5.01.2009

Euro, British Pound Diverge Against US Dollar as Prices Test Key Levels (Euro Open)

The Euro gained while the British Pound slipped lower against the US Dollar in overnight trading as the greenback tested the boundaries of its 9-month up trend while global equity markets hoped to break the downward trajectory that has characterized prices since October 2008.

Key Overnight Developments

• Japanese Economic Data Points to Deepening Recession
• US Fed Delays Stress Test Findings as Banks Debate Results
• Euro, British Pound Diverge Against the US Dollar

Critical Levels



The Euro trended higher in overnight trading, with EURUSD adding as much as 0.4%. The British Pound diverged from its continental counterpart, slipping as much as -0.2% against the greenback. The US Dollar has suffered some notable setbacks in recent days but technical positioning suggests the dominant bias continues to favor weakness in risky assets and a stronger greenback.

Asia Session Highlights



Signs of deepening Japanese recession were on full display in Asian trading with the economic calendar soaked in red ink yet again. The Jobless Rate jumped higher than economists expected to print at 4.8% in March, the highest since August 2004, while the ratio of available jobs to seeking applicants dropped to the lowest in 7 years. The pattern is a familiar one: dwindling overseas sales have pushed firms to scale back capacity, boosting unemployment and weighing on disposable incomes, with Labor Cash Earnings falling -3.7% in the year to March, the fastest in since July 2002. Reasonably enough, this has eroded consumer spending and pushed the world’s second-largest economy into the deepest downturn since the Second World War. Indeed, Japan’s government forecast that the economy will shrink -3.3% this year. Stagnating output has also pushed price growth deeper into negative territory with the Consumer Price Index revealing that inflation fell at an annual pace of -0.3% in the year to March.

The Federal Reserve said that it will postpone the release of stress test results for the biggest US banks as the firms’ executives debate the findings with regulators. The release was originally slated by for May 4th, but concerns arose that undercapitalized institutions would see their stock prices collapse after their names were revealed to the markets. However, the added uncertainty may prove to be enough in and of itself to spook investors out of risky assets in the days head.

Euro Session: What to Expect



Tentative signs of stabilization in the UK housing market are set to continue to trickle in during European trading hours. Mortgage Approvals are set to rise for the fourth consecutive month in March while Net Consumer Credit is set to turn back into positive territory after dropping to a record low in February. Still, it seems premature to conclude that the data is indicative of a robust, sustainable rebound that would bring economic growth to healthy pace in the near future. Indeed, past experience suggests that a bottoming in the pace of economic decline seems to lag behind a pickup in buying interest by at least 6 months. NIESR, a think tank, said the economy could “continue to decline for up to another year.”

Written by Ilya Spivak, Currency Analyst
Article Source - Euro, British Pound Diverge Against US Dollar as Prices Test Key Levels (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.

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!