7.15.2009

Euro and British Pound Vulnerable on Weak UK Jobs, Euro Zone Inflation Data (Euro Open)

The Euro and the British Pound may face selling pressure in the coming session as the UK unemployment rate rises to the highest in nearly 12 years while Euro Zone inflation shrinks for the first time since the creation of the single currency in 1991. May’s Swiss Retail Sales report is also on tap.

Key Overnight Developments

• Australia’s Leading Economic Index Falls For the First Time Since February
• Bank of Japan Keeps Rates at 0.10% But Cuts GDP Growth Forecast, Extends QE
• Euro, British Pound Rise Against US Dollar on Overnight Stock Gains

Critical Levels



The Euro traded higher in the overnight session, adding 0.2% against the US Dollar. The British Pound followed suit, testing as high as high as 1.6337. The greenback lost ground as stocks followed Wall St higher across Asian exchanges, trimming demand for the safety-linked currency.

Asia Session Highlights



Australia’s Westpac Leading Index shrank for the first in three months in May, slipping -0.2%. The metric is designed to predict The annual rate of decline slowed to -3.9%, the lowest in at least 6 months. Westpac chief economist Bill Evans struck a cautiously optimistic tone following the release, saying “This reading supports the reasonable expectation that we have passed the worst, although the index is still contracting on a six-month annualized basis.” Evans has previously revealed that Westpac expects the economy will shrink 0.6% in the second quarter and contract at an annualized rate of -1.5% through the second half of this year.

Australia has shown tentative signs of stabilization as the government distributed over A$12 billion in cash handouts and committed to A$22 billion for infrastructure projects. The big question going forward is if current momentum can be maintained as the flow of stimulus cash dries up. On balance, the outlook seems far from rosy: the labor market continues to suffer, erecting barriers to a meaningful rebound in domestic demand, while the latest trade data reveals lackluster overseas demand for coal and iron ore, Australia’s top export commodities. Although the Reserve Bank of Australia kept interest rates unchanged at 3% earlier this month, Governor Glenn Stevens noted that there is still “scope for further easing of monetary policy”, identifying credit conditions and the effects of economic weakness on asset quality as “a challenge”.

The Bank of Japan kept interest rates unchanged at 0.10%, as economists expected. Policymakers said that “economic conditions have stopped worsening” and restated expectations that the economy will begin to recover by the second half of the 2009 fiscal year (the six months starting in October). Maasaki Shirakawa and company did qualify their optimism however, saying “uncertainty over the economic outlook is high” and revising their growth projections downward to reflect a -3.4% GDP contraction (versus the previously reported -3.1%) in the 12 months to April 2010. The BOJ also extended standing credit easing measures, saying they will keep current loan collateral practices in place through March of next year versus December and pay interest on bank’s reserves through January 2010 (as opposed to October 2009 as originally planned).

Euro Session: What to Expect



UK Jobless Claims are expected to rise by 41,200 in June, pushing the Claimant Count (a measure of the unemployment rate) to 5.0%, the highest since September 1997. Continued weakness in the labor market suggests that, improving leading indicators notwithstanding, a robust recovery in Europe’s third-largest economy will have a hard time gaining traction as job losses weigh on consumption, the largest contributing factor to GDP growth. The current state of affairs was nicely summarized by London-based think tank NIESR, which recently said “the U.K. economy is now stagnating rather than continuing to contract at a sharp pace”. NIESR expects the economy to shed -0.4% in the second quarter, a dubious improvement after GDP lost -4.9% through the first three months of the year, the most at least since 1956. A survey of economists conducted by Bloomberg expects the jobless rate to average 8.4% through the end of next year.

Turning to the continent, the Euro Zone Consumer Price Index report is set to confirm preliminary estimates and show that inflation fell at an annual pace -0.1% in June, the first negative reading on record since the creation of the single currency in 1991. Entrenching expectations of lower prices threatens to commit the currency bloc to a long-term period of stagnation as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment. The market is pricing in virtually no chance that the European Central Bank will cut benchmark rates at least this year while the International Monetary Fund forecasts that the Euro Zone will stand apart from other industrialized economies in seeing GDP shrink in 2010, making the deflationary threat all the more credible. Although Trichet and company have offered an unprecedented 442 billion euro in 12-month bank loans as a means of de-facto monetary easing and will also move forward with a 60 billion bond-buying scheme, these measures may prove inadequate as there is no guarantee that banks will lend out the funds raised from action. Indeed, banks may chose to hang on to the cash as a buffer against $1.1 trillion in as yet unrealized losses linked to the subprime mess, per the IMF, as well as the fallout from looming defaults and/or devaluations among the EU’s recently-minted central European members.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro and British Pound Vulnerable on Weak UK Jobs, Euro Zone Inflation Data (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!