4.09.2009

U.S Dollar Uptrend Continues

The U.S. and Japanese currencies are likely to keep drawing demand as investors stay away from higher-yielding currencies such as the AUD, analysts said. The Yen rallied against Sterling and the Australian and New Zealand dollars, which each fell roughly 1.5% against the Japanese currency.



USD - Trader's Flight to Safety Benefits the Dollar

The Dollar continues to show considerable strength over its currency rivals as financial worries have returned to the market. The 1st quarter earnings season has arrived and drops in equity markets are fueling renewed risk concerns which weigh on the currency market, strengthening risk-averse currencies such as the US Dollar. It is apparent that the desire for riskier, higher yielding currencies has waned given the decreased risk appetite in the forex market. As risk sentiment falls, the Dollar may be the primary beneficiary.

One event seen as triggering the flight to safety was the announcement that the International Monetary Fund (IMF) is increasing its forecast for bad debt held by global financial firms to an astonishing $4 trillion. This announcement has been driving the trading of the USD the past few days as there has been a lack of economic data during the first part of the week.

However, big fundamental indicators will be released today that could swing the markets against the Dollar. At 12:30pm GMT both the U.S. Trade Balance and weekly unemployment claims are due out. A deficit of $36.7 billion is forecasted for the month of month of February. Traders may look for this reading to be worse than the forecasted value as the month of Feb may have been one of the most trying months in U.S. economic history. Also, the US Unemployment Claims figures could be worse as well. U.S. unemployment is currently at a 25-year high and job losses have yet to show a sign of slowing. Traders may be able to profit by the market's pessimism. Being short on the Dollar may be the right move with the release of these two economic indicators today.

EUR - EUR Weakens As Risk Aversion Continues

The EUR has been declining this week against its major pairs with no sign of the selling to cease. The depreciation of the EUR appears to be largely due to perceived higher risk in the market this week after consecutive losses in equity markets. Profit taking has also been seen from the previous week's trading sessions. The EUR appreciated 5.5% against the JPY last week as traders ramped up their aggressive positions in light of reduced risk aversion. However, those gains have largely dissipated as greater risk is once again the topic in financial markets.

Risk aversion may continue to be present in the market, so long as equities continue to slide. The approaching earnings season has traders weary of placing too much of their capital in riskier currencies, such as the EUR. Rightfully so, there is quite a bit of uncertainty out there. One catalyst for the EUR may be a potential bankruptcy of the American car manufacturer, General Motors.

Some economists are predicting a further slide in the EUR. A fundamental analysis shows that the European Central Bank may be running out of options to fight the economic recession in the Euro-Zone economy. An absence of further capabilities by the ECB could set the European economy behind its peers for a sustained recovery.

JPY - Japanese Yen Ends Up as Beneficiary in Foreign Exchange Trading

The Japanese yen rose for another day against its counterparts as the currency has been more sensitive than the Dollar to shifts in investors' willingness to take on risk. The Japanese currency's gains are outpacing other currencies during financial turmoil and its losses usually marked when sentiment improves.

As expected, the Bank of Japan's (BOJ) policy board on Tuesday took additional measures to help the flagging economy, expanding collateral that can be used for loans. In addition to the low interest rate loans it now offers, the bank could also start purchasing corporate bonds and providing loan guarantees, the report said.
The latest measures will put more emphasis on midsize firms, which have fallen outside the scope of the assistance. The BOJ warned, however, that economic conditions will continue to deteriorate. On Friday, Japan is expected to unveil a fresh economic stimulus package, valued at more than 2% of the country's Gross Domestic Product (GDP).

Crude Oil - Oil Prices Decline Amid Economic Contraction

Crude Oil prices are likely to decline even further, as the world's top energy forecasters are likely in the coming days to reduce again their projections for world Oil consumption this year. The 3 top forecasters; the International Energy Agency (IEA), the Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration (EIA) will publish new oil supply and demand estimates between April 10 and 15.

Their forecasts are followed closely by investors in Oil markets, which have seen prices tumble to around $50 per barrel this week from highs of almost $150 in July last year. World Oil demand is falling for the first time in a generation as the deep global downturn closes factories and brings unemployment to the world's largest economies. Yet, many analysts believe that Crude prices may recover later this year since U.S economic data suggest gasoline demand is rising as pump prices have halved over the last 9 months.

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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!