5.27.2009

Dollar Plummets to Seven-Month Lows as Asian Equities Rally (Euro Open)

Overnight price action saw Dollar pairs slide to lows last seen in early November. Sterling rose to a high of 1.5979 while its Canadian counterpart rose to 1.1124 in mid-Asian trading. The Euro was confined to a tight 50 pip range as traders awaited the release of tomorrow’s German Consumer Price data. Many may be looking toward the downside of the surveyed figure after import prices unexpectedly fell in the month prior.

Key Overnight Developments

• Dollar Pairs Hit Seven-Month Lows
• Japanese Merchandise Trade Deficit Shrinks by 46%
• Hong Kong Stocks Surge 4.30%

Critical Levels



Sterling hit a seven month high against the U.S. Dollar as stocks in Hong Kong surged 4.30%, allowing a reversion to risk-appetite that has continued to hurt the greenback. The Euro lost a bit of traction against it’s American counterpart, allowing scalpers to have swings in price action that were confined to a 50 pip range.

Asia Session Highlights



Japan's Adjusted Merchandise Trade Deficit shrank in the 12 months through the end of April, contracting from -97.1 billion Yen to -52.2 billion Yen as yearly exports fell at a slower pace. In fact, exports to Asia fell at the slowest pace since November, falling by 28.7%. The published figures come just hours after Nippon Steel, Japan's largest producer of the metal, agreed to cut the price of the material that it sells to Toyota Motor by 10%. Such price negotiations could bode well for the country's suffering export sector. Cuts in production costs may be able to spark vehicle sales, which have plummet 28.6% in the 12 months through April.

Minutes of the Bank of Japan's Apr 30 meeting revealed a board that is starting to think of once unfathomable ideas. One member stated that the bank ought to begin discussing plans to exit the program to ease liquidity once the economic recovery occurs. Another member said that monetary policy should have a long-term view. Overall, the temper of the central bank was cautious. For now, no new policies are needed. "A few members said that, although it would take some time for Japan's economy to achieve a full-fledged recovery, it was likely to recover gradually," minutes show. Just after the release, Bank of Japan Governor Masaaki Shirakawa said central banks throughout the world should ensure that their balance sheets stay within a reasonable health level. "In times of crisis, a central bank attempts to provide liquidity aggressively sometimes with taking some credit risk," Shirakawa said in a speech given in Tokyo today. Despite such emergency measures "a central bank should be cautious about the risk of undermining its credibility."

Euro Session: What to Expect



German Consumer Prices will make headlines tomorrow as traders will be using this figure to gauge how the European Central Bank might react at its June 04 meeting. Expectations call for a subdued, yet still positive, outcome that will plummet to a level last seen over ten years ago. The 0.3% expected EU Harmonised number might actually post slightly lower. In fact, import prices in April significantly undershot forecasts by unexpectedly falling by 0.8%. Estimates called for the figure to actually rise by 0.1%. As a result of the lag between the prices that the producers pay and that which is seen on the shelves, the April import price metric may actually materialize via consumer prices in the month of May. Should the yearly inflation figure post to the nearly-flat side, the ECB may be pressured to act accordingly by taking on additional and more aggressive stimulative measures.

French Business Confidence is expected to have risen in May for the second consecutive month after 12 months of seeing such sentiment plummet. Business managers are likely to feel more optimistic about their outlook after Consumer Spending in the European country rose unexpectedly by 0.7% in April despite estimates predicting a decline in sales of 0.3%. Italian Hourly Wages are expected to increase on an annual basis for the first time since December. Such a development would be interesting considering the broader labor situation, which has seen the rate of unemployed in a given quarter drop only once since the summer of 2006.

Written by Luis Gil, DailyFX Research
Article Source - Dollar Plummets to Seven-Month Lows as Asian Equities Rally (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.

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.

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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.

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