USD - U.S. Sees Worst Unemployment Figures Since 1983
Last week was mainly a bearish week for the Dollar. The USD dropped significantly against the EUR and the GBP. The EUR/USD crossed the 1.35 level, and the GBP/USD was traded at an almost two-month high, after reaching to 1.4890.
Last week was filled with important data regarding the U.S economy. First, the Manufacturing Purchasing Managers' Index was seen at a 5-month high after reaching the 36.3 mark. In addition, the housing sector in the U.S continued to show recuperating signals as the monthly Pending Home Sales rose by 2.1% in February. However, all this had little effect on the U.S Dollar as the Non-Farm Employment Change report climbed to a 25-year high with over 663,000 people losing their jobs in March, making it the fourth consecutive month in which the U.S economy lost more than 650,000 jobs.
With all respect to the improving housing sector, such horrifying figures are an immense warning sign for all those who feel that the crisis is now behind us and not ahead of us. The weakening of the greenback on almost all fronts was fairly expected in light of the problematic job sector.
As for the week ahead, a lot of extremely influential data will be published, and most attention will be focused towards two of them. First, the U.S. Trade Balance which measures the difference in value between imported and exported goods and services. Analysts expect that the deficit has continued to narrow throughout February. Second, the U.S Unemployment Claims, which measures the number of individuals who filed for unemployment insurance for the first rime during the past week. This week the report will have an even stronger impact than it usually does, as investors are anxious to see whether the poor job sector in the U.S. is likely to continue. Traders are advised to pay attention to these publications and set their positions on the USD accordingly.
EUR - The EUR Continues to Strengthen against the Majors
Last week the EUR underwent bullish trends against most of its major currency counterparts. The EUR/USD rose to about 1.3580, and the EUR/JPY reached the 136.80 level. However, the EUR saw a falling trend against the GBP throughout most of the trading week.
The most significant notification which came from the Euro-Zone over the past week was definitely the European Central Bank's (ECB) decision to cut interest rates to 1.25% from 1.50%. Normally, when a region announces its cutting interest rates, the automatic reaction to it is the weakness of the local currency. However, this time, on a fascinating turn of events, the exact opposite effect took place. A reason for this is as follows: for about a month now, analysts have anticipated that the ECB will have no choice but to cut interest rates, as the European interest rate was much higher than those in the U.S, Japan and Great Britain; however, for the past week or so, everyone was under the impression that the ECB will cut interest rates at least by half a percent. When it was announced that the ECB will cut interest rates by only 0.25%, most investors were caught by surprise, which caused them to reevaluate their positions, concluding in a very strong bullish trend for the EUR.
As for this week, traders are advised to focus on the German economic data. On Wednesday at 10:00 GMT, the monthly German Factory Orders will be published. This report, which measures the change in the total value of new purchase orders placed with manufacturers, is expected by analysts to drop for the sixth consecutive month. On Thursday at 10:00 GMT, the monthly German Industrial Production report, which measures the change in the total inflation-adjusted value of output produced by manufacturers, is expected by analysts to drop for the sixth consecutive month as well. If the real results will be similar to the forecasts, the current trend may reverse, and the EUR/USD could significantly drop. Traders should follow the announcements and try to make profits from the effects of these results.
JPY - The Yen is Losing Ground on All Fronts
The JPY saw an extremely bearish session last week, and it will be certain to say that if you went short on the JPY, you now have more funds in your equity than you had before. The USD/JPY for example, has crossed the 100.00 barrier for the first time in six months.
Two reasons have led to the JPY's downfall over the past week. One, two very important Japanese economic indicators delivered unfortunate figures. The Preliminary Industrial Production, which measures the change in the total inflation adjusted value of the output produced by manufacturers, dropped by 9.4%, making it the fifth drop in a row. In addition, the Tankan Manufacturing Index, which measures general business conditions, dropped to a -58 mark, reflecting a 34-year low. The second reason for the weakness of the Yen is the Japanese economic policy that tries to do its best to encourage the local exporting and believes that the best way to do this is via a weak currency. These are the main reasons for the Japanese low interest rates, which are made to keep the Yen as weak as possible.
As for the week ahead, the most significant data expected from Japan will be the Overnight Call Rate, on which the Japanese interest rates for April will be revealed. As for now, the Bank of Japan (BoJ) is widely expected to leave it at 0.10%, as it can't really drop it further. In conclusion, unless sudden changes will take place, the JPY will probably continue to face downtrends against the major currencies in the upcoming week.
Crude Oil - Could Crude Oil Reach $55 a Barrel?
Crude Oil's prices continued to rise during last week's trading session. A barrel of oil has breached through the $50 price for the first time in two weeks, and it is currently valued for over $53.00 a barrel.
It appears that Crude Oil is rising on speculations that the global economic stimulus decided on at the G20 meeting will indeed put an end to the recession, and with the beginning of 2010 we might even see the first signs of global growth. All of these speculations have led investors to think that the demand for oil will increase dramatically throughout 2009. In addition, the deteriorating USD has also contributed to the spike in oil prices as Crude Oil is valued in Dollars.
Looking ahead to this week, traders are advised to watch carefully after the leading stock markets and the major economic indicators which will be published from the U.S. and Euro-Zone in order to predict the next movements in oil prices. Nevertheless, in case the USD continues to weaken as it has lately, $55 a barrel seems like a very realistic target for this week.
Article Source - USD-Confidence Weakens after Poor Economic Data Released
What is Forex?
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.
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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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Good luck to everyone!