5.29.2009

Market Sentiment and Carry Interest Will Have To Find Its Bearings Soon

• Market Sentiment and Carry Interest Will Have To Find Its Bearings Soon
• US and New Zealand Credit Ratings Shirk Dour Forecasts
• A Round of Rate Decisions and Growth Reports Gauge Risk/Reward

Risk appetite across the markets has maintained the bullish trajectory cultivated since the beginning of March; but momentum has clearly drained over the past few weeks. The hesitation develops as market participants debate the merits of forecasting a genuine market recovery on the basis of what is so far early signs of a moderating recession and the promise such tentative progress holds for bolstering yields. This wavering is a sign that skepticism is on the rise with traders having already spent much of the fuel a speculative rebound could afford the market after a lengthy period of caution and deleveraging. However, looking at the Carry Trade Index, it is clear that this congestion will come to a breaking point soon. Looking beyond the congestion of the past month, there is still a steady bullish bias behind risk appetite since February. The same can be seen in the benchmarks for the various markets: the S&P 500 has advanced eight out of the past 10 weeks; the benchmark 10-year Treasury note is off nearly 9 percent from its record highs set in December; and AUDJPY has climbed 12 of the past 16 weeks to a current perch of 33.5 percent off its recent record lows. Clearly, the momentum of these past few months would support a continued rise in sentiment. However, putting this advance into perspective, the Carry index is still more than 26 percent off its 2006 highs and equities are more than 40 percent from their respective record highs.

When will the struggle between speculation and fundamentals balance out; and what will happen when the market shifts back to this equilibrium? As the market’s appetite for risk rises, we have to consider what can fuel the advance through the coming days, weeks and months on to a genuine recovery – if this is indeed a genuine recovery. Here we see objective fundamentals are still sketchy in their support for a rise in optimism. Taking the basic ‘risk-versus-reward’ analysis approach, there is reason to be concerned over further financial troubles later down the line and certainly grounds to doubt a rise in returns beyond what volatile speculative gains can achieve. Separating capital returns and yield income is essential. Capital gains can be driven by normal market forces like a rebound from oversold conditions and temporary momentum to sustain a rally as investors return to the market. This could essentially be the foundation for the progress we have seen the markets make over the past three to four months. However, to turn a reversal into a recovery, there needs to be the hope of higher yield income to attractive deeper pools of money to the more established carry trade interests. Next week’s RBA, ECB, BoE and BoC rate decisions will help on this front. Should they all hold as expected and note improvements seen in the distance, we will be one step closer to a return to carry. In the meantime, safety is still the greater unknown. While the US and New Zealand debt ratings were recently secured, we still have not seen a clear turn in global recession readings.

Written by John Kicklighter, Currency Strategist
Article Source - Market Sentiment and Carry Interest Will Have To Find Its Bearings Soon
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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!