8.14.2009

Australia Readies to Raise Interest Rates, Says Central Bank Chief (Euro Open)

Asia session trading saw Reserve Bank of Australia Governor Glenn Stevens use sharper rhetoric in discussing the certainty of lifting the overnight cash rate from “emergency” levels. This comes just hours before CPI data from half-way around the world, is expected to point toward deflation. Unexpected growth in the Euro-Zone, however, may derail this estimate and may cause inflation to actually publish in positive territory.

Key Overnight Developments

• RBA’s Stevens Conjures ‘Emergency’ Rate Increase Speculation
• New Zealand Retail Sales Unexpectedly Gain in June
• Some Bank of Japan Members Wanted to Extend Program

Critical Levels



Pound traders eased into the Asian session after a volatile U.S. session sent Sterling bouncing between pivot support and resistance against the Dollar. Euro price action, at the time of this publication, was set to end its five day winning streak against the greenback.

Asia Session Highlights



New Zealand Retail Sales rose 0.1% in June, much stronger than the anticipated 0.3% contractionary figure. Despite a continued growth, spending gains still performed weaker than in the previous month. The previous period may have been a simple green shoot as the figure happened to be the strongest of such in 12 months. Spending in the three months ending June, however, saw the first gain in retail sales in seven quarters. Such activity occurred in a period in which wages grew by the slowest pace in 10 years, adding to speculation that much of this spree has been led by cash handouts implemented by the New Zealand government. Additionally, it does seem odd that a turnaround of this magnitude could occur at such a rapid pace; the previous quarter's sales figure contracted 2.7%. As the market mechanism kicks in again and the government's cash handouts are phased from the metric, labor market weakness will regain the reigns. Keep in mind that the country's Finance Minister, Bill English, stated two weeks ago that the administration expects the unemployment rate to continue rising for quite some time.

Minutes of the July 14-15 meeting of the Bank of Japan revealed that they will extend purchases of corporate debt and asset-backed paper by there additional months, until December 31. Despite economic conditions which have "stopped worsening" there are still some key companies that are lacking the credit to stay afloat. "Another extension might become necessary if the bank's judgment was that the situation had not improved sufficiently," some board members added." An extension of such alternative methods of monetary easing would be welcomed in the country which has, in June, seen retail sales plummet significantly more than forecast and the unemployment rate rise more than anticipated.

Reserve Bank of Australia Governor Glenn Stevens said that the bank will raise it's "emergency" level overnight cash rate as the economy recovers from recession. At his half-yearly testimony given to parliament's finance committee, the 51-year old head of the RBA said "there will come a time when the exceptional monetary stimulus in place at present will no longer be needed." The hawkishly sharper rhetoric is a stark change from that which was given in the minute of their meeting five weeks ago. Perhaps the RBA is playing a game of chicken - at their latest meeting they revised their 2009 growth estimate up to 0.5% from a contraction of -1.0%. But it seems as though the market didn't buy it.

Euro Session: What to Expect



Euro-Zone Consumer Prices in July are expected to have shrunk for the first time since the start of the year on a monthly basis. Looking at the figure on a year-over-year basis, prices have been trending downward as last summer’s oil-based inflation continues to be phased out of the yearly number. But this next piece of data might be a bit better than the Bloomberg consensus would have one believe. Just yesterday it was announced that German and French GDP had unexpectedly grown in the second quarter of the year. On a broader-spectrum, the Euro-Zone economy contracted at a slower pace than estimates had originally figured. Much of this may have been due to labor conditions which had improved. Spain, the country in the area with the largest amount of job losses in the last year, had to revise their joblessness rate down. As such, the fact that there are additional laborers employed may raise inflationary pressures as the dwindling number of free workers declines. Although this may seem logical in theory, wages are sticky and take some time to adjust to an equilibrium level of supply and demand. Furthermore, if there was indeed a greater level of free cash floating in the pockets of ordinary citizens, it would have made sense for consumer spending to have risen. Unfortunately, June saw retail sales decline 0.2% when forecasts calls for a rise of 0.3% in the figure. The two contradictory indicators lead to some confusion. Nonetheless, unexpected growth will likely weigh in some for or another.

Written by Luis Gil, DailyFX Research
Article Source - Australia Readies to Raise Interest Rates, Says Central Bank Chief (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!