9.14.2009

US Dollar Surges as Stocks Drop in Asian Trading, Boosting Demand for Safety (Euro Open)

The US Dollar raced higher to start the trading week as stocks sold off in Asian trading and US equity index futures pointed to a sharply lower open on Wall St in the day ahead. New Zealand Retail Sales unexpectedly fell in July. Swiss PPI and Euro Zone employment and industrial production figures are on tap ahead.

Key Overnight Developments

• New Zealand Retail Sales Unexpectedly Drop in July as Unemployment Rises
• US Dollar Surges As Stocks Drop in Asian Trading, Boosting Demand for Safety

Critical Levels



The US Dollar pummeled both the Euro and the British Pound to start the trading week, with both currencies falling as much as -0.6% against the greenback as stocks sold off in Asian trading and US equity index futures pointed to a sharply lower open on Wall St in the day ahead. The MSCI Asia Pacific Index slid -1.5% while futures tracking the Dow Jones Industrial Average suggested US issues would open down 1.6%.

Asia Session Highlights



New Zealand Retail Sales unexpectedly fell in July, shrinking -0.5% and disappointing expectations of a 0.4% result. The previous month’s result was also revised lower, showing sales fell -0.1% rather than grew by the same magnitude as was originally reported. The release reinforces last week’s comments from Reserve Bank of New Zealand Governor Alan Bollard, who said the medium term outlook for retail spending “remains weak” as unemployment continues to rise. Indeed, the jobless rate hit a 9-year high of 6% in the second quarter and central bank expects it to surpass 7% by the end of next year. Bollard also linked continued turmoil in the labor market to the New Zealand Dollar, saying the stronger currency puts business profits “under pressure” and warning that “If the exchange rate were to continue its recent appreciation…the sustainability of the present recovery will be brought into question.”

Euro Session: What to Expect



The annualized pace of contraction in Switzerland’s Producer and Import Prices is expected to have slowed to -5.5% in August from the record-low -6.1% set in July. The outcome follows a similar moderation in consumer prices during the same period and foreshadows slightly better results for the headline inflation gauge in the months ahead. However, as we detailed in our weekly Swiss Franc forecast, it is much too early to say that the specter of deflation has dissipated, so the Swiss National Bank is unlikely to abandon their commitment to direct intervention into the currency markets to keep down the value of the Franc when monetary policy is announced later this week.

The second-quarter Euro Zone Employment report is unlikely to prove market-moving: traders have likely priced in the state of the market already having seen the monthly unemployment gauge rising steadily higher since June of last year, most recently hitting a record 9.5%. Separately, Industrial Production is expected to shrink -16.7% in the year to July, extending the moderation in the pace of contraction that began after the record -21.2% annualized drop in April driven by both domestic and global fiscal stimulus as well as the inventory restocking cycle. However, a downside surprise may be in the cards after German industrial production unexpectedly fell during the same period.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Surges as Stocks Drop in Asian Trading, Boosting Demand for Safety (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!