5.06.2009

Dollar Breaks Losing Streak

Buying of the Dollar resumed yesterday as equities finished lower and the U.S. economy showed better than expected manufacturing data. Traders are allocating their positions accordingly as the markets prepare to absorb a glut of economic news in the coming days which may create a level of heightened price volatility.



USD - The Greenback Rebounds for the First Time in 3 Days

The U.S currency climbed versus the EUR on Tuesday and recovered against other major currencies after a drop in equities and the Institute of Supply Management's survey of service businesses showed that sector of the economy contracted at a slower pace last month. The ISM's non-manufacturing index rose more than analysts expected to 43.7 in April, from 40.8 the previous month. That's the highest reading since October. Investors began selling the EUR after it hit a monthly high near $1.3440 amid uncertainty about Thursday's European Central Bank meeting and results of stress tests on U.S. banks. The USD advanced 0.8% to $1.3280 per EUR from $1.3406 yesterday. The Dollar also gained 0.2% to 98.97 yen, from 98.80.

The Dollar increased versus the EUR after Federal Reserve Chairman Ben S. Bernanke said the U.S. economic contraction may be easing and a report showed services industries shrank at a slower pace. Optimistic comments from Federal Reserve Chairman Ben Bernanke and a slower pace of contraction in the service sector have helped to drive the U.S. Dollar higher.

Bernanke's remarks before the congressional Joint Economic Committee echoed last week's central bank statement that the economic outlook has improved since March. The Dollar had been under some pressure in the past 4 weeks and was traded in a range of $1.2886 to $1.35 per EUR. However, the greenback is likely to rebound further and advance to $1.30 by the end of the second quarter, according to analysts.

EUR - The ECB May Rates Near Zero Percent

The European single currency retreated slightly off of a monthly high versus the Dollar ahead of a meeting on Thursday of European Central Bank (ECB) policy makers. Some in the market said they were wary of taking on too much risk ahead of Thursday's policy announcements by the ECB and the Bank of England (BOE).

The Euro-Zone currency fell on speculation the Central bank will cut Interest Rates tomorrow and announce plans to buy debt as part of an initiative to end the region's recession. The ECB is expected to cut its benchmark rate to a record low 1%, while the BOE is seen holding rates steady at 0.5%, which is also a record low for Britain.

More importantly, market players want to see whether the ECB suggests it will keep cutting Interest Rates along with adopting non-conventional policy measures such as buying long term government securities to stimulate growth. Therefore, the EUR could resume its rally if the ECB opts not to follow the Fed and adopt non-standard monetary policy.

JPY - The Yen Pares Its Losses Versus the USD

Japan's currency rose against the greenback by the most in more than a week after Reuters reported the government review will show Bank of America Corp. needs $34 billion in new capital, citing a person familiar with the results. The Yen rose as much as 0.8% to 98.17 against the Dollar, the most since April 24. The currency also rose 1.2% against the EUR, to 130.09 from 131.73 in New York yesterday.

The Japanese currency gained as the Fed plans to deliver results of stress tests on U.S. banks that may show about 10 companies in need of additional capital. Economists said that the bank stress tests might rattle market confidence and the recent outbreak of optimism might be due for its own stress test.

OIL - Crude Retreats After Touching 2009 High

Crude Oil prices declined on Tuesday as bulging Oil inventories and falling energy demand outweighed fragile hopes for an economic recovery. Analysts said that even though Oil markets are trading near their highs of the year so far, the market still feels nervous about sustaining these levels. The price settled yesterday 63 cents lower at $53.60 a barrel, after hitting a high for the year of $54.83 a barrel.

Oil prices have recovered from $32.40, the lowest since early 2008. Yet prices remain down sharply from the record high above $147 reached in July, 2008. The slumping economy has battered Crude demand, driving up stockpiles and sending prices down from their record highs. However, improvements in the leading economic indicators increase traders' confidence that a return to sequential economic growth in second half of 2009 will likely support a rise in Crude Oil prices to as high as $65 a barrel.

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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!