6.05.2009

Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (Euro Open)

The forex market saw trading ranges narrow dramatically in the overnight session as traders looked ahead to the looming event risk of May’s US Non Farm Payrolls report to guide directional momentum. Switzerland’s Consumer Price Index and UK Producer Prices are on tap in European hours.

Key Overnight Developments

• Australia's Construction Sector Shrinks for Fifteenth Month in May
• Euro, British Pound Ranges Narrow Ahead of US NFP Report

Critical Levels



The Euro consolidated in a narrow range in overnight trading, oscillating around the 1.42 level. The British Pound followed suit, confined to a narrow band above the 1.61 level.

Asia Session Highlights



Australia’s AiG Construction PMI rose to 46.9 in May from 36.5 in April. The reading below the 50 “boom-bust” level reveals that the sector contracted for the fifteenth consecutive month, albeit at the slowest pace in over a year. Builders have seen demand begin to stabilize after the government tripled its grants to first-time home buyers to A$21,000. Perhaps most notably, the wages component of the metric expanded for the second consecutive month, rising from 50.6 to 55.0. Higher wages are supportive of consumption, the largest component of overall economic growth, offering a bit of hope that the private-sector demand will support the economy after the government’s boost is exhausted. Australian GDP unexpectedly expanded in the first quarter but 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.

Euro Session: What to Expect



Switzerland’s Consumer Price Index is expected to show prices shrank at an annual pace of -0.9% in May, the third consecutive month that CPI has printed in negative territory. A survey of economists conducted by Bloomberg expects deflation will persist for the remainder of 2009 as economic growth remains subdued. Switzerland was confirmed to be in recession after GDP shrank in the six months ending in March and positive growth is not expected to return at least until the second quarter of next year. The downturn could be prolonged for substantially longer if expectations of lower prices become entrenched, encouraging consumers and businesses to wait for the best possible bargain and perpetually hold off on spending and investment.

Turning to the UK, May’s Producer Price Index report is expected to reveal that the annual pace of wholesale inflation shrank -0.4%, the first time in nearly seven years. The reading implies downward pressure on consumer prices (the headline inflation gauge) in the months ahead as lower production costs are passed on via cheaper finished products. Although inflation now stands at 2.3%, a reading comfortably close to the Bank of England’s 2% target level, economists expect price growth to slip below 1% through the second half of this year. Median estimates from the bank now suggest economic growth will average 0.02% over 2010, an assumption that yields forecasts of a return to inflation above 1% in the first quarter of next year.

On balance, forex traders are likely to look past the European data docket, with price action waiting for the release of the US Non Farm Payrolls report late into the session to guide directional momentum. Expectations call for payrolls to drop 520k in May as the unemployment rate surges to a 26-year high at 2.6%. Markets have viewed the health of the US economy as a proxy for that of the world at large, expecting a rebound in the largest consumer market to offer positive spillover elsewhere.

Written by Ilya Spivak, Currency Analyst
Article Source - Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (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!