US Dollar May Rise as Stock Index Futures Point to a Reversal in Risk Appetite (Euro Open)

The US Dollar may rise as an uneventful economic calendar is likely to yield to risk sentiment as the main driver for forex price action with US equity index futures trading down 1% ahead of the opening bell in Europe. French and Italian industrial production figures are on tap, with expectations calling for the fourth consecutive month of double digit declines in the year to March.

Key Overnight Developments

• New Zealand House Prices Fall for Tenth Month in April
• Australian Business Confidence ‘Stabilized Significantly’ Says NAB

Critical Levels

The Euro traded sideways in a well-defined range above 1.3615 in overnight hours. The British Pound followed suit, oscillating in a 50-pip band above the 1.5200 level.

Asia Session Highlights

New Zealand House Prices (calculated based on quoted home values) fell for the tenth consecutive month in April, shrinking at an annual pace of -9.2%. The reading is within a hair of March’s record -9.3% decline, the largest in nearly 4 years. Deepening recession, rising unemployment, and scarce credit access have kept buyers away from big-ticket purchases, sending property values lower. For those that already own a home, the decline amounts to a negative wealth effect, eroding the value of one’s assets to discourage spending and thereby keep a tight lid on economic growth. The Reserve Bank of New Zealand has tried to encourage demand by cutting interest rates to a record-low 2.5% at the last policy meeting and explicitly stated that they “consider it appropriate to provide further policy stimulus to the economy [and] expect to keep [interest rates] at or below the current level through until the latter part of 2010.” The economy is expected to shrink -3.2% through 2009.

In Australia, April’s Business Confidence was little changed from the previous month’s result, printing at -14 versus -13 in March according to National Australia Bank. The metric set a record low at -32 in January. NAB chief economist Alan Oster said that “confidence levels have stabilized significantly” and speculated that “a moderate return to [economic] growth” was possible if sentiment holds at current levels through the second quarter. Still, Oster remained cautious, noting that “future expectations [are] at record lows” and forecasting that the jobless rate would rise to 6.75% this year and reach around 8% by 2010 despite a notable upswing in April’s data. For its part, the Reserve Bank of Australia has argued that existing monetary and fiscal policy measures will adequately support economic recovery.

Euro Session: What to Expect

An uneventful economic calendar is likely to yield to risk sentiment as the main driver for forex price action in European hours. Although Asian stock markets seesawed overnight, US equity index futures headed convincingly lower, trading down 1%. If risk appetite abates in a meaningful way, traders could see upside in safety-linked currencies such as the US Dollar and the Japanese Yen.

Scanning the data docket, signs of deepening recession continue to abound in the Euro Zone. French Industrial and Manufacturing Production readings are set to issue the fourth consecutive month of double digit declines, shrinking -14.6% and -16.1% respectively in the year to March. Meanwhile, Italian Industrial Production is expected to shed -21.2% in the same period. Output has dwindled as the global economic downturn weighed on overseas demand. Exports contribute over 40% to the Euro Zone’s overall economic growth, with other factors like investment and private consumption indirectly to foreign demand. Indeed, the current fallout has led companies to scale back investment and cut labor costs, boosting unemployment and weighing on consumption. This bolsters expectations that the currency bloc will trail the US in recovering from current turmoil: most US economic growth is derived from domestic factors, while the Euro region will need to wait for the second-round effects of a recovery among its top trading partners to see a lasting return to positive growth.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar May Rise as Stock Index Futures Point to a Reversal in Risk Appetite (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.

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.
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5. High liquidity.
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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!