8.21.2009

US Dollar, Japanese Yen to Gain as China Tightens Bank Rules (Euro Open)

The US Dollar and the Japanese Yen stand to gain after China announced a plan to raise bank reserve requirements to 12%, trimming lending and weighing on risk appetite. The economic calendar is uneventful in European hours, with currency markets likely to look to stock and commodity markets to set the tone for directional momentum.

Key Overnight Developments

• New Zealand Credit Card Spending Contracts for Ninth Month
• Risky Assets Retreat as China Promises to Tighten Reserve Requirements

Critical Levels



The Euro kept to familiar territory in overnight trading, oscillating above the 1.42 level. The British Pound traded lower, slipping below the 1.65 level once again to test as low as 1.6436.

Asia Session Highlights



New Zealand Credit Card Spending declined for the ninth consecutive month on a year-over-year basis in July, by 2.0%. This occurred as the combined debit and credit card spending figure rose 0.8%. The combination of the two pieces of data might lead one to suggest that debit card spending dominated over purchases made with credit. Such an environment would be yield-negative. A drop in the demand for borrowed funds would create incentives for banks and other lenders to drop the interest rate they charge to their customers in an effort to attract business. As such, the New Zealand Dollar could be hurt in the medium run as foreigners find that the country continues to diminish their own yield advantage over others. On balance, the decline does not necessarily indicate that New Zealanders have forfeited their shopping habits. A deeper look into the data shows that the use of credit cards abroad, by domestic residents, rose 4.5%. Tourism spending, however, may be cyclical and might not necessarily indicate that next month's figure will rise.

Risky assets retreated, boosting the safety-linked Japanese Yen and US Dollar as China Banking Regulatory Commission said it was drafting a rule change that raise reserve requirements for Chinese banks to 12%, pushing firms to rein in lending. Policymakers rushed to boost lending access at the height of the credit crunch but are now concerned that these measures may be overshooting to create a speculative bubble. The Hong Kong Stock Index promptly retreated on the announcement and other exchanges may be soon to follow considering the market’s recent focus on China as the poster-child of recovery from the global downturn, promising further gains for the Japanese unit and the greenback.

Euro Session: What to Expect



The economic calendar is decidedly bare in European hours, with Augusts’ Euro Zone Purchasing Manager Index the only notable item on the docket. Expectations call for a rise to 48.0 from 47.0 in the previous month, showing that the service and manufacturing sectors will shrink again this month, albeit at a slower pace. Indeed, the pace of contraction has steadily moderated since the index hit a record low at 36.2 in February as ample global stimulus measures as well as a widespread move to restock depleted inventories helped slow the bleeding. Both of these catalysts are inherently temporary, however, and PMI readings are likely to reverse course lower in the months ahead as the weight of rising unemployment holds back a sustainable rebound rooted in private demand.

On balance, scheduled event risk does not present meaningful market-moving potential, with currency markets likely to look to stock and commodity markets to set the tone for risk sentiment and shape directional momentum.

Written by Ilya Spivak, Currency Analyst and Luis Gil, DailyFX Research
Article Source - US Dollar, Japanese Yen to Gain as China Tightens Bank Rules (Euro Open)
US Dollar, Japanese Yen to Gain as China Tightens Bank Rules (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!