9.08.2009

Euro, British Pound May Gain Against US Dollar as Stock Futures Rise (Euro Open)

The Euro and the British Pound may gain against the US Dollar in European trading hours with equity index futures trading 0.6% higher and pointing to losses for the safety-linked greenback. Germany’s Current Account and Switzerland’s Unemployment data headline the economic calendar.

Key Overnight Developments

• Japan: Current Account Shows Continued Exports Slump, Merchant Sentiment Falls
• Australian Business Confidence Rises to Highest in Nearly Six Years, Says NAB

Critical Levels



The Euro traded sideways in the overnight session, with prices confined to a narrow 15-pip range above 1.4330. The British Pound followed suit, oscillating in a choppy 40-pip range below 1.6360.

Asia Session Highlights



Japan’s Current Account balance registered at 1.3 billion yen in July, up from the 1.2 billion registered in June. Still, the overall trend continues to point lower: the surplus shrank -19.4% from year earlier as exports fell -37.6%, driven lower as the global economic downturn translated into weaker foreign demand for Japanese cars and electronics. More of the same is likely going forward: although manufacturing has rebounded over recent months, spurred by global fiscal stimulus efforts (including “cash for clunkers” programs in the US and Germany that target autos) and a restocking of inventories, the International Monetary Fund (IMF) has said in its latest world economic outlook that advanced-country exports will rebound just 1.3% after falling by a staggering -15.0% in 2009.

Separately, the Eco Watchers survey revealed that Japanese merchant sentiment declined for the first in eight months in August. The forward-looking Outlook component of the report fell for the second consecutive month, suggesting rising unemployment is starting to overwhelm the effects of aggressive fiscal stimulus on consumer spending.

Australia’s Business Confidence surged to the highest in nearly six years in August according to the National Australia Bank. The bank abandoned its previous forecast calling for the economy to shrink this year, now saying output will gain 0.6% in 2009, while chief economist Alan Oster said the outcome “clearly points to continuing strong growth in demand in the third quarter.” Oster added that sharp improvements in confidence “erode the case for maintaining emergency lows in interest rates.” Details of the report are less encouraging than the headline figure, however. The upswing looks to have been driven by a jump in the Profitability sub-index, which began to rebound along with industrial commodity prices (Australia’s chief export sector) at the beginning of the year. Commodities could reverse lower in the months ahead as China, Australia’s largest trading partner, begins to rein in expansionary economic policy. This would reflect detrimentally on profitability and send the overall confidence metric lower. Indeed, sub-indexes tracking Forward Orders and Export Sales both declined in August for the first time in three months.

Euro Session: What to Expect



Switzerland’s Unemployment Rate is expected to rise to 4.1% in August, the highest in 11 years, pointing to mounting headwinds for consumer spending and thereby overall economic growth. In fact, the jobless rate may actually be understating the total impact of the current downturn on consumers’ spending power as many firms looked to cut costs by switching a portion of the workforce to a “short-time” schedule, which amounts to fewer hours and thereby smaller paychecks. Naturally, this trims disposable incomes and adds to already formidable disincentives to consume. Although exports are heavily represented as a component of Swiss economic growth, domestic demand is still by far the most important driver of activity, contributing about 60% to total output. The government has forecast that the economy will shrink -2.2% this year and rebound just 0.1% in 2010.

Germany’s Current Account surplus is set to narrow to 10.0 billion euro in July, down from 13.3 billion in the previous month. The outcome falls firmly within the downward trajectory that has been in place since the surplus peaked in the third quarter of 2007. As with Japan’s trading terms, this corresponds closely to the cyclical peak in US personal consumption of durable goods (Germany’s top export sector). Rising unemployment suggests it will be some time before a meaningful pick-up in American consumers’ demand for big-ticket items, meaning sales should remain lackluster for German exporters. Indeed, economists polled by Bloomberg predict that the external sector will contribute an average of 4.1% to overall economic growth this year and in 2010, the smallest in 6 years. To that effect, expectations of continued moderation in Industrial Production (set to print down -15.8% in the year to July versus -18.1% in the previous month) may not have much staying power in the months ahead.

The pace of decline in UK Industrial Production is set to slow for the fifth consecutive month, with forecasts calling for output to shrink -10.1% in the year to July. As with similar developments in Japan and Germany, the improvements over recent months have been driven by global fiscal stimulus efforts and the inventory cycle. Going forward, however, it remains to be seen if the rebound will continue absent a meaningful recovery in private demand as countries unwind expansionary policies and restocking is completed.

Turning to risk trends, equity index futures are trading 0.6% higher ahead of the opening bell in Europe, pointing to likely gains for the Euro, the British Pound and the commodity currencies at the expense of the safety-linked US Dollar.

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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.
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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!