9.03.2009

Euro in Focus as ECB Announces Interest Rates, Updates Economic Outlook (Euro Open)

The Euro takes center stage with the European Central Bank set to announce interest rates and update their economic outlook for the Euro Zone. UK Services PMI and EZ Retail Sales are also on tap.

Key Overnight Developments

• Australia’s Trade Deficit Widens as Stimulus Boosts Imports
• Euro, British Pound Range-Bound in Overnight Trading

Critical Levels



The Euro was confined to a narrow 30-pip range in the overnight session, trading sideways above 1.4260. The British Pound followed suit, oscillating in a 40 pip band above 1.6240.

Asia Session Highlights



Australia’s Trade Balance deficit widened much more than economists expected in July, showing a shortfall of –A$1.5 billion, the largest in 15 months. Preliminary forecasts ahead of the release had called for a –A$0.9 billion result. The previous month’s reading was also revised down to –A$0.54 billion from the –A$0.44 billion originally reported. The gap expanded as imports surged 4%, driven by a 21% increase in oil shipments. Imports of consumer goods advanced 2%, owing to overseas purchases of vehicles, food, and beverages. Exports fell 1%, led by a hefty 27% drop in cross-border gold sales. On the face of it, the data paints an encouraging picture of the Australian economy: rising oil demand (primarily in the form of industrial fuel and lubricants) points to an increase in production and hints at possible improvement in the employment situation while the increase in consumer demand is good news for the spending climate and thereby overall economic growth. However, not all is as rosy as it seems: much like yesterday’s surprisingly strong second-quarter GDP result, the surge in Australian demand evident in today’s data likely owes the government’s ample fiscal package, including A$20 billion in cash handouts to households and A$22 billion in infrastructure spending. Indeed, as we have previously suggested, the big question going forward will be whether the now buoyant Australian economy can maintain momentum once the flow of stimulus cash dries up.

Euro Session: What to Expect



The European Central Bank will take center stage in the coming trading session, with Jean-Claude Trichet and company expected to keep interest rates unchanged at 1% for the fourth consecutive month. The announcement’s market-moving potential rests on the bank’s update to its economic outlook for the Euro Zone, with any downward revisions likely to weigh heavily on the single currency. The currency bloc’s problems are well-documented. Deflation is becoming an increasingly real concern as CPI figures continue to print in negative territory. Unemployment continues to rise, threatening the outlook for spending and thereby overall economic growth. In fact, the pace of contraction in Retail Sales is set to accelerate to -2.2% in July. Finally, the banking sector is yet to come to terms with an estimated $1.1 trillion in unrealized sub-prime related losses (according to the IMF), a hit that could be compounded by defaults or devaluations in some of the newly-minted central European EU member states that are struggling with meeting their obligations to Western European lenders. Indeed, it is perhaps the prospect of these very losses that has undermined the ECB’s attempt to stimulate economic activity by allowing overnight borrowing costs to hover well below the 1% target level between 0.5 and 0.3 percent since June, with lending to the private sector growing at a record low 0.6% in July. The recent batch of economic indicators has painted an optimistic picture, boosted by a global wave of fiscal stimulus, broad inventory restocking efforts, and firming financial markets. How this will factor into the ECB’s world view rests entirely on whether the bank sees the current stabilization as the beginning of a sustainable recovery or a temporary reprieve.

In the UK, Services PMI is set to rise to 54.0 in August from 53.2.0 in the previous month, showing that the industry expanded at the fastest pace since February 2008. However, the analogous metrics for the manufacturing and construction sectors both disappointed, 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 - Euro in Focus as ECB Announces Interest Rates, Updates Economic Outlook (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!