8.05.2009

Australia's Stimulus Plan May Be Losing Steam as Service Demand Shrinks (Euro Open)

The boost from Australia’s A$12 billion in cash handouts to consumers may be losing steam as sharp drops in sales and new orders led the service sector to shrink in July following yesterday’s unexpected drop in retail sales. UK Industrial Production and Euro Zone Retail Sales are on tap in European hours.

Key Overnight Developments

• Australia’s Trade Deficit Unexpectedly Shrank on Exports Rebound
• AiG Says Australian Service Sector Shrank in July as Sales, New Orders Fell
• UK Consumer Confidence Rose to Highest in a Year, Says Nationwide

Critical Levels



The Euro continued to oscillate in the familiar 1.4370-1.4430 range that has confined the pair since Monday’s New York session. Likewise, the British Pound continued to trade sideways between 1.6880 and 1.70.

Asia Session Highlights



Australia’s Trade Balance deficit unexpectedly narrowed in June, revealing a shortfall of –A$441 million, a notably better outcome than economists’ projections of a –A$800 billion result. The result was all the more dramatic given that May’s outcome was revised to show a deficit of –A$737 million, far larger negative reading than the –A$556 million originally reported. Exports grew for the first in four months to add 1.5%, driven primarily by sales of metals, machinery and transport equipment. Yesterday, the Reserve Bank of Australia opted to keep interest rates on hold at 3% for the fourth consecutive month citing, among other things, that “exports are notable for their resilience”. A survey of economists conducted by Bloomberg has forecast that the external deficit will cut just -3.24% off overall economic growth this year, the smallest negative contribution since 2001.

Countering positive cues from trade data, the AiG Performance of Service Index fell to 44.1 in July, revealing activity in the sector is once again contracting having expanded for the first in 15 months in June. Double-digit drops were recorded in inventories (-20.1%), deliveries (-15.2%), sales (-13.9%) and new orders (-11.3%). AiG chief executive Heather Ridout said the path to recovery will be “a long, hard slog”. The result follows yesterday’s unexpected drop in retail sales, adding to early signs that the stabilizing effects of the government’s A$12 billion in cash handouts to households that has propped up consumer sentiment in recent months may be starting to abate.

In the UK, Nationwide Consumer Confidence rose to 60 in July, the highest reading in over a year. The details of the report were not nearly as encouraging as the headline figure, however. The percentage of survey respondents expecting a pickup in employment in the next 6 months fell to 20% while 60% said they were expecting “not many” jobs to be available. This amounts to the worst set of labor market expectations among polled consumers since those recorded in April. Such attitudes may become more widespread as the jobless rate continues to push higher, weighing on consumer spending and dashing hopes of a meaningful economic recovery in the foreseeable future.

Euro Session: What to Expect



The annual pace of decline in UK Industrial Production is expected to moderate for the fourth consecutive month, with output shrinking -11.4%. Manufacturing Production is set to contract at the slowest pace since February, down -12.1% in the year to June. More of the same is likely ahead: July’s manufacturing PMI unexpectedly ticked into expansionary territory for the first time in 15 months, suggesting a further rebound is to be expected. However, as we mentioned in our British Pound Weekly Forecast, these readings are unlikely to prove particularly market-moving considering traders have likely already priced in the stabilizing effects of the ample global fiscal boost and inventory restocking that is driving current improvements into the exchange rate. Indeed, the question to be answered from here is what will happen after the flow of government cash dries up and the inventory cycle runs its course.

In the Euro Zone, Retail Sales are expected to decline -2.2% in the year to June, a modest improvement from the previous month’s -3.3% contraction. However, the reading still clearly falls along the down trend that has guided receipts lower since December 2006. Further, a downside surprise is not out of the question considering the unexpectedly dismal German retail sales result for the same period that was revealed earlier this week. Germany is the largest economy in the Euro Zone and lackluster activity there may well drag down region-wide performance. Evaluating the longer-term outlook, any sustained return to growth in retail spending is sure to be marginal at best with the unemployment rate set to hit 9% for the first time in 5 years in 2009 and surpass 10% in 2010 according to European Commission estimates.

Written by Ilya Spivak, Currency Analyst
Article Source - Australia's Stimulus Plan May Be Losing Steam as Service Demand Shrinks (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.

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