9.21.2009

Dollar Tentatively Higher Ahead of Federal Reserve Meeting

This month investors have increasingly moved to riskier assets like stocks, commodities and higher-yielding currencies, as concerns about a ballooning U.S. fiscal deficit and low Interest Rates have fueled Dollar selling. The Federal Open Market Committee (FOMC) is expected to hold Rates steady but markets will be interested for any guidance on whether the Fed will continue its expansionary monetary policy for a prolonged period of time.



USD - Dollar Advances on Economic Optimism

The Dollar saw quite a volatile session during last week's trading. The Dollar dropped against the EUR, although saw a rising trend against the Yen and especially against the Pound, as the Dollar soared over 400 pips against the GBP. On Monday the U.S dollar gained in thin conditions, extending a bounce seen late last week as traders covered short positions ahead of a Federal Reserve monetary policy meet and a Group of 20 summit.

It seems that the main reason for the Dollar's volatility is the mixes results coming from the U.S economy last week. The U.S Retails Sales continued to deliver positive figures. This means that the total value of sales at the retails level is growing, showing that consumers in the U.S might feel safer to spend these days. Also last week, the Consumer Price Index (CPI) rose by 0.4%, proving that inflation continues to rise in the U.S. This could have a significant impact on the Dollar, as the rising inflation usually leads to an interest rate hike, which may very well support the Dollar.

But on the other hand, the Long-Term Purchases publication failed to reach expectations for a 65.3B result which would have reflected a recovering economy, and the final result was 15.3B. This appears to be one of the main factors for the Dollar depreciation against the Euro.

As for the week ahead, a number of important data are expected from the U.S economy. The most significant will be the Federal Funds Rate Statement which is scheduled for Wednesday 18:15 (GMT). Analysts expected no change to the central bank's target, but speculate whether the fed will make changes to its debt-buying programs. Traders are advised to pay close attention to the Fed's announcement on Wednesday.

EUR - The EUR off 1 Year Highs; GBP Dips

The EUR eased against the U.S. dollar to $1.4688, having lost about 0.2% on Friday, though strong support is seen around $1.4640. On the Yen, the European currency held steady around 134.35 yen. The EUR dropped from near a 1 year high versus the U.S dollar after the European Union (EU), said yesterday that a restructuring of the banking sector must take place. According to EU policy makers Europe needs continued low Interest Rates and government stimulus measures to keep the recovery on track.

The Sterling extended losses, hitting a 4 month low against the EUR of 90 pence on news the UK had set tougher-than-expected conditions to the potential exit of Lloyd's Bank from a state-run scheme to protect its assets. The GBP dropped to 90.53 pence per EUR from 90.40 pence on Sept. 18, after earlier touching 90.67 pence, the lowest level since Apr. 24. The British pound may weaken further against the Dollar and the EUR on speculation the Bank of England will keep borrowing costs low.

Looking ahead to this week, a batch of data is expected from the Euro-Zone's leading economies, especially on Wednesday. Many French and German indicators are scheduled for Wednesday, as this day seems to be the day that will determine the Euro's direction for this week. Traders are advised to follow all the main publications on this day and look for any unexpected result that may soar or tumble the Euro.

JPY - Yen Losses Strength against the Majors

The Yen continues to depreciate against the major currencies during last week's session. The Yen dropped over 100 pips against the Dollar and the USD/JPY pair is currently traded around the 91.50 level. The Yen also saw a bearish trend against the EUR.

While the Japanese yen gained against all but one of the 16 most- actively traded currencies since early August as the Democratic Party of Japan became the likely winner in national elections, forecasters say it will decline 5.7% against the U.S dollar and 1.2% versus the EUR by year-end. The economy is too weak to support a stronger rate, according to analysts.

The main data of this week appears to be the Trade Balance report, which is expected on Wednesday 23:50 GMT. This report measures the difference in value between imported and exported goods during August, and is one of the best indications for Japan's exports. A better-than-expected result might have the potential to support the Yen.

OIL - Crude Oil Slips On Firmer Dollar

Crude prices fell for a 3rd day on speculation further evidence of a global recovery is needed to extend the commodity's 61% gain this year. Oil prices were also pressured by bearish comments from Sinopec, Asia's top refiner and China's 2nd largest oil and gas producer, that diesel demand in China continues to lag economic recovery.

Oil rose 3.9% last week, thanks to U.S. government data showing a larger-than-expected draw in crude stocks, heavy losses in the U.S. dollar and rallying stock markets. Though Crude prices have only gained about 3% so far this quarter, after shooting up 40% in the June quarter, some analysts said Oil prices were set to move higher in coming weeks amid an economic recovery and seasonal winter demand.

Looking ahead to this week, traders are advised to follow the leading publications from the U.S and the Euro-Zone, and to follow the equity markets in the major economies in order to predict crude oil's movements. Traders should also focus on the Crude Oil Inventories report which is expected in Wednesday, as it has proven to have an instant impact on oil's value.

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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!