9.10.2009

GBP Anticipates Volatility before Rate Decision

With mixed results versus its primary currency counterparts, the British Pound appears to be consolidating many of its trends towards a volatile movement; positioned to take place today, it appears. The Bank of England's rate decision and policy statement at 11:00 GMT may be today's leading news event and forex traders won't want to miss out on the volatility which is sure to follow this release.



USD - USD Down 3.7% against the EUR this Year

The Dollar Index traded near the weakest level in almost a year against the currencies of six major U.S. trading partners as record low borrowing costs encouraged investors to sell the greenback and buy higher-yielding assets. The index was at 77.002, after dropping yesterday as much as 0.7% to 76.803, the lowest level since Sept. 26, 2008.

The USD continues to suffer downward pressure as investors continue to anticipate that the global economy is emerging from recession, which makes them more willing to sell Dollars and invest in riskier currencies and commodities. At the same time, while the Fed's program helped pull the U.S out of the recession, it also pumped a lot of Dollars into the economy and with the continuous rise in the unemployment rate it is unlikely the Fed will raise interest rates any time soon.

Abundance of supply of USD, and a very low return on Dollar denominated assets due to the low interest rate, makes the greenback highly unappealing to investors; possibly replacing the JPY as the carry trade currency of choice.

The release of the Trade Balance and the Unemployment Claims figures is due to be released today at 12:30 GMT. With the unemployment numbers expected to show some improvement, a worse than expected result might help reverse some of the Dollar's recent losses.

EUR - EUR Maintains Momentum, Stays above $1.4500

The EUR has maintained its momentum Wednesday after breaking through its tight summer ranges on Tuesday, particularly the $1.4450 price level. The EUR continued to trade above $1.45 pushing briefly above $1.46; its highest level in more than nine months.

Late Wednesday, the EUR was at $1.4553 from $1.4499 late Tuesday. The EUR was at 134.02 Yen from 133.73 Yen. The U.K. Pound was at $1.6532 from $1.6499.

The EUR is benefiting from a belief that the Euro-Zone economy is improving at a higher pace than the U.S economy which lends support to the common currency. Furthermore, the EUR appears to be a popular choice as an alternative, higher yielding currency than the USD.

The U.K's MPC rate statement and Official Bank Rate is expected at 11:00 GMT. While the rate is not expected to change, the statement is highly important and is likely to have great affect on the GBP. Last month's surprise decision to increase the quantitative easing program set the GBP plummeting against its major currency counterparts. A similar announcement today could do the same.

JPY - Yen at Strongest Level in 7 Months against the USD

Japan's currency gained 0.8% against the Dollar, trading at 91.61; the highest level since Feb.17. The Yen declined 0.2% against the EUR, to 133.98 per EUR. The Yen's support arises from the fact that it is slowly being replaced by the Dollar as the preferred currency for carry trades.

However, as the Bank of Japan (BOJ) is hesitant about allowing the currency to appreciate without further substantial improvement in the economy, the Yen may have trouble's remaining at such a high level since there isn't much economic foundation behind this rise.

With no major news release from Japan today, the JPY's movements will likely be determined by news from the U.S and Europe.

Crude Oil - OPEC to Maintain Production Quotas

Crude Oil's price continues its advance for a fourth day with the contract for October delivery trading up 31 cents, or 0.4%, at $71.67 a barrel on the New York Mercantile Exchange (NYMEX) early morning trading today.

The advance was supported by OPEC's statement to keep oil production quotas unchanged on an expectation that the world economic recovery will keep prices near $71 a barrel. It seems that both consumers and producers are quite comfortable with the $65 to $75 price range. The drop in Dollar value also helped boost oil prices since Crude Oil, which is Dollar denominated, is now cheaper for holders of other currencies. Oil also serves as a protective investment against inflation caused by a weaker Dollar.

Today's release of Crude Oil Inventories is expected to show another drop of 1.5 million barrels, the third drop in four weeks. If results are better than expected we might see another boost for oil prices.

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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!