Euro Zone GDP to Confirm Economy Shrank at Record Pace in First Quarter (Euro Open)

The second revision of Euro Zone Gross Domestic Product is expected to confirm that the currency bloc’s economy shrank -2.5% through the first quarter, the largest drop since the creation of the single currency. Australia surprised traders overnight as the economy unexpectedly expanded in the three months to March, boosting the Aussie dollar.

Key Overnight Developments

• UK Consumer Confidence Expands For Second Month in May
• Australian Dollar Surges As Economy Unexpectedly Grows in Q1

Critical Levels

The Euro was confined to a narrow range in overnight trading, oscillating in a 60-pip band above 1.4270. The British Pound followed suit for most of the session but prices surged higher to breach the 1.66 level just ahead of the opening bell in Europe.

Asia Session Highlights

UK Consumer Confidence expanded for a second consecutive month in May, according to Nationwide. The metric printed at 53 in May after a revised 51 result in April, the first print above the 50 “boom-bust” level since December 2008. The details of the survey revealed that 57% of respondents expect jobs to remain scarce and only 28% see the economy turning worse six months from now, the lowest percentages since October of last year. Stock market gains and moderating house-price losses likely accounted for the improvement in consumer sentiment: the benchmark FTSE 100 index has added over 30% since early March while house prices rose for the fourth consecutive month in May.

The Australian Dollar surged against major currencies after the economy unexpectedly grew in the first quarter. Gross Domestic Product expanded 0.4% in the three months to March; economists had expected the metric to shrink -0.2%. In annual terms, the GDP growth rate fell to 0.4% from a revised 0.8% in the final quarter of 2008. The result bolsters RBA Governor Glenn Stevens’ argument that Australia will weather the current global downturn better than other industrialized countries. Looking at the details of the report, consumption grew 0.5% and the external balance improved 1.4%. Private and government investment both declined. Aggressive stimulus measures are likely behind the impressive outcome: the central bank has brought interest down to the lowest in 49 years while the government has started to distribute more than A$12 billion in cash handouts to boost spending.

While the result is certainly encouraging, the important question going forward will be if Australia is able to sustain positive momentum once government stimulus dries up. Earlier today, the Treasury’s macroeconomics director David Gruen said he expects a “delayed” economic recovery in testimony to the a Senate committee but added the economy will grow at an annual pace of 4% in 2013-2017. Yesterday, the central bank kept interest rates unchanged at 3% for the second consecutive month but warned that additional easing may be needed given the prospect of medium-term deflation. Following the report, Australian Prime Minister Kevin Rudd and Treasurer Wayne Swan offered their rendition of the “good cop, bad cop” routine: Swan boasted that Australia outperformed other advanced economies and called the GDP figures a “very strong outcome”; meanwhile, Rudd said that the economy was “not out of the woods yet” and cautioned that there is “no guarantee” that the economy will not contract in coming quarters. A reserved outlook appeared to win out, with Swan conceding that Australia has yet to feel the full impact of the global recession.

Euro Session: What to Expect

The second revision of Euro Zone Gross Domestic Product is expected to confirm that the currency bloc’s economy shrank -2.5% through the first quarter, the largest drop since the creation of the single currency. The outlook going forward is decidedly ominous: a survey of economists conducted by Bloomberg expects inflation-adjusted GDP to shrink by a whopping -4.2% this year, greatly overwhelming calls for a -2.8% drop in the United States. Looking further out to 2010, the onset of economic recovery is set to see GDP growth in the States outpacing that of the Euro region by 1.4%. On balance, this suggests the European Central Bank is likely to lag behind the US Federal Reserve in raising interest rates as the rebound materializes, hinting at a bearish long-term bias for EURUSD.

Indeed, the ECB has been notably more reserved than most of its major counterparts in offering monetary stimulus. Although ECB President Jean-Claude Trichet announced that the bank would move forward on quantitative easing with a scheme to “purchase euro-denominated covered bonds issued in the euro area,” details of the program (and thereby its actual commencement) have been delayed at least until the next policy meeting on June 4th. Such waffling may see the single currency punished in the weeks and months ahead as traders price in not only a longer path to recovery but also 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.

Separately, Euro Zone Producer Prices are set to fall -4.5% in the year to April, the most in over 28 years. Easing wholesale inflation will compound downward pressure on consumer prices from slowing economic growth as lower production costs are passed on via cheaper finished goods, threatening the region with the onset of deflation. Such a scenario stands to commit the Euro area to long-term stagnation as consumers and businesses perpetually hold off on spending and investment, waiting for the best possible bargain.

In the UK, May’s Services PMI is expected to print at 49.5, rising from 48.7 in the previous month. The reading suggests the sector shrank for the 13th consecutive month, albeit at a slower pace.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Zone GDP to Confirm Economy Shrank at Record Pace in First Quarter (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.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
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!