7.22.2009

British Pound to Look Past Bank of England Minutes, Trade on Risk Sentiment (Euro Open)

The British Pound is likely to look past minutes from the July meeting of the Bank of England with traders unlikely to be treated to anything that has not already been priced into the exchange rate, leaving the currency to continue taking cues from risk sentiment. Germany’s IFO survey of business sentiment is also on tap.

Key Overnight Developments

• Australian Inflation Falls to the Lowest in a Decade
• Euro, British Pound Turn Lower in Asian Trading

Critical Levels



The Euro traded lower in the overnight session, losing as much as -0.4% against the US Dollar. The British Pound followed suit, testing as low as 1.6391 against the greenback.

Asia Session Highlights



Australia’s Consumer Price Index printed in line with expectations with the annual pace of inflation falling to 1.5% in the second quarter, the lowest in a decade. Continued downward pressure on consumer prices looks likely as tumbling wholesale costs filter into the final price of products. Australian Treasurer Wayne Swan said “inflation is expected to remain subdued over the near term as the effects of the global recession continue to impact on the domestic economy.” This bolsters the case for additional rate cuts from the Reserve Bank of Australia in the months ahead. Indeed, RBA Governor Glenn Stevens said as much even as the bank kept rates unchanged in July, noting that “the outlook for inflation allows some scope for further easing of monetary policy.”

Euro Session: What to Expect



Germany’s IFO Survey of business sentiment is expected to rise for the seventh consecutive month in July, pointing to continued improvement in firms’ 6-month economic outlook. Still, the reading is expected at 90.1, a print below the 100 “boom-bust” threshold, suggesting conditions are still deteriorating albeit at a slower pace. Some recovery is to be expected as the government’s 82 billion euro fiscal boost filters into the broad economy, but the big question in Germany as well as most anywhere at this stage is whether growth is sustainable after stimulus cash dries up. As it stands, the latest economic forecast from the International Monetary Fund (IMF) reveals that the Euro Zone will stand apart from other industrialized economies in seeing economic growth continue to contract in 2010, pointing to a comparatively slower return to higher interest rates that will keep the Euro on the defensive against most major currencies.

Minutes from the July meeting of the Bank of England are unlikely to prove particularly market-moving this time around, with traders unlikely to be treated to anything that has not already been priced into the exchange rate. The bank made no changes to benchmark interest rates or the quantitative easing program, saying they will “review the scale” of their unconventional easing measures in August as they release their quarterly inflation report. From here, next week’s GDP report is likely to be the key to the market’s expectations on the future direction of monetary policy. Initial cues are favorable: London-based think tank NIESR has reported the economy probably shrank just -0.4% in the second quarter, the slowest pace of decline in a year. Still, the British Chamber of Commerce has urged policymakers to expand their asset-buying scheme by 25 billion pounds, saying a recovery is “not guaranteed”, a sentiment that has been echoed by the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-based Institute of Economic Affairs). On balance, British Pound price action is likely to continue taking its cues from risk appetite, with the sterling’s trade-weighted average value now 87.8% correlated with the MSCI World Stock Index.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound to Look Past Bank of England Minutes, Trade on Risk Sentiment (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!