4.16.2009

US Housing Data May Spur Further Equity Gains, USD Losses

As the market tests various support and resistance levels, traders are discovering a negative correlation between equities and the value of the USD. Each time there is a rally in the equities market, the USD takes moderate losses. This is likely due to investors pulling their money out of forex trading and into the stock market. With the release of U.S. Building Permits today at 12:30 GMT, the equity market may be affected. Look for the impact this has on the USD throughout today's trading.



USD - EUR/USD Fails to Break Significant Resistance Level

Trading of the EUR/USD was extremely volatile today as the pair failed to break a significant resistance level. The Dollar was heavily sold during the Japanese trading session, but two hours into the European session the pair fell short of the significant 1.3300 level and proceeded to fall 1.1%. The pair made a slight recovery and range trading was experienced for the remainder of the day. The EUR/USD closed down at 1.3227 from 1.3245. Against the other major pairs, the Dollar closed up against the Yen at 99.24 from 98.38, while the Dollar lost ground against the Pound to end the day at 1.4997 from 1.4872.

Much of the currency market has been driven by the recent rally in global equity markets. Yesterday was no different. Gains in U.S. equities helped to drive investors into more risky, higher yielding currencies. This has hurt the U.S. Dollar against such currencies as the Australian and New Zealand Dollars.

Due out today are economic indicators that could help to create more volatility in the Dollar's crosses. U.S. Building Permits, which is considered to be an excellent gauge of future economic activity, is due to be released today at 12:30 GMT, along with the U.S. weekly unemployment claims report. Don't expect these numbers to shock the market with positive news. After these releases, the Dollar could end the day down against the EUR, testing the 1.3300 level once again.

EUR - ECB Member Discusses Interest Rate Cut

The EUR is experiencing a decline against most currencies as many market participants are predicating future quantitative easing measures by the European Central Bank (ECB). Comments made yesterday by ECB governor Axel Weber have led traders to believe a future interest rate cut will be made during the ECB's next policy meeting in May. However, the market is also expecting non-traditional policy moves to ease credit conditions in Europe. This could have a negative effect on the European currency, or it could bolster confidence in the EUR's future.

Yesterday the EUR finished lower against the Pound at 0.8816 from 0.8902, while the EUR finished the day against the Yen at 131.27 from 131.34.

Weber stressed that a floor should be set for European interest rates at 1.00%. Rates currently stand at 1.25%. If progress is not made to turn around Europe's economy, then we are likely to see similar purchases of government securities by the ECB as those of its American counterpart, the Federal Reserve.

Today's trading may see the EUR moved by two key data releases; year-on-year CPI and monthly industrial production figures. While many feel inflation has been all but drowned out by media reports of deflationary pressures, some believe that a higher than expected rate of inflation may signal a bit of improvement in the European economy. Monthly industrial production numbers are expected to show a bit of a turnaround. We could see the EUR recover against the Pound to the 0.8850 level.

JPY - Yen Falls from 2-Week Highs

The Yen declined against the Dollar yesterday as reduced risk sentiment had traders aggressively pursuing higher yielding currencies throughout the day. The Japanese currency came off a two-week high against both the Dollar and the EUR. Earlier in the day, traders sold off the Yen in anticipation of better than expected U.S. economic data. Those gains held throughout the day as the numbers beat market estimates. In early morning trading, the USD/JPY was trading at 98.95 while the EUR/JPY was at 130.67.

With little data to come from the Japanese economy this week, we may expect the Yen to continue to trade based on risk sentiment in the market and leading indicators from other economies. Traders are advised to follow the trends of U.S. equity markets as there appears to be a negative correlation with the valuation of the Yen and these markets.

Crude Oil - Crude Oil Inventories Continue to Rise

Despite the large jump in the supply of U.S. Crude Oil Inventories, the price of Crude still remains relatively high. Oil Inventories rose by 5.6 million barrels this week, more than twice the forecasted amount. This is the third consecutive week that Crude Oil stocks have risen. The price of Crude Oil ended the day's trading at $52.20.

Some analysts feel the price of Crude Oil may be fundamentally overvalued. Rising stock markets and an appreciating Dollar may be artificially supporting the commodity. With an absence of positive economic data, the possibility for a drop in Crude Oil prices exists. A possible price target could be below the $49 level.

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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!