6.11.2009

EUR and USD in Struggle for Dominance

With the recent volatility in the forex market, one currency pair seems to stand out: the EUR/USD. This pair has been range-trading for the previous week as the two currencies struggle for dominance of the currency market. With this weekend's G8 summit on the global financial system, traders will no doubt anticipate a higher level of volatility among this primary currency pair after the world's economic leaders meet.



USD - USD Advances after Treasury Auction

The Dollar advanced Wednesday against the EUR and JPY after an auction of 10-year U.S. Treasury notes achieved higher than expected yields. Selling off of stocks after the auction intensified the losses among risk-sensitive currencies. The USD fell earlier after Russia's central bank said it will diversify its currency reserves by cutting U.S. Treasury purchases and buying IMF-backed bonds.

The Dollar also fell 6.6% versus the EUR in May on speculation the ever expanding U.S. budget deficit and the Federal Reserve's increase of the money supply will undermine the greenback. The U.S. budget deficit climbed to $189.7 billion in May, a record for the month which prompted some concerns of the Dollar's collapse. In light of this, it appears that U.S. fiscal and monetary policy will provide indications on the outlook for the Dollar as markets currently associate an improving economic outlook with a possible tightening of monetary policy.

A Federal Reserve survey know as the "Beige Book" which was released Wednesday showed that economic conditions remain weak and even deteriorated in several regions of the country, with commercial real estate and labor markets continuing to struggle. Traders should pay close attention to Core Retail Sales and Unemployment Claims to be released today at 12:30 GMT for further insight in to the state of the U.S economy. The likelihood that the greenback will continue to rise against some of its main currency rivals appears stronger than usual today.

EUR - EUR Trims Losses against USD

After a downward turn against the USD, the EUR rebounded from its session low of $1.3914 and trimmed its losses following a rise in the equity markets. Wednesday the EUR ended at $1.3987, down from $1.4075 late Tuesday and at 137.47 Yen, up from 137.10. The Pound Sterling was at $1.6355, up from $1.6333. The Pound advanced against the EUR to the highest level since December after a government report showed manufacturing in the U.K. expanded for a second consecutive month and stocks gained.

The EUR/USD pair seems to have settled into a trading range with the EUR fluctuating between $1.38 and $1.42. This trend is likely to continue until the end of the week. However, with high oil prices and diminishing risk aversion it is likely that the EUR will resume its bullish trend as the underlying sentiment is still negative for the Dollar.

With a slow news days for the Euro-Zone today and Friday, investors are waiting for the weekend G8 meeting to start this Friday for a better assessment of the direction the participating economies will take. The EUR's recent strength makes it a excellent forerunner in today's market, but regional uncertainties have captivated traders lately and made the forex market less predictable.

JPY - JPY Trading Down against Currency Rivals

The JPY declined yesterday against most major currencies as speculation regarding a global recovery encouraged investors to buy higher yielding assets outside of Japan, selling the Japanese currency. The Yen was at 137.21 per EUR Wednesday and at 98.21 per USD, following a 0.8% drop. As the anxiety about financial turmoil retreats, people are willing to buy riskier currencies which offer higher yields while funding that with safer currencies such as the Yen and the Dollar.

The Japanese Yen is likely to continue to weaken as improving risk appetite brought on by advances in the Asian stock market is likely to encourage investors to turn to overseas assets offering higher returns, promoting Japanese capital outflows. As a result, the JPY's target rates today should be lower against its currency counterparts.

Crude Oil - Oil Soars above $72 a Barrel

Crude Oil rose to a 7-month high after a government report showed that U.S. crude supplies unexpectedly fell. Stockpiles of oil dropped 4.38 million barrels to 361.6 million in the week ended June 5, the Energy Department said Wednesday. Crude Oil for July delivery rose to another record price this morning by reaching $72.04 a barrel.

Oil demand is still pretty weak across the globe despite a slight increase in demand in the U.S. Commodity futures which have increased this year as the Dollar weakened and equity markets rebounded. Still, the fundamentals don't support prices at these levels and Oil's current strength might be a result of momentum-trading as investors turn to higher yielding assets amid rising confidence of global recovery. Fears over rising inflation may also assist in Crude Oil's rise as investors look for assets that can offer protection against rising inflation.

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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!