US Dollar Extends Gains as Stock Markets Tumble on Stress Test Results (Euro Open)

The US Dollar extended gains in overnight trading, testing below 1.30 to the Euro as Asian stock markets erased early gains and US equity index futures slipped over 1% on news that stress tests of Bank of America and Citigroup revealed the two lending giants will need additional capital.

Key Overnight Developments

• Japanese Retail Sales Shrink for Seventh Month on Unemployment
• US Dollar Rises as Asian Stock Exchanges Erase Early Gains

Critical Levels

The Euro oscillated in a well-defined 40-pip range for much of the overnight session but bearish momentum seemed to pick up ahead of the opening bell in London, pushing prices to test below the 1.30 level to the US Dollar. The British Pound trended lower, shedding as much as -0.6% against the greenback. Technical positioning favors a bearish outlook on both EURUSD and GBPUSD.

Asia Session Highlights

Japan’s Retail Trade figures revealed that sales shrank for the seventh consecutive month in March, shrinking at an annual pace of -3.9% after a -5.8% contraction in the preceding month. The pattern is a familiar one: dwindling overseas sales have pushed firms to scale back capacity, boosting unemployment and weighing on consumer spending to keep downward pressure on overall growth. Indeed, yesterday saw Japan’s government forecast that the world’s second-largest economy will shrink -3.3% this year, the recession since the Second World War. Finance Minister Kaoru Yosano said Japan remains in “crisis”.

The US Dollar added 0.3% on average against a basket of to global currencies, boosted by demand for safety as Asian stock markets erased early gains and US equity index futures pushed deeper into negative territory. The MSCI Asia Pacific Index slipped -1.5% and futures on the Dow Jones and the S&P 500 indices slipped over 1% on news that Bank of America and Citigroup were told by US regulators that they still need additional capital following a series of “stress tests”.

Euro Session: What to Expect

Preliminary estimates of Germany’s Consumer Price Index are expected to show that prices rose 0.1% in April to bring the annual inflation rate to 0.8% from 0.5% in the previous month. It would be premature 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 German consumers. Indeed, the Euro has shed 2.1% on average against the currencies of Germany’s top non-EZ import partners (China, UK, US). If the economy is indeed showing some life, this likely owes to record low interest rates and an 82 billion euro government stimulus package. The ability of these measures to spur sustainable growth seems questionable at best, however: the world’s fourth-largest economy could afford a far greater fiscal effort considering the kind of spending being done by the US, China and Japan; on the monetary front, Germany’s experience with hyperinflation in the 1920s have made it thoroughly averse to anything that even smells like printing money, putting its representatives to the European Central Bank at the head of the faction arguing against quantitative easing. 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 and holding back spending. Indeed, the jobless rate is expected to reach above 9% by the end of this year. Adding yet more wood to the fire, the International Monetary Fund recenly reported that European banks, many of them German, still carry $1.1 trillion in unrealized losses linked to subprime assets.

In Switzerland, the UBS Consumption Indicator is likely to continue lower in March after printing at the lowest level in 5 years in the previous month. The unemployment rate stands at 3.4%, the highest in 3 years, and is expected to surpass 4% by the end of this year. This will trim disposable incomes and is likely to continue to discourage spending.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Extends Gains as Stock Markets Tumble on Stress Test Results (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.


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.

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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.

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