Key Overnight Developments
• New Zealand Trade Deficit Narrowed in July as Imports Tumbled
• Australian Business Investment Trumps Expectations in Second Quarter
The Euro drifted slightly lower ahead of the opening bell in Europe, shedding 0.1%. The British Pound also trended lower, giving up 0.2% to the greenback. Technical positioning suggests the US Dollar is carving out a bottom against most major currencies.
Asia Session Highlights
New Zealand’s Trade Balance deficit narrowed to –NZ$2.5 billion in July from –NZ$3.1 billion in the preceding month as imports fell by a whopping -20.9% from a year before, easily overwhelming a -7.3% decline in exports. The reading is likely a reflection of the impact of rising unemployment on domestic demand: the jobless rate has risen to a nine-year high of 6%, trimming incomes and discouraging consumption. The outcome is all the more ominous considering the local currency has gained 20.1% since the beginning of the year, which would be expected to have helped imports higher by boosting New Zealanders’ purchasing power of foreign goods. More of the same is likely ahead, with economists calling for the unemployment rate to continue higher to hit 7.45% next year.
In Australia, Private Capital Expenditure (a measure of business investment) surprised sharply to the upside, adding 3.3% in the second quarter to trump expectations of a -5.0% decline. The improvement likely came as the government spent 4% of GDP in stimulus to boost the sagging economy amid the global downturn. Similar developments have been readily indentified across the world as governments stepped in to replace shrinking private demand, with the real question now being whether the recovery has any staying power once fiscal stimulus reaches its inherent limits.
Euro Session: What to Expect
The preliminary estimate of Germany’s EU-harmonized Consumer Price Index is expected to show that inflation fell at an annual pace of -0.4% in August, a slight improvement over the -0.7% result registered in the previous month. Still, the bottom line is that prices are set to decline for the second consecutive month; if this continues to be the case, it will contribute to building expectations of lower prices in the future, threatening to unleash a deflationary spiral wherein consumers and businesses perpetually hold off on spending and investment as they wait for the best possible bargain, bringing economic growth to a virtual standstill. At the moment, a survey of economists polled by Bloomberg suggests the market sees CPI shrinking through the third quarter and returning to a path of positive growth by the end of the year. If this proves to be too rosy, traders may punish the Euro as it becomes clear that the Euro Zone’s largest economy and by extension the currency bloc as a whole are heading for a long-term period of low interest rates and sub-par economic growth. A disappointing outcome seems likely considering the European Central Bank’s apparent inability to offer effective monetary easing as well as well-founded reservations about the sustainability of the second-quarter uptick in German GDP. Indeed, the expected improvements in GfK Consumer Confidence and Bloomberg Retail PMI are all but certainly a product of fiscal stimulus both domestically and abroad, with the big question for Germany as well as most anywhere at this stage being whether growth will continue after the flow of government cash dries up.
In the UK, the Nationwide House Prices report is set to show that property values fell -3.9% in the year to August, the smallest decline in 16 months and a significant improvement over the -6.2% result noted in the previous month. The improvement follows yesterday’s surprisingly strong rise in approved loans for house purchases. Still, it must be kept in mind that any boost to consumer confidence that can be expected from rising real estate values (via a positive wealth effect) is likely to be had from changes in the actual monetary value of Britons’ homes rather than an improvement in the growth rate. Indeed, it is not difficult to produce better results in the percent-change reading considering the very low base form which prices must recovery. If expectations are to be validated, home prices will stand near October 2005 levels, putting everyone that bought real estate between then and the peak in October 2007 firmly under water. Home prices grew five-fold during this period, hinting that the number of homes sold was more than formidable and suggesting that a good portion of UK homeowners are far from seeing any income boost from their real-estate portfolio.
Written by Ilya Spivak, Currency Analyst
Article Source - Euro in Play as German CPI Shrinks for Second Month, Boosting Deflation Fears (Euro Open)
What is Forex?
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 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.
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!