9.04.2009

Currency Markets to Look Past European Data, Focus on US Jobs Report (Euro Open)

Currency markets are likely to look past the releases of Swiss consumer prices and the European Commission’s updated economic forecasts to focus on US Nonfarm Payrolls data set to cross the wires late into the session, looking for the report to set the tone for risk sentiment and the majors.

Key Overnight Developments

• Japanese Capital Spending Rebounds in the Second Quarter
• Euro, British Pound Range-Bound Ahead of US Jobs Report

Critical Levels



The Euro consolidated in a narrow 20-pip range below 1.4260 through in overnight trading. The British Pound followed suit, oscillating in a choppy 40-pip band above 1.63.

Asia Session Highlights



Japan’s Capital Spending fell -21.7% in the year through the second quarter, rebounding from the record -25.3% annualized drop recorded in the first three months of the year. The non-manufacturing component of the metric was behind the improvement, where spending fell -14.2%, the least in a year, having declined -27.6% in the prior quarter. Capital spending for the manufacturing sector shrank -32.0%, accelerating from the -21.2% result noted in the previous period. On balance, this is somewhat encouraging: the non-manufacturing sector employs close to 66% of Japan’s labor force, so any signs that these firms are increasing capacity may translate into hiring, consumption, and ultimately boost economic growth. Still, it must be kept in mind that Japan’s savings rate stands at about twice that of the developed country average, so any improvement in the labor market will take considerable time to translate into spending growth.

Euro Session: What to Expect



Switzerland’s Consumer Price Index is set to show continuing deflation as prices shrink -0.7% in the year to August, marking the fifth consecutive month in negative territory. As we noted earlier this week, the danger is that steadily lower CPI will translate into expectations of lower prices in the future, encouraging consumers and businesses to perpetually delay spending and investment as they wait for the best possible bargain and bringing economic growth to a virtual standstill. The Swiss National Bank has explicitly committed to “take firm action to prevent an appreciation of the Swiss franc”, keeping a lid on the currency’s purchasing power and thereby limiting the drop in prices in terms of the domestic monetary unit. It is much easier for policymakers to drive down the Franc than to support its value because they can simply print more money and let it loose into circulation, suggesting it should not be too difficult for the SNB to keep down the exchange rate. Naturally, currency markets are well aware of this, and traders may move to pre-empt central bank to sell the Franc as another negative CPI reading crosses the wires.

The European Commission is set to update their economic forecasts for 2009 and 2010, with the announcement is unlikely to carry much market-moving potential. Indeed, the Euro failed to build momentum yesterday as the analogous set of expectations was upgraded by European Central Bank after policymakers kept interest rates unchanged at a record-low 1% while ECB President Jean-Claude Trichet stuck a dovish tone in the press conference following the announcement. The bank chief said uncertainty about the economic outlook remains “very high” and cautioned that the nascent recovery noted in a number of leading indicators faces a “bumpy road” ahead. He further added that the ECB sees “low inflationary pressure over the medium term” and stressed that “today it isn’t time” to unwind unconventional monetary easing measures. The markets’ 1-year interest rate expectations dropped -12.8% following the release, the largest one-day drop in a month.

On balance, currency markets are likely to pay little heed to the European data docket to focus on the US Nonfarm Payrolls report set to cross the wires late into the session. Traders have viewed US economic data as a proxy for the state of the global economy at large on expectations that a rebound in the world’s largest consumer market will reverberate elsewhere.

Written by Ilya Spivak, Currency Analyst
Article Source - Currency Markets to Look Past European Data, Focus on US Jobs Report (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.

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!