6.19.2009

Euro in Focus as German Producer Prices Stoke Deflation Expectations (Euro Open)

The Euro may see selling pressure in overnight trading with German Producer Prices set to fall -3.6% in the year to May, the largest decline in 22 years, stoking expectations that the Euro Zone’s largest economy will help drag the currency bloc into deflation, containing economic growth.

Key Overnight Developments

• Meeting Minutes Show BOJ Remains Uncertain About Domestic, Global Economy
• Euro, British Pound Range-Bound Against US Dollar in Overnight Trading

Critical Levels



The Euro consolidated in a narrow 40-pip range in overnight trading, oscillating around the 1.39 level. The British Pound followed suit, trading sideways in a 100-pip band above 1.63.

Asia Session Highlights



Minutes from the last meeting of the Bank of Japan revealed policymakers are far from optimistic about the world’s second largest economy. On exports, the BOJ stated that overseas sales are expected to “level out…mainly due to progress in adjustments in local inventories,” meaning the bank sees little chance of a meaningful rebound in global demand for the time being. On private consumption, the BOJ said spending was “likely to remain relatively weak…as the employment and income situation [becomes] increasingly severe,” chalking up the recent uptick in consumer confidence to “various demand-boosting policy measures” (i.e. government handouts). On the financial markets, the bank acknowledged that “there had been some easing of tension” but maintained that conditions remain tight, saying that “the stimulative effects from [monetary easing] had been limited.” On balance, the BOJ concluded that “the outlook [for Japan going forward] was attended by a significant level of uncertainty, given that economic activity was likely to be strongly affected by developments in overseas economies and global financial markets.”

Euro Session: What to Expect



German Producer Prices are set to fall -3.6% in the year to May, the largest decline in 22 years. The reading foreshadows continued downward pressure on consumer inflation as cheaper wholesale prices are passed on via a lower final price tag. German CPI came to a standstill in May and is poised to head into negative territory from here. The onset of deflation in the Euro Zone’s largest economy is all but certain to take region-wide inflation along the same trajectory, threatening to commit the currency bloc to a long-term period of subpar economic growth as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment.

As we noted last week, the present situation argues for a far more forceful monetary response than anything that has been introduced by the European Central Bank thus far. Overnight index swaps suggest that traders are pricing in virtually no chance that the ECB will lower rates at the next policy meeting and quantitative easing will be difficult to expand beyond the modest measures announced earlier this month given the internal conflict about such policies within the central bank. This opens the door for traders to punish the Euro as they price in expectations that the region will substantially lag behind other industrial economies in recovering from the current downturn, forcing interest rates to stay lower for longer than elsewhere.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro in Focus as German Producer Prices Stoke Deflation Expectations (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!