US Dollar Corrects Higher, Japanese Producer Prices Fall Most on Record (Euro Open)

The US Dollar capitalized a quiet calendar and muted action on Asian stock exchanges, correcting higher overnight after yesterday’s selloff. Japan’s Corporate Goods Price Index fell by the most on record, hinting at the return of deflation to the world’s second-largest economy. June’s UK PPI is on tap in European hours.

Key Overnight Developments

• Japan’s Corporate Goods Prices Fall Most on Record
• Euro, British Pound Inch Lower in Overnight Trading

Critical Levels

The Euro trended lower in overnight trading, moving down -0.3% against the US Dollar ahead of the opening bell in Europe. The British Pound also saw selling pressure, testing as low as 1.6270, but prices recovered above the 1.63 mark late into the session. A light calendar and a muted session on Asian stock exchanges allowed the greenback to correct a bit higher after yesterday’s selloff.

Asia Session Highlights

Japan’s Domestic Corporate Goods Price Index measuring the trends I the cost of goods purchased by Japanese businesses fell at an annualized rate of -6.6% in June, the most on record, reflecting lower energy costs. Indeed, the price of coal and petroleum fell by a whopping -39.4% from the previous year. The data hints at downward pressure on consumer prices in the months ahead as manufacturers pass on lower production costs via cheaper finished goods. CPI posted the largest drop in 7 years in May, with continued losses amounting to a return of deflation in the world’s second largest economy. This threatens to keep a lid on a meaningful rebound in economic activity for the foreseeable future as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment.

Euro Session: What to Expect

June’s UK Producer Price Index report is set to show that output prices fell at an annual rate of -0.8%, the most in over seven years. The metric foreshadows downward pressure on consumer prices as lower wholesale costs are reflected in the final price tag. The Bank of England has acknowledged this, noting in its latest inflation report that “CPI inflation is likely to drop below the 2% target later this year” as lower food and energy prices offset upward price pressure from a cheaper British Pound. Yesterday, the central bank kept rates unchanged at 0.5% and deferred any changes in their 125-billion quantitative easing program until August.

However, the British Chamber of Commerce has urged policymakers to expand their asset-buying scheme by 25 billion pounds, saying a recovery is “not guaranteed”; the call for further easing has been echoed by the Shadow Monetary Policy Committee, a group of independent economists that meet at the Institute of Economic Affairs. The disparity in growth forecasts is also notable: the IMF expects the UK economy will grow 0.2%, a survey of economists conducted by Bloomberg points to a 0.9% result, while the OECD says growth will be flat in 2010. If reality proves to side with the pessimists in the days ahead, slower output growth could well translate into a steeper than expected decline in inflation, calling for the BOE to step up easing efforts.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Corrects Higher, Japanese Producer Prices Fall Most on Record (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.


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!