5.07.2009

Interest Rate Decisions in Europe to Lead Today's Market

The hottest news available in today's market will no doubt be the interest rate decisions by the Bank of England (BoE) and the European Central Bank (ECB) today at 11:00 and 11:45 GMT, respectively. As interest rates are one of the primary tools used to value a nation's currency, the impact of these announcements will likely push the GBP and EUR to new extremes in the minutes after they are announced. Today will be an important news-trading day for forex traders.



USD - Dollar Tumbles against EUR and GBP

The U.S. Dollar fell against major currencies yesterday as gains in world stocks and a better-than-expected U.S. labor market report dampened the greenback's safe-haven appeal. After yesterday, the USD fell against the EUR, pushing the oft-traded currency pair to 1.3320. The Dollar experienced similar behavior against the Pound and closed at 1.5123.

Companies in the U.S. cut fewer jobs in April, indicating the worst of the recession's employment losses may have passed. Payrolls fell by an estimated 491,000 workers last month, less than analysts had forecast and the fewest since October. Stabilization in consumer spending following the worst slump in three decades is stoking expectations that the recession in the U.S. will end in the second half of the year.

In today's trading, forex traders should focus on a number of important fundamental data coming from both the U.S and the Euro-Zone. We expect that these pairs may become highly volatile as the market awaits the U.S. labor market figures and Interest Rate decisions from the European Central Bank (ECB) and the Bank of England (BoE).

EUR - European Interest Rates on Tap

The EUR rose against the U.S. Dollar yesterday, but gains were capped ahead of the European Central Bank's (ECB) policy meeting today when the central bank is expected to cut interest rates by a quarter percent to 1.00%. The central bank may also announce other monetary policy measures to stimulate lending and growth. The EUR gained against the USD as the pair closed at 1.3320.

Last month the ECB reduced its target rate to 1.25% in order to stabilize the economy. These days, Europe faces the most danger from debt reduction, depression, and deflation, and from their excessive debt and deleveraging. As a result, the ECB will likely cut its interest rates today while other governments embark on state-sponsored investment programs. The market will view the ECB action of a rate cut as a step to restore investor confidence, and to mitigate the economic fallout from the financial crisis.

Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains. If the rates are indeed cut, a target near 1.3000 wouldn't be unreasonable for next week.

JPY - JPY Falls against Major Currencies

Yesterday the JPY saw bearish results against most of its major currency rivals. The JPY was predominantly influenced by the other major currencies' behavior, however, as only one indicator was published from the Japanese economy. It appears lately as if the JPY is being motivated by outside factors more than by the Japanese economy.

Japan's monetary base rose 8.2% in April from a year earlier. Current account deposits at the central bank soared 81.2% after jumping 69% in March. The Bank of Japan's (BoJ) injection of large amounts of dollar-funds into money market operations amid the global credit crisis are a primary cause of this increase. It will be interesting to see how the local Japanese data will interact with equity market movement for the rest of the week in relation to the JPY's recent behavior.

Crude Oil - Oil Prices Hit 6-Month High

Crude Oil was little changed after rising above $56 a barrel for the first time since November yesterday as a surprise drop in U.S. Crude Oil inventories, and a slowdown in private sector job losses in April, boosted hopes for a turnaround in the economy. Oil prices have risen to $56 from lows around $34 in January, driven higher by stronger equity markets and hopes that the economy may begin to pull out of recession soon.

Oil prices are higher primarily because they are supported by a weaker U.S. Dollar and more positive signs from economic data releases. Last week, U.S. consumer confidence rose; U.S. construction spending and pending home sales data also surprised on the upside, further supporting sentiment towards energy. If current trends continue, a price range above $60 won't be far off for Crude Oil.

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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!