Key Overnight Developments
• Australian House Prices See Record Drop in First Quarter
• US Dollar Lower as Chinese PMI Boosts Asian Stock Exchanges
The Euro traded higher in the overnight session, punching through the 1.33 level to add as much as 0.6% against the US Dollar. The British Pound followed suit, adding as much as 0.4% against the greenback.
Asia Session Highlights
Risk trends dominated forex price action in overnight trading, with the US Dollar extending losses as stocks pushed higher across Asian exchanges. The MSCI Asia Pacific Index surged over 3% as China’s Purchasing Managers Index rose to 53.5 in April from 52.4 in the preceding month, showing manufacturing expanded for the second consecutive month (a reading above 50 suggests the sector is growing) and fueling expectations that a rebound for the Asian giant will see positive spillover elsewhere and bolster the global economic recovery. China announced in March that it would spend close to 4 trillion yuan to boost the economy, targeting infrastructure, industrial modernization, and rural development. Meanwhile, a meeting of the Association of Southeast Asian Nations together with Japan, China and South Korea agreed to set up a $120-billion foreign-currency reserve pool at a meeting in Bali over the weekend.
In Australia, the House Price Index tumbled -6.7% in the year to the first quarter, the largest drop on record and the biggest in at least 6 years. Together with recent disappointments in new home sales and vehicle sales, this data reflects Australian consumers’ continued hesitation to commit to big-ticket purchases. This seems logical considering the deepening economic downturn has pushed the unemployment rate to a 5-year high of 5.7%, weighing on disposable incomes, while access to borrowing has dwindled to unprecedented levels. Private consumption is the largest component of overall economic growth, so naturally the fallout in spending has substantially contributed to what is increasingly expected to be first Australian recession since 1991. Indeed, TD Securities reported that deepening economic turmoil pushed the annual pace of inflation to 2.1% in the year to April, the slowest in four years.
Euro Session: What to Expect
German Retail Sales are expected to add 0.2% in March, suggesting receipts shrank at an annual pace of -0.3%, an improvement from the previous month’s -5.3% decline. The improvement likely comes as the government’s 82 billion euro stimulus package works its way through the economy. On balance, the data is unlikely to reveal trends supportive of a sustained return to Euro strength. The world’s fourth-largest economy could afford a far greater fiscal effort considering the kind of spending being done by its major counterparts, most notably the US. This coupled with a deliberately slow-moving ECB suggests private demand will likely be comparatively slower to pick up the baton after the government’s boost is exhausted, keeping unemployment at elevated levels and holding back spending. By extension, this is set to weigh on overall economic growth. Indeed, a survey of economists conducted by Bloomberg suggests German GDP growth will underperform that of the US by -2.45% and -1.45% in 2009 and 2010, respectively (those figures for the overall Euro Zone are -0.8% and -1.35%). Broadly speaking, this means US interest rates will rise faster than those in Europe, arguing for EURUSD downside in the months to come.
Separately, the Euro Zone Sentix Investor Confidence reading is seen pushing higher to -28.0 in May from -35.3 in the preceding month. The reading would break above the metric’s range near record lows that has held since December. Still, the print in negative territory continues to suggest that the bears continue to outnumber the bulls among the survey respondents polled for the release. Further, the uptick would still be firmly within the context of the clear long-term downtrend in place since June 2007.
Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Lower As Asian Stocks Rise on Chinese Manufacturing Growth (Euro Open)
What is Forex?
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.
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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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Why to trade on Forex?
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Good luck to everyone!