British Pound Strength May Endure on Confirmation of Record UK GDP Decline (Euro Open)

The British Pound may shrug off confirmation that the UK economy shrank the most since 1979 in the first quarter despite downward revisions to private consumption and investment with traders already pricing in sluggish performance in the foreseeable future. Overnight data saw the Bank of Japan upgrade their economic outlook for the first time since 2006.

Key Overnight Developments

• Bank of Japan Upgrades Economic Outlook for First Time Since 2006
• Euro Higher, British Pound Range-Bound in Overnight Trading

Critical Levels

The Euro extended gains in Asian trading hours, adding as much as 0.5% against the US Dollar. The British Pound remained range-bound, oscillating in a well-defined 70-pip band above 1.5820.

Asia Session Highlights

The Bank of Japan kept overnight interest rates at 0.10%, as expected, and maintained their monthly purchases of government bonds at 1.8 trillion yen. The bank did another step toward easing lending conditions however, announcing it will now take foreign bonds as collateral for borrowing. US, UK, German and French government debt will be accepted. Most notably, the central bank upgraded their economic outlook for the first time since July 2006, saying growth will begin to recover in the second half of the 2009 fiscal year, an improvement from previous expectations of a rebound in the first half of FY2010. The BOJ expects the recovery will be export-driven, saying domestic demand will probably continue to weaken.

Euro Session: What to Expect

The second revision of UK Gross Domestic Product is set to confirm that the economy shrank -1.9% in the first quarter, the most since 1979. Although the headline figure is likely to remain unchanged, a number of key components are expected to see downside revisions to paint an even bleaker view of the struggling economy. Most notably, the fall in Private Consumption is expected to be scaled up to -1.0% from the originally reported -0.7% while the drop in Gross Fixed Capital Formation (i.e. investment) is expected to nearly double the originally reported result of -2.3% to print down -4.1%.

Although this is surely bad news for economy, the ability of the release to meaningfully derail the recent rally in the British Pound seems limited. Sterling traders heard everything they needed to about growth prospects when the Bank of England’s quarterly inflation report revealed expectations inflation will remain below the target 2% until 2012 as the economy takes a slower path to recovery. Indeed, this week saw the UK unit shrug off a weak CPI report as well as news that rating agency S&P downgraded their UK outlook from “stable” to “negative”.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound Strength May Endure on Confirmation of Record UK GDP Decline (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.

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!