8.06.2009

European and British Interest Rate Announcements on Tap

The Bank of England (BOE) and the European Central Bank (ECB) are set to release their policy statements regarding short-term interest rates at 11:00 and 11:45 GMT respectively today. These announcements always generate heavy market volatility and forex traders should be on guard today, ready to capture these fantastic money-making opportunities.



USD - Greenback Dives on Bullish Equities

The U.S. Dollar fell on Wednesday toward its lowest point this year versus the EUR, giving up gains stemming from a decline in U.S. equities and a disappointing report from the U.S. services sector. The Dollar drifted sideways against the EUR, which was steady from late New York on Tuesday at $1.4411. The USD also fell 0.2% against the Japanese yen to 95.02 from 95.25 yen on Tuesday.

The greenback has slid broadly since March as riskier assets, such as equities and commodities, rallied on improving economic data, eroding demand for the safe-haven USD. The Dollar's inverse relationship with investor appetite for risky assets has reasserted itself in recent weeks, analysts have said. The USD has also lost ground as equities posted a strong global rally and investors rushed into assets perceived as more risky.

Recent manufacturing data from the United States and China has spurred investors to sell U.S Dollars and invest in riskier currencies and assets, as did a smaller-than-expected contraction in the U.S. economy in the 2nd quarter. But the trend to sell the Dollar on the view that the worst of the world recession is over has become quite deeply rooted, making it tough for the Dollar to rally much.

EUR - EUR Little Changed Ahead of ECB Rate Decision

The EUR extended last week's advance against the Japanese yen as retail sales in the 16-nation Euro-Zone rose 0.3% in June following a 0.4% decline in May. The EUR and Sterling were up slightly vs. the Dollar for the day, as investors awaited policy decisions by the European Central Bank (ECB) and the Bank of England (BOE) on Thursday. Late Wednesday, the EUR was little changed at $1.4414 but earlier rose to $1.4446, its highest level sine December.

The British pound climbed to a 9-month high against the Dollar after services and manufacturing reports added to evidence that the recession is easing and Lloyds Banking Group Plc. said provisions for bad loans peaked. The U.K. currency climbed 0.4% to $1.7008, the strongest level since Oct. 21. The Pound also advanced 0.4% vs. the EUR to 84.75 pence.

Next up for currency investors are today's policy decisions from the BOE and ECB. The European Central Bank (ECB) appears certain to keep its Interest Rate at a record low of 1% as it waits to see the impact of efforts so far to revive the economy and credit flows.

JPY - Yen Falls for First Time in 3 Days

The Japanese yen fell for the first time in 3 days versus the EUR and the Dollar as Asian stocks advanced on speculation Japanese companies will report stronger earnings, reviving demand for higher-yielding assets. The yen weakened to 136.96 per EUR from 136.79 yesterday. Japan's currency also fell to 95.05 per Dollar from 94.97.

Japan's currency weakened against 14 of its 16 major counterparts after a Japanese report showed domestic investors bought more foreign equities than they sold for a 7th week, suggesting a return of the carry trade.

However, losses in the Yen may be tempered after U.S. reports yesterday added to doubts the recession in the world's largest economy is easing, boosting demand for Japan's currency as a refuge.

Crude Oil - Crude Oil Boosted by Dollar's Weakness

Crude Oil ended higher Wednesday, reversing earlier losses late in the session, as investors focused on Dollar weakness and shrugged off a government report showing a rise in inventories. Energy markets have been looking to broader economic data for signs of an end to the recession and a potential rebound in Oil demand.

Optimism has helped lift Crude from below $33 a barrel in December, well off record highs near $150 reached in July 2008. Further support has come from a series of output reductions agreed to by the Organization of the Petroleum Exporting Countries (OPEC) last year.

Crude prices were also bolstered by a drop in U.S. distillate inventories and optimism that a slowdown in U.S. private job losses in July could signal a gradual turnaround in the economy. The Dollar weakness has been supportive for Oil prices; and as a result of the USD's new lows, a further increase in Oil prices above $74 a barrel seems almost inevitable.

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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!