Euro, Pound on Ease Ahead of Fed Decision (Euro Open)

Euro and Pound traders took a break during the Asian session, ahead of the Federal Reserve’s meeting. It is expected that the Fed will make note of the recent decrease in the U.S. unemployment rate and orient its language toward that fact. Chairman Bernanke and his Board of Governors may revise their language to assure the public that they will act before any form of inflation creeps ahead.

Key Overnight Developments

• Japan Producer Prices Unexpectedly Rise on Imported Inflation
• Australian Wages Meet Slowest Gain in Five Years

Critical Levels

Price action for both the Euro and Pound continued to be subdued against the U.S. Dollar. Traders, in anticipation of the Federal Reserve’s decision, were hesitant to take on new positions ahead of the crucial meeting.

Asia Session Highlights

Japan's Domestic Corporate Goods Prices rose by the largest monthly amount in exactly one year. The 0.4% jump in the cost of raw materials comes after Japanese companies found themselves paying less for such goods nine months in a row. Much of the recent upswing in costs can be attributed to a 7.5% in the cost of petroleum and coal and not necessarily a resurgence of domestic demand-led inflation. Domestic demand-led inflation must be ruled out because it appears as though many of these costs were imported. Indeed, import prices rose 1.1% while the cost of petroleum and coal that was imported rose 7.0%. This was coupled by a 1.5% decrease in the price of goods shipped abroad, which would imply that domestic prices had actually fallen in price.

Australian Quarterly Wages grew at the slowest pace in over five years, as full-time jobs were slashed in favor of part-time ones. The 0.8% gain in labor costs came during a period which saw the unemployment rate rise 0.3 percentage points to 5.8% and 11,100 net full-time positions closed. A lack of wage growth contributed to the stunningly depressive performance of the June retail sales figure. Indeed, the month saw such spending plummet 1.4% after economists had forecast it to actually rise by 0.5%. A market reaction would be inappropriate given the Reserve Bank of Australia's recently revised growth forecast. At it's regularly scheduled meeting last week, the bank predicted that the domestic economy would expand 0.5% in 2009, up from their initial estimate of a 1.0% economic contraction.

Euro Session: What to Expect

The number of new people who found themselves without a job in the month of July, the Jobless Claims Change figure, is expected to increase from that of the previous month’s figure for the first time since February. Indeed, since the second month of the year, the rate of job losses had been easing. This most recent period may indeed actually prove to be as detrimental as the general consensus would have one believe. In the four months following and including March, expectations for job losses were overly pessimistic. But much of these estimation errors came off of an inflation variable which proved to be stubbornly higher than economists anticipated. Last month, however, the CPI figure matched that which was expected and actually fell from that of the period prior. An easing of inflationary pressures during the month prior might actually be implying the jobs have been shedding. Similarly, the ILO Unemployment Rate is anticipated to have risen for the 13th consecutive month a on a rolling 3-month basis. Average Earnings, when excluding bonuses, on a 3-month rolling average have a strong chance of publishing in-line with expectations. A decline here would be appropriate considering the latest result coming from the take-home pay index conducted by Voca for the month of July. Voca found that wages remained consistent between June and July among a sample of companies listed on the FTSE 350. Of course, this study included bonuses paid. When stripping the metric of such auxiliary payments, wage growth may actually prove to be slower than that of the month prior.

The Bank of England’s Quarterly Inflation Report will be closely watched for any revisions in growth forecasts. While job loss numbers have shown to be a breath of fresh air, when compared to initial estimates, there may still be room for a negatively revised GDP forecast. Keep in mind that the economy shrunk by more than double that which was expected in the second quarter. The 0.8% GDP contraction overshot the -0.3% estimate. Such data is likely to weigh on the models that the Bank of England uses in forecasting growth estimates.

Euro-Zone Industrial Production is expected to grow by only 0.2% in June. Considering the slight increase in the Purchasing Manufacturers Index of Manufacturing for June, the estimate seems appropriate. There is, however, somewhat reason to believe that the industrial production figure could grow by more. The more recent PMI figure, for July, grew by a stunning 8.7%.Growth of this magnitude in the PMI might actually be coming off an increase of purchases of industrial goods from the prior month.

Ultimately, the individual pieces of data may have little effect on price action throughout the Euro session. Global investors will be glued to the Federal Reserve's decision. The tone here may be a bit more hawkish, considering that the most recent release of labor data showed that the unemployment rate unexpectedly declined.

Written by Luis Gil, DailyFX Research
Article Source - Euro, Pound on Ease Ahead of Fed Decision (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.
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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!