8.21.2009

USD to Go Volatile on U.S. Homes Sales and Bernanke Speech

The U.S. Dollar is expected to go volatile today on U.S. Homes Sales data and the speech by Federal Reserve Chairman Ben Bernanke at 14:00 GMT. Bernanke is expected to discuss the economic crisis and recovery. With regards to the home sales data, the figure is expected to rise to 5.03 million, up from the previous figure of 4.89 million. Forex traders should follow both of these events closely as they are set to determine the USD's main crosses for Friday's trading.



USD - Positive Economic Data Weighs in on Dollar

The Dollar declined versus most major counterparts throughout much of yesterday's trading on Thursday as U.S. equity markets rallied amid better-than-forecast data. Weighing further on the USD, the Philadelphia Fed reported that manufacturing in the region unexpectedly expanded this month for the first time in almost a year, a sign the U.S. economy is recovering. Furthermore, the Conference Board said the index of leading economic indicators rose 0.6% in July, its fourth consecutive monthly gain. The Dollar index traded at 78.331, down slightly from 78.485.

The Dollar may continue its decline today as the release of today's economic data may show sales of U.S. existing homes gained 2.1% last month, the highest since September 2008. An improvement in the U.S. housing market will further support risk appetite since the housing market crash was at the root of the current crisis.

Along with the Existing Home Sales report that will be released today at 14:00 GMT, traders should also follow Ben Bernanke's testimony, set to begin at 14:00 GMT as well, as it tends to cause great market volatility and may intensify the current bearish sentiment on the Dollar.

EUR - EUR Extends Gains as Equities Continue to Rebound

The EUR extended its gains against the British Pound ahead of a report today that is forecasted to show Europe's manufacturing and service industries contracted at a slower pace this month, adding to signs that the global recession is coming to an end.

The EUR traded at $1.4250 early this morning, from $1.4254 yesterday, and at 133.99 Yen from 134.26 Yen. Encouraging risk appetite further were recoveries in global equity markets, boosting demand for higher yielding currencies and commodities at the expense of the USD and JPY.

The French, German and Euro-Zone Manufacturing and Service data is expected to be released at 7:00 GMT, 7:30 GMT and 8:00 GMT respectively. With the recent recoveries in German and French GDPs, this data should provide an insight as to the sustainability of this recovery, and therefore have a major affect on the direction of the European currency.

JPY - Yen Boosted By a Drop in Asian Stocks

The JPY appreciated against the Dollar and Euro in today's early trading as Asian stocks dropped, boosting demand for Japan's currency as a refuge. The Yen typically strengthens in times of financial turmoil as Japan's trade surplus makes the currency attractive.

Japan's currency rose against all 16 major counterparts as Japan's Nikkei 225 Stock Average fell 0.7% and the MSCI Asia Pacific Index of regional shares lost 0.2%. The Yen traded to 93.59 per Dollar from 94.36 in New York yesterday. Japan's currency traded at 133.16 per EUR, up from 134.22. With no major news expected from Japan, movements in global equities will continue to dominate Yen sentiment for today.

Crude Oil - Crude Prices Fall Despite Global Optimism

Crude Oil finished trading at $72.14 a barrel yesterday, down $1.64, as investors felt that the commodity was overvalued. Therefore, they dropped the commodity, and put their money into even riskier assets. Traders dropped Crude for equities, as better than expected manufacturing data added to evidence the recession may be ending. Crude Oil prices also dropped yesterday, as investors realized it was overvalued, as prices soared over the previous 2 days.

In light of the continuous low demand, Oil prices have used equities to estimate the economy's progress and recovery. While Wednesday's equities rally was driven by the surprisingly low inventories, it does not appear to be the beginning of a trend, as only a sustained increase in demand can permanently bring down the inventory level, and there is still no sign for that. Therefore, if equities rise again today and the dollar weakens significantly, we may see Crude Oil prices rebound.

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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!