6.04.2009

Euro, British Pound in Play as Forex Markets Brace for Interest Rate Decisions (Euro Open)

The Euro and the British Pound May are in focus with back-to-back interest rate announcements from the European Central Bank and the Bank of England headlining the economic calendar. While neither policymaking body is likely to act on benchmark borrowing costs, significant changes in quantitative easing policy could stir heavy volatility.

Key Overnight Developments

• Japanese Corporate Profits, Investment Tumble on Overseas Demand
• Australian Trade Balance Unexpectedly Falls Into Deficit in April
• NZ Commodity Price Report Shows Currency Gains Threaten Recovery

Critical Levels



The Euro recovered a bit of ground overnight after heavy losses in New York trading hours, adding as much as 0.4% against the US Dollar. The British Pound diverged from the single currency, slipping as much as -0.8% ahead of the opening bell in Europe.

Asia Session Highlights



Japan’s Capital Spending fell -25.3% in the first quarter, the largest drop in at least seven years. Annual profits fell by a staggering -69.0%, with profit-to-sales ratio falling to just 1.4%, the lowest in at least 8 years. Profit margins for electronics and car manufacturers suffered the greatest losses, shrinking -6.9% and 7.1% respectively, on dwindling overseas demand. Lackluster investment in expanding or improving production capacity suggests firms are expecting a sluggish global rebound from the current downturn. This worldview is likely to translate into tepid hiring, weighing on consumption and keeping the lid on economic growth.

Australia’s Trade Balance fell into deficit for the first time since July 2008 in April, showing a –A$0.09 billion deficit after posting a revised A$2.3 billion surplus in the previous month. Economists had forecast a A$1.7 billion result ahead of the release. Exports fell -11.3%, the most in at least 6 months, while imports shed -1.7%. Shipments to China fell for the first time since November 2008, losing -14.8%. RBA Governor Glenn Stevens has repeatedly expressed optimism about Chinese economic growth, noting that exports to the south-Asian giant will help Australia weather the current global downturn. Revenues from overseas sales of coal and iron ore, the country’s top export commodities, fell -17.7% and -21.1% respectively.

Although the economy unexpectedly grew in the first quarter, details of the report suggested that much of the result was owed to aggressive fiscal stimulus, raising concerns about the sustainability of such performance in the months ahead. Tellingly, Australian Treasurer Wayne Swan noted that his country was yet to feel the full impact of the global recession, alluding to expectations that overseas demand would continue to fall from current levels. The International Monetary Fund has forecast that world trade volumes will shrink -11.0% in 2009 and grow by a meager 0.6% in 2010.

New Zealand’s ANZ Commodity Price Index revealed that world prices for the country’s top exports rose for the third consecutive month in May, adding 2.7% from the previous month. Prices for dairy, New Zealand’s top export commodity, rose 5% to register the biggest gain in at least 7 months. Most critically, prices measured in terms of the New Zealand Dollar fell for the third consecutive month, the increase in global prices is accounted for by a stronger local currency rather than improved overseas demand. A stronger currency will weigh on exports (which account for 30% of total output) and hamper the economy’s ability to recover, making New Zealand’s goods comparatively less competitive.

Euro Session: What to Expect



Interest rate announcements from the European Central Bank (ECB) and the Bank of England (BOE) headline the economic calendar in the forthcoming session. Looking first at the ECB, traders will be most anxious to see the details of unconventional stimulus measures announced at the last meeting in May. So far, ECB President Jean-Claude Trichet has only said that the bank would move forward on a scheme to “purchase euro-denominated covered bonds issued in the euro area,” saving the details of the plan for this go-around. On balance, the ECB has been notably more reserved than most of its major counterparts in offering monetary stimulus. Such waffling may see the Euro punished as the markets price in a longer path to recovery as well as the political implications of inaction. Indeed, grumbling electorates are increasingly likely to entertain calls to free national monetary capabilities from the ECB’s “measured approach” as recession deepens and unemployment levels rise, threatening the very existence of the currency union itself.

Turning to the BOE, chances for any further easing are virtually nil with benchmark borrowing costs already at just 0.50%. To that effect, the real question will be whether Mervyn King and company will expand their standing quantitative easing (QE) programs. Policymakers unexpectedly boosted their QE efforts by 50 billion pounds – another increase so soon after the last expansion would speak volumes about the bank’s perception of the headwinds facing the economy and could substantially weigh on the British Pound.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro, British Pound in Play as Forex Markets Brace for Interest Rate Decisions (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.

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!