7.08.2009

Risk Aversion Continues to Dominate Trading

Risk appetite among investors continues to fade ahead of the second quarter earning season. With growing fears over disappointing earnings numbers due too weak consumer consumption, investors continue to turn to the safe haven USD and JPY and away from riskier currencies. The strong Dollar and falling equities continue to hurt Oil, with Prices reaching $62 a barrel.



USD - Dollar's Recovery Continues

The U.S Dollar rose broadly yesterday against the EUR and GBP, as uncertainty about the global economic outlook and forthcoming U.S. corporate earnings increased the safe-haven appeal of the USD. By yesterday's close, the USD rose against the EUR, pushing the often traded currency pair to 1.3890. The Dollar experienced similar behavior against the GBP and closed at 1.6085.

Yesterday was a quiet news day from the U.S. as there were no major economic data releases on the calendar. However, Traders are bracing for second-quarter U.S. corporate earnings, which will be released in the coming weeks. Analysts said poor results, especially from financial institutions, would likely crank up Dollar demand. Analysts are also keeping an eye on this week's G8 summit that starts in Italy today. Moreover, China, Russia and Brazil have said they will push their view that the world needs to start seeking a new global reserve currency as an alternative to the Dollar, though they admitted such a shift would take time.

Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Crude Oil Inventories at 14:30 GMT. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to boost the USD in the short-term. Traders are also advised to follow the FOMC Member Evan Speech at around 16:55 GMT. This speech is very likely to Impact the Dollar volatility. Traders are advised to watch closely, as this is likely to set the pace of the Dollar going into the rest of the day's trading.

EUR - The EUR Loses Momentum

The EUR finished yesterday's trading session with mixed results versus the major currencies. The 16-nation currency extended gains versus the Sterling Pound on Tuesday, to trade above 0.8633 amid a broad sell-off in the GBP. The EUR did see bearishness as well, as it lost over 150 pips against the JPY and closed at 131.85.

A leading indicator released yesterday from Europe was the German Factory Orders report. Germany holds the largest and strongest economy in the Euro-Zone, and thus the relevant publications from this economy usually have a hefty impact over the EUR. Data showed orders in Germany rose at the strongest monthly pace in nearly two years in May, but economists said the yearly comparison would remain weak for some time yet. Moreover, a European Commission study warned that Europe's economy might shrink further due to the economic crisis if the right policies were not implemented and if Europe failed to resolve problems in the financial industry.

Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the German Industrial Production at 10:00 GMT. Analysts are forecasting this figure to increase from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the EUR in the short-term. Traders are also advised to follow the Halifax HPI figures coming out of Britain at 8:00 GMT, as these results may set the EUR's main currency crosses going into next week.

JPY - Yen Climbs against Majors

The Yen advanced to near the strongest level versus the Dollar in more than a month on speculation U.S. corporate earnings will drop, prompting Japanese investors to sell overseas assets and take money home. The Yen has also gained sharply against the EUR and GBP during yesterday trading session, hitting its highest level in five weeks against the Sterling at 152.30 and two week high against the EUR at 131.50.

The Yen crosses have fallen since early June, after rallying from January to multi-month highs, as the sentiment about global recovery prospects that had driven them up deteriorated.

Traders today have very little fundamental news emanating from Japan as the only indicator being released is the Economy Watchers Sentiment report. Analysts forecast the figure to increase from its previous reading. This indicator typically generates small amounts of volatility. However, the EUR and the USD appear to be clutching the reins of today's market. Traders would be wise to note their future direction as it usually carries a heavy impact on the other currencies.

Crude Oil - Another Day of Falling Crude Oil Prices

Oil prices fell for the seventh straight day yesterday, with a barrel costing $10 less than it did just one week ago when crude hit a new high for the year. Oil prices had already begun to slide after peaking last Tuesday, and dismal jobs numbers last week from both the U.S. and Europe have hastened the decline.

Optimism about a quick economic recovery and a rebound in energy demand, were dampened after the Labor Department reported last Thursday that U.S. economy lost a larger than expected 467,000 jobs in June. On the same day, a report from Europe indicated that unemployment in the 16 countries that use the EUR spiked to a 10-year high in May. However, the release of Crude Oil inventory today is likely to help determine the market's next direction for Black Gold. Therefore, traders are advised now to make some profits as the price of Crude Oil is set to remain volatile in the short-medium term.

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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!