6.29.2009

US Dollar Surges as China Backtracks on 'Super-Sovereign Currency' Comments (Euro Open)

The US Dollar surged in overnight trading after China backtracked on last week’s call for a ‘super-sovereign’ currency, saying their foreign exchange reserve policy was “quite stable” and easing fears of looming diversification away from the greenback. A tame economic calendar is likely to yield to risk trends in European hours.

Key Overnight Developments

• New Zealand Trade Deficit Narrows as Imports Fall Most in 16 Years
• Japanese Retail Trade Stalls in May on Rising Unemployment
• US Dollar Surges as China Backtracks on ‘Super-Sovereign Currency’

Critical Levels



The US Dollar surged in overnight trading after China’s central bank chief Zhou Xiaochuan said his country’s foreign exchange reserve policy is “quite stable”, alluding to the fact that the world’s largest holder of US Treasuries will not be diversifying away from the greenback for the time being. China’s call for a ‘super-sovereign’ currency weighed on USD last week. The Euro tested as low as 1.4002 while the British Pound touched 1.6450 ahead of the opening bell in Europe.

Asia Session Highlights



New Zealand’s Trade Balance deficit narrowed more than was expected in May, shrinking to -NZ$3.04 billion from -NZ$4.1 billion in the previous month. Economists had forecast a -NZ$3.64 billion result ahead of the release. The improvement came as imports tumbled -20.7% from a year prior, the largest decline in over 16 years. The unemployment rate has surged to 6-year high at 5%, discouraging consumption, including that of imported goods. The result reinforces the dynamic we noted last week as first quarter current account figures crossed the wires, painting a picture of weak consumer demand that is made all the more ominous in the context of a 17.6% currency appreciation in the four months through May that would reasonably be expected to boost New Zealanders’ purchasing power of foreign goods. Private consumption accounts for 62.3% of overall economic growth and continued weakness in domestic spending makes it unlikely that the smaller antipodean nation can mount a meaningful recovery from the current downturn in the near term. Indeed, GDP shrank more than economists expected in the first quarter, contracting at the fastest pace in over three decades.

Japanese Retail Trade came to a standstill as expected in May after adding 0.6% in the previous month. In annual terms, receipts shrank at a rate of -2.8% for the second consecutive month, stalling a rebound from a record low at -5.7% recorded in February. The unemployment rate has advanced to the highest in over 5 years, weighing on disposable incomes and trimming spending. More of the same is likely in the months ahead as lackluster global demand keeps output levels low and labor forces lean. Indeed, minutes from the last Bank of Japan policy meeting saw policymakers note that consumption is likely to remain weak as the “employment and income situation becomes increasingly severe.”

Euro Session: What to Expect



Euro Zone Economic Confidence figures are expected to tick up in June, though as we have noted previously, 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. This suggests the Euro is likely to look past the data docket with near-term price action taking directional cues from trends in risk appetite, with EURJPY and EURUSD still 83% and 88% correlated with the MSCI World Stock Index, respectively.

Turning to the UK, Net Consumer Credit is set to remain at 0.3 billion pounds in May, unchanged from the previous month, while Mortgage Approvals grow by 46k, extending a rebound from record lows in November 2008 for the sixth month. The upswing may prove little more than a correction, however: Rightmove Plc reported last week that house prices fell for the first in five months in June as banks raised borrowing costs in anticipation of a stabilizing global economic environment, hinting that credit growth will stumble in the months ahead. Barring a sharp deviation from expectations, British Pound price action is unlikely to dwell too deeply on these releases, focusing on cues from stock and commodity markets to set directional momentum.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Surges as China Backtracks on 'Super-Sovereign Currency' Comments (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.
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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!