6.08.2009

Euro Vulnerable as Looming Currency Crisis in Latvia Threatens Contagion (Euro Open)

The Euro may see selling pressure in European hours as a developing currency crisis in Latvia threatens to spill over into Western Europe. Overnight data offered conflicting releases from Japan, seeing the Current Account narrow more than expected while merchants’ economic outlook surged to the highest since September 2007.

Key Overnight Developments

• Japan's Current Account Surplus Shrinks as Exports Tumble
• Eco Watchers Survey Sees Merchant Sentiment Surge in May

Critical Levels



The Euro corrected a bit higher in overnight trading, testing the 1.40 level against the US Dollar. The British Pound trended gently downward, testing as low as 1.5921 to the greenback.

Asia Session Highlights



Japan’s Current Account surplus narrowed more than economists expected in April, printing at 630.5 billion yen from 1485.6 billion in March. Forecasters were calling for an 850 billion yen result ahead of the release. Trading terms declined -54.5% from a year before as shrinking global demand weighed on exports. Indeed, overseas sales fell -40.6% in annualized terms, outpacing a -37.8% drop in imports. The International Monetary Fund has forecast that world trade volumes will contract by a whopping -11% this year and recover just 0.6% in 2010, spelling continued trouble for export-sensitive countries like Japan: companies are likely to maintain lower output levels, keeping a lid on a recovery in the labor market to keep disposable incomes low and hold back spending. Indeed, a survey of economists conducted by Bloomberg sees unemployment continuing higher at least through the second quarter of next year.

Meanwhile, the forward-looking component of Japan’s Eco Watchers Survey surged to 43.3 in May from 39.7 in the previous month, the highest since September 2007. The metric polls barbers, taxi drivers, and other retail service providers to gauge underlying trends in consumer confidence. Merchant sentiment was likely boosted by the government’s record 2 trillion yen ($20 billion) fiscal boost. It remains to be seen if the improvement is sustainable after this effort is exhausted.

Euro Session: What to Expect



Switzerland’s Unemployment Rate is expected to tick higher for the seventh consecutive month in May, rising to 3.6% in from 3.4% in the previous month, the highest since January 2006. Growing joblessness will weigh on disposable incomes and weigh on spending, putting a lid on overall economic growth. Hiring is likely to remain tame in the months ahead with firms keeping output low as demand remains lackluster from Switzerland’s key trade partners in the European Union. Indeed, the Swiss government’s official forecasts and those derived from a survey of analysts conducted by Bloomberg agree that the unemployment rate will hit 5% next year.

In the Euro Zone, the Sentix Investor Confidence indicator is expected to rise to -31.0 in June from -34.3 in the previous month, the highest reading since October. The boost is likely to come as traders price in the European Central Bank’s decision to expand monetary easing efforts beyond benchmark interest rates. However, it is important to note a negative reading implies analysts remain overall bearish, though comparatively less so.

On balance, the Euro may look past the data docket as recent developments in eastern and central Europe darken the near-term outlook: a looming currency crisis is emerging in Latvia, threatening to force devaluation and break a peg to the Euro unless rush efforts from the ECB and the IMF succeed in securing an adequate international aid package in the days ahead. Western European banks are heavily invested in Latvia as well as neighboring Lithuania and Estonia who also peg their currency to the Euro; if the currency collapses, the value of Western European investments in the region will go with it, putting intense strain on lenders already battered by losses from the subprime crisis. Needless to say, such a scenario could weigh heavily on the single currency, forcing yet more concessions to the US Dollar after Friday’s sharp decline.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Vulnerable as Looming Currency Crisis in Latvia Threatens Contagion (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!