5.26.2009

Can German Ifo Data Reverse EUR Trends?

Traders witnessed one of the first vital pieces of information from the Euro-Zone which actually put a dent in the plans of the EUR. The German Ifo Business Climate report failed to meet expectations and slightly lowered investor confidence in the 16-nation currency. As a result, traders may indeed see a reversal in the making for the EUR/USD unless today's news puts a halt to the correction. Sticking close to the calendar today and betting on news releases would be a wise move for the weary trader today as the movements of the forex market are not yet stabilized.



USD - Is a USD Rally in the Making?

The Dollar rose marginally against the European currency as the economic calendar in the U.S. was blank due to a bank holiday. The knock-on effect of this was a forex market with less volatility than usual. In reality this translated into little fluctuations in the USD and its main crosses.

Many analysts have been worried about the greenback's rapid deterioration in value in the past several weeks. They are beginning to ask themselves, "Is a reversal in the making?" In Monday's trading, the EUR/USD rate reached as high as 1.4028. However, the pair ended up lower by 15 pips for the day at 1.3974. Against the Pound, the USD was unchanged at 1.5877. The Dollar gained versus the JPY by 10 pips to close at 94.73.

This behavior shows that in late trading hours, the Dollar reversed some of its losses, and started gaining against the major currencies. This may be due to 2 main factors. Firstly, the Dollar has been over-sold lately, and is under-valued. Secondly, the bank holiday in the U.S. made the forex market more flat than it would have been under normal market conditions. The slightly negative German Ifo Business Climate news release from Germany may have also helped weaken the EUR in late trading. This is compounded with the fact that other major economies are in even more dire straits than the U.S.

Looking ahead to today's news, the most important economic news release coming out of the U.S. is the CB consumer confidence figures at 14:00 GMT. The release is a top measure of U.S. consumer spending. Therefore, the results are likely to be pivotal in driving the direction of the market both before and after the data release. Traders are advised to take-up positions in the majors, while volatility is still low, in order to make some profits in the USD and its dominant crosses.

EUR - EUR Declines against Greenback

The EUR slipped slightly against the Dollar as the markets failed to take a clear direction yesterday. It can be said that speculation alone cannot drive the EUR higher due to some of the recent data releases. This was shown when the German Ifo Business Climate report put some downward pressure on the EUR as investors realized that the Euro-Zone currency may be slightly overvalued against the USD, and other major currencies.

The Dollar gained 15 pips against the EUR, reversing a near-2-week trend to close at 1.3974. The EUR/GBP cross finished yesterday's trading to close marginally lower at 0.8799. The EUR/JPY pair was virtually unchanged at 132.36. The question now is can the EUR return to its bullish run against the greenback? It is valid to say that there is more to back the EUR in theory than the USD or the GBP. Both the U.S. and Britain have lower Interest Rates than the Euro-Zone. Additionally, Europe has been more conservative than her 2 economic rivals in printing money. Furthermore, Britain and the U.S. have mounting deficits, whereas the Euro-Zone doesn't. It seems reasonable to say that the long term bullishness may belong to the EUR, rather than to her main currency rivals.

Today, there are plenty of economic indicators from the Euro-Zone that are likely to help determine the EUR's main crosses going into mid-week trading. The Current Account and Industrial New Orders are set to be published at 8:00 and 9:00 GMT respectively. The impact of these releases will show forex traders the health of the Euro-Zone economy. This could signal if the European currency is overvalued, and if it can uphold its bullish run against the Dollar. The impact of this will be increasingly felt, especially as the markets moved little in yesterday's trading due to British and American bank holidays. Traders are advised to open positions now, in order to make profits when volatility kicks in.

JPY - JPY Strength Uncertain, Heavy News Week may Help

The Yen failed to topple the Dollar yesterday, despite a bearish Dollar in the last few weeks. The pair actually closed up 10 pips at 94.73. The release of the worse-than-forecasted CSPI figures in late trading helped prevent the JPY from gaining bullish momentum against its major currency pairs.

There was very little movement in the EUR/JPY pair as it closed at 132.36. However, the Yen lost a bit of ground against the British currency to finish trading at 150.45. These small forex market currency fluctuations were largely owed to the British and American bank holidays yesterday. Nevertheless, markets are set to be much more volatile today, as forex market volatility returns to more normal conditions in the coming hours.

The short-term future of the JPY depends on the speed of the global economic recovery. If things do improve quicker than many analysts anticipate then the Yen may start to go bearish. This is increasingly the case if the U.S. raises Interest Rates before all of the other industrialized countries. Today, in late trading the Monetary Policy Meeting Minutes and Trade Balance figures at 23:50 GMT are likely to help determine the JPY's strength going into mid-week trading. A 95.50 USD/JPY rate may be a possible by tomorrow's close. However, it is wise to open positions in the JPY now as news from the Euro-Zone and U.S. is published.

Crude Oil - Crude Oil Prices Decline 1%

The price of Crude Oil tumbled 1% in yesterday's trading to $60.90. This comes despite increased optimism from the Organization of Petroleum Exporting Countries (OPEC) recently. However, many analysts expect the price of Oil to climb through the long-term as market conditions return to normal. Many analysts believe that the long-term prospects for Crude Oil are between $75-80.

In the meantime, the price of Crude Oil may only start going bullish again when the Dollar continues its decline, and if OPEC makes no output increases in their next meeting in Vienna, Austria on the 28th of May. In today's trading, the economic figures coming out of the U.S. and Euro-Zone are likely to impact the volatility of oil prices and traders would be wise to enter the market before this volatility kicks off.

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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!