6.23.2009

Japanese Yen Surges as Stocks Tumble on Global Economic Growth Concerns (Euro Open)

The Japanese Yen added a full percentage point in overnight trading, boosted by safety demand as Asian stock exchanges followed Wall St sharply lower on continued fallout from the World Bank’s discouraging global economic growth forecast. Switzerland’s Trade Balance and Euro Zone PMI are on tap in European hours.

Key Overnight Developments

• Japanese Yen Gains as Stocks Tumble Across Asian Exchanges
• US Dollar Looks Past Risky Assets, Consolidates in Overnight Trading

Critical Levels



The Euro kept to familiar levels in overnight trading, oscillating above the US session low at 1.3826. The British Pound slipped lower, trading down -0.2% ahead of the European markets’ open.

Asia Session Highlights



The Japanese Yen added a full percentage point in overnight trading against a trade-weighted basket of top currencies, boosted by safety demand as Asian stock exchanges followed Wall St sharply lower. The MSCI Asia Pacific Index traded down -2.8% ahead of the opening bell in Europe on continued fallout from yesterday’s discouraging World Bank global economic growth forecast. The US Dollar, also a currency that has been inversely linked to risky assets in recent months, failed to capitalize this time around and consolidated in a narrow range after adding 0.7% higher on the week by the end of New York trading. Still, the Dollar Index remains -92.3% inversely correlated to the MSCI World Stock Index suggesting the greenback stands to gain if risky continue to falter.

Euro Session: What to Expect



Switzerland’s Trade Balance surplus may widen in May after swelling to 2.55 billion francs in the previous month as prices for imported goods fell at the fastest pace in over 18 years and the currency appreciated. The import price index fell at an annual pace of -8.9% in May, deflating inbound shipment volume readings. Meanwhile, the Swiss Franc added 0.9% against a trade-weighted basket of top currencies in the same period, making the mountain nation’s goods comparatively more expensive for foreign buyers and pushing export volume readings higher. Overall, a survey of economists conducted by Bloomberg suggests the external balance will add just 5.75% to GDP this year, the smallest contribution in at least 12 years, as deep recessions grip the mountain nation’s main export markets and weigh on cross-border sales.

The advanced estimate of the Euro Zone’s Composite Purchasing Manager Index is expected to show the metric rose to 44.9 in June from 44.0 in May, the fourth consecutive month that the reading has moved higher. Still, PMI remains below the 50 “boom-bust” level, suggesting the manufacturing and service sectors continue to deteriorate, albeit at a slower pace. As we noted yesterday, some recovery in sentiment is to be expected as governments’ fiscal efforts filter into the broad economy; the big question at this stage is whether growth is sustainable after stimulus cash dries up. On a comparative basis, Euro Zone GDP growth is expected to trail that of the US by an average of 1.5% over the next two years. This suggests the US will lead its European counterparts in unwinding expansionary policies and, most importantly, lead in reversing higher the trajectory of benchmark interest rates. Indeed, overnight index swaps reveal traders are pricing in the likelihood that the Fed will raise interest rates by 1.00 – 1.25% over the next 12 months as compared to 0.25 – 0.50% expected from the ECB, arguing for a yield shift in favor of the US Dollar that will put downward pressure on EURUSD.

Written by Ilya Spivak, Currency Analyst
Article Source - Japanese Yen Surges as Stocks Tumble on Global Economic Growth Concerns (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!