8.17.2009

Euro Drops to Key Support as Risk Aversion Hits Currency Markets (Euro Open)

Japan emerged from recession in the second quarter, but much of this was due to government spending with private-sector demand continuing to dwindle. Equities in the Asian country took notice, shedding 2.57% at 00:07 EST. Euro price action lost for a second day, touching upward sloping support dating back to May 6.

Key Overnight Developments

• Japan Emerges From Recession, But Private Spending Contracts
• Foreign Direct Investment Into China Worse-Than-Expected

Critical Levels



Euro price-action reached a critical level during the opening trading session of the week. The 16-nation currency traded down to upward sloping support, dating back to May 6, against the U.S. Dollar. Action on the British Pound front saw it decline for a second day against its American counterpart, but fail to reach any critical levels.

Asia Session Highlights



The Japanese economy rose from recession, expanding in the second quarter by 0.9% and 3.7% on an annualized basis. Economists had anticipated the GDP figure to have added 1.0% to the nation's output. Nonetheless, a bit of added relief came as the contraction for the first three months of the year was reevaluated to be far better than originally estimated. Indeed the 3.8% decline in annual output was revised up to only a 3.1% slip. Despite this headlining optimistic news, there may be some reason for concern. A deeper look into the data reveals a private and consumer sector that is still at odds with the overall global economic environment. Domestic demand slipped 0.7% and private demand lost 1.3%. Most of the rise in GDP came on the back of an activist government. Public demand rose 1.2%, following at 4.7% and 2.8% expansion in the previous two quarters. It seems that the market mechanism, which is responsible for long-term and sustained economic growth is simply not functioning in a positive manner. A reliance on government spending to prop the world's fourth largest economy will only lead to higher fiscal deficits and rising yields which may continue to cripple the private sector.

Foreign direct investment into China declined for a 10th straight month, by 35.7% to $5.36 billion in the 12 months through July. Since January, FDI has declined 20.30%. Expectations for the year-to-date figure had forecast the contraction to be realized at only 16.80%. Worse-than-expected figures come after new Yuan loans plummeted 76.75% in the month of July alone, to lows last seen in November.

Euro Session: What to Expect



Swiss Retail Sales probably declined in the year through June for the second straight month after labor market weakness contributed to an already dwindling consumer demand base. Indeed, the seasonally adjusted June unemployment rate rose more than expected, by 0.3 percentage points to nearly a 4-year high of 3.8%. Such conditions probably left the public with even less free cash in their pockets to spend on various goods. To add to the downward spiral, consumer prices contracted by more than expected in July, by -0.7%. Seeing that prices are sticky, it may have taken at least one month for the decline in the previous month's spending to weigh on prices of the current period. As such a decline in prices may have been led by plummeting employment and thus dwindling consumption.

The Euro-Zone Trade Balance for June, expected to expand to the highest level since September 2007, will likely improve dramatically as anticipated. Imports from the region to the United States, the area’s largest trading partner, shot up 12.0% in June alone. China’s recent trade balance data revealed that imports from Germany, the Asian country’s largest Euro-Zone trading partner, grew 3.5% in June while shipments from Italy rose 8.0%. Much of this is likely to be reflected in the broader trade balance figure of the 16-nation area.

Written by Luis Gil, DailyFX Research
Article Source - Euro Drops to Key Support as Risk Aversion Hits Currency Markets (Euro Open)
Euro Drops to Key Support as Risk Aversion Hits Currency Markets (Euro Open)SocialTwist Tell-a-Friend

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!