US Dollar Fails to Gain on Stock Weakness, Pressured by Fed Forecasts (Euro Open)

The US Dollar consolidated at lower levels in the overnight session, failing to capitalize on falling stock prices across Asian exchanges as the minutes from the last Fed policy meeting continued to weigh on the exchange rate. Japan’s service demand fell to the lowest since 1995 while Australian consumers expected lower inflation in May. UK Retail Sales are on tap in European hours.

Key Overnight Developments

• Japan’s Service Demand Falls to the Lowest Level Since 1995
• Australian Inflation Expectations Show Weakness in Consumer Sentiment
• US Dollar Fails to Gain on Stock Weakness, Consolidates at Lower Levels

Critical Levels

The Euro consolidated gains in overnight trading, oscillating in a 50-pip range below the 1.38 level. The British Pound followed suit, trading sideways in a 70-pip band below 1.58. The US Dollar failed to capitalize on losses across Asian stock exchanges, with the typically safety-linked currency weighed down by the Fed’s revised growth forecasts and prospects of expanded quantitative easing.

Asia Session Highlights

Japan’s Tertiary Industry Index fell much more than economists expected in March, tumbling -4.0% versus expectations of a -1.5% result. Service demand dropped by a hefty -9.16% from a year earlier, printing at the lowest level in 14 years. The metric follows how much households and businesses spend on such things as utilities, health care, and financial services. The jobless rate has surged to the highest in nearly five years, trimming disposable incomes and encouraging precautionary saving to weigh on spending. Private consumption accounts for over 58% of total output, pointing to continued weakness in overall growth in the months ahead after the economy shrank by a record 4.0% in the first quarter.

Australia’s survey of Consumer Inflation Expectations saw the headline figure slip to 2.3% in May from 2.4% in the previous month, the second-lowest reading since the metric set a record low at 2.2% in March. Looking at the details, 57.5% of survey respondents expect prices will go up, the most in 6 months. Curiously, hourly wage growth expectations continued lower, with respondents saying those will increase at a pace of 3.9%, down from 4.7% in the preceding month. Extrapolating the likely mentality of Australian consumers as reflected in the data, it is reasonable to suppose that they are likely to buy what they need now, expecting prices to be higher and the wage climate less favorable in the future. This bolsters the negative view of long-term consumer sentiment that we noticed in analyzing March retail sales figures, wherein we saw that the way consumers were spending the government’s fiscal package suggested it was seen as a one-off income boost, hinting at expectations of lower spending power in the months ahead.

Euro Session: What to Expect

UK Retail Sales are expected to rise 2.4% in the year to April, the second consecutive month that sales growth accelerated after setting a record low at 0.4% in February. The improvement will likely come as the government’s spending boost begins to work its way into the broad economy. Still, the metric has been trending firmly downward since May of last year and the expected upswing will hardly amount to a break from that trajectory. Looking ahead, retail activity is likely to remain subdued: the unemployment rate has ticked up to 4.7% in April, the highest in over 11 years, and is expected to top 9% by the beginning of next year, shrinking disposable incomes to put substantial pressure on spending. Indeed, Business Investment is set to fall -4.0% in the first quarter to bring the annual pace of decline to -5.9% from -4.5% in the three months to December 2008 as companies scale back capacity amid dwindling domestic and overseas demand. Household spending accounts for 63% of overall economic growth, hinting that the UK will continue to underperform for some time yet.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Fails to Gain on Stock Weakness, Pressured by Fed Forecasts (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.


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.

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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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Good luck to everyone!