against the currencies of the regional bloc’s top trading partners to date this month. Travel and leisure spending linked to Easter may have also helped considering the holiday break fell in April this year rather than its usual time in March. The fallout in commodity prices (particularly oil) and slowing economic activity are likely to weigh on price growth in coming months. In fact, French Producer Prices are expected to fall by a record -5.3% in the year to April, suggesting lower consumer prices ahead as firms pass on lower manufacturing costs via cheaper finished products. The analogous metric in Germany also tumbled during the same period, bolstering the downside scenario for the Euro region as a whole.

If the economy is indeed showing signs of life, this likely owes to a slew of government spending packages put in place across the currency bloc. The ability of these measures to spur a sustainable return to economic growth looks questionable at best, however. Bruegel, a think tank, has estimated that European countries will spend an average of 0.9% of GDP on fiscal stimulus, as compared to 2% being spent in the US. On the monetary front, the European Central Bank seems intent on continued waffling, signaling rate cuts will end with borrowing costs at 1% and seemingly failing to reach a workable consensus on “unconventional measures” (meaning quantitative easing, a policy in place in the US, UK and Japan). This half-hearted approach means that private demand will likely be slow to step in to pick up the baton after the government’s boost is exhausted, keeping unemployment at elevated levels, holding back spending and bolstering expectations for a comparatively slower recovery. Indeed, the Unemployment Rate is expected to rise to 8.7% in March, the highest in 3 years, and is forecast to approach 10% by the end of this year. In Germany, the Euro area’s largest economy, the ranks of the unemployment are expected to jump by another 65,000 people to bring the jobless rate to 8.2%, the highest since January 2008.

Written by Ilya Spivak, Currency Analyst
Article Source - Higher Euro Zone Inflation Unlikely to Signal Recession is Abating (Euro Open)
Higher Euro Zone Inflation Unlikely to Signal Recession is Abating (Euro Open)SocialTwist Tell-a-Friend

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!