Australian Dollar Gains on GDP But Stock Drop Limits Upside (Euro Open)

The Australian Dollar pushed higher as the economy grew more than economists expected in the second quarter but failed to build meaningful momentum as stocks dropped nearly 2% in Asian trading, weighing down the risk-linked currency. Euro Zone GDP and UK Construction PMI are on tap in European trading hours.

Key Overnight Developments

• Australian Dollar Gains on GDP But Stock Drop Limits Upside
• Euro, British Pound Range-Bound in Overnight Trading

Critical Levels

The Euro was confined to a narrow range 35-pip range above 1.4190 in overnight trading. The British Pound followed suit, oscillating in a 60-pip band below 1.6180.

Asia Session Highlights

Australia’s Gross Domestic Product grew 0.6% in the second quarter, topping economists’ expectations of a 0.2% result. The annual pace of economic growth advanced to 0.6%, rebounding from the 18-year low of 0.3% in the three months to March. The details of the report appear encouraging: private consumption and investment both advanced, the former by the largest margin since the fourth quarter of 2007 and the latter by the most since the three months through September of last year. Still, the acceleration seems to be a testament to the effects of the government’s ample fiscal package, including A$20 billion in cash handouts to households and A$22 billion in infrastructure spending, and the big question going forward will be whether the economy can maintain momentum once the flow of stimulus cash dries up. The Australian Dollar surged 50 pips against its US counterpart in the hour following the release but failed to meaningfully build on that momentum as stocks dropped nearly 2% in Asian trading, weighing down the risk-linked currency. Indeed, a trade-weighted average of the Australian unit’s value is now 95.6% correlated with the MSCI World Stock Index.

Euro Session: What to Expect

The second revision of the Euro Zone’s Gross Domestic Product is set to confirm that the economy shrank -0.1% in the second quarter. The annual pace of contraction is expected to be revised slightly higher from -4.6% to -4.7%, but this is unlikely to be enough to stir the currency markets. Rather, traders will be looking at the expected upward revisions to the Household Consumption and Gross Fixed Capital components of the metric. An increasing number of market observers (ourselves included) are skeptical about whether the recent upswing in economic data around the globe is sustainable after the flow of government stimulus cash dries up. To this effect, measures of consumption and investment are going to be critical at this point in gauging whether a meaningful rebound in private demand can pick up where fiscal measures leave off.

In the UK, Construction PMI is set to rise to 48.0 in August from 47.0 in the previous month, showing that the industry shrank at the slowest pace in at least 13 months. However, the analogous metric for the manufacturing sector unexpectedly declined yesterday, suggesting rising unemployment may be starting to become a meaningful drag on leading indicators and opening the door for a downside surprise in today’s report.

Written by Ilya Spivak, Currency Analyst
Article Source - Australian Dollar Gains on GDP But Stock Drop Limits Upside (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.
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!